{"id":73121,"date":"2023-09-19T10:50:30","date_gmt":"2023-09-18T22:50:30","guid":{"rendered":"https:\/\/www.farmersweekly.co.nz\/?p=73121"},"modified":"2023-09-19T10:50:31","modified_gmt":"2023-09-18T22:50:31","slug":"a2-milks-move-against-synlait-the-mvm-factor","status":"publish","type":"post","link":"https:\/\/www.farmersweekly.co.nz\/news\/a2-milks-move-against-synlait-the-mvm-factor\/","title":{"rendered":"A2 Milk\u2019s move against Synlait: the MVM factor"},"content":{"rendered":"Reading Time: <\/span> 2<\/span> minutes<\/span><\/span>\n

A2 Milk’s move to cancel its exclusive manufacturing and supply agreement with Synlait may be all about getting Mataura Valley Milk into the black.<\/p>\n\n\n\n

A2 Milk owns 75% of Mataura Valley Milk (MVM) in partnership with China Animal Husbandry Group, which owns 25%. It bought the Southland dairy company in 2021 for $268.5 million to provide \u201csupply diversification\u201d.<\/p>\n\n\n\n

In the year to June 30, MVM reported earnings before interest, taxes, depreciation and amortisation loss of $26.5m. That was wider than the $18.8m loss in the prior year.<\/p>\n\n\n\n

A2 Milk has consistently said accelerating MVM\u2019s path to profitability by FY26 or earlier is a key strategic priority.<\/p>\n\n\n\n

On Monday<\/a>, a2 Milk said it had notified Synlait that it was cancelling the exclusive supply rights because Synlait had fallen below delivery standards.<\/p>\n\n\n\n

The deal covers stages 1 to 3 of a2 Milk\u2019s current infant milk formula products sold in China, Australia and New Zealand.<\/p>\n\n\n\n

Synlait, meanwhile, came out swinging and said it disputes that a2 Milk has the right to cancel the arrangements.<\/p>\n\n\n\n

It also underscored that it continues to hold the Chinese regulatory State Administration for Market Regulation (SAMR) licence, which is attached to Synlait\u2019s Dunsandel manufacturing facilities.<\/p>\n\n\n\n

The licence is for a2 Milk\u2019s Chinese-labelled infant formula.<\/p>\n\n\n\n

While a2 Milk can\u2019t currently produce that formula without Synlait, the removal would give it the option to produce a2 Platinum, the brand of its current English label product, at any facility in the future, including MVM, it said.<\/p>\n\n\n\n

In the past, a2 Milk has clearly indicated its intent to obtain additional China-label infant milk formula registration and to leverage its manufacturing capability MVM.<\/p>\n\n\n\n

\u201cA2 has had ambitions to gain more control of its supply channel, particularly with regard to obtaining another licence for launching a second China-label product, so perhaps this shouldn\u2019t be a complete surprise,\u201d Craig Stent, executive director of portfolio manager at Harbour Asset Management, said.  <\/p>\n\n\n\n

He noted, however, that it currently only impacts a2 Milk\u2019s English label, with the SAMR regulatory licence sitting with Synlait.<\/p>\n\n\n\n

\u201cWith the removal of the exclusivity, it may give a2 the option to produce its English label through Mataura Valley Milk; however, this is likely to be gradual,\u201d he said.<\/p>\n\n\n\n

Neither a2 Milk or Synlait is expecting an overnight change.<\/p>\n\n\n\n

A2 Milk expects any dispute resolution process to \u201ctake some time to complete\u201d and will maintain the exclusivity until the dispute is resolved, assuming it is resolved by the end of 2024.<\/p>\n\n\n\n

Synlait Milk said the announcement has no impact on its FY23 financial result, due to be reported on September 25.<\/p>\n\n\n\n

It also said the announcement is not expected to impact Synlait\u2019s full-year 2024 results.<\/p>\n\n\n\n

Synlait expects to manufacture Chinese-labelled products for a2 Milk for the period of the SAMR licence, which currently expires in September 2027.<\/p>\n\n\n\n

Matthew Goodson, managing director of Salt Funds Management, expects an extended period of negotiation given that a breach of contract has been alleged in regard to Synlait\u2019s product delivery.<\/p>\n\n\n\n

This may mean a2 moves some English-label production to its Mataura Valley plant.<\/p>\n\n\n\n

\u201cI would read it as a sensible but hard-nosed negotiating position from a2, with Synlait\u2019s extended balance sheet potentially being problematic.\u201d<\/p>\n\n\n\n

Goodson noted that Synlait has a $180m bond that matures in December 2024. It was issued at 3.83% but last traded at 15.72%.<\/p>\n\n\n\n

Synlait\u2019s shares ended down 9.4% at $1.16 on Monday, while a2 fell 1% to $4.88. <\/p>\n","protected":false},"excerpt":{"rendered":"Licences and supply chains to the fore as dairy companies lock horns.\n","protected":false},"author":16,"featured_media":49325,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_FSMCFIC_featured_image_caption":"A2 Milk has consistently said accelerating Mataura Valley Milk\u2019s path to profitability by FY26 or earlier is a key strategic priority.","_FSMCFIC_featured_image_nocaption":"","_FSMCFIC_featured_image_hide":"","footnotes":""},"categories":[3],"tags":[28],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t