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

Well, I think most people are either sitting down or just about to. So if I may, good morning, ladies and gentlemen. I see from front of me, the time is now 11:02, so I think it's appropriate that we start. So just a few introduction points. So my name for those of you don't know, is David Hearn. And as Chair of your Board, I have the privilege of chairing this annual meeting for the fiscal year ended June '22. I'm very pleased to be with you here in person after 2 successive years. For those of you who've attended them, virtually, which is not only a logistical challenge for all of us, but it somehow misses half the point of getting together and actually meeting personally with our shareholders and you with the management, which is a big part of what these meetings are about in my view. So on behalf of the Board of the a2 Milk Company Limited, I'd like to formally welcome shareholders both in the room and online to the a2 Milk Company's Annual Meeting. I am satisfied that in accordance with the constitution of the company, a quorum is present, and therefore, I'd like to declare the meeting formally open. So let me, first of all, introduce you to the company directors and some of these faces are new to you, particularly one of the directors who will be voting on today, who has only joined the company a month ago. So on my left, we have David Bortolussi, who is our Managing Director and CEO; next to him is Julia Hoare, the company's Deputy Chair; next to her is Warwick Every-Burns; next to him is Pip Greenwood; and next to her is Sandra Yu, who will be voting on today, who's reasonably recent on the Board since March; and David Wang on the other end, who is a very new director, but already making a great contribution. So also joining us today from our representatives from the company's legal advisers and our auditors, Ernst & Young. We're also accompanied by a number of members of our executive leadership team and other colleagues, and I welcome them all. We have no apologies for this meeting in advance, and therefore, there's nothing to report. Could I also just -- there's a number of housekeeping points through this thing, which I need to cover and some of it's perhaps a little tedious, but there's quite a lot of housekeeping to go through. Could I also draw your attention to an important matter of housekeeping before we get underway. Because some people will be using their mobile phones to vote, it's very important that people attending the meeting in person ensure that their phone is on silent or else we will have a degree of chaos. So I'd be grateful if people could look at that and check that, that's the case. The agenda of the meeting is shown on the slide here. And I'm going to make a very short introduction speech, after which I will ask David Bortolussi, our CEO, to address the meeting, which forms the meat of today's proceedings. We'll then proceed to the formal business of the meeting and any general business as outlined in the notice of meeting, which has been circulated to all shareholders. Unless there are any objections, I'm going to proceed on the basis that the notice of meeting is taken as read. The notice of meeting and the annual report are available on our website and have been sent to all shareholders. Is that acceptable to the meeting. In terms of proxies, I'm advised that 1,174 valid proxies have been received, representing more than 383 million shares, which is roughly 52% of the share capital of the company. So the minutes of the last annual meeting, which was held on the 17th of November 2021, had been signed by me as Chair of that meeting as a correct record of those proceedings. So with those introductory remarks, I'd like to just -- housekeeping points, should I say, I would like just to make some introductory statements and give you the Board's perspective on the business, mine personally, but really the Board's perspective on what's going on this year before we hand over to David. So after a very challenging 2 years, which I don't need to explain to you, and they've been challenging for the business and challenging for you as shareholders, I am pleased to report a much improved performance for the company in fiscal year '22. And critically, with almost all the underlying business fundamentals showing strong recovery throughout the year. And that's the most important point I'd like you to take out of this, it's not just that the business is more profitable, it's that actually the drivers of the business have become much more stabilized and much better and gives us opportunities to go forward from here. The effect of this recovery means that the business enters a new fiscal year in improved health and with positive momentum, which gives the Board the confidence that this year FY '23 will show continued growth so long as trading conditions remain favorable. Through FY '22, the company made significant progress in developing its refreshed growth strategy, the key elements of which were communicated to the market at the company's Investor Day in October last year. Pleasingly, as demonstrated in these FY '22 results, strong progress has been made against executing against this refreshed growth strategy and with meaningful progress also made towards the company's medium-term financial and nonfinancial goals. We have successfully reached our channel inventory targets, improved our brand health metrics. We've achieved record market shares in almost all of our markets and sectors. And finally, significantly, we've strengthened our in-market execution capability through both management and Board renewal. And therefore, these enhanced capabilities have been put through the business through improved processes. Considerable progress was made in FY '22 to renew and bolster the company's executive leadership team with a number of changes and new appointments. In truth, it is these underlying improvements in the fundamentals of our business that I'm most proud of, and I think we should be most encouraged by for the long term. Our growth strategy is focused on capturing the full potential of our China business, which continues to grow and develop despite the challenges that, that market presents. Importantly, in September, the company renewed its current registration of its China label infant formula milk with SAMR, and we continue to work closely with Synlait in relation to the registration of our updated product under the new GB standard. In relation to our U.S. business and excluding Danone's global business, we have been the only New Zealand company to receive FDA approval to allow the company to import infant milk formula products into the U.S. This was a tremendous effort by our team, and the FDA's decision will help provide a pathway for infant formula brands operating under the enforcement discretion which was the basis that the FDA were offering a temporary effectively license for products to be allowed to be imported into the U.S. and remain in the market not just until the end of this year, but until the end of 2025. And we intend to seek long-term approval to remain in the U.S. market beyond this date in time. We believe that this represents an opportunity to further develop our a2 brand in the U.S. across multiple categories in the future. I also acknowledge that some of our shareholders are concerned about the class actions that have been filed against the company and the matters to which they relate. Whilst it is inappropriate that I make any further comments on this issue at this time, I can assure shareholders that the company considers that we have at all times complied with our disclosure obligations, we deny any liability, and we are vigorously defending the proceedings. I'd like now just to discuss some changes that we're making in relationship to the Board as well as some commitments we announced with our Notice of meeting. With the growth strategy in place and execution well underway, the Board has continued to undertake further renewal this year with 2 important appointments to the Board in Sandra Yu and David Wang. Sandra and David both bring deep lifetime experience in Greater China and together brings strong China market, IMF category, consumer marketing and manufacturing and supply chain expertise to complement our existing Board skill set. Sandra and David have already made valuable contributions to the Board and the company and their insights will be invaluable to the company as it continues to focus its China market opportunity -- on its China market opportunity and seeks to develop its supply chain capability in New Zealand and China. Sandra and David were appointed to the Board in March and September, respectively, and are seeking election at this meeting today, and I heartily commend their election to you all. Furthermore, as announced in August 2022, Julia Hoare, who chairs our Audit and Risk Committee intends to step down from the Board after over 9 years of service, after the company's 2023 interim results. The Board has begun an active search process to find Julia's replacement, and I would like to take this opportunity to thank Julia for her personal flexibility over timing to ensure that the Board has a seamless transition for this critical role. I'd also like to take this opportunity on behalf of my fellow directors, the company and all shareholders to thank Julia for her exceptional service to the a2 Milk Company over the past 9 years or so. Julia has been an outstanding director and a key contributor to the success of the company over her tenure. We will miss her dearly. Whilst I'm on the topic of continued Board development, I would like to announce my intention to stand down as a Board member and as Chair at the next annual meeting as I come to the natural end of my term as a director after over 9 years on the Board. Whilst I will no doubt make some further comments at next year's meeting, I would like to say today that whilst I recognize that we have some turbulent -- we've had some turbulent times recently, it is an extraordinary experience to play a part in the development of this amazing business through good times and bad. I consider it a personal privilege to serve as your Chair, and I want to take this opportunity to thank you for your support, both for the company and for me personally. As a result and in order to ensure a smooth transition, the Board has spent significant time recently considering the best replacement for me as Chair. And I'm pleased to announce that after that due consideration, we have come to the unanimous conclusion that Pip Greenwood, who's been on the Board for the past 3 years has both the skills and importantly, the experience to take over from me at that time. Not only will Pip bring her excellent skills to the role, but importantly, this plan also represents a balanced blend of both Board renewal, together with continuity, which we believe is absolutely appropriate after a period of significant change at both Board and executive leadership team levels within the business. Finally, on the topic of renewal, during the next 12 months, the Board will undertake an independent review of Board remuneration with a view to presenting a recommendation, if that's appropriate, at the next annual meeting based on these announced and any other changes to the Board composition going forward. I would like now to point out some additional commitments that the Board has made and recently announced with respect to the company's remuneration processes. We recently announced that the Board is reviewing the company's remuneration framework having regard to current market practices. Whilst the review is ongoing, the Board has already committed to making certain changes in FY '23. The Board will be revising the company's short-term incentive structure for management, of course, from FY '23 onwards -- fiscal year onwards, '23, to include a percentage of deferral for the Chief Executive's short-term incentive. The exact percentage of that, which will be deferred and how that deferral will be structured has yet to be finalized by the Board, and it will be agreed based upon the findings of this review process. The Board will also be submitting the CEO's long-term incentive grant for the F '24 long-term plan as a resolution on an advisory basis to the next Annual General Meeting for F '23 and onwards. Whilst these changes are not relevant for this meeting because the awards have already been granted, the Board believes that these changes will further align the company's remuneration practices with shareholders' interests and expectations to the recent practices in New Zealand and Australia. I would like now to come back to the company's financial position alongside our capital allocation framework, which the Board has been very focused on, given the strength and stabilization of our business. At the year-end, you will see in the accounts, we held just over NZD 800 million in cash, net on our balance sheet. And this, coupled with the improved growth trajectory of the business and the Board's increased confidence in our outlook, led the Board to initiate an on-market buyback of shares up to NZD 150 million worth, an approach that we determined to be the most appropriate at this time for shareholders overall. This buyback program is now well underway and may well run for up to 12 months from here. With these matters dealt with, I would like now to express my sincere gratitude on behalf of the Board to David Bortolussi, our Managing Director and Chief Executive Officer, for his leadership and impactful contribution, which has been immense through a particularly challenging time for our company. David has shown tremendous skill and tact in navigating us through these challenges and setting us up for further growth. I extend my thanks and gratitude to the whole executive leadership team and indeed every member of the wider a2 MC team in all our regions for their contributions this year, which have been significant. In particular, I'd like to recognize the extraordinary efforts of our teams and strategic partners in navigating the many supply chain challenges, which the company has experienced globally in recent times and especially into China. Being able to maintain continuous supply of our New Zealand product -- New Zealand infant milk product into China required considerable collaboration, careful planning, importantly, out-of-the-box thinking and a great deal of perseverance, all in all, a real team effort. I'd also like to thank my fellow directors for their significant contribution and support over the last year. Ladies and gentlemen, your Board and management team is committed to our purpose and our vision. We have a refreshed growth strategy in place and our execution against those plans is gaining increased traction as every month passes. Let's just be clear, we don't find ourselves in this good position by chance and indeed several difficult decisions needed to be made in FY '21 to get us here. However, those decisions are proving to have been right, however painful they were at the time, and we are pleased to be back on track. So finally, I would like to thank you, our shareholders, for your continued support for the business, and I look forward to its continued success in the future. So I'll now ask David to continue, David, our CEO, to present his address. Thank you very much.

