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UPDATE 2-Bellamy's Australia suffers fresh China setback as factory licence suspended
July 7, 2017 / 12:08 AM / 3 months ago

UPDATE 2-Bellamy's Australia suffers fresh China setback as factory licence suspended

* Newly acquired Australia plant has China registration suspended

* No reason given for the licence suspension

* China wants importers of foreign goods registered by 2018

* Bellamy’s shares on trading halt (Recasts and adds analyst comment)

By Byron Kaye and Adam Jourdan

SYDNEY/SHANGHAI, July 7 (Reuters) - Bellamy’s Australia Ltd said Chinese authorities had suspended a recently acquired factory’s licence to export infant formula to China, throwing plans for the firm to regain ground in a key market into disarray.

The development underscores difficulties for the sector in navigating a turbulent market after a Chinese crackdown on online imports last year resulted in new regulations requiring foreign vendors including formula makers to register by 2018.

The rules have prompted some makers of infant formula to dump their product in China as they gave up on registering, which in turn forced Bellamy’s to cut prices and issue a profit warning.

Since then, the infant formula maker has replaced its leadership and a month ago announced it was buying the China-registered Camperdown formula cannery in the state of Victoria to ensure it followed the rules by the 2018 deadline.

The company said in a statement it was still determining the reason for the suspension and asked for trade in its shares to be halted.

“It shows that regulatory risk is real,” said Chris Kallos, a Morningstar analyst who covers companies which export health products to China. “It pays to have good relationships in those areas.”

A list published on Thursday by China’s CNCA, which oversees product safety certification, showed that it had suspended the licence of a Camperdown facility. It didn’t give a reason for the suspension and CNCA officials were not immediately available for comment.

The body had previously suspended the licence of a different Camperdown facility in August after inspectors found high levels of colon bacillus bacteria in pasteurised dairy products.

Bellamy’s stock last traded at A$6.74 on Thursday, sharply down from a peak around A$15 last August and giving the company a market value of A$693 million ($526 million).

Australian and New Zealand formula makers were investor favourites for years amid hopes they would capitalise on high demand from Chinese consumers seeking overseas product after a safety scandal at home.

A rival joint venture owned by Bega Cheese Ltd and Blackmores Ltd also saw weaker-than-expected sales last year due to the increased competition in China as rivals dumped product.

But New Zealand formula rival A2 Milk Co Ltd has seen its stock soar 82 percent this year as it benefits from a strategy of letting unofficial shopper-resellers, known as “daigou”, buy its product domestically then on-sell it on the mainland.

China accounts for a third of Bellamy’s revenue and a third of its pre-tax profit, according to its half-yearly earnings update in February. ($1 = 1.3170 Australian dollars) (Additional reporting by Tom Westbrook in SYDNEY and Charlotte Greenfield in WELLINGTON; Editing by Edwina Gibbs)

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