A2 Milk Company Limited · NZX:ATM
A2 Milk — The a2 Milk Company — Investor Day (September 2019)
89 slides from A2 Milk's investor day presentation, Sep 17, 2019
Slide 1: Stepping it up
For personal use only 更上一个台阶 Stepping it up. The a2 Milk Company Limited Investor Strategy Day and China Market Immersion | Shanghai | 17 and 18 September 2019
Slide 2: Welcome
Welcome For personal use only Objectives for the next two days: • Provide more colour on our business and priorities as we head into a period of significant investment to support continued growth • Share key insights into all our core markets – with a particular focus on consumer and channel trends
Slide 3: Stepping it up
For personal use only STEPPING IT UP Welcome and overview of our journey ahead Celebrating the Australian fresh milk business Accelerating focus and investment in Greater China Confidence in US as a second growth engine Close and Q&A
Slide 4: What we want you to take away from this experience
What we want you to take away from this experience For personal use only Consumer-led with deep Re-imagining Stepping up our Protecting what market understanding our future business growth investment makes us special Investor Strategy Day | 4
Slide 5: Our journey ahead
For personal use only OUR JOURNEY AH EAD Increased consumer-led focus on fewer bigger regions.
Slide 6: We’ve had an extraordinary journey…
We’ve had an extraordinary journey… For personal use only IP Creators Australian branded fresh milk focus Expanding product range and distribution footprint Stepping it up Shift from licensing to Building the operational; Comprehensive foundations a2 Milk™ a2 Milk™ strategic relationship to deliver
Slide 7: The next phase of our evolution as a company is important
The next phase of our evolution as a company is important For personal use only • The growth potential is significant – and very energising We are pursuing the two biggest • It builds on all that has come before us, but requires consumer markets in the world stepping up Population • We are investing
Slide 8: Key ingredients for the ongoing success of our business
Key ingredients for the ongoing success of our business For personal use only 1 Focus – core markets and existing products first, new products second, new markets third 2 Accelerating investment to increase and deepen consumer understanding and engagement: − Significant increase in brand awareness l
Slide 9: We have sharpened our strategy and increased our focus
1 We have sharpened our strategy and increased our focus For personal use only Maximise growth from existing Broaden our product portfolio Expand into other products in core markets in core markets targeted markets • Greater China and the US are • Our core markets have sizeable • Expansion into new
Slide 10: Accelerating investment to increase and deepen consumer engagement
2 Accelerating investment to increase and deepen consumer engagement For personal use only Deep consumer insights reveals ‘Test and Learn’ at the Market dashboards enable our brand proposition is unique heart of our approach ongoing adjustment to and resonating strongly investment settings • Our con
Slide 11: Accelerating the development of our organisation is important
2 Accelerating the development of our organisation is important For personal use only Investing in more great people Step-changing our people experience Investing in Technology • New skills and added capacity are • First time for “People” function means a • Opportunity to step-change our critical en
Slide 12: Our strategic partners enable fast growth and adaptability
3 Our strategic partners enable fast growth and adaptability For personal use only • Foundational partnership for infant • Relatively new partnership spanning • Strong partner for the company’s infant nutrition multiple products and emerging nutrition products in mainland China • Supply rights for d
Slide 13: Preserving the essence of who we are…
4 Preserving the essence of who we are… OUR PURPOSE: For personal use only We enrich lives by harnessing the nutritional wonders of nature. OUR VALUES: Bold passion Pioneering spirit Driven to realise our Unconventional open- amazing potential as a minded thinking that company and re-imagines the po
Slide 14: Celebrating our Australian fresh milk business
For personal use only AUSTRALIA Celebrating our Australian fresh milk business.
Slide 15: Australia fresh milk goes from strength to strength
Australia fresh milk goes from strength to strength For personal use only • Continued impressive growth in revenue and Australian fresh milk revenue earnings over the last five years; supporting our expansion plans • FY19 saw the highest growth in fresh milk since FY15 with value market share of 11.
