Good morning and welcome to The a2 Milk Company's 2024 Annual Meeting of Shareholders. My name is Pip Greenwood, and I'm delighted to have taken the role as Chair of the Board since the Annual Meeting last year. We are joined today by shareholders present in Auckland as well as online.
I confirm there is a quorum of shareholders, and I'd like to now declare the meeting open. Before we start, I'd like to introduce my fellow directors and management who are here with us today. First up, David Bortolussi, our Managing Director and CEO. Next to him is Dave Muscat, our Chief Financial Officer. And next to Dave is Kate Mitchell, one of our directors. Warwick Every-Burns.
Good morning.
He is one of our directors. N ext to Warwick is Sandra Yu. Next to Sandra is Tonet Rivera, also known to us as Antonio Rivera. N ext to Tonet is Jaron McVicar. I was teasing Jaron that he's got the longest title in the company. He's our Chief Legal and Sustainability Officer and Company Secretary. Also present with us today are our auditors from Ernst & Young, our external legal advisors, and our share register, MUFG Corporate Markets, formerly known as Link Market Services.
We have received apologies from our Shanghai-based director, David Wang, who regrettably cannot join us for this meeting. Today you will hear from me as Chair of the Board and from our Managing Director and CEO, David Bortolussi. After this, we will then put forward the resolutions as described in the notice of meeting and respond to questions put to us by shareholders.
With the formalities taken care of, it is now my pleasure on behalf of the Board to update you, our shareholders, on a2's progress over the last year. I'll start with progress against our strategy. During FY24, we continued to focus on execution and delivering against the strategic objectives we shared back in October 2021. Our strategy remains firmly focused on realizing the potential of the a2 brand, with a focus on people, planet, consumers, and of course our shareholders.
In FY24, driven by our extraordinary teams, we made great strides in lifting capability across the organization, investing in a more sustainable future, expanding distribution in China and across new markets, delivering new and improved products to our consumers, and we reported another strong financial performance. I'll now cover a few of our key achievements.
FY24 was a milestone year for China, our China Label product, following the re-registration in June 2023 of our upgraded China Label infant milk formula product. Given the positive signs we have seen, including strong consumer offtake and healthy metrics, we are pleased that the transition has been successful.
As a proud New Zealand company, we are delighted that in our largest market, China, our consumers continue to highly value the A1 protein-free proposition and our products, New Zealand provenance. Being the pioneer of A1 protein-free helps us differentiate our products in a very competitive market. It is especially pleasing that in FY24 we achieved for the first time a top five brand position in China infant milk formula market with our English and China Label products combined.
Our liquid milk businesses in Australia and the U.S., both under new leadership, have also progressed well in FY24, with innovation delivering positive results, and we continue to progress our application for long-term U.S. FDA approval to import infant milk formula into the States. In August, we announced that we resolved our arbitration disputes with Synlait and in September supported Synlait by participating in its equity raise, which has been completed.
Synlait continues to be an important supply chain partner for us. As we look ahead, obtaining access to additional China Label registrations and developing our own nutritional manufacturing capability are critical components of the company's supply chain transformation strategy. The company continues to explore opportunities to achieve this through investment in its own supply chain and through acquisitions and commercial partnerships.
While we do not have any new information to share with you today, I can say that we continue to make good progress in this regard, and that remains a top priority for your management and board. As mentioned earlier, The a2 Milk Company has made considerable progress against its strategic objectives.
Given this progress, our strong cash flow and balance sheet position, the board believes the time is right to introduce a dividend policy, demonstrating the company's commitment to shareholder returns and effective capital management. David Bortolussi will provide more details on our dividend policy shortly in his address. The board remains conscious of the company's significant cash balance, which is being prioritized for supply chain transformation, growth opportunities, and risk mitigation.
As the company continues to execute its strategy, the board will continue to review capital management options, which may result in further capital returns to shareholders, most likely in the form of special dividends. Turning now to our board, it is an honor and a privilege for me to serve on the board over the last five years and now in the last year as your chair.
In taking up the role as chair, my commitment to board renewal and succession planning has been a focus. The board and I are dedicated to ensuring that our board continues to benefit from diverse perspectives and skills and experience to support management in achieving our strategic objectives. To this end, we recently announced the appointment of Tonet to our board, who is standing for election today.
Tonet, as we know him, is a highly capable individual with deep experience and expertise gained over many years as a supply chain leader, including leading the global supply chain of a multinational infant nutrition company. You will hear from Tonet later in this meeting.
More recently, and after the notice of meeting was circulated to shareholders, we announced the appointment of Lain Jager as a director, who brings extensive international agribusiness leadership experience through his former role as CEO of Zespri, one of New Zealand's most successful companies.
Lain's appointment will be effective 1 December, and he will stand for election by shareholders at next year's annual meeting. We also announced the resignation of David Wang as a director of the company, and we thank David for his valuable contribution to the board.
Last but not least, further to those changes, we announced that after eight years as a director and a chair of our People and Remuneration Committee, Warwick Every-Burns will be retiring from the a2 Milk Board at the conclusion of this meeting. I'd like to take the time to acknowledge Warwick for his invaluable input as a director and as chair of our People and Remuneration Committee.
We thank you, Warwick, for your significant contribution to the board, and we wish you all the best. You will be missed, and I will personally miss you. Before Warwick departs, we've given Warwick the opportunity to say a few parting words. I ask you, Warwick, if you'd like to come up to the podium.
Thank you, Pip. I'm sure the last thing you want to hear is a long speech from a retiring director, so I can assure you you won't be. But I did want to say a few words, and I appreciate the opportunity of doing that. I joined the board of the a2 Milk Company over eight years ago. At that time, I'd spent much of the previous 10 years of my life and my career in the United States.
To be very honest, I wasn't familiar with the a2 company or the science and marketing that supported its brand propositions way back then. M y initial response when I was approached was that I wasn't interested. F ortunately, fortunately, and I mean this sincerely, the then CEO of the company, Geoff Babidge, who many of you will remember, suggested that we should at least have a chat.
