Outlook

FY20

* Overall, for FY20 we anticipate continued strong revenue growth across our key regions supported by brand and marketing investment in China and the US and the development of both capability and infrastructure to support in-market execution

* As an outcome of strategic gross margin focus, full year EBITDA margin % is now anticipated to be stronger than previously communicated and in the range of 29-30% with gross margin benefiting from:

- Improved price yield

- COGS reduction (including the effects of favourable FX)

1H20

* For 1H20, we anticipate revenue in the range of $780 million to $800 million with growth demonstrating strong performance against strategy:

- China label infant nutrition sales forecast to be approximately $135 million representing a growth rate of ~84%

- CBEC infant nutrition sales forecast to be approximately $155 million representing a growth rate of ~54%

- ANZ English label infant nutrition sales forecast to be approximately $350 million representing a growth rate of ~9%

- US sales forecast to be approximately $27 million representing a growth rate of ~110%

- Australia fresh milk sales forecast to be $75 million representing a growth rate of ~12%

* EBITDA margin % in 1H20 is expected to be higher than FY20 and in the range of 31-32% as a result of:

- Increased cost of goods (including lactoferrin and packaging materials) in 2H20 and increased levels of strategically important trade marketing activation in China

- Phasing of marketing and capability investment slightly weighted to 2H20; full year marketing investment expected to be approximately $200 million

19 November 2019

Synlait and The a2 Milk Company extend supply agreement

Synlait Milk Limited has renegotiated aspects of its comprehensive manufacturing and supply arrangements with The a2 Milk Company . Changes reinforce the companies’ long-term partnership.

Synlait Milk CEO Leon Clement commented: “Our long-term partnership is a key part of what has made Synlait and The a2 Milk Company successful. Infant nutrition is a core focus for both companies as we continue to invest in our future; building capacity and capability to support our respective growth stories. We are pleased to be able to update the market on an extension to our supply agreement.”

The supply agreement for a2 Platinum® and other nutritional products, announced to the market on 3 July 2018, provided for a minimum term of five years, with a rolling three-year term from 1 August 2020.

The key components of the revised agreement are:

• a two-year extension to the term of the agreement, effectively providing for a new minimum term to, at the earliest, 31 July 2025;
• an increase in the volume of nutritional products over which Synlait already has exclusive supply rights;
• increased committed production capacity from Synlait; and
• pricing terms that reflect the commitment on the part of both companies to an ongoing market-competitive pricing regime.

The agreed variation was approved by NZX Regulation who have waived Synlait’s requirement to obtain shareholder approval under listing rule 5.1.1 and 5.2.1.