NEW ZEALAND – The New Zealand milk coorporative, Fonterra, has said that it will be reducing part of its 18.8% shareholding in Chinese infant formula manufacturer Beingmate.

The company’s chief executive, Miles Hurrell, said the decision to reduce its stake in the poor perfoming entity forms part of a three-point plan to turn around the business. Fonterra booked a hefty write down on its Beingmate stake last year.

Fonterra had acquired a stake in Shenzhen Stock Exchange listed Beingmate for about US$490.5 million (NZ$750 million) in 2015 seeking to tap into the lucrative branded dairy industry in China.

“We have talked to a number of parties regarding the potential sale of our entire stake in Beingmate, but so far have been unsuccessful in finding a buyer,” Hurrell said.

However, Hurrell reiterated Fonterra’s commitment to the Chinese market saying that “China will always be one of our most important markets. We’ve got a strong business there and are still very much focused on the areas in China where we can succeed.”

Fonterra has been undertaking a major review on its investments following the ‘disappointing results’ it posted in the last financial year ending July 2018.

In addition to a US$260.63 million (NZ$405 million) write down for its holding last year, Fonterra reported a US$ 126.13 million NZ$ 196m loss – its first annual loss since its inception in 2001.

The results prompted the company to carry out a major financial review. The company has also offloaded its Tip Top Ice cream business and Farm Source Livestock division and reached an agreement with Beingmate to unwind their joint venture in Darnum, Australia.

“We have re-evaluated every investment, major asset and partnership to ensure they still meet the co-operative’s needs today,” said Hurrell.

“This started with a strategic review of our relationship with Beingmate, which has been disappointing. The first action in this review was bringing the distribution of Anmum in China back in-house under our management.

“We then ended the Darnum joint venture with Beingmate, bought back Beingmate’s share of our Darnum facility in Australia, and entered into a multi-year agreement for Beingmate to purchase ingredients from us.

“What remains is our shareholding in Beingmate Baby & Child Food Co, which we now view as a financial investment only.

As a result of this, we are now considering selling part of our holding and, as required by local listing rules, need to pre-announce our intention,” he added, though did not specify how much it will sell

Under the Shenzhen Stock Exchange market rules it is only possible to sell up to 1% every 90 days directly on the exchange, or sell up to 2% in a single block every 90 days. Trades greater than 5% can be made to an individual party in an off-market transaction.