Thanks, David. Good morning, everyone, and thank you for joining us, particularly those here with us in Auckland today. It's my great honor to be addressing you at my second annual meeting as your Managing Director and Chief Executive Officer. Today, I'll start by providing an overview of progress that we've made in executing our strategy and improving performance followed by last year's financial results, how we are tracking against our financial ambition and nonfinancial measures of success as well as an update on some of the -- some updates post our year-end that we announced in August. Finally, I'll conclude with an update on our outlook in FY '23. My first slide summarizes the key messages I want to convey today. Firstly, the significant steps we took last year to address excess infant milk formula, or IMF inventory, are complete and have proven effective. Importantly, channel inventory is at target levels, product freshness is amongst the best in the industry and market pricing has improved. The second key point is that there are tangible signs that our refreshed growth strategy is having an impact. We're focused on capturing the full potential of the China market opportunity, have significantly increased our brand investment and improved our execution, which has seen us achieve new highs in brand health and record market shares. Our FY '22 result was in line with our expectations, delivering double-digit growth in revenue and earnings. This was particularly pleasing given the market headwinds and specific challenges we faced during the year, including COVID-19 related demand and supply volatility. This brings me to my fourth point, which is that our outlook is positive. We're expecting continued revenue and earnings growth in FY '23 and subject to current trading conditions and business momentum remaining favorable, we're on track to deliver on our medium-term financial ambition. Importantly, there has also been significant renewal of the executive leadership team, which has a good mix of skills, experience and diversity as well as the right culture to lead our company going forward. By way of update, since we reported our results in August, as many of you are aware, we recently commenced our on-market share buyback. As expected, we received the renewal of our existing China label registration which was granted by SAMR, which is the China State Administration for Market Regulation, in September, and our new GB registration process is progressing. I'll come back to that later. The next key point is that in October, we announced the renewal of our exclusive import and distribution arrangements with China State Farm for a term of 5 years from the first of October this year. From an innovation point of view, our new a2 Platinum launch has been well received by the market and inventory transition will be completed in this half of the year. And finally, as many of you will be aware, we also recently received FDA approval to supply IMF into the U.S. under enforcement discretion, which I'll provide an update on in our interim results as our plans develop. I'll come back to many of these points shortly. But overall, it's been an extremely busy year. And whilst we've got a lot to do, I'm very pleased with progress to date. Moving to Slide 8. I'll refer back to this slide on a few occasions that shows the incredible growth journey the a2 Milk Company has been on. This was disrupted by COVID-19, but we returned to growth in FY '22, which I'm sure you will be pleased with after such a difficult FY '21 result. Moving to the next slide. Our FY '21 result was in line with our expectations, delivering double-digit growth in revenue and earnings. Group revenue increased by almost 20% or 11%, excluding the revenue from the acquisition of Mataura Valley Milk or MVM, as we refer to it, which occurred during the year. EBITDA was up 59%, and we delivered an EBITDA margin of 13.6%. Net profit after tax was up 42% to $114.7 million, including China Animal Husbandry Group's 25% noncontrolling interest in MVM. Backing out that noncontrolling or minority interest, which is a loss at MVM, our net profit after tax attributable to the shareholders in the a2 Milk Company was $122.6 million for the year. The group result was driven by strong trading performance across all of our regions and product groups. China label IMF sales were up 12% with record high market shares in Mother and Baby Store channel or MBS and domestic online or dollars we refer to it. English label IMF sales were up almost 12% as well with improved market share trajectory. ANZ liquid milk sales recorded a modest improvement, also with record high market shares. U.S. liquid milk sales were up 30% with record market share in the grocery channel. And FY '22 was the first year that we included MVM trading result for 11 months in the year, which completed at the end of July last year. There were several operational highlights we're also proud of. Our brand health metrics reached new highs following significant investment during the year. We ramped up new product launches with more to come as we build our innovation pipeline. We deliberately shifted away from our main English label reseller to more transparent, performance-based and exclusive partners, which is progressing well. At the same time, we've stepped up our direct engagement and marketing support in the daigou channel. And importantly, we've invested significantly to increase our sustainability targets, initiatives and impact in many areas of the business, particularly with our electrification project at MVM, powered by 100% renewable energy, which is the first in the New Zealand market and one of the few internationally. We're really proud of that initiative. Slide 10 shows our strategy on a page. We first shared this in October last year at our Investor Day and slightly updated version in August at our FY '22 results. Our key strategic priorities are to invest in people and planet leadership, capture the full potential of our China opportunity, ramp up innovation, transform our supply chain and accelerate the path to profitability of our U.S. and MVM businesses. In a moment, I'll provide an update on our performance against our strategic priorities and how we're tracking against our goals in people, planet, consumers and shareholders. Moving to the next slide. Following the completion of our strategy refresh in 2021, an extensive engagement with our team at all levels, we also updated our purpose and vision. The purpose and vision of the company shared at our FY '22 results in August. Our purpose and vision is expressed on this slide and showcases the positive impact we want to have in the world. Our purpose is to pioneer the future of dairy for good. Dr. Karen McLaughlin, who was one of the founders of our business over 20 years ago, famously said that the a2 Milk Company through providing milk that was naturally A1 protein-free would do good for human health globally. And that remains central to the purpose of our company and is echoed in our purpose statement, which has been updated. We've redefined good to be perhaps more holistic than just the core kind of digestion and potential health benefits associated with the a2 proposition, but it's very, very fundamental to our business. So it's not surprising that our vision is to create an A1-free world where dairy nourishes all people and our planet. We're all excited about the clarity and meaning of this purpose and vision and how specific it is to our company and how it links back to the origins and founders of our business. Our team is highly motivated by it, and I hope that you, our shareholders, will also be as well. In order to build a more sustainable future, we need to continue to deliver financially. So I'm pleased to show here on Slide 12 that we're on track to achieve our ambition to grow to $2 billion in sales and improve our EBITDA margins over time. In the chart on the left, you can see our FY '21, first half '22 moving annual total MAT and FY '22 performance in sales and our medium-term ambition on the right-hand side there of $2 billion. You can also see our EBITDA margin for those periods, along with our medium-term EBITDA margin ambition in the teens highlighted in the green. The middle section of this slide is a reminder of the drivers to get to $2 billion in sales and where we are tracking on each. FY '22 demonstrated solid progress towards that ambition. And the goals imply a full year revenue compound annual growth rate of 8.5% from FY '22, if achieved by FY '26. Slide 13 provides an overview of our performance against our nonfinancial measures of success. Two key areas of focus in the middle relate to improving our brand health and market share, particularly in China, which I will share with you shortly. Otherwise, I won't go into depth in this now, but I wanted you to know that the measures that we announced last year are the same measures we're tracking and holding ourselves accountable to. Moving to Slide 14. We increased our marketing investment significantly in FY '22, investing $182 million in China and $230 million overall as a group. This was by far our largest single year of investment, reflecting our confidence in the brand and our improved execution and growth potential in China. We are pleased to see this translate into strong brand health metrics, which reached new highs. From January to July this year, our top of mind awareness increased from 6% to 9%, and spontaneous or unprompted awareness increased from 16% to 21%. From a marketing point of view, these are significant improvements in key metrics within a short period of time and reflect the cut through our campaigns and always on activity is having in the marketplace. We continue to improve our marketing strategy and execution, and intend to increase our brand investment again this current financial year. Moving to the next slide. Our increased marketing investment and brand health metrics, along with our strong position in national key accounts or NKAs, and recent focus on expansion in regional key accounts or RKAs, led to a significant increase in China label off-line share and sales. Our overall national value share in MBS stores increased from 2.2% at the end of FY '21 to 3% at the end of FY '22 on a moving annual total basis. Our offline value share increased from 5.7% to 7.1% in Key&A cities and from 1.6% to 2.3% in BCD cities. Slide 16 highlights of our China label online share has increased, particularly in the key volume platforms being Tmall and JD. The chart on the left shows that there was sales growth from distributors to platform in volume terms measured in tins or cans. The chart in the middle shows that our value share in domestic online has grown to 2.5%. And the chart on the right shows our relative value share in Tmall at 2.2% and JD at 2.7%. One of our strategic initiatives is to continue to accelerate our online growth by increasing our investment in digital marketing and e-commerce capability, whilst balancing online and off-line growth and channel economics, it's important to keep those in balance. Moving to our share position in English label. We've been consistent in showing you our MAT share for cross-border e-commerce or CBEC as we refer to it. And while our share has stabilized at 19.5%, if you look at it on a 6-month basis, it was 18.5% in the first half, an increase to 20.7% in the second half. For daigou in the middle chart, market share has declined again, but our trajectory has improved in the second half. In the first half of FY '21 and the second half of FY '22, the decline was 2% for each one of those periods. This reduced in the second half of '22 to less than 1% decline and is showing stabilization in this current period now. Conversely, our share in O2O has improved recently to 19.5% in the second half of '22 as we increased our focus on this channel. I often get asked what O2O is, it's offline to online. So that's where consumers purchase a product in store in China, and the product is fulfilled online. So it's like a drop-ship model. It's an important and growing channel for us. Slide 18 provides an overview of our executive leadership team, which has undergone significant renewal from the beginning of last year. We have elevated key talent internally and complemented that team with experienced people from outside the company to enhance our leadership and execution including team members with previous experience at Bellamy's, Danone and Yashili. Our most recent appointment in the bottom right-hand corner there of [indiscernible] who was formally at Yashili and Danone will be a critical enabler of our supply chain transformation as we build, acquire and develop our own manufacturing capability here in New Zealand and also in China over time. Moving to Slide 19. In August, we announced our intention to execute our market share buyback of up to $150 million. The buyback reflects our strong balance sheet position and improve confidence we have in our strategy and execution. To date, we've utilized approximately 13% of the $150 million to acquire shares on market with a summary of activity today provided on the slide. Our Chair has already commented on the approach to capital management upfront, so I won't elaborate much further on this page. On Slide 20, we provide an update on our new China GB registration process. As anticipated, our current China IMF product registration was renewed in September of this year. This renewal allows Synlait milk to manufacture our current registered product up until the end of the grace period on '21 February next year, after which the new GB Standard applies. The current registered product manufactured up until this date is allowed to be sold in the market after that date. We've been working closely with Synlait for a considerable time on this project and engaging with SAMR, while the new registration process is progressing, timing is uncertain and subject to summer approval. At this stage, however, we're anticipating that new registration will be attained in the second half of FY '23, so somewhere in that first half of the calendar year next year and that will transition to our new product in the market in the first half of FY '24, so the second half of calendar next year. It's a really important transition for us. I'll provide an update on progress at our interim results in February. Moving to Slide 21. In October, we announced the renewal of our exclusive import and distribution arrangements with China State Farm for a term of 5 years from the first of October of this year. China State Farm has been our strategic distribution partner in China since 2013, and we're extremely grateful for the strategic and operational support that we received from China State Farm. In particular, I can't thank them enough for their support during the fourth quarter of last year during the Shanghai lockdown period, which enabled us to continue to do business and gain share during this period, which was a remarkable achievement. I look forward to continuing our partnership with CSF for many years to come. On Slide 22, we're pleased to note that our new a2 Platinum product has been successfully launched and is available in Australian and New Zealand retailers, pharmacies and daigou reseller networks as well as on CBEC through the cross-border e-commerce channel in China. We have received positive feedback from customers and trade partners on our new product, which is the first significant English label product update since launch back in 2014. We've also recently completed the important 11/11 sales period in China, and I'm pleased to report that we had a successful event. The market was highly competitive, and we're careful with our inventory levels and provided limited promotional support to protect the economics of our product. Early feedback from the major platforms indicates that we maintained or improved our rankings in English label and China label with volume up in English label and significantly up in China label on last year. Importantly, the platforms have cleared virtually all of our old a2 Platinum inventory and have been pricing new a2 Platinum at a premium to the old label. Separately, we are continuing to support our English label channels with direct daigou and reseller network engagement to support selling activity in ANZ channels. This includes 2 significant launch events for the product during September and October plus additional product education and marketing support. This is also complemented by a comprehensive China brand marketing campaign in the first quarter of this year to drive consumer awareness, particularly in September. Finally, I'm pleased to say that our outlook for FY '23 is positive with continued growth expected. Our underlying business performance is on track and broadly consistent with the guidance we provided on the 22nd -- on 29th, sorry, August 2022, which is the time of our results for the full year. That said, volatility in currency has the potential to impact the shape of our reported results. The recent relative weakness in the New Zealand dollar has had an effect of inflating both revenue and cost of doing business, including hedge losses. In addition, increased interest rates in Australia and New Zealand have improved the company's interest income on deposits. Having regard to the year-to-date currency movements and should currency remain at prevailing levels for the remainder of FY '23, full year revenue is likely to increase to low double-digit growth compared to previous guidance of high single-digit growth. We also reiterate our guidance that first half '23 growth is expected to be significantly higher than second half growth versus PCP. In this context, EBITDA is expected to remain broadly in line with plan, and U.S. IMF is not expected to have a material impact on FY '23 at this stage. EBITDA margin as a percentage of sales is expected to be similar to prior year compared to previous guidance of a modest improvement due mainly to the currency impact of inflating revenue. This is, of course, subject to a number of industry and business risks as outlined in the slide here and shareholders should be aware of those risks. I'm going to finish up there. Thank you very much for your time, and I hope that you found my presentation helpful in terms of an update on the business. I look forward to meeting many of you afterwards. So thank you very much, and I'll hand back to our Chair. Thanks, David.

