Bellamy’s Hits New China Hurdle

Another tough day on the ASX for Bellamy’s Australia (BAL), the troubled Tasman dairy products and infant formula group after Bega Australia (BGA) sunk the company’s ambitions in China for much of 2018.

Bega says it is selling the plant that produces infant formula product for Bellamy’s that are sold in China. Bega is selling the plant to raise funds to pay for the purchase of Vegemite and other products from Mondulez.

Sale of the plant means Bellamy’s has lost its formal registration slot with manufacturer Bega placing its future of sales of baby formula into China in jeopardy.

The news upset investors still recovering from the off and on battering the Bellamy’s shares has taken in recent months. The shares lost more than 8% yesterday to close at $4.10.

From January 1, China will require the infant formula products of the company that are manufactured for sale be registered with the China Food and Drug Administration (CFDA).

Bellamy’s said Thursday it can no longer be registered at Bega’s Derrimut canning line and it will miss the January 1 CFDA deadline.

“This delay is due to the time required to complete CFDA registration and additional testing of up to six months of the company’s PRC products at an alternate canning line,” Bellamy’s said in a statement to the ASX.

The buyer is US group, Mead Johnson, which itself is being taken over by UK group Reckitt Benckiser for $US18 billion. One of the reasons for the takeover is Mead Johnson’s global position in infant formula, a sector Reckitt management want to expand further into.

Bega has three position in China’s approved list for its market. It will probably give Mead two slots, while the third will go to Blackmores, which has a joint venture with Bega (which is currently under review).

That leaves Bellamy’s out in the cold and looking to mid-2018 to resume sales.

With these changes to China’s registration requirements for infant formula products, Bellamy’s has to reapply for approvals once it has a new supplier lined up, a process that will take several months at least, Bellamy’s told the ASX yesterday.

"From January 1, 2018, the People’s Republic of China (PRC) will require the infant formula products of the company that are manufactured for sale in [the] PRC (PRC products) to be registered with the [China Food and Drugs Administration], it said. "Bellamy’s… PRC products can no longer be registered at Bega’s Derrimut canning line."

Bellamy’s said it expects to eventually receive approvals to sell its infant formula product in China once it has finalised negotiations for alternative suppliers, but there will be a lengthy registration and testing regime which will take up to six months to conclude.

In the December half, Bellamy’s sold infant formula products in China worth $16 million, or 14% of total revenues. Mead Johnson has a roughly 10% global market share in infant nutrition, led by its Enfa brand of baby milk formula. European food giants Nestlé and Danone, control about 22% and 13% shares of the global category.

Selling the plant should generate around $200 million for Bega, which will go some way to meeting the $460 million cost of the Vegemite purchase.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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