Chair: a2 rollercoaster like no other
Hearn proud to be leaving with dairy business ‘better and stronger’ than ever, writes Jamie Gray.
When a2 Milk chairman David Hearn joined the then-struggling alternative dairy company nine years ago, the stock was worth just 52 cents.
Today they trade at around $6.50 but a2 Milk has traded at far higher levels.
In April 2020, London-based Hearn sold shares in the company worth $37 million after exercising share options, at just under $20 a share.
A few months later the stock, driven by a rush on demand for infant formula as Chinese consumers set about stocking their pantries in light of Covid-19 lockdowns, went on to peak at $21.51.
What followed however was pantry “de-stocking” and lower-thananticipated sales due to the near collapse of the unofficial retail daigou channels from Australia to China due to Covid-driven border closures and lockdowns.
When it became clear a2 Milk was carrying way too much inventory, the share price tanked.
“People talk about a rollercoaster ride but I don’t think there have been many companies with quite as significant a rollercoaster,” Hearn told the Herald after last week’s annual meeting. “But what I can say is that people can forget that although the share price was once 20 bucks — seven years ago it was 62c so if you had not had $20 — you would say that this is a great outcome.
“That does not belittle the fact that the stock has come down.”
A2 Milk listed in 2004 and spent its early years languishing at around 20c before showing signs of life in 2015.
At Friday’s annual meeting a2 Milk said Hearn would step down as a board member next year, to be succeeded by director of three years Pip Greenwood.
Hearn said he was proud of the way the business has picked itself up from its Covid-driven slump.
“The business is a better, stronger business today than it ever was — even when it was in its heyday.
“We are today in a much better, stronger underlying position where we have got processes in place, skills in place, new management to drive decisions that are much better than they were three years ago. I have really enjoyed working with the business as it has come back up,” he said.
Hearn said he was more proud of the way the company had come back than he was of its high-growth days.
“That’s why it’s not a daft time to say, if you have got it settled, I can leave with a clear conscience.”
A2 Milk, which saw its earnings rebound in 2022, was now on a more sustainable growth path.
Hearn, who has other directorships and who is also chairman of UK storage company, Safestore, said being involved with a2 Milk had been a unique experience.
“You don’t get more than one of these in your life.”
The well-cashed-up a2 Milk has recently embarked on a $150m share buyback, but Hearn told the annual meeting the buyback did not preclude the company from paying a dividend “at some time in the future”.
Hearn, who became familiar with Australia and New Zealand while serving as a director of Goodman Fielder, said he still regarded a2 Milk as a growth stock.
“I don’t believe that we are any less of a growth company in principle, than we were before.
“The growth rate might be a bit more reasonable, but we are still a growth business, still a growth stock.”
A2 Milk’s revenue came to $1.44 billion in the June year and the company aims to lift that figure to $2b in five years’ time.
“We have plans to continue to grow the business at a serious rate.
“That requires us to be flexible to develop and resource the assets that we need to get there.”
Hearn said a2 Milk, which until its purchase of 75 per cent of Mataura Valley Milk was purely a marketer, would be spending more money on its supply chain.
One shareholder asked at the annual meeting about the company’s high exposure to China, which he described as a “semi-authoritarian” state.
Hearn said the company did not have a strategy of downgrading the importance of China.
“We are not involved in geopolitical concerns — we are running a business. The China market is about half the world’s infant formula market on its own.
“So if you want to make a success of an infant formula business you are going to have to be in China,” he said.