Kiwi dairy firms in dispute as A2 cancels Synlait contract

A row has broken out between New Zealand milk and infant formula companies A2 Milk and Synlait after the former broke a long-standing exclusive supply contract.

Synlait supplies A2 Milk with dairy and infant formula products and ingredients. On Sunday (September 17), A2 Milk announced in a statement to the New Zealand Stock Exchange (NZX) that it had provided Synlait with written notice canceling the exclusive manufacturing and supply rights enjoyed by the company. The rights covered stages 1 to 3 of A2’s infant formula sold in China, Australia and New Zealand.

A2 Milk, which is Synlait’s second-largest shareholder with a 19.8% stake, said it canceled the exclusivity agreement “due to the complete and on-time delivery of Synlait in FY23, falling below the level required for Synlait to retain these exclusive rights.”

However, he said “Synlait remains an important supplier.”

Yesterday, Synlait responded. In a stock filing, it said: “Synlait disputes that The A2 Milk Company has the right to cancel exclusivity agreements. »

A2 Milk confirmed that Synlait would in practice retain its exclusivity until the matter was resolved. He said the contract provided for a 20-day dispute resolution process and this would be followed by arbitration if the issue was not resolved.

Synlait also highlighted that it holds the license from China’s State Administration for Market Regulation (SAMR). The license, attached to its Dunsandel manufacturing plant, covers A2 dairy products. Synlait said it plans to continue manufacturing these products for the Chinese market until the license expires in September 2027.

Local media have suggested that by abandoning the Synlait exclusivity deal, A2 Milk could instead use the purpose-built dairy nutrition facility, Mataura Valley Milk, which it co-owns with China Animal Husbandry, and which operates at a loss.

The Nutritional Powder Manufacturing and Supply Agreement (NPMSA) between A2 Milk and Synlait shall remain in effect for a continuous period, as it may only be terminated by either party upon notice of three years.

Synlait also told the market in its NZX statement that it had completed its bank refinancing with new banking union members ANZ, Bank of China, China Construction Bank, HSBC and Rabobank. The company now has working capital of NZ$240 million ($142.5 million) and revolving credit facilities of NZ$230 million.

It also confirmed its full-year 2023 net profit guidance – which ranges from a net loss of NZ$5 million to a net profit of NZ$5 million – and said that A2’s announcement would have no impact on its FY23 performance.

The group will publish its 2023 annual results on Monday September 25.

In April, A2 Milk said it was “surprised” by a profit warning issued by Synlait, which had warned investors it could post a net loss of NZ$5 million, compared to its previous forecast an annual net profit after tax of NZ$15 million. -25m.