2018 Annual Meeting materials (including trading update)

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NZX: ATM
ASX: A2M


20 November 2018
NZX/ASX Market Release

Chair’s 2018 Annual Meeting Address

Welcome
Good morning ladies and gentlemen and welcome to The a2 Milk Company’s 2018 Annual Meeting.

On behalf of the Board I would like to acknowledge the People of the Kulin Nations, who are the
Traditional Owners in this area. We pay our respects to their elders past and present and emerging.

As part of our policy of rotating the location of our Annual Meetings between New Zealand and
Australia, we are pleased to be holding this year’s Annual Meeting in Melbourne. Victoria is the dairy
heartland of Australia and also the home of a big part of our organisation. Thank you for welcoming us
so warmly to Melbourne.

I am satisfied that, in accordance with the constitution of the Company, a quorum is present – and I
would therefore like to declare the meeting formally open.

Introduction of Directors and Advisors
First of all, I would like to introduce those with me here today. On my right are the Company's Directors:
Jayne Hrdlicka, the Company's Managing Director & CEO; Julia Hoare, the Company’s Deputy Chair;
Warwick Every-Burns; Peter Hinton and Jesse Wu.

Also present are representatives from the Company’s Auditors, Ernst & Young. We are also
accompanied by a number of members of our senior management team, and by other colleagues.

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Before we start the formal procedures, could I please draw your attention to an important matter of
house-keeping before we get fully under way. Because some people may be using their mobile phones
later to vote, can I please ask that everyone attending in person ensures that their phones are switched
to silent now.

I will outline the measures we will adopt for the voting process in detail when we come to the
resolutions later in the meeting.

Agenda
The agenda for the meeting is as follows:
• I will make some brief remarks about the business
• Jayne will then give the CEO's business update
• We will then proceed to the formal business of the meeting, comprising:
- the Auditor’s fees and expenses proposal for the ensuing year;
- the election and re-election of Directors; and
- the increase in Non-Executive Director remuneration
• We will then consider any General Business that shareholders wish to raise

Notice of Meeting
The formal business is set out in the Notice of Meeting, which has been circulated to all shareholders.

Unless anybody has an objection, I will proceed on the basis that the Notice of Meeting is taken as read
– thank you. There are spare copies of the Notice of Meeting and the Annual Report available on the
table near the back of this room if anyone would like a copy.

Proxies
I have been advised that 1,123 valid proxies have been received representing more than 425 million (or
59%) of the total number of votes able to be cast at the meeting.

Minutes of the previous Annual Meeting
The minutes of the last Annual Meeting, held on 21 November 2017, have been signed by me as the
Chair of that meeting, as a correct record of those proceedings.

The minutes are available for inspection with our legal representatives.

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Chair’s introduction
Before I ask our Managing Director & CEO, Jayne Hrdlicka, to present her report, I would like to say a
few words by way of introduction.

FY18 in review
Firstly, I would like to thank you our shareholders for your ongoing support which has been a key
component of our continuing performance.

FY18 was not only a very strong financial year, but also one which represented further significant
progress towards our objective of building a truly global company with a broad range of nutritional
products, all centred on our unique and compelling brand proposition. In doing so, we continue to
strengthen our position as the pioneers and leaders of the A1 protein free category.

FY18 was a transformative year for the Company. Not only are we much larger and more financially
robust, but, more importantly, this progress creates future strategic opportunities for the Company. We
should never forget that we have evolved from a business that a short five years ago was centred on
fresh milk in Australia and today we are well on our way to creating a leadership position within
speciality dairy nutrition in the two largest consumer markets in the world, China and the United States.

In a moment, Jayne will further detail the progress we’ve made in building a more substantial foothold
in both China and the US with a significant physical distribution base in both countries, supporting
increased investment to further build the brand’s presence and loyalty in these critical markets. In
addition to this progress in China and the US, I would like to briefly highlight a couple of other key
elements of this last transformative year.

Firstly, during the last 12 months we significantly strengthened the Company’s strategic supply chain
arrangements with an enhanced relationship with Synlait Milk and a new strategic partnership with
Fonterra. Both of these arrangements put the Company in a much more secure position in respect of
our critical infant formula supply chain.

