Extension of the Supply agreement – The a2 Milk Company Limited (ASX:A2M) and Synlait Milk Limited

Recently, a2 Milk (ASX:A2M) confirmed that it has agreed a variation to its comprehensive manufacturing and supply arrangements with Synlait Milk Limited (ASX:SM1) and these variations were conditional on either NZX granting a waiver from the requirement to obtain shareholder approval under NZX Listing Rule 9.1.1 or shareholder approval being obtained. Initially, when it was announced in 2016, the supply agreement was for a minimum term of five years, with a rolling three-year term from 1 August 2018.

Now after some revisions, a two-year extension to the term of the agreement was given, effectively providing for a new minimum term of five years to 31 July 2023. Further, it increased the volume of IF products over which Synlait already has exclusive supply rights with an increase in the committed production capacity from Synlait. This extension was consistent with the global strategic supply strategy that a2MC has been developing over recent times, with supply partnerships that provide multi-site, multi-product and geographic diversification. This extension also reflects a2MC’s commitment to continue to build on the excellent relationship that both companies have enjoyed over recent years.

This will also provide the Company with security for nutritionals supply to its key markets that will be consistent with its overall strategic objective of maintaining high quality supply with ongoing cost-competitiveness. The agreement will continue to reinforce the two companies to have a good working relationship as they work to develop a2 Platinum® for the ANZ and China markets on an exclusive basis to a specified product volume. The stock price climbed up by 3.66 per cent and was trading at $10.75 (as on 3 July 2018; 03:21 PM AEST).


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