Ann: FLLYR: ATM: Strong demand doubles A2 Corpora

• Release Date: 04/09/12 10:46
• Summary: FLLYR: ATM: Strong demand doubles A2 Corporation Net Profit
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ATM
04/09/2012 08:46
FLLYR

REL: 0846 HRS A2 Corporation Limited

FLLYR: ATM: Strong demand doubles A2 Corporation Net Profit

4 September 2012

Strong demand doubles A2 Corporation Net Profit

Highlights

o Group Profit After Tax of $4.40 million for 2012 year, up 108 per cent over
the prior year
o Increased market share in Australia, sales up 48 per cent over the prior
year
o UK fresh milk launch scheduled for October 2012
o Production of a2(TM) branded infant formula to begin from December 2012

Consumer demand for the a2(TM) brand fresh milk proposition has delivered A2
Corporation Limited another year of strong growth.

Revenues grew 48 per cent over the previous financial year driven primarily
by the growing preference of Australian consumers for a2(TM)brand milk -
dairy milk without the A1 gene that has been linked with digestion and health
issues.

Managing Director Geoffrey Babidge says the company's strong trading
performance in Australia was very encouraging and is providing a platform for
the strategic initiatives being progressed in a number of global markets.

"The Board is extremely pleased with the performance of the Company in the
past year.  We have demonstrated continued market leading growth supported by
increasing consumer awareness of the differentiated and unique brand
proposition."

"Our strategic growth agenda seeks to build sustainable advantage by drawing
on the increasing credibility of the a2(TM) brand proposition and
prioritising markets that have characteristics which support premium dairy
product offerings.  We continue to make excellent progress in this regard,
evidenced by our forthcoming launch in the UK and anticipated entry into
infant formula in China, and demonstrates the significant future potential of
the business."

For the 12 months ended 30 June 2012, A2C achieved a Group Profit after Tax
of $4,405,000. This compares to a Profit of $2,116,000 for the 12 months
ended 30 June 2011. Preliminary audit clearance has been obtained for these
results pending finalisation of the 2012 annual report.

The trading result comprised the following key items:

o Sales of $62,458,000, representing an increase of 48% over the prior year;
o EBITDA before share of associate earnings and unusual items of $4,737,000,
an increase of 77% over the prior year;
o Proceeds on settlement of an outstanding legal dispute in Korea of
$1,101,000 net of costs;
o Share of associate earnings for A2 Milk (UK) Limited of ($743,000);
o Costs associated with a Group Strategic Review of $522,000;
o International Business Development expenses of $870,000;
o Non-cash Expenses relating to share based incentive schemes of $251,000;
o Income tax credit of $287,000, due to a one-off tax benefit from the reset
of the tax cost base of assets.

The balance sheet movement over the year reflected positive operating cash
flows in Australia, proceeds from share placements and the legal settlement,
funding of capital expenditure and our joint venture investment.    Cash on
hand at 30 June 2012 was $6,568,000. The Company maintains a prudent view
of having little or no net debt whilst in a rapid expansion phase.

Strategic Agenda

The Company continued to rapidly progress the strategic agenda focused on 3
core growth initiatives:

o Building the beverage business in Australia and New Zealand;
o Capturing niche shares in global milk and other dairy product markets;
o Developing an Infant Formula business in highly prospective markets with an
initial focus on China.

 In April 2012, the Company announced a Strategic Review lead by corporate
advisors Greenhill Caliburn and Clavell Capital to review the company's
options to accelerate growth and maximise shareholder value.  This review is
ongoing and is providing valuable assistance to our growth agenda.

Operational Review
Australia and New Zealand

The Australian business performance was a standout for 2012 with operational
profit well ahead of budget and the prior year.

a2 (TM) sales grew strongly and represented an increase on the prior year of
48%.   The company continued to increase its investment in marketing and
communication including the introduction of a new "Thank-you a2" media
campaign, effective public relations and social media initiatives and
increased activity with the health care professional community.

We estimate the market share of a2 (TM) brand milk by value in the grocery
channel in the last quarter of the 2012 year to approximate 5.8%.  The
overall fresh milk category in Australia has continued to be impacted by the
low retail pricing of generic milks which took effect in early calendar 2011.

