Fonterra plans to reduce stake in infant formula maker Beingmate

Fonterra has announced its intention to sell a portion of its 18.8% stake in Chinese infant formula manufacturer Beingmate.

The dairy co-operative has said it will offload part of its stake on the Shenzhen Stock Exchange, though did not specify how much it will sell.

Miles Hurrell, who was named permanent Fonterra CEO in March, said the decision forms part of a three-point plan to turn around the business.

For the full year ended July 2018, Fonterra reported a net loss of NZD 196 million – its first annual loss since its inception in 2001.

The results prompted the company to carry out a major financial review. It has since sold its Tip Top ice cream business and Farm Source livestock division and reached an agreement with Beingmate to unwind their joint venture in Darnum, Australia.

“We have re-evaluated every investment, major asset and partnership to ensure they still meet the co-operative’s needs today,” said Hurrell.

“This started with a strategic review of our relationship with Beingmate, which has been disappointing.

“The first action in this review was bringing the distribution of Anmum in China back in-house under our management. We then ended the Darnum joint venture with Beingmate, bought back Beingmate’s share of our Darnum facility in Australia, and entered into a multi-year agreement for Beingmate to purchase ingredients from us.

“What remains is our shareholding in Beingmate Baby & Child Food Co, which we now view as a financial investment only. We have talked to a number of parties regarding the potential sale of our entire stake in Beingmate, but so far have been unsuccessful in finding a buyer.

“As a result of this, we are now considering selling part of our holding and, as required by local listing rules, need to pre-announce our intention.”

Under the Shenzhen Stock Exchange market rules it is only possible to sell up to 1% every 90 days directly on the exchange, or sell up to 2% in a single block every 90 days. Trades greater than 5% can be made to an individual party in an off-market transaction.

“From here, it’s about making pragmatic decisions to get the best outcome for the co-op from our holding in Beingmate,” Hurrell added.

“China will always be one of our most important markets. We’ve got a strong business there and are still very much focused on the areas in China where we can succeed.”