Lining up China ?
https://nz.finance.yahoo.com/news/ch...062819894.html
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Lining up China ?
https://nz.finance.yahoo.com/news/ch...062819894.html
All aboard. Last minute ticket prices are increasing so get in now before the train departs. The wheels have started turning through 65rpm, don't miss out.
Enlighten us
Uptrend has already started and is looking good.
Well I'm not sure that spending money on a PR-Web revamp will be regarded by most shareholders as ATM's priority at this time, but who knows, in this digital age I guess a more ccooordinated and integrated strategy across markets is probably not a bad thing.
http://www.thedrum.com/news/2014/11/...unt-analogfolk
But are revenues, and with it EBITDA margins in Australia increasing faster than the projected expenses are increasing? The answer to that question I think is no.
The US is a big place, even bigger than - Australia ;-). But if you believe there are no vested interests there and the competition will roll over that's fine. The last ATM rights issue was made when the share price was 70c, and subscribers were asked to put up funds at 50c. And that was when the market was better disposed towards growth shares than today. If a rights issue of similar magnitude was declared today, the new share price would have to be less than 50c. I don't think ATM wants that, which is why no new rights issue has been declared. IMO ATM are rolling the dice for another year, trying to get that share price up.Quote:
And if more cash is needed there'll be shareholders happy to take up a rights issue, I would say. Me for one. That could happen when the company launches into the US, although capital costs for that operation won't be huge and are already budgeted for.
There is a difference between 'IP weakening' and 'running out'.Quote:
And all this talk about ATM's IP being close to running out is thoroughly alarmist.
Higher profitability? ATM have given up on profits! They are reinvesting all their positive cashflow into developing new markets. Turning from a licensing company into a joint venture provider on the ground is much more capital intensive, even if it does (seemingly) work better. This change in strategy has introduced much more capital risk though. A company that doesn't make profits has to keep the capital tap turned on. That puts a life span on the company. I am calling the capital tank to be empty within two years if no capital raising is done. Doesn't matter how good the ideas behind ATM are. If they run out of capital, that's it - for current shareholders anyway.Quote:
If you think the company is on a knife edge, that's nothing to where it was a few years ago. Since then under Cliff Cook, it seems to me to have been very prudently run, nothing risky, and with a clear path towards higher profitability in well-chosen markets and greater global consumer acceptance.
A2 may be a strong brand, but it is not a monopoly product. A2 has to compete with all the soy milk rice milk and almond milk products. And if you want identical rather than similar, all some smart US entrepreneur has to do is to start up 'Buffalo Milk' and market it as that. Since Buffalo milk is all A2, that is the end of the so called monopoly. You can't have a monopoly on what is a naturally occurring product in nature. Mind you, having a strong brand and first mover advantage may be enough to make things difficult for the competition, monopoly or no monopoly.
Raising more capital.Quote:
What do you expect them to be doing at this stage of their business cycle?
SNOOPY
On both the daily and weekly charts it has passed through the down trendline and is making higher highs and lower lows.
If you look at the daily chart there is a reverse head and shoulders pattern,it has also passed through the neckline of this and is moving up,very bullish in my opinion,volume is also ticking over pretty nicely.Also for me very importantly it is above the 50 day moving average.
Hi Snoopy
I won't try to debate every point you raise, many of which simply demonstrate rather different points of view on what ATM is about. But a couple of points:
No I don't think there are no vested interests there, but it's a huge and diverse market and a2 milk is not going to be a threat, just another consumer option. It may pose a bit of a challenge to soy, almond etc because it will be saying you may not need to switch to faux milk when there's a real milk that avoids some of the problems of apparent lactose intolerance for some consumers. But what are they going to do - close a2 down? Not when the science is so clear in favour of a2.
As for the threat from Buffalo Milk: if buffalo could be farmed economically as a competitor for cow's milk, I suspect we'd already be hearing about it. And ATM does not try to use its IP monopoly to stop people having a2 cows, a part of nature. It just says in effect that you can't market your milk as a2 unless you can prove it's a2, and the only way you can do that is by using our DNA test.
You say that ATM "have given up on profits! They are reinvesting all their positive cashflow into developing new markets". Lots of companies forego dividend payments in their early stages to reinvest in expansion. That doesn't mean they've given up on profits.
Big volume day - 2.4m, probably 2m in the last hour. New floor for a bit one hopes...
