The a2 Milk Company

The a2 Milk Company Limited
Traded as ASX: A2M NZX: ATM
Predecessor A2 Corporation Limited
Founded 2000 in New Zealand
Founders Dr Corran McLachlan,
Howard Paterson
Headquarters Sydney, Australia
Areas served
 Australia, China, Hong Kong, Malaysia, New Zealand, Singapore, United States of America, United Kingdom
Key people
 Geoffrey Babidge (CEO)
David Hearn (Chairman)
Products A2 Milk, Dairy, infant formula
Revenue Increase A$305-319 million[1] (2016 est.)
Profit Increase A$41-45 million[1] (2016 est.)
Total assets Increase A$88.87 million (2015)
Total equity Increase A$58.63 million[2] (2015)
Number of employees
 Increase 94 [3] (2015)
Website www.thea2milkcompany.com

The a2 Milk Company Limited (previously known as A2 Corporation) is an ASX 300 public listed company that commercialises intellectual property relating to a2 milk and related products. The a2 Milk Company is also a major Australian and New Zealand producer of A2 milk, infant formula, and other dairy food products, supplying to local and international markets.

History

The a2 Milk Company is the successor of A2 Corporation Limited, a New Zealand company founded in 2000 by Dr Corran McLachlan, who was researching health effects of A1 beta-casein; and Howard Paterson who was one of New Zealand's richest men, a significant dairy farmer, and an important stakeholder in Fonterra, a dairy cooperative.[4][5] The company commercialised a genetic test to determine whether a cow will produce milk without the A1 protein, and to market A2 Milk.[4][5][6]

Initially, A2 Corporation focused on dairy farm breeding programs to develop herds that would produce only A2 milk.[7] However the launch of A2 milk was delayed by opposition from Fonterra, which had protected contracts under New Zealand law with about 98% of New Zealand dairy farms.[8] Seeking leverage in the battle with Fonterra over access to farmers, and over patent rights,[4] Howard Paterson, the CEO of A2 Corporation, led the company into litigation against Fonterra, asking the New Zealand High Court to order Fonterra to put health warnings on its conventional milk concerning risks of type 1 diabetes, heart disease, autism and schizophrenia due to the presence of A1 beta-casein, and to force Fonterra to publicly disclose all the information it had about the links between A1 beta-casein and health risks.[9] The litigation threatened New Zealand's economy and international reputation as at the time Fonterra was responsible for 20% of New Zealand's exports.[9] The press over the litigation and public concern over the claims of A2 Corporation led the New Zealand Food Safety Authority and the Ministry of Health and the Food Standards Australia New Zealand to issue statements confirming the safety of conventional milk.[4][10][11]

A2 Corporation was able to obtain agreements with enough dairy farmers to launch A2 milk in New Zealand at the end of April 2003.[12] In the middle of 2003, both founders of the company died. In July, Paterson was found dead in his hotel room during a business trip at the age of 50,[13] and a month later Dr Corran McLachlan died of cancer at the age of 59.[14] In New Zealand it is illegal to make health claims about a food product without providing scientific evidence and registering the food as a medicine, and in November 2003 the New Zealand Commerce Commission advised that A2 Corporation Ltd and its licensed A2 producers had agreed to amend the health claims in their promotional material following a warning from the commission.[15] By end of 2003 the weakened A2 Corporation[16] had withdrawn the litigation against Fonterra and negotiations had resumed.[14][17]

The company, which had been in a tenuous financial situation since beginning trading in May, went into administration in October[17] and was liquidated in November, owing farmers and processors tens of thousands of dollars.[7][17] A $1.27 million federal government grant awarded to the company in August as part of the Regional Partnerships Program was also cancelled.[18] A2 Corporation set up a new subsidiary and licensee, A2 Australia, to market and produce its product. A2 Australia established new contracts with the dairy farmers who had A2 herds, promising better payment terms—a week in advance instead of once per month, after shipment.[7]

In December, A2 Corporation sold its interests in A2 Australia to Fraser & Neave, a food marketing giant in Asian markets, for about $1.1 million. A2 Corporation had lost about $1.3 million for 2004, the same as it has lost the year before; the sale allowed A2 Corporation to rely on Fraser & Neave to build the Australian and Asian businesses.[19] A2 Corporation focused on recovering from the deaths of its founders organizationally and financially, relied on its New Zealand licensees to develop the New Zealand market, and turned its focus to developing overseas markets.[16][19]

Between 2004 and 2006, A2 Corporation business continued to grow. Dairy Australia, the national association of the Australian dairy industry, and market competitors like Parmalat in response have consistently stated that there is no conclusive scientific evidence to suggest A1 proteins are dangerous and have warned that criticism of normal milk is damaging the entire dairy industry.[7][20][21][22][23]