Geoff's a pretty persuasive sort of guy. I met with Geoff, and that was immediately a turning point for me. I was just immediately impressed, first of all, by his enthusiasm, his determination, and what could only be described as his total passion and belief in the whole a2 story.
It was simple, it was compelling, and right then I knew I wanted to be part of the journey as we look to grow and expand our product and geographic footprint. It felt like a mission to bring a2 to the world. And that may sound a little kind of romantic, but that is very much a part of this company, is this kind of almost irrational passion for the whole a2 story and how important it is to all of us that we do actually bring a2 to the world.
Change has been a constant throughout my tenure. During these years, the board has been refreshed, the executive team has been refreshed, and we have grown our product portfolio and our geographic footprint. Yet we've only just scratched the surface. I've thoroughly enjoyed my time on the a2 board and will genuinely miss it.
The a2 company has an amazing executive team led by David Bortolussi, incredible employees throughout the organization, and under Pip Greenwood, a fully engaged, supportive, and talented board. And becoming more talented, I'd have to say. It's a bit like, I think, wasn't it the Prime Minister of New Zealand said the net result of people moving from New Zealand to Australia was that the IQ of both countries increased. I t may be a bit the same with the a2 Milk Company.
Under Pip, we have a fully engaged, supportive, and talented board, and I thank each and every one of you for making my time on this board so fulfilling and enjoyable. The combination of talent, strategic focus, executional excellence, and passion will, I feel sure, see this company thrive in the decades ahead.
Finally, and very sincerely, I want to thank you, our shareholders, for your much appreciated support over the years. I will continue to be one of you and look forward to the ongoing growth and success of our company. Thank you.
You'll be coming back to the meeting.
Oh, absolutely.
Thanks, Warwick.
Thank you.
I think as you've heard, the past year has been a really busy time for the a2 Milk Company. I'd like to thank our Managing Director and CEO, David Bortolussi, for his leadership and for the entire a2 Milk team across New Zealand, China, Australia, and the US for the way in which you deliver for our consumers and live our values every day. I'd also like to take the time to thank all my fellow directors for their stewardship of the company.
Finally, to our shareholders, thank you for your ongoing support and investment in the a2 Milk Company. In closing, the board and I are excited about the future of our company given the considerable growth we've made and the opportunities we are set to capitalize on as we continue to advance our strategy. I will now invite David to address the meeting. Thanks, David.
Thank you, Pip. Good morning, everyone, and thank you for joining us today at our annual meeting. My name is David Bortolussi, and I'm the Managing Director and CEO of the a2 Milk Company. Over the past year, we've been focused on executing our strategy and improving our financial results in a challenging market.
Today, I'll provide you with an update on the progress we've made over the last year. In terms of our key achievements, we're pleased to present our FY24 results to the market in August, where we reported strong growth in revenue, EBITDA, and EPS. We grew total infant milk formula, which I'll refer to as IMF from now on, sales by 4.6% despite a double-digit decline in the China IMF market, and we became a top five brand in the category.
We also achieved another record high in China Label IMF market share in a year of significant disruption due to the market-wide transition to the new China GB standards. Importantly, after several periods of decline, we stabilized our English Label IMF sales and achieved growth in the second half.
Lastly, as Pip outlined earlier, we resolved our Synlait arbitration disputes and participated in Synlait's recapitalization while progressing our own supply chain transformation. I'll now provide a summary of our FY24 results.
Revenue for the period was NZD 1.68 billion, up 5.2% on FY23. Earnings before interest tax depreciation and amortization, or EBITDA, was NZD 234 million, up 6.9% on FY23, with a slightly improved EBITDA margin of 14%. Our net profit after tax was NZD 168 million, up 7.7%, with EPS up 9.2% or NZD 0.232 per share.
Our net cash position at the end of the period was NZD 969 million, up NZD 212 million compared to June 2023, and our operational cash conversion improved to 126%. Revenue growth for the year was again driven by our China and other Asia segment, which was up 14% and now represents over two-thirds of our total sales.
As expected, our ANZ segment was down 15%, reflecting the change of our English Label IMF distribution strategy, with sales shifting from the Daigou channel to the cross-border e-commerce channel, or CBEC, and the offline to online, or O2O channel, as we refer to it. US sales were up 8% with Mataura Valley Milk, or MVM. Sales were down 11%. From a category perspective, we grew total IMF sales by 4.6%, and China Label sales up 9.5% and English Label sales broadly flat.
Sales in our liquid milk businesses both grew and were up 3% in Australia and 7% in the U.S. Sales of other nutritionals, which is made up of plain and fortified milk powders, UHT, and fresh milk exports to China, also grew by a more significant 37%. Our strong financial results are underpinned by important operational achievements executed by our exceptional team, which really did an amazing job in FY24.
We've summarized some of our achievements in FY24 on this page, but most of those I'll cover in subsequent pages, so I won't dwell on this page now. Before I talk to our operational achievements, I wanted to share some context around the China market conditions in FY24. Our China segment and IMF category each represent close to 70% of our total sales. Therefore, China market conditions are extremely important in considering the performance of our company.
Since we refreshed our growth strategy in 2021, the China IMF market has been more challenging due to a greater-than-expected reduction in the number of newborns. More recently, the rate of decline has, however, improved, being down 6% in the calendar year of 2023, which is our most recent data, and with a more positive outlook for this calendar year in 2024, due mainly to the impact of COVID delays on births and also the Year of the Dragon, which is a positive year for births throughout history.
In FY24, the total China IMF market declined by 10.7% in value, with the decline in Key & A cities greater than BCD or lower-tier cities. This decline was driven by the reduction in the number of newborns, the GB transition impacts, increased competition, and challenging macroeconomic conditions.
China Label IMF market declined by 12.5% for these reasons, but the English Label IMF market outperformed, up 3.8% in value, which was driven by various factors, including consumer value perceptions and innovation in the category. Within the total China IMF market, the a2 protein segment grew rapidly and now accounts for 18% of total market value.
