China Mengniu Dairy confident of securing key approvals for Bellamy's

The boss of the Chinese dairy heavyweight behind a $1.5 billion takeover bid for Bellamy's has expressed confidence the group will secure key regulatory approvals to sell the Tasmanian company's infant formula in China.

Jeffrey Minfang Lu, chief executive of China Mengniu Dairy Company, made the comments in a Hong Kong investor call last week where he cited the record of one of Mengniu's company's, Yashili, in achieving registrations in the country, which is the world's largest market for infant formula.

"I'm positive, because obviously Yashili has delivered a good performance over the last one or two years in the registration process. We have good experience, we know how to do it, and so that's why we are confident," he said, in comments previously unreported in Australia.

The inability of Bellamy's to secure authority to sell its organic infant formula products in Chinese retail outlets, which it applied for at the end of 2017, has hurt the ASX listed company and led to a lowering of its revenue and profit in 2019.

It was also a key reason why Bellamy's scrapped a goal of delivering $500 million of revenue a year by fiscal 2021, and factor behind the sharp declines in its share price over the past two years from a high of $23.07 in March 2018 to as low as $6.71 on Christmas Eve 2018.

The Mengniu takeover offer, announced last week, sparked a 55 per cent surge in Bellamy's stock price. Shares finished the week at $12.86 on Friday.

Hong Kong analysts asked a number of questions about the regulatory situation on the call. Mr Lu said the company would "continue to work with the Chinese authority", and had plenty of its own resources "to work out a plan so that we can get it solved in the near future".

Later, Mr Lu said Chinese regulators had not given Mengniu "any commitment" about Bellamy's bid for regulatory approval.

Although Bellamy's has a substantial presence in China via e-commerce channels, its future growth  is tied to its ability to sell products in physical retail outlets in the country. According to infant formula heavyweight a2Milk, about 70-75 per cent of all infant formula sales in China are made in retail stores. China is the world's largest market for infant formula.

Mengniu's 2018 annual report emphasises Yashili's successful record in securing regulatory approvals.  "By the end of 2018, Yashili had completed registration of 48 formulas in 16 product series of its own brands and also the cooperative brand Arla," it said.

This is a very good fit within our strategy and growth in the infant formula market.

Jeffrey Minfang Lu, chief executive of China Mengniu Dairy Company

Huatai Financial Holdings analysts  said "Mengniu will help the brand (Bellamy's) to accelerate infant milk formula registration and channel expansion in China".

To go ahead the Mengniu bid needs approval from Bellamy's shareholders, the NSW Supreme Court and Foreign Investment Review Board.  Tasmanian parliamentarians Andrew Wilkie and Peter Whish-Wilson have objected to the deal, with Senator Whish-Wilson raising a number of concerns about the inability of Bellamy's to get regulatory approvals in China.

Bellamy's board unanimously backed the deal, and last week the company's chief executive Andrew Cohen told The Age it was "in the national interest".

Mr Lu said Mengniu's proposed acquisition of Bellamy's would be "complementary" to Mengniu's Yashili milk formula business, and would help it accelerate its growth ambitions in China and South East Asian infant formula markets.

"This is a very good fit within our strategy and growth in the infant formula market," he said.

Analysts were told that the China organic infant formula market had grown at a compound annual growth rate of 43 per cent over the past five years.

"When we look at the IMF (infant milk formula) market in China we have seen that organic (IMF) and also baby food...is a highly attractive market for us," Mr Lu said.