Notice of cancellation of Synlait’s exclusive supply rights

NZX Code: ATM
ASX Code: A2M

The a2 Milk Company Limited
www.thea2milkcompany.com


18 September 2023

NZX/ASX Market Release

a2MC provides notice of cancellation of Synlait’s exclusive supply rights
Supply Agreement otherwise continues

The a2 Milk Company Limited (a2MC, the Company) advises that after market hours on Friday, 15 September it
provided Synlait Milk Limited (Synlait) with written notice cancelling the exclusive manufacturing and supply
rights enjoyed by Synlait in respect of stages 1 to 3 of a2MC’s current infant milk formula (IMF) products (being
a2 Platinum® and a2 至初®) for sale by a2MC in the markets of China, Australia and New Zealand. Stage 4 IMF
and other a2MC products supplied by Synlait are not subject to exclusivity. Synlait has advised that it is
considering the notice of cancellation, it reserves its rights, and it will respond formally in due course.

a2MC has given notice of cancellation of Synlait’s exclusive manufacturing and supply rights due to Synlait’s
delivery in full and on time performance (DIFOT) during FY23 falling below the level required for Synlait to
maintain such exclusive rights, including as referenced in a2MC’s market announcement on 26 April 2023 and
primarily in relation to English label IMF product.

The manufacturing and supply agreement between Synlait and a2MC (Supply Agreement) will remain in place
notwithstanding removal of exclusivity and Synlait remains an important supplier of a2MC. a2MC considers that
pricing terms and other key terms of the Supply Agreement between the parties will continue to apply. In
particular, and as previously confirmed to the market:

• The Supply Agreement continues on a rolling term until either party gives three years’ notice of
termination to the other party; and
• a2MC considers that Synlait continues to be contractually bound to supply up to the same prescribed IMF
volume per annum
1
, including all stages of both a2MC’s current English label product, a2 Platinum®, and
a2MC’s new China label GB product, a2 至初® (which is being transitioned in the China market in 1H24,
with the launch remaining on track).

Synlait is considering a2MC’s cancellation notice. If Synlait disputes the notice, the matter will be resolved
through good faith negotiations, followed by confidential binding arbitration as provided for under the dispute
resolution provisions of the Supply Agreement. At this stage, a2MC expects that any such dispute resolution
process may take some time to complete. In the meantime, a2MC has advised Synlait that it would agree to
maintain Synlait’s exclusivity until any dispute is resolved (assuming it is resolved by the end of 2024), and even
once the matter is resolved, a2MC considers that a2MC will continue to have the right, but not the obligation, to
fully source its current IMF products from Synlait.


1
Synlait’s volume commitment is equivalent to approximately 150% of a2MC FY23 sales volumes of the relevant products

2

Subject to the outcome of any dispute resolution process, removal of Synlait’s exclusivity will provide a2MC with
the option to produce a2 Platinum® (being the brand of a2MC’s current English label product) at any facility in the
future, including Mataura Valley Milk (MVM). MVM is a purpose-built dairy nutritionals facility situated in New
Zealand’s South Island and of which the Company owns 75% in partnership with China Animal Husbandry Group
(which owns 25%). Having regard to the dispute resolution process, product development cycles and the New
Zealand dairy season, any positive impact of the removal of Synlait’s exclusivity on MVM utilisation and
profitability is not expected to have a material impact in FY24 or FY25. As previously announced, accelerating
MVM’s path to profitability by FY26 or earlier is a strategic priority.


Authorised for release by the Board of Directors

David Bortolussi
Managing Director and Chief Executive Officer
The a2 Milk Company Limited

For further information, please contact:
Investors / Analysts
David Akers
Group Head of Investor Relations and Sustainability
M +61 412 944 577
david.akers@a2milk.com


Anna Guan
Investor Relations Manager
M +61 430 166 872
anna.guan@a2milk.com
Media – New Zealand
Barry Akers
M +64 21 571 234
akers@senescallakers.co.nz

Media – Other markets
Rick Willis
M +61 411 839 344
rick@networkfour.com.au