The Chinese infant formula manufacturer and distributor, in which Fonterra has an 18.8% stake, recently warned of another significant trading loss in 2017, doubling the estimate made three months earlier.
Fonterra’s share of the loss would equate to 2c/share reduction in earnings plus whatever further impairment of the value of its stake the directors think will be prudent.
Wilson told the 140 farmers and rural professionals who attended the Northland Dairy Development Trust annual meeting this was a significant frustration and a concern for all farmers, directors and managers in Fonterra.
The Chinese regulatory reforms had reduced the number of infant formula recipes and brands by 60% and Beingmate had 51 of the successful ones.
“Despite the early registration of these formulas Beingmate has yet to maximise the opportunity created by the disruption to the market.
“By its own admission it has not moved fast enough to adapt from an entrepreneur-run business.”
Wilson said chief executive Theo Spierings was working through the Beingmate problems with its founder and cornerstone shareholder Sam Yie.
When Fonterra invested in Beingmate in 2015 it was the Chinese market leader in baby and infant formulas but it had now slipped to number three.
China’s market for such products was forecast to be greater than the sum of all other markets in five year’s time.
Farmers at the meeting questioned why Fonterra had taken a minority interest in Beingmate, without much control of its direction, after the San Lu disaster.
“The report into San Lu told Fonterra directors they should not take minority stakes in Chinese companies,” Dargaville farmer Allister McCahon said.
Wilson said the Beingmate investment was only part of Fonterra’s integrated China strategy in a market for sales of $3.4 billion annually and net earnings of $200 million.
He has no doubt it was the right strategy over the medium term.
“There will be bumps in the road and we don’t like it but the overall strategy is the right one,” Wilson said.
Fonterra said the Beingmate partnership had enabled Fonterra’s flagship Anmum brands to expand from 60 cities in China to 184 and the range is now stocked in 10,000 outlets and on all the social media platforms.
Under the exclusive distribution agreement governing Anmum, Beingmate sets the recommended retail prices, guided by local market dynamics, and is responsible for brand-building activities.
Fonterra also pointed out it was increasingly necessary for multinationals to have Chinese partners to do business in China but majority shareholdings are not available in most industries.