Slide 16: Fundamentally the brand is built on a uniquely high quality product
Fundamentally the brand is built on a uniquely high quality product I drank so much milk when pregnant and I honestly For personal use only believe a2 Milk™ is the best! Tastes so good! And it’s the only milk my kids drink too. Mel I would like to let you know how great I feel since switching
Slide 17: Consistent brand investment has led to strong awareness and brand loyalty
Consistent brand investment has led to strong awareness and brand loyalty For personal use only Investor Strategy Day | 17
Slide 18: Accelerating focus and investment in Greater China
For personal use only G R E AT E R C H I N A Accelerating focus and investment in Greater China.
Slide 19: Greater China key messages
Greater China key messages For personal use only 1 The infant formula category dynamics remain positive 2 Our business is consumer-led and we have put in place systems to continue to listen, monitor and adapt 3 We are stepping up our marketing investment – following intensive learning and data infra
Slide 20: Infant formula category dynamics are attractive
Infant formula category dynamics are attractive For personal use only There are several factors impacting infant formula category dynamics: • Population demographics: structurally challenge the market as there are fewer women of childbearing age and as is the case elsewhere, women are having childre
Slide 21: China’s birth rate has declined, although fertility rates are rising
China’s birth rate has declined, although fertility rates are rising Number of new births in China (millions) For personal use only CAGR CAGR The fertility rate increased 17.9 16.9 12-16 16-18 from 1.61 to 1.63 (’14-’18) 16.4 since one-child policy was 15.2 changed in 2014… …but the number of new bi
Slide 22: More women are delaying starting a family
More women are delaying starting a family to prioritise education and a career Career Woman’s average age (tier-1 cities) For personal use only development 35 34 34 33 33 Financial stability 32 31 Marriage 30 30 Higher 29 29 education 28 27 27 First childbirth 26 26 First marriage “Many Chinese-educ
Slide 23: The growing middle class in China contributes to category growth
The growing middle class in China contributes to category growth For personal use only ~140 million households will move into the middle income brackets in the next decade Note: Annual households disposable income breaks: low income ($0-10K), lower mid ($10K-35K), upper mid ($35K-65K), high income (
Slide 24: “4-2-1” family structure results in children receiving more attention
“4-2-1” family structure results in children receiving more attention and care 1990: traditional family structure 2018: inverted “4-2-1” family structure For personal use only Greater capacity for parents and grandparents to invest in their children (6 “pockets” 1 child) Note: “4” represents the par
Slide 25: Category fragmentation provides opportunity for brands that resonate
Category fragmentation provides opportunity for brands that resonate For personal use only China Australia US Source: China: Kantarworld panel, 12 months ending July 2019; Australia: IRI 12 months ending Aug 2019; USA: non-WIC IMF IRI Mulo 12 months ending August 2019 Investor Strategy Day | 25
Slide 26: Greater China key messages
Greater China key messages For personal use only 1 The infant formula category dynamics remain positive 2 Our business is consumer-led and we have put in place systems to continue to listen, monitor and adapt 3 We are stepping up our marketing investment – following intensive learning and data infra
Slide 27: China is a big and complex consumer market
China is a big and complex consumer market with strong regional influences… For personal use only Investor Strategy Day | 27
Slide 28: …and distinctive city tier dynamics
…and distinctive city tier dynamics Tier 1 cities Tier 2 cities Tier 3 cities Tier 4 cities & below For personal use only 4 cities covering ~75m people 30 cities covering ~200m people 150 cities covering ~220m people 450 cities/1.6k counties covering ~900m ppl Shanghai Suzhou Kunshan Hai’an Wealthy
Slide 29: Global macro factors apply across all consumer segments in Greater China
Global macro factors apply across all consumer segments in Greater China For personal use only Growing consumer Growing focus on food Rise of the Rapid pace of demand for health and safety, naturalness middle class digitalisation wellness products and provenance Investor Strategy Day | 29
Slide 30: Chinese consumers have an increased consciousness on health and wellness
