Hi @longterm07
I’m notlooking to argue but I disagree on a few points.
I don’tthink that US free/subsidised IF on the WIC program for low income earners wouldaffect A2 sales as much as you think because we are talking about opposite endsof the market.I don’t mean to sound pretentious but A2 IF is a premium product and one that I would not expect to be bought by that many low income earners, around 45k for total family income for the WIC program.Of course all mothers want the best for their child but it may not be economically viable for those struggling financially so I would suggest the target market for A2 IF would be far more focused towards middle to high income earners in any country, including the US.I am generalising but in the case of middle income earners that will probably mean both parents are working which would lend itself more towards the need for IF more than a mother who is at home and can breastfeed in most cases.Yes the WIC program would have some impact as the suppliers to each state dominate that particular market, but I do not feel it would overly affect A2 because of its target market.They have taken on big players like Nestle before and taken significant market share, so I am confident they can do it again given time.
IRT the US market,we will get a further update in a week but US A2 fresh milk sales have beenincreasing rapidly YOY to date.Many doubted that US consumers would pay a higher amount for milk, but they obviously are as seen in a2MC reporting.We can also see rapid expansion through COSTCO, Walmart, Safeway, Target and dozens more retailers throughout the US.So if there is a trend towards higher fresh sales for middle to high income earners in the US I can’t see why they would not spend a little extra on IF. With a growing population and a trend towards higher work/life tempo, there has been higher sales in IF worldwide and you can see a link below for projected IF and baby food increase in North America to 2025 (sorry I didn’t have time to find one with just IF).There is also another link for IF worldwide forecasts but both show potential strong CAGR.Now that the brand name has been established in the US through fresh milk and supply is increasing, it sets up further products quite nicely in the area.
We all knowthat the last report gave $287.9M NZD cash on hand as of Dec 18.I’m not going to speculate on next weeks report but even apart from increased marketing and overheads there will be a significant increase in revenue from the last six months to put into the kitty. With a light framework model for the company there seems little reason to hold onto that cash as a2MC already holds a 17.4% interest in Synlait which has an exclusive agreement to supply A2 IF to AUS, NZ and China.Personally I’d rather have growth by further expansion rather than a share buy back or dividend as it will reap far greater rewards long term.
I agree withyou that the US is a different market and has different requirements but sinceHrdlicka took over there has been a strong push in the US market by the a2MC and Iwould be surprised if that was not leading to something past fresh milk andcreamers in the future. I understand that WIC suppliers dominate that states supply but all I’m saying is I wouldn’t rule out the US IF market for A2 given the target market.In any case I’m sure the board would have researched the best growth market to take on next so if it US or somewhere else I’m confident that they will make the right choice. They have done an incredible job so far and now they have even more experience and knowledge with more financial freedom.Hopefully we find out more next week but either way I’m confident it will be another strong report.
Reminds meof Uni but for those interested:
https://en.wikipedia.org/wiki/WIC
https://www.a2milk.com/find/retail-grocery-partners/
https://thea2milkcompany.com/newsroom/market-announcements/interim-results-2019/
https://www.statista.com/statistics/249499/north-americas-baby-food-market-sales-value-by-country/
https://www.statista.com/statistics/249469/global-baby-food-market-size-2015/
(20min delay)