Not sure how many fund managers would own ATM snapiti. Given that they scrap into the top 50 I would think a few but probably not that much of an exposure as lifting the price would make any difference to overall fund performance. Would think that those funds running growth portfolios would have some exposure but that is not the majority of where most of the money is, rather more the conservative and balanced portfolios. In addition to this a lot of the fund managers tend to prefer dividend paying stocks and a number that I am aware of believe that in terms of ATM the "science is not proven" When it is they will be happy to pay twice the price than where they are currently...institutional mentality.
looks snapiti has got banned on ST
Sucking in buyers at 66c for Mr Seller to offload another swodge today?
Pleased to report that Count Down Mt. Wellington have increased the shelf space by 100%
Now have two rows by 5 or 6 bottles instead of the one row..
With a much less erratic supply ..
Slowly but surely :-)))
The USA is the home of a million market niches. Ther is certainly a niche there for A2
I only mentioned buffalo because buffalo milk is all A2, so there is no need to take the A2 licensed test. What I am saying is you can market milk which chemically is the same as A2,without calling it A2,and it will have the same benefits as A2 because it is exactly the same thing!Quote:
As for the threat from Buffalo Milk: if buffalo could be farmed economically as a competitor for cow's milk, I suspect we'd already be hearing about it. And ATM does not try to use its IP monopoly to stop people having a2 cows, a part of nature. It just says in effect that you can't market your milk as a2 unless you can prove it's a2, and the only way you can do that is by using our DNA test.
I don't want to question the A2 strategy of spending all their spare cashflow on developing the brand. IMO that is the right thing to do at this stage of the product development cycle. The fact that A2 is on the cusp of profitability, or could be profitable if they wanted to be, is what attracted me to look at them. This is no mean achievement among growth companies. But what is important from here is the amount of capital required to develop the company from today, verses the current and likely capital available in the future. If Australia is not generating enough investable capital going forwards then ATM has a problem, notwithstanding their past success in Australia.Quote:
You say that ATM "have given up on profits! They are reinvesting all their positive cashflow into developing new markets". Lots of companies forego dividend payments in their early stages to reinvest in expansion. That doesn't mean they've given up on profits.
The point I was making is that if they were making regular profits of significance, like say Fonterra launching a new ice cream brand, there is no ticking clock for the business plan to succeed. A mistake may slow down maket development. But in the case of ATM, a mistake could kill the company. The A2 milk product itself can outlive a potential ATM company collapse. And should a collapse happen I think A2 milk would go on. But current shareholders would no longer be in the picture if that happened. What I am saying is the ultimate success of 'A2 milk' and the ultimate success of the 'A2 milk company' are different things. I am not sure that all investors here understand they are investing in the A2 milk company, which may or may not follow the fortunes of A2 milk itself.
SNOOPY
Excuse my ignorance.
How do ATM get the milk onto the supermarket shelves in Australia, physically that is.
They have farmers with a2 herds .....they say they have a network of independent processors (dairy factories?) who process the milk ......freight seems to be a big expense. That's about all I know
Do they pay these independent processors a set rate to process the milk and package the end product?
Does A2 have its own distribution centre / warehouses or do they utilise the infrastructure of the independent processors to get the product to the likes of Coles?
From a value chain perspective I assume that what A2 Corp makes is what they sell it to Coles et al less want they pay the farmer for the raw milk less the independent processing cost less all distribution and delivery costs? Sales and marketing on top that.
Just trying to fine tune my financial model
A part of the answer to your question is contained in the following two items. The fact is that a2MC in Australia still has a variety of processing and distribution arrangements cobbled together. But it has had quite a big plant of its own in Sydney since 2012, and its new deal in Western Australia illustrates how it is expanding away from that facility.
http://www.headliner.co.nz/news/12957.html
http://www.voxy.co.nz/business/a2-co...plant/5/119801
Quiet day today , time to go and weed some more garden. Enjoy your a2 milk shake. Thats given me an idea. Someone should start an a2 milk shake bar.
W69, I think this is a really interesting and fundamental question. I have been thinking about it in relation to the UK. In northern Europe, you have countries with herds that are largely A2. These countries are geographically very close to the UK and within the European Economic Area (not all in the EU). Who says the A2 milk sold in the UK needs to be produced in the UK ? Maybe conversion costs and issues are not as cumbersome as we tend to think.