Brand concentration continues to increase among the top five players, which now account for over 50% of the total market. In the context of a challenging market, we are extremely pleased with how our China Label business performed in FY24. It was a critical year for our China Label IMF business, with the launch and transition of our a2 Zhuchu product under the new GB standards.
For those not familiar with this process, due to the expiry of our registration and changes in relevant Chinese regulations, we needed to reformulate, re-register, and relaunch our entire a2 Zhuchu product range whilst phasing out the previous product range, which was an enormous task. It's actually hard to explain how complicated and challenging such a transition is to manage.
Our team and our partners executed superbly and achieved record market share at the same time, a remarkable achievement acknowledged by many in the industry. In saying that, I'd like to take this opportunity to extend our gratitude to China's State Administration for Market Regulation, or SAMR, as they're often referred to, New Zealand's Ministry for Primary Industries, our strategic partners in China, being China National Agricultural Development Group and China State Farm Agribusiness, and our manufacturing partner, Synlait, and their majority shareholder, Bright Dairy.
I also want to thank our a2 team for their extraordinary efforts in delivering this outcome during the year. We were also very pleased to see an improvement in our English Label IMF performance in FY24, with the total market returning to growth and our sales growing in the second half. The English Label channel was disrupted significantly during COVID and has experienced material declines, particularly in the Daigou channel.
In recent years, our distribution strategy has focused more on the CBEC and O2O channels. Our team has been executing various initiatives to drive growth over the past couple of years, including forming new strategic partnerships, capturing growth in emerging e-commerce channels, improving customer service through drop shipping, investing in marketing activations, and supporting a healthy trade ecosystem for all of our distribution partners.
It's very pleasing to see this coming through in our results, and in fact, we achieved our highest English Label market share since April 2021. In terms of market share, we are very proud that a2 has now become a top five brand in the total China IMF market, with a value share of 7.3%, which was up 1.4 percentage points in the year.
This includes being the number six brand in China Label IMF with almost 5% share, and the clear number two player in the English Label market with around 20% share, both of which were improvements on last year. Our market share growth is critical as we've been growing share in a declining China IMF market to drive absolute growth in sales. That share gains are really important.
Turning now to our recent Double 11 results, we generally don't promote heavily during this period but rather focus on new user acquisition whilst maintaining a healthy trade ecosystem to avoid channel conflict. This year, the major platforms commenced the Double 11 sales period earlier, so on the 14th of October, and increased the number of key sales events from three to five, including category days.
Whilst it's therefore not a strictly comp event, we were pleased with our results shown in this slide in terms of year-on-year growth, share of early-stage product sales, and platform rankings, which held or improved. Shifting now to take a closer look at our other nutritionals and liquid milk businesses. Other nutritional sales grew 37%, driven by a more dedicated team focus, improved supply, prior year innovation gaining traction, and further innovation delivered in FY24 with new fortified and organic milk powders.
Liquid milk sales grew 4.8%, with lactose-free growth in Australia and grass-fed growth in the U.S. being the key drivers. In terms of product innovation, we continue to make good progress in developing our innovation pipeline and bringing new products to market. During the year, we launched a number of new products.
As mentioned earlier, in IMF, we launched our a2 Zhuchu range with great success. In English Label IMF, we expanded our portfolio with a2 Gentle Gold, which is targeted at the Australian and Southeast Asian markets. I'll come back to our future portfolio expansion in IMF shortly. Outside of IMF, we also launched our new fortified milk powder range, targeting adults and the fast-growing senior segment. We're developing additional new fortified products targeting the kids and seniors segment for launch in the coming year.
In addition to product innovation, we continue to pursue opportunities to enter and expand our presence in new and emerging markets. We have actively expanded our reach and product portfolio. In Korea, we are expanding retail distribution with UHT and IMF. In Singapore, we are arranging fresh milk in major retailers, and in Vietnam, we have launched our IMF and a2 milk portfolio.
Planet leadership is a central part of our growth strategy, and we are pleased to have released our first climate statement in August as part of our annual reporting materials. In terms of progress during the year against our sustainability goals, I wanted to highlight two key milestones. Firstly, the electrification of the boiler at MVM, which has been a primary driver in helping us to reduce our Scope 1 and Scope 2 emissions by 45%, with further reductions expected in the coming year.
Secondly, our investment in AgriZeroNZ, which we were pleased to have the opportunity to join this year alongside other industry stakeholders and the New Zealand government. Moving now to a brief strategy update. Our growth strategy is focused on five key priorities, which haven't changed since 2021. These priorities are investing in people and planet leadership, capturing the full potential of the China IMF market, ramping up product innovation and entering new markets, transforming our supply chain, and accelerating the path to profitability for the US and MVM.
Supply chain transformation is a key priority. We resolved our disputes with Synlait, supported their equity raise, and they remain an important supplier of a2. We are, however, focused on developing our own nutritional manufacturing capability and increasing market access through additional controlled China Label IMF registrations through MVM or otherwise.
In doing so, we continue to explore options to accelerate this through M&A and joint venture opportunities, mainly in New Zealand and China. The next slide shows how we are tracking towards our medium-term goals reflected in our measures of success. Overall, we are making good progress against the plan, with a few changes that we outlined as part of our full-year results back in August.
In terms of financial performance, after refreshing our growth strategy from FY21, we have grown group revenue by NZD 469 million at a revenue compound annual growth rate of 11.6% and improved our EBITDA margin to 14% from a post-COVID low of 10%. Overall, we are on track to achieve our medium-term revenue ambition of NZD 2 billion in sales by FY27 or later, with EBITDA margins in the teens, targeting year-on-year improvement.
The expansion of our IMF portfolio is critical to support the long-term sales growth of the company. We thought it would be helpful to conceptualize how we're thinking about growth in our IMF portfolio over the next few years.
For simplicity, we presented this chart based on the market definitions of price segments, so from top to bottom being ultra-premium, super-premium, premium, and mainstream, and from left to right, you can see the indicative positioning of our current China - sorry, current English Label products, with 3.3% market share being a2 Platinum and the recently launched a2 Gentle Gold, with a further product to be positioned in the premium to super-premium segment targeted for launch in the second half of FY25.
