The a2 Milk Company Limited (ATM) Earnings Call Transcript & Summary

Welcome, ladies and gentlemen, wherever you in the world you may be. My name is David Hearn. And as Chair of your Board, I have the privilege of chairing this most unusual a2 Annual Meeting for the fiscal year ended June 2020, which is online for us all for the first time. Clearly, we would have much preferred being able to hold this meeting in-person in New Zealand, but unfortunately, the world isn't exactly how we'd like it to be at the moment. So we really appreciate your patience with us as we, alongside many other organizations, continue to navigate such an unprecedented situation. Also, please be aware that we would still welcome your participation and encourage you, as usual, to vote and ask questions online as soon as you can, and we will endeavor to address them later in the meeting. So on behalf of the Board of the a2 Milk Company Limited, I would, therefore, now like to welcome you formally to the a2 Milk Company's Virtual Annual Meeting. I am satisfied that in accordance with the constitution of the company, a quorum is present, albeit only online. And I would, therefore, like to declare the meeting formally open. First of all, I would like to introduce you to the company's directors and CEO who are joining us today from around the world. Firstly, we have Julia Hoare, the company's Deputy Chair, joining us from Auckland; secondly, we have Warwick Every-Burns, joining us from Sydney; Jesse Wu, joining us from Shanghai; and Pip Greenwood, joining us from Auckland; and finally, Geoffrey Babidge, our CEO, who's also in Sydney. Also joining us today are representatives from the company's legal advisers and our auditors, Ernst & Young. In addition, a number of members of our senior management team and other colleagues are also listening in online. For the record, we've received no apologies in advance of this meeting, so the agenda for this meeting is as follows: Firstly, I would like to make some short introductory comments, and I will then ask Geoffrey Babidge to review the last year and our recent performance in his CEO's address. We will then proceed to the formal business of the meeting, comprising receiving and considering the company's financial statements and reports, followed by voting on the resolutions contained in the Notice of Meeting. And we will conclude as usual, with question and answers. The formal business as set out in the Notice of Meeting, which has been circulated to all shareholders, so I will now proceed on the basis that the Notice of Meeting is taken as read. There are copies of the Notice of Meeting and the annual report available online on our website should you wish to refer to them. I have been advised that 1,053 valid proxies have been received, representing more than 483 million or 65% of the total number of votes able to be cast at the meeting. Also for the record, the minutes of the last annual meeting held on the 19th of November 2019 have been signed by me as Chairman of that meeting as a correct record of those proceedings. These minutes are available to shareholders from the company upon request. So with these important procedures completed, I would like to take this opportunity to provide you with a few introductory remarks. It is with great pleasure that I can announce that the 2020 fiscal year was another outstanding year for the a2 Milk Company. As we reflect on our 20-year history, I'm reminded of what a remarkable journey it has been. We've grown to become one of New Zealand's largest listed companies, and we are extremely proud of our New Zealand heritage, as we are of the way we've developed our trans-Tazman markets, the tremendous growth we are achieving in China and the additional opportunities that we are developing in North America and other parts of Asia. That said, fiscal year '20 was a year in which our business faced several changes and significant challenges. Despite this, we were able to stay focused and find the inventive ways to continue to deliver upon our strategy. The resilience we've created within our company over many years has provided us with a solid foundation on which to continue building on our strengths. Like most, if not all, other organizations, we knew coming into fiscal '21 that we would again need to use all of our agility and ingenuity to manage through the volatility and uncertainties that this global pandemic is causing. As we know, this year is testing us severely, as it is many organizations. But I have confidence that the strong foundations which underpin our business will continue to assist us as we navigate these short-term external challenges for however long they are with us. I firmly believe that the elements that have made us a strong company over the years, the elements that really matter remain strong to this day and continue to position us well for the future. We anticipated that in the early part of the fiscal year, we would continue to experience some unwinding of the pantry stocking that have occurred in our China business in earlier this calendar year. We did also anticipate that there would be continuing short-term softness in the retail daigou sector, primarily due to reduced tourism from China and dramatically fewer international student numbers. However, we did not anticipate the strict and prolonged lockdown in Victoria, which has impacted our corporate daigou business, our reseller channels, significantly. As a consequence, with weakness in pricing and uncertainty for the duration of the lockdown, we have seen a significant downturn in this channel. And whilst we believe it will ultimately be temporary, it will have an impact on our performance this year, which we made clear to the market as soon as the extent became apparent. However, it is important to recognize that we are most definitely not alone in combating this challenge. A number of our major international competitors have recently provided updates, indicating that they have also experienced similar levels of disruption with their sales of infant formula into China. Some apparently have faced significantly greater adverse effects than we have. But despite these short-term challenges, we believe this will ultimately be a temporary issue, which will improve as the channel mix readjusts, the restrictions ease, the pricing stabilizes and, of course, as the unprecedented impact of the pandemic begins to recede. In fact, I am pleased to be able to report that we are seeing some very early signs of improvement in only the last few weeks. We have a plan in place, and we are confident that there is a path to restore this channel, which we firmly believe remains an attractive and strategically important channel for our business, even though it may take time to recover fully. So whilst the daigou channel is having some short-term COVID-related challenges, we believe longer term that it is still one of our key strategic channel priorities. We are also encouraged by the excellent underlying brand health metrics we are seeing in our internal reporting, such as consumer awareness levels and brand shares, as reflected in the strong performance in the mother and baby store channel in China, for example. Geoff will go into all this in more detail shortly. Shareholders should also take comfort, as does the Board, in the faith that we have in our fundamental business model, our strong, unique a2 brand and our exceptional people right through the organization. We have managed through challenges before. And whilst the uncertainties and impacts of COVID-19 are truly unique, we are confident that the team will find a way through. I'd now like to take a moment to discuss the company's cash position. Over the past years, we have experienced rapid growth and consequently developed a robust balance sheet with significant cash reserves. This has created a wide range of options for us to fund our future growth, which is in the end, all good news. In February this year, as part of the Board's ongoing review of the most appropriate use of that capital, we determined that we will continue to prioritize investment in growth and other strategic initiatives, and therefore, we'll not be returning capital directly to shareholders in the short term. A key example of this approach is visible in our recently announced indicative offer to acquire a controlling stake in the Mataura Valley Milk business. This represents an important strategic opportunity, not only to strengthen the security of our infant nutrition supply chain alongside our successful long-term relationship with Synlait, but also at the same time, to provide us with direct access to the future technology and innovation developments, which will enable us to remain a market leader in this critical category. I would also like to comment that the approach we've taken in structuring this acquisition in proposing to acquire a controlling, but not 100% stake and retaining a highly regarded additional Chinese partner into the mix, is another example of our capital-smart approach to investment. The Mataura deal, if successfully completed, will deliver a world-class plant in operation without the usual time and risks that developing a greenfield opportunity on our own would inevitably entail and at a lower cost than were to build a greenfield site on our own, all of which makes this a financially smart as well as a strategically sound investment. Geoff will say more about Mataura in his address, but the Board continues to be encouraged about this opportunity for our company going forward. Whilst it is easy to forget in the midst of all these challenges and issues that we are facing this year, we should not forget that fiscal '20 was another stellar record performance in all aspects. And I would like to acknowledge the whole a2 team for the contribution they've all made in making that happen. On behalf of the Board, I would also like to recognize and thank our CEO, Geoff Babidge, for the significant contribution he has made to the company since he stepped back into the business at short notice in December last year. I said at the time that we were fortunate to have someone like Geoff who could assist in this way, and that could not have proved to be more accurate when we reflect on what has transpired since then. As you are aware, we've announced the appointment of David Bortolussi as our Managing Director and CEO, which I and the Board are very excited about. David has many strengths that make him well suited to leading this company at this stage of its growth, including extensive international leadership experience in the consumer and retail sector. David will commence in the role early in 2021, and we will have the opportunity to hear from him briefly later today. Finally, it would be remiss of me not to also acknowledge the announcement we made earlier here today about Jesse Wu. I can honestly say that on behalf of the entire Board and the management team, that Jesse has been a truly outstanding Director since he joined the Board in May 2017. His general management experience, together with his obvious deep understanding of the Chinese culture and the commercial environment, has been of invaluable assistance to both the Board and the management as we have successfully developed our business in this region. Despite this, Jesse and I have been discussing for some time, that his commitments, both personal and professional, have grown over the years to such an extent and are now reaching the point where they have become incompatible with his role on the a2 Board, which does take up a significant amount of time, especially when the travel logistics are added to the meetings themselves. Jesse feels understandably that the time has now come for him to step down in order to take care of his other priorities. That said, in typically supportive style, Jesse has agreed to stay on until around the end of the calendar year in order that we have the opportunity to at least identify his replacement, so that the Board is not left without any relevant China experience to rely upon for too long. In addition, I am genuinely delighted to be able to report that Jesse has also agreed to take up an ongoing new role of special adviser to the Chairman. So although we will not benefit from Jesse's input at every Board meeting, we will continue to be able to access his knowledge, his experience and his wisdom in the future. I also wish to acknowledge the support provided by our Executive Committee, the broader management team and all of our staff, including our partners, in ensuring that we didn't miss a beat in FY '20, and we are all working even harder towards delivering a challenging FY '21 outcome. And finally, I'd like also to thank my fellow directors for managing a significant increase in workload this year. Our Board has been structured in such a way to ensure we have a high degree of diversity and experience with strong local insights into our various markets. For better or worse, this also means that we are geographically diverse. So it's required careful planning and flexibility to ensure our effectiveness through the challenges posed by COVID-19 when we can't meet anymore together in person. And of course, that means a lot of time talking into our laptops. To all our shareholders, I thank you for your continued support for this great business. And wherever you are joining us from today in this virtual environment, we hope that you and your families are safe and in good health. I'll now hand over to Geoffrey Babidge, who will deliver his CEO address.