Not sure how commercially successful that would be. A better approach, I think, would be to persuade milk shake bar operators who are already doing well to offer "ordinary" milk shakes at normal price and a2 milk shakes at a premium price - they would have to be at a significant premium to cover costs. That would get people asking "what's with this a2?". You could then hand out your info material explaining the health benefits of a2 and where it can be bought in your area.
a2MC UK already has farms in Wales and western England supplying a2 milk and I don't think supply is a problem. Remember, it's a niche product, not requiring massive quantities. And transport across the water would add big costs. The question will become more interesting when a2MC moves into the US. It's starting its sales in California, better known for i8ts wine than its dairying, and my guess would be that milk may be brought in from the midwest (eg Nebraska) which is cow country two states away. There are already a2-only farms there, and in the US it's nothing to cart milk thousands of km.
Isn't it all about the brand though? If A2 milk is going to be imported into the UK from european neighbours they certainly will not be able to use the A2 branding. So what do they do to differentiate when all the marketing has been centred around A2. "A1 free" doen't seem to ring through or variations of that because most consumers wouldn't draw the relationship between the two. All they know is that A2 is good and non A2 isn't so good. Any branding with anything to do with A2 would be a breach of copyright.
Finding it difficult therefore to see snoopys death spiral for A2 milk company Ltd should the marketing effort promoting the A2 brand in the UK and USA not gain any traction. Sure, the shareprice would be battered but I guess the company would reconsolodate back to Australia and then start paying dividends.
At least at that point there would be no debt accrued to repay. I suspect that ATM will prudently determine its effectivemness going fwd with the marketing outlay committed to developing marketing share without going into debt.
Harrie I am looking at it as a positive for a2mc. I am considering whether it may be an option for a2mc to more quickly and less costly certify and convert farms in the Nordic countries, to supply the very large UK market with fresh 100% A2 milk. All under the A2 brand of course. Just pondering why it needs to be produced in the UK
NT doesn't think that there would be a supply problem but I guess with so much natural supply of A2 milk in the nordic countries its a good supply fall back position. I suspect though as sales of A2 gain traction in the UK more farmers will be willing to convert especially if they can see a maintainance of premium price as the popularity of A2 milk consolidates and grows market share.
I was living in norway for 2 years, 2 years ago. Milk there costs between 3-4 nzd a litre. I guess their expenses are much higher as the majority of the country is under snow 8-9 months of the year. Norway may not be the best example however as sweden and finland are about 30-40% ish cheaper with less snow year round.
Heres a photo i took at my nearest Aldi 2 days ago - hard to see all the labels but basically every milk product you can see in the photo is "Farmdale" milk (the ALDI brand) except of course a2 (in the top left corner). It retails for $4.40 (60c cheaper than anywhere else). https://www.dropbox.com/s/thvqi5pm7v...06.15.jpg?dl=0
And heres an article to go with it: http://www.abc.net.au/news/2014-11-2...ction=business
Just as Costco is a great partner when taking a2 to the states, I imagine Aldi will prove an excellent partner for introducing a2 to the rest of Europe. The future looks bright!
Bought a lil at $0.64 - had to use some spare cash up before I did something stupid, I almost bought PPL with it, gosh.
Im pretty sure that is their standard price, it didnt have the red tag they usually do for specials. Possible answer to your question..... A friend of mine works for a large food company, and Aldi ripped off one of their products - The food company threatened legal action unless Aldi removed the product, to which Aldi offered to stock their product instead. The food company thought they wouldnt be able to make their margins and sell at Aldi's prices, but as it turned out Aldi is a super efficient company that does things VERY diferently to other supermarkets (distribution, logistics, warehousing, shelf stocking practices etc) which is why their products are so cheap, rather than pounding down their suppliers prices (although im sure that probably happens a bit too). End story is, I think, a2 still makes the same margin and Aldi still makes their normal margin - consumer wins (which is why Aldi is growing so quickly) - hence the $4.39 for a tasty bottle of a2!
Will keep an eye on it however in-case it was just a special...
The mystery surrounding the identity of Equity Casa Grande, the Delaware-registered company that owns 30 million shares in ATM and is its sixth biggest shareholder with a 4.55% stake, turns out not to be such a mystery after all.