We then show our China Label a2 Zhuchu product playing in the ultra-premium segment with 4% market share. Our ambition is to have another three or more China Label registrations over time, subject to market access and SAMR approval. This page obviously focuses on our China-oriented IMF portfolio, but as noted, we're progressing our application for long-term approval to import IMF into the U.S.
To that end, we recently submitted our new infant formula notification to the U.S. FDA, which is a significant body of work, and we expect an outcome at some stage during the next calendar year. Moving to the next slide, and as Pip noted earlier, I'm very pleased today to announce that the board has approved the establishment of a dividend policy. The policy targets a payout ratio between 60% to 80% of normalized net profit after tax.
The policy will commence immediately, with the first interim dividend expected to be declared in February next year, based on the company's interim result in line with the bottom end of the range, i.e., 60%. Dividends are expected to be declared on a semi-annual basis in February and August each year at a level consistent with the payout ratio range.
In determining future dividends, a number of factors will be taken into consideration, including market conditions, current and future earnings, cash flows, capital requirements, and the company's financial position. We intend to impute and frank dividends to the maximum extent possible, subject to available credits, noting that imputation credits are limited. Any additional capital returns in the future are likely to be in form of special dividends because our buyback capacity is limited.
The declaration and payment of all dividends will be subject to board approval at the time and will provide further details in relation to our first dividend at our interim results announcement in February next year. Turning now to FY25 and the company's outlook, with reference to the full-year guidance we provided on 19 August this year, our year-to-date trading is ahead of plan and guidance. China Label IMF sales are broadly in line with plan, taking into account supply constraints.
We're making good progress to rectify shortages of early-stage China Label IMF products, with production returning to normal levels during the Q1 of 2025, i.e., the September quarter, and trade stock returning to target levels ahead of Chinese New Year supported by air freight. English Label IMF sales are slightly above plan due to stronger English Label category growth and recent Double 11 performance, which I mentioned earlier.
Liquid milk sales are slightly above plan due to growth in core products and lactose-free in Australia and grass-fed in the US. Other nutritional sales are below plan due to significant competitor discounting and promotional activity impacting milk powder sales. However, new high-priced fortified products are performing well.
MVM external ingredient sales are significantly higher than plan and prior year due to higher GDT prices, currency impacts, and changes in product mix, which in combination has an immaterial impact on earnings and is slightly dilutive to gross margin and EBITDA % margin expressed as a percentage of sales.
Having regard to year-to-date trading and outlook, full-year reported revenue is likely to increase to mid to high single-digit growth on prior year compared to previous guidance of mid single-digit growth. Full-year EBITDA % margin is still expected to be broadly in line with prior year.
In terms of phasing, the first half of 2025 revenue growth percentage on prior year is expected to be broadly similar to the second half. However, as noted in the full-year guidance, gross margins and EBITDA margins as a % of sales will be lower in the first half than the second half due to the impact of higher air freight in the first half. T hat's it from me.
I hope my presentation has provided you with a good summary of our performance in FY24, and I look forward to answering any questions you may have after the formal part of business of the annual meeting. T hank you very much for your time, and I'll hand back to our chair. Thanks, Pip.
Thanks, David. We'll now turn to the formal part of the meeting and the matters that require resolution as outlined in the notice of meeting, with a poll to be conducted for each of the resolutions. The poll will be conducted at the end of each resolution, and your ballot papers and online voting card will be collated by our share registry.
If you don't have a ballot card, put your hand up and get one from our share registry. The resolutions set out in the notice of meeting are considered as ordinary resolutions, which means that to be passed, they require the approval of a simple majority of the votes of the shareholders entitled to vote in voting on the resolution.
Shareholders here in Auckland, you will be able to cast your votes by filling out the ballot form I mentioned earlier that you received at the registry, should have received at the registration desk, and they'll be collected at the end of the formal part of the meeting. Those attending online will be able to vote by clicking the "Get a Voting Card" box on the online portal.
If you require further information and guidance on the voting process, please refer to the notice of meeting. There will be an opportunity for shareholders to ask questions both on each of the resolutions being put to the meeting today and more generally at the end of formal business. When I call for questions, for those of you who are attending in person, please raise your hand and wait for a microphone to be delivered to you by one of our team.
Please clearly state your name prior to asking your question. We will also be responding to questions from shareholders attending virtually via the online portal. For shareholders attending via this portal, please submit your questions on the resolutions or general business now. If we're unable to get through all the questions today within the time allocated, we'll respond individually after the meeting.
The first item of business is to receive and consider the company's financial statements for the year ended 30 June 2024, together with the directors' and auditors' reports. The annual report containing the financial statements and the auditors' report for the 12 months ended 30 June 2024 has been circulated to shareholders. Are there any questions related to the annual report or the financial statements? Sorry, it's a bit hard for me to see everybody. Don't think there's any questions in the room. Are there any questions online?
No, I don't think so. We will now move to the resolutions. Resolution one relates to the auditors' fees and expenses. Pursuant to the company's act, the company wishes to authorize the directors of the company to fix the fees and expenses of the company's auditors, Ernst & Young, for the ensuing year. Are there any questions in relation to this resolution? Do we have any questions in the room? No, I don't see any questions. Have we got any questions online?
We do not have any questions online at this time.
Thank you. I now propose that the directors of the company be authorized to fix the fees and expenses of the company's auditor, Ernst & Young, for the ensuing year, and I put the motion to vote. Thank you.
The next resolution concerns the re-election of David, our CEO. David is retiring by rotation in accordance with the company's constitution and the NZX listing rules and offers himself for re-election. The board recommends David to you as an executive non-independent director and unanimously supports his re-election. I will now invite David to address the meeting.
It's a pleasure to stand before you today to speak to my re-election as a director. The a2 Milk Company is an amazing brand and business, and it really is a privilege to lead the company as your Managing Director and CEO. I'm proud of our team's achievements, and we have been executing our strategy since I joined the company back in 2021.
