FY1 7 results presentation August 2017
Summary • Bellam y’s turnaround is on track, but there are still challenges to navigate • 2 H1 7 result exceeded top-end of guidance for Revenue and Norm alised EBI T • The stability of the business has im proved - Sales have stabilised and gained momentum leading into FY18 - Operating cost base has been reset and we are now well-positioned to reinvest - Supply-chain restructure is yielding reductions in future input costs - Inventory has been declining since peaking in March 2017 - Operating cash-flow has been positive since March 2017 (excluding the one-off Fonterra payment) and we are currently in a net cash position • Further, the Camperdown acquisition and reinstatement of the CNCA licence provides a path to CFDA registration in China • A new leadership team and Board is in place, and is focused on the business plan for FY18 and the next three years - Additionally the team is spending more time in China and establishing deeper relationships with our distributor, customers and regulatory bodies • Forecasting profitable growth in FY18, with a target of 5-10% revenue growth and 15-20% EBITDA margin 2 MEL
Financial overview Revenue ($m) Normalised EBI T 1 ($m) 240.2 234.0 54.3 121.9 133.9 42.0 35.1 125.3 23.3 67.0 48.9 118.3 12.3 100.1 24.8 19.2 18.7 7.0 58.3 2.9 24.1 5.3 FY14 FY15 FY16 FY17 FY14 FY15 FY16 FY17 2 H2 H1 H2 H1 1. Excludes one-off items (as disclosed in the Financial Statements) such as the $27.5m payment to Fonterra as part of the supply-chain reset, inventory write-downs, FX losses, restructuring costs, professional fees, and indirect costs associated with the capital raise and costs relating to the acquisition of Camperdown Powder 2. Restated (refer Note 5 of the Annual Report) 3 MEL
2H17 result Key drivers • Sales gained momentum throughout the period • Gross margin impacted by higher ingredient and production costs, including a $2m shortfall payment provision; but partially offset by higher price realisation • Statutory result impacted by one-off costs associated with the business reset, including a $27.5m one-off payment to Fonterra • Normalised expenses 23% less than in 1H17; now well-positioned to reinvest 1. Excludes one-off items (as disclosed in the Financial Statements) such as the $27.5m payment to Fonterra as part of the supply-chain reset, inventory write-downs, FX losses, restructuring costs, professional fees, and indirect costs associated with the capital raise and costs relating to the acquisition of Camperdown Powder 2. Guidance has been adjusted to exclude the anticipated $5.5m shortfall payment to Fonterra 4 MEL
Sales have stabilised and gained momentum leading into FY18 Revenue ($m) Com m entary • Price realisation increased 133.9 during 2H17 due to lower promotional spend and 121.9 118.3 channel mix shift 36.0 China/ HK 1 100.2 35.5 • Trade Inventory of 37.6 2.3 ‘Australian label’ product 13.9 in both Australia and 1.5 3.8 SEA/ other 3.2 China has reduced to acceptable levels • Trade inventory of 95.6 ‘Chinese label’ product 84.8 82.6 77.5 Australia has been built to support anticipated delays in CFDA registration • Continued growth in 1H16 2H16 1H17 2H17 2 2 Singapore and Malaysia 1. Includes both ’Australian label’ and ‘Chinese label’ product sold to China/ HK based customers 2. Restated (refer Note 5 of the Annual Report) 5 MEL
Operating cost base has been reset; now well- positioned to reinvest Normalised operating expenses 1 ($m) Com m entary • 23% reduction in overall Change operating expenses 28.1 − 8.5% reduction in Marketing costs operating expenses excluding the reduction 7.9 21.5 in marketing costs Marketing costs (62% ) 3.0 • Organisational changes ( 2 3 % ) Admin & other 4.7 have resulted in a lean but Admin & other 4.0 (15% ) high-quality team Employee costs Employee costs • Removed ineffective (14% ) 7.8 6.7 marketing spend, focused ( 8 .5 % ) largely on expensive agency costs 1% Direct costs 7.7 Direct costs 7.8 • Starting to reinvest, e.g. in high ROI marketing activity and internal capability 1H17 2H17 1. Excludes one-off items (as disclosed in the Financial Statements) such as the $27.5m payment to Fonterra as part of the supply-chain reset, inventory write-downs, FX losses, restructuring costs, professional fees, and indirect costs associated with the capital raise and costs relating to the acquisition of Camperdown Powder 6 MEL