Thanks, David. Right. We're now going to move to the formal part of the business meeting. You must forgive me a little bit. I'm finding these lights quite hot. So forgive me if I look as if I'm struggling a little, it is the heat rather than something else, just to assure you. I certainly don't have COVID for anybody who's looking at me thinking he's about to fall over. So we're going to move to the formal part of the meeting now. I have to say I apologize in advance. There's quite a lot of information that is about the technical processes to go through from here now. So please forgive me for what is a rather extensive, but unfortunately required set of housekeeping and instructions. So under voting, as we mentioned earlier, we have shareholders obviously attending the meeting here, but also virtually. Voting will be conducted by way of a poll in accordance with the NZX Listing Rules. Those here in Auckland will be able to cast your votes by filling out the form that you will have received at the registration desk on your way in, and which will be collected at the end of the formal part of the meeting. Anybody who doesn't have one of those can put their hand up, and I'm sure we can get you one to enable you to do so. Those attending the meeting online will be able to vote by clicking the get a voting card box on the online portal, and you can find further instructions in the virtual annual meeting online portal guide, which has been filed on the ASX and the NZ market announcement platforms and is in the Annual Meeting section on our website. You can also vote using your mobile phone through the LinkVote App. If you plan to use your mobile phone to vote, you should have already downloaded the LinkVote App and received a PIN number to check into the meeting from the registration desk on your way in. You wouldn't believe that voting could be this complicated, but that's the fact, I'm afraid. Once we've tallied the votes, the results will be posted on the market announcement platforms of both the NZX and the ASX as soon as possible after the meeting. Consistent with last year, therefore, we will not declare the results of the votes at this meeting because you won't have tallied all of the votes by then. Proxy votes. I should inform you that I've been appointed proxy in respect of approximately 372 million shares voting either for, against or open resolutions 1 to 4, as also indicated on the proxy form, I intend to vote all the discretionary proxies where I've been appointed in favor of all the resolutions. Questions, there will be an opportunity for shareholders here in Auckland to ask questions on each resolution before it is voted upon. If you're attending the meeting online, you're also able to ask questions in this case, 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. To ensure that the questions asked online relating to the resolutions make it to me as we go through each resolution, I would ask that the shareholders attending the meeting online submit those questions now, and they'll be collated by the team at the back. I would also ask that general questions from shareholders here in person be put to the Board during the last part of the meeting, which is set aside for general business. General questions received online during the meeting will also be addressed at that time. If you're unable to get through all the questions today in the time allocated, we'll respond individually after the meeting. When asking your questions here in person, could I please ask that you state your name so that we can keep an accurate record of proceedings. Equally, for questions asked online, we will note the name or names of the shareholders who submitted the questions. Ordinary and special resolutions, we have a conveniently easy meeting this year as stated in the notice meeting, all the resolutions are ordinary resolutions. For such resolutions to be passed, the approval of a simple majority of the votes of those shareholders entitled to vote and voting is required. So if there are no questions at this stage, I will move on to the formal business, including resolutions to be put to the annual meeting. Okay. Well, then the first item of business is to receive and consider the company's financial statements for the year ended 30th of June '22, together with the directors and auditors reports. The annual report containing the financial statements and the auditor's report for the 12 months ended 30th June '22, have been circulated to all shareholders. So now can I ask if there are any questions specifically on the annual report or the financial statements, not the general questions, which as I said we'll deal with at a later point. Okay. Well, if that's clear, then we will now move on to the formal resolutions of the business. The first one is auditors' fees and expenses. 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 auditor, Ernst & Young, for the ensuing year. Are there any questions with respect to this resolution? Okay. If not, then I would now like to propose that the directors of the company be authorized to fix the fees and expenses of the company's auditor, Ernst & Young, for the ensuing year, and I put the question to the vote. So please now will you cast your vote. [Voting]

