Ann: FORECAST: ATM: ATM - Trading Update

• Release Date: 20/07/15 09:07
• Summary: FORECAST: ATM: ATM - Trading Update
• Price Sensitive: No
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					ATM
20/07/2015 09:07
FORECAST
PRICE SENSITIVE
REL: 0907 HRS The a2 Milk Company Limited

FORECAST: ATM: ATM - Trading Update

20 July 2015

NZX/ASX Market Release

Record Australian earnings, Exceptional a2 Platinum(R) infant formula growth,
Positive progress in international markets

With regard to recent interest in The a2 Milk Company (the Company), the
Company provides this trading update in relation to the current performance
of the business and the outlook for the year ending June 2016.

The financial information in this update has been prepared on the following
basis:

o FY14 segment financials have been extracted from 30 June 2014 audited
financial statements;
o FY15 financials have been sourced from unaudited management accounts for
the 30 June 2015 financial year and remain subject to finalisation during the
auditing process; and
o FY16 financials reflect the Company's budget for the June 2016 financial
year with foreign exchange rates as at 30 June 2015.  The Company considers
that its budget has been prepared on a prudent basis and could reasonably
expect performance to exceed budget projections if current trading conditions
and trends in infant formula are sustained throughout the course of FY16.

Financial Summary

The Company's growth initiatives continue to progress in a particularly
pleasing manner, and the results of this progress are now evident in FY15
trading summarised below.  The Australian and New Zealand (ANZ) business is
performing strongly and continues to provide a platform for the Company's
international growth initiatives.  The underlying trading result for FY15 is
ahead of plan with Group revenue of NZ$154 million (39% increase over the
prior corresponding period (PCP)).  Strong growth is expected to continue in
FY16 with budgeted Group revenue of NZ$267 million (73% increase over PCP)
and Group Operating EBITDA  of NZ$12 million (200% increase over PCP).
The trend in geographic segment financial performance from FY14 (audited),
through FY15 (unaudited), to FY16 (budget), is set out in the table below.

Key highlights of the FY15 financial performance are:

o Substantial growth in a2 Platinum(R) infant formula volume across ANZ and
China was a highlight with total infant formula revenue of NZ$41 million;
o Liquid milk showed continued growth in Australia with revenue increasing 8%
to NZ$110 million; and
o The Company's international business rollout continued with the launch of
liquid milk in the USA and repositioning of a2 Milk(TM) in the UK to the
specialty milk segment.

The Company has previously advised an FY16 Group revenue forecast of NZ$230
million.  The Company is now budgeting FY16 revenue of NZ$267 million which
reflects strong recent financial performance and further expected growth
throughout FY16.  The key drivers of the budgeted FY16 financial performance
include:

o Continued growth in infant formula sales in both ANZ and China building
from the very strong demand for these products evidenced over recent months;

o Sales from new product launches in ANZ which include whole milk powder
(launched June 2015) and ice cream (launch targeted for August 2015); and
o Expansion of liquid milk sales in the USA business as the roll out
continues into further states beyond California.

In relation to financing the business plan, the Company intends to maintain a
conservative approach with growth funded from cash flows in the first
instance.  In addition, the Company has short term debt facilities in place
to support working capital requirements.

Operational Update

Infant Formula - a more significant strategic growth driver

Infant formula is emerging as a significant growth driver for the Company.
The growth of a2 Platinum(R) infant formula exceeded expectations in the
current year with revenue of NZ$41 million across ANZ and China. The majority
of sales occurred within the Australian grocery and pharmacy channels,
although the Company believes a proportion may relate to products which are
on-sold into China, as is the case with other premium infant formula brands
sold in domestic markets.

a2 Platinum(R) infant formula was the fastest growing brand in the Australian
grocery market during the quarter ending 7 June 2015, notwithstanding
achieving ranging in a second major retailer group only part-way through the
year, and stock shortages due to higher than expected demand.