Chinese consumers have an increased consciousness on health and wellness For personal use only Rapid growth seen in consumer health sector… …and health-related product categories MARKET SIZE 2013-2018 CAGR 2013 2018 2018 Healthy products Less healthy products Beverage Bottled water Carbonates Health
Slide 31: The pace of digitalisation is supporting the consumer economy
The pace of digitalisation is supporting the consumer economy For personal use only Mobile internet users largest in the world Digital finds its way into every aspect of people’s daily lives Mobile internet users WeChat example > + 820m 260m 340m % mobile-only internet users Dining 5% Social Shoppin
Slide 32: Consumers engaging deeply with content; linked into e-commerce
Consumers engaging deeply with content; seamlessly linked into e-commerce For personal use only Format Channel Content Live streaming Leveraging social networks Co-branding / IP to activate history transaction data for cheaper and easier new user acquisition to reach young consumers with viral buzz
Slide 33: Five distinct consumer archetypes of mothers in China
Our research shows five distinct consumer archetypes of mothers in China For personal use only • Our market can be characterised into five consumer archetypes defined by behavioural factors • Most important attributes for a significant proportion of mums were linked to our brand proposition, hence w
Slide 34: Data and analytics allow us to stay ahead of evolving consumer behaviour
Data and analytics allow us to stay ahead of evolving consumer behaviour For personal use only Consumer insights mining Brand health and Marketing mix and brand development consumption tracking effectiveness • Regular, proprietary brand and • Proprietary, internal methodology • Market mix modelling
Slide 35: Greater China key messages
Greater China key messages For personal use only 1 The category dynamics remain positive 2 Our business is consumer-led and we have put in place systems to continue to listen, monitor and adapt 3 We are stepping up our marketing investment – following intensive learning and data infrastructure devel
Slide 36: Consumers engage with multiple and diverse information sources and channels
Consumers engage with multiple and diverse information sources and channels For personal use only Sources of information Purchase channels Examples Online Word of mouth JD Domestic e-commerce platforms Tmall Babytree Key opinion leader/key opinion consumer JD Global Cross-border e-commerce (CBEC) Tm
Slide 37: Our marketing investment is focused on building awareness and conversion
Our marketing investment is focused on building awareness and conversion For personal use only • Different marketing approaches are tailored to distinct steps in the consumer’s path to Direct or indirect purchase • Primary focus is driving growth in brand awareness – given our relatively high loyalt
Slide 38: Data infrastructure and consumer insights provides confidence to invest
Data infrastructure and consumer insights provides confidence to invest For personal use only • We are building our investment profile from the bottom up, rather than a specific top down target • We are testing, monitoring and iterating our approach to building brand awareness (directly and indirect
Slide 39: Greater China key messages
Greater China key messages For personal use only 1 The category dynamics remain positive 2 Our business is consumer-led and we have put in place systems to continue to listen, monitor and adapt 3 We are stepping up our marketing investment – following intensive learning and data infrastructure devel
Slide 40: Consumers engage with multiple and diverse information sources and channels
Consumers engage with multiple and diverse information sources and channels For personal use only Sources of information Purchase channels Examples Online Word of mouth JD Domestic e-commerce platforms Tmall Babytree Key opinion leader/key opinion consumer JD Global Cross-border e-commerce (CBEC) Tm
Slide 41: In the China IMF market, majority of sales occur in physical stores
In the China IMF market, majority of sales occur in physical stores For personal use only IMF value sales by channel Anticipated channel growth trends • MBS drives continued strong growth in offline channels • MBS will remain an important information source, support network and part of mothers’ dail
Slide 42: China has the biggest, most dynamic retail landscape in the world
China has the biggest, most dynamic retail landscape in the world For personal use only Online Physical retail Convergence a virtual community, providing “one click” a curated range of products combined is evolving channels into ecosystems access to a wide range from with experiential elements, desi
Slide 43: Key channel trends and insights