More specifically, over the last three financial years, so from FY21 to FY24, we have increased brand investment by 66% and improved brand health significantly. We've grown our China Label business by 57%. We've transformed our English Label distribution channels from being 70% Daigou related to 80% e-commerce-led. We've increased our share of the total China IMF market from 4.7% to 7.3%, becoming a top five brand in the category. We've grown our other nutritionals business by 86% and our liquid milk business by 30%.
We've entered new markets and launched new products. We've more than halved our losses in the U.S., and we've invested significantly in our people and planet initiatives. All of this has driven a total revenue growth of 40% and EBITDA growth of 90%, while our key market in China has been in significant decline.
I understand our share price volatility has been frustrating for all of our shareholders, but if we focus on the fundamentals and continue to invest in our brand and drive sales and earnings growth, we will create value over time. In the meantime, I'm delighted that we've been able to introduce a dividend for our shareholders. So with your support, I look forward to continuing to serve as the director of the a2 Milk Company and continuing to grow and improve your business. Thank you very much.
Thank you, David. Are there any questions from shareholders for David? Well, on the resolution, I should say. I don't think there are any in the room. Are there any online, Shante?
We do not have any questions at this time.
Thank you. I now propose that David Bortolussi be re-elected as a director of the company, and I put the motion to vote. Thank you. Moving on to our next resolution that concerns the re-election, sorry, the election of Antonio Rivera as a director.
Tony, as is known to us, joined the board as a non-executive director in October this year and is retiring in accordance with the company's constitution and NZX listing rules and offers himself for election. The board recommends Tony to you as an independent director and unanimously supports his election. I will now invite Tony to address the meeting.
Thank you, Pip. Good morning, everyone. My name is Antonio Rivera, though many know me as Tonet. It is with great pleasure and a deep sense of responsibility that I stand before you today. I am honored to be considered for the role of director at the a2 Milk Company, a company that has consistently demonstrated a commitment to innovation, quality, and dairy for good.
Allow me to share a bit about my background. I hold a Bachelor of Science degree in Industrial Engineering from the University of the Philippines. Over the past 35 years, my career has been focused on all aspects of end-to-end supply chain management. My journey has taken me across the globe, providing me with 17 years of international leadership experience.
From 2002 to 2017, I had the privilege of working with Mead Johnson Nutrition, one of the world's leading infant formula companies, where I finished my tenure as the Senior Vice President of Global Supply Chain, leading the entire supply chain from global procurement to worldwide manufacturing and engineering to distribution to 40 countries. Prior to this, I served as Vice President of Supply Chain for Asia and Europe, managing operations across those diverse and dynamic regions.
Since retiring from executive roles in 2017, I have continued to contribute to the industry as a supply chain consultant. I am excited about the opportunity to bring my experience and passion for supply chain excellence to the A2 Milk Company. In particular, I am keen to contribute towards A2's supply chain transformation that will involve further potential that will unlock further potential for the A2 brand.
Then we can increase market access and drive innovation, enhance operational efficiency, and deliver the highest quality products to our consumers. Thank you for your time, your trust, and your support. I look forward to the opportunity to serve as your director and to contribute to the continued growth and success of the a2 Milk Company. Thank you very much, and as they say in my country, maraming salamat po.
Thanks, Tonet. We've got one question online, but before I go to that, are there any questions in the room around Tonet's selection? No, I don't think so. W e've got a question online about, could we comment on the recruitment process that led to his appointment to the board? Was a headhunter involved? Did the full board interview Tonet, and did they interview any other candidates?
Did Tonet know any of our directors before engaging with the recruitment process? I can assure shareholders that we appointed a leading global recruitment company to assist us with the search for Tonet. We had representatives of that search firm based in Sydney and in Shanghai involved in the process. We had a short list of, I think, four candidates. We went through a long list.
We then had a short list of four candidates, and many of the directors, I think most of the directors, interviewed three of those candidates, and Tonet was the standout candidate of that process. Tonet has worked with Sandra before, but we were very concerned and clear that we needed to ensure that we ran a rigorous process, and I can say that I am absolutely delighted that Tonet wants to sit on this board. At his very first meeting, his depth of knowledge in relation to infant formula supply chain is unique, and he added value from the moment his very first meeting. So welcome, Tonet, to the board.
Thank you.
Okay. No other questions online?
We do not have any other questions at this time.
Brilliant. I now propose that Tonet Rivera be elected as a director of the company, and I put the motion to vote. Thank you. Moving on to the next resolution, the grant of performance rights to David. In 2022, to align with recent practices for New Zealand and Australian executive remuneration, the board reviewed the company's remuneration practices.
The board committed to submitting the CEO's long-term incentive plan as a resolution on an advisory basis to the annual meeting, which is the subject of this resolution today. The company's LTI plan is designed to reward performance in support of the achievement of the company's growth strategy by targeting profitable long-term revenue and EPS growth, which requires appropriate investment. An overview of the key terms of the proposed grant of rights to David is set out in the notice of meeting.
The board considers the performance hurdles of the LTI plan sufficiently challenging and aligned with shareholder value creation. I and the board recommend you vote in favor of this resolution, and we unanimously support this grant of performance rights to David. Are there any questions from shareholders concerning this resolution? Do we have a question in the room to start with? No? Do we have any questions online?
We have had a few questions on this topic, so we will ask a representative question. Why doesn't A2 publish a remuneration report or provide shareholders with a say on pay as part of the AGM?
We don't produce a remuneration report because that is actually a requirement of Australian companies, and we are a New Zealand company. What we have done is we have done a gap analysis of our disclosures in our annual report and have improved over the last period our REM disclosures in the annual report, and we are, as I've just said, putting David's LTI plan to shareholders, so any other questions, Shante?
We have no further questions at this time.
I now propose that the acquisition of 538,336 performance rights by the company's managing director and CEO, David Bortolussi, by grant under the company's long-term incentive plan be approved, and I put the motion to vote. That concludes the resolutions presented to shareholders for vote. Please now submit your vote for resolution.
