A2 Corporation joins the big boys

Despite my long-held views about beta-casein, and the importance of converting dairy herds to produce beta-casein that is of the A2-type, I typically avoid commenting on the commerce of A2 milk. My hesitation stems from concern that people might incorrectly think that my commentary could be influenced by commercially sensitive information that is not in the public arena.

Despite that reticence, recent announcements from A2 Corporation  are sufficiently momentous that I have decided to contribute some words on the commercial developments.  In doing so, I want to make it clear that this post, and any other material that I might write on A2 milk, never depend on confidential information.

This week, A2 Corporation has shifted from the alternative NZAX Board to the  NZX Main Board. It has been clear for some time that the company had outgrown the NZAX Board, which  is for small developing companies, and the time had come to make the shift. The only real question was whether or not a dual listing should be sought on the Australian Stock Exchange. That has not occurred. Further down the track, another option might well be to dual list on the Hong Kong Exchange.

Over the last two years the shares in A2 Corporation have had spectacular growth in value. Two years ago they were bouncing around between 8 and 9 cents. Early this week, before a temporary trading halt was called, they had risen to 68 cents. However, on relisting on 7 December the shares dropped to a range of 52-54 cents. More on that later.

A2 Corporation Share Price.  (Source: NZX)
A2 Corporation Share Price. (Source: NZX)

The capital value of the company  has been growing even faster than the share price. This is a result of additional share placements. Two years ago, the capital value was about $NZ25 million. At the start of this week it was over $NZ400 million.

The shift to the NZX Main Board  has been contemporaneous with a share restructure. There has been a private placement of 180 million shares at 50 cents, with 140 million of these shares being traded for existing shares of the three  major shareholders, plus 40 million new shares. This gives A2 Corporation another $20 million in cash  to develop its strategic initiatives in various parts of the world.

The way in which  A2 Corporation structured the new share placement seems unusual. There was no rights issue to existing shareholders. Rather, there was an announcement that additional shares could be applied for, but with only 24 hours to make that application. The price of these new shares was fixed at 50c, which was a considerable discount on the most recent traded prices of around 68 cents.

When share trading re-commenced on 7 December, the trade price ranged from  52-54 cents. Presumably some of the prior shareholders would have been more than a little disappointed to see their shares decline in value so much from earlier in the week as a consequence of events brought about by the company itself.

It would be interesting to hear the thinking behind the decision to price the shares at 50c. My assumption is that some of the existing shareholders were very keen to cash  up part of their existing investment, but the potential institutional investors needed for this volume of shares had signalled an unwillingnes to pay the current market price.

A stated benefit from the sale of shares by the three major existing shareholders has been to create more liquidity in the shares. This need for increased liquidity is unlikely to have been a pre-condition for listing on the NZX, but it may have been a pre-condition for being included in the NZX50 Index.

The expectation is that, early in the New Year, A2 Corporation will formally become part of the NZ50 Index, i.e. one of the 50 major companies on the stock exchange.  There are a number of investment funds which have a policy of investing in all companies on the NZX50, and in this way they link their fund return to the index return.  Accordingly, this will create additional investor interest beyond that which would have occurred in any case from the higher profile associated with the Main Board.

Currently, A2 Corporation has only one market where they are profitable. That market is Australia where A2 now claims a 6.8% market share by value of milk sold in supermarkets  and similar stores. These sales have increased tenfold over a 5 year period from September 2007. In the most recent 12 months through to September 2012, sales increased close to 50%.

Back in 2007 the A2 business was indeed in some difficulty and the company was in danger of being delisted from the major supermarkets.  A2 Corporation publicly credited the turnaround in late 2007 to the impact of my book ‘Devil in  the Milk’, first published at that time, which focused on the health risks associated with A1 beta-casein. The A2 milk sales increased by 68% in the following quarter.

A2 Corporation have themselves not been able to make the claims that I did in my book, as it would be illegal to do so in advertising. But through a combination of sophisticated marketing linking the A2 product as a solution to milk intolerance, together with good exposure on public affairs programs, the ongoing growth has been both spectacular and sustained. They have also been highly successful in getting their message across to health professionals, including both doctors and nutritionists.

A2 Corporation has now published SKU (stock keeping unit) data for Australia showing that in October 2012 their full cream product was the 19th highest supermarket SKU. Eight of the higher rating SKUs are various formulations and packagings of Coca Cola. Nescafe has two of its coffees in there, and Tim Tams also are on the list. All of these are still above A2 milk, but in the milk category, A2 is Number 1.

