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A2 shares fall as Bellamy's extends slide

NZ Newswire logoNZ Newswire 4 days ago Sophie Boot

© Paul Miller/AAP Image A2 Milk shares fell on Thursday, with rival ASX-listed Bellamy's Australia sliding another 17 per cent after Wednesday's slump when it cut its profit forecast for the second time, announced chief executive Laura McBain's exit, and tweaked the terms of its supply contract with Fonterra.

As at 2pm in Wellington, Bellamy's ASX-listed shares had dropped to $A4.46, the lowest since August 2015. On the local index, A2 Milk fell 1.3 per cent to $2.25, while Fonterra Shareholders' Fund rose 1.8 per cent to $2.72.

Bellamy's ASX-listed shares, which have been on a trading halt since Dec. 12, traded up to 40 per cent lower on Wednesday after the beleaguered dairy company said lower than expected demand for its baby formula has impacted its revenue and profitability, leading to increased inventory levels, excess ingredients and a shortfall in payments to suppliers.

A2 shares were dragged lower when Bellamy's was put in a trading halt before it gave an indication as to why, with concerns that what was affecting Bellamy's was a sector-wide issue.

The Australian infant formula maker ran into trouble after China moved to tighten regulations in a bid to crack down on the grey market - or 'daigou' - and allay concerns about food safety.

Under the changes, each legal entity will only be allowed to have three brands with three recipes for infant formula, something that's expected to decimate the number of brands and labels on supermarket shelves in China from more than 2,000 currently to around 200.

"Clearly the whole sector came under pressure from the Bellamy's issues," said Matt Goodson, managing director at Salt Funds Management.

The two companies announced a five-year agreement in late 2015 which included a take-or-pay organic powder contract. That contract has now been extended by three years though required volume commitments have not been reduced.

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