For those attending in person here in Auckland, representatives from our share register will now collect your voting cards. For those attending the meeting online, voting will close shortly. The results of the polls will be released to the NZX and ASX following this meeting. I'll just let representatives from our share register just collect the voting cards. Thank you. Okay, we'll now move to general business, and I'd like to offer the opportunity for shareholders to raise any general questions. Questions?
The idea of purchasing some that are compatible with the A2 ideals and patching them over to A2.
Thanks, John. I'll hand that question over to David.
We do consider various growth opportunities to expand the front end and brand portfolio of our business, but for the time being, we've been prioritizing our supply chain transformation, which is a big focus of our organization, and also, it's reflective of the strength of the A2 brand that we've invested in and built for so many years.
We think it is that it's best to kind of expand our portfolio underneath the A2 brand, and there are complications in transitioning conventional dairy products to A1-free, so there's a whole lot of issues associated with that, so we're mindful of opportunities.
We're aware of what Fonterra is contemplating, but at the moment, it's not a high priority for us, although I will say that we try not to comment specifically on M&A and strategic initiatives like that, but we're very much focused on developing and expanding the potential of our A2 brand and transforming our supply chain.
Any other questions in the room? We've got a few here. The lady in the second row.
Thank you. Beryl Plimmer , Shareholders' Association, rep. It occurs to me you're still very exposed to the China market and the fluctuations in birth rate and things like that. And an obvious sort of addition to your portfolio might be the protein whey, bodybuilding type products.
Is there a difference between A1 and A2 in those products? Does it make a difference to people if they get an A2 whey? And is it a place where you could move into another section of the market which might have a bit broader base?
I'll come back to that specifically, but in terms of our dependence upon China, yes, we fully acknowledge that, but it's equally our biggest growth opportunity. So when we think about diversification around that, we think of your question, which relates to kind of category expansion around our products and also geographic diversification over time.
W e're mindful of both, and we're working on that. More specifically to your question around whey protein products and supplements in that space that you were talking about. So the A2 brand and the A2 proposition is based, as you probably know, is around being A1 free in terms of the beta-casein protein. So we're very much focused on the beta-casein element rather than the whey protein element.
There may be some benefits in developing high protein-related products for different applications, but the complication in that is to extract a lot of beta-casein protein for those products is difficult and quite expensive because, obviously, whey is a byproduct of cheese manufacturing, and there's a lot of whey stream and whey protein in the market, and that's why that's kind of been a very high-growth industry over the last decade or more.
I t's something we're mindful of, but it's not an immediate priority at the moment. What we are focused on is developing fortified milk powder products to develop our other nutritionals business, which is a key area of focus, and potentially supplements over time.
Thanks, Beryl. Next question.
Thank you, Robert Morgan. First time being to this shareholders' meeting. A couple of questions. The first one, which you've alluded to, David, making products as a consumer, you have the milk powder, and then you have the milk itself. Is there a reason why you want to go into something like yogurt mixes, Hansells Cherry Pay, do these sachet mixes, as you're in the milk powder? Is there any reason why A2 will not consider that?
We have and will continue to consider that in terms of our category expansion opportunities, particularly in, say, for example, the Australian market where our liquid milk brand is so strong. It's the number one brand in the Australian market, and expansion into more traditional dairy categories like yogurt and cheese and cream and butter are opportunities for us.
W e're mindful of that. We'd like to progressively explore those opportunities over time, but one of the constraints we have, actually, to be practical, is actually the supply chain capability to produce that. So, for example, in the US market, that sort of outsourced contract manufacturing capability is readily available, whereas in the Australian market, it's often tied up with the brand owners, and there's not a lot of excess capacity. So it's something that we will explore and potentially invest in over time.
I do note in the China market that the liquid yogurt market, whether it's ambient or chilled, has been a big growth category over time as well, and that's something we'll be considered over time as well, but for the moment, we're very focused on our infant product expansion to expand our portfolio, which I highlighted in my presentation, expanding other nutritionals fortified milk powders, which you can see some examples that we've launched recently, and there's more to come targeting kids and seniors, then potentially supplements and other categories including traditional dairy.
Thanks, Robert, and you had a second question in the room.
Question.
Move on.
I missed the shareholders meeting a few years ago. Just with the tariffs, which have been talked about in the media with the U.S., and also you've noted that the birth rate in China is the rates are going down. What are the barriers for considering going back into Britain, where you were three or four years ago, or Europe, as re-entering those markets?
Try and take that, David.
Yeah, it's possible. I wasn't with the company back then. The A1 protein-free category and A2 proposition is not significant in the UK and Europe. There are some regulatory and marketing claims-related issues that kind of add further complication to it. I t is possible over time that we may do that, perhaps in partnership with somebody else, but for the near to medium term, again, we're a relatively small company.
We've got to be really focused on what we do in terms of our execution. W e're prioritising the China market to maximise the potential of that, expand our adjacent categories and new markets over time. Sorry. The new markets that we're expanding into in terms of our immediate priorities in Southeast Asia, we're already in South Korea. We've entered Vietnam during this year.
You can see we're expanding our sort of distribution in Singapore and other markets as well. We're thinking that Southeast Asia is a priority for us outside of China and also the Middle East as well. Then in relation to the U.S., our liquid milk business has continued to grow there, and we're getting closer to break-even there.
We've got enforcement discretion from the FDA to import infant milk formula, and as I noted in my presentation, we've just lodged our long-term application for infant milk into the U.S. Probably it's really Asia, Middle East, and the U.S. that are kind of the priority for us outside of China. Perhaps one day we might go back to the U.K. and Europe, but it's not on our high-priority list at the moment. Thank you for your question.
Any other questions in the room?
Hi, Gordon Wallace. Really, I want to expand a little bit on this chap here. You haven't spoken about the South Island, your manufacturing plant there, how it's going. Then I've got another question after that, if that's all right.