It is the investment vehicle of colourful US billionaire Sam Zell, who is a close friend and business associate of ATM’s chairman Cliff Cook. He was the guy who famously created America’s biggest property empire, Equity Group and cleverly sold it off for US$39bn just before the Global Financial Crisis, whereupon the US property market turned to mush and most of the group’s properties became worth less than the mortgage debt they carried. He also famously bought the Chicago Tribune media group which included the Los Angeles Times for US$8.2bn and then put them into bankruptcy protection a year later (the papers now survive under different ownership structures).
Zell is estimated to be worth about $5bn and his current major investment vehicle, Equity International (owned through Equity Casa Grande LCC), specialises in identifying and partnering companies outside the US, usually by investing in real estate-related opportunities. He is a co-investor in London-based LifeCare Residences, a luxury international retirement village operator set up by Cliff Cook, who had founded and then sold off NZ listed retirement village operator Metlifecare. LifeCare has retirement villages on Waiheke and in Remuera.
Zell received ATM shareholders’ approval at the shareholders’ meeting in 2008 to purchase 50 million shares. It’s interesting now to look back at what happened then, as reported by The Independent:
“It was through retirement home connections that A2 Corporation chairman and substantial shareholder Cliff Cook and his right-hand man Greg Hinton met Zell and his executives, culminating in the fund's investment in A2.
“A2 shareholders also voted on Friday in favour of a placement of 28 million shares to AMP Capital for 10c a share, (bringing its total stake in the company to 40.015 million shares, or 12.85% of A2) as well as the issue of 13.915 million shares to the Child Health Research Foundation in exchange for it agreeing to terminate an agreement it entered into with A2 in April 2004 for entitlement to a portion of future royalties. This agreement related to a jointly held patent between the two parties for processing milk from cows with only A2 beta-casein protein, free of the A1 casein linked to illnesses such as heart disease, diabetes, autism and schizophrenia.”
In July this year, Dairy Farms NZ Ltd, which is a US-NZ JV 62.8% owned by Zell, received OIO approval to buy 434.4ha of dairy farmland at Lowcliffe in Canterbury for $22.3m. Whether this is connected with the ATM-Synlait operation I don’t know.
NT001,
Clavell Capital, the Auckland based investment advisors behind A2 Milk are also behind Dairy Farms NZ, who boast Sir Henry Van Der Heyden (ex Fonterra) as an advisor to the company.
There are indeed possibilities for Dairy Farms NZ (who anticipate listing in mid 2015) to increase their*revenue by converting some of their herds to A2.
The Companies Office website is down for maintenance, but a casual examination of the Dairy Farms NZ shareholder list on the NZCO website would reveal some*interesting names...
Like lada cars
Still trying to get a real feel for the A2 financials, mainly because I struggle to get any DCF to give me anywhere near 90 cents / $1
Is this slide really meaningful (from annual results preso) - like say for Australia is the intercompany charges and license fees of $14.2m a real cost or just a lot of smoke and mirrors to confuse mere mortals like me. Upon consolidation it probably has no impact and A2 have put this disgram in to try to show how much money is made in each segment.
Reading all this stuff it appears as A2 say that 'investment for growth' was $7.5m - does that imply normalised earnings were about $7.5m pre-tax then?
I missed this slide earlier in the year. It's quite interesting. Intercompany charges are normally run pro rata to reflect physical things like volume of work (perhaps litres or kg's consumed) or staff headcount, or a combination of several parameters. Done properly, and with the appropriate documentation in place, it's a tax efficient mechanism.
The figure I find interesting on the slide is the charge being costed to the NZ operation ($10.6M). Its massive relative to the size of the operation here (notwithstanding see weed's ongoing efforts!!!), and presumably mainly reflects the licensing arrangement with FV. Another good reason to see FV gone and fees reinvested in an alternate growth mechanism.
Still thinking about your final question w69.
Cheers,
Trigger
There’s been quite an increase in intercompany charges over the last two years.
It reflects the company having gone from operating within a single market, Australia, to having opening up two new markets in the UK and China and the overhead and support staff required for those markets. I’ve allowed for a further step when the US market is opened next year.
At the end of the day Trigger, although intercompany charges are an overhead, in this instance they are also an investment in growth and although they may seem a bit large at present they probably will stabilise off a little next year once the US entry is initiated.