In response to the growing demand for a2 Platinum(R) infant formula, the
Company extended the existing range of three variants to include a fourth
product, effective July 2015.

ANZ - consistently strong performer

The ANZ business continued to deliver very strong revenue and earnings growth
on the prior year, with FY15 returning a record result for the region. Total
gross revenue in AUD across all product categories increased by ~44% on the
PCP. Operating EBITDA before intercompany charges for FY15 was approximately
NZ$30 million.

Australian fresh milk sales continued to achieve solid growth of
approximately 10% in AUD on the PCP, and achieved a grocery market share of
approximately 9.3% (Australian Grocery Weighted Scan MAT) at year end.
Further revenue growth was achieved from new products including a full year
of a2 Cream(TM) and the most recent launch of a2 Milk(TM) whole milk powder
in limited release within one major retailer in June 2015.  Looking ahead,
the Company is optimistic about the growth prospects for whole milk powder as
well as for infant formula.

New long term milk supply contracts with key milk suppliers in ANZ have been
negotiated to support growing demand moving forward.

Asia - new model and momentum building through e-commerce platforms

As previously advised, the growth of a2 Platinum(R) infant formula within
China was impacted by changes in access arrangements for manufacturers and
brand owners from ANZ into China during calendar 2014. The Company's
manufacturing partner Synlait Milk achieved the new form of registration in
late September 2014 and shipments recommenced from December.  The Company has
continued to invest in marketing activity and sales support for distributors
during the FY15 year in order to build a solid foundation for future growth
in the region.

In November 2014, the Company announced changes to the supply and
distribution arrangements in China.  The Company assumed direct
responsibility for the distribution of a2 Platinum(R) with a small local team
managing a growing network of distributors.

In consequence of these changes and the increasing exposure of the a2
Platinum(R) brand in China, the Company remains very positive regarding the
growth prospects in this market.

a2 Milk(TM) fresh milk sourced from Australia was launched in China in August
2014 in premium supermarkets and through consumer subscriptions and also on
JD.com, China's largest online direct sales platform. Whilst the immediate
direct sales impact is modest, this initiative will help establish the a2
Milk(TM) brand in China and broaden our trial base.

To take further advantage of the growing e-commerce and cross-border
platforms, the Company also recently launched "The a2 Milk Company" store on
T-mall Global selling Australasian label a2 Platinum(R) infant formula direct
to Chinese consumers, and further initiatives will follow.

UK - repositioned for growth in speciality milk

During the financial year, the Company repositioned the a2 Milk(TM) brand in
the UK into the premium speciality milk segment away from mainstream dairy
and is now represented in the majority of supermarket accounts in the UK.
The transition from 2-litre to 1-litre and the associated pricing realignment
has significantly improved unit gross margins. The introduction of the new
format and shift in shelf location was dependent on the timing of retailer
reviews and was finally completed during March 2015. This timing slowed the
rebuilding of momentum in the new format, and sales growth in the second half
was slower than planned. Notwithstanding this, the Company is confident in
the prospects for the UK market.

Following these changes, the Company is also focussed on broadening the
product portfolio in the short to medium term with the potential introduction
of UHT milk and a2 Platinum(R) infant formula.
Following the changes implemented during FY15, the Company is forecasting a
reduced funding contribution to this business in FY16.

USA - launch into California commenced

The launch of the a2 Milk(TM) brand in the California region commenced in
April 2015. The Company has made solid progress in building retailer
distribution and is on plan to achieve around 65% of retail weighted
distribution in Southern California by early August. The focus will then turn
to achieving similar distribution in Northern California.

Development of the executive team and support structure is almost complete
and partnerships have been established with farmers, dairy processors and a
network of national sales brokers, all of whom are positive about the
prospects of the a2 Milk(TM) brand in USA.

