Bellamy's swings into profit, but warns of China slowdown

Bellamy's swings into profit, but warns of China slowdown

Wed, 29/08/2018 - 08:54
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Bellamy's China revenue fell by 51 per cent in FY2018, as delays in import registration posed a growth challenge. Photo: Bellamy's

Infant formula maker Bellamy's Australia has warned of a slew of challenges in fiscal 2019, including a slowdown in Chinese exports, as it swung into profit for the year ended June 2018 thanks to stronger domestic sales.

Delays in the registration process with China's antitrust enforcement agency for Chinese-label products sold exclusively through offline channels would slow the company's exports growth, it said in a statement.

The Chinese government requires infant formula manufacturers to register with the Certification and Accrediation Administration of the People's Republic of China (CNCA) prior to allowing the import and sale of Chinese-label products in China's retail channels.

Bellamy's submitted its application for approval in late December and is still awaiting an outcome.

The delays resulted in Bellamy's Chinese label revenue falling by 51 per cent in FY2018, with Chinese label products accounted for less than 6 per cent of Bellamy's total group revenue.

The company posted a net profit of $43.3 million for the year ended June 2018, compared with a loss of $809,000 last year, helped by higher domestic sales, wider margins and lower costs.

Annual revenue grew 37 per cent to $328.7 million.

But without China sales, and with competition intensifying, the company does not expect to sustain that kind of growth, offering guidance for a 10 per cent lift in domestic revenue in 2019 as it launches some new products.

"You can confidently say that China-label sales in the first half will be zero," Bellamy's chief executive Andrew Cohen told investors on a conference call, adding he expects China sales to be a "meaningful revenue stream" only by 2020.

He said the company was already preparing a network of stockists to carry its products as soon as approval from China's State Administration for Market Regulation is received.

"We expect it's just a matter of time ... my hope is that I would get (approval) within this calendar year," Mr Cohen said. 

Bellamy's said it would add its food products range to Woolworths Group stores in addition to the existing Coles and pharmacy channels in the first half of the current financial year, and would revamp its formula portfolio in the second half.

"Bellamy's continues to pursue a long-term premium brand strategy, targeting a balanced scorecard of volume growth and margin expansion over five years," the company said.

"Focus remains on developing the core business to its full potential in Australia, China, and South East Asia, in the product categories of organic infant and toddler formula and food.

"China, through both formal and informal channels, has particular significance to this growth strategy."

In the near term, Bellamy's said it would focus on achieving its required registration to recommence selling its Chinese label products in China.

"Bellamy's will then focus on taking greater control of its marketing and distribution in China and growing the revenue from Chinese label products sold in China," it said.

"Anticipated changes to the distribution model in China will increase revenue and increase markeing and distribution costs.

"It is anticipated this wil have a neutral impact on profit initially and contribute to greater long-term profitability."

 

--with Staff Reporters