Annual Report STRENGTH

The a2 Milk Company Limited 2020 Annual Report thea2milkcompany.com BUILDING FROM STRENGTH 2020 Annual Report The a2 Milk Company Limited ARBN: 158 331 965 HIGHLIGHTS GROWING GROUP PERFORMANCE $1.73bn $549.7m $385.8m RESILIENCE Revenue 32.8% EBITDA 32.9% NPAT 34.1% STRENGTHENING 52.39c $427.4 m $854.2m Earnings per share Operating cash flow Cash on hand 33.5% IMPACT PRODUCT SEGMENT REVENUE During this financial year we have continued to strengthen our brand and business foundations to enable us to build sustainable growth for future years. Moving forward we have a heightened focus on living our $223.4m $1.42bn $85.2m purpose, to enrich lives through the nutritional wonders Liquid milk 27.7% Infant nutrition 33.8% Other nutrition 29.6% of nature, delivering to our financial ambitions, and to further improving the meaningful impact we can make on REGIONAL HIGHLIGHTS the broader communities and world in which we operate. Asia Pacific USA 101.2% 40.3% 91.2% China label English label1 Milk sales growth infant nutrition infant nutrition 19.1k 14.1% 20.3k China store distribution Australian milk sales Store distribution 1 Includes Hong Kong and Korean label 2 The a2 Milk Company Building from strength 3 CONTENTS FY20 highlights 02 Our Chair 08 CEO’s year in review 10 Building a sustainable future 22 Corporate governance 38 Our directors 40 Our executive committee 42 Governance 44 Remuneration 49 Financial statements 54 Other information 102 4 The a2 Milk Company Building from strength 5 OUR 20-YEAR JOURNEY 1 Early in our 20-year history we had many false starts. However, we persevered to become the company we are today. Below are some of the highlights of the critical milestones that have marked our journey and are paving the way to continuing to realise our ambitions. Company founded in New Zealand by Dr Corrie McLachlan Achieved broad and Howard national distribution Paterson, armed with in the US liquid milk unique intellectual market Group revenue property and a ® a2 Platinum infant exceeds $0.5 billion Included in growing belief of the nutrition brand is Listed on ASX for the first time S&P/ASX100 effects different milk Listed on NZX Company records launched in New proteins have on Alternative a Group profit of Zealand, Australia a2 Milk™ is Acquired 8.2% Renewed agreement human health Market (NZAX) NZ$2.1m and China launched in USA equity of Synlait with Synlait 2000 2004 2011 2013 2015 2017 2019 1 Financial year ending 2003 2008 2012 2014 2016 2018 2020 a2 Milk™ begins Major change in Transferred from NZAX The company name Infant nutrition Renewed agreement Increased Synlait selling in New strategic direction, to NZX Main Board changes from A2 step-changes the with China State Farm shareholding Zealand and shifting from Corporation to The business and to 19.8% Australia via licensing model Formed a manufacturing a2 Milk Company now accounts for Comprehensive licensing to branded agreement with Synlait with a new brand 60% of revenue strategic relationship Included in arrangements operational model Milk Limited (‘Synlait’) identity announced with S&P/ASX50 Fonterra Co-operative Cliff Cook invests in a2 Milk™ Formed a strategic First human digestion Group Step-changed the company and relaunched in partnership with China clinical research is our investment later becomes Australia with more State Farm Holding published supporting Increased Synlait behind our Chairman of the focused brand and Shanghai Company a digestive difference shareholding to 17.4% brand, our Board 2004 to 2015 operational efforts (‘China State Farm’) between A1 and people and Australian fresh milk A2 beta casein increased Commissioned a state-of- market share exceeds protein types capabilities, the-art milk processing 10% to further facility in Sydney, strengthen our a2 Platinum® becomes Australia foundations for Australia’s No. 1 future growth infant nutrition brand 6 The a2 Milk Company Building from strength 7 OUR CHAIR We are successfully navigating and safely operating our business during these challenging times always with the health and wellness of our It is with great pleasure that I Against the backdrop of the uncertainty and complexities Due to the increasing scale of our infant nutrition business, caused by COVID-19, we recognise that we are fortunate we are assessing participation in manufacturing capacity employees and partners present to you, yet another to be supplying essential products that are well positioned and capability to complement our existing supply chain top of mind. and appealing to consumers. In addition, we have enjoyed relationships. We have explored a number of opportunities outstanding year for good support from our manufacturing and logistics partners, over the past six months and will update you in due course. our farmers, our in-market distribution partners and most The a2 Milk Company. This I would like to acknowledge our whole team for the importantly from our loyal and growing consumer base. contribution