Beingmate has muted Fonterra’s Chinese hum

Fonterra is “humming” in China, according  to  a headline  in the  NZ  Herald,  although the  text  of the article beneath it mentioned  the  “woes”  associated with  the co-op’s investment  in Beingmate.

The  co-op  is having to absorb   an impairment of   $405m    on the value of its 18.8%  holding in Beingmate.  On top of the $183m payment it has had to make  French  giant  Danone, the  writedown  takes the gloss off that  otherwise  “humming”  performance.

Some of its farmer-shareholders may be looking over the  fence to  the rather different  outcome  for A2 Milk, which lifted its annual  sales  68% in the June year,  with  revenue   rising  from $549m in the June  2017 year  to  $922m.  During  the latest  year A2  Milk achieved gross margins  up  to  49%.  

A2  Milk  said   last  week  it  anticipated “further growth in revenue particularly in respect of nutritional products” and planned to lift its marketing spend as a percentage of sales, and to hire more staff in China.

While  Fonterra’s  suppliers   are  receiving a  better payout   in the season just ended, the higher milk price  has put pressure on the co-op’s earnings in a year which had already proved challenging due to the payment to Danone and the impairment of the Beingmate investment.

As a result, the  co-op had to  revise  forecast normalised earnings per share guidance range down to 25-30c per share and the forecast dividend range for the full year down to 15-20c per share.

Chairman  John  Wilson,  at  the time  the co-op issued  this guidance, conceded the business’ revised earnings forecast “is disappointing for our shareholders and unitholders”.

Disappointing might have been an  understatement.

Whether the total forecast cash payout for farmers will  assuage  suppliers – at  $6.90-$6.95 per kgMS it is  the third highest payout this decade –  remains to be  seen.

Chairman Wilson has  been  in the line of  fire  from  cabinet  ministers  (as well  as possibly his own shareholders) but is still  expected  to be confirmed  for another term.  On his watch,  Fonterra  has invested $755m in Beingmate and another  $800m in  setting up big  dairy farms there.

His  task  as industry  leader  is  not made  easier  by  the threat  hanging  over  dairying   from Mycoplasma bovis.

Suppliers  will  have to  hope  that  despite  the  under-performance of  the Beingmate investment, the  co-op’s China business can  deliver  the kind of   sales growth   relative  minnows  like  A2  have racked  up.


3 thoughts on “Beingmate has muted Fonterra’s Chinese hum

  1. We were having the same argument about Fonterra in Australia a few years ago amd now Fonterra is the dominant player there. Beingmate was expensive but Fonterra farmers have done amazingly well out of China if you look at the bigger picture. No one accepts that the loss is OK, and Fonterra has other shortcomings but $6+ payouts are the bottom line for farmers.

    Fonterra will not be broken up like some are hoping for with these partial arguments.


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