Photo: Screengrab
Photo: Screengrab

BusinessFebruary 23, 2018

Ten numbers that tell the story of A2 Milk’s astonishing $10 billion value

Photo: Screengrab
Photo: Screengrab

A2 Milk Co briefly burst through a landmark this week, reaching a market capitalisation of $10 billion on news of its deal with Fonterra. Here are ten numbers which encapsulate the milk brand’s inexorable rise.


A2’s shares rocketed up to over $14 this week (but fell back a little to settle just under $13) after it announced a deal with old nemesis Fonterra. This saw the company’s market capitalisation on the NZX briefly hit a very hefty $10 billion – before pulling back to a lowly $9.4b. It’s now neck-and-neck (taking into account market fluctuations) in terms of market value with Fonterra (based on the price its farmers pay for shares traded on the NZX).

The deal will see the dairy co-operative exclusively sell milk products without the A1 protein to the company in both bulk powder form and ready-to-consume products. “Fonterra has entered into an exclusive licensing agreement for the production, distribution, sale and marketing of a2 Milk™ branded fresh milk for end sale in the New Zealand market,” the milk marketing company’s release to the NZX said. Further, Fonterra has been granted supply rights for sales in A2’s new priority markets in South East Asia and the Middle East. It’s a pretty big deal, with Fonterra also agreeing to establish an  “A1 protein free” milk pool in Australia, and a long way from the contentious relationship the two companies have previously enjoyed.

A2’s share price making all the right moves. Photo: Screengrab


How appropriate is it the company’s stock exchange listing code is ATM! Because if you bought A2 shares for 50c apiece in May 2015 like this Twitter user, you too could have also recorded a paper hike in your investment value of more than 2000% and have a license to print money. In February of 2017 shares were selling for about $2.20. But over 2017 the shares were on a march upwards, clocking in at about $3.40 in June before rising to $8 by the year’s end.


The number this company has built its business around is the number 2. Milk has different types of protein in it, casein and whey (yes the same stuff as little Miss Moffet ate). Beta casein protein accounts for about a third of the total protein in milk, and of these beta caseins two – named A1 and A2 – are commonly found in the milk you buy at the supermarket. Some cows produce A1, some cows produce A2, and some a bit of both.

But way back in the day, the company says, all cows produced was A2 – until a mutation came along and gave us A1. The two were a happy pair of proteins that Kiwis drank down by the litre until researcher Dr Corran McLachlan discovered the two proteins affect people differently. The A2 Milk Corporation that McLachlan (backed by dairy farmer Howard Paterson) went on to found says the mutant A1 may be harder for some people to digest. A key plank of its marketing is not that it includes A2, but that it is A1 free. “Scientific research has demonstrated a structural difference between the A1 and A2 protein types and the way in which the digestive system breaks them down,” the milk company says.

Photo: Screengrab


A2 Milk Corporation (now A2 Milk Company) was first founded in 2000, but three years later came its entry into the New Zealand consumer market after a deal with Progressive Enterprises to stock the milk in its outlets; at that time Foodtown, Countdown and Woolworths. In the prior years the company focused on getting farmers to breed cows with A2 beta casein, all the while trading legal and PR blows with Fonterra (the then Dairy Board), with the dairy giant keen to protect its position.

Fonterra – as an A1 milk product producer – was obviously not keen on A2 attempting to take a slice of its market. It disputed A2’s claims about the drawbacks of consuming A1, and furthermore A2 says it also used clauses in the Dairy Industry Restructuring Act 2001 “to prevent or delay its farmers from supplying A2 milk” to its competitor – choking off supply.

A2, backed by uber rich agribusiness entrepreneur Paterson, went hard against A1 milk claiming it should come with a health warning and launching a case against Fonterra for breaching the Fair Trading Act. Media reported McLachlan “has claimed the beta casein A1 found in most cows’ milk sold in New Zealand has been linked with the development of coronary heart disease, childhood diabetes and also implicated with autism and schizophrenia” – huge claims that it had to dial back.

It was also a tragic year for the company, with both McLachlan and Paterson dying in what could have been a fatal blow to the fledgling business. The company’s 2003 annual report makes for sombre reading.

