Beingmate value lost in translation
Fonterra boosted the success of its Chinese partner Beingmate based on what appears to be incorrect information.
In 2015 the dairy giant invested $750 million in the infant formula company and went on a charm offensive to convince shareholders it was a good deal – but along the way the facts got lost in translation.
As Beingmate faces the risk of delisting from the Shenzhen Stock Exchange if it does not turn a profit this year, Fonterra is assessing whether to stick with the company. Last financial year it wrote off the investment to the tune of $439m.
Once the deal was inked, Fonterra released a video of Beingmate’s founder and former chief executive, Xie Hong (also known as Sam Xie), explaining the rise of his company. It was titled ‘‘Getting to know Beingmate, our partner in China’’.
At one point his words are translated to say: ‘‘Today we have a retail network of over 80,000 retail outlets’’.
But China infant formula market analyst Jane Li said the phrase was a mis-translation; what Xie actually said was ‘‘Beingmate knows well the sales data from 80,000 outlets.’’
Before the deal was signed, Fonterra’s former head, Theo Spierings, said: ‘‘The strength of Beingmate is, of course, their distribution network of 30 branches, through 1000 flagship stores. What’s more important is that their distribution network reaches 80,000 outlets.’’
But Li said Beingmate never had any flagship stores. ‘‘Somehow a myth of them being some kind of retail operator or largescale national distributor emerged, which has always been bizarre,’’ Li said in an email.
‘‘Would we say because a2 [Milk Company] or Karicare infant formula is in supermarkets across Australia and New Zealand that a2 or Nutricia operate a retail network of thousands of outlets? It’s nonsense.’’
Andrew Zhu, an investment researcher with Auckland-based Trace Research, said there was confusion about the meaning of words promoting Beingmate.
‘‘Take the example of the term ‘flagship stores’. Most of us think that would mean a store owned by Beingmate, but in fact it’s more like a person running a corner dairy and putting a Cocacola sign in front.’’
Beingmate was once touted as the No 1 infant formula firm in China, but that was never true, and today its market share is a low 2.5 per cent. It was, though, a leading domestic brand for a brief time in about 2009-11.
After successive losses in 2016 and 2017, the company has turned a half-year profit of $1.86m but it is not clear whether that came as a result of improved dairy product sales, or the sale of real estate.
In the fourth quarter of 2017, Beingmate sold 29 properties in Beijing, Shanghai, Guangzhou, Shenzhen and Hangzhou.
In July, management said that in order to make a full-year profit, ‘‘idle assets’’ would continue to be disposed of.
Founder Sam Xie has reemerged as chairman after stepping down from a managerial role several years ago. His reappearance has been welcomed as a badly needed confidence boost, but analysts believe there is a long way to go before the company can be turned around.
‘‘Somehow a myth of them being some kind of retail operator or largescale national distributor emerged.’’
Market analyst Jane Li