Thank you, David, and hello to everyone, and I hope you are all well as well. I would also like to thank you for joining us in this virtual format today. I'd like to firstly provide an overview of our group results for FY '20, take a look at our key regions up close and our group strategy. I will also cover our outlook for FY '21. In FY '20, as shown on Slide 5, we made significant gains in revenue and earnings, with strong performances in all key product segments and across all core markets. We delivered revenue of $1.73 billion, an increase of 32.8% and EBITDA of 5 -- just under $550 million, an increase also of around 33%. Our operating cash flow was $427.4 million, and our closing cash balance, $854 million. We continued the increased levels of investment in marketing and capability to make progress on our growth plan, with marketing investment totaling approximately $194 million. Our Group Infant Nutrition revenue totaled $1.42 billion, which was up almost 34% on the prior corresponding period. Our performance in China label Infant Nutrition was impressive, with sales more than doubling, and our revenue in the U.S. growing over 90%. On the next slide, you'll see there is no doubt we have had an exceptional performance over recent years. Our single-minded focus on investing and building our unique and premium a2 brand, extending into nutritional products through our more unconventional multichannel approach and driving a win-win relationship with our business partners, has established a strong foundation for further sustainable growth. This performance is also a consequence of our unique and consistent company culture and experienced management and highly engaged Board. As shown on the next slide, based on the unique features of our business model, we continue to make progress on our growth strategy. As we show here on the slide, our key strategic priorities are: firstly, to maximize growth from infant and toddler consumption in China; develop a broader nutritional milk portfolio in China; develop meaningful scale in the U.S.A.; and continue to investigate new growth opportunities. As I previously mentioned, our long-term strategic partners have been a key contributor to our performance and will continue to be important in supporting our growth agenda. Each partner has different strengths, and we have long-term relationships built upon mutual respect and mutual commercial benefit. The company supported a capital raising undertaken by Synlait Milk earlier this month,given the importance of this relationship. On the next slide, I'd like to take some time to provide you an update on our key regions, starting with Asia Pacific. The considerable consumer research and investments in market intelligence over the last few years has provided us improved insight into the China Infant Nutrition category. The diversity of the sources of information and the interrelated nature of the various distribution channels show how complex the pathway to consumers really is. On the next slide, we show that there are many different types of Chinese consumers. Some have a preference, for example, for off-line high involvement channels, such as the MBS channel, while others have a preference for an internationally-sourced product accessed from cross-border e-commerce platforms or the daigou channel, and there are many consumers active across more than one sales channel. Our model assumes we continue to focus on each of the principal channels as part of our integrated strategy. Complementary to our multichannel strategy is our focus on building one powerful brand with 2 labels. Our China label and English label products don't compete with each other, but rather work together to enhance our overall brand proposition. We are very pleased with the growth we have achieved, particularly in Infant Nutrition in China. The left-hand chart on this slide shows our Infant Nutrition sales by channel for the last 5 years. That's over 500% revenue growth in that time, with each channel showing growth. The chart on the right side highlights how the mix between channels is evolving, with China-based retail sales accounting for 48% of total sales for FY '20. The key point is that our strategy to increase our business via China-based channels is working, whilst preserving absolute growth across the portfolio. We're also of the view there will continue to be opportunity for us to gain market share alongside strong domestic brands. The critical factor for any brand to succeed over time is its ability to resonate with consumers, and this is why we are investing strongly behind a unique and engaging brand proposition. A key driver of our growth has been our increase in marketing investment in China over the past few years, and that was commented on by the chairman. We have made pleasing advancements in brand awareness, given a step-up in mass media, and increased activations in-store and online to drive greater education and conversion to trial. I'd like to share some of our advertising with you and a video clip by Jony J, a very popular rap artist in China, who recently asked to partner with us. [Presentation]