Reconsolidation and succession as The a2 Milk Company

In 2006, A2 Corporation was on sound enough footing to buy back A2 Australia from Fraser & Neave.[16] In 2006, it lost about $1 million, after having lost $9 million the year before, but revenues had approximately doubled.[16] In that year it warned shareholders not to expect profit for another three years.[7]

Commercial development proceeded, and by 2010 some 40 million litres of A2 milk were being produced by 12,000 A2-certified cows across Australia, with milk processed at four plants in Victoria, New South Wales and Queensland,[24] and yoghurt made with A2 milk went on the market in Australia in April 2010.[25]

In February 2011 A2 Corporation announced it had a made a profit over a half-year for the first time; in the six months ending 31 December 2010, it made a net $894,000, or 17 cents/share.[26]

In December 2012 A2 Corporation announced it would attempt to raise $20 million and list on the New Zealand Stock Exchange main board,[27] and that it would use the funds to grow its Chinese infant formula and UK milk businesses. It listed in March 2013.[28]

In 2015, a2 Milk whole milk powder and a2 Ice Cream products were successfully launched.[29]

For the 2014–2015 Financial year, the a2 Milk Company reported it's Australian and New Zealand segment revenue grew by 40% vs pcp; and sales on a2 Platinum infant formula increased by 650%.[29]

A2 milk

Main article: A2 milk
a photo of 2L bottles of A2 milk inside a supermarket fridge.
A2 milk on sale in Australia (2014)

A2 milk is cow's milk that contains only the A2 type of beta-casein protein rather than the A1 protein commonly found in regular milk. A2 milk is sold as a product that is premium and healthier, which aids in digestion when compared to regular milks.[30][31][32] A2 milk is branded by the a2 Milk Company and sold primarily in Australia, New Zealand, China, United Kingdom and United States.[33]

There are two main types of beta-casein, called A1 and A2. These are produced by cows based on specific genotypes. A2 is recognised as being the original (or ancestor) beta-casein gene in dairy cattle. The A1 beta-casein protein developed following a genetic mutation in some European dairy herds several thousands of years ago and is now more commonly found in cows' milk. The A1 and A2 type proteins differ by only one amino acid. This difference in protein composition between the A1 and A2 type of beta-casein affects digestion.[34]

A patented genetic test, developed by the a2 Milk Company, determines whether a cow produces the A2 or A1 type protein in its milk. The test allows the a2 Milk Company to give licenses to milk producers once these producers prove their cows produce only A2 beta-casein protein in their milk, to the exclusion of the A1 beta-casein protein type.[35]

Human breast milk contains only the A2 type and not the A1 type and unlike cows' milk, human breast milk contains very little of the other casein protein groups. Most of the casein in human breast milk is the A2 type beta-casein.[36]

A2 milk is not a milk substitute for infants with cow milk protein allergies.[37]

The a2 Milk Company also produces 'A2 milk'-based infant formula and toddler milk drink, branded a2PLATINUM, based on a unique protein blend where the naturally occurring beta-casein protein comes from cows specially selected to produce the A2 beta-casein protein type exclusively, rather than A1 protein.

Scientific studies

After preliminary scientific studies revealed a potential health concerns may be linked to the A1 Beta casein, A2 Corporation unsuccessfully petitioned the Food Standards Australia New Zealand regulatory authority to require a health warning on ordinary milk.[6]

Responding to public interest, the marketing of A2 milk, and scientific evidence that had been published, the European Food Safety Authority (EFSA) reviewed the scientific literature and published a review in 2009. They found that experiments in cells and animals have shown that BCM-7, a by-product of the A1 Beta Casein, can act as a weak opioid receptor agonist but concluded studies conducted had not yet determined how BCM-7 might affect humans.[38]

The EFSA also found no relationship had yet been scientifically established between chronic diseases and drinking milk with the A1 protein.[38] Another review in 2009 found no established link that consuming milk with A1 casein causes diabetes.[39] A 2014 review of research into the relationship between consumption of dairy products (including A1 and A2 proteins) and the incidence of diabetes found that while there appears to be a positive correlation between consumption of dairy products by babies and the incidence of type 1 diabetes (T1D) in some people, and an inverse relationship between the consumption of dairy products and the development of type 2 diabetes (T2D) in some people, these correlations are tentative, it is not able determine what component or components of milk might be responsible for these effects, and it is unlikely that the expensive and complex research to determine the answers to these questions would be conducted.[40]