So moving on now to Item 3, which is the resolution #2 in the formal notice of meetings. That is the election of the Director Sandra Yu, who I've introduced to you earlier. As you know, Sandra Yu was appointed as a Director on March 1, 2022, and in accordance with the company's constitution, Sandra is retiring at this meeting, but being eligible offers herself for election. Sandra sits on both the Audit and Risk Committee and the People and Remuneration Committees. Sandra is a highly regarded company director and experienced global executive in consumer goods industries and very importantly, in the infant milk formula market in China. As such, her experience and knowledge is invaluable to us. Sandra has already made a significant contribution to our Board and her insights have been extremely valuable to the company. I and the Board, therefore, recommend Sandra to you as a director of the company, and we unanimously support her election. So I'd now like to ask Sandra to come up and make a few comments on her personal experience.

Thank you, Chair, and good morning to everyone here and online. The a2 Milk Company has so many opportunities for growth and for innovation, especially as a market leader in the dynamic China market. I was thrilled to have been appointed to the Board as a director in March this year. My experience is as a company director and as a business leader in consumer goods industry, especially in the infant milk formula market in China has equipped me to provide a lot of useful insights into the different parts of the business that will help me to contribute effectively to the strategy and execution of our company going forward. I was previously the President of Mead Johnson Nutrition's Greater China business and a member of its global leadership team. In my capacity, I drove business and brand transformation, identified and leveraged the opportunities for growth and also built organizational capabilities across China, the U.S.A. and other parts of Asia. I was also previously the Global Marketing Vice President at Mead Johnson Nutrition, based on its global headquarters in Chicago office. In that role, I was responsible for transitioning the business into new digital media and e-commerce channel globally. Given the a2 Milk Company stayed up in marketing investment in full year '22, and again, in full year '23 and its focus on new digital media and e-commerce channel over the coming years, my experience will enable me to provide variable insights that hopefully will drive more growth and return on our marketing investment. In addition to all these roles, I was also appointed as the non-executive chairwoman for Reckitt Benckiser's China Advisory Board after the merger of Reckitt and Mead Johnson in 2017. I also held several executive positions at Unilever with my [ 30 ] years of a service layer across Asia. I believe my experience and skills can assist the company to achieve the strategic priorities that were online as part of our refreshed growth strategy announced at our Investor Day last year. I have thoroughly enjoyed serving on the a2 Board in the past few months and really thank you for the opportunity to seek election today. Now I will hand over back to the Chair. Thank you, and [Foreign Language].

Well, thank you, Sandra. And all I can say is that, that impressive CV has turned into a really helpful director and we will be invaluably benefiting from that deep experience as we continue to build our business in China. So as well as being a very pleasant colleague, the value that Sandra brings is significant. So can I ask if there are any questions specifically to Sandra about this appointment? Well, there you are Sandra, you've pulled people into complete silence with your background, which is, I'm sure, a complement rather than insult. So on that basis, if there's nothing to be said further, I would like to propose that Sandra you be elected as a director of the company, and I would put that motion to the vote. Would you now please cast your votes. [Voting]

Thank you. So we now turn to the next resolution, which is the election of David Wang, who I've introduced earlier as well. David Wang was recently appointed as a director of the company on the first of September 2022, and we are asking you to formally elect him as a director today. In accordance with the company's constitution, David is retiring at this meeting and being eligible offers himself for election. So before we move to that position formally, I would like to ask that David comes up and gives a small background to his history.

Thank you, Chair. Good morning, everybody. I'm very delighted to be here today. Basically, although I has been recently appointed as a director, I have already seen the tremendous opportunities and potential within a2 Milk company. I am truly impressed by the company's approach to China market, and the strategic objectives in place. So as also the team's ability to deliver against these objectives to maximize the -- basically success of our shareholders and also the outcome of the business results for our shareholders. My manufacturing and supply chain experience and expertise across Asia Pacific region will be valuable to company as it sets to achieve the goal, both strategic objectives being the transformation of the supply chain in New Zealand and China. My deep experience in industrial and consumer goods business also position me well to advise the Board in relation to execution and risk management. I have senior executives role -- I have taken many senior executive roles, including at Blackstone [indiscernible] and Dover Corporation, where I was responsible for manufacturing, research development, sales and marketing across Asia Pacific region. And also, I worked at Pepsi at almost 10 years' time in operations supply chain responsibility. So I look forward to leveraging my experience to serve on a2 Board as a member of Audit and Risk Management and People and Remuneration Committee as best as I can. As a humble recipient of CEO Magazines, successful entrepreneurs, industrial disruptors and game changers, I am highly focused on how to execute a rapidly changing consumer landscape in China alongside supply chain challenges introduced by this pandemic in the past few years' time. I believe my experience and skills will assist the company in achieving its purpose of pioneering the future of dairy for good. I have thoroughly enjoyed the serving on a2 Board this past few months, and thank you for the opportunity to seek election today. Now I hand this back to the Chair. Thank you very much.

Thank you, David. I hope that you can see that given that the vast majority of our business is in China, and we are continuing to focus to develop that opportunity, the depth of experience in both commercial and supply chain, specifically in this region is going to be of immense value to the business and therefore to you as shareholders. And we are significantly strengthened in my view, by the addition of both Sandra and David. So I would like to say are there any questions for David about his background or anything else people would like to know more about? Okay. Well, thank you. On that basis, if there's nothing else, I would like to propose that David Wang be elected as a director of the company, and I'd like to put the motion to the vote. So please now cast your votes. [Voting]

Thank you. Right. We now come to the last of the director election resolutions. And in accordance with the company's constitution, Pip Greenwood is retiring at this meeting, and being eligible, offers herself for reelection. Pip has been a Director of the company since the first of July 2019. She is also the Chair of the Nominations Committee and a member of the People and Remuneration Committee. Pip brings extensive commercial and Board experience to the company's Board. A leader in the field of corporate law and in New Zealand business community, she is the recipient of numerous industry awards, including being named New Zealand Dealmaker of the Year at the Australasian Law Awards in 2018 and accolade she's won no fewer than 5x. And she has twice been recognized as a finalist at the Women of Influence Awards. I and the Board, therefore, recommend Pip to you as a Director of the company, and we unanimously support her reelection. I'll now ask Pip to say a few words.