The revenue growth from the three opened markets UK, China and US, are all at the very bottom of the curve, and in a couple of years those intercompany charges will seem much much less as a percentage of gross.
Yep I'm comfortable with all that Mac. And have no issue with the mechanism. What I hadn't appreciated in the past was the high charge attributed to the NZ operation. I doubt this reflects the size of the operation here, though its a little hard to tell with physical consumption kept away from the market. So I can I only put it down to the second element of cost in winner's slide - i.e. license (Fresha's) fees. My point being, once Fresha leave the building in early 2017 we should see a positive knock on for the consolidated business. Am I barking up the wrong tree?
Trigger
Trigger, I don't think I misread you but you seem to say nz carries $10.6m in inter company charges
I actually think it is actually a "credit" - the offset in the charges made to Australia etc.
I assume this is admin cost recovery and some license fee/royalty arrangement bring profits back to NZ. In other parts of the accounts NZ is reported as making lots of money on hardly any sales.
Is that how you see it?
Yes you're right sorry guys. In my mind the model was Australian Head Office as hub, supporting the regional offices (UK, China, NZ and soon to be US) and inter company charges for services being made to each region on, for instance, a volume basis. Thanks.
Trigger
Couple of small points
Australia has become the business hub but some staff are still in Auckland, and since the company is listed in NZ, a lot of corporate expenses would be picked up here, including listing costs, accounting/auditing, strategic advice, IP legal advice and executive travel costs.
Regarding Fresha Valley, my guess is that the situation will change before 2017. MAC reported from the ASM that the FV deal is not exclusive, and that the company is aware of impatience among NZ shareholders. I'm sure the Synlait operation offers options for ATM to start up its own NZ distribution system at least south of Auckland, and there are also other options, such as farms in Waikato that have already converted to A2-only, just waiting. FV could be allowed to continue looking after the Auckland market meantime. It has its own big market in Auckland for standard milk, which is its main priority, and might be pretty happy to be relieved of its current obligation to distribute A2 milk nationwide.
On the other hand, shareholders who are already questioning whether ATM can afford to simultaneously break into the UK, China and the US would be reluctant to see resources being diverted to market development in NZ, at best a minor market, as well.
Winner or anyone,
Has anyone tried going through the accounts and cutting out all the money estimated to be spent on growth etc and worked out an underlying 'profit' for Australia for the $110m of sales?
Cheers
Yeah, I've given it a go for the last few reports, there's not really enough information to do that accurately I've found, although you can get close from evaluating the profitability of the Australian segment, which is basically close to most of the operating revenue.
Australian operating EBITDA at FY14 was $18.7M,
Gross margins are a good indicator generally though of underlying performance;
Attachment 6542
I can take it one step further than that.
$18.7m is the EBITDA earnings from Australia before licence fees and less investment in new market development of $7.5m and the undeclared 'corporate costs' which reduce EBITDA to $3.6m. So licence fees and corporate costs must be:
$18.7m - ($7.5m + $3.6m) = $7.6m
If we assume that 1/4 of corporate costs relate to Australia, while the other 3/4 go to developing China, UK and USA, then underlying EBITDA for Australia is:
$18.7m - ($7.5m + 0.25($7.6m))= $9.3m
Since Australia is the only developed market we can assume that all the Depreciation and Amortization relates to that market.
So NPBT = $9.3m - $1.9m = $7.4m
Tax that result at 30% and you get NPAT of $5.18m. There are 660m shares on issue. So this gives earnings per share of:
$5.18m / 660m = 0.00785cps
A reasonable growth multiple might be 20 if ATM finds itself an Australian only brand in the future.
So fair value for ATM Australia is.
20 x 0.00785 = 15.7c
At 63c, ATM has an awfully long way to fall to get back to fair value. There is some chance, say 25%, that ATM will become an Australia only company in a few years. So such a scenario needs to be factored in to what ATM is worth.
SNOOPY
I hope when you guys are making your growth forecats in other markets you are taking out the inflated fake growth that was achieved in Australia due to the supermarket milk price wars.
I notice that ATM quote their achievements by measuring their market share in terms of gross market value. If the price of an ordinary one litre of milk goes from $2 to $1 and sales remain constant then the gross value of those sales in the market halves. If the price of A2 milk representing say 2% of market share by volume does not change, that means:
1/ The gross market value of retail milk sales approximately halves.
