A2 Milk has announced its decision to cancel Synlait Milk’s exclusive manufacturing and supply rights for some of its infant milk formula products. This move comes as a result of Synlait’s failure to meet key targets during the 2023 fiscal year.
The cancellation was communicated to Synlait in writing after the market closed on Friday. Synlait has been the exclusive supplier of several of A2 Milk’s products, including the popular a2 Platinum brand, which is sold in China, Australia, and New Zealand.
In a regulatory filing, A2 Milk stated that the cancellation is due to Synlait’s failure to meet the delivery in full and on time performance (DIFOT) during FY 2023, falling below the required level to maintain exclusive rights.
Synlait, however, disputes A2 Milk’s right to cancel the exclusivity arrangements. This disagreement is likely to initiate negotiations between the companies and potentially lead to arbitration proceedings.
Despite the cancellation, A2 Milk has confirmed that Synlait will still remain an important supplier. The pricing and other key terms will continue to apply.
Synlait has clarified that it holds the State Administration for Market Regulation license in China, which is attached to its Dunsandel manufacturing facilities. This license covers some of A2 Milk’s Chinese-labelled infant formula products, and Synlait expects to continue manufacturing those products until the license expires in September 2027.
The shares of Synlait in Australia and New Zealand were temporarily halted for trading on Monday while the company assessed the implications of A2 Milk’s decision.
It is worth noting that A2 Milk’s decision is not expected to significantly impact Synlait’s results for either the 2023 or 2024 fiscal years.