Fonterra's chairman says Beingmate can be turned around

Fonterra's John Wilson says Beingmate can be turned around. Picture/NZ Herald.

Fonterra chairman John Wilson says he is confident the business of its loss-making Chinese partner, Beingmate Baby & Child Food C, can be turned around "over the medium term".

The co-operative's 18.8 per cent holding in Beingmate came under the spotlight last month after the Hangzhou-based infant formula retailer said its expected loss for 2017 would be far greater than it had originally forecast.

Beingmate had issued a downgrade to a loss of between $171 million to $214m for the December year against a previous forecast loss of $75m to $107m.

The company, which distributes infant formula and baby food throughout China, sells Fonterra's Anmum product through a joint venture.

Wilson, in an interview with The Country today, said Fonterra needed to be patient with Beingmate as it works its way through its problems.

"We need to be patient. We need to play the long game. None of us are happy with where they are at the moment, but our management team certainly has confidence that it can be turned around over the medium term," he said.

China last month introduced strict registration requirements for the infant formula makers.

"This business - Beingmate - has gone from being an entrepreneur-run business to a business that has to deal with significant change in the market.

"By their own admission, they are not doing that fast enough and we expect transformation of that business and it has to happen," he said.

Alongside Fonterra's stake is the 34 per cent conerstone stake held by founder Xie Hong, who calls himself Sam in English.

"We have a strategic committee which is Sam and Theo (Fonterra chief executive Theo Springs)," Wilson said.

"They are talking about what needs to be done here and we have two directors on the board ," he said.

There had been big changes in the Chinese infant formula market with registration, that should play out well for Beingmate.

"Clearly there are challenges in the distribution channels that they have got and that they need to fix," he said.

Fonterra's directors on the Beingmate board are Johan Priem and Christina Zhu.

Beingmate has struggled to perform since Fonterra spent $755m on acquiring its stake in 2015, and analysts have long questioned whether the holding was big enough for Fonterra to influence the company's direction.

Last year, Fonterra booked an impairment loss of $35 million on its Beingmate stake, reducing the carrying value to $617m, which it said reflected Beingmate's share price slide and recent losses.

Beingmate's shares last traded at 4.7 Chinese yuan, down from 14 yuan last May and down from the 18 yuan per share paid by Fonterra in 2015.