· 97% increase in Australian volume (month on month)
· Korean fresh milk licence agreement
· USA award – “Best New Product” from “US Dairy” magazine
Auckland, 16 June 2008 – A2 Corporation (NZAX: ATM) today announced its annual results for the year to 31 March 2008 highlighting the Company’s continued positive business momentum including significant gains in milk sales in Australia and substantial progress in the development of a2 Milk™ licensing opportunities in other key target markets. As a result of the continuing investment in new markets, A2 Corporation (“A2C” or “the Company”) experienced a Group pre-tax loss of $6.298 million (unaudited), compared to $5.125 million to 31 March 2007. Key to this continued investment was expenses such as marketing and intellectual property costs associated with the Company’s ongoing expansion into North America, Australia, and Asia.
Cliff Cook, Chairman of A2C says that “The loss was primarily due to investment in key parts of the Company’s business which will in the long term benefit the Group through increased revenue streams and ultimately the generation of profits. A2C is still in the important building phase where we have to keep investing in our key assets, our joint ventures, and meet marketing costs to establish new markets and grow our main existing market of Australia. We are confident that these investments and our focus on value added functional products will deliver profits for the Company.”
Key Highlights – Australia
In June 2007, the A2 Australian business, previously owned solely by A2C transitioned into a 50/50 joint venture with Freedom Nutritional Products Ltd (ASX:FNP)(Freedom), a leading Australian manufacturer, marketer and distributor of functional and nutritional products.
A2C CEO Anthony Lawler says there were some outstanding highlights for the new joint venture including a large increase in the volume of a2 Milk™ sold in Australia, presently A2C’s largest market.
“Our monthly sales volume went from 305,000 litres per month in April 2007 to 600,000 in March 2008, which is a 97% percent increase. Furthermore our May 2008 sales have increased to over 870,000 litres, which is almost triple the sales versus a year ago (on a monthly basis). We see this increase in sales as a significant step towards the Company’s goal of attaining sustainable future profitability in Australia,” says Lawler.
Lawler also notes that the achievement in Australia has been a result of a large investment in brand building advertising, extensive positive publicity for a2 Milk™ and a growing consumer awareness of the benefits of a2 Milk™ for medical conditions such as heart disease, autism and the reduction in the incidence of childhood diabetes.
Freedom’s excellent relationships with retailers and their expertise in reducing supply chain and distribution costs have been and will continue to be beneficial to the Australian business. The new “No Ordinary Cow, No Ordinary Milk” media campaign has increased both sales volume and consumer awareness of a2 Milk™. This successful campaignalso helped consumers in general to focus on a2 Milk™’s™ “specially selected cows” that produced high quality milk with a great taste.The dual message haspositioneda2 Milk™asadairy product thatappeals to mainstreamconsumers who are increasingly health conscious, as well as consumers with particular health conditions.This broader marketing message gives us great confidence going forward into new international markets.” added Lawler.
South Korea is seen as a key Asian market due to its high per capita consumption of milk and dairy products, especially its growing consumer demand for premium offerings.
In October 2007, A2C signed an exclusive fresh milk license with Lotte Milk, a large South Korean dairy company with annual turnover of over NZ$400 million and one of the most recognised and respected brands in South Korea. Lotte Milk’s milk, yoghurt and drinking yoghurt products are distributed nationwide via leading supermarkets and convenience stores. Lawler comments that “since late last year we have been working closely with Lotte Milk to assist in the launch of Lotte a2 Milk™ in the next three months. Lotte has committed to both a guaranteed royalty level as well as a guaranteed marketing spend to promote the Lotte a2 Milk™ brand. The initial licence arrangement with Lotte Milk will generate positive cash flows from Korea almost immediately and we expect there is opportunity to expand this relationship further into other dairy products in partnership with Lotte.”
Lawler added “we see South Korea as a showcase to other Asian countries on the benefits of a2 Milk™.”
The North American market continues to provide valuable consumer feedback for A2C’s joint venture, a2 Milk™ Company (A2MC) since the test launch of a2 Milk™ in April 2007.
Lawler says that A2C management believes that “A2MC is making good progress understanding the US market via its test market in the American Mid-West and we were very excited when A2MC’s licencee, The Original Foods Company (TOFC) received the award for “Best New Product of 2007 (special needs category)” from the prestigious “Dairy Foods” magazine for TOFC’s a2 Milk™ product. We better understand the dynamics of the American market, in particular the consumer response to different forms of publicity & advertising. We now also know the response to different retail price points and most importantly the consumer and retailer response to a new value added milk.
Lawler says that “A2C is actively working on expansion into Japan via our joint venture with Freedom. We have used Freedom’s extensive experience in Japan to identify potential licencees in Japan. We are very pleased to have the advantage of Freedom’s expertise in the Japanese market to engage with multiple dairy and food companies regarding the a2 Milk™ opportunity. We see Freedom’s networks in Japan allowing us to expedite our commercialisation of a2 Milk™.”
European Food Safety Authority Review
In February 2008, the New Zealand Food Safety Authority (NZFSA) announced two reviews relating to A1/A2 milk. Firstly a “structural” review was conducted for the NZFSA by Dr Slorach, (a former senior executive of the European Food Safety Authority). This report was released in April 2008 and focused on the NZFSA’s handling of the initial 2004 review of the health effects of A1 and A2 milk. A2C supports Dr Slorach’s findings that there were shortcomings in the procedures of the NZFSA’s handling of the 2004 review and that the NZFSA did not take any specific action to encourage more debate.
Secondly and most significantly, the European Food Safety Authority has announced that it will review the science around health claims of A1 and A2 milk and the effects of dietary milk intake. Lawler stated “that we look forward to the outcome of this comprehensive and independent review undertaken by such a recognised and highly regarded food safety authority.”
The author of the initial 2004 NZFSA report, Professor Boyd Swinburn, Professor of Population Health, Deakin University in Melbourne has recently stated in an open letter to New Zealand dairy
farmers that while more research is required “the evidence is certainly strong enough [for dairy farmers] to take action by shifting herds to the A2 variant.”
Strategic Review and Capital Raising
Cook notes “Over the last 12 months A2C has undertaken an in depth strategic review of its current business and future business objectives relating in part to the need to raise additional capital. The A2C Board has reviewed the various alternatives carefully. “The final form of the proposed capital raising is yet to be finalised but should be made known to shareholders in the next 2 – 3 weeks.”
A2C is confident that it has an exciting year ahead with key developments in its main markets including a launch of a2 Milk™ in Korea in 2008 and continued successes in Australia and USA. A2C will also continue to develop licensing and distribution opportunities for a2 Milk™ in new markets and new product categories such as a2 Milk™ powder. Lawler states that we continue to build relationships with potential licensees that will lead to revenue opportunities for the company.”
Cook adds that “the momentum gained in the last 12 months is encouraging, however the sole focus for the board and management is the drive towards long term sustainable profitability.”
For more information please contact:
Anthony Lawler, CEO A2 Corporation, Ph +64 9 5233 129
Julien Leys, JML Communications, Mobile +64 21 655 598