Secondly, we have recently undergone one of the most significant transitions that any company can
experience – namely the move from a retiring Managing Director & CEO to a new appointment. I and
the board are delighted to have been able to attract Jayne to the Company and, as importantly, we are
all delighted with the start she has made in the business. I would also like to take this opportunity on
behalf of the Board and all shareholders to thank Geoff Babidge for his extraordinary contribution to the
business over many years and specifically for the immense value that he helped create for all
shareholders.

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As I just said, I am pleased to report that your new Managing Director & CEO has made a strong start to
her role. She has hit the ground running after the benefit of a break to recharge and reset. Jayne now
understands the business deeply, has built strong relationships with our most important partners and,
importantly, has already identified the key challenges and priorities for the future. As a team,
management have been hard at work in the last four months, taking a detailed, fact-based approach to
refining our ongoing growth strategy while never taking the eye off the delivery of FY19. While much of
this is commercial in confidence, we look forward to sharing with you as appropriate over the coming
months.

Finally, the Board recognises that these outstanding results only come as a consequence of a great deal
of hard work by all of the Company’s employees and I would like to take this opportunity to thank
management and staff across all segments for their hard work, their passion and their dedication to the
Company.

I would now like to hand over to Jayne.

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NZX: ATM
ASX: A2M


20 November 2018
NZX/ASX Market Release

Managing Director & CEO 2018 Annual Meeting Remarks
Welcome to all of you in the room and those joining us via webcast. We are delighted to be here in
Melbourne today; Victoria is home to 35% of our Australian fresh milk so it holds a special place for us.

The a2 Milk Company is now a global business, with operations located in both the South and North
Islands of New Zealand, in most states of Australia, in China, in the USA and in the UK. We also have an
increasingly global investor register with over 30% of our investors based outside of either Australia or
New Zealand.

It is my great honour to stand before you as the Company’s new CEO. This is indeed an extraordinary,
young company. We are a company that has delivered so much for our consumers, our retailers, our
partners, our shareholders and our people over the last 10 years. The growth and evolution of this
company is impressive any way you want to look at it.

The fascinating and exciting thing is that we have really only just begun. As has always been true in our
history, the road ahead will not look exactly the same as the road already travelled, but it will for sure be
made easier by the great strategy and execution that delivered the business we have today. And it will
continue the evolution of the Company as we grow and mature particularly into the two biggest
consumer markets in the world - China and the USA.

I have been your CEO now for four months. Given how fast we move as a business, I can tell you it feels
like a lot longer. My early few weeks were spent getting across all aspects of the operations, building
relationships across the business and our key supply chain partners, learning the first principles of our
China business and then spending the better part of a month with many of you, listening to
shareholders’ views and thoughts about the business.

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My early impressions are of a business that has been built on solid foundations. We have something
very special in this company and it goes well beyond the A2 protein discovery, which was the basis of
our early patents and the establishment of our business. At the heart of our company is a deep and
burning passion to really make a difference in people’s lives with the very best in dairy nutrition. This led
to the development of a unique and trusted premium brand. This brand has been built upon a culture
that has strong values at its heart but is also progressive, consumer driven, hard-working, fun-loving and
deeply outcome driven.

We are a family serving families all around the world. And, we are quite comfortable doing that outside
conventional ‘category rules and norms’. At heart we are a disruptor and it is this ability to disrupt
conventional thinking that has built one of the most successful insurgent brands in the global dairy
nutritional arena. None of that will change and we will continue to invest in our intellectual property –
including research and development, our quality and supply chain processes, our people and our brand.

The combination of our quality A1 protein free nutritional products, our brand and our values-based
disruptive culture puts us in a unique position. We have been listening closely to our consumers and will
continue to lead the redefinition of what great looks like in dairy based nutrition.

The opportunities ahead for our company remain very significant. We have built a progressive, naturally
good-for-you brand that has achieved leadership status in Australia and has strong underlying
momentum in China and the USA. We stand for something special in the eyes of our consumers and this
comes with a big responsibility. We get that. It also brings your company big opportunity to continue to
invest behind the brand, develop new products that help us serve the changing needs of our young and
old consumers alike, while also delivering on the potential of our current suite of fresh milk and infant
nutritional products.