Key channel trends and insights For personal use only Online Physical retail Convergence a virtual community, providing “one click” a curated range of products combined is evolving channels into ecosystems access to a wide range from with experiential elements, designed and the online and offline sh
Slide 44: Macro factors enable China to be at the forefront of the digital revolution
Macro factors enable China to be at the forefront of the digital revolution For personal use only • China has the largest, most digitally savvy population in the world • Digitalisation is everywhere – there is more innovation, occurring at a faster pace, than in any other market • Big online players
Slide 45: China’s e-commerce landscape is becoming more diverse
China’s e-commerce landscape is becoming more and more diverse For personal use only B2C C2C Domestic online (DOL) Cross border EC (CBEC) Social EC Daigou Alibaba Kaola (CBEC focus) Multi- category JD Category specialised WeChat Brand specialised a2 Milk™ Tmall DOL a2 Milk™ Tmall CBEC flagship store
Slide 46: Summary of key e-commerce platforms
Summary of key e-commerce platforms For personal use only B2C C2C Multi-category Vertical platform Brand specialised Social EC Daigou Brand flagship Alibaba Tmall Kaola JD Babytree/Miya (Tmall) PDD/Red/Yunji Taobao/WeChat Top volume Full-category Proprietary One-stop-shop Supplied and Content/ C2C c
Slide 47: CBEC, social e-commerce and daigou are unique to China
CBEC, social e-commerce and daigou are unique to China For personal use only Social e-commerce CBEC BUY Daigou Investor Strategy Day | 47
Slide 48: Top CBEC platforms account for ~80% of market
Top 5 CBEC platforms account for ~80% of market For personal use only Tmall Global Kaola JD Worldwide VIP Global Little Red Book Total CBEC ~30% ~25% ~10% ~10% ~5% share % Number of bonded 34 13 17 10 2 warehouses Alibaba recently acquired Kaola and plans to integrate it with Tmall, giving Tmall a l
Slide 49: Viral social e-commerce operators are rewriting the ways to reach shoppers
Viral social e-commerce operators are rewriting the ways to reach shoppers For personal use only • Changing the way that brands reach consumers through the use of social networks to drive e-commerce − Between networks via WeChat, Facebook and Instagram − Group buying via Pinduoduo − Peer recommendat
Slide 50: Social e-commerce is outgrowing overall e-commerce
Social e-commerce is outgrowing overall e-commerce For personal use only China social e-commerce market (B RMB) CAGR (14-18) 1,100 684 84% 360 96 During this period, total e-commerce 2014 2016 2017 2018 grew at ~30% CAGR Social e-commerce as 3% 7% 10% 12% % of total e-commerce1 Social e-commerce is
Slide 51: Daigou is a key channel for certain consumers
Daigou is a key channel for certain consumers and will continue to play an important role in our multichannel approach For personal use only Suitcase trade for Consumer to Corporate daigou family and friends consumer businesses network The daigou channel has existed for decades and continues to evol
Slide 52: Daigou retains its personal nature, but is now a modern sophisticated channel
Daigou retains its personal nature, but is now a modern sophisticated channel For personal use only Evolving role of daigou Improved logistics and Enhanced regulatory within the selling process supply chain capabilities compliance Investor Strategy Day | 52
Slide 53: Key channel trends and insights
Key channel trends and insights For personal use only Online Physical retail Convergence a virtual community, providing “one click” a curated range of products combined is evolving channels into ecosystems access to a wide range from with experiential elements, designed and the online and offline sh
Slide 54: Wide variety of physical retail store formats in China
There is a wide variety of physical retail store formats in China For personal use only Speciality Mother and Baby Stores (MBS) Traditional trade National chain MBS Regional chain MBS Independent MBS 14 customers, ~4k stores 200 customers, ~8k stores ~110k stores Independents Modern trade Hypermarke
Slide 55: MBS is more than a retail store…
MBS is more than a retail store… For personal use only One-stop shop for the High engagement model Destination for kids to mother and baby category with 1-on-1 professional play and parents to with comprehensive consultation and ability to learn and feel part of a collection of products touch and fe
Slide 56: Significant variation across the MBS channel
There is significant variation across the MBS channel For personal use only National / regional chain MBS Independent MBS Investor Strategy Day | 56
Slide 57: The MBS channel is consolidating
The MBS channel is consolidating; Key&A cities are leading the way For personal use only China MBS retail market value National MBS players lead in different regions Western China Northern China （西北区+西南区） （华北区） Others Eastern China （华东区） More consolidated in higher tier cities: – ~20% market share i
