Shares in Bega Cheese fell hard in early trade after the company warned about its move into infant formula.
A short time ago, they were down 11.7% to $5.73.
At the company’s annual general meeting, Bega told shareholders its partnership with Blackmores announced in January to make infant formula for the Asia market isn’t going as planned.
Barry Irvin, Bega’s executive chairman, says a regulation change in China and the evolution of supply channels now sees significant discounting in the market place and signs of short term oversupply.
“This change in market circumstances has seen our expected sales not materialise at levels that were initially forecast and some strong head winds for the partnership particularly in the Australian market,” says Irvin.
The company now plans a provision of $5 million to $7 million, representing the Bega Cheese’s share or the partnership.
“The partnership is keeping the business under constant review and will continue to monitor the performance with our partner Blackmores as market evolution and circumstances becomes clearer,” he says.
Bega says the improved outlook for dairy commodities are expected to improve financial performance in 2017.
However, this improvement will be offset by the challenging environment for infant formula and growing up milk powders.