A real supporter of our brand, Jony J. So we're very pleased with him, in fact, wanting to be involved in that particular piece of promotion. As mentioned previously, our performance in Asia Pacific in FY '20 was strong. We delivered a 31.5% increase in revenue and 32% increase in EBITDA. Infant Nutrition grew strongly, particularly in China. We grew our MBS store count by almost 17% and improved velocities in store. We also increased our market share in FY '20 to 2% within this significant channel. In CBEC, we have built a credible market share in this growing channel over recent years, and we'll continue to activate the channel in a manner which complements our daigou business. Our other nutritional products grew revenue by almost 30%, and we continue to see significant growth opportunity in this area. In contrast, in FY '21, we have experienced new challenges in our ANZ segment, as touched on by the Chairman due primarily to COVID-19-related logistics and supply chain issues. As we advised in September, we started to observe significant disruption to the corporate daigou reseller channel, particularly due to the Stage 4 lockdown in Victoria, and a contraction in the overall channel beyond our expectations. This channel represents a significant proportion of our Infant Nutrition sales in our ANZ business. Despite these issues, we remain very committed to the daigou channel, and we expect the current impact will moderate over the course of the year. It is an attractive distribution pathway direct to consumers in China, and it plays an important role in building brand awareness which, in turn, stimulates demand across multiple sales channels. In the most recent 11/11 online sales event, which I know many of you are particularly interested in, I think you'll also note, it was highly competitive, we achieved 24% English label volume growth compared to the prior year, consistent with our plan. And it's pleasing to note that our Australian Fresh Milk brand continues to go from strength to strength, with our 12-month rolling market share increasing to 11.6% at the end of October. As indicated on the next slide, I want to make a couple of comments about our U.S. business. We continue to see the U.S. market as a significant growth opportunity for the company. The U.S. remains the largest chilled milk market in the world at nearly $13 billion in retail sales, with a sizable growing premium milk segment and a large number of consumers who seek health and wellness brands. Whilst our store numbers increased by 51% in FY '20, encouragingly, our sales nearly doubled, signaling a strengthening of sales rate within existing stores. Having significantly improved our brand awareness in FY '20 and also taking into account the impact of COVID-19 in the U.S., we are redirecting our marketing investment in the current year towards additional in-store activation and account-specific promotional activity to further build velocity. Thus far, the strategy is meeting our expectations. The U.S. is a strategically important market for us, both for liquid milk and as a platform for further product expansion over time. As I indicated earlier in the address, we have 4 key growth priorities. These are supported by a number of key enablers, which are important to building a more sustainable business over time. I would like to update you on 3 focus areas within these enablers. Firstly, in respect of science, we have consistently updated you on the significant investments we have made in building the brand in key regions. It seems fitting on the 20th anniversary as a New Zealand company to remind ourselves of the importance of the science that underpins this brand proposition. We've come a long way from the early studies, with a significant increase in the number of clinical human studies that have been published over the last few years. More recently, we are sponsoring studies across multiple age groups, populations and consumer benefit areas. We should take a moment to remember the late Sir Robert Elliott. A leading Professor of Pediatrics and the Founder of Cure Kids New Zealand, Bob was a very close friend of a2. His earlier research, which commenced in the 1980s, was truly pioneering work. He laid to work closely with our founder, Dr. Corran McLachlan, and continued to assist and guide the development of the science. He was rightfully knighted earlier this year but passed away soon after. Here is a short video capturing his thoughts in his own words from a few years ago. [Presentation]

Bob, a wonderful New Zealander. So moving on to the next slide about continuing to strengthen our supply chain strategy. As previously mentioned, another key aspect of building for a sustainable future is to ensure we have a secure and protected supply chain. Consistent with this, the Board determined it appropriate to assess opportunities to participate in manufacturing nutritional products in a manner complementary with our existing supply arrangements, and this has been going on for some period of time, this review. In August, we announced we had made a nonbinding indicative offer to acquire 75% of Mataura Valley milk, a state-of-the-art nutritionals facility with favorable milk production conditions in Southland in New Zealand. MVM is currently majority-owned by the highly respected state-owned entity, China Animal Husbandry Group, which is also a sister company of our existing logistics and distribution partner of many years, China State Farm Group. Our due diligence process is almost complete and continues to support the strategic rationale for the investment. We're in the process of working through final aspects of the potential transaction and supporting strategic relationships in respect thereto and expect to be in a position to provide an update in coming months. We're also pleased with the progress we have made in FY '20 in building a more sustainable business. We are committed to reporting against the task force on climate-related financial disclosures by the close of FY '20 -- sorry, FY '22. We're also committed to measuring and reducing our direct and indirect greenhouse gas emissions, and we'll continue to report on our progress. Commencing this financial year, we are redirecting the value of the carbon credit offsets for our indirect emissions into the a2 Impact Fund. This will allow investment in more tangible programs that will benefit our business and more importantly, our planet, and reduce our overall impact on climate over time. There's additional detail on this in our annual report, and we look forward to providing further updates in due course. Moving to our outlook for FY '21. At the end of September, we advised of challenging market dynamics that were being experienced and which I've commented on. We are maintaining guidance as advised in September. Whereby we expect group revenue for 1H '21, the first half, of 725 -- in the range of $725 million to $775 million; and for the full year FY '21, a group revenue range of $1.8 billion to $1.9 billion; and for FY '21, an EBITDA margin in the order of 31%. However, as you would all understand, due to the volatility arising from COVID-19 and the difficulties this presents with forecasting, naturally, there is uncertainty to this forecast. We also acknowledge, as has been commented on by a number of shareholders and analysts, of course, the outlook provides for a significant increase in revenue in the second half. And that is dependent on a number of key assumptions, including an improvement in the daigou channel and continued growth in our China label business. We continue to observe strong underlying brand health metrics, as also referred to by the Chairman, and that's, in particular, in China, including market share expansion and growth of brand awareness and loyalty measures. This gives us confidence that, notwithstanding the current headwinds, the fundamentals of the business over the medium term remain sound. The 2020 calendar year has been like no other. When I joined the business again in December last year, I was pleased to be back and keen to make a further contribution. This year has tested us, as it has many organizations, but I have confidence in the team, in our strong and unique brand, our business model and in our growth strategy for the future. Thank you to our Board, the Executive Committee and the wider team. You have all worked tirelessly this year in driving our business forward despite the challenging conditions. The a2 Milk Company is a remarkable business, and our story continues to be only just beginning. Chairman, I'll hand the meeting back to you. Thank you.

Thanks, Geoff. So now we move to the formal business of the meeting. Although I will open up the meeting for questions on any matter, including Geoff's address after we've dealt with these formal resolutions. As mentioned earlier, today's meeting is a virtual meeting only. Voting will, therefore, be conducted by way of a poll in accordance with the NZX listing rules. You will be able to vote by clicking the Get A Voting Card box on the online portal. You can find further instructions in the virtual annual meeting online portal guide that has been filed in both the ASX and the NZX market announcement platforms, and it's in the annual meeting section on our own website. Once we've tallied the votes, the results will be posted on the market announcement platforms of both the NZX and ASX after the meeting. As last year, we will not declare the results of the votes at this meeting, but they will be published on the company website as soon as they have been counted and verified. The proxy votes that have been submitted to each resolution will be set out in the slides that I will show you around each resolution. To give some context to these numbers, the current number of shares on issue in the a2 Milk Company is approximately 742 million. I have been appointed proxy in respect of approximately 480 million shares voting either for, against or open for each of the resolutions 1 to 4. As indicated on the proxy form, I intend to vote all discretionary proxies where I have been appointed as proxy in favor of each resolution. You will be able to ask questions by clicking on the Ask A Question button on the online portal. Further information on this is set out in the virtual annual meeting online portal guide -- one of the world's most cumbersome phrases. To ensure that the questions related to the resolutions make it to me, as we go through each resolution, I would ask that shareholders submit those questions now. General questions from shareholders will be put to the Board during the last part of the meeting, which is set aside for general business, and if we are unable to get through all the questions today, we'll endeavor to respond individually after the meeting. Given the virtual environment, questions from shareholders will be read to me by David Akers, our Head of Investor Relations, who will join me on the screen shortly. As stated in the Notice of Meeting, all the resolutions are only ordinary resolutions. For such resolutions to be passed, the approval of a simple majority of the votes of those shareholders entitled to vote and who are voting is required. So with that preamble, I will now move on to the formal business, including the resolutions before the annual meeting. The first item of business is to receive and consider the company's financial statements for the year ended 30th of June 2020, together with the director's and auditor's report. The annual report containing the financial statements and the auditor's report for the 12 months ended 30th of June 2020 has been circulated to all shareholders. Are there any questions on the annual report or the financial statements?

Hello, Chairman, there are no questions on this matter.

Thank you. So that does not require a vote. I will then now move on to the formal resolutions. Pursuant to the Company's Act, the company wishes to authorize the directors of the company to fix the fees and expenses of the company's auditors, Ernst & Young, for the ensuing year. Are there any questions from shareholders online with respect to this authorization of the directors to fix the fees and expenses of the company's auditors, Ernst & Young, for the ensuing year?

Chairman, there is a question from Jenny Miller. The question is, how long have EY been the auditors for a2 Milk? Does a2 have a policy for tendering the audit work undertaken by auditors given the audit fee is significant?

