Taking a 3-year view, the Bellamy's Australia Ltd (ASX: BAL) share price looks like nothing short of a roaring success.
However, the last 18 months make the story look very different.
While I'm sure there's a lesson in there about investing for the long-term, there's also the remarkable turnaround story of Bellamy's, which at one point I thought was going bankrupt. Bellamy's hit troubles when its Chinese sales were slower than expected, which led to a huge inventory blowout as the company was locked into 'take-or-pay' arrangements with its suppliers including Fonterra. (Editor's note: A previous version of this article incorrectly stated Synlait supplied Bellamy's – it does not).
The take-or-pay arrangements were critical because Bellamy's was contractually bound to keep buying product from its suppliers on a certain schedule, even though it wasn't selling nearly as many tins to the Chinese consumer. This could have – and nearly did – send the company to the wall very quickly. Bellamy's shares hit a low of $3.93 almost a year ago today.
The situation worsened when the Chinese regulator implemented a requirement for all foreign infant formula producers to be licensed. Bellamy's manufacturer was no longer able to produce Chinese products for Bellamy's, resulting in the company having to seek out a new manufacturer. Along the way, the CEO was fired, and the chairman resigned.
Disaster became farce when Bellamy's raised capital to acquire a new manufacturing facility, Camperdown, only for that facility to have its Chinese CNCA license immediately suspended over contamination fears. At that point I was convinced the company was cursed.
Bellamy's managed to unstuck itself however, with a new CEO, a capital raising, a new manufacturing facility, and it also managed to strike a new arrangement with its suppliers to reduce the take-or-pay contract requirements.
Late yesterday the company even upgraded its guidance to suggest that revenue growth would be between 30% and 35%, compared to 15% to 20% that was previously indicated.
Bellamy's got lucky in two ways – first, it was basically bailed out by the booming demand for Australian baby formula. Second, it was lucky to be able to renegotiate with its suppliers, find a new manufacturer, and so on. In a different industry, one that was slower moving, Bellamy's probably wouldn't have recovered so quickly – but it did, and it's been quite the ride.