Thank you, David, and good morning, everyone, both here and online. As David mentioned, I was first appointed to the Board in July 2019. And in fact, the last time when I actually stood for election was the last physical AGM we had in Auckland. And also, as David has mentioned, I have chaired -- I chair the Board's Nomination Committee, and I'm a member of the People and Remuneration Committee. Over the past 3 years, I've been actively involved in working with your Board and management team to overcome challenges during the unprecedented global pandemic. Difficult decisions we made during this time have resulted in The a2 Milk Company returning to growth this year with a refreshed strategy, improved brand health, renewed management team and a strong balance sheet, something I think we're all delighted with. I'm very excited by what the future holds for our company given the progress we've made to date and the opportunities we have in front of us. As David mentioned, my background is in law. During my executive career, I was a senior partner at law firm Russell McVeagh, where I spent 10 years on the firm's Board, including acting as the firm's Chair and Interim CEO. During that time, I advised various companies, including in the consumer and dairy industries. I'm also an experienced company director. I currently chair Westpac New Zealand, and I serve as a Director on the Board of Fisher & Paykel Healthcare. I believe my experience in corporate law and in the New Zealand business community is highly relevant to The a2 Milk Company. And to my role as Chair of the Nomination Committee and as a member of the People and Remuneration Committee. It's an absolute honor to serve on this Board, something I -- role I thoroughly enjoy. So thank you very much for the opportunity to seek reelection. I'm passionate about The a2 Milk Company, and I believe we are well placed to continue to make a strong and -- sorry, I am well placed to continue to make a strong contribution to the Board of this company. Thank you very much. And I'll hand back to you, David.

Thank you, Pip. And those of you who know will know that Pip has been on the Board for 3 years, and our contribution has been immeasurable through that period. So are there any questions for Pip following her statement? Well, given that there are none, I now propose formally that Pip Greenwood be reelected as a director of the company, and I put the motion to a vote. Please now cast your vote. [Voting]

Thank you. Well, that concludes the resolutions -- the formal resolutions to be presented at the meeting. So if you hold a white voting card, please make sure that you've marked your votes on that card now, and if you hold it up for collection, there are people here who will pick it up and make sure that it's included in the tally that will be done by an independent auditor -- an audited firm outside after the meeting. May I ask representatives of the Link Market Services now to collect all of those voting cards. For those attending the meeting online, voting will close shortly. As I 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. We'll just wait a little bit while the last cards are picked up. But if you have missed out somewhere, just make sure as you walk out, you've got them, so you give them to people. So we'll now move on to general business. I'd like to thank you for all the questions we've received so far in advance, and we're aiming to conclude this meeting somewhere around 12:30, which leaves us about 30 minutes for general business and Q&A up to that as long as people want up to that period. If we are unable to get through all the questions today within time allocated, we will respond individually after the meeting. Before I take general business questions, I would like to address the topic that has come up a number of times on the written questions prior to the meeting, and that's regarding our buyback and potential dividends. As I've mentioned at previous meetings, as a growth business, we regularly assess our balance sheet against our future capital requirements to deliver our plans. Where there is a capital surplus -- sorry, where there is capital, which is surplus to achieving our growth ambitions, the company makes a disciplined assessment of the potential to return funds to shareholders. At the year-end, we held, as I said earlier, over $800 million of net cash on our balance sheet. And this, coupled with our improved growth trajectory and the increased confidence in our outlook, led the Board to initiate an on-market buyback program of up to $150 million, which is an approach we determine to be the most appropriate for shareholders overall. I should make clear that this decision, which was just discussed, does not preclude us from paying a dividend at some time in the future. It's simply the most appropriate action right now. So I'd like to turn to general questions from shareholders. Please put up your hand if you're in the room. And obviously, if you're online, if you make that question, they'll be fed through to me from the back. So can I open it up for questions? It looks as if we may have Board people into submission here. Go on. Thank you. One there, one here, please, sir.

[ David Lee ], shareholder. Can we read your comment that you'd like to increase your product into China. I understand that, it's a big market, but do you have the plans in place for the possible sovereign strategic risks and having the company have something like 50% of its income coming from 1 market, a market that is a semi-authoritarian state, and we've seen the risk you can have with such states like, for instance, Russia, where Fonterra has been in the past. Do you have a strategy for downgrading the percentage of income from China over the next 5 years? And if so, what is it?

Okay. Well, let me just make a couple of comments. Firstly, we don't have a strategy for downgrading the importance of China. If we have a strategy, it is to upgrade our business elsewhere over time. And we hope that, that has a natural effect. But I should make the key point. We're not involved in geopolitical concerns. We're running a business. The China market is half the world's infant formula on its own. Despite the fact that the birth rate is declining, and therefore, the market is not as buoyant as it once was, it still remains just over half of the entire market worldwide. So if we want to make a success of an infant formula business, we're going to have to be in China. That's the first point. The second point is we are clearly very successful in China. Even through this last period, we have been able to grow business in China, not just grow share. We've actually grown volume in China, in a declining market, and we are one of only 2 international players who have been able to consistently grow over the last 3 years through the COVID challenges that China provides. There's only us and one other international player, and some of the ones who have not succeeded in growing shares are some of the world's most famous companies. So I'm not here to belittle or to cast stones at our competitors. But I think we should recognize that The a2 Milk Company, which is by comparison to the world's largest consumer goods businesses, Nestle, Danone, Mead Johnson, et cetera, we are a mino. And we've been able to grow consistently by doing what we do best, which is looking after consumers' interests, and we believe that we have a, if you like, without trying to make it more [ pumpers ] than it is, we have a humanitarian interest to bring the benefits of the a2 product to consumers wherever they are, regardless of what regime they live under. Now having said that, there are clearly risks not particularly with China as much as just having a lot of business in 1 market is inevitably a risk. And because the Chinese market is so distinctive, we have looked to put in place some mitigation of that risk. And the most important part is we have now developed a network of very substantial extremely important, extremely well-connected partners. And they are incredibly valuable to us as advisers as our representatives within the corporate -- sorry, not the corporate, within the political environment that is China. And we don't just have one. We have a partner in Bright that is based in Shanghai through our investment in Synlait and through the MVM acquisition, and this was not an insignificant reason why we embarked on the MVM acquisition. We acquired new partners in the form of animal health and the CNADC, which is the largest state-owned enterprise in the food arena, and they look after the large majority of China state food involvement. And so they're extremely well connected state-owned have very strong political connections, and we are in partnership with them with our MVM investment. In addition to that, as David mentioned in his presentation, we have a China State Farm relationship, which is also a government-owned entity, which we've had since the day we started, and they are involved in importing every tin of product that goes through into China, goes through China State Farm. So we think that we have mitigated the risks as well as we can. And ultimately, our intention, you saw the vision and the purpose we have as a business, which is to serve consumers wherever we can and improve people's lives. And we think bringing the a2 product to Chinese consumers who, as I say, account for half the world's consumption is the right thing for us to do, but we have to continue to manage and monitor and mitigate those risks. Sir? Sorry, from the back, I'm sorry, forgive me. I will come there. Forgive me.

[ Jack SoHo ], a shareholder. Relating to the share buyback, it's obviously a good strategy to support the price albeit the prices sort of plumbed quite significantly from highs of the low 20s. I see it started about 5th of October, the share buyback?

We announced it on the 5th of October, yes.

And you started buying when?

The exact date is November 7. Forgive me, I knew it was early in November, yes.

Okay. So you've actually spent about 13% of the $150 million?

Yes.

So on that rate, you'll be using all that well within the 12-month period you mentioned?

Yes.

Is there any plans to increase the $150 million?

No, not at this stage. So let me just cover it off. So you're absolutely right. But if you recall the exact words we used, I'm not in the business of finagling words, is it could last up to 12 months. I don't think any of us have an intention for it to take that long. But there are some limitations as to how many shares you can buy on any given day. Otherwise, you start to over-influence the natural market. So you can't just go out and buy it all in an instant. And so we've given ourselves the flexibility. It is our intention, I should say, to complete the buyback as soon as possible, which I would be horrified if it took us 12 months. Let's be honest. Just if I may just say one other point, we're not thinking of increasing it because this is not ultimately about time. And if we've got a 12-month window, why don't we buy more? This is actually a result of an analysis of our capital situation, what we need and what we, therefore, may have a surplus. And the decision we made was we have $150 million that is surplus to immediate requirements, and that is what we should return to shareholders. Therefore, it's not about time and if we've got more time, can we do more? We will spend the money we've determined to be excess capital, return it to shareholders through the buyback and then we'll stop.

So I take it the shares that are bought back will be canceled and taken off the register?

Correct.

Which should benefit us all in that time.

It does have a positive benefit, which is why it is a return to shareholders in an indirect way.

