A2 Milk Share Price Rises on Agreement with Synlait Milk

A2 Milk Company’s [ASX:A2M] share price rose nearly 5% upon opening this morning, on news that A2 has extended its supply agreement with Synlait Milk Ltd [ASX:SM1].

A2’s shares are currently trading at $10.87, up 50 cents from yesterday’s closing price of $10.37.

Details of the new agreement between A2 Milk and Synlait Milk

This morning’s update revealed that the revised agreement has been given a two-year extension, providing a new minimum term of five years to 31 July 2023.

The new terms include an increase in volume of infant formula products in which Synlait already has exclusive supply rights. Along with an increased committed production capacity from Synlait.

In addition, pricing terms of the new agreement reflect the commitment from both companies to uphold competitive pricing.

Geoffrey Babidge, Managing Director of A2 Milk, implied that the agreement is consistent with their global strategic supply strategy.

This new agreement has been carefully developed to provide the Company with security for nutritionals supply to our key markets consistent with our overall strategic objective of maintaining high quality supply with ongoing cost-competitiveness.

Both companies seem extremely positive about the agreement and their future growth potential. David Hearn, chairman of A2 Milk said,

This contract extension reflects a2MC’s commitment to continue to build on the excellent relationship that both companies have enjoyed over recent years.

John Penno, managing director of Synlait Milk, stated that the agreement is about bringing both companies closer together in anticipation for continued growth.

It also puts both companies in a great position to further leverage the Chinese Food and Drug Agency (CFDA) registration of a2’s™ infant formula products, which was achieved in September 2017.

Dannielle Rawlings

For Money Morning

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