Intellectual property

A2 Corporation licensed patents filed in the 1990s by the New Zealand Dairy Board, and filed its own patents on genetic tests to determine what form of beta-casein cows produce in milk, and concerning potential adverse health consequences of A1 milk.[4][6][41][42]

By 2012 A2 Corporation had developed a worldwide suite of intellectual property, including trademarks, trade secrets, and patents covering products, the genetic test and methods to develop A2 producing herds, as well as methods to check the protein content and fatty acid content of milk, dietary supplements with A2 beta-casein, and even therapeutic uses of A2.[43]

The a2 Milk Company continues to develop a portfolio of intellectual property, including trademarks and patents. The a2 Milk Company also invests in targeted research and development associated with the benefits of the A2 protein.[29]

Markets

Australia and New Zealand

Sales of A2 milk in Australia and New Zealand boosted significantly following 2007, after the publication of a book, Devil in the Milk by Keith Woodford, about A1 beta-casein and its perceived dangers to health [44] and prompted the New Zealand Food Safety Authority to propose again reviewing the science to address consumer concerns that A1 milk might be harmful.[11] It asked the European Food Safety Authority (EFSA) to undertake such a review.[45][46] The EFSA report, released in 2009, found that "a cause and effect relationship is not established between the dietary intake of BCM7 (beta-casomorphin-7), related peptides or their possible protein precursors and non-communicable diseases”.[38][46]

A2 Corporation launched an infant formula in New Zealand and Australia in September 2013[25] and A2 thickened cream was launched in January 2014.[47]

A2 Corporation changed its name to The a2 Milk Company Limited effective April 2014, and at that time had about 8% market share of the milk products market in Australia.[48][49]

In 2014 Lion, a beverage and food company that operates in Australia and New Zealand and is owned by Kirin, relaunched their "Pura" milk product with a new label stating: "Naturally contains A2 protein."[22][49][50][51]

The a2 Milk Company announced in November 2014 that it had begun the application process for a dual listing on the Australian Securities Exchange in a bid to open its register to Australian investors and boost the liquidity of its shares. The company successfully listed on ASX 30 March 2015.[52]

United States

In August 2003, the a2 Milk Company exclusively licensed patent and trademark rights to US-based Ideasphere Incorporated (ISI) to market a2 milk products in North America.[53] ISI acquired Twinlab in September 2003, followed by another string of acquisitions in the dietary supplement market.[54] In June 2005, ISI and A2 agreed to form a joint venture, a2 Milk Company LLC.[55]

In April 2007 A2 Corporation announced a deal in which the joint venture would license rights to the Original Foods Company, whose branding the A2 milk product would carry, and in which the product would be sold in several midwestern states through the Hy-Vee supermarket chain.[56]

In A2 Corporation's 2009 Annual Report, the company announced that the joint venture had regained all rights to the US market through a settlement with the Original Foods Company, and that "The US dairy milk market remains intensely competitive and continues to be a major challenge."[57] In 2010 The a2 Milk Company bought out all but less than 1% of ISI's share in the joint venture.[58]

United Kingdom

The a2 Milk Company formed a joint venture with a major British milk supplier, Müller Wiseman Dairies, in November 2011 to process, market and sell its A2 milk products in Britain and Ireland.[59] In June 2014 a2 Milk Company reported it had 20 dedicated farms supplying milk for processing in the UK.[60] In its first year the milk recorded ₤1 million in sales through 1000 stores.[61] On 1 January 2014, The a2 Milk company exited its joint venture with Müller Wiseman Dairies by acquiring MWD's stake for a “nominal” amount.[62]

Chinese export market and growth

The first consignments of A2's infant formulas were sent to China in 2013.[63][64] Exports to China have increased dramatically following the 2008 Chinese milk scandal.[65][66][67][68]