Sure. Yeah, no problem. I'm happy to expand on it, so Mataura Valley Milk, which is in Southland near Gore, we have invested in building capability there for nutritional production. It's a great asset. It's a very high-quality nutritional drying facility. We've been investing under Chopin Zhang's leadership, who is our Chief Supply Chain Officer, is one of the most experienced global leaders in nutritional supply chain, which very fortunately joined us two years ago.
He's been working with us to build capability for nutritional product manufacturing at MVM. We've been insourcing a2 branded related product to be produced there. So first of all, skim and whole milk powder in a pouch, which you can see around the room, and then also the supply of milk powder for fortification into our tub products as well, which I shared on the screen today as well.
In addition to that, under the Synlait arrangements, which are different now, but at the time we had the opportunity to insource stage four English label product from Synlait, and so we started making the base powder for English label stage four at MBM last year, making nutritional base powders a very technical product and capability required.
W e're building experience around that small product at the moment, and that's being packaged at New Milk or a subsidiary of Lactalis here in Auckland. In addition to that, we're making infant-grade skim milk powder, which is going to Yashili's facility in the North Island, and they're manufacturing our Gentle Gold product, that English label product as well. So we've been trying to insource what we can and develop nutritional manufacturing capability at MBM.
Unfortunately, a significant part of the business is still related to commodity or ingredients in the market, and the facility's not set up really to be producing that on scale to be profitable. So at best, we kind of break even on that, and when you're adding the overheads, unfortunately, we're still losing money at MBM.
We have invested in growing our milk pool there and also expanding the conversion of conventional to A1-free from our milk pool as well. So there's a lot going on there, but financially, I appreciate as shareholders that the results of MBM still don't look attractive because we're losing more than NZD 20 million of EBITDA.
Yes. Glad you brought that up because I know you're investing, but you've got to do it, of course, to get the reward, and I was wondering about supply that you can get supply because you do have other people in there at the milking side of it.
It's very, I mean, most regions in New Zealand are very competitive for milk supply. Southland is no different to that. We have expanded our milk supply to over 100 million liters, and we also have some commercial arrangements as well in terms of organic supply, for example, through another player down there as well. W e're building supply, building capability, and hopefully, over time, we'll have more an opportunity to produce more branded products at a higher margin internally.
Fair enough. Just.
No, it's a great question. Yeah.
With Synlait, because of the troubles they've had, what about, because you're getting a lot of volume from there, are the farmers starting to come back, or do you feel on that side looking a little bit better?
It's probably more of a question for Synlait directly, but from what I understand, just at a high level, the recapitalization of Synlait and some of the initiatives that they've taken in terms of rewarding farmers more has stabilized that situation much more than it was when Synlait was having capital structure issues at the time.
We believe, but it's more a question for Synlait. We believe it's in a much better position. And also, the other thing to bear in mind is that our A1 protein-free milk pool as part of Synlait's Canterbury milk pool is very significant and significantly more than what we need. W e don't feel there's any concern over the supply of A1 protein-free milk.
I was just wondering about supply.
It's very low risk.
But the farmers' supply contract directly with Synlait, not with us.
The next online to ship it out.
Well, they also, sorry, just one other, sorry.
Just one more question, Gordon, and then I think we'll give others opportunities.
This will be the last. The Anchor joint venture you got with Fonterra, that licensing must be nearly time to with a2 milk, the arrangement you have, the licensing. It must be about time to come up. And also with them selling the brands, does that bother you, or what do you look at that side of it?
So we.
Because you do a lot through A2.
Yeah. So we.
Anchor.
I don't think we've publicly disclosed the exact term of that, but it was recently renewed for a period of time. We're mindful of what Fonterra's changes that they're going through at the moment, and we know Fonterra well. We're in a dialogue around various things with them. I don't feel that that's a major concern for us at the moment, but we'll monitor the situation. Yeah, and we'd love to be able to develop our business, our a2 branded business here in New Zealand more. It's just how the company's evolved, so.
Thanks for your questions, Gordon. Is there any other questions in the room? Or I moved to online? I think we've got a number of questions online, so I'll hand over to you. Chante do you want to take us through those questions?
We have a question from Anthony Bernardo. A2's share price was significantly higher five years ago. Can you please comment on management performance in light of the share price decline?
I think our share price has been volatile in response to factors that are really outside of our control. The most recent one is obviously the geopolitical uncertainty from events in the States and the birth rate levels in China, some of the China stimulus.
I think all we can do is focus on the things that are within our control. And I think, as David mentioned earlier in his address, we're really pleased with the performance since David became CEO in 2021. The revenue's grown from NZD 469 million at a CAGR of 11.6% per annum, and our EBITDA margin has improved to 14% up from post-COVID levels of 10%. Is there any other questions? I think there's a couple more there.
We have a question from Stephen Mayne. The five most valuable U.S. big tech stocks, Microsoft, Apple, Amazon, Alphabet, and Nvidia, are together worth more than AUD 20 trillion. Could the CEO comment on how reliant we are on big technology and what would we do if any of them suddenly put their prices up by 30%?
We use technology in terms of our enterprise resource ERP systems that we run the company on. We have data centers. We use Microsoft Office and things like that. But in terms of overall spend and investment and the sensitivity of any changes in those arrangements, it's not a material exposure for our company at all compared to other risks and opportunities that we face. So I'm not particularly concerned about that at the moment.
We have a question from Stephen Mayne. Our friends at Fonterra recently announced that they are ditching their dual listing on the ASX to save money. How much extra does it cost to be dual listed in Australia and New Zealand?
I f we were to delist from one of those exchanges, which would make more sense given the current split of the register and trading data? Restaurant technology company Task Group shifted its HQ and primary listing from New Zealand to Australia last year and was then taken over by a US firm. Have we looked at doing the same?
I'll answer that. We have no intention at the moment to delist from either the NZX or the ASX. We're a proud New Zealand company. We have shareholders in New Zealand, but we also have a reasonable size business in Australia and a large number of Australian investors.
T here's no intention to delist. In terms of the listing fees, I think they're relatively immaterial. I don't know them off the top of my head. I'm looking at Jaron, who's nodding. But they are relatively immaterial in the scheme of things.