It's a good question, and I will pass that over to either Geoff or to the Head of our Audit and Risk Committee, Julia, to answer. I'm not sure. They've been auditors for all the time I've been involved, but I'm not sure for how long in total. Geoff, do you want to answer that? Or...

Look, I would suggest that Julia takes that question, Chairman?

Look -- thanks, David, and thank you, Jenny. Ernst & Young have been auditors for a period of time, certainly, since I have been on the Board, which has been for the last 7 years. To date, they've served us incredibly well. We do spend quite a bit of time within the Audit and Risk Committee questioning both their performance and also services and other services in which they may perform for us. Obviously, they are subject to the rotation within Ernst & Young in relation to partner rotation. And in that respect, we have had a recent change of partner, which has been also very, very good and very good service, but we certainly keep it on the agenda as a matter to consider as we move forward. And certainly, if we were concerned in relation to the thoroughness and robustness of the work that they're doing, we would certainly look to change. Thank you.

Thank you. Are there any other questions on this matter?

Chairman, there is another question from Tiffany Lowe. The question is, how is audit independence maintained when the auditors, EY, have done significant nonassurance work of $205,000. Total auditor remuneration was $1.175 million. The nonassurance work included $182,000, which related to market research. Is there a specific reason why EY was used versus a market research company who specializes in this field of work?

Again, I will ask our Chairman of the Audit and Risk Committee, Julia Hoare, to answer that question, please.

Look, thank you very much, and I appreciate the question and a very good question. In terms of that particular piece of work, that has been done by a part of -- by a firm that was actually bought by EY a couple of years ago, and they were commissioned by us well before they became part of Ernst & Young. And we have found that the services, which are very specialist boutique, marketing-type services have been very beneficial and actually not in any sort of conflict with the type of work that Ernst & Young would do because they do not review any of that work in the course of the audit. We have spent quite considerable time at the Audit and Risk Committee talking about nonaudit services, and our view is that, to the extent that there are nonaudit-related services that can be done as well by some other organizations, we will certainly use that other organization. But in relation to these market services -- marketing services, we've been very, very well served, and it's a relationship that well predates Ernst & Young's involvement with them. Thank you.

Thank you. If there are no other questions, I will now propose that the directors of the company be authorized to fix the fees and expenses of the company's auditor, Ernst & Young, for the ensuring year -- ensuing year, sorry. And I put the motion to the vote. Please now cast your vote. [Voting]

Thank you. The next resolution relates to my proposed reelection as a Director of the company. So I will hand over to Julia Hoare to Chair this part of the meeting. Thank you, Julia.

Look, thanks, David, and good morning, everyone. As David mentioned, this resolution relates to his reelection as a Director of the company, so in accordance with the company's constitution, David Hearn is retiring at this meeting, and being eligible, offers himself for reelection. David has been a Director of the company since the 5th of February 2014, and has Chaired it since the 30th of March 2015. And he's also a member of the Nominations Committee. He's got extensive experience and skills in executive management, sales and marketing, and strategy development in FMCG in international markets. He's also held senior executive roles, including Chief Executive Officer or Managing Director roles; FMCG companies, including Goodman Field Limited; United Biscuits, Europe and Asia; PepsiCo Foods Europe; and Del Monte, U.K. And more recently, David was the CEO of the marketing services group Cordiant Communications Group. In addition to his a2 company directorship, David is also a Director of Safestore Holdings Plc; Robin Partington & Partners Limited; Committed Capital Limited; and his own company, Lovat Partners Limited. He resides in the U.K. And I and the Board are recommending David to you as a Director of a2, and we unanimously support his reelection. And so I'll now actually ask David to say a few words. Over to you, David.

Thank you, Julia. I have had the privilege of standing before you at the last 6 annual meetings, the first as a Director, and the last 5, I've had the privilege to act as your Chairman, and I can tell you that it has been the most extraordinary and magical journey of my career in business. I don't propose to go through my particular history or my qualifications. I hope those are known to most of you. But suffice to say, I have run businesses that bear a quite strong relationship in the food industry, the branded food industry across the world in many countries. And I hope that, therefore, that experience has allowed me to make at least a small contribution to the success of the business so far. The bulk of that success clearly belongs to the management, but hopefully, I've been able to provide a little bit along the way. One of the things I would make an observation about this company, though, is that its success is due, of course, to many things. But at its heart, one of the most important characteristics is the culture of the business. The words teamwork and collaboration are used enormously across business, and so often, they're used rather lightly. In my experience, having worked in several organizations who used those words lightly, they don't necessarily ring true. But in the a2 business, they are, in fact, at the core of our being. The Board itself is a highly collaborative Board. We speak clearly, we speak openly, but we're keen to hear each other's point of view, and we learn and engage with each other. And the same is true of the relationship with the management and the Board. And equally, we have managed throughout this history of this extraordinary business to blend the new influx of people, both on to the Board and intercompany senior ranks. We managed to blend that new thinking, new perspective together with the people who've been there a little longer, who hold in their heart, the culture, the history and the values of the business. And I think one of keys to the success of this business has been that blend of new and old. And we are about to enter another new period with the arrival of our new CEO, David Bortolussi, who will inevitably bring new and fresh thinking to the company. That's one of the reasons why we've hired him. We would like that. We need it, and I'm sure he will bring a lot of it. But I'd like to think also that he will be at his most effective if we can maintain that magical balance between the experience and the history and the wisdom and the newness and the perspective and the challenge. And so I think maybe -- since David is not joining until February, it is a particularly critical time, and I hope that my experience in the business and having been here all through the period of our extraordinary growth and our development into China, that balance will be helped if I am here along the way -- along with, of course, my other colleagues on the Board. So I would like to say that is my rationale why I think I still hopefully have a role to play going forward. And before I hand over back to Julia, I would just like to point out one thing, and that is I want to thank my fellow Board colleagues and the executive team for the way they have worked and supported the business and me personally as Chairman. It has made the journey very special, very magical, and without any doubt, the highlight of all my working career. So back to you, Julia.

Thanks, David. Are there any questions from shareholders online concerning this resolution?

Julia, there are no questions on this matter.

Thank you very much. I'll, therefore, propose that David who retires at this meeting in accordance with the company's constitution, be reelected as a Director of the company. And I put the motion to vote. Please, could you cast your votes now. Thank you. [Voting]

Thanks, everyone. I'll now hand back to David Hearn, who will continue as Chairman of the meeting. So over to you, David. Thanks.

Thank you, Julia. In accordance with the company's constitution, Julia Hoare is retiring at this meeting, and being eligible, offers herself for reelection. Julia has been a Director for the company since the 19th of November 2013, and Deputy Chair since the 30th of March 2015. She is also Chair of the Audit and Risk Management Committee and a member of the Nomination Committee. Prior to joining the Board, Julia had extensive chartered accounting experience in Australia, United Kingdom and New Zealand and was a partner with PwC New Zealand for 20 years. She's also a member of the New Zealand External Reporting Advisory Panel, a body designed to support the standard setting process of the New Zealand External Reporting Board, and she is also the Vice President of the New Zealand Institute of Directors. In addition to her company directorship at a2, Julia is also a Director of the Port of Tauranga Limited, Auckland International Airport Limited and the Meridian Energy Limited. She is also a member of The New Zealand Sustainable Finance Forum Leadership Group. Julia resides in New Zealand. I and the Board, therefore, recommend Julia to you as a Director of the company, and we unanimously support her for reelection. I'll now ask Julia to say a few words.