Financial update and highlights for first four months
The a2 Milk Company’s financial results are impressive and FY18 was a pivotal year in continuing the
transformative dynamic of this great company. We delivered for shareholders: Group Revenue of $922.7
million
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, a 68% increase over prior year; EBITDA of $283.0 million, double the previous year; Net Profit
after tax of $195.7 million up 116% on the prior year; strong cash conversion with operating cash flow of
$231.1 million, an increase of 131%; and, importantly, record market share positions across all key
products in all regions.

And, continuing the trend, we have today also released a record result for the first four months of the
year. We are reporting first four months: Revenue of $368.4 million, which represents a growth of
40.5% over prior year; EBITDA of $124.2 million, 58.5% growth on prior year; Profit before tax is $124.9
million up 60.0% and NPAT is $86.0 million up 64.5%. This is an excellent result. It is important to note
however, that the EBITDA margin of 33.7% is a timing issue and FY19 is expected to come back in line

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All figures are in NZD unless otherwise stated

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with FY18 EBITDA margin. We are making a significant investment in China and the USA and this will
increase both marketing costs and SG&A for the full year.

Underpinning this strong result in the first four months and the outlook for FY19 is strong performance
in each core market:
- Australia continues to go from strength to strength. The fresh milk business continues to gain share
of the category, with a record ~10% share
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of the total fresh milk category. a2 Platinum® infant
formula remains the market leader with ~33% share up from ~32% share at the end of FY18
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. New
products introduced at the end of FY18 continue to grow and gain momentum

- The momentum in China continues to build. Our multi-channel strategy to serve Chinese consumers
continues in its development. In addition to strong performance across our well managed and
sophisticated daigou network and our cross-border e-commerce platforms, The a2 Milk Company
has also added distribution of another 2,000 stores in the Mother and Baby channel to a total now of
12,000 stores. Our Kantar consumption share of value has increased to 5.6%
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in the latest MAT data.
We are particularly pleased to report that the China label infant formula sales embedded in these
numbers has grown by over 75% on the same four months last year. And, we also recently achieved
a record performance in the 11/11 sales festival with sales growth tripling over the prior year, a2
Platinum® ranked the number two brand in CBEC infant formula across four key e-commerce
platforms and a2 Platinum® Stage 3 was the top selling product overall
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.

- Progress in the US continues to build momentum. Our unique a2 Milk™ brand continues to deepen
distribution and grow in brand strength. An additional 3,000 stores have been added to the network
since the end of FY18 taking our store count to ~9,000. We have made significant investment in
national brand advertising and it’s delivering pleasing increases in brand awareness and sales
velocity through both new and established key accounts. Recent USA research data looks a lot like
our experience with fresh milk in Australia. The a2 Milk™ brand in the USA is successfully growing
category consumption, sourcing volume across multiple product segments and trading up
consumers from conventional milk

In addition to the progress made in each market in the first four months, we have also taken important
steps with our key strategic partners:
- An investment was made in Synlait to further deepen our relationship. In August the Company
acquired additional shares in Synlait Milk to take our shareholding to 17.4%. This investment serves
to further reinforce the comprehensive supply agreement in place with Synlait


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Aztec Australian Grocery Weighted Scan 12 months ending October 2018 vs YA
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Aztec Australian Grocery and Pharmacy Scan 12 months ending October 2018 vs June 2018
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Kantar Infant Formula market tracking of Tier 1 and Key A cities for 12 months ending September 2018 by value (Kantar
track a substantial proportion of the total market)
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Source: CBEC sales provided by platforms: Tmall, JD, Kaola and Yunji

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- Our first Fonterra initiative has successfully been launched. The a2 Milk™ brand under licence to
Fonterra New Zealand was launched in early August and now has reached national distribution and
is performing well. We have joint teams deployed to work through the next wave of opportunities
and we continue to be encouraged by the opportunity to work together more broadly

- The a2 Milk Company partnership with China State Farm continues to strengthen. In August we re-
signed our agreement with China State Farm. This relationship is strong and enduring and an
important part of building our business in China for the long term

Today, we are also reconfirming our outlook statements for FY19 made at the end of the full year,
namely:
• Expect strong revenue growth to continue but at a slightly more moderate rate than in the first
four months
• Expect EBITDA to sales ratio to be broadly consistent with FY18 reflecting a higher gross margin
percentage; offset by:
- Increased marketing expenditure as a percentage of sales given continued investment in
the Australian market and an increased investment to support China and US market
expansion – phasing will be higher in 2H19
- Further investment in greater resourcing to support continued growth
- First four months favourably impacted by FX, forecast to reverse during the balance of
the year

Regulatory dynamic
We also continue to believe the regulatory outlook is positive for The a2 Milk Company. On 31 August
2018, the Chinese Government announced the legislation of a new e-commerce law to improve the
development of this dynamic consumer channel. There has been much discussion about the law and its
consequences and I will take a few minutes now to update you on our views on the regulatory setting in
China with respect to infant formula as well as e-commerce.