2/ By value, the gross market share of A2 milk will double, with no increase in A2 volume.
3/ That in turn means that A2 will roughly double their market share percentage, by selling exactly the same amount of milk.
Since this milk price war between Coles and Woolies started early in CY2011 just as A2 was getting established, I believe that A2s growth by volume is probably only about half the market share growth by value.
That means that if A2 goes into a new market which doesn't start a milk price war when they appear on the scene, the market share gains with time are likely to be only half what has been seen in Australia, all things being equal. In other markets we know that all things are not equal because there is no duopoloy which guarantees that once A2 milk was established that the single other player had to follow suit. It therefore seems logical that annual growth in other new overseas markets is likely to be only half that seen in Australia. But all you growth gurus are already aware of that, so have built it into your growth modelling - right?
SNOOPY
Gawd, it’s all so misguided and in so many colourful ways, it flummoxes one actually as to where to start to even consider putting it all straight.
I think Snoopy, and I am genuinely sorry to have to admit it, but after over a year now of not getting it, despite many having kindly trying to help you with it, I really don’t think there is any hope for you mate.
Is there any weight to the milk war pricing/market share comments? To a newbie like myself, this may make sense. On second thought however, the milk price has been $1 per litre here for 2 years at least, in which time a2's growth has steadily gained - so i've answered my own question i guess!
Hi Ginger,
I think you answered your own question, ATM seems to have prospered in Australia during the price wars, don't you reckon, I moved back to NZ two years ago now, but at that time the price wars going were exactly at the time when a2 was really taking off.
This chart which I kept tells the story better;
regards, Mac
Attachment 6543
There is something wrong with that chart. It doesn't show the relative popularity of each kind of milk and how it changes with time. If sales for each of Homebrand, Pauls and Dairy Farmers were roughly constant over that time, and the price drop only applied to a (say) 25% market share held by Homebrand, then the drop in market value overall with the price war might be something like 12.5%.
However:
1/ I suspect the market share of Homebrand was higher than 25% before the price war.
2/ I suspect that many buyers of ordinary Branded milk switched to Homebrand when the big pricing differential opened up.
OK, perhaps it was an exaggeration to say that the overall fresh milk market shrunk by 50% in dollar value with the price war. I would have to know what the home brand market share was over the period to determine that. But I don't think it is unreasonable to suggest the overall market size shrunk by 30%. That plus the greater difficulty in penetrating overseas markets with A2 milk, due to those markets being non duopoly, would suggest to me that a volume growth rate in the UK and USA of around half that 'headline rate' achieved in Australia is reasonable. It is for this reason, the extra delay, that I believe A2 will run out of expansion capital within two or three years. I would expect a cash issue at 40c will be made to those who still want to be part of the A2 milk company dream well before then.
There is also the stunning debut of health software firm Orion which presumably will knock ATM out of the NZX50 at the next review period. Forget what AMP have been doing. At that point index funds will be forced to sell too and in the short to medium term, that means the ATM share price will only head one way.
SNOOPY
I agree with the above, but it neatly sidsteps the point I was making. The milk price wars started in Januray 2011. A2 was certainly in Australia at that time. IIRC 2011 was the first year A2 made an EBITDA positive return in Australia. The market shrunk early in CY2011, but ATM was already on their growth trajectory by then. ATM deliberately talked up their growth rate by highlighting the market share they had by value. If they had talked about their market share increase by volume, the shareholders would still have been impressed, but less impressed.
The price chart posted by Mac is clear proof that if market share by value is 10%, then market share by volume is less than 5%. Don't get me wrong, 5% is still impressive. But ATM chose to hype their market share by value. There is nothing wrong with that, if you are looking at dollar returns. But, it would be incorrect to use a timeline for a market share by value figure in Australia, to extrapolate a timeline for market share by value figure in other markets (UK, USA). That is because Australia's milk market overall was fundamentally altered by the supermarket price war back then in a way other overseas markets are not being disrupted now.
SNOOPY
But it is that high market share by value that drives whatever underlying profitability in Australia is.
Not that transparent the A2 accounts but I would hazard it a guess that the profit margin is anything between 3% to 10% (the accounts show 3.1% before tax)
Even at say a 10% profit margin they need Coles to be selling it at $4.99 for 2 litres else there wouldn't be any cash left to reinvest for growth.