Thank you, David, and good morning, everyone. It's my real pleasure to be addressing you today. The a2 Milk Company is an amazing business, and it's been my privilege to serve as a Non-Executive Director, Deputy Chair and Chair of the Audit and Risk Committee over the last 7 years. Over this time, I've done my utmost to give you, a2, my absolute very best, and I can define my 7 years with a2 into 3 distinct phases. The first phase commenced when I joined in 2013. The company had a share price of around $0.60, and we just sent our first shipment of infant formula to China. I draw in my previous professional experience gained as a partner with PwC for 20 years to bring financial rigor and to put in place systems and processes. At the time, there were very basic systems. We had a fantastic team. It was small. It was like a family. Times were challenging, but the future was incredibly exciting. And it was through this first phase that we really laid down the foundations for the future shape of a2. My second phase is defined by what I committed to be exponential growth. We built a significant business, as has been reflected in our performance. We broke into the in NZX 50, and ultimately, into the NZX 10 to be one of New Zealand's leading companies. We also listed on the ASX in 2015 and progressed through into the ASX 300, and then it was the ASX 200, to the ASX 100, where we actually are today. I was able to bring to the table the depth of experience gained through my professional career, also the learnings from the portfolio of my other listed governance roles, and also the work I do on the New Zealand External Reporting Board's Advisory Panel. In terms of how I am, I'd like to express my style as being someone who, I think, really pulls up my sleeves. I really like to understand both the risks and the opportunities of the business, and within these confines, trying to act as an enabler rather than a handbrake for business. And I really think that this has been my modus operandi as we've navigated through our growth. For me, however, we're now in Phase 3 of my journey. We continue in the growth mode, but are also strongly consolidating, I think, on the gains of the past to make sure that we continue to be financially successful, whilst also being fit, relevant and sustainable for the future. Environmental, social and governance issues have been increasingly important for companies, consumers, communities and investors, and this is an area in which I have deep expertise. I originally set up PwC's sustainability and climate change offering in 2015, and I've have had a number of numerous other roles, including my current membership of the leadership group for The Aotearoa Circle's Sustainable Finance Forum, which is really a unique partnership of public-private members, sector leaders with a common vision. And for those New Zealanders online who joined our meeting today, you may be aware that in early November, the forum released a road map for a fully integrated financial system that locks in social, environmental, economic leadership to provide long-term gains for the economy. And the aim is actually -- for this road map is actually to support and not hinder the economic transition that's going to be required for New Zealand to meet its international commitments under the Paris Agreement Sustainable Development goals. This is actually really important to me as a Director of a number of New Zealand companies. These are issues in which I am sort of extremely invested. My government -- governance leadership roles and the role with the forum, I think, provide me with some very deep insights to support a2 through our own ESG journey through this next phase, and we're really working towards building a more sustainable business for the future. It's been an honor to serve on the a2 Board, a role I thoroughly enjoyed, and I thank you for the opportunity for that and seek reelection. I confirm I've got the capacity, commitment and drive to continue to serve you, our Board and this amazing company and its incredible people in there. So thank you, and I'll now hand back to you, David, as Chair.

Thank you very much. Thank you, Julia. So are there any questions from any shareholders online concerning this resolution?

Chairman, there is a question from Jenny Miller. The question is, Julia is a busy director. In addition, Julia is on several Boards who have problems, including Watercare, lack of water, droughts, Auckland International Airport, impacted by COVID and Meridian, Tiwai smelter wind-down. Does Julia feel she's over-Boarded, particularly with the challenges of late?

Well, I will ask Julia to answer that, but all I would like to say, by way of introduction beforehand is, I've worked with Julia ever since I've been on the Board. We are the 2 longest-serving Directors on this Board. And all I can say is that I have never known her not to be incredibly well informed over all the issues in the business. She works extraordinarily hard, and I have never seen any evidence that we do not get the full commitment that we need or that there is any sense that other priorities are getting in the way of her role on our Board. So I have absolute confidence that that is not an issue. But I would like to ask Julia to comment on anything she wishes to say in specific return to that question.

Look, thank you, David, and thank you, Jenny. In relation to over-Boarding, I feel actually incredibly comfortable with my workload. I do appreciate this year has been a big year, as it has for many of us, as we've navigated through the COVID times. And yes, I do acknowledge that with, obviously, the airport, there's been some quite major issues in terms of change, but we've worked through those incredibly well. In relation to Watercare, yes, we have had issues. But I am actually no longer a director of Watercare, having stepped down from Watercare in -- at the end of October. I'm a full-time Independent Director, and I have been so for the last almost 8 years now. Before that, I was a PwC partner for 20 years, and I'm someone that is very comfortable to get stuck in and do my work. I don't feel at all that I am over-Boarded in any way. I'm quite comfortable with the workload, and give my absolute utmost to all of the companies which I have a privilege to serve with. So I'm very comfortable on the workflow, but thank you for the question.

Thank you, Julia. Are there any other questions on this matter?

Chairman, there are no further questions on this matter.

Thank you. So I now propose that Julia Hoare, who retires at this meeting in accordance with the company's constitution, be reelected as a Director of the company, and I put the motion to the vote. Please now cast your vote. [Voting]

Thank you. I now turn to the final resolution, which is the reelection of Jesse Wu. In accordance with the company's constitution, Jesse Wu is retiring at this meeting, and being eligible, offers himself for reelection. However, in line with my earlier comments, it is important for shareholders to note that whilst the Board is asking shareholders to reelect Jesse to the Board at this meeting, Jesse will be standing down at around the turn of the year and so will only serve for a matter of weeks from this date. Jesse has been a Director of the company since the 16th of May 2017. He's also a member of the Audit and Risk Management Committee and the Remuneration Committee. Jesse began his career with Procter & Gamble and PepsiCo before joining Johnson & Johnson's Consumer business. He was appointed International Vice President Asia Pacific in 2003 and Company Group Chair Global Markets in 2008. Prior to his last executive position, he was Worldwide Chair of the Johnson & Johnson Consumer Group, which had annual revenues of $14 billion. Jesse serves on the Board of Visitors at Duke University's Fuqua School of Business. He is a 2-time recipient of the Magnolia Award from the Shanghai Municipal Government, given in recognition of his contributions to Shanghai's economic development. In addition, Jesse serves on the Board of the Aptar Group, Inc., a global leader in dispensing systems. Over his career, Jesse has managed significant scale and complexity in the areas of manufacturing, distribution, sales and marketing in both developed and emerging markets. Jessie resides in China. So I and the Board, therefore, recommend Jesse to you as a Director of the company, and we unanimously support his reelection. I will now ask Jesse to say a few words.

Thank you, Mr. Chairman, for your very kind words. I would like to start by saying that I have thoroughly enjoyed being on the a2 Board for the past 3.5 years. I felt fortunate to have the opportunity to contribute to the growth of the a2 Milk Company as well as the development of a2 to such a successful enterprise. Secondly, I'm sad to report that my other commitments, including those of my 2 children who are both based in the United States, have grown to such an extent that it is no longer possible for me to devote the time required to carry out my duty to be a Director of this exceptional business. Given that this is the last time that I shall be standing before you, I would like to just take a few minutes to share my views on this great business. First and foremost, a2 Milk is a once-in-a-lifetime innovation in a commodity category. It is the responsibility of the a2 Milk Company to take this innovation globally to serve more consumers who will benefit from this innovation. Secondly, the company's commitment to China is well placed. While the a2 business in China has progressed significantly over the past 5 years, we still have not reached anywhere near our full potential in this dynamic market. I, therefore, fully support the significant marketing investment that the company has embarked upon over the recent past. And I would encourage the Board and the management to continue to invest in consumer insights to build an iconic brand. Finally, I would like to say that the collaborative culture which exists across management and between the management and the Board has made serving on this Board a real pleasure. I will urge the management and the Board to further strengthen this culture for the benefit of the business. In closing, I would like to say thanks to all of you, the Board, the management, the staff and you, the shareholders, for the support that you have given me during my 3.5-year tenure. And I wish you all the best, and look forward to serving in my new upcoming role as an Adviser to the Chairman. Thank you.

