A2 milk author breaks his silence

Professor Keith Woodford

Listed company A2 Corporation issued a statement in November 2007 saying publicity from Professor Keith Woodford's book Devil in the Milk had resulted in "a significant increase in demand for a2 Milk".

"Our Australian joint venture company A2 Dairy Products Australia has reported an average 80% increase in sales across the 1100 stores stocking A2 Milk since the book was launched" A2C's ceo Anthony Lawler said at the time.

It was a turning point.

In the year to March 2007, the company had revenue of $27.6 million and made a $5.1 million loss.

Sales in the year to June 2012 have grown to $62.5 million and the company's after-tax net profit over that period was $4.4 million.

Lincoln University's Prof Woodford, an agricultural scientist, has been careful to keep his head down since – worried that people would think his views were based on commercially sensitive information.

However, he decided the company's recent announcements were "sufficiently momentous" for him to break his self-imposed ban.

Health claims

Firstly, though, what is A2 milk?

This milk does not contain the A1 milk protein which some link to serious illnesses.

Prof Woodford's book highlights research showing countries with a high intake of A1 milk have a high incidence of type 1 diabetes and heart disease.

Earlier this month, A2 Corporation has jumped to the NZX's main board following two years of share price growth – from below 10 cents to this week's mark of just over 50 cents.

The premium milk marketer also raised $20 million through a placement to institutional shareholders.

The private placement involved the three main shareholders selling 140 million existing shares and 40 million new shares being issued, all at then discounted price of 50 cents.

A2 shares (NZX: ATM) had been trading at 68 cents before the capital raising announcement and quickly dropped to the placement price.

The unusual nature of the new share structure announcement, and the sudden share price drop, seems to have prompted Prof Woodford to write.

"It would be interesting to hear the thinking behind the decision to price the shares at 50 cents," he says on his blog.

'Keen to cash up'

"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 unwillingness 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."

Prof Woodford says promotion to the NZX50 will create additional investor interest in A2 Corp because some investment funds have a policy of investing in all top 50 companies.

The company's challenge, he says, is to repeat its Australian successes elsewhere, starting with the United Kingdom and, inevitably, China.

Having spent considerable time in China, Prof Woodford says it will be difficult to get market penetration with China's knowledgeable consumers unless the exact same product is available in New Zealand and Australia.

"The question remains as to whether the additional $20 million of cash that they now have in their war chest will be enough for such an initiative," he concludes.

"Establishing a brand in China is going to be expensive."


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