A2 Milk management, directors to face the music at AGM

A2 Milk chief executive and managing director Jayne Hrdlicka. Photo / Dean Purcell

The investment community will gain some insight into one of the share market's most volatile stocks when a2 Milk holds its annual meeting in Melbourne today.

The alternative milk company, which has become one of the NZX's biggest stocks by market capitalisation, should provide plenty for shareholders to chew on with directors looking for a 43 per cent pool fee boost, controversial share sales, concerns over China's new cross-border e-commerce laws and a strident challenge from US dairy interests.

The leaders of the NZX and ASX-listed company won't be short of shareholder goodwill, following on from a 116 per cent lift in net profit and a 68 per cent increase in revenue to $922 million for the 2018 year to June.

But they could be for some searching questions about the proposal to swell the funds available for directors' fees to $1.36m, director share sales and niggling concerns about new regulations covering cross-border e-commerce in China.

Also, the US National Milk Producers Federation shows no sign of retreating from its efforts to get its claims that a2 Milk marketing is misleading and not backed by hard science tested at federal level.

Senior federation executive and lawyer Clay Detlefsen, through the Herald, called on a2 Milk to "defend and substantiate" its advertising and marketing claims, and to participate in an official process started by the federation's complaints.

Last month the US Advertising Division referred advertising claims made by a2 Milk to the Federal Trade Commission (FTC) for further scrutiny after the company declined to participate in a review of its claims that a2 product is easier on digestion than conventional A1 protein milk and may help avoid stomach discomfort.

Detlefsen said he and "outside" lawyers met the FTC last week to reiterate concerns and would continue to advocate for the FTC to address them with a2 Milk.

"They (a2) definitely need to do considerably more work," he said. The federation has called a2 marketing claims "junk science".

Detlefsen said a2 Milk was making "huge inroads" into the US retail market.

Its products are in 6000 stores and the company recently signed contracts with major chains Walmart and Costco.

US dairy farmers had shown no interest in converting to a2 protein herds, he said.

A2 responded there was "a large and growing body of research work and a range of studies over many years and in different populations supporting the proposition that a2-only dairy products benefit customers in the way we say they do".

"The comments from the NMPF reflect an obvious commercial motive and should be regarded in that light," the company said, noting the issue the federation was pushing was not a legal one but a self-regulation process for advertisers.

A2 had not participated because it had already dealt with regulatory issues to enter the US market.

On the China front, a2 Milk's chief executive for Asia Pacific Peter Nathan has poured cold water on suggestions the company may hit a snag with the new cross-border laws but shareholders will be looking for an update.

The grace period for existing regulation runs out on December 31.

Cross-border e-commerce and unofficial "daigou" trade channels are important platforms for a2 Milk's infant formula sales into China.

Brokers Craigs Investment Partners estimated about 33 per cent of a2 Milk's infant formula volume flows through the cross-border e-commerce channel.

The New Zealand Shareholders Association has said the latest proposal for a lift in director fees would be closely scrutinised. The association voted against a 2016 proposal to increase the fee pool by 33 per cent. Shareholders approved it.

The latest pool fee rise proposal comes after a fall in a2 shares following new managing director Jayne Hrdlicka selling all her shares in the company.

Another director, Peter Hinton, and several managers have also sold down their holdings since the company's full-year result on August 22.

A2 Milk's share price has been on a roller coaster ride since its listing in 2004. This time last year, the stock traded at $7.84 before almost doubling to $14.10 in March.

It closed on the local market yesterday at $10.47.