Mac, do you get those prices in your chart off the Coles online shopping site?
Seem pretty static over h last few years
Thanks MAC - then the growth is REEEAL AZ bro!
Yes value not volume is what is important for profitability. Volume is interesting in that the volume demand for fresh milk is only elastic to some extent. There is only so much milk a Weetbix can absorb. I don't have an issue with ATM reporting results by value. I would guess that accounting rules require them to do just that.
My only issue is using the 'value growth' pattern in Australia to forecast the 'value growth' pattern in other markets.
SNOOPY
Thanks for that KW. I wasn't aware of that English milk price war pre 2011. I think though that my previous message was not clear.
My issue is that the milk price war in Australia, where home brand prices effectively halved in Australia, has reduced the value of the entire retail fresh milk market significantly - by around 30%. This in itself is nothing to do with ATM, which has continued to grow its own A2 volumes at high value, albeit from a low base if we go back to 2009. The issue here is that A2 started its push into Australia before the Coles-Woolies price war started in January 2011, and has continued to push onwards and upwards as the Coles-Woolies price war continues. At one level this Coles -Woolies price war is irrelevent to ATM, because A2 milk itself is not part of this price war. But ATM have made it relevent by quoting their sales in terms of market share by value. My point is that the market by value has changed significantly during the period that ATM was ramping up its Australian sales.
If there had been no Coles-Woolies price war, then A2 volumes would probably be as they are now, ATM profitability would be as it is now, but ATM market share by value would be less, because the whole comparative market would be larger in dollar terms. The overall market by value would not have shrunk without a prolonged retail market discounted milk price. It is the fundamental shrinking in overall fresh milk market value, during the period when A2 sales are ramping up, that has caused the distortionately high market value share quoted by A2. This isn't a problem, unless you use this same value growth path in other markets where there has not been the same market distortion by value that occurred in Australia.
Britain may have had a supermarket price war in milk. But because it occurred before A2 milk marketing started in earnest, it is not relevent to the projected ATM market growth by value in the UK (unless a new milk price war at a lower level starts!). To get an estimate on the timeline of what the market penetration by value will be in the UK going forwards, with the Australian market experience behind us, is a useful exercise. I contend that for comparative purposes, you have to imagine what would have happened to the market share by value if the Coles-Woolies price war did not happen as A2 was being established in Australia. Only then will you get a realistic predictor of what the market growth by value might be as the UK market develops.
SNOOPY
Snoopy-you done some snooping around. What you think of my 3% to 10% net profit margin in Australia?
Any comments that if margin is say 10% they need to Coles to sell it at $4.99 for 2L or else not much left for A2 Milk
Yes, you could certainly model growth by market share value of A2 as repeatable if a step change in overall market size is outside the window in which you start to market A2. I agree. And if A2 had only started to be marketed in calendar year 2011 in Australia, you could model a similar market value growth in the UK, for investor modelling purposes. The only problem KW is that marketing of A2 in Australia didn't begin in 2011! It was years before that. I don't believe you can arbitrarily choose to say 'year zero' for A2 was 2011, just to avoid the start of the discount wars.
SNOOPY
I totally agree, KW. I'm not an accountant, but it seems to me you can't extrapolate much financially from the Australian experience to what can be expected in UK (or USA). When A2 entered the market in Australia it did not have a clearly defined marketing strategy. It knew it was legally prohibited from making any health-related claims, so it more or or less just went into the general milk market, and the word got around, largely anecdotally, that it gave health benefits. It's now in the UK defining itself cleverly as a niche milk that has been shown both anecdotally and by clinical trial to be easier to digest, and is therefore not in competition with mainstream milk but presents a route back to milk consumption for those who've walked away from it or find it indigestible. The whole strategy is different and very smart, plus they've got great PR.
Incidentally, although it was launched amid great ballyhoo on November 19 as being available in all Sainsbury outlets, A2 has also been available and remains so in Tesco, Ocado, Morrison and Waitrose. Not sure
how much this varies from store to store and region to region.
And a friend I was talking to who is fairly familiar with the UK industry expressed the opinion that ATM is being "rather conservative" in not forecasting cash breakeven in the UK until FH16.
