On 24 October 2018, Bellamy’s Australia Limited (ASX: BAL) held its Annual General meeting, in which the company informed its shareholders and investors that the company is expecting the sales of first half of FY 2019 to go down by approximately $10- $15 million. Following this news, the share price of the company dropped by 7.89 percent as on 24 October 2018.
In FY 2018, the company reported strong revenue growth, profitability and cashflow. The sales of the company increased by 37 percent to $329 million as compared to the sales figures of FY 2017. The EBITDA of the company increased by 65 percent to $71 million in FY 2018 on a normalized based as compared to the previous corresponding period. The company was having a strong balance sheet at the end of FY 2018 with $88 million in cash and no debt.
In FY 2018, the company made changes to the underlying business model and increased its focus on the driving productivity and reinvesting gains in the brand, organizational capability and supply-chain. As per the company’s CEO Mr. Andrew Cohen, the company has transformed its business in terms of culture and capability. He further added, the company is also focusing on a detailed three-year growth strategy which will recognize the important opportunities for organic infant nutrition in China and Asia and the company is targeting more than $500 million in revenue by the year 2021.
Company is expecting that the FY 2019 trading environment will be more challenging as the company is witnessing slow China cross border growth, and increased competition in terms of both availability and trading pricing for both local and global competitors. In FY 2019, the company is taking a very important initiative of brand and product upgrade which aims to transform both the competitive position and addressable market. This initiative will allow the company to compete head to head with both scientific brands and other leading organic brands. The Company needs to set the right conditions to make this initiative successful, which is why the company is planning to run-down distributor trade inventory prior to launch in 2H19. It is expected that it will impact the sales in the first half of FY 2019, by reducing it to around $10 to $15 million.
The company is also Planning to include fresh local Australian milk and extending the formula range to include Step 4 and Pregnancy formulations. The company has already launched the new premium branding for Food, expanded food ranging to include Woolworths, and launched an enhanced cereal range fortified with GOS prebiotic, a sugar-free custards range and a new exotic fruit pouch range aligned to Chinese preferences.
In the past three months the share price of the company decreased by 26.30 percent as on 23 October 2018, and it traded at a PE level of 21.660x. BAL’s shares traded at $7.82 with a market capitalization of circa $962.5 million as on 24 October 2018 (AEST 12:55 PM).
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