Ann: JOINTV: FCG: Fonterra and Beingmate initiate infant formula partnership

• Release Date: 27/08/14 12:57
• Summary: JOINTV: FCG: Fonterra and Beingmate initiate infant formula partnership
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					FCG
27/08/2014 12:57
JOINTV

REL: 1257 HRS Fonterra Co-operative Group Limited

JOINTV: FCG: Fonterra and Beingmate initiate infant formula partnership

FONTERRA AND BEINGMATE INITIATE GLOBAL PARTNERSHIP IN CHINA'S HIGH-VALUE
INFANT FORMULA MARKET
Key points

- New Zealand dairy co-operative Fonterra Co-operative Group Limited and a
leading Chinese infant food manufacturer Beingmate intend to form a global
partnership that will help meet China's growing demand for infant formula.
- The partnership will create a fully integrated global supply chain from the
farm gate direct to China's consumers, using Fonterra's milk pools and
manufacturing sites in New Zealand, Australia, and Europe.
- The partnership is intended to increase the volume and value of Fonterra's
ingredients and branded products exported to China.
- It will be achieved in two phases:
- Fonterra will shortly start the process to issue a partial tender offer to
gain up to a 20 per cent stake in Beingmate
- After gaining regulatory approvals and Fonterra satisfactorily completing
the partial tender offer, Fonterra and Beingmate will set up a joint venture
to purchase Fonterra's Darnum plant in Australia and will establish a
distribution agreement to sell Fonterra's Anmum brand in China.

Fonterra strategy in action

Fonterra Chief Executive Theo Spierings said the partnership between two
leading dairy nutrition companies will be a game changer that will provide a
direct line into the infant formula market in China, which is the biggest
growth story in paediatric nutrition in the world. The partnership will also
play a part in promoting leading product quality and safety standards in the
infant formula market in China, participating in the ongoing development of
the Chinese dairy industry, and supporting the development of Beingmate's
business.

"By working together with Beingmate, we will strengthen our infant formula
brand presence in China and link China to high quality ingredients from New
Zealand, high value paediatric products made at Darnum in Australia, and whey
specialty ingredients manufactured at our new plant in Heerenveen in the
Netherlands and in alliance with Dairy Crest in the United Kingdom," said Mr
Spierings. "We will also work with Beingmate to evaluate mutual investments
in dairy farms in China.

"This will be another milestone in our strategy to create additional demand
for ingredients and high-value paediatric and maternal nutrition products
made from our New Zealand milk, complemented by milk drawn from our other
international milk pools.

"China is our number one market and the proposal to join forces with
Beingmate will be an important building block in Fonterra driving volume and
value, and taking a step forward in terms of being a globally relevant
co-operative.

"Our partnership with Beingmate will show the benefits of an integrated and
secure supply chain, starting in New Zealand - our number one milk pool -
where we are fast-tracking investment in milk processing capacity to meet
global demand."

Beingmate Chairman Mr. Wang Zhentai said, "Working together with Fonterra, we
will create globally competitive, safe and secure supply chains to deliver
high quality, advanced dairy nutrition to meet the needs of China's growing
population as well global consumers. The partnership will see our business
take a significant step forward in its globalisation ambitions."

The China dairy industry and infant nutrition market

Fonterra Chairman John Wilson said Fonterra has been committed to being a
part of China's dairy industry and contributing to its development for many
years.

"Fonterra is already playing its part in the creation of a vibrant, local
dairy industry through our farms investment, sharing technical expertise,
providing high-quality imported ingredients to local food manufacturers and
innovative dairy solutions to the foodservice sector," said Mr Wilson.

"We are looking for this global partnership to take our relationship with
China and its consumers to a whole new level. It will benefit Fonterra,
Beingmate and all our stakeholders and is part of our drive to increase
returns to our farmer shareholders."

Mr. Wang from Beingmate said, "The proposed partnership is well-aligned with
the Chinese government's desire to see a strengthened focus on quality and
consumer safety in the local dairy industry. We believe this global
partnership will play a constructive role in the development of China's and
the global dairy industry as both parties work together to drive a two-way
flow of capital, technology, supply and distribution."

Mr Spierings said by working alongside Beingmate, the partnership will
participate in growth in a category where there is huge demand.

"The infant formula market in China is worth about NZ$18 billion today and is
expected to be worth NZ$33 billion by 2017. This growth is driven by
increasing urbanisation, higher disposable incomes, a preference for premium
brands, and relaxation of the one child policy," he said.

Mr Spierings said Fonterra and Beingmate have a shared commitment to
international best practice quality standards and are committed to stringent
processes and controls around procurement of raw materials, fresh milk
collection, production process testing, the addition of nutrients,
pre-delivery inspection and tracking and tracing of manufactured product.

"In addition, Beingmate has an extensive distribution network and local
knowledge that complements Fonterra's commitment to food safety and quality.

