A2 Milk : Annual Meeting - CEO's speech

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Slide 6: CEO's Address

CEO's Address

Thanks David. Good morning everyone, and thank you for joining us today.

It's my great honour and privilege to be addressing you in my first Annual Meeting as your Managing Director and Chief Executive Officer.

Today I will start by providing an overview of last year's result, and the key actions we've taken recently to rebalance our inventory levels, invest in our brand, bolster our leadership team and refresh our growth strategy.

Slide 7: a2MC's extraordinary journey was disrupted in FY21

As you know, the a2 story is extraordinary - and a key feature of that story is its different chapters of growth over the years.

When I was joining the company, I was interested to learn that a2's original commercial ambitions were to license its intellectual property. When that wasn't successful, the company adapted, and in 2007 moved from an IP focus to launching the a2 Milk brand in Australia.

The years that followed, including the development of our Infant Milk Formula or IMF business, were truly remarkable.

However, after years of impressive growth, the business was disrupted in FY21, which has led us to reflect on and adapt our strategy for growth again.

Slide 8: Clearly FY21 was a disappointing result

This slide provides a brief overview of our FY21 results.

Clearly it was a disappointing financial result, with revenue for the Group down 30%, and EBITDA and net profit down 78% and 79% respectively.

Sales of China label IMF increased 15%, and our Australian milk business was up 11%. However, this was more than offset by the challenges experienced in English label IMF with sales down 52%.

I'll take some time now to reflect on the issues that disrupted our business, and the key actions we've taken in response.

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Slide 11: We have increased investment to continue to support our strong brand

Another key action taken in the fourth quarter of FY21, was to deliberately increase brand investment to drive consumer demand. This was also done in recognition of the reduced brand activity being undertaken by English label resellers, and to compensate for the absence of a significant campaign in the first half.

Our brand health metrics are strong and have improved recently on the back of this increased investment. The top chart on the right-hand side shows improvements in brand awareness and trial across the funnel.

The chart below shows our opportunity to increase awareness, to leverage our relatively high levels of conversion to trial and loyalty.

We plan to continue to increase brand investment further as part of our strategy.

Slide 12: We have bolstered our leadership team and reorganised the business

Our leadership team comprises both our business unit leaders, as well as our functional leaders, working together as one team to lead a2 globally.

This year we have bolstered the team and reorganised our Asia-Pacific division.

There have been 4 internal role expansions and promotions, reflecting strength in internal talent, and we have brought 4 additional leaders into the business including our new Chief Marketing Officer, Edith Bailey from Danone, who will be commencing with us in a few weeks' time.

Slide 13: We have undertaken a holistic review of our growth opportunities

Over the past six months, we have reviewed our China market opportunity, our brand positioning, our route-to-market challenges and opportunities, our product portfolio, as well as the potential to expand into adjacent categories and new markets.

The work has been comprehensive and forms the basis of our growth strategy going forward.

Slide 14: We have adapted our a2MC growth strategy

We have endeavoured to summarise a lot of our work into this group strategy on a page, which sets out our ambition, goals, strategic priorities, enablers and values.

Our purpose remains "To enrich lives by harnessing the nutritional wonders of nature".

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Our ambition, as articulated here, is new. We are committed to rebuilding a2 into the growth company we've been throughout our history, returning to our pioneering and innovative roots, and elevating our focus on sustainability.

Our ambition is reflected in our high-level goals, covering People, Sustainability, Consumers and Shareholders. I am committed to creating long-term value for our shareholders and building a trusted and transparent relationship.

To deliver on our ambition and goals, we have 5 strategic priorities:

• Firstly, we will be investing in people and planet leadership. Without a strong team, we can't deliver on our priorities, and without being conscious of the impact we're having on the planet, we can't ensure sustainability of our business in the long-term. We're setting ourselves a bold ambition here, which is one of our most important priorities
• Secondly, our most critical business objective is to achieve our full potential in China IMF. While we have a portfolio of initiatives to deliver on this priority, two key themes to note are: firstly, we will streamline our distribution model over time to get closer to our consumer; and secondly, we will invest in our brand to generate ongoing consumer "pull" for our product, in a way that reflects evolving consumer needs and channel preferences
• Third, it's important that we significantly ramp-upour product innovation. We need to expand our IMF portfolios, for both China label and English label, and in all markets, we need to enter adjacent product categories to drive growth. Given the success of the a2 business until recently, new product development hasn't been a priority, but it will be going forward
• Next, we need to transform our supply chain - this includes expanding our China label market access, utilising the capacity we now have at MVM and, over time, developing supply chain capabilities in China to support our growth ambitions
• Finally, achieving profitability across all our business units - we are determined to find a pathway to profitability in the US as quickly as possible, and to increase MVM utilisation through insourcing a2 volumes and developing 3rd party business

Slide 15: Our ambition is to be a top-5 CL IMF brand and the no.1 EL product range in China

This slide illustrates our ambition and measures of success for our China label and English label IMF businesses. Most importantly, our aim is to be a top-5 China label brand, and to have the number 1 English label product range.

Our medium-term ambition is to increase sales in China label by approximately $400 million, by doubling our share from around 2.5% to over 5%, and to grow English label by approximately $300 million, through channel recovery and gaining share in the reseller and CBEC channels.

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To achieve this, we have refined our priorities to adapt to the change in market context. Our number one priority is to continue to invest in and nurture our brand, to remain relevant to next generation mothers, both functionally and emotionally, and to drive demand. We will also drive distribution growth in store and online, focusing on early-stage recruitment and late-stage retention.

Lastly, in relation to China, some shareholders have asked, why we still sell through the Daigou channel. The reality is that the Daigou channel has evolved significantly over time from a suitcase trade, to corporate Daigou, to a sophisticated multi-channel reseller business. This reseller channel is largely an e-commerce business through a range of Consumer-to-consumer and Offline-to-online platforms. The closed Consumer-to-consumer network, such as that conducted through WeChat, is only about 30% of the reseller channel and 10% of our overall China IMF business. Having said that, the Daigou channel is an important new-user recruitment and brand building channel, which we will continue to support going forward.

Slide 16: Our strategic partners are key to enabling execution of our China strategy

On the next page, I want to reiterate, and publicly acknowledge, the incredible support we receive from our strategic partners in relation to our China business. Starting with the long-term relationships we've had with China State Farm and Synlait, and more recently with the MVM acquisition, China Animal Husbandry Group. Both CSF and CAHG are part of the larger China National Agriculture Development Group, which is an important State-Owned Enterprise.

These relationships are very important to enabling the effective execution of our strategy in China. We are very committed to investing in and developing our China business as our highest priority.

Slide 17: Outside our core, we are pursuing other opportunities for growth in Asia

We are also looking outside our core for new growth opportunities. We are expanding our portfolio in China to target the whole family. And we have identified several new markets to prioritise for growth.

Our medium-term ambition is to generate approximately $200 million in sales from expanding our portfolio in China, and around $100 million of sales from existing and new markets over time.

Slide 18: We have plans to grow ANZ and are focused on achieving profitability in the USA

In ANZ, our ambition is to generate approximately $100 million in additional sales over time while maintaining our no.1 position in fresh milk and seeking to expand into new categories. In the US, while we have goals to grow the business over time, our focus is on achieving profitability as quickly as possible.

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