Synlait Milk to buy 25% stake in New Hope Group unit

New Zealand-based dairy processing company Synlait Milk Ltd is expected to acquire 25 percent of a nutrition unit of China's largest agriculture company, New Hope Group, to gain access to the country's lucrative infant formula market.

"We are pleased to announce we have entered into a conditional agreement, subject to approval, for a 25 percent stake in Sichuan New Hope Nutritional Foods Co Ltd, the company responsible for the ownership, sale and distribution of the Akara-branded infant formula range in China," Synlait Milk Managing Director John Penno said in a news release.

"Through a small investment, the partnership will create an integrated supply chain for the manufacture, packaging, supply, distribution and sale of Akara to consumers in China, ensuring transparency from can to paddock."

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The acquisition will allow Synlait to unleash its production capacity through retailing infant formula brands with New Hope Group, said Song Liang, a leading dairy analyst.

Akara, the formula brand of Sichuan New Hope Nutritional Foods Co Ltd, which was founded in 2013, is manufactured by Synlait and marketed by New Hope as an imported product in China.

New Hope is expected to continue to hold ownership of the Akara brand along with its distribution channels and marketing after the acquisition, said Song.

He said that with the increased and stable dairy sources from New Zealand, the Sichuan-based dairy producer looks poised to extend its industrial chain and expand market share.

Bright Dairy & Food Co Ltd, parent company of Synlait, had a weak link in its infant formula business unit and could not make use of the large amount of milk powder produced by Synlait despite years of marketing, Song said. The abundant capital from New Hope will facilitate Bright Dairy in expanding this unit in China, he said.

On Monday, Synlait Milk posted a net profit of NZ$19.6 million ($15.8 million) after tax for the fiscal year ending July 31, an increase of 70 percent compared to the $11.5 million profit realized in the previous fiscal year. Revenue was $600 million, up 43 percent from a year ago.

The initial list of registered New Zealand companies issued by the Certification and Accreditation Administration of China did not include Synlait Milk as an exporter of finished infant formula into China, according to Synlait.

But the Ministry of Primary Industries of New Zealand confirmed that it expects Synlait to receive registration following the approval of its Risk Management Plan by MPI for its dry blending and consumer packaging facilities.

"China remains an important market for us. While our finished infant formula business into China currently contributes a small portion of our total earnings, we expect it to be a significant earner in the future," Penno said.

"In the meantime, we will continue to work with our first-tier multinational customers to supply infant formula ingredients and finished products outside of China," he said.