A2 Milk chairman David Hearn to step down; Pip Greenwood to be his successor

David Hearn says a $NZ150m share buyback is a better way to reward shareholders than a dividend as he announces he will step down from A2 Milk next November.

A2 Milk David Hearn chair said stepping down as chair next November will bring a natural end to his term as a director. Picture: Annabel Moeller

A2 chairman David Hearn – who once branded the company the “Dyson of dairy” and said the Morrison government had “punched China in the face” – has announced his resignation after almost a decade in the role.

Mr Hearn said at dairy group’s annual meeting in Auckland on Friday that he will stand down in November next year. He said this will coincide with the end of his current term as a director, bringing a “natural end” to his nine-year tenure on the board.

It comes as A2 Milk’s has lost 70 per cent of its market value following the collapse of the lucrative Chinese daigou trade early during the pandemic. The company has been gaining traction in resetting its China strategy under chief executive David Bortolussi.

But it has yet to pay investors a dividend, instead opting to begin a $NZ150m ($137.8m) share buyback this month, which Mr Hearn said was a better way of returning capital to shareholders.

“We have got approximately three quarters of a billion shares in issue. If you do the math, at $NZ150m returned, you get to about 20c a share, which is not a particularly significant amount in the context of the business,” he said. “Whereas we believe that by taking that $NZ150m, we not only increased the value of the remaining shares … there is a very other important point an that is the signal that buying the shares back on behalf of the company that board is sending to the market that we are sufficiently confident that we think the share price is not reflecting the true value of the company.”

In the past month A2’s shares have gained more than 10.4 per cent. But following Mr Hearn announcing his resignation, its shares fell 3.3 per cent to $5.95.

The board has nominated Pip Greenwood – who has been an A2 director for the past three years – to succeed Mr Hearn.

Ms Greenwood is also a director of Westpac New Zealand, Spark New Zealand, Fisher & Paykel Healthcare and Vulcan Steel. She was a senior partner at Russell McVeagh, where she spent over 10 years on the firm’s board including acting as chair and interim chief executive.

“Not only will Pip bring her excellent skills to the role, but importantly this plan also represents a balanced blend of board refreshment together with continuity, which we believe is absolutely appropriate after a period of significant change at both board and executive leadership team levels,” Mr Hearn said.

During his time at A2, Mr Hearn was based in London. He told The Weekend Australian that he hoped to maintain a connection with southern-hemisphere boardrooms and believed he had more to offer local companies particularly at the Albanese government prepares to sign a free-trade agreement with the UK.

“If somebody wants somebody who has therefore understands the market up there and the market down here, then I'm obviously reasonably well placed because not many people are as intimately familiar with both ends of that,” he said. “I’m very fortunate that at least at the moment people still seem to want to talk to me and I have been approached for several opportunities recently in the UK.

“I definitely don’t want to do something that’s only in the UK. So if I do something, it’ll be an international business.

“I am actually very sad at the prospect of losing a connection with this part of the world. I would be very, very open to finding some opportunity down here.”

Under Mr Hearn’s leadership, A2 Milk transformed from effectively a start-up with a share price of around 50c in 2015 to a dairy juggernaut, which its share price hitting $20 in mid 2020.

He has also presided over three chief executive changes. After long-serving chief executive Geoff Babidge left the company in 2018, it turned to former Jetstar boss and Bain consultant Jayne Hrdlicka.

Ms Hrdlicka left A2 in late 2019, with Mr Babidge returning to the role on an interim basis before he stepped down again after Mr Bortolussi joined the company in 2021.

Mr Hearn is well known for his unique turn of phrase. In August 2020 – following Bellamy’s Organic, Nestle, Karicare, Cow & Gate, Junlebao and Mead Johnson all launching their own range of A2 beta casein infant formula – Mr Hearn declared A2 Milk was the “Dyson of dairy”.

“Dyson invented the cyclonic vacuum cleaner. When he came along and invented that everybody else had what was seen as old technology. If you speed forward today, everybody has got a cyclonic vacuum cleaner at prices well below his and his business has never been better,” Mr Hearn said.

Three months later, he said the former government had “punched China in the face” and said it needed to engage in less grandstanding and more diplomacy to raise its concerns around foreign interference, Hong Kong, Taiwan – and the origins of Covid-19.

“Like everything in life, there is a constructive balance — a middle road — and the one thing that everyone would understand about dealing with China is that their public face, pride and public reputation is something that they guard jealousy.

“If you are going to effectively punch them in the face in public, you are going to inevitably incur some response, it’s just not in the culture of the country to not respond. And so, I would be arguing I don’t think Australia should be insecure enough to suggest its independence is being threatened.”