Bega Cheese dumped as baby formula venture sours

Bega Cheese hit by heavy selling by investors as expansion into baby formula market goes backwards The shifting shoals of the Chinese market has caught out Bega Cheese which is forecasting flat earnings in the year ahead while warning it will be forced to make a large provision against its infant formula joint venture with Blackmores.
Nanjing Night Net

In response, investors have dumped its shares, which have fallen a heavy 12per cent to $5.69in early trading on Tuesday, the low so far.

As the company battles what it calls the “super down cycle”in the dairy sector against the backdrop of a global glut, apush into the infant formula sector via a joint venture with Blackmores is also taking on water due to regulation changes in China, coupled with discounting.

“The combination of a regulation change in China, a supply response to the demand signals and the evolution of supplychannels to market now sees significant discounting … and signs of short term oversupply,” Bega’s chairman, Barry Irvin​, told shareholders at Tuesday’s annual meeting.

The present supply glut is a reverse of the situation just 12 months ago when “supermarket shelves were empty and customers in Australia and internationally were providing ever increasing orders”, shareholders were told.

But with the recent changes”our expected sales [did] not materialise at levels that were initially forecast[with]some headwinds for the partnership particularly in the Australian market”.

Trading in its dairy marketswill see earnings mark time this financial year,it said, but the downside isaprovision of up to $7 million againstitsshare of the inventory held in the partnership with Blackmores.

The write-off of Bega Cheese’s exposure to the venture comes less than a year after it was formed, with the initial product launch only taking place earlier this year.

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