References

  1. 1 2 "USA NY Investor Presentation 2016" (PDF). The a2 Milk Company. Retrieved 10 March 2016.
  2. ↑ "The a2 Milk Company updates FY16 forecast". Retrieved 22 December 2015.
  3. ↑ "2014–2015 Annual Report" (PDF). Retrieved 22 December 2015.
  4. 1 2 3 4 5 Australian Broadcasting Corporation. 31 March 2003 Transcript of "White Mischief", an episode of Four Corners, an investigative journalism series.
  5. 1 2 Staff, New Zealand Herald. 14 May 2001 A2 protein milk supply on horizon
  6. 1 2 3 Truswell, A.S. (2005), "The A2 milk case: a critical review", European Journal of Clinical Nutrition 59 (5): 623–631, doi:10.1038/sj.ejcn.1602104, PMID 15867940, retrieved 29 June 2014
  7. 1 2 3 4 5 Courtney, Pip (6 August 2006). "The A2 milk story". Landline. ABC Television. Retrieved 30 June 2014.
  8. ↑ Penny Smith for Just-food. 2 July 2003 A2 milk launched as controversy churns on
  9. 1 2 Deborah Hill Cone for Share Chat 1 November 2002 A2 accuses dairy giant of suppressing milk defects Quote: "The lawsuit risks inflicting catastrophic damage to New Zealand's international reputation and foreign earnings as Fonterra turns over $14 billion and makes 20% of the country's total offshore receipts. As if that would not be enough of a PR disaster as the country tries to maintain its position as a clean, green food producer...."
  10. ↑ Supporting documents for "White Mischief" story
  11. 1 2 Office of the Minister of Food Safety, New Zealand Food Safety Authority. 27 November 2007 A1-A2 Milk: Arrangements for Upcoming Reviews
  12. ↑ New Zealand Stock Exchange. a2 Milk Company Overview
  13. ↑ Staff, New Zealand Herald. 5 July 2003 Obituary: Howard Paterson
  14. 1 2 A2 Corporation A2 Annual Report for Year Ending March 2003. Note: Report was apparently published at the end of 2003
  15. ↑ Stuart A. Slorach, "Food safety risk management in New Zealand", page 14.
  16. 1 2 3 4 Louise Thomas for Unlimited. 26 November 2006. The A2 difference Archived 24 December 2015 at the Wayback Machine.
  17. 1 2 3 Shelley Lloyd for the Australian Broadcasting Corporation. 17 November 2004 A2 milk liquidates
  18. ↑ Australian Senate finance and public administration references committee report on Regional Partnerships and Sustainable Regions programs, October 2005, pages xiv, 97–100
  19. 1 2 Ellen Read for the New Zealand Herald. 30 December 2004 Quick sale likely for A2 Corp
  20. ↑ Hunt, Peter (24 March 2010), "A2 attacks milk", The Weekly Times (Melbourne), p. 3
  21. ↑ Smith, Simone (21 April 2010), "It's a matter of genetics", The Weekly Times (Melbourne), p. 107
  22. 1 2 Hawthorne, Mark (24 May 2014). "Rival watering down A2 Milk claims". The Age (Melbourne). pp. 8, 28–29. Retrieved 21 June 2014.
  23. ↑ Binsted, Tim (18 March 2014), "Parmalat boss hits out at A2", Australian Financial Review, p. 8
  24. ↑ Smith, Simone (21 April 2010), "It's a matter of genetics", Weekly Times (Melbourne), p. 107
  25. 1 2 Adams, Christopher (10 September 2013). "A2 gets ready to launch baby formula". The New Zealand Herald (Auckland). Retrieved 8 July 2014.
  26. ↑ A2 Corporation Press Release 18 February 2011 A2 Corp Declares a Maiden Profit
  27. ↑ Georgina Bond for the National Business Review. 5 December 2012 A2 Corp sets sights on NZX with $20 million equity raising
  28. ↑ Staff, The Headliner. 7 March 2013. A2 Corporation to Step Up
  29. 1 2 3 "FY Results Presentation 2015" (PDF). The a2 Milk Company. September 2015.
  30. ↑ "About our milk". The a2 Milk Company. The a2 Milk Company. Retrieved 27 December 2015.
  31. ↑ Pal,S.,Woodford, K., Kukuljan, S. and Ho,S. (31 August 2015). "Milk Intolerance, Beta-Casein and Lactose". Nutrients 7 (9): 7285–7297. doi:10.3390/nu7095339. PMC 4586534. PMID 26404362. Retrieved 27 December 2015.
  32. ↑ Locke, Sarina (11 August 2014). "Curtin University research conducts first human study on A2 milk with subjects reporting less bloat and pain than digesting A1 milk". http://www.abc.net.au/. ABC Rural. Retrieved 27 December 2015. External link in |publisher= (help)
  33. ↑ "A2 Milk Company Improves Insights into International Sales Performance with Help from WARDY IT Solutions". http://www.wardyit.com/. Retrieved 27 December 2015. External link in |website= (help)
