July 18, 2011

 

A2 Corporation eyes NZX listing for company's growth

 

 

A2 Corporation, a New Zealand milk business, is eyeing a listing on the NZX main board as it commences the building of its first processing plant, bucks an Australian price war and searches for its next international market.

 

The NZAX-listed company has started construction of a facility in Sydney at an estimated cost of about AUD7.5 million (US$9.5 million), with initial production of about 10 million litres of milk a year expected to begin in January.

 

Chairman Cliff Cook said the business in Australia continued to grow rapidly and the development of the processing facility would allow for expansion.

 

Sales growth has exceeded expectations in the six months to June 30.

 

Managing director Geoffrey Babidge said the company now held more than 4% of the Australian fresh-milk grocery market by value.

 

"Clearly the momentum of our sales continuing to grow has been maintained," he said.

 

An Australian supermarket price war during the past six months had driven the price of home-brand milk down from about AUD2.90 (US$3.1) to AUD2 (US$2.14), while A2's milk had held steady at just under AUD5 (US$5.35) for two litres, he said.

 

There are two types of milk, A1 and A2, which are usually mixed together. A2 Corporation owns and commercialises intellectual property, with its milk and yoghurt products coming from cows selected to produce the A2 beta-casein protein.

 

The company fully owns its Australian business after a deal last year to buy the half-share it did not already hold, while in New Zealand it has a licence agreement with Fresha

Valley.

 

Babidge said A2 had focused on developing the fresh-milk business in Australia as a priority for the past two to three years.

 

"I think the board and management saw it [as] important to focus to achieve critical mass and success in one particular market first," he said.

 

A2 posted a maiden profit after tax of US$893,517 for the six months ended December.

 

The company was investigating a number of market opportunities in North America and Europe.

 

"The UK is one market that we are investigating in respect of a shortlist of markets and potential partners that we're talking with," he said.

 

The major activities and core management team were based in Sydney but Babidge said New Zealand was the company's home.

 

The board had asked management to consider moving to the main NZX board as the next evolutionary step.

 

"I think that gives a clear indication that the focus of the company is in a number of international markets but the home of A2 is New Zealand," he said.