A2 Milk adds costs on Synlait amid contract dispute

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Synlait said an arbitrator had been appointed to settle the dispute over A2 Milk’s decision to cancel its exclusive manufacturing and supply rights agreement in respect to Synlait’s current infant formula milk products.
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Speciality dairy company A2 Milk has ramped up pressure on its supplier Synlait Milk, adding an unspecified amount of costs to an ongoing contract dispute.

Synlait said A2Milk was also claiming costs associated with product services, surplus or damaged packaging materials costs, new product development, lost profit on delayed deliveries, and alleged failure to share cost savings from the use of third-party ingredients.

Forsyth Barr analyst Matt Montgomerie said it appeared A2 Milk was continuing to add pressure to Synlait, which was already struggling with debt.

“As we’ve seen over the course of the past, three to six months from the outside looking in, it feels like A2 has continued to place pressure on, certainly from a contractual point of view, and now today, we are seeing other matters in dispute, in addition to potential price negotiations between the two parties. So just another example that there’s reasonable friction in the relationship at present.”

Financial update

In the meantime, Synlait said it was working with bankers to cover a debt payment of at least $130 million, which was required by 28 March 2024.

Synlait said its major shareholder Bright Dairy was supportive of the company’s plan to improve its balance sheet.

In addition to working to reduce debt, Synlait said it was making progress on the sale of the Dairyworks business, though a sale was not assured.

“So, obviously the preferred scenario for them is selling Dairyworks, which would enable a bank repayment in March, but should that not take place and as the days tick on, it feels less likely, we’re looking at an equity raise or the sale of Dunsandel, potentially,” Montgomerie said, referring to Sylait’s milk processing plant.

Synlait did not provide guidance, but said the net profit for the six months ending January was expected to be down on the year earlier, mainly due to increased financing costs and changes in margin.

In a market statement, A2 Milk said the dispute had no effect on its half-year outlook for the period ending December.

A2Milk and Synlait declined to be interviewed.