The Bellamy's Australia Ltd (ASX: BAL) share price plunged 6% to $7.86 after the company released its annual report this morning. Here's what you need to know:
- Revenue rose 3% to $240 million
- Net loss after tax of $0.8 million (down from $38 million profit previously)
- No dividends
- No debt (due to cash received after end of reporting period)
- $83 million in finished inventory (~6 months of sales)
- 23% reduction in overheads since first half of the year
- Reduction in marketing spend; to be redirected to more effective channels in future
So what?
It was a mixed year for Bellamy's, with plenty of volatility and uncertainty as shareholders are no doubt aware. Management declined to give any forecasts for 2018 on that basis, and pointed out that there would be additional uncertainty in the future. Approximately 15% of Bellamy's current sales are direct in China, and the company will potentially lose its ability to sell formula after the first half of 2018.
This is why Bellamy's acquired the Camperdown production facility, as this would potentially let the company achieve CFDA registration, which will be required in order to sell product directly in China. Investors have clearly bought into the potential of Bellamy's being able to continue its sales in China, although that was not the only cause for optimism. Bellamy's also reported that its inventory peaked in March and has been steadily declining, a positive if it is able to be reduced to more normal levels without taking write-downs or losses via spoilage.
Now what?
One of Bellamy's biggest problems was that it had take-or-pay arrangements with its supplier, its sales fell, and it was forced to keep buying inventory it couldn't sell. This crushed the company's cash balance and led to the recent ousting of the CEO and subsequent capital raising. With the relationship with its supplier now reset, and with an improving sales, cash, and inventory position, Bellamy's looks much better than it did 6 months ago. Once the one-off costs of this year are put behind it, Bellamy's should prove a nicely profitable business (depending on registration, as noted).
I'm still cautious of some of the uncertainties regarding the company though, especially given the recent suspension and reinstatement of registration at the Camperdown facility. As a result, I'm avoiding Bellamy's today.