Photo: Screengrab


But that was not the end of A2. The same document details the company’s delight at being granted a patent in the US, protecting A2’s technology. The company holds a number of patents which have been critical in its success, and today it holds “14 families of patents”.

In the early days McLachlan helped to develop (and patent) a genetic test to determine whether a cow will produce milk without the A1 protein, and another patent (originally owned by Fonterra and the Child Health Research Foundation) explored the link between the A1 milk protein and the onset of insulin-dependent diabetes. The company bought the Child Health Research Foundation’s half of the patent for a reported $8m in 2000. In 2015 the patent co-owned with Fonterra expired, but the company’s chief marketing officer Susan Massasso told media “the company has secured a number of patents and trademarks that protect it from those that may want to mimic its unique process”.

“The strength of The a2 Milk Company’s intellectual property comes from the inter-relationship between a number of its patents, rather than any individual patent, and the inter-relationship between the company’s patents and other forms of IP, especially protected brand marks.”


In 2007 the company changed tack, going from licensing its intellectual property to other businesses to use to become a standalone milk brand. It followed this strategy in the coming years and by 2010 the company had culled its New Zealand licensees down to one – Fresha Valley. It purchased half of its Australian joint venture business in the same year so it could push into that market, making it a key driver of the business’ growth and said it was on track to make a profit in 2011.


The company operates in Australia, New Zealand, China, USA and the UK and now claims to hold more than 9% of the premium milk market in Australia. “Despite Australia’s large and mature milk market, we have achieved significant success here,” the company says. It says a2 Milk™ is the only milk brand distributed through all six key grocery retailers in the Australian market, and has captured 26% of Aussie’s infant formula market. It said in last year’s annual report that it had “diversified from a predominately Australian fresh milk business to extend into more complex nutritional products, such as infant formula, across a broader number of markets”. But infant formula is where it’s at for A2. For the financial year ended June 2017, a full 72% of revenue came from infant formula sales, with the company again targeting babies with digestive issues.


Is how much the company’s revenue went up in the 2016/17 financial year in China and Asia to book revenue of $88.9m before earnings, interest, taxation, depreciation and amortisation (EBITDA) was taken into account. In Australia and New Zealand revenue for the same period was up 48% with revenue of $439.6m while the US and UK segment of the business pulled in a more modest $21m. Total revenue was $549.5m, an increase of 56% over the prior corresponding period while net profit after tax was $90.6m, an increase of 198% year-on-year. Nice. 


Another recent announcement from the milk marketer gave investors (70% of which are on either side of the Tasman) the warm fuzzies about A2. Its half-year annual result (for the period ended December 2017) “exceed those for the 2017 full financial year”. Say what? Yep, that’s correct – in six months the company says it earned a lusty $434.7m, a whopping increase of 70% over the prior corresponding period and more than all of 2016/17. EBITDA of $143m was 123% ahead of the same period in the previous year, while net profit after tax was $98.5m – ‘only’ 150% ahead.

Photo: Screengrab


Wanna get your hands on some of it? A2 Milk is currently selling for this price (according to Countdown’s website) for 2 litres of milk. Its A1 competitors are cheaper – but not by much if you buy a premium milk brand. A 2L bottle of Meadowfresh goes for $4.45, a same-sized bottle of Signature range milk is $3.95, while a Homebrand bottle goes for $3.43.


This year long-standing CEO Geoff Babidge, who joined A2 in 2010, will retire. He has built incredible wealth for the company’s shareholders and leaves the company on top and after a string of good results. He capped the year by picking up (on A2’s behalf) the Deloitte Top 200 Company of the Year, one of the Kiwi business world’s biggest honours. Former Jetstar CEO (should we be worried?) Jayne Hrdlicka is set to take over. This time it is getting the opportunity to plan its succession. Will the new boss be able to keep up A2’s momentum?

The Spinoff’s business content is brought to you by our friends at Kiwibank. Kiwibank backs small to medium businesses, social enterprises and Kiwis who innovate to make good things happen.

Check out how Kiwibank can help your business take the next step.

Keep going!