Last week got a2 at Green Lane Countdown with use buy date 6/12/14. Good, I have about 13 or 14 days to go. Had half a cup left on the 2/12/14 and on the 3/12/14 it was starting to look a bit thicker with odour. Went to Mt. Wellington Countdown last night. They had the same milk use buy date 6/12/14 for $2.50.:( They should not sell old milk. But in saying that, I told a stranger, this is the best milk and it is on sale now, but you will have to drink it within 2 days. He said that is ok, took my flyer and milk and off he went. I walked out of shop with Soy milk.
I came up with a good cult... I mean idea. Bottle of a2 milk for christmas present in a gift basket with a few little nic nacs around the edges like biscuits, chocolate, milo etc. And you could put in a little brochure or flyer on the benefits of a2 milk. What do you think?:D Merry xmas everyone.
Interesting piece indicating restraints on ATM's formula exports to China continue:
http://www.stuff.co.nz/business/farm...rmula-priority
Think you are correct blobbles..
Was going to throw a little more at it last Monday.. Just to bring DOWN my average.. :-((((
Decided that the " point " difference was not worth it..
So went for DPC " .29 " ..
So much to buy !!!..
So little money :-))
But still well positioned ... aye percy :-))
Choose The Moose - Drop The Reindeer:
http://youtu.be/QmeYVPuuxCo
Small investors bailing at 60c on a 20000 volume?
On the basis that freedom foods are tipped to be a big winner out of the FT deal with china you may wonder what it has for A2 in that equation may be.
If A2 is going to be a reasonable beneficiary of their distribution and marketing foray into this market you may expect that they might want to increase their holdings at this price? Maybe they have better investment opportunities with building their own business over there with higher expected returns than with further investment in ATM?
No the sales were not in rounded multi-thousand lots like that but there were some oddities in among the transactions. For example in the quarter-hour between 16.23pm and 16.38pm there were six trades of exactly 4,009 ATM shares each (interspersed among others). Why would that be? And at 16.40pm there were three trades of 772 shares, and at 16.41pm there were three trades of 596 shares each. Several other instances of the same kind of thing. Can anyone explain?
There were a total of 135 trades for the day and all except seven occurred after 3pm.
How do you know a large seller is in control of a companies SP?
They announce virtually doubling their growth in their main market, SP retreats.
Sorry, just annoyed at the lack of traction from such a promising company!
Insto sell allotment of the day being broken down into smaller lots to get best market price and not to swamp the market. As broker rates do not apply per sale it doesn't matter how many trades they do. Could be an insto testing buy strength as well. All just one big, hidden chess game...
Your avg buy in price is 1.4c below me see weed. I'm underwater at the mo.
I'm getting the distinct impression that the selling is coming out of Aussie. NZ FMA legislation arounf SSH disclosure requires immediate, or as soon as practical notification but this can't be enforced against Aussy investors unless there is reciprocal transtasman arrangements. I'm only guessing but if there is a big Auusy insto selling which has more than 5% of the company shares, the disclosure could be being witheld until a more appropriate time.
Sue as eggs its 3pm and come on in big seller! Its got to be insto selling doesn't it? Its becoming pretty predictable.
I reckon they are happy to get anything above 0.59c until they are all sold.
Maybe all we are seeing at the moment (and for the past month or so) is the normal ebb and flow of the market around the price at which most participants (bigger players) see as a reasonably fair valuation.
Maybe just this and nothing else, after all $400m odd market cap is pretty lofty.
Stay cool to after school. I'm underwater to, but tend to float around. You could be right. But it might be smaller Aussi holders selling out getting funds ready for the ASX listing in less than 14 weeks time. Not to worry, just buy another $10,000 worth every time it goes down 1c, thats my theory, and take advantage of $30 brokerage fee.
looks like new lows coming a close below 58c very bearish
Maybe of some interest: http://www.just-food.com/interview/s..._id128634.aspx
Trading halt or something, no trades yet
Bugger, forgot there's usually no action until the magic hour of 3
Increasingly it appears that the SP is going to languish until proven penetration into the UK Market is acheived. That then reconfirms the possibility that success will also be replicated in the USA market, which then feeds into further demand for ATM shares.
Its all up to you Mr Wotherspoon....no pressure.
Thats right W69. The aussy boys go out for lunch at midday, decide how many shares they can flog off to overly optimistic kiwi shareholders, have a few beers and then phone the orders through around 1 pm their time , 3pm our time and if the market looks a bit stronger shove a few more in around 5pm our time. Very predicable eh!