Fonterra should explain Beingmate: analyst

FonterraFonterra owes holders in its Fonterra Shareholders Fund units a “more fulsome” update on Beingmate, the struggling Chinese infant formula producer and distributor that Fonterra uses to push its leading Anmum formula into the Chinese market, according to an analyst.

In a note to investors, First New Zealand Capital’s head of institutional research, Arie Dekker, identifies the lack of transparency about Fonterra’s 18.8 per cent shareholding in Beingmate as a confidence as well as a performance issue for investors.

“We view the investment as a material one from both a financial and confidence perspective. We think the time is right for FSF to provide a more fulsome disclosure on what has happened with Beingmate and the reasons why it remains confident in the long-term future.”

A Fonterra spokesman confirmed that there would be an update on Beingmate in the cooperative’s September 25 earnings announcements. FNZC values the Fonterra stake in Beingmate at approximately $420 million, down around 45 per cent on its March 15 purchase price of around $756m, reflecting a range of problems.

In particular, FNZC wants details on Chinese market distribution of Anmum products, which Fonterra passed over entirely to Beingmate. Forecast annual sales growth was expected to exceed $100m per annum by 2018 but Dekker said FSF has not reported directly on progress.

Beingmate had been struggling financially over the last few years and it was not inconceivable that this has had a negative impact on distribution of Anmum against expectations on the volumes being produced at the jointly owned Darnum milk processing plant in Victoria, Australia.

“In short, Beingmate has lost sales, missed FSF targets and likely lost reasonable market share in the last three years and FSF has been largely silent on it with investors,” Dekker said.

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