Troubled infant formula maker Bellamy's Australia says its turnaround program is starting to work, but uncertainty remains over the timing of product registration with China's health authorities.
Bellamy's has booked a loss of $809,000 for 2016/17 but expects profitable growth in fiscal 2018 for its core business, excluding the recently-acquired Camperdown Powder cannery.
The year just ended was marred by Chinese regulatory problems, an investor uprising against Bellamy's board and the launch of two class actions by angry shareholders.
The Tasmania-based company slipped back from last year's restated $38 million profit after a restructuring that included a capital raising to buy the Camperdown cannery and a $27.5 million payment to dairy giant Fonterra to reset its supply agreement.
Chief executive Andrew Cohen says that despite the loss, the company is tracking well.
'We are six months into an 18-month turnaround, we are tracking well, but there are still challenges to navigate," he said on Friday.
"Importantly, the stability of the business has improved."
Revenue and earnings in the second half of the year exceeded guidance and the company said it is cutting operating and input costs, lowering inventory and positioning to reinvest.
Also, Bellamy's new board and leadership team are developing a better understanding of China's regulatory environment.
"This team is spending more time in China and is focused on building deeper relationships with our key distributor, customers, and, importantly, regulatory bodies," Mr Cohen said.
Bellamy's is forecasting profitable growth in the 2017/18 for the core business, excluding Camperdown Powder, with a target of five to 10 per cent revenue growth and a 15 to 20 per cent earnings margin.
The guidance is based on the expectation of no sales of Chinese-labelled Bellamy's products in the second half of fiscal 2018, due to previously flagged delays in the company obtaining China Food and Drug Administration (CFDA ) registration.
From January 1, 2018, Chinese-labelled imported products need to be CFDA-accredited.
The CFDA licence is needed on top of CNCA (Certification Accreditation Administration of the People's Republic of China) accreditation required for the facility that produces Bellamy's organic infant milk formula products.
Mr Cohen said Bellamy's expects to submit its CFDA application before the end of December, but it was unclear what the earliest possible date was for CFDA approval.
"The original CFDA guidance was 183 working days, so six months, but that's for a process that doesn't have any issues in it," he said.
"On the other hand, in recent batches, we've seen much faster times."
Bellamy's sales of Chinese-labelled products grew to $36.9 million in fiscal 2017, up from $13 million in 2016.
The company expects sales will reach $18.3 million in the first half of fiscal 2018, but there will be no sales in the second half.
Bellamy's shares were 49.5 cents, or 5.9 per cent, lower at $7.865 at 1317 AEST.
BELLAMY'S FALLS INTO THE RED
* FY net loss of $809,000, vs profit of $38.3m
* Revenue up 2.6pct to $240.2m
* No final dividend
