The two relationships were for separate purposes and there was no question the arrangement with Fonterra would supersede the one with Synlait, an A2 spokesman said.
A2 Platinum has become the company’s glamour product and driver of revenues and profits.
The deal with Fonterra is partly for new nutritional products for new growth markets, targeting southeast Asia and the Middle East.
The two companies are also looking at potentially building a joint blending and canning facility at Fonterra’s production plant at Darnum in Victoria, where new products will be made.
The new product venture would take time to establish and is expected to be under way next year.
Product will be packaged at Fonterra’s Hamilton plant until a Darnum facility is built.
The agreement also includes a licence for Fonterra to supply A2 fresh milk in NZ, a project A2 said it has been evaluating for some time and one its shareholders indicated they wanted to see.
Whereas A2 shares made big early gains, Synlait shares fell sharply on the NZX in early reaction to the A2/Fonterra deal, losing 57c to $6.48, an 8% fall, at one stage.
However, Milne said there were no concerns about being superseded given the exclusivity Synlait had for A2 Platinum supply into the major Australian and Chinese markets.
“We’ve got a very strong and close relationship with A2 and that will continue.
“We expect market demand to remain strong and we’ll remain a vital part of the A2 supply chain.”
A2 owns 8% of Synlait’s shares so has an interest in its continued success, quite apart from the supply relationship.
Synlait is already investigating expansion and diversification of its own, into branded products to complement its existing business-to-business strategy.
Babidge said in a media presentation that Synlait is a very strong partner and had responded very well to the substantial growth in demand for A2 Platinum infant formula.
The new manufacturing supply relationship with Fonterra is based on managing A2’s growth and risk management as demand continues to grow.
It is a significant and wide-ranging development.
A2 remained committed to its low-capital operating model but the possible move to ownership, either in full or in partnership, of blending and canning assets is part of its “multi-site, multi-product and geographic diversification strategy”.
It was solely an IP, brands and marketing business before the investment in Synlait gave it an interest in manufacturing assets.
Babidge said the relationship with Fonterra had not happened overnight.
The companies had been talking for a time on “what we could do together that makes sense”.
Tapping in to Fonterra’s contacts and expertise will provide A2 with quicker access to the new target markets in southeast Asia and the Middle East.
The parties will also evaluate the commercial merits of A2-brand butter and cheese and other non-nutritional products for Australia, NZ and China. They would be complementary to Fonterra’s dairy product portfolio in the specified markets.