For infant formula, there are two registrations required for China label product. One is for the individual
products and the other is for the blending and canning facilities used to produce the product. The
registration of our infant formula products was secured a year ago and the Synlait Milk manufacturing
facility that produces our products in the South Island of New Zealand is also registered. We believe we
are in a good position relative to many other international companies, particularly those with smaller
brands and we will invest heavily in market to ensure we are building a China based business that is very
respectful of the regulatory framework.

In August, the Chinese Government passed a new law providing a framework in respect of all activities
relating to e-commerce in China, both domestic and cross border (CBEC). This is not infant formula
specific legislation but rather legislation that seeks to step up the development of this channel in China.
Given the very fast pace of e-commerce growth in China this legislation seeks to specifically ensure basic

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consumer protections are in place and that appropriate tax is paid. We expect this legislation to require
that all CBEC platforms and daigou retailers be registered as an import retailer into China, abide by basic
consumer protections and pay the full taxable amount.

Several bodies of the Chinese Government have made statements in the last two weeks confirming the
following four key points:
1. China believes an open economy is an important part of its economic future
2. There will continue to be significant growth in imports into China over the next decade
stimulated by lower tariffs, easier customs clearance, reduction in institutional costs of
importation and stepping up cross-border e-commerce and other new forms and models of
business
3. As a part of the new e-commerce rules, 1 January 2019 will see the implementation of tighter
compliance to tax rules for all goods through CBEC and daigou channels
4. It is expected that changes to regulations will have considered transition times to ensure limited
disruption to market dynamics

As we have said on several occasions, The a2 Milk Company and our well managed daigou network,
have been anticipating and preparing for these changes for some time.

One of our great strengths as a company has been that we are constantly listening, learning and
adapting quickly to changes in our environment. My view is this has put us in great stead in building a
very flexible business model that we will continue to adjust as prudent.

Strategic outlook
Later in the financial year we will hold our first investor strategy conference and at that time we will talk
more comprehensively about how we see our future unfolding. We are now conscious of the fact that
what we say gets broadcast far and wide – and we need to be circumspect in how much detail we
provide about our future plans. Equally we are excited to talk about what the future holds.

You can expect that as a management team we have been very busy in the last four months taking stock
by listening closely to our consumers and stakeholders. We will continue to evolve and transform as a
company and be led by the opportunity we see to make a difference in the quality of people’s lives.

There are three macro trends at play which enhance the opportunity we have as a company. The first is
consumers around the world are increasingly focussed on products that enhance their health and
wellness, and as a part of this there is increased focus on digestive health and its long-term related
benefits. The second is a growing focus on food safety, naturalness and the provenance of food. The
third is the growing middle class in Asia and China, in particular. The aspirational nature of this growing
segment of the market combined with the growing focus on health and wellness and natural quality that
you can trust puts The a2 Milk Company in a good position for continued significant growth.

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In summary, we have had a great year and we are off to a strong start in FY19. We have a strong brand,
special culture and unique proposition, the combination of which positions us very well for the future.
We are not concerned about the current regulatory dynamic in China and elsewhere in the world. As a
company we are committed to always doing the right thing – and anticipating what that might look like
in the future. We are good listeners and we are well prepared for continuing improvements in the
regulatory framework which governs special foods in China, including infant formula. And, we are well
prepared for increased governance of the growing e-commerce channels into and across China. We will
continue to build your great company for the long term – and as a part of this, build strong local
businesses that are respectful of the regulatory environments we operate within.

So, while there is a lot to celebrate, the good news is that as a team we feel we have really only just
scratched the surface of our potential as a business. Thank you for your ongoing support. The journey
really has just begun.

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