"What Fonterra brings to the table is world-leading expertise in dairy,
particularly in the areas of farm management, milk production, dairy
processing, quality control, tracking and tracing, dairy nutrition and
innovation," said Mr Spierings.
- ENDS -

For further information contact:
Vanessa Rawson
Phone: +64 27 5256065

Fonterra Communications
Phone: +64 21 507 072

About Fonterra
Fonterra is a global leader in dairy nutrition - the preferred supplier of
dairy ingredients to many of the world's leading food companies. Fonterra is
also a market leader with our own consumer dairy brands in Australia/New
Zealand, Asia/Africa, Middle East and Latin America.

The farmer-owned New Zealand co-operative is the largest processor of milk in
the world, producing more than two million tonnes of dairy ingredients, value
added dairy ingredients, specialty ingredients and consumer products every
year. Drawing on generations of dairy expertise, Fonterra is one of the
largest investors in dairy based research and innovation in the world. Our
more than 16,000 staff work across the dairy spectrum from advising farmers
on sustainable farming and milk production, to ensuring we live up to
exacting quality standards and delivering every day on our customer promise
in more than 100 markets around the world.
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Editor's Note: Details on the structure of the proposed global partnership

It is noted that the following arrangements are subject to regulatory
approvals in China and Australia. Beingmate and Fonterra will comply with all
regulations and co-operate with all relevant regulatory authorities in the
execution of the proposed arrangements.

The key elements of the proposed global partnership between Fonterra and
Beingmate are:

- An up to 20 per cent investment by Fonterra in Beingmate
- The establishment of a joint venture in Australia that will deliver high
quality infant formula product to Beingmate for Chinese consumers
- A distribution agreement for Fonterra's Anmum infant formula product in
China
- Fonterra and Beingmate are investigating additional areas of co-operation,
including joint R&D, ingredients supply, and building on world-leading food
quality assurance.

Equity investment and Shareholders' Agreement

Fonterra will start the process to issue a partial tender offer to gain up to
a 20 per cent stake in Beingmate at RMB 18 per share, subject to Beingmate's
shareholder, government and regulatory approvals. Depending on the response
to the tender offer, Fonterra's investment in the global partnership will be
NZ$615 million (including proceeds from the JV in Australia).

Following the successful completion of Fonterra's partial tender offer, a
formal Shareholders' Agreement with Beingmate Group will come into force. It
will provide for:

- Fonterra to be able to nominate up to two directors on the Board of
Beingmate
- Beingmate Group to retain at least a 30 per cent controlling stake in
Beingmate and Fonterra's shareholding not to exceed the shareholding of the
Beingmate Group.

Anmum distribution agreement

By forming a strategic partnership with Beingmate, Fonterra's Anmum brand
will become more widely available throughout China. The two companies will
enter a distribution agreement, appointing Beingmate as Fonterra's exclusive
Anmum distributor in the People's Republic of China.

The distribution agreement will provide for the following:

- Beingmate will drive distribution channels and sales
- Brand management will be managed by a brand management committee, with
representatives of both Beingmate and Fonterra.

Proposed joint venture

If the strategic partnership proceeds, Fonterra and Beingmate will establish
a joint venture to purchase the Darnum plant in Australia, through wholly
owned subsidiaries. Darnum is a state-of-the-art facility in Victoria,
recognised as one of the world's leading paediatric plants.

The JV's formation will be conditional on factors including the parties
entering into formal agreements, due diligence on Darnum, and regulatory
approvals in Australia and China.

The purpose of the proposed JV will be to manufacture nutritional powders,
including infant formula and other nutritional milk powders, at Darnum, for
Fonterra and Beingmate.  Darnum will prioritise supply to the Chinese market
and also provide supply to the rest of the world.

Beingmate will own 51 per cent of the JV to satisfy Chinese regulatory
requirements.

The day-to-day operation of Darnum will be unaffected if the proposed JV were
to proceed.  All employees will continue to be employed by Fonterra and milk
collection agreements between Fonterra and dairy farmers in Australia will
remain as they are today.

Details of the proposed JV include:

- Darnum's operational functions will be managed by a Fonterra management
company, under a formal management agreement
- Fonterra will also supply raw milk to Darnum
- The JV will be governed by a Board, to which Fonterra and Beingmate will
each appoint two directors. The Chairman will be appointed by Beingmate.

Additional areas of co-operation

The proposed JV will provide a framework that may include further
co-operation between Fonterra and Beingmate that may include:

- Strategic co-operation in relation to food safety and supply chain
management
- A review of each other's China farm assets and development plans to assess
possible co-investments in farms
- Partnerships to develop potential new products for the Chinese market
- Joint investment in other Australian foods markets for supply to China
- Development of new dairy products.
End CA:00254475 For:FCG    Type:JOINTV     Time:2014-08-27 12:57:10