Wednesday 28th Jun, 2017

Infant formula market goes sour

Milk powder. Photo: Creative Commons / ProjectManhattan
Milk powder. Photo: Creative Commons / ProjectManhattan

The once booming Chinese market for Australian infant formula has again turned south, with Bellamy’s Organic shares halving in value on December 2, and Murray Goulburn abandoning a joint venture plan with US firm Mead Johnson Nutrition.

After hitting a high of $15 a share in August, Tasmanian formula producer Bellamy’s saw shares plummet to a low of $6.40 this week, after it announced sales to China were underperforming expectations.

Specifically, an underperformance on China’s massive ‘Singles Day’ of online sales, November 11, impacted profit guidance for the producer.

“We more than doubled revenue growth on Singles Day across all e-commerce platforms compared to last year,” Bellamy’s told the ASX. “The growth however fell short of our expectations.”

Bellamy’s was a share market darling during the boom in infant formula which took place mostly during the second part of last year, and earlier in 2016. The company’s share price rose from $1.69 at the start of 2015 to $15.48 on the last day of trading in 2015.

But the Singles Day announcement, made on December 2, saw shares plummet from $12.09 to $7.15 in the first half hour of trading that day.

Regulatory changes in China are being blamed for the market shift. Bellamy’s says it is expecting “temporary volume dislocation” to continue “until regulatory registrations are completed in China”.

“As with the broader infant formula market, Bellamy’s has experienced restructuring of the sales channels into China since the regulatory announcements,” the company said.

“Management has worked closely with the various e-commerce networks to build stronger, more efficient routes-to-market that are expected to support increased demand following the regulatory change over.”

Elsewhere in the sector, Murray Goulburn on December 5 informed its suppliers it had terminated negotiations over a strategic alliance with Mead Johnson Nutrition for the supply of nutritional products to China.

“We will now review our strategy for our nutritionals investment to ensure MG is maximising value for its suppliers and owners, whilst exercising discipline with MG’s capital,” Murray Goulburn’s interim chief executive officer David Mallinson wrote.

In separate news, dairy producer Warrnambool Cheese & Butter said it would withhold a dividend for shareholders in its half-year results, instead choosing to retain cash for investment into the business in a “highly competitive” Australian market.