The Company commissioned its new milk processing facility in south west
Sydney in late February 2012 and is now producing to expected levels of
outputs.  The new facility incorporates the most advanced proven dairy
processing technologies to achieve the highest quality of fresh milk and is
sized to efficiently process current requirements for New South Wales with
the capability for significant growth over time.  The capital cost of plant
and equipment approximates AUD 8.4 million.  A2C continues to source the
balance of its milk requirements from its contract processing partners.

Gross Margin as a percentage of sales was lower in the second half and for
the year when compared to 2011.   This was due to additional milk procurement
costs to meet rapidly increasing demand, a number of one off costs incurred
to bring the new processing facility on stream and a change in customer mix.

The Company has progressed discussions with Fresha Valley, the sole licensee
for a2 (TM) brand milk in New Zealand, on how best to further develop a2 (TM)
brand milk within New Zealand.

United Kingdom and Ireland

In November 2011, the Company announced the expansion of operations in the UK
and Ireland through a sales and marketing joint venture with the leading
fresh milk dairy company in Britain, Robert Wiseman Dairies (RWD).  The joint
venture is engaged in the sourcing, processing, marketing and distribution of
a2(TM) brand milk products on an exclusive basis in the UK and Ireland.

The UK fresh milk market is approximately 6.5 billion litres per annum and
the market opportunity for a2(TM) brand fresh milk has the potential to be
three fold that of Australia.

RWD was founded in 1947 and operates six state of the art processing dairies,
14 distribution depots and distributes around one third of fresh milk
consumed in Britain. In February 2012, RWD was acquired by the highly
regarded European dairy group, Unternehmensgruppe Theo Muller Group.

A2C is very pleased with the progress of the joint venture since formation.
Over the period the joint venture has established its core management team,
commenced herd testing and selected initial suppliers. RWD is a valued
partner with a commitment to providing all the resources required to support
the development of the business.

We originally targeted the brand launch from September 2012 with the plan now
to commence from October 2012. A2C's share of joint venture costs incurred in
the establishment phase to June 2012 totalled $743,000.

For some time the UK milk market (and many other western dairy markets) has
been experiencing challenges around declining returns to farmers, processors
and retailers. The a2(TM) brand proposition provides an opportunity to bring
tangible benefits to all participants in the supply chain in addition to
consumers.

International Business Development

During the year, the Company progressed discussions with a number of
participants in key markets considered attractive for a2(TM) brand beverages.

The Company has continued to make significant progress in developing a market
entry strategy for a2(TM) brand infant formula into Asia, with China a
priority.  In April 2012 the Company announced a strategic agreement with
Synlait Milk Limited (Synlait) in New Zealand to manufacture a2(TM) brand
nutritional powders (including milk powders and infant formulas) for A2C.
Under the agreement Synlait will source a2(TM) milk from accredited
Canterbury dairy farms and manufacture a2(TM) brand nutritional powders at
its facility in Dunsandel.  The Company has been assessing alternatives for
the associated sale and distribution of a2(TM) brand infant formula in China
and is advanced in the development of a business plan and selection of a
credentialed distribution partner.

In September 2011, the Company settled its long running dispute with a former
licensee in the Republic of Korea with settlement of $1.101 million (net of
costs incurred in the current year).  A2C is pleased to have resolved this
legacy issue which will assist our growth plans and supports the strength of
our intellectual property in the Asian region.

Equity raisings

The Company undertook two equity raisings during the year to support the
ongoing development of the business and to broaden the institutional
shareholder base.

In July 2011, Freedom Foods Group Limited (FFG) was issued 18.8 million
ordinary shares for total cash consideration of $2.7 million pursuant to an
option under the sale and purchase agreement for A2 Dairy Products Australia
Pty Ltd.
In March 2012, the Company made a placement of 14 million ordinary shares to
AMP Capital Investors (New Zealand) Limited (AMP Capital) to raise an amount
of new equity of $5.2 million. AMP Capital assisted the Company by
facilitating the sale of a block of A2C shares to a number of institutions on
terms identical to the placement by the Company to AMP Capital, and we thank
them for their assistance.

For further information contact:
Geoffrey Babidge
Managing Director
A2 Corporation Limited
+61 2 9697 7008
End CA:00226864 For:ATM    Type:FLLYR      Time:2012-09-04 08:46:03