While it is early in the launch, feedback from retailers and consumers is
consistently favourable. After evaluating the early positive trends, the
roll-out plans beyond California are now focused on building distribution
across a number of national specialty customers, which best align with the
brand's healthy and natural positioning. Already the brand is being
distributed on a nation-wide basis by two of the largest natural food
specialty chains in the USA, Sprouts Farmers Market and The Fresh Market.

Intellectual property - comprehensive portfolio continuing to build
The Company continues to enhance and extend the scope of its comprehensive IP
portfolio and provide support for targeted research and development
associated with the benefits of the A2 protein and the absence of A1 protein.

During the final quarter of FY15, the Company filed four new provisional
patent applications relating to health benefits, physical properties and
testing methodologies for A1 protein free products. These have relevance for
both liquid and powder products.

In addition to the publication of the human digestion trial conducted by
Curtin University (published in the European Journal of Clinical Nutrition in
August 2014), further scientific progress continues to be made. The Company
sponsored a human clinical trial in China around the benefits of a2 Milk(TM)
which was recently completed and publication is expected in FY16.

Summary

o The a2 Milk Company continues to perform strongly, ahead of plan, in its
core ANZ business which is delivering significantly increased profits and
cash flow;
o Trading performance in FY15 underpins confidence in the FY16 budget
projections;
o The Company's international growth strategy which targets markets with long
term attractive potential remains on track; and
o The Company continues to review ways to strengthen its capabilities both
internally and through external partnerships which will assist in the
development of these opportunities.

For further information contact:
The a2 Milk Company Limited
Geoffrey Babidge
Managing Director and CEO
+61 2 9697 7000

Forward Looking Information

Certain statements in this release constitute forward looking statements and
comments about future events, including the Company's expectations about the
performance of its businesses as at the date of this release.  By their
nature, forward-looking statements involve known and unknown risks,
uncertainties, assumptions and other important factors, many of which are
beyond the control of the Company and which may cause actual results,
performance or achievements to differ materially from those expressed or
implied by such statements.  Forward looking statements are provided as a
general guide only, and should not be relied on as an indication or guarantee
of future performance. No assurances can be given that any forward looking
statements referred to in this release will be realised.  Any forward looking
information speaks only as of the date of this release.  Past performance is
not indicative of future performance and no guarantee of future returns is
implied or given.  Nothing contained in this release is a promise,
representation, warranty or guarantee as to the past, present or the future
performance of the Company.  The Company makes no representation, and gives
no assurance or guarantee that the occurrence of the events expressed or
implied in any forward looking statements in this release will occur or that
any assumption that underpins any forward looking information is reasonable.

Nothing in this release is a solicitation, invitation, advice or
encouragement to buy, sell or hold shares in the Company.

About The a2 Milk Company

o The a2 Milk Company is building a global business based on a
differentiated, premium and branded portfolio of dairy and infant formula
products supported by an integrated portfolio of intellectual property and a
comprehensive body of scientific evidence
o The a2 Milk Company believes as many people as possible should be able to
enjoy the benefits of fresh and natural dairy and are providing a positive
alternative to those who find consumption of regular cows' milk challenging
o The a2 Milk Company has a significant and differentiated premium dairy
business in Australia with over 9% value share of the total fresh milk
grocery market and more recently has established operations in China, the UK
and the USA
o The a2 Milk Company Limited is dual listed on the NZX and ASX and trades
under the codes ATM and A2M respectively

About the a2 Milk(TM) brand

o The a2 Milk(TM) brand is a naturally occurring cows' milk that comes from
cows selected to produce only the A2 beta-casein protein and not the A1
protein. It is an entirely natural and pure cows' milk and not a product of
technological process or genetic engineering
o Originally all domesticated cows produced only the A2 type protein. Owing
to a genetic mutation in European herds, another milk protein emerged (A1
protein) and through modern farming practices spread throughout the world
o The a2 Milk(TM) brand is the only cows' milk that is free from the A1
protein
End CA:00267160 For:ATM    Type:FORECAST   Time:2015-07-20 09:07:01