China Mengniu Dairy sheds $1b on Bellamy’s, reassures lenders
China Mengniu Dairy has announced substantial financial struggles with its Bellamy’s Organic acquisition, writing down the value of its local infant formula business by $1 billion over the last year. As a result, Mengniu has been compelled to issue a letter of support to banks financing Bellamy’s Organic, namely HSBC and ANZ, who have provided a $60 million loan to the company. This financial turbulence is compounded by Mengniu’s recent announcement in Hong Kong that impairments and weak sales are expected to reduce its earnings significantly, from an anticipated profit of 50 million yuan ($11 million) to 250 million yuan, a stark decline from 4.8 billion yuan the previous year.
Mengniu, a major player in China’s dairy market, acquired Australian-based Bellamy’s in 2019 for $1.5 billion. Despite its significant investments in Australia’s dairy industry over the past decade, including a stake in Victoria’s Burra Foods, Mengniu is seeing substantial losses at Bellamy’s, which posted a $922 million loss last year after a $1.03 billion impairment. Bright Treasure, the parent company, had reported a $47 million loss the previous year.
The big losses add to the challenges faced by Mengniu in Australia. Earlier this year, the company hired McGrathNicol to sell Western Australia’s Brownes Dairy after withdrawing a $200 million loan to the business. Challenges extend beyond Bellamy’s, as Mengniu faces hurdles in expanding its presence in Australia's dairy sector due to foreign investment regulatory challenges and a sluggish global dairy market, impacted by economic downturns and low consumer confidence worldwide.
As the global dairy market encounters these pressures, Rabobank's analyst Michael Harvey cited "several concerning factors," including low consumer confidence in the United States and economic struggles in China, as potential risks. Harvey anticipates a recalibration in global dairy prices later this year, which could affect markets like Australia.