The A2 milk category now exceeds the combined total of all organic, lactose free, goat, and soya milks.

The challenge for A2 Corporation is now to repeat their successes elsewhere, starting with fresh milk in the United Kingdom. A2 milk has been available since October 2012 in some 700 UK supermarkets (Tescos, Morrisons and Budgens), with more supermarkets coming on line in the New Year.

There will soon also be A2 infant formula on sale in China, with market entry planned for June 2013 using A2 milk sourced from Synlait in New Zealand.  I take some satisfaction from seeing  Synlait and A2 Corporation now working together in this way, having first introduced the respective CEOs to each other back in  January 2011.

However, I spend considerable time in China myself (my first of many visits was in 1973, and with four visits in the last 12 months) and I am well aware of the challenges of establishing the brand in that market. I think it will be difficult for A2 Corporation to get the market penetration that they need  unless they can tell the Chinese market that exactly the same product is available in New Zealand and Australia.  Chinese consumers are very knowledgable, and they do not trust specialist products from overseas that are not also sold in the home country of manufacture. They will quickly get online and check it out. (Middle Class Chinese now spend 44% of their leisure time online!)

A2 Corporation has also flagged their interest in marketing UHT (ultra heat treated) milk in China. I think such an initative would sit nicely alonside the infant formula initiative. Most milk sold in Chinese supermarkets is UHT which means it does not need to be chilled during transport and has a shelf life of at least 6 months.  But the question remains as to whether the additional $NZ20  million of cash that they now have in their war chest will be enough for such an initiatve.  Establishing a brand in China is going to be expensive.

Readers wanting to further explore the potential health benefits of A2 milk should go to the ‘A1 and A2 milk’ category on this website ( https://keithwoodford.wordpress.com).  To me, the risks associated with A1 milk are well defined.  However, the mainstream industry remains more than a little hostile, seeing A2 milk as a risk rather than an opportunity.  And this mainstream industry has a very powerful and sophisticated ‘PR’ machine.

I had hoped that by now we would have seen some definitive research to finally end the A1 versus A2 debate.  However, short term trials can never provide answers on conditions that in many cases take years to develop. So at this stage the issue of A2 milk remains controversial. There is lots of evidence, but still more is needed to counter the mainstream opposition.


About Keith Woodford

Keith Woodford is an independent consultant, based in New Zealand, who works internationally on agri-food systems and rural development projects. He holds honorary positions as Professor of Agri-Food Systems at Lincoln University, New Zealand, and as Senior Research Fellow at the Contemporary China Research Centre at Victoria University, Wellington.
This entry was posted in A1 and A2 milk, Agribusiness, Dairy. Bookmark the permalink.

11 Responses to A2 Corporation joins the big boys

  1. Edward Miller says:

    What is meant by “cash up?.” While this may have a recognized meaning in NZ, the meaning is not clear to me (a retired US professor of finance). Is this what in the US would be called “cashing out”.

    From what I know of the history of the corporation, I would presume large blocks of stock were held by the founders of the company of their heirs, and in some cases these would be most of their wealth. Standard advice would be for such investors to diversify, selling some of their A2 and investing in other companies. Thus selling by such investors need not reflect an opinion that the stock was not worth the current price (at least when held as part of a diversified portfolio).

    It would probably be well to spell out just how A2 caused the decline in share price. I presume it was because informed investors presumed that if big institutions would only buy at 50 cents, and the company would only sell at that price, 50 cents is the best guess at the value.

  2. Peter says:

    A mum in Melbourne Australia who is unable to breastfeed her baby is very keen to know when and where A2 Infant formula will be available in Melbourne. I told her to ring A2 Corporation to ask them. Until I told her tonight about the existence of A2 milk, she has been feeding her (struggling) child with infant formula which is 80% casein and 20% whey products. Until A2 infant formula is available, should she switch to 60/40 or 20/80 or Goats Milk Infant Formula or what? There seem to be no readily available experts on this topic in Australia.

    If the likelihood of A1 milk being linked to SIDS due to A1 infant formula is as great as or greater than the likelihood of A1 milk causing health problems in adults, then availability of A2 infant formula as a preventative measure with regard to SIDS is vitally important.

