Synlait Milk signs up new customer, sees earnings impact in 2023

Synlait has signed up a new customer, which will require further investment in its manufacturing capacity. Photo / NZ Herald

Synlait Milk said it had signed a manufacturing supply agreement with a global category leader but said details of the deal would remain confidential.

The NZX-listed dairy company said it expected the deal to have a positive impact on its earnings from 2023.

The agreement means processing and packaging customisation would be required at its facilities at Pokeno and Auckland, with expected capital expenditure of $70 million spread over two years.

Commercial production is projected to start mid-2022.

Under the agreement, Synlait will make, blend, and package nutrition products which include plant-based products.

Chief executive Leon Clement said the deal was the start of a "valuable, enduring, strategic partnership" that would give Synlait broader market and category exposure in Asia Pacific.

Synlait, which supplies a2 Milk with infant formula, last month said its annual net profit dropped by 9.0 per cent to $75.2m, reflecting the impact of new acquisitions made over the last two years.

A2 Milk is Synlait's biggest customer, and Synlait is a2 Milk's sole supplier of infant formula.

The two want to become less reliant on one another, with Synlait diversifying and a2 Milk venturing into formula manufacture on its own account.

Canterbury-based Synlait last year bought Dairyworks for $112m, in line with its move into "everyday dairy" products and complementing its acquisition of cheesemaker Talbot Forest.

Early this month, Synlait sold its Deep South brand - part of Dairyworks - and associated ice cream operations to Talley's for an undisclosed sum. Synlait shares last traded at $5.21, up 16c.

Synlait shares last traded at $5.21, up 16c.