That's very good. Just for layman like myself, is there any calculation to put together this buyback in terms of what would have been an effective dividend to shareholders?

Well, the maths are that if you want to return $150 million to shareholders, for those of you who may not be aware, we've got approximately 0.75 billion shares in issue, 350 million -- 750 million, give or take a bit. And therefore, if you do the math and the $150 million is returned, you get to about 20p -- $0.20 a share, which is not a particularly significant amount in the context of the business, whereas we believe that by taking that $150 million, we not only increase the value of all of the remaining shares because now we've taken those shares and canceled them. But there is a very other -- important other point and that is the signal that buying the shares back on behalf of the company that the Board is sending to the market, which is that we are sufficiently confident that we think the share price is not reflecting the true value of the company. Now it's not our job to manage the share price. That's the market's job. But this reflects the fact that the Board feels that the shares do not reflect the full value, and therefore, we are prepared to put our money into buying those shares because we think they're undervalued. Now what that says to the market is, you've got to be pretty confident as a Board to do that. And so we believe that the value to shareholders is not only in the intrinsic efficiency of taking some shares off the market. But very importantly, the signal we're sending which says we're here to play. We think that people have underestimated our perspective future, and we're putting our money where our mouth is. And you can see, I'm not saying that one is connected to the other. The markets are strange animals of their own making. But the recent share price, I understand that it's come down from very high numbers. But we're up 40% in the last 6 months. And some of that, not by any means all, some of that is reflected -- is a reflection of the confidence the Board has been able to put out about our future. And that is worth a great deal more than the $0.20 would be. Okay. Next one.

[ John Clearwater ], shareholder and scientist. In the past annual reports, I've greatly enjoyed the reports of some of the scientific research that the company has taken part on. I missed that in this annual report. I think I examined it reasonably carefully, but I'd love to see a continuation of that. In particular, I'd like to see the company investing in research in the American market, perhaps in Vermont, which is an [indiscernible] state. And there's a substantial number of people in the states who are very inclined to take scientific information very seriously. And I think that the investment of science in the states pay big dividends.

Okay. Well, I'm going to ask David to make some comments on the science, but I'd make 2 comments. One is you speak to my heart. We used to -- my wife and I, who's sitting here, used to own the house in Vermont for 25 years. So I love Vermont. That's guaranteed. But so -- which is not necessarily relevant, but I just thought I tell you. The more important point is, you're absolutely right. The annual report -- last annual report, was less focused on our science than perhaps previous ones have been, and that is a reflection of the fact that we were going through quite a significant restabilization of the fundamentals of the business. And you should not interpret that as a sense that our view of science is any less important than it was and that it will be going forward. Science is the bedrock of this business. Research is the bedrock of the business. But it is fair to say that in FY '22, we were dealing with so many other things to try and stabilize the business that science did take perhaps of lower priority in the short term. It is going to come back on the radar screen as a higher priority going forward. And I might ask David to comment on where we are.

Thanks, John, for your question. Does my mic working? Yes. So I mean, The a2 Milk Company was founded in science. It's incredibly important to our business and our purpose going forward and the business development. You'll see -- remember, I shared previously, our strategy on a page, one of the key enablers of the execution of our purpose, vision and strategy is science and innovation. And we do various studies around the world in our core markets, and we'll take on board your feedback about Vermont. But recently, we have increased the investment in our own capability, insight and A1, A2 science related and in nutritional science, and we've increased our investment in studies and research associated with that. So this coming year, we've more than doubled our investment in that multiple millions of dollars. So I'm very supportive of that. And so as the Board and our management team, we're going to increase our investment because it's fundamental to our purpose and vision that we discover and educate and communicate the benefits of the a2 proposition of being A1-free, so totally agree.

Perhaps the Board would consider [indiscernible] the people on the Milk.

Perhaps in time. We've got a lot on our agenda at the moment that may be possible in time.

Right. Just before I want to just check -- pleased to give that -- I'm not getting anything from the back through the -- no I am. So suddenly [indiscernible]. So the question I've been asked by [ Sam Yu ], which says what type of innovation and products are in the pipeline and approximate times around their commercialization into the market? Well, it's a perfectly reasonable question to which I'm pretty much guarantee we're not going to answer. So because, obviously, talking about what new products we're about to launch and how quickly they're going to come to market is, by definition, perhaps some of the most sensitive stuff that you can have. But in terms of general innovation and its priority. Again, I might ask David to make some comments.

Yes, I think what we have said publicly in relation to -- I mean it's a key focus, again, going back to our strategy on a page, one of our 5 key strategic pillars is to ramp up our innovation. And what we -- and our Strategy Day or Investor Day last year, we shared with you our thoughts on how we see our portfolio evolving over time and how we compare to the competition. And in our core part of our business in China label and English label infant milk, we clearly identified that whilst we've been incredibly successful with 1 brand and 2 labels is a very simple portfolio. When we look at the competition, they have innovated and expanded their range to capture additional segments, consumer segments in the market and to maximize the distribution in the trade. So it's very much a focus of ours to innovate in both English label and China label in our strategy, we said that in terms of China label which we need additional China label registrations under the GB Standard because we can't just innovate and add product to the market. Our aspiration is at another 3 China label registrations over time. How and when we do that is to be determined and it's not an easy task by any means. And in terms of English label, we have more flexibility to innovate in English label, and we plan to do so. And the recent update and relaunch of our a2 Platinum label is indicative of that, and we plan to prioritize our innovation, particularly with MVM over time as we develop that facility as well. So it's very high on the agenda. And we also believe there's a big opportunity for us in fortified powders for different need states and functional benefits, both from early years from children growing right through to senior years. And when we think about our consumer, we're really only relevant to our consumer to her in China for such a short period of time from pregnancy through to maybe 3 or 4 years of age, and there's such a big window for us to actually be relevant to the family throughout their life cycle. So there's an enormous opportunity for us over time. And locally, you'll see us innovating in Australia, we've launched a lactose-free milk proposition, which is going really well at the moment. And in the U.S., in another market that in addition to the longer-term FDA approval opportunity that we have, we've innovated in the milk category there through the addition of Half and Half Milk and Hershey's Milk recently, and we've driven 30% growth in the U.S. market last year. So innovation is core. We can't share the specifics of that, but it's very much a focus of us going forward.

Okay. There's another online question, but I'll come back -- so please, sir, can we have the...

I have 3 questions. My name is Malcolm Tweed from the New Zealand Shareholders Association. My first question relates to enterprise risk. And particularly, we've seen with Abbott Nutrition in the United States having to initiate a voluntary recall. And 7 years ago, we all witnessed Fonterra struggled with the very same challenge of a voluntary recall as a consequence of its way protein concentrate contamination. So my question perhaps to David is, can the company give us some assurance that the company has tested and proven its trace up, not trace back, but trace up policies and processes with using of data? Obviously, not just with the China label, but perhaps more importantly, through the distribution channels employed by the English label side of the business, which go as we know, considerable volume through the reexport trade of Australia.

David, do you want to comment?

So an excellent point. I mean, I think we would all agree, and it's fundamental to our Board and company and our values that food safety and quality are absolutely fundamental that we are providing nutrition to the most vulnerable part of the community anywhere in the world. So it's absolutely paramount that we maintain that. We invest an enormous amount in our regulatory and quality compliance from raw milk intake through to finish product from ingredients in testing all those throughout an in-line testing, and there's a positive release system in place that all that product is tested before it's released into the market. I think your last part of your question was, are we testing through English label channel distribution, and you're referring to...

My question was, can you actually trace up through the English label channel to the consumer?

The product and how it gets them. Yes, we have -- so we have batch ID, which is on every product, which is etched in there, plus we have a QR code which we know provides details of the product, and we can -- at that end consumer point, we know where it's shipped to. Sometimes depending on whether it's CBEC or the ANZ reseller channel, it can be traded through different parties and then ultimately to the consumer. So we don't have complete line of sight through every link in the chain. But once it arrives at retailer purchase, whether that's in-store or online, we can then scan that code and we can tell when our consumers can that code where that product has got to and where it started. We also have secret tracing mechanisms on certain of our products that I can't share publicly as well. So we do our best that we can. And we're actually just working on a new platform at the moment as well. So it's very much a focus of ours, both for food safety and quality purposes, which I was talking about early on, but also from a channel management and compliance point of view.

