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Fonterra acts as Beingmate cuts forecast

NZN 25/01/2017 Rebecca Howard

Fonterra has sought to reassure shareholders after its Chinese partner Beingmate Baby and Child Food Co slashed its full-year guidance.

Shenzen-listed Beingmate now expects to report a full-year net loss of 750 million yuan to 800 million yuan, double its prior forecast loss, according to Reuters. In the prior year, the company reported a net profit of 103.6 million yuan.

"We are confident in our overall China strategy, of which our Beingmate partnership continues to be an important part," said Fonterra's chief financial officer Lukas Paravicini.

Fonterra bought an 18.8 per cent stake in Beingmate in 2015 as it sought to ensure greater access to the Chinese market.

"Beingmate's recent performance reflects China's market conditions, which remain challenging for all dairy players. The long-term outlook remains strong," said Paravicini.

He said distribution of Fonterra's Anmum infant formula brand in China grew from 60 cities in 2015 to more than 170 cities and total sales are ahead of projection.

UBS analyst Marcus Curley said the small size of Beingmate's contribution to Fonterra's overall earnings before interest and tax means the news of the wider loss is "irrelevant from an earnings perspective" for the New Zealand co-operative and the long term picture is solid.

In December, Fonterra chairman John Wilson said it will likely take another one-to-two years before there's clarity on how its Chinese partner will fare under new regulations governing infant formula in China which are expected to slash the number of companies in the market..

Curley expects the tough times to continue for the rest of this year and into next.

"We still believe the business is well positioned in a consolidated market. It will be one of the survivors and hence maybe one of the winners, but clearly there is some pain before any gain," he said.

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