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A2 Milk secures Chinese licence, Synlait still waiting

A2 Milk secures Chinese licence, Synlait still waiting

By Suze Metherell

July 22 (BusinessDesk) - A2 Milk Co, which markets milk with a protein variant said to have health benefits, has won Chinese regulatory approval to export its a2 Platinum infant formula and says its milk processor Synlait Milk continues to wait for registration.

The Auckland-based company was included in the list of approved imported brands issued by the China General Administration of Quality Inspection and Quarantine, it said in a statement. The approval comes three months after China tightened its rules, banning unregistered imports of infant formula, and required brands and importers to show close links with the product's manufacturer in a bid to bolster food safety in the country's rapidly expanding baby powder market.

A2 Milk and Christchurch-based Synlait missed out in the first round of licensing as they waited for Synlait's new dry blending and packaging factory to be built, and inspected by local food safety authorities. Earlier this month, the manufacturer's interim contract provider, Auckland-based New Zealand New Milk, gained Chinese registration, clearing the way for A2 Milk.

At the time it missed the initial round of registration A2 Milk said there was enough infant formula held by its distribution partner "to ensure consumer demand in China continues to be satisfied".

"Registration will provide an important confidence boost for our distribution partner China State Farm and its sub-distributors in our target markets in China," said A2 Milk managing director Geoffrey Babidge. "The market development programme paused while the registration process was progressing and can now be reactivated together."

Synlait is expected to be licensed once its risk management plan is approved by the Ministry for Primary Industries, A2 Milk said.

In January, Synlait flagged sales of baby formula would fall below its 10,000 metric tonne target this year as the stricter Chinese regulations caused “considerable disruption” in that market, and forecast annual profit of between $30 million to $35 million, for the year ending July 31. Since then the company has issued two profit warnings, first in March to an estimate of between $25 million and $30 million, and in May it further cut its to between $17.5 million and $22.5 million. Its prospectus forecast profit of $19.8 million.

The company said the high kiwi dollar and volatility in global dairy prices, as well as a reduced advantage from its product mix, had weighed on revenue and forecast earnings.

The first New Zealand exporters and manufacturers to gain registration in April were Sutton Group and Gardians, Danone-subsidiary Nutricia, Fonterra Cooperative Group, GMP Pharmaceuticals and Dairy Goat Cooperative (NZ), representing about 90 percent of New Zealand’s infant formula exports to China by volume. Since then Westland Milk has also been approved.

Shares in A2 Milk last traded at 61 cents, having fallen 35 percent from its record high of 94 cents in March. Synlait shares last traded at $3.30 and have dropped 20 percent from its January peak of $4.11.


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