Bellamy’s (BAL) result recognised significant items relating to inventory provisions and restructuring costs which totalled $8.6 million in the first half (1H). As a result, earnings before interest and tax (EBIT) fell to $10.1million from $19.5million in the previous corresponding period and net profit after tax (NPAT) fell from $13.7 million a year earlier to $7.2 million. Total revenue rose 13% to $118.3 million from $105.1 million. p.p1 {margin: 0.0px 0.0px 0.0px 0.0px; font: 13.0px Helvetica}

BAL’s businesses are divided along geographical lines; Australia, China & Hong Kong and South East Asia. The segments were recently restructured based on the geographical location of the retailer or reseller. Historically operations were defined by the location of the end consumer. Australia comprises the bulk of group earnings, with 65% of group revenue being generated domestically. Over the period, earnings before interest and tax (EBIT) fell by 17.7% to $15.1 million, while at the same time, revenue declined 13.7% to $77.5 million.

Much of the focus on BAL in recent years has been informed by the group’s Asian market strategy. In revenue & EBIT terms the Chinese and Hong Kong market represents around a third of the total. Revenue in the Chinese and Hong Kong market is derived from sales to distributors and online sales from third party websites. Over the period, revenue for the segment rose from $14.2 million to $37.7 million; while EBIT improved to $6.7 million from $3.6 million. The remainder of group earnings are generated predominantly from South East Asia.

A key feature of the period was the aggressive discounting undertaking by Chinese resellers. The lower prices were a response to heightened inventory levels which undermined Chinese digital sales. A knock on effect was a slowing in Bellamy's domestic sales. Increased production during the half saw inventory levels rise by $34.9 million to $102.7 million. In an effort to address moderating sales, marketing and promotional costs rose substantially, marking the largest single increase in costs, equivalent to 6.7% of revenue for the half 1H17, up from 1.9% in the pcp. Together with other factors such as higher input costs, the gross profit margin for the first half contracted to 39.5% from 45.7% for FY16.

No interim dividend was declared by management. Full-year guidance has been adjusted for additional write-downs and higher than expected legal, accounting and restructuring costs. Guidance for reported EBIT has been revised from $22 million - $26 million to a range of $19 million - $23 million. Combining the first half result with 2H17 guidance, full year revenue is seen to be between $220m to $240m; while full year NPAT is expected to range between 4% and 6% of revenue.

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