Infant formula maker Bellamy's Australia has issued a sales downgrade, sending its shares down sharply, as a host of setbacks in China left investors questioning its strategy of relying on exports to the mainland for growth.
The former favourite of Australian stock analysts warned it may experience no annual sales growth, from a forecast of up to 10 per cent growth just two months earlier, due to Chinese factors including a slowing birth rate, fierce competition and regulatory delays.
That is a challenge for a strategy that relies almost entirely on Chinese sales via Chinese shoppers in Australia who re-sell products at home, while getting Beijing's approval to export through formal channels.
"The team remains highly conscious of the continued risks and challenges that face our business, but ... we retain confidence in our medium and long-term growth outlook," chief executive Andrew Cohen told shareholders at the company's annual meeting.
Bellamy's shares fell as much as 10 per cent in a slightly weaker market, before recovering slightly to be down 8 per cent at $7.78 by mid-session. The stock has taken investors on a wild ride since listing at $1 four years ago, hitting a peak of $23.07 in March before the scale of the China setbacks became clear.
"It is fair to say that the trading update is a lot weaker than expected and the underlying business is going backwards," Morgans Financial analyst Belinda Moore said in a client note.
Mr Cohen said the company did "not yet have transparency of timing for approval" to export to China, a year after it first raised the issue.
Sales were being hit by lower birth rates in big Chinese cities so Bellamy's was trying to boost sales in smaller cities while overhauling its product line to take on competition, he said.
The company planned to run down its existing inventory at lower prices, dragging down Australian sales by up to 15 per cent in the six months to December 31.
A pick-up in the second half would see annual sales recover to be at the "low end" of its previous guidance range of between zero and 10 per cent.