  34. ↑ "A2 beta-casein explained". A2 Infant Nutrition Australia. Retrieved 27 December 2015.
  35. ↑ "Beta-Casein Gene-type Testing" (PDF). The a2 Milk Company. Retrieved 27 December 2015.
  36. ↑ the a2 Milk Company. "Benefits of breastmilk". Retrieved 22 December 2015.
  37. ↑ Kemp AS, Hill DJ, Allen KJ, Anderson K, Davidson GP, Day AS; et al. (2008). "Guidelines for the use of infant formulas to treat cows milk protein allergy: an Australian consensus panel opinion.". Med J Aust 188 (2): 109–12. PMID 18205586.
  38. 1 2 3 European Food Safety Authority (3 February 2009). "Review of the potential health impact of β-casomorphins and related peptides". doi:10.2903/j.efsa.2009.231r (inactive 2016-03-10).
  39. ↑ Clemens RA. Milk A1 and A2 peptides and diabetes. Nestle Nutr Workshop Ser Pediatr Program. 2011;67:187-95. doi: 10.1159/000325584. Epub 2011 Feb 16. PMID 21335999
  40. ↑ Lacroix IM, Li-Chan EC. Investigation of the putative associations between dairy consumption and incidence of type 1 and type 2 diabetes. Crit Rev Food Sci Nutr. 2014;54(4):411-32. doi: 10.1080/10408398.2011.587039. PMID 24236995
  41. ↑ EP0789842A1 Google patents
  42. ↑ Philippa Stevenson for the New Zealand Herald. 21 December 2000 A2 Corp pays $8m for milk patent rights
  43. ↑ Geoffrey Babidge, Managing Director & CEO of A2 Corp. April 2012 A2 Corporation Presentation
  44. ↑ A2 Corporation Press Release, November 2007. A2 Milk™ Sales In NZ / Australia Increase Substantially
  45. ↑ Stuart A. Slorach, "Food safety risk management in New Zealand", page 6.
  46. 1 2 Sarah Hills for Food Navigator. 9 February 2009 EFSA reveals milk protein safety conclusions
  47. ↑ Langley, Sophie (17 March 2014). "A2 Corporation set to expand into North America". Ausfoodnews.com.au. Retrieved 8 July 2014.
  48. ↑ Press Release, A2 Corporation. 31 March 2014 A2 changes name
  49. 1 2 Adams, Christopher (7 June 2014). "Lion relaunch a bid to slow A2 growth". The New Zealand Herald (Auckland). Retrieved 20 June 2014.
  50. ↑ "Protein punch in Pura form", The Advertiser (Adelaide), 26 May 2014, p. 11
  51. ↑ Hawthone, Mark (6 June 2014), "This means war ... in a milky way", The Age (Melbourne), p. 8, retrieved 27 June 2014
  52. ↑ Binsted, Tim (19 November 2014). "a2 milk to list in Australia". The Age (Melbourne). p. 28. Retrieved 19 November 2014.
  53. ↑ A2 Corporation A2 Corporation 2004 Annual Report
  54. ↑ Staff, Engredea. 3 July 2005 Ideasphere Intends to Acquire Non-Ephedra Metabolife Assets
  55. ↑ A2 Corporation A2 Corporation Half-Yearly Report for the half-year ending September 2005
  56. ↑ Malcolm Burgess for the New Zealand Herald. 25 April 2007 A2 to tap into US milk market
  57. ↑ A2 Corporation A2 Corporation Annual Report 2009
  58. ↑ Liam Baldwin for National Business Review. 5 October 2010 A2 Corporation takes full control of US marketing arm
  59. ↑ Ooi, Teresa (16 November 2011). "A2 deal has milk pouring into UK". The Australian. p. 41.
  60. ↑ "Our farmers". a2 Milk Company. Retrieved 9 July 2014.
  61. ↑ White, Anna (29 October 2013). "'Allergy-free' milk firm reaches ₤1m sales". The Telegraph (London). Retrieved 9 July 2014.
  62. ↑ "Müller Exits a2 Venture".
  63. ↑ Adams, Christopher (22 April 2013). "New A2 infant formula ready for China". The New Zealand Herald (Auckland). Retrieved 8 July 2014.
  64. ↑ Heathcote, Andrew (13 August 2013). "How the rise of A2 milk is adding millions to the fortune of Rich Lister Tony Perich". BRW (Sydney). Retrieved 8 July 2014.
  65. ↑ Adams, Christopher (29 April 2014). "Pressure on exporters of baby formula". The New Zealand Herald (Auckland). Retrieved 9 July 2014.
  66. ↑ Metherell, Suze (22 July 2014). "A2 Milk gets Chinese export clearance". Herald Sun (Melbourne). Retrieved 25 July 2014.
  67. ↑ Jared Lynch (10 November 2015). "A2 weighs up building baby formula plant to cash in on China demand". Sydney Morning Herald. Retrieved 22 December 2015.
  68. ↑ Jared Lynch (17 November 2015). "a2's infant formula sales surge 330% in four months". Sydney Morning Herald. Retrieved 22 December 2015.

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