Slide 58: Focused on in-store execution
As we grow our store footprint, we are equally focused on in-store execution For personal use only Investor Strategy Day | 58
Slide 59: Key channel trends and insights
Key channel trends and insights For personal use only Online Physical retail Convergence a virtual community, providing “one click” a curated range of products combined is evolving channels into ecosystems access to a wide range from with experiential elements, designed and the online and offline sh
Slide 60: Pace of retail innovation in China is unprecedented globally
Pace of retail innovation in China is unprecedented globally For personal use only The China retail landscape has evolved rapidly since the 1990s 1990s 1996 2006 2011-2016 2017- now… Simple structure Modern trade booming Diversified channel Integrated online & offline Department stores Hypermarkets
Slide 61: Alibaba is leading channel convergence with Hema Fresh stores
Alibaba is leading channel convergence with their new offline Hema Fresh stores For personal use only Online/Mobile Traffic & sales generator Well developed app for product selection and online ordering Mobile app 70%+ of total orders generated through online channel page view Set clear Experience c
Slide 62: Greater China key messages
Greater China key messages For personal use only 1 The category dynamics remain positive 2 Our business is consumer-led and we have put in place systems to continue to listen, monitor and adapt 3 We are stepping up our marketing investment – following intensive learning and data infrastructure devel
Slide 63: While growing across all channels, revenue mix is changing
While growing across all channels, revenue mix is changing and evolving For personal use only We are growing revenue across all our channels… …changing the shape of our business a2MC IMF revenue (NZ$m) a2MC IMF % revenue by channel 2% 6% 1,063.8 12% 16% 20% 167.8 18% 22% 23% 724.4 243.1 83.9 158.0 3
Slide 64: Significant opportunities to grow within the Greater China infant category
Significant opportunities to grow within the Greater China infant category… • The category dynamics remain positive, despite declining birth rates For personal use only − Household penetration and usage is increasing with growing household wealth − Premiumisation continues as families prioritise inv
Slide 65: Our broader portfolio of products in China play in very big categories
…Our broader portfolio of products in China play in very big categories For personal use only Pre-birth Infants and toddlers Young school children Families Investor Strategy Day | 65
Slide 66: Confidence in the US as a second growth engine
For personal use only THE US MARKET Confidence in the US as a second growth engine.
Slide 67: US key messages
US key messages For personal use only 1 The US milk market is attractive 2 The category has distinct features 3 We are confident we can build our brand in a meaningful way 4 Sustained brand investment and ongoing innovation will be important Investor Strategy Day | 67
Slide 68: The US premium refrigerated milk market is significant
The US premium refrigerated milk market is significant… For personal use only Refrigerated milk market retail sales value (US$) $12.8bn Conventional milk $4.6bn $3.3bn $1.4bn Premium $0.3bn milk NZ Australia UK China US Source: Euromonitor, World Bank, Kantar, internal analysis Investor Strategy Day
Slide 69: Significant and attractive potential for The a2 Milk Company
…With significant and attractive potential for The a2 Milk Company For personal use only 20-25% 100% 32% 20% of milk category of annual growth of total grocery of packaged goods sales are in in premium spend is on health growth is coming premium segment segment driven by and wellness from disruptive
Slide 70: US key messages
US key messages For personal use only 1 The US milk market is attractive 2 The category has distinct features 3 We are confident we can build our brand in a meaningful way 4 Sustained brand investment and ongoing innovation will be important Investor Strategy Day | 70
Slide 71: Three distinct aspects of the US fresh milk market
There are three distinct aspects of the US fresh milk market For personal use only 1 2 3 The premium milk segment is US consumers have distinctive The grocery retail landscape is well-established, with significant purchase patterns; most critical is fragmented; different channels consumer choice and
Slide 72: The premium segment is well established
