Friday, March 29, 2024

Beingmate in perspective

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Fonterra’s China strategy is integrated and therefore one element like the faltering Beingmate investment can’t be unpicked without threatening the success of the whole, chief executive Theo Spierings says.
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The strategy was also partly in response to Chinese Government requirements on multinationals for safe consumer brands and a Chinese partner. 

China was still a growing net importer of all dairy products, Spierings said.

Greater China now took 28% of Fonterra’s volume, having gone up 45% in the past three years, and within that consumer and foodservice volumes had doubled.

In 1H 2018 China accounted for nearly 3 billion litres of milk equivalents (LMEs) compared with just over 2b LMEs in 1H 2015.

Gross margin was $390 million, compared with $249m in the 2015 half-year comparison.

That was after the normalisation adjustment for the Beingmate impairment and the share of losses.

China was turning into a fresh dairy market, with fresh milk sales forecast to grow a further 63% in five years.

Fonterra was well-positioned, with current production capacity from its China Farms exceeding 400m LMEs.

Its daily fresh milk was now sold in 30 of Alibaba’s Hema stores, with an expectation that would grow to 3000 stores in three years.

Fonterra’s Anchor fresh milk from China Farms was also used exclusively by Starbucks in China, Spierings said.

After the impairment, Beingmate had an “enterprise value” of $244m within Fonterra’s total China value of $4.7b and Fonterra’s overall value of $16b. (see chart)

“We are very strong in ingredients, consumer and foodservice in China so we didn’t opt for a partner.

“We were not strong in infant formula, so that is where we opted for a partner,” Spierings said.

“To be blunt, the investment in Beingmate has not gone the way we expected and there are things we would do differently knowing what we know now. 

“The recovery of the value of this investment is the number one immediate priority for me and the senior management team.”

Beingmate still had strong, registered brands in a China infant formula market growing at 7% annually.

“We see there are a number of opportunities to reverse the current performance, unlock the distribution network and meet customers’ preferences for e-commerce.”

The major shareholders – founder Sam Xie, Spierings representing Fonterra, and vice-chairman Xiaohua He – had agreed on finding a new strong, independent chief executive as quickly as possible.

Spierings strongly refuted suggestions Fonterra was not capable of running minority interests and joint ventures overseas.

“We have transformed businesses in Europe, the United States, Latin America and Australia recently, so we do know how to perform.”

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