Yesterday I headed along to the A2 Milk Company Ltd (ASX: A2M) AGM in Auckland.
As a shareholder I was keen to meet the team face-to-face. I also wanted to get a better feel of how the company is thinking about competition.
I like going along to AGMs. They let me gauge the mood of other investors and provide insights that reading the ASX releases alone doesn't offer.
This meeting had an interesting vibe. As I settled in with a coffee (made with A2 milk) there was a mix of positive energy (smiles, laughing, talking) and nervousness, likely due to the slowdown in share price over the year.
I took a library of notes, but here are the big takeaways:
- Growth in the U.S. market has been "excellent" in the first half of FY20. The focus of the US market is fresh milk, rather than infant formula.
- Pleasingly, the company's EBITDA margin has grown in the first half of the financial year, but will soften in the second half because costs are creeping up.
- No, there won't be dividends coming any time soon. Despite strong cash flows the focus is to keep reinvesting in growth and build market share.
- CEO Jane Hrdlicka addressed slowing birth rates in China, A2 Milk's key infant formula market. The company isn't fazed by the slow down and still sees China as a strong growth market and a big opportunity.
Question time!
The most interesting insights came at the end when shareholders could pepper the board and executive with questions. And pepper they did! I've summarised some of the most interesting points raised:
- Is there any risk to supply from droughts in Australia? No, there is no concern for supply relating to drought conditions.
- Does long-term growth in A2 production pose a competitive risk? Chair David Hearn said that in the next 20 years A2 could very well become the dominant milk type produced globally. However A2 Milk's focus is to build the brand and grow it's early mover advantage and pricing power the way Dyson did with stick vacuums.
- Are there plans for new products? A2 Milk's focus today is very much on the strong market opportunity for current core products. New products would be a distraction with too high opportunity cost.
Foolish Takeaway
I left the AGM with a foam toy cow for my desk and an impression that the company was in great shape. The business relies heavily on its brand to separate it from the competition, so I'll be watching this closely going forward.
