Fonterra said it is “extremely disappointed” by the announcement that China’s Beingmate Baby & Child Food – which it owns an 18.8% share in – issued a forecast earnings downgrade to an estimated loss of between CNY 800 million ($125 million ) and CNY 1 billion ($154 million).
The Chinese dairy company had previously announced a forecasted loss of between CNY 350 million ($54.7 million) and CNY 500 million ($78.1 million) for its financial year ended 31 December 2017.
Fonterra bought a stake in the company in 2015 with an investment of $615 million.
Following the announcement, Fonterra has expressed its concern about the on-going performance of Beingmate and will “consider the financial implications on our investment for the purposes of our upcoming interim financial results”.
Four Beingmate directors, including the two directors designated by Fonterra, have expressed reservations relating to some aspects of Beingmate’s financial management and reporting practices.
In a statement, Fonterra said: “We have total confidence in the judgement of our designated directors (Johan Priem and Christina Zhu) and that their actions are in the best interests of Beingmate and all of its shareholders. We are concerned about the reservations they have expressed and are seeking clarification on the matters of concern.
“Despite Beingmate’s recent performance, the strategic rationale for our broader partnership with Beingmate still stands. We are disappointed that Beingmate is not maximising the opportunity created by the early registration of its 51 formulations under the new registration rules.
“The Chinese market is growing rapidly and within five years, forecast demand for infant and baby dairy products will be more than the total for other global markets, so the potential remains.”
China will overtake the US as the world’s largest dairy market by 2022 with drinking yogurt a key growth driver, according to market research producer Euromonitor International.
China is one of Fonterra’s largest global markets, accounting for NZD $3.4 billion ($2.48 billion) of sales revenue.
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