I should just make one other comment. Obviously, we don't make our product at the moment, Synlait do. So they have primary carriage of this entire area. They have an exceptional track record in food safety. We are highly engaged -- having said it's their primary responsibility, we are highly engaged in that whole process with them. So we don't just sort of say, good luck and hopefully. And to give you some idea, I've been involved in food marketing and food manufacturer for 30 years around the world. It is fair to say that I've never seen an organization we were there yesterday reviewing our relationship and the whole business between the 2 companies. We went around the plant. I've never seen a food factory where the ratio of operators on the floor to quality assurance and quality control people is 40%. So in other words, for every 10 people on the floor making the stuff, there are 4 people checking it, monitoring it, measuring it. That's an extraordinary ratio. It would be literally 1/10 of that in most food businesses. So we take it very seriously. That doesn't mean there's no risk, but that's all we can do.

Okay. So 2 other questions. We had 3 questions.

Yes. No, I know.

My second question -- I haven't quite finished on the first but in the interest of time, I'll move on. My second question is around performance reporting and in the deck that accompanied the annual report and in some of the slides this afternoon. There's a reference to the company having launched a Stage 4 product, which is referred to as a junior milk as opposed to an infant formula. So my question is, is this junior milk an example of what the company refers to in its growth plans as an adjacent product category -- adjacent to the infant formula?

I mean, look, it's a simple...

Product category, it's my question, part 1. Part 2 is if that indeed is the case, what is the reason for including a Stage 4 junior milk in the data presented to shareholders as the performance of infant formula?

Well, look, I think we just need to be a bit careful about being too cute about language. The reality is that we have 1 brand that we sell in China, all of our product is in that brand. And we are simply, as David mentioned earlier, we want to extend that usage for as long as possible for as many consumers as possible. So the concept of junior milk is simply saying this is a milk that will allow you to run on from 3 years old to a bit older. In present terms, A lot of consumers in China use Stage 3 for way longer than anybody in this market would, for example. So they're already using Stage 3 for that area. And all we've done is launch a product, which is tailored specifically for that market and said, here is a piece of innovation that means that you can now do something specifically designed for that.

I appreciate that. Of course, infant formula to shareholders also refers to product that has to go through the regulatory approval process of SAMR, whereas Stage 4 is a much less regulated product. So when we see the results, we're not -- it's difficult for us to compare like-for-like when there's a non-infant formula put into the numbers.

Well, it's -- I mean, as David mentioned, there are some consumers using Stage 3 for longer and there are some that are actually using Stage 4 earlier. So we -- just for clarity, and we can debate the classification of that with Stages 1 to 4, we treat as IMF product. The next product beyond that, which is Smart Nutrition in our case, which is for latter years. That's -- we've turned that in our sort of fortified or macro milk as an adjacent category. So Stages 1 to 4 in English label and China label, we classify as IMF and Smart Nutrition and Beyond is an adjacent category, if you like, in terms of the growth opportunity.

Because Stage 4 isn't regulated, we don't want to call it technically infant milk because I don't want to get dragged into that regulatory regime. But I think it's a little bit narrow to get too wound up by that definition. It is a brand extension in that category, and I don't think it's being [indiscernible]. Yes. It's not been designed to be deceptive in any way. Okay. Well, last question because we must -- I think we can deal with it afterwards, maybe, and very happy to talk afterwards. Okay. That's very kind. There's a question from online, which says what specific skills connections or international experience does Pip bring to the Chairperson's role? I think I'll let Pip answer in a second. But Pip's experience as an international lawyer is not insubstantial. She's lived and worked overseas, and she's worked on international clients around the globe. So international corporation and international clients. So do not fool yourself that just because she's won some awards in the New Zealand market that her experience is limited to that. I can speak personally that her perspective on the world and on the business is truly global rather than local, which is very essential because, clearly, New Zealand is a relatively small part of the global economy. So I can say that's a fact. And of course, not that I'm saying that she doesn't have those skills, you should also recognize that there are several of us on the Board who have deep experience overseas, live overseas, have worked and lived in other countries. I've lived in 4 or 5 countries and run businesses in many, Warwick's done the same. David's lived abroad, Sandra's lived abroad. So we have lots of people who cover that, and we don't need to have everybody on the Board with every experience. But that's not to belittle the fact that Pip has significant international experience in her own right as well. But Pip, would you like to say something?

Is this on? Yes. Well, I think you said it quite well for me, David. I would also like to say, yes, I have got international experience. I've lived offshore. I've lived in the U.K. I've lived in America. And I've etched for many international companies, but I also think that my roots in New Zealand are very important to this company and the relationships in New Zealand are also very important. Our product is produced here, and we are at our core selling a New Zealand food product to the world. So I think it's very important that we also have a New Zealand presence which I bring. And I'd also add, as David said, diversity is a very important part of any Board, and we have a wealth of diversity on this Board. And it's fantastic that we've welcomed today, our colleagues, my colleagues to [indiscernible] that are bringing the China involvement as well. So I think diversity across all of us is a very important objective for any Board. Thank you.

Okay. There's another question from over the water as it were, and a work done precisely. This is from Susan. I can't necessarily pronounce the right sir name correctly, so you'll have to forgive me, Susan. Susan Szeto, maybe. S-Z-E-T-O. Are you expecting to set up manufacturing in China? And I can honestly say I don't know the answer to that yet. Part of the reason why we have brought David on to the Board, why we've hired [ Shopper ] is that we are clearly making a commitment towards developing an in-house supply chain, that is a stated objective. The full nature of where that is, how it is, what the order of the investment is, is yet to be determined. It would be premature to bring on people with expertise and then say, this is what we're going to do. So the answer is it will emerge, and it needs to emerge quickly. So this isn't a push away into the long grass, but we will take time to develop a coherent and proper strategy for our manufacturing supply chain, which will include New Zealand, and it will include China in its consideration as to where we are best placed to put assets. So -- but as of today, I can honestly say we haven't done that work and therefore, I can't give you an answer. Is there one from inside here. Again, I've got another one on the screen, but if there's one in-house, I will do that. But otherwise, the next one is from [ Sam Shu ], "Could the management please elaborate on the decision to pursue legal action against Care A2+, and should shareholders expect a more vigorous defense of the company IP going forward?" I'm going to ask David to comment on that. But just to be very clear, this is not about us producing a more vigorous defense of our company IP. We are always vigorous in our defense of our IP. This is not the first of these cases we've embarked upon. We will continue to defend our IP vigorously wherever we think it's being challenged. So this is not a change of strategy. It's not a change of gear. It is merely the next one in a line of any chance that we think people are stepping over the proper legal boundaries. Our brand, our IP, our trademarks are vital components of the success of this business, and the Board will protect them at all costs. So let's be clear, we're not doing something new. But David, if you want to comment anything to that.

I agree to your comments on protecting our IP, that I don't think given that we've filed a claim against Care A2+, I don't think it's appropriate that I comment on it publicly. It's before the courts and subject to a court process. So -- but again, we'll vigorously defend our IP going forward.

Okay. The next one is from [ Stephen Willey ], which says, "What are the team on the ground in China seeing in the way of easing of COVID restrictions and the potential impacts on the business?" Well, I would just make 2 comments. One is if one had a good answer to that, you'd be in a marvelous position. So none of us know really. Even those people who live in China are not completely certain what's coming next. And so look, but I do think if you look at recent announcements and you look at the direction of travel, I think it's reasonably clear that COVID restrictions in China are moving, over time, to a looser not a tighter arrangement. You've seen, for example, quarantine restrictions recently being lowered quite substantially. And indeed, they're clearly testing in Hong Kong a no quarantine regime to see what happens. So there is clear evidence that the direction of travel is that direction. But equally, right now today, there are multiple cities in China that are in lockdown. And so I don't think anybody can say when it will happen, but I don't think there's any doubt that we're going to see over time a movement in what we would see is the right direction. The key for us, and this is something I thanked the team for in my introductory remarks, the key for us, therefore, is to assume not that it's going to get easier, and therefore, we could relax. We've got to continue to think carefully, prepare and plan so that if it gets worse, even on a temporary basis, we're in a position to continue to serve our customers. And that's where some of the creative out-of-the-box thinking has allowed us to continue to supply products in Shanghai when they were in lockdown and to manage our inventory to make sure it's in the right place at the right time. So our objective is to make sure that the potential impacts on the business are relatively small whatever the situation is. But unfortunately, I don't think we're in a position to say when or where it will get better. Okay. Any more? Sir.

[ Ross Carlson ], a shareholder. What's the company's dividend policy going forward? Like as you say, we're going to be growing our earnings. But buybacks, to a long-term shareholder, all it does is increase the value in the company. It doesn't give us a return in a natural state. And for those that bought shares at a high price, I'm sure they'd like something while they're waiting for the price to recover.

