Bellamy’s Australia Ltd
(ASX: BAL) reported its FY19 results this morning which showed big cuts to revenue and profit, but the company has a plan to bounce back. Here’s what you need to know.
About Bellamy’s
Bellamy’s is an ASX-listed organic infant formula and organic food company that was founded in 2004 in Launceston, Tasmania. It was the first company to offer an organic infant milk formula range to Australian parents. It is now becoming a growing presence in the large Chinese market.
The Numbers
The Bellamy’s FY19 result was of course impacted by regulatory changes in China which affected demand, as well as a lower birth rate and increased competition.
As a result of these headwinds, revenue fell 19% to $266.2 million and gross profit declined 10% to $115.9 million.
Normalised EBITDA was down 33.5% to $46.9 million while statutory EBITDA fell 45.9% to $34.9 million.
Normalised net profit after tax (NPAT) fell 35.9% to $30.1 million while statutory NPAT declined by 49.3% to $21.7 million.
Bellamy’s said performance was impacted by an $18.2 million loss of Chinese-label sales and increased competition.
Analyst Estimates
Bloomberg analysts were expecting NPAT of $25.66 million, and they were also expecting Bellamy’s to pay a dividend for the first time since 2016. No dividend was declared in the annual report and the statutory NPAT figure came in around 15.4% below the estimate, although normalised NPAT was around 17% higher.
Management Commentary
Bellamy’s CEO Andrew Cohen said FY19 was a challenging year, but the company is focussed on long-term success.
“While FY19 has been a challenging year, and the impact of regulation has been difficult, the changes made during the past year have set a new foundation for the long-term success of our brand,” he said.
“The business enters FY20 with a clean balance sheet, positive consumer momentum and a healthy trade dynamic.”
FY20 Outlook
Bellamy’s is targeting 10-15% group net revenue growth at an EBITDA margin similar to FY18, and revenue growth is expected to accelerate in 2H20.
In regard to Bellamy’s medium-term revenue targets, the company said: “Bellamy’s remains confident in its growth strategy and medium-term target of $500m revenue but has deferred this target beyond FY21 given the ongoing SAMR registration process”.
The SAMR application was submitted in December 2017 and Bellamy’s is still waiting for an outcome.
Summary
Bellamy’s has had a tough year which is clear from the results, but sales were stronger in Q4 and the outlook for FY20 is positive. Even so, I wrote an article about four months ago explaining why I would invest in The a2 Milk Company Ltd (ASX: A2M) before Bellamy’s and I still stand by that assessment.
I do believe Bellamy’s will return to growth soon, but the risks are too high for my liking so the company will remain on my watchlist.
For now, I’d rather invest in one of the companies in the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