Thank you, Jesse. And I failed to say in the earlier words about Jesse to say that I am privileged to count Jessie as a friend as well as a colleague, and that's a recommendation from one friend to another. So I would like to ask if there are any questions from shareholders concerning this resolution.

Chairman, there are no questions on this matter.

So I now propose that Jesse Wu, who retires at this meeting in accordance with the company's constitution, be reelected as a Director of the company, and I put the motion to the vote. Please now cast your vote. [Voting]

Thank you. So that concludes the resolutions to be formally presented at the meeting. You may edit and submit your voting cards up to 5 minutes after the close of the meeting. And as mentioned earlier, the votes will be tallied and the results available on the market announcement platforms of both the NZX and ASX following this meeting. I would now like to turn to the appointment of our new Managing Director and CEO, David Bortolussi. Given that David is due to join the business early in the new calendar year, we thought it was an opportune moment for him to share a few words of his own at this meeting which you can see in this short video.

Hi, everyone. My name is David Bortolussi, and I'm pleased to be joining you today for this virtual annual meeting. Let me start by saying how excited I am to be joining The a2 Milk Company. I'm thrilled and humbled to have the opportunity to lead your company from early next year. I've been watching a2 develop over recent years, and what has been achieved so far is impressive. Our consumer proposition and brand strength in the category are very distinctive and a great foundation to drive future growth from, which I'm excited about. I'm also very purpose-driven and love the way that we enrich and add value to the lives of our consumers across all generations, from young ones through to adults. I also admire the value-add that The a2 Milk Company has brought to the dairy industry through the commitment and support given to our farmers. Recently, I was invited by Geoff Babidge to attend several management meetings with key executives as part of my induction to develop my understanding of the company's growth strategy, people and culture and operations, including the opportunities and challenges facing the company. The past year has been a challenging environment for many businesses globally. Fortunately, we have a significant market opportunity, a strong brand with nutritional products that appeal to a broad cross-section of consumers, a multichannel distribution model and long-term partnerships that will help us navigate through the pandemic and other challenges. I'm looking forward to working with all of the team at a2 and your Board to realize the full potential of The a2 Milk Company over the coming years. I also look forward to when I can engage more directly with our shareholders in the company and the analyst community to listen to your thoughts on our strategy and execution. Finally, I'd like to take the opportunity to thank Geoff for agreeing to stay until I'm able to join the company. It's reassuring to me to know that the business has his continued leadership during this transition period. Thank you.

Thanks, David. So we now move to the part of the meeting set aside for general business. So I would like to ask if there are any questions from shareholders online on any matter.

Thank you, Chairman. The first question is from [ Karen Lee ]. The question is, "Since February, the restriction from overseas travel began. Why was revenue over the June quarter not affected in the daigou channel, but the September quarter was?"

Good question, and I will ask Geoff to answer that.

Thank you, Chairman. And look, thank you for the question. In fact, as we reported in respect of the FY '20 results, we, in fact, got a positive impact from COVID, certainly in respect of the second half of FY '20, because of the initial impact of what was occurring within China and a scrambling of consumers to quality brands, which included ours. And we certainly got some positive sales response in respect of that. The reality is we've commented on in respect of what's coming through in the first half of FY '21 is somewhat the reverse, where, of course, China has very much been very successful in achieving the stabilization of COVID in that market and clearly as the leader in the world in that regard. And we complement everyone in China for achieving that outcome. The issue is that there's a focus, therefore, in other countries that are not quite on top of it. And the issue that we've been experiencing, firstly, in respect of limiting travel, which we, of course, all support into Australia, but that's had an impact on the retail daigou component, which we, in fact, expected and which we planned into our numbers, into our budget for FY '21. But it's fair to say the impact of that was becoming a little more significant. But more importantly, the Victorian lockdown, which clearly impacted both logistics and the overall channel and confidence within the channel, quite frankly, of product being available to move into China, that's the issue that's been weighing on our performance since it became more evident in the month of September. So look, we had a positive. We're working through the issues, as both myself and the Chairman have mentioned. And as we announced in September, we are hopeful that there will be an improvement. We've seen some very early green shoots, but it's very early days as we appreciate in moving through those issues. So look, hopefully, that provides a little more color in respect of your question. Thank you.

Thank you. Are there any other further questions?

Chairman, the next question is from Ricardo Garcia. The question is, how is the inventory for FY '20? I know it is a substantial amount. Has it been already sold out?

Again, I will ask Geoff, who's in charge of the operations of the business, to answer that question, please.

Well, there would be 2 -- there may be 2 parts to that question. The first relates to our own inventory. And the reality is that as we were moving through the challenging COVID period, as I was just mentioning in respect of second half FY '20, we made a conscious decision ourselves to work with Synlait to, in fact, build additional inventory cover. That was something that we both agreed was appropriate because we had some uncertainty about the flow of ingredients into New Zealand, the issue of whether there'd be any lockdowns in the South Island of New Zealand. So we made a conscious decision from the month of March to start building our own inventory, and our inventory increased in the period through to June. But I've advised also that in fact, our inventory peaked post-June, actually in the month of July. So the reality is that we purposely determined to build additional inventory in the system to be able to respond to consumer demand that we were seeing. Now of course, since that time, we've had somewhat a softening in respect particularly the English label activity business that we've referred to. So in fact, the drawdown on that inventory is somewhat slower than we would have otherwise planned. But however, we are planning for a reduction in inventory that will unwind, in our case, our internal inventory, between now and year-end. You won't see a big reduction between now and December. But certainly, in the second half, that's something in our plan and in the plan that we've communicated with Synlait Milk. I'm not sure if the other part of the question is about the whole issue of inventory within the daigou channel, which we do get quite a few questions on. And for the -- certainly, the information that we have in respect of all of the data points that we have, tracking consumer data, understanding what's in warehouses that we can access within the daigou channel, we're very -- pretty satisfied that the inventory levels within the daigou channel and the first number of tiers of daigou, in fact, is substantially reduced. And it will be interesting to see whether, in fact, there is some restoration of the level of inventory, which would assist us in the second half of this financial year. So thank you for that question.

Thanks, Geoff. Are there any other questions, please?

Chairman, the next question is from [ Zen Chen ]. The question is, "Some of the infant formula sellers in China reported that they found Chinese customers are purchasing less imported products this year because of the concerns of bringing the virus in. Instead, more and more people are choosing their local brands and products. Has The a2 Milk Company experienced or noticed this trend so far? And will the company take some additional measures to build more confidence on product safety in your overseas market? Thank you."

Again, I will ask Geoff to comment on it. But I would like to make a comment, first and foremost, before I hand over to Geoff. Look, there is no doubt that there are many reasons why -- by consumers in China and anywhere else choose the brands they wish to purchase. And there is no doubt that there is a growing trend in China towards China pride, towards China businesses. And in fact, that trend is going on all over the world. As economic pressures press themselves into countries, there is a national sense in many countries that we should be supporting our local businesses. And China is no exception to that. But if you ask me whether that is a driving force in our own performance in the business, I would say no. And I would say that based on the fact that our China label business is continuing to grow strongly, our market share in mother and baby stores, where the product is visible and is bought in China by Chinese consumers, that continues to grow well. So whilst it may have some effect on us, as it does on everybody in the marketplace, I would say it is not a major contributor to any of our current trends. But I will hand over to Geoff to discuss anything more detailed about the matter you raised.