    The mum in Melbourne says that scientific research in China would be in Chinese and thus usually inaccessible to us. She thinks the Chinese demand for infant formula (more so than for A2 milk) suggests that China may have unearthed findings which we lack, about SIDS and A1 milk and perhaps BCM7. What do you think? If she is right, is there any way for us in the Western world to ask the Chinese what they know? She can translate Chinese to English.

    • Keith Woodford says:

      I am unable to provide specific advice to an individual as I am not a medical doctor.
      But I can confirm that goat milk formula will be free of A1 beta-casein.
      It may also be possible to find formula where all of the milk protein comes from whey.
      I visit China somewhat regularly and I think we would be aware if they had signficant research relating to the A2 issue.
      Keith W

  3. Peter says:

    We’ve found A2 infant formula on Coles Supermarket shelves for sale in Melbourne.
    This article http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11121927
    indicates it should right now be at New World and some Pak’nSaves in NZ too, with Countdown likely to follow within 6 months. More info can be found at:
    http://a2nutrition.com.au/ and http://a2nutrition.com.au/contact-us/our-nutrition-experts/.

  4. Stephen says:

    Hi Keith. Fascinated by your work ( though admittedly only just started ). I wondered if you had any thoughts on A1 being linked with middle ear infections? The reason I ask is there is loads on the web from concerned parents yet my doctor has never mentioned this a a possible cause ( or caused by extra mucas ) as my son has had dozens of infections yet changing dairy intake has never been suggested? Any ideas?

    • Keith Woodford says:

      Yes, there is lots of anecdotal / observational evidence that ear infections can be linked to A1 beta casein. Doctors are increasingly becoming aware of some of these mucus and related issues through the A2 Corporation program for Health Care Professionals, but there will still be many who have never heard of it.
      Keith W

  5. Stephen says:

    Thanks Keith, appreciate it.

    • Stephen says:

      In the uk there is hardly anything mentioned about this, is this down to the government not wanting to scare the public or is it down to their not being enough concrete medical evidence if so why isnt there enough medical evidence? To follow on with my previous question I have now switched my little boys milk and took him off his antibiotics ( Our decision ) as it is at least the 20th time the doctor has prescribed this instead of finding out what the cause is. I can really not understand how none of our doctors or consultants who have seen my son have even attempted to take us down the dairy route I mean he must of seen at least 10 different ‘professionals’…smells fishy at the very least.

  6. Dom says:

    Hi Keith,

    I just read your book “Devil In The Milk” and found it very intriguing.

    My 2 year old daughter is an avid milk and water drinker. She has a very sensitive palate and does not like any kind of sugary/sweet beverage like fruit juice (Thank God). With milk being an important part of her daily intake, I began to persue what’s the best type of milk for her to drink. She is very healthy and vibrant, and I want to keep it that way!!

    My reading and research has really been a huge eye opener, (esp. after reading your book). I quickly learned that homogenized milk is and unnecessary process and just no good, hence it is no longer found in my household. While I understand that pasteurized milk does get rid of bad bacteria, it also kills off the good bacteria and enzymes found in raw milk. UHT milk is a dead milk, hence has no place in my household either.

    I myself have started outsourcing a cooperative that will deliver raw milk to my house since New Jersey is not a raw milk state. While I am trying to find A2 milk in the North East region of the USA, I have come up short. The closest I have come is to seek out raw milk that is mainly comprised of Jersey and Guernsey cows, knowing that their is a higher probability of them producing A2 milk. I do understand that without the testing for A2 allele, it’s a total gamble. For myself, the day I own ranch and cows, will be the day I will have A2 milk for myself. I personally switched over to drinking raw milk, and really think it’s far superior to pasteurized milk by comparison. I wish I could switch my daughter over to raw milk, but my wife is against it, and with good reason due to not knowing the condition of the farm where the cooperative raw milk comes from ( as of yet…..I am working on obtaining that info and paying them a visit).

    In regards to my daughter and A2 milk, your book was worthy enough for me to start switching her over to milk that is devoid of the A1 milk allele….hence goat and sheep milk. While it will be a big expense, the benefits are well worth it. I just wish that more concerned parents would push to try and get A2 milk into their own home for their children, as well as here in the USA.

    Thank you.

  7. I understand why I cannot get A2 milk in Wanaka. The supermarket manager told me it is so expensive it doesn’t sell. I understand too that farmers cannot change their herds overnight, and doing so is not not cheap either. What I can’t understand, considering the risks of A1 milk, is why this is not an election issue, and why Fonterra was praised for re-introducing this milk to children in school.

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