1 The premium segment is well established For personal use only Premium milk set at Publix in Atlanta (58 SKUs across 15 brands) Conventional Plant 20-25% of category sales Grocery 23% Mass 30% 15-25% Natural 67% are premium Note: % premium based on 12 months to 14 July 2019; mass is an estimate of
Slide 73: US consumers have distinct purchase patterns in fresh milk
2 US consumers have distinct purchase patterns in fresh milk For personal use only Consumers buy in Decisions are influenced Consumer proposition repertoires at point of sale drives choice • Majority of households purchase • Majority of new milk decisions are • Organic, lactose-free, plant-based mor
Slide 74: Diverse retail landscape creates distinct experiences
3 Diverse retail landscape creates distinct experiences for our consumers For personal use only Est % of total milk Est % of premium milk Characterising channel features Example banners by retail channel within each channel Natural / • High emphasis on natural, organic Premium products; strategicall
Slide 75: US key messages
US key messages For personal use only 1 The US milk market is attractive 2 The category has distinct features 3 We are confident we can build our brand in a meaningful way 4 Sustained brand investment and ongoing innovation will be important Investor Strategy Day | 75
Slide 76: Six consumer segments across US milk
Our research shows there are six consumer segments across US milk For personal use only • Our consumer targets are the largest consumers of premium milk, although they are not exclusively premium milk buyers • They often purchase multiple “milk” products and enjoy having a “family repertoire” • Our
Slide 77: Our confidence continues to increase
Our confidence continues to increase For personal use only Target consumers represent Velocity gains of up to 45% High loyalty rates a significant % of category in established stores Sales have increased Continued store expansion Social media engagement is more than 100% CAGR in all major retailers
Slide 78: We are expanding our national footprint
We are expanding our national footprint For personal use only Mar 2017: Southeast launch April 2015: Launch in California Jan 2018: Northeast launch 2019: Emerging national footprint Approx. store counts December 2015 > 500 stores January 2018 > 5,000 stores June 2019 > 13,100 stores Legend Broad di
Slide 79: Our trajectory is in line with top tier ‘disruptive growth’ brands
Our trajectory is in line with top tier ‘disruptive growth’ brands For personal use only Number of brands to reach US$25m revenue by length of time from launch 43 24 15 7 0-3 years 3-5 years 5-10 years 10+ years Note: Revenue data reflects brand within specific category; as a result, a single brand
Slide 80: US key messages
US key messages For personal use only 1 The US milk market is attractive 2 The category has distinct features 3 We are confident we can build our brand in a meaningful way 4 Sustained brand investment and ongoing innovation will be important Investor Strategy Day | 80
Slide 81: We will consistently invest in building strong awareness and brand loyalty
We will consistently invest in building strong awareness and brand loyalty For personal use only Investor Strategy Day | 81
Slide 82: New US packaging design has greater shelf impact…
New US packaging design has greater shelf impact… For personal use only Investor Strategy Day | 82
Slide 83: …and greater modernity
…and greater modernity For personal use only Investor Strategy Day | 83
Slide 84: The range now includes coffee creamers
The range now includes coffee creamers For personal use only Investor Strategy Day | 84
Slide 85: Confidence in the US as a second growth engine
Confidence in the US as a second growth engine • The US milk market is attractive For personal use only − The fresh milk market in the US is significant at $12.8bn − Premium milk segment is well-established at 20-25% of the category − Health and wellness is a growing theme in consumer choice • The U
Slide 86: The consumer is informing our way forward
For personal use only CLOSE The consumer is informing our way forward.
Slide 87: The next phase continues our evolution
The next phase for The a2 Milk Company continues our evolution For personal use only • The growth potential is significant – and very energising • It builds on all that has come before us, but requires stepping up • We are investing to establish broader consumer reach and greater resilience and capa
Slide 88: Disclaimer
Disclaimer For personal use only This presentation dated 17 September 2019 should be read in conjunction with, and subject to, the explanations and views in documents previously released to the market by The a2 Milk Company Limited (the “Company”), including the Company’s Annual Report for the 12 mo
Slide 89: For personal use only
For personal use only t h e a 2 m i l kc o m p a n y. c o m