Australian Dairy Nutritionals Group announced that the Group has achieved another significant milestone with the successful production of Stage 3 of the Ocean Road Dairies organic A2 infant formula. This is a critical milestone for the Group's infant formula project and reinforces the Board's confidence that commercial production of the organic A2 infant formula range will occur this quarter, ready for ranging in Chemist Warehouse stores nationally from October 2022. This milestone follows Market Update dated 1 July 2022 advising that the Group had successfully produced Australia's first organic A2 whole milk powder using organic A2 protein milk from farms. Test results for the organic A2 whole milk powder are all within specification enabling it to be used in the ongoing trials of organic A2 infant formula products.

The Board is impressed with the progress which the Group has made in bringing this project very close to completion just 24 months after construction commenced on the new infant formula building in June 2020. This is despite the entire project being undertaken under the shadow of Victoria's COVID-19 lockdowns where restrictions on movements of consultants and advisors, personnel absences and logistics delays (particularly for new and replacement parts) have imposed significant challenges. Step Up in Organic Milk Prices; The Board is also pleased to advise that it has already been notified of a step up in the farmgate price of organic milk for FY23.

As previously noted, the price difference between conventional and organic milk for the FY23 contracting period was relatively narrow prompting many farmers to cease organic milk production. As a result, availability of organic milk has reduced significantly prompting the Group's processer to offer a step up in the organic milk price less than 4 weeks after FY23 price negotiations have concluded. The step up is expected to deliver approximately $750,000 additional revenue for the Group, assuming FY23 milk production of 500,000 kg of milk solids and, after taking into account the impact that the higher organic milk price will have on the Group's manufacturing segment (where raw milk is a production input).

FDA Approval Process for future infant formula range; The Group is also continuing to progress its application with the US Food and Drug Administration (FDA) for accelerated approval for the sale of its future Gradulac Gentle infant formula range in the United States. The application remains under active review. Technical information in relation to the products has been reviewed and the Group has provided the FDA information in relation to its existing inventory and future production capacity.

While there are no guarantees, the board and management remain hopeful this progression will result in approval.