Bellamy's hopes for Chinese celebrity pull as it cuts guidance
Carrie LaFrenz
Updated Feb 27, 2019 — 6.00pm, first published at 10.22am
Bellamy's Australia boss Andrew Cohen hopes a small army of key opinion leaders and celebrities will bolster its position and increase sales of its baby formula to Chinese mothers this year, as it awaits permission to sell Chinese-label products.
Mr Cohen – who on Wednesday reported a big slide in first-half sales and profits of 26 per cent and 64 per cent respectively – said Bellamy's was working with about 500 influencers who would support its rebrand, which kicks off formally next month.
"It's a broad array of people," he told
The Australian Financial Review. "Some of them are paediatricians, some are nutritionists, some are parenting experts and some are well-known parents. On top of that we have A-grade celebrities."
Andrew Cohen, CEO of Bellamy's Organic, plans on doubling its marketing spend and team in China this half. Paul Jeffers
The most prominent is Chinese-Singaporean singer Stefanie Sun who has 24 million Weibo followers, and former Miss World Zilin Zhang, with 16 million Weibo followers.
Bellamy's has a steep path to climb after conceding it lost market share to rivals The a2 Milk Company and to Aptamil in the first half, when sales and earnings tumbled after a long delay in getting its registration from China allowing it to sell Chinese-labelled products.
$8.09+0.02 (+0.25%)
It also had to run down inventory before its major rebrand, and pointed to a category slowdown. This is in marked contrast to
a2 Milk, which last week posted stellar results and reported an upbeat outlook in China.
More than 14 months after filing its registration application to the new Chinese market regulator, Bellamy's still has not been audited. Mr Cohen
expected to get certification before the end of last year, and on Wednesday he remained hopeful of getting the nod this year.
"There is no official line of communication, but we heard that some audits are taking place [with European manufacturers], he said. "Australia, New Zealand and the United States are on the list, so we are hopeful."
Mr Cohen said the Bellamy's rebrand was the most ambitious investment in the Launceston-based company's history. It was grabbing consumers' attention, with a 30 per cent climb in mentions on WeChat, a Chinese social media platform, since this month's soft launch, he said.
Andrew Cohen has downgraded the outlook again and now expects group revenue for the full year of $275 million to $300 million. Paul Jeffers
Personal shopper network
Bellamy's recently
launched a baby formula with twice the omega-3 of its rivals, making it a likely winner with mothers. It has two super-premium formulas in development due for release next year and an offline food offering including cereal and pouches. Offline sales come through Mother & Baby stores and the
daigou personal shopper network.
Mr Cohen called cereal in China the "hero" product, and hopes to replicate its Australian success in China. Food makes up about 10 per cent of Bellamy's group sales, with about half of the food category coming from cereals, he added.
Normalised earnings before interest, taxation, depreciation and amortisation was $26 million in the first half, which excluded an additional one-off $12 million inventory provision for the rebrand transition. This already took a $6 million provision at the 2018 full-year results.
Despite the challenges, which led Bellamy's to cull its outlook again, Mr Cohen stuck with a $500 million revenue target by 2020.
He expects group revenue for the 2019 full year to be between $275 million and $300 million, compared with its lowered guidance last October for sales coming in at
the bottom end of its guidance for zero to 10 per cent growth on the $302 million achieved in 2018.
Normalised earnings margin was cut to between 18 per cent and 22 per cent, from 22 per cent and 25 per cent, reflecting increased investment in China, where Bellamy's plans to double marketing spend and its China team in the second half.
The stock fell in early trade on Wednesday but ended up 2¢ to $8.09 each, but still off its 12-month high hit last March of about $22.50 per share.
Citi analyst Sam Teeger said top-line momentum was weaker than he expected but it was premature to give up on Bellamy's, with much of the weakness being driven by the old formulation of baby formula.
"The new formulation, launched in February 2019, gives Bellamy's a chance to restore operating momentum," he said.
He said Bellamy's had a strong balance sheet, with no net debt and $95 million cash.
