Written on the 11 January 2017 by James Perkins

BELLAMY'S Organic has terminated the contract of its chief executive officer Laura McBain in response to the fallout from its sales plunge, which will halve the company's earnings in FY17 compared to the previous year.

McBain's departure was revealed as part of the Tasmanian company's keenly anticipated market update today, which signalled the company's return to trading after almost a month in suspension.

Belalmy's (ASX: BAL) predicted FY17 EBIT of between $22m-$26m, compared to $53 million in FY16.

Its share price fell by around 30 per cent to $4.69 per share upon resumption of trading, down from a 12-month high of $15.38 early last year.

"The company's revenue and profitability have been impacted by lower than expected demand for Bellamy's infant milk formula, which has also led to increased inventory levels, excess ingredients and shortfall payments to suppliers," says the Bellamy's statement.

The Tasmanian company is under scrutiny for the apparent lack of disclosure for falling demand for its products, and the timing of the sale of $5 million worth of shares by McBain and the company's chairman Rob Woolley in August.

McBain and Woolley sold the shares at $14.55 each, and then on 2 December it fell 40 per cent to $6.20 per share following a market update detailing a "temporary volume dislocation" of its sales to China caused by its efforts to change the export route of its goods into the country.

There are questions over what the company knew about its falling sales and when, following the release of several independent reports into the company.

Currently, three class actions are being prepared against Bellamy's, by Slater and Gordon, Maurice Blackburn and ACA LAwyers, but it is yet to be served a notice.

Andrew Cohen, who joined the company in July 2016 as chief operating officer, is now the acting CEO, and Nigel Underwood has been appointed acting chief financial officer.

Cohen has experience turning around struggling companies through his time as partner at Bain & Company, and he will need to draw on those skills as Bellamy's trades its way out of its troubles.

The company's forecast revenue of $115-$120 million for the first half of FY17 is little changed from 2 December, when it forecast $120 million, but for the first time it has made public its reduced margins.

Gross profit margin for FY17 is expected to be in the range of 35% to 38% in FY17 from revenues between $220-$240 million, down from $244.6 million the previous year.

Profit after tax margins are expected to be 6-9 per cent in the first half of FY17, and 4-6 per cent in the second half.

EBIT for the first half is expected to be $12-$14 million with an EBIT margin of 10% to 12%.

The company says the revised numbers reflect the impact of higher than anticipated stock levels held by Bellamy's partners.

It has reduced production, but as a result has to pay manufacturer Fonterra $11-$13 million in shortfall payments over the next two years, despite renegotiating its contract.

The company now has around $105-$110 million worth of inventory with a shelf life of up to three years.

Bellamy's woes stem from its efforts to change its sales channel into China from the unofficial network of professional shoppers named daigou, which export the product in airline luggage, to more traditional ecommerce channels such as Alibaba.

To be fair, in FY16 Bellamy's had a record year, where it grew revenue by 95 per cent ($244.6 million), EBIT by 342 per cent ($54.3 million) and net profit after tax by 322 per cent ($38.3 million).
Author: James Perkins Connect via: Twitter LinkedIn





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