Council chairman Duncan Coull said the council had noted a desire from farmers to see financial information from the Fonterra board regarding the investment.
Because of the amount of capital involved there was a push to know exactly how it was performing and the way in which it fitted with the co-op’s wider China strategy.
Fonterra met councillors for a briefing just before its annual results announcement and the information would be included in the council’s annual report to farmers, which gives a scorecard as to how the co-op is performing in a number of areas.
Fonterra chairman John Wilson faced strong questioning at the media conference after the results announcement about why more detail on Beingmate wasn’t being provided and what benefit was being received from the money spent on buying into it last March.
He said the investment was a cornerstone of Fonterra’s wider strategy across China and as an 18.8% investor it wasn’t in the habit of making Beingmate’s announcements for it.
Fonterra chief executive Theo Spierings said Beingmate was a massive partnership tapping into Fonterra’s Chinese strategy to further grow its position as market leader with 11% of sales.
Many things were changing in China including Beingmate’s focus moving from a mother and baby-oriented sales company to an e-commerce model.
Treating e-commerce selling as a channel was not the way to go but it should be used as a disrupter.
That had been the focus of a Dragon’s Den-style gathering in Shanghai earlier in the year where 100 Fonterra teams pitched different ideas involving e-commerce and digital channels before some were chosen for acceleration.
They would be presented at a demonstration day on October 13 then he and chief financial officer Lukas Paravicini would decide whether to fund some of them further or seek joint venture partners to do so.
A recent move by Chinese authorities to reduce brands to an upper limit of three per entity meant more than 1800 brands could be removed from the market, he said
“A whole lot of things have changed in China.”
In its annual results Fonterra said that in line with continued volatility in the Chinese share market, Beingmate’s share price was below that which the co-operative paid for its investment.
“A whole lot of things have changed in China.”
Theo Spierings
Fonterra
Because of that its carrying value of $739 million had been assessed for impairment.
But Fonterra management concluded the strong market fundamentals and recent changes to the regulatory regime in China were expected to have a positive impact on Beingmate’s future cashflows.
That supported the carrying value so no impairment had been made.
Associated with the agreement was the establishment of a partnership to buy Fonterra’s Darnum plant in Victoria, Australia, where completion is expected this financial year once regulatory approvals were received.
The carrying value of Darnum dropped from $90m at July 31 last year to $87m on the same date this year.
Asked about progress on its China Farms strategy Wilson said its first two milk hubs had been completed and on the third, a joint venture with Abbott, the first farm was being developed. A second farm would be completed next year.
The first hub, Yutian, was milking 16,200 cows and the second, Ying, 14,200, with numbers growing as the herd matured.
Sales of raw milk from the farms increased by 40% over those produced last year from 164,000 tonnes to 229,000t. It was expected that would double by 2020.
While sales revenue lifted from $141m to $183m, normalised earnings before interest and tax (Ebit) from China Farms dropped from a loss of $44m last financial year to $55m, largely because of the low Chinese milk price.
Once an area of critical mass was built decisions needed to be made about where the fresh milk product would go.
Spierings said it could be 20% of the milk Fonterra sold in China in branded products could come from Chinese cows and 80% from NZ, not all of it as at present.
“We will move to that as soon as possible,” he said.