Look, I think I tried to refer to this in my comments at the front. We, as a Board, let's be really clear, are very conscious of the fact that if we have money in the balance sheet, and we have a lot of it, we have a duty to use that money responsibly for the benefits of the people who own it, which are the shareholders. So we are not sitting here saying, "We've got all this money, let's go away and find something to do with it. Isn't it fun?" We are here to make sure that, that money is deployed to the benefit of you, our shareholders. That means, first and foremost, if we're growing, we need to make sure we have the capital adequacy to manage those things we may need to invest in to grow the business, which will be significantly more valuable than what would be a relatively modest dividend. What does it mean? It doesn't mean that we are not going to ever pay a dividend? So if you recall what I said about capital management, there are 2 stages to this process, which we do regularly as a Board. The first one is, do we have enough money? Or do we have too much money? So you, first of all, decide whether you've got money that you don't need. And if you do, then you go to the second stage, which is what is the best way to give that money back to the people who own it, which is the shareholders. There may come a time when the right answer to do that is through a dividend. And I know that there are people who like dividend. I understand that. But in the context of the balance of the things we're doing, building a supply chain end-to-end is not a cheap process. So we need to make sure that we are in a good position to do that and not restricted. So I can assure you, we look at this regularly. Once we decided there's some money that we don't need, as we did when we got to the $150 million, we then move into what's the best way? At this moment, the best way we deemed after a lot of thinking and a lot of external advice was to go through a buyback. It doesn't mean we won't choose dividend at a future date. But right now, that, we are confident is the right answer, and that's why we're doing it. And to be honest with you, as a shareholder interested in the value of your holding, you want us to grow, if we can, economically, that's the best way -- and the best way to create the best value for you without a doubt. So I'm not belittling dividends, and I do know that they would be nice, but understand, we're doing everything in the context of trying to deliver you your best return. Okay. I know it's not the answer you want I know that's not the answer you want me to give you, but it is the honest answer, I can promise you. All right. I've got one more here asked by [ Mark Balter ]. "Given the significant ongoing challenges faced by the company, and the share price currently trading approximately 25% of the July 2020 price, why is the Chairman not based full time in Australia or New Zealand?" Well, firstly, for the last period of time, obviously, I couldn't get here. In the previous times, by the way, I was probably available as much or more than the New Zealand-based Chairman, not that that's a criticism of him, but one of the advantages you have if you live in London and you don't sleep a lot, which I don't, is that actually I'm available all the time. Because whenever these guys want to talk to me, I'm always awake and I'm always available because I'm not doing anything at 1:00 in the morning. So I'd like to think that I'm hugely available. I don't think that the Board or the company have suffered from me not being physically based here. And the moment that becomes the case, we would have dealt with it in some way. I don't think it's -- I don't think it's an issue. And certainly, David and I have developed a very good working relationship, which allows us to talk as much as if we were in the next-door buildings. So I don't think it's a handicap. And I think there is, I would say this, wouldn't I? I think there is some advantage in having somebody with a perspective on the business, who's not actually engaged in the day-to-day, and there in all the same environment. So it allows us to have -- to Pip's point about diversity, it allows to have a diverse view on the business. So the issue is availability, not location. And I would say I'd like to think I am as available as anybody, and that's what matters. Okay. The next one here is, "Is the Board considering a Hong Kong, Shanghai listing with the ever-increasing presence in Greater China and Asia?" that's a question from [ Jed Brown ]. Look, I think where we are listed is clearly, long term, an interesting question. And clearly, potentially, that might be something that's appropriate in the future. It is an extremely cumbersome and lengthy and management-consuming issue. So you need to be very certain there are huge benefits in doing that before you embark on it because it will take all of the management off the pitch for months while you try and do it. So yes, it's an idea that we have obviously thought about, and it may be appropriate sometime in the future. But we don't think that our listing in New Zealand and Australia at the moment is holding us back. And therefore, correspondingly, we don't think a listing in Shanghai and Hong Kong -- or Hong Kong would necessarily take us further forward. And most importantly, we've got so much going on, we want the management to be concentrating on the business, not on the technicality of a listing. Another inside one, please. Sir, over here. We're going to wind up shortly, if that's all right, but I don't want to cut things short. Go on, sir.

My name [ Robert Gray ], a shareholder. At what price range do you consider buying back the shares? Now the shares soared up, would you wait for them to come down? Or not do it?

Well, the legalities of a share buyback are that the Board cannot legally buy shares of its own, unless it is convinced and has good reasons for that conviction rather than optimism and faint hope that those shares are in their business's analysis undervalued, right? We are not in the business -- so firstly, if we're buying shares at the price we're buying them, that's because we still believe that they represent good value because we think the company should be worth more. That's -- so that's a legal point. You can be assured of that. In terms of when you buy and when you don't, we are not ultimately in the speculation business. We're in the business of managing the company. So we're not going to be saying, well, maybe if we wait till next Thursday, it may go down a bit, it may go up a bit, who knows. We are going to continue to buy on a regular basis, and through the curve, we'll buy some at a slightly higher price and some at a slightly lower price. But through the curve, we will manage our process. So we're not buying as one might do as a speculator. We're buying because we think the company is ultimately undervalued. And as long as we're buying under that fair value, then we're doing the right thing.

What price range -- what price is sort of reasonable? Like $5? $8? Or...

Sorry, what price...

What would you pay for them, like $5? $8?

Well, we're buying them on the market. So you can't buy them for $5 today, unfortunately. So I'd love to, if we could, because that would be an even better bargain. We're not in a position, and I know you want us to put a limit out that says, we think we'd buy anything up to whatever, because obviously, that starts to indicate the company's view of its own value and all those things. And anyway, market value -- it's not our job ultimately to manage the market's view of our value. We hope -- all we can do is persuade them to our views in general. So it's not appropriate for me to say a number. But suffice to say, if we are buying, it's because we still think we're under the headroom, and that's all that's appropriate to say, I'm afraid.

Yes. I went to a function last night, and some expert, he reckons we're in for a major recession next year and are not buying shares now. They will come down.

Well, that's possible. But frankly, I mean, there are people who will tell you that the U.S. dollar is overvalued, and that will go -- that will change tomorrow. There are people who say there's a major recession. There are others who say they won't. So I mean -- and our job is not to manage those macros. Our job is to look at the business, what do we think it's worth and then buy shares if we think they're worthwhile and not if they're not. And we are confident at the moment that we think we should go on buying. But I agree with you, the future is very uncertain. Somebody asked beforehand, "Why is the business -- why is the AGM in Auckland, not Melbourne?" And as you know, we have a regular process of moving the AGM from each side of the Tasman. And so we're in Auckland this year. You can be certain that next year, we won't be in Auckland. We'll be on the other side of the Tasman to reflect the shareholder base. I got -- there are no more questions online. So do you want to raise something -- did you raise your hand? Okay. In which case -- yes, sorry, one question here, raised hand.

Chairman, just to let you know, there are other questions online, but we have run out of time. We will address those online questions after the meeting.

Okay. All right. Well, look, I hope that the questions you asked, you've been given at least adequate answers, even if not always the answers you'd like to receive. So I want to thank those of you who are able to join us here today in Auckland, in-person, and those online who've attended virtually. I want to thank shareholders for your patience and commitment to our business. I believe our FY '22 full year result has demonstrated that our refreshed growth strategy is working, and the decisions we took last year, which were very painful for everybody, including, obviously, you as shareholders. But the key thing is not whether those were painful. But if you're going to take that level of pain, are they right? And I think we are comfortable, and I hope the results demonstrate that those decisions were the right ones, and that's why we've built the base that we have with the trajectory that we've now got. Despite the challenging market dynamics at play, we have a powerful and differentiated brand, which is the core of our business, built on the science, the core of our business is the powerful and differentiated brand, which is why we will defend vigorously our IP and our trademarks because it's the core of our brand -- of our business, rather. We have a strong financial position, which gives us resilience. That's not always the case in the dairy industry. We've faced some ups and downs. We have a very strong position, and it allows us to pursue opportunities to generate further diversification and growth. And David has referred to the value of innovation as part of the key plank of how we continue to move forward. We also have a dedicated and talented executive leadership team, who are delivering results for you, our shareholders, long-term and strong relationships with our key partners in China, which I referred to in response to your question, sir. And finally, we have a set of plans for the future that are built on a solid foundation and an understanding of the drivers of our business. All of this gives us as a Board and as a management team great confidence in the future, and I would like to think that those things should be giving you equal confidence. So finally, on behalf of the Board, I want to say to shareholders that we very much appreciate your support and the support you've shown in the business over the past few years, difficult as they have been. But I genuinely believe you can see that we started to turn the corner. So I'd now like to declare the meeting formally closed. There's an opportunity to have some coffee and talk, and we can answer other questions, and you're very welcome to engage in anybody who's wearing a badge and collar them for further comments. Thank you very much, indeed. I appreciate your efforts in being here. Thank you. Bye-bye.