Ann: HALFYR: ATM: A2 Corporation growth continues

• Release Date: 27/02/13 10:43
• Summary: HALFYR: ATM: A2 Corporation growth continues ahead of plan
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ATM
27/02/2013 08:43
HALFYR

REL: 0843 HRS A2 Corporation Limited

HALFYR: ATM: A2 Corporation growth continues ahead of plan

Highlights

o Strong growth in sales, up 57% on the corresponding prior period
o Strategic review completed and implementation now in progress
o Increased market share in Australia to 6.9% by value in grocery
o UK fresh milk launch underway from October 2012
o Distribution agreement entered into for sale of infant formula into China
o Successful capital raising and move to the NZX main board
o On track to deliver the growth outlined as part of the equity raising
Revenues grew strongly over the corresponding half as a function of
continuing growth in a2(TM) brand fresh milk in the Australian market. The
a2(TM) brand remains the fastest growing dairy brand in grocery in Australia.
Significant progress was also made in the priority strategic initiatives in
expanding the a2(TM) brand into a new market in the United Kingdom and
finalizing the platform for infant formula into China.

Managing Director Geoffrey Babidge said "the standout performance of the
Australian business and its strong growth prospects provide the increasing
momentum and earnings to support our current new market growth initiatives.
The recently completed Strategic Review and equity raising provides a
comprehensive roadmap and the capital to accelerate the implementation of the
Company's strategic plan".

Financial performance

The unaudited group profit for the 6 months ended 31 December 2012 was
$554,000 including EBITDA of $3,459,000, 54% over the corresponding prior
period, in part offset by the Company's share of UK establishment costs and
the final component of strategic review costs.

The result included the following key items:

o Sales of $44,281,000, representing an increase of 57% over the
corresponding prior period;
o EBITDA before share of associate earnings and non- recurring items of
$3,459,000 compared to the corresponding prior period of $2,241,000;
o Share of costs associated with A2 Milk (UK) Limited joint venture of
$1,480,000;
o Non recurring costs associated with a Group Strategic Review of $755,000.
The strong momentum of the Australian business is ahead of the growth
outlined as part of the recent equity raising and remains on track to achieve
its full year 2013 EBITDA forecast of $11.2 million before intercompany
charges.

Cash on hand at 31 December 2012 was $21,500,000.  The movement over the
period primarily reflected operating cash flows in Australia, proceeds from
capital raisings and further investment in our UK joint venture.

Strategic Review

A comprehensive strategic review of the Company (commenced in April 2012) was
completed and announced to the market in October 2012. The outcome of the
review is that the Company will dedicate additional resources to initiatives
previously announced and prioritise opportunities identified during the
review including:

o Further developing the strong suite of IP and the uniqueness of a2(TM)
brand dairy products;
o Further growing the Australian and New Zealand fresh milk businesses;
o Accelerating investment in the UK fresh milk market;
o Accelerating investment in the China infant formula market;
o Entering new international markets in particular in North America and
markets in Europe;
o Entering new categories with UHT milk and Yogurt a priority.

Operational Review
Australasia

a2 (TM) sales in Australia continued to show strong growth and represented an
increase on the corresponding prior period of 57%.  Ongoing investment in
marketing and communication contributed to the growth of sales and increased
brand recognition.   In particular the "thank-you a2" media campaign is
proving effective in creating awareness in the A2 proposition and together
with PR, health care professional activities and social media engagement is
driving new consumer trial.  Further gains in distribution also aided sales.
We estimate the market share of a2 (TM) brand fresh milk by value in the
grocery channel in December 2012 to approximate 6.9%.

The Company's new milk processing facility in south west Sydney performed
well with volumes ahead of plan and improved efficiencies when compared to
the second half of last year.  We commenced a project to improve supply chain
efficiencies in consequence of volumes continuing ahead of plan.  The Company
continues to work closely with its contract processors and negotiated
extended arrangements with two contractors during the period.

The Company continued to assess options to further develop the a2 (TM) brand
fresh milk within New Zealand in conjunction with the existing licensee.

United Kingdom and Ireland

In November 2011, the Company established a sales and marketing joint venture
in the UK and Ireland with the leading fresh milk dairy company, Robert
Wiseman Dairies (RWD), now a wholly owned subsidiary of Unternehmensgruppe
Theo Muller Group.

During the current half year the JV completed its establishment phase and
launched a2(TM) brand fresh milk into the retail trade in Britain.  The joint
venture now comprises a dedicated sales and marketing management team near
London, with procurement, processing, distribution and administration
services provided by RWD.  The business has recruited an enthusiastic dairy
farmer supplier base with capability to build significant A2 milk volumes
over time.

The product launch commenced with 3 retailer groups with distribution
building across approximately 700 retail outlets from October 2012.  The
launch was initially supported by a public relations and print media campaign
and is being followed by a television advertising campaign which commenced
from end January 2013. The communication strategies have been tailored to
meet the requirements of the various UK regulatory authorities. As part of
the launch the business has engaged two profile celebrities with particular
appeal to the target market: Dannii Minogue, herself a convert to the
digestive benefits of a2(TM) brand milk and Dr Hilary Jones, a well-known and
respected health care professional

As advised during the strategic review, the launch in the UK is expected to
follow the approach in Australia - a slow build based on progressively
raising consumer's awareness of the unique product attributes driven by PR,
consumer marketing and engagement with health care professionals and through
broadening distribution.  Our sales are growing from a small base and the
focus is on building rate of sale within existing distribution and achieving
retailer support to further broaden distribution.

Infant formula into China

The Company continued to progress its strategy to introduce a2(TM) brand
infant formula into China. In October 2012, the company announced the
appointment of China State Farm (CSF) as the exclusive distributor of a2(TM)
brand infant formula for Greater China.   As part of the agreement, A2C and
CSF established a joint marketing structure to support the development and
implementation of marketing activities within the territory.  Following the
appointment of CSF and given the strategic supply agreement with Synlait Milk
Limited, A2C now has a complete end-to-end New Zealand sourced supply chain
for China.

To support this major growth initiative, a new business unit, A2 Infant
Nutrition has been established with a dedicated management team focused on
business development, supply chain and marketing functions together with an
in-market manager based in Shanghai.  This infrastructure will also support
development of additional opportunities such as UHT milk into China and the
launch of infant formula in other markets.   Sales to CSF are planned to
commence this financial year.

Equity raising and move to NZX main board

Following A2C's strategic review, in December 2012, the Company initiated an
equity raising to increase liquidity and provide additional funding, applied
to move from the NZX alternative market to the NZX main board and the
Company's three largest shareholders partially sold down their shareholdings.

The company was very pleased with the outcome of this process with fresh
equity of $20 million being raised at a price of $0.50 per share and approval
obtained to move to the NZX main board.   The number of shareholders
increased to 2,151 at 31 December 2012.  Receipts associated with the
exercise of partly paid shares also contributed a further $693,000 to cash
flow during the half year.

For further information contact:
Geoffrey Babidge
Managing Director
A2 Corporation Limited
+61 2 9697 7008
End CA:00233499 For:ATM    Type:HALFYR     Time:2013-02-27 08:43:57