We have another question from Stephen Mayne. We are very reliant on China for export sales. If a major tariff-based trade war broke out between China and the incoming Trump administration, as seems likely, are there any potential downsides for our business?
Also, the incoming US Health Minister, Robert F. Kennedy Jr., has some pretty wild ideas about processed food suppliers such as Pepsi and McDonald's. If the world's biggest consumer market pivoted to government-driven healthier diets, is that all upside for us? How important is the US market for a2 milk?
Do you want to take that, David?
Sure. Careful what I say. So in terms of the potential tariff and trade implications of the change in the U.S. government, directly, our U.S. business is a domestic business. We're planning on exporting more infant formula product to the U.S. over time.
I don't think the, I mean, it's certainly not material now, and it's unlikely to have an impact on New Zealand to U.S. tariffs in terms of the U.S. and China and tariffs that may impact there. It's too hard to tell how that may play out, but the cross-border trade between the U.S. and China in the infant category is not that great because if you look at the two major players in the U.S. are Mead Johnson and Abbott. Mead Johnson sold its China business to private equity a few years ago, and Abbott has exited the market as well.
It's not as though tariffs would potentially restrict. Retaliatory tariffs would sort of open up more market share opportunity for us in China. Indirect impacts like potential. It's quite possible that in response to that, the Chinese government may stimulate investment and consumption in the domestic economy.
There could be impacts on foreign exchange rates, which could have an impact on us. But it's way too early to have any perspective on those and what the impacts may be. It 's too early. There was another part of that question which relates to U.S. FDA.
I think any focus on more natural nutritious products, including our A2 proposition, can only be beneficial for our company. And the only other thing I would note that with FDA, if there were any material changes in there, it could potentially have an impact on our FDA application to import infant milk formula.
But again, we see no sign of that.
We have a question from Eva Kuding in relation to Mr. Bortolussi's appointment as a director. What would you say are the pros and especially cons of having a non-independent director?
It's not actually something that we spend a lot of time on the board thinking about. David's a key member of our team. We don't see any cons in having him on the board. We are a very well-functioning team and really enjoy the perspectives that David brings to the board. O ne of my key perspectives as the chair is making sure that we have diverse thought and experience on our board, and David really adds to that. So I don't see any cons.
We have a question from Ivan Litvinov. Hi, David. Would you be able to comment on the success of the adult and seniors products so far? Do you see this as a substantial opportunity in terms of market size?
So far, we have introduced our English label fortified tub products, Immune and Move, one with a lactoferrin content and the other with Fortigel. They're sort of targeting adult and senior market. To date, they're performing really well. I mentioned in my address that our higher-priced fortified products, and I was referring to those, are actually performing well.
We're still in growth, but what is not performing as well for us at the moment is our more basic milk powder in a pouch because just the competitive dynamics, the pricing of milk powder has been impacted more. So that's going well to date. And what we've got planned in terms of the senior segment is in the China label part of our business. We are planning to launch new products next year targeting the seniors market as well. So we're focusing on that. It's a large part of the market.
It's growing rapidly at double-digit growth rates at the moment. It is very competitive already, and the margin structures are generally quite a lot lower than infant as well. So we will work towards capturing the opportunity there, but probably don't think about it being anywhere near as big as our infant opportunity from a sales or a margin point of view.
We have a question from Ramesh Venkataraman. Is there any positive impact on New Zealand's free trade agreement with the Gulf Nations, which was recently signed by New Zealand and the Gulf Cooperation Council?
Do you want to take that? I think we do see the Gulf Nations as an area of opportunity for us.
Next year, sort of priority region, the free trade agreement is helpful, but there are also so in our category, there are also regulatory differences between markets. And so when you look at the Gulf region, various countries have different standards and things like that. So it's not only about tariffs. It's also regulatory alignment between countries as well.
W e're thinking that's hopefully an opportunity over time to develop our infant business and our fortified milk powder products. Basic milk powder, again, is a competitive category. So I think it's got opportunity for us in time. It's going to take time to capture that. It's not our highest priority at the moment, and certainly the free trade agreement is helpful.
We have a question from Ivan Litvinov. Hi, David. Would you be able to provide some further insight on the status of the FDA approval and, assuming it is granted in 2025, the next steps for market entry?
Many of you may not be aware, but when the U.S. had its infant supply crisis back in 2022, they introduced what was called Enforcement Discretion under the FDA rules, which allowed new entrants to the market externally to sell their products in the market, subject to a short process of approval with the FDA for a period of several years.
We were one of the last to be granted that access for various reasons, but we were one of the last to be granted access. We haven't been able to develop a significant business there as yet. What we're focused on is getting long-term FDA approval of infant. Those submissions needed to be submitted towards the end of this year. We actually submitted ours in November. It's a very big piece of work to actually make that submission.
Hopefully, it's subject to FDA review and approval, but hopefully, we'll get that approved next year at some stage. Under the original ED regime, the approval needs to come, I think they need to make a decision by October next year. So we'll see how that develops. In the meantime, with our enforcement discretion product, which is basically our A2 Platinum English label product, we have been testing and learning different sales and marketing techniques.
We're doing some work on Amazon at the moment under a 3P system. We've also got listing with Walmart online, and we've been trying some regional suppliers as well. But we're in that stage where the major accounts, there's a degree of reluctance to commit to our business until we've received longer-term approval. So once we receive longer-term approval, we'll start to develop, hopefully, a small but meaningful business for us going forward.
It's a very different market in the U.S.
Thanks, David. Any further questions?
We have no further questions online.
Thanks so much. Thanks for all those questions, both in the room and online. So on behalf of the board, I'd like to thank you for joining us today and engaging in such important matters for us, for you, your shareholders, and for the company.
T hanks for your support over the last year. For those that are here, we've got the traditional refreshments outside, and you can have a cup of tea with some a2 milk. So look forward to seeing you outside the room. I'll now formally declare the meeting closed. Thanks so much, everyone.