everyone has made to the business – FY20 was year, as we reflect over our It is the combination of all these that has allowed us to a year without comparison – we all had to do it differently I would also like to thank my fellow directors for the significant deliver growth across all our key markets and across all our 20-year history, I am reminded to make it happen. On behalf of the Board, I commend increase in workload this year. Our Board has been structured product categories. of what a remarkable journey the significant contribution to the company from our Chief in such a way to ensure we have a high degree of diversity As well as delivering a record performance this year, we also Executive Officer, Geoffrey Babidge, who stepped back into and experience with strong local insights into our markets. it has been. deepened our understanding and commitment to building a the business in December 2019. I said at the time we were For better or worse, this also means we are geographically more sustainable business. Focus areas included climate impact fortunate to have someone like Geoff who could assist in this diverse and as such, it has required careful planning and As a business with a proud New Zealand heritage we are also assessment, ethical supply chain and responsible sourcing, way, and that could not be more accurate when we reflect on flexibility to ensure our effectiveness through the challenges extremely pleased of how we have developed our Trans- animal welfare improvements, farm environmental plans, what transpired in the second half of the year. posed by COVID-19. assisting our communities to thrive and various initiatives and Tasman markets, the tremendous growth we are achieving in I would also like to express how excited we are to have To all our shareholders and other stakeholders, thank you for investments in our people. China, and the additional opportunities we are developing in announced the appointment of David Bortolussi as our your continued support for this business. Wherever you are, North America and other parts of Asia. Over the past several years, we have experienced rapid growth Managing Director and Chief Executive Officer. He is we hope you are safe and in good health. 2020 was a year in which our business faced many changes and, consequently, developed a robust balance sheet with expected to commence in the role early in the 2021 calendar and challenges. Despite this, we didn’t deviate from delivering significant cash reserves. This has created a wide range of year. David has many strengths that make him well suited to on our strategy. The resilience we have created within our options for us to fund our future growth. Our strong financial leading the company at this stage of its growth, including company over many years has provided us a solid foundation standing has allowed us to continue to invest heavily behind extensive international leadership experience in the consumer on which to continue building from strength. We continue to our brand and in the people and technological capabilities and retail sector. necessary to realise our full potential as a business. Our invest in those aspects of the business that will create more I also wish to acknowledge the support provided by our David Hearn approach has generated strong results in the short term, as growth opportunities in the future. Executive Committee, the management team and all our Chair well as strengthening the essential building blocks that will staff, including our partners, in ensuring we didn’t miss a Focus areas for the year included: drive the future success of our business. 18 August 2020 beat through perhaps the most challenging environment that • A heavy uplift in marketing investment behind our brand, As we noted in February 2020, as part of the Board’s most of us have ever had to face. On behalf of the Board I especially in China ongoing review of the most appropriate use of capital for would therefore like to thank this group for their continued • Our continued expansion into more physical stores in the business, we continue to prioritise investment in growth dedication and support for the business. China, and driving growth across all infant formula and other strategic initiatives. We are committed to ensuring channels the optimum use of our financial resources and, at this point, • Expanding our distribution and presence in the USA believe maintaining flexibility for the long term is the more appropriate approach than a return of capital to shareholders • Delivering strong performances in our key growth markets in the short term. – China and the USA • The continued investment in building our internal teams and capabilities. 8 The a2 Milk Company Building from strength 9 CEO’S YEAR IN REVIEW STRENGTHENING EXECUTION The a2 Milk Company has made significant gains in revenue and earnings, with strong performances in all key product segments and across all core markets.

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