A2 Milk, Synlait win China regulatory approval to export infant formula until 2027

The trans-Tasman dairy company’s China ‘refresh’ is gathering pace after Beijing allowed it to produce China-label infant formula for another four years.

A2 Milk CEO David Bortolussi says production of the re-registered China product is expected to begin later this month. Picture: Britta Campion

A2 Milk’s has received Chinese regulatory approval to produce tailor-made infant formula for the country for the next four years.

China’s State Administration for Market Regulation (SAMR) has re-registered A2’s contract manufacturer, Synlait Milk, which is dual listed on the ASX and New Zealand stock exchange.

A2 Chief executive David Bortolussi the approval allowed the company to produce stages 1, 2 and 3 formula that’s in line with China’s new GB national standards.

“We look forward to making our upgraded new China label IMF (infant milk formula) product available to parents and their infants and young children in China, building on the strong brand loyalty we have developed with Chinese families over the past decade as the pioneer of the A2 protein category,” Mr Bortolussi said.

“The approval provides the A2 Milk Company with continued access to China’s substantial registered domestic infant milk formula market which remains the key focus of our refreshed growth strategy.”

More than 70 per cent has been wiped of A2’s market value in the past three years following the pandemic-fuelled collapse of the Chinese daigou, or reseller market.

The company used to be worth $13bn - more than Qantas - now its market value is $3.82bn, sparking Mr Bortolussi to “refresh” A2’s china strategy.

Rather than rely on English-label product that daigous - traditionally Chinese students and tourists that buy product in Australia and send it back to China - the company is expanding deeper into China’s general trade or bricks and mortar retail, which represents about 80 per cent of the total market.

Mr Bortolussi said production of the new SAMR-approved product was expected to begin later this month and sold in the first quarter of 2024. The approval runs until September 2027.

It comes after Synlait blamed A2 for a profit downgrade Synlait, with the manufacturer saying in April that it expects its earnings to crumble as much as $NZ20m ($18.35m).

Synlait attributed the downgrade to softer demand from A2, which is also its second biggest shareholder, but Mr Bortolussi rejected this.

“A2 Milk Company confirms that there is no material change to its FY23 outlook as confirmed at the time of the announcement of its 1H23 results on February 20, 2023,” Mr Bortolussi said at the time.

“The company maintains its FY23 revenue guidance of low-double digit percentage growth on FY22, but notes that English label IMF revenue is now expected to be down mid-single digits, partially offset by continued strong double-digit growth in China label IMF revenue.

“As a result, the company expects revenue growth to be at the low end of its previous expectations (i.e. approximately 10 per cent). The company continues to expect an EBITDA margin (percentage of sales) similar to FY22.”

On Tuesday, Synlait chief executive Grant Watson said he was “thrilled” the company had received new Chinese regulatory approval.

“(The registration) is pivotal to the long-term success of our advanced nutrition business. Our shareholders, staff, customers, and farmer suppliers all benefit from the certainty of today’s re-registration and continued China market access,” Mr Watson said.

“Synlait and the A2 Milk Company have a long-standing and complementary partnership, and we look forward to continuing to support their China growth ambitions. The re-registration is a very important milestone and we have worked hard together to ensure its success.”