Key Points:

A2 Corporation has announced a deal with a major United States supermarket chain that gives the alternative milk processor access to a dairy product market worth at least US$1 billion ($1.35 billion).

The NZAX-listed company said it had finalised arrangements under which the Hy-Vee supermarket chain, with US$4.6 billion in turnover and 200 stores throughout the Mid-Western states, would sell its A2 milk, which contains a protein variant linked to potential health benefits.

Under the US deal, A2 Milk, a 50/50 US joint venture formed in 2005 with US company IdeaSphere, will license the product to Original Foods Company, whose branding it will carry.

However, newly appointed chief executive Anthony Lawler said under a change of business model, A2 Corporation, which owns and licenses intellectual property relating to A2 Milk, would retain significant involvement in the financial and management affairs related to the partnership with Original Foods.

Lawler, whose experience includes international business development with Fonterra, described the US launch as a major platform for growth that followed several years of solid preparation.

"A2 Corporation is very excited to now have its milk product available in the US market which holds tremendous promise for revenue growth and for expanding our business in one of the biggest consumer and beverage markets in the world." He said if the new business model proved successful, A2 Corporation would expand beyond the mid-west.

He acknowledged that the company needed to maintain its investment in R&D in the wake of the death of co-founding scientist Corrie McLaughlin, and in order to establish more conclusive proof of A2 Milk's health benefits.

In 2004, the New Zealand Food Standards Authority commissioned a review of claims about the beneficial effects of consuming milk rich in A2 beta casein, but found that more studies were needed.

Lawler said A2 Corporation was planning a capital raising for later this year, in the wake of half-year results showing a pre-tax loss of $1.945 million and a loss of $926,000 for the full year ended March 2006. Shares rose 2c yesterday to close at 10c.