Terms agreed – Mataura Valley Milk transaction

NZX Code: ATM
ASX Code: A2M

The a2 Milk Company Limited
www.thea2milkcompany.com


24 December 2020
NZX/ASX Market Release

Terms agreed for strategic acquisition of 75% interest in Mataura Valley Milk

The a2 Milk Company (a2MC) is pleased to confirm that it has, as previously contemplated, entered into
binding agreements relating to the acquisition of a 75% interest in Mataura Valley Milk (MVM), a dairy
nutrition business, located in Southland, New Zealand.
The proposed acquisition will provide the opportunity for a2MC to participate in nutritional products
manufacturing, provides supplier and geographic diversification, and strengthens our relationship with key
partners in China.
The terms of the transaction are consistent with those previously advised and provide for the acquisition of
75% of MVM for total consideration of NZ$268.5 million, based on an enterprise value of circa NZ$385
million. The acquisition will be undertaken on a debt-free cash-free basis and funded from a2MC’s existing
cash reserves.
Completion of the proposed transaction is subject to approval of the New Zealand Overseas Investment
Office, with completion expected to occur on 31 May 2021.
A key feature of a2MC’s proposed investment in MVM is that MVM’s current majority shareholder, China
Animal Husbandry Group (CAHG), will retain a 25% interest in MVM alongside a2MC. CAHG is a wholly
owned subsidiary of China National Agriculture Development Group Co., Ltd, which is also the parent
company of a2MC’s strategic logistics and distribution partner in China, CSFA Holdings Shanghai, Co., Ltd.
(China State Farm).
Strategic rationale
The due diligence process has confirmed our strategic rationale for pursuing this proposed acquisition,
namely:
• the establishment of dual supply arrangements for nutritional products to complement our existing
supply relationships that remain in place with Synlait Milk Limited and Fonterra Co-operative
Limited;
• capturing a unique opportunity to acquire a recently constructed and operational, world-class
nutritional products manufacturing facility in New Zealand;
• MVM is well located for access to a growing productive milk pool supported by favourable climatic
conditions and water availability;
• partnering with a highly-respected China state owned enterprise in CAHG, to assist in further
developing the business, including into China;
• the opportunity to produce additional infant nutrition products for China and other markets; and
• the ability to capture manufacturing margin.

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Expansion of MVM operations
As part of the due diligence and through discussions with the MVM and CAHG teams, we have also
commenced the development of a medium-term operating plan for the MVM facility.
With the business currently producing a high proportion of commodity milk powder products, our plans for
MVM are to support its transition to being a manufacturer of predominantly consumer packaged
nutritional products for a2MC over the medium term.
In order for MVM to produce consumer packaged nutritional products, a blending and canning facility and
associated infrastructure will need to be established, which would require an additional investment in the
order of NZ$120m over the first 2-3 years following completion of the transaction. In addition, an A1
protein free milk pool will be developed.
Transitional operating plan
In the transitional period, MVM will continue to operate as a manufacturer of commodity powders and
some base powders for nutritional products. We anticipate that during this period (FY22-24) the business
will operate at approximately EBITDA break even, with the business returning a positive EBITDA from FY25,
when significant nutritional volumes will be manufactured at the site.
Geoff Babidge, Chief Executive Officer, said, “MVM provides a unique opportunity to acquire a new world-
class nutritional products manufacturing capability in New Zealand, alongside a highly respected China
state owned enterprise in China Animal Husbandry Group. We have worked closely with CAHG and MVM
over recent months and have developed relationships with both teams that we are confident will provide a
strong foundation for the business going forward. We continue to be impressed by the MVM facility and
the management team.”
“We are very pleased that the transaction has the support of all MVM’s existing minority shareholders,
many of whom are farmer suppliers.”
Dr.Xue, Chairman of MVM, said, “CAHG welcomes The a2 Milk Company as a strategic partner as both
companies share the same vision of creating large scale world-class nutritional manufacturing at MVM.
a2MC already works closely with our sister company China State Farm and is well respected in the China
market. CAHG would like to thank our local farmers and staff for their continued support and is looking
forward to MVM being a significant contributor in the Southland economy.”
One-off acquisition costs
While it is not expected that the acquisition will be completed until the end of FY21, we expect to incur
transaction costs of approximately NZ$10 million which are expected to be treated as a one-off expense in
the current fiscal year, of which approximately half will be recognised in 1H21.
By order of the Board of Directors
Geoff Babidge
Chief Executive Officer
The a2 Milk Company Limited

For further information, please contact:
Investors / Analysts
David Akers
Head of Investor Relations
M +61 412 944 577
david.akers@a2milk.com

Rebecca Culbertson
Senior Analyst Investor Relations
M +61 400 955 295
rebecca.culbertson@a2milk.com
Media
Rick Willis
M +61 411 839 344
rick@networkfour.com.au