Well, very valid comments from the Chairman. I think I'd simply add that clearly, the COVID situation, as I mentioned earlier, how well managed it now is in China, how obviously it's become very well managed in New Zealand and now Australia, that's very important moving forward in respect of confidence of product. Clearly, all of our product direct into China, are being directly imported by China State Farm into China, comes from New Zealand. But we have an important channel, as we've mentioned earlier, in respect of the daigou channel for product from Australia. So the issues of where -- of how COVID is being managed in respect of the countries of both New Zealand and Australia relative to China have an impact. So confidence is important. Issues about whether, for example, there is the -- any potential for contamination, surface contamination on a can, was an issue that appeared to arise a bit. But we saw during the period, September -- certainly in the month of September, we were hearing rumors about that. And it's probably fair to say that our competitors were also using that as an issue to give them a little bit of a leg up at that time. So look, it's a very valid question, but I firmly endorse the comments made by the Chairman in respect of the overall market dynamics. Thank you.

It's also worth pointing out that 2 of the countries in the Western world that have handled this COVID situation probably better than any other, one of the only countries that effectively has eradicated COVID-19 completely is New Zealand. So if you're going to be importing product from any country in the world into China, New Zealand and Australia are probably 2 of the best. So we think we're in a reasonably strong position, but we recognize the issue and the concerns. Thank you. Any other questions, please?

Chairman, another question from [ Zen Chen ]. "It is reported that there is a rapid DNA sequence testing technique becoming available by Swiss biotech company, SwissDeCode, which can identify A1 protein in less than 50 minutes. Would The a2 Milk Company be able to give some comments on this piece of news? Do think this will help more companies, especially smaller ones, enter into the a2 Milk market more easily and thus increase the level of competition?"

Thank you. Well, again, I'll make a comment first, and then I will again pass this over to Geoff to discuss about the internal processes in our business. We have always said from the start in this business that we believe that the a2 proposition is so attractive and so compelling that it will ultimately result in many competitors coming into the market. And as you heard in the tape that was played from Professor Bob Elliott, you will see that in truth, over years to come, A2 may well become the dominant milk protein in the world. We do not fear that. We believe that with the strong brand that we have and the ownership of that proposition that we continue to have today, we believe that actually competitors coming in will, if anything, strengthen the proposition. They legitimize it. They confirm that the proposition is real. And in the end, our business will rest on the strength of our brand and our consumers' response to our proposition. And you see that in other categories. I've often been quoted as saying, if you look at Dyson vacuum cleaners, Dyson invented the cyclonic vacuum cleaner, revolutionary, made enormous strides, upturned the whole vacuum cleaner business. Within 5 years, everybody in the market is selling vacuum cleaners on the cyclonic process. And the reality is Dyson's business has never been stronger because this just confirmed their vacuum technology is the best, and they have established themselves as the inventor of and the original and the best. And we believe that, that will still maintain in our case. And so in principle, competitors are always there to be managed and to be fought properly. But we are not intrinsically worried that competition will spell anything other than continued growth of the sector and growth of our business. But Geoff, you may care to comment on the internals inside the business.

Look, just a couple of comments, Chairman. Look, we don't obviously normally comment on the technology of another company. But I do understand that the SwissDeCode CEO indicated that their test is qualitative and not quantitatively accurate compared to our current method. Our testing also indicates whether A1 is present, not how much A1 is evident, like the Swiss testing. But look, in summary, we believe our testing is robust. It produces the best, most comprehensive results on whether the milk has A1 and/or A2 proteins. And I think this, again, is evidence of the fact that we've been doing this for 20 years. There is a lot of internal intellectual property around our processes and systems, and that includes testing. So look, we're very confident in respect of our methodologies. We also continue to work on our methodologies and continue to enhance them, and that's something that will continue, particularly over coming years. But thank you for the question.

Any other questions, David?

Thank you, Chairman. The next question is from [ Cicada Limited ]. "Is a listing on the Hong Kong exchange worthy of consideration?"

Well, I don't know yet whether it's worthy of consideration. I know that it's clearly an option. Our business is clearly very focused in Asia. It is a question of not specifically whether we should go on the Hong Kong exchange, but it is a question that has been discussed at the Board level, about whether or not a listing in an Asian market would be an attractive option for our customers to invest in our business in their markets. So it is an issue we have had some debate about. Whether it would be Hong Kong or Shanghai or wherever, I don't know. It is certainly not something we're considering at this moment. We have business issues to manage. We have a business to get through what are these challenging times. When we're through those, and we see what the shape of the business is and where we're going next, it is something we are certainly open to. We moved the listing to Australia because we felt that was relevant for our Australian development. No doubt, if we feel it's relevant for our Asian progress and growth, we will consider it in due course. Thank you.

Thank you, Chairman. The next question is from [indiscernible] [ Vaziri ]. The question is, "With the results of recent studies that show that milk is not as valuable to human health as we expected in the last century, what is your prediction for the future of the milk market in the world?"

Well, I think it was Sam Goldwyn who said, prediction is always tricky, particularly when it involves the future. So I'm not here to make a speculation on the entire milk market. There is no doubt that dairy as a category -- liquid milk has been as a category significantly under pressure for many years. So this is not new. It has seen pressure from nondairy substitutes, from certain nutritional experts who question its value and/or its appropriateness. So this is not a new trend, and I wouldn't say that there's something dramatic about to occur. But of course, we are also very heavily engaged. And most of our business now is not in liquid milk. It's in value-added milk products, clearly infant formula bulk, and I don't think that is likely to be as affected as liquid milk in any case. So I would say that, yes, we are acknowledging that the liquid milk market per se has been and is under pressure. But you only have to look at our Australian business to see that a market that has actually seen virtually no growth, in fact, has been diminishing before we took such a strong position in it, is now virtually showing no growth. And all the growth there is, is coming from us. I think our positioning puts us in the forefront of saying our product is healthier, better for you. And therefore, we'll capture more than its fair share of people who are concerned about health. And so again, we don't see that this trend is going to cause us any more issues than it has done in the past. And we're confident we can continue to grow as we have done in our liquid business in Australia. Thank you.

Thank you, Chairman. The next question is a combined question from [ Vincent Catherwood ]. "Why does a2 Milk not pay dividends? And when does it envisage that payment of dividends will start?" Also, this has been asked by [ Richard Knowles ] as well as other shareholders are expressing frustration of the lack of dividend, whilst the company sits on substantial amounts of capital.

I know this is a very delicate question. And I do know, and I'm very aware and the Board is very aware, that there are large groups of shareholders who would wish that we would pay a dividend. But I do want to make it very clear: the Board is very aware of its responsibilities to manage the capital which it has on its balance sheet, which ultimately belongs to shareholders, not to the company and certainly not to the Board. It is our job to manage the disbursal of that money to the best effect for the value of shareholders in the long term. And that is -- that's the question that exercises us most, not whether we should pay a dividend tomorrow or not, but what is in the best interests of shareholders in the long term. Now I know that we've got a current issue that our share price has obviously taken quite a substantial hit, as have nearly every share -- virtually all shares in all markets around the world as a result of the pandemic. But if you look over time, the reality is we have been able to invest money in this business and see significant growth in value for shareholders, multiple orders greater than would be the case if we paid a dividend. A dividend would be, at best, very low percentages of the value of the shares, whereas we've been able to see the share price grow in double-digit terms year-on-year-on-year. So whilst we believe that there are still opportunities to invest the money we have created on the balance sheet to be able to grow the business further and faster, we believe that's in the best interest to shareholders. We believe you will get more value and be wealthier out of that than you will by returning 1%, 2% a year on the share value, but which will diminish our flexibility because a lot of money will go out. You heard earlier that we have 742 million shares. So you don't have to pay a very large dividend before a very large amount of money goes out of the door. And if that reduces our ability to grow and our ability to invest in things that will create much bigger future value, we believe that's not in the interest of shareholders. Now that's a question we have to ask ourselves all the time, and we do as a Board. And I can assure you that the moment we feel uncomfortable that we have a better proposition than returning the money to shareholders directly, whether via a dividend or something else, then it's our duty and we will return the money directly to shareholders in some way. But whilst ever we feel that it is your interests, not ours, it's in your interests for us to keep it in our pocket, as it were, in order to do -- invest properly, as we have done in Synlait, as we have done in Mataura, and we will do in the future in other things, then we believe it's actually the wrong thing to take a decision today to pay a dividend. When that position changes, I don't know. But I can assure you, it's absolutely top of the Board's mind.

Thank you, Chairman. The next question is from [ Stephen Woolley ]. The question is, "Given the importance of the corporate daigou channel, what, if any, evidence have you seen of improved performance since the easing of Melbourne lockdown restrictions earlier this month?"

I mentioned in my report that we have seen some very early signs. I mean, we only issued our warning 6 weeks ago, but the lockdown came -- it was released 3 weeks ago. And we have seen some very, very early green shoots. Nobody should get too excited. Geoff referred to that, and I will ask him to comment. But there are signs that, in fact, the lockdown was having a very significant effect. And as it has been lifted, we are optimistic that we will see this sector start to return to life again. But Geoff, you may care to comment on anything else.

Look -- thanks, Chairman. Look, as we have commented on, the fact that there's obviously a substantial improvement in respect of the COVID dynamics in Victoria, and hence, the impression, therefore, that Australia is in control, is very relevant. Secondly, as has been indicated, we have seen some improving dynamics, albeit in early stage, in respect of corporate daigou activity. The fact also that logistics are starting to move, and therefore, the issue of confidence we are seeing, is just starting to emerge more positively than was the case. I mentioned earlier that all of the market intelligence we have is that the inventory levels within various tiers of the daigou channel are very low compared to previous periods, which means at some point in time, making the assumption that this channel will start to move forward again, there will be some restocking that will also occur. So look, I think I've indicated, the Chairman's indicated, that it's early days. And clearly, we have some confidence that this is going to continue to move forward, as indicated in our guidance. But we also acknowledge that these are uncertain times. We are so -- also obviously making the assumption that there will be very much containment of COVID, particularly in both Australia and New Zealand moving forward from here into calendar '21. Thanks, Chairman.

David?

Thank you, Chairman. The next question is from [ Chris Lloyd ]. "In August, a2M entered into an agreement to acquire 75% of Mataura Valley Milk from the China Animal Husbandry Group. While a2M is a superb marketing company, it is not a manufacturing company. That is not its core strength. By way of example, when Blackmores, another marketing company, acquired Catalent, it quickly learnt that running a manufacturing enterprise can be problematic. How will a2M ensure that this acquisition is successful and not end up as another drain on performance?"

That's a very good question and one, by the way, that's exercised the Board enormously. I'm conscious that we need to try and answer questions quickly because there are a lot of them. But just very briefly, I will make the following comments. Firstly, the reason why an acquisition of a facility is particularly important and strategically relevant for us is that the Chinese regulators have chosen to regulate the license for infant formula products not through the brand owner, which is more normal, but through the manufacturer. So if you don't own any manufacturing, you don't own any license. And that puts you in a position where you can be quite exposed. So in our case, there is a particular value in getting control of an asset and manufacturing assets on which we can get a second license in due course to match our license with Synlait. So that's the first point. The second point is, we are actively engaged in seeking partnerships to help us run this business. We are very conscious that we don't have the skills all in-house. We are some way off even acquiring the business. If we do, we don't expect to do that before the middle of next year. And by then, we will have some management in place internally, and we will have partnerships in place to help us run this business to offset the risks that you raised, which are very real. So we are absolutely in agreement with you about the concerns. Thank you.

Thank you, Chairman. The next question is from [ Alan White ]. The question is, "What on-ground community support does a2M provide to local communities and/or organizations? And what value does the company ascribe to this activity? And what activities are proposed for FY '21? Thank you."

Well, we are big supporters of the communities in which we operate. When the COVID crisis first started, we put money against vaccine development in Queensland. We put money into charitable ventures over the fires, which obviously affected both our consumers and, in some cases, our farmers. So we are active investors in our communities. But again, I will ask Geoff to comment on the specifics that are currently underway.

Well, look -- thanks, Chairman. Look, in addition to what he just mentioned, which were very significant new initiatives for the company in respect of Australian bushfires and our very early commitment to put funding forward for research into a vaccine in respect of 2 bodies within Australia, both within Queensland and Victoria, I mean, the company, as I mentioned earlier, we've had an engagement with Cure Kids in New Zealand. And the team has also been looking at other opportunities throughout each -- any part of the business in which we operate in Australia, New Zealand, China and the U.S. to become more engaged in respect of community activities. And that's something that we're going to be doing more of particularly in FY '21. So look, it's a very, very valid question. And it's something that the company is continuing to assess, the best way to engage with communities moving forward. So thank you.

David?

Thank you, Chairman. The next question is in 2 parts. The first part is from [ Thomas and Annette Barry ]. "Does the Chairman believe in the future of the company, seeing as he sold over $36 million in ATM shares in the last financial year, as shown in the 2020 annual report? It sends a very bad signal to other shareholders when the Chairman sells so many shares." The second part is from [ Jack Marchant ], who also asks, "Why has there been so much insider selling of shares? Thanks."

Okay. Well, just very briefly, people sell shares in general for many, many reasons. They don't just sell shares because they've lost confidence in the company. In my case, that was completely not connected to that. Unfortunately, or fortunately, I should say, probably because there was a significant gain in the value of the shares, I was forced to pay a very substantial tax bill. This was announced at the time when I sold the shares, and the Board agreed that I would sell shares up to the value of the tax bill I had to pay and no more. I've kept every share since then. I've not sold any shares. They're in my name. And the only shares I sold, unfortunately, went straight to the tax man. So that's why I sold the shares. It had no implication on the company at all. In terms of people selling shares, I would make only 2 comments. The first thing is, ultimately, share options and shares are granted to manage -- members of the management as an incentive. And inevitably, that incentive is realized at some point when they sell them. And that's when they need them for whatever reason, a whole range of reasons. So we should not make the assumption that just because people sell, it's a statement about their view of the company. It's more likely to be a statement about whether they want to build a new kitchen, whether they want to do something else. And secondly, it often happens in very confined periods. We did have a policy that only -- the senior executives could only sell shares in very narrow windows, 3 of them after the full and half year results and the AGM. And that compressed all of the share trading activity into a very small period, which, in the end, we think was probably unwise. And so we have changed that policy now. And provided they meet all the other rules about insider dealing, people can trade shares on a broader basis now, and that will reduce the impact of what looks like a mass exodus at a very short period of time. But please don't make the assumption that the only reason why people sell shares is because they feel that the company is not as attractive going forward. It would not be the right reason. Thank you. David?

Thank you, Chairman. The next question is from [ Anthony Edward Stratton ]. The question is, "a2 Milk products could be vulnerable to contamination by A1 beta casein through lax management of production practices on dairy farms. Contamination with A1 can adversely affect the health of consumers of a2 Milk, damage the brand value of a2 and reduce shareholder value. The questions: what oversight does The a2 Milk Company apply to quality assurance of a2 Milk production in the United States, in Australia and elsewhere? And will the company report the results of that oversight to shareholders? Thanks."