Operating cash-flow (excluding the one-off Fonterra payment) has been positive since March 2017 Returned to positive cash-flow… … and now in a net-cash position 1 Operating cash-flow (normalised) Cash position • Institutional capital • Retail capital raise: $70M $20M raise: $12.7m $44.6m • Draw-down on working • Camperdown capital facility: $10.7m acquisition: $10.5m 10.8 10.1 10 • Operating activities: • Repayment of working $6.0m capital facility 2 : $29.1m • Fonterra supply amendment: $27.5m 35 0 $5.3M $22.7M $1.9M $17.5M $15.6M -10 0 Post retail raise 31-Dec-16 30-Jun-17 and key -20 payments -21.9 Debt Debt $14.6M $14.6M $25.3M $25.3M $0.0M $0.0M Net cash Net cash -30 $1.0M $1.0M -$7.8M -$7.8M $22.7M $22.7M 2H16 1H17 2H17 (debt) (debt) 1. Excludes one-off items (as disclosed in the Financial Statements) such as the $27.5m payment to Fonterra as part of the supply-chain reset, inventory write-downs, FX losses, restructuring costs, professional fees, and indirect costs associated with the capital raise and costs relating to the acquisition of Camperdown Powder 2. $21.5m repaid 11 July 2017 and $7.6m repaid 26 July 2017 7 MEL
Inventory has declined since peaking in March 2017 Bellamy’s inventory ($m) Com m entary • Finished goods inventory peaked in March 2017, but then declined 102.7 as production was reduced below 93.5 demand 20.6 Raw ingredients 10.5 (incl. goods in • Formula inventory now at transit) approx. 5-6 months of cover 67.8 • Some inventory rebalancing still required across formula SKUs 32.7 83.0 82.1 Finished goods • Continuing to carefully manage the ageing profile of ‘Australian label’ formula stock 35.1 • Future focus on shortening supply-chain lead times and reducing inventory requirements 30-Jun-16 31-Dec-16 30-Jun-17 8 MEL
Acquisition of Camperdown provides a pathway to CFDA registration ✓ Acquisition complete ✓ Minor upgrade works complete ✓ CNCA licence suspension lifted I ntegration ✓ Production re-commenced for existing customers CFDA application submitted Major capacity upgrade works complete Upgrade CFDA registration achieved Production of Bellamy’s Bellam y’s ‘Chinese-label’ SKUs ✓ production Staged migration of Bellamy’s ‘Australian label’ production 9 MEL
Stabilisation plan progressing Establish DRIVE OUT Focus on Reinvest CREDIBILITY COST transition to in the BRAND & STABILITY to create and increase POSITIVE PRIORITIES with the trade fuel for growth CASH FLOW PENETRATION ✓ Reduced retail ✓ Amended Fonterra ✓ Reduced 2H17 ✓ Camperdown acquisition promotions supply agreement for a production by delivers pathway to ✓ Stabilised wholesale price lower future cost position 45% (vs. 1H17) CFDA registration ✓ Reduced operating ✓ Positive operating ✓ Successful relaunch of ✓ Coordinated stock RESULTS expenses 23% in 2H17 cash-flow since Mar-17 Step 3 formula ‘buy-backs’, and ✓ Successful trial of China (8.5% if marketing (excl. one-off Fonterra consolidated China excluded) payment) and Australian Reseller ‘KOL’ marketing model ✓ Improvements to ✓ Successful capital raise ✓ Successful trial of Daigou partners ✓ Repaid 100% of working procurement of key trade marketing model ingredients capital facility 10 MEL
The broader opportunity remains compelling Global organic baby formula CAGR retail sales value (constant price) 5 year: 20% USD1,000M 10 year: 15% 850 800 758 697 38% Other 576 600 52% 6% 57% Earths Best 414 Bellamy’s 16% 400 62% 355 307 6% 291 286 52% 9% 7% 45% 230 Abbott 22% 42% 41% 40% 8% 200 13% 40% 25% 27% 20% 18% Hipp 40% 34% 43% 45% 45% 50% 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Organic proportion of 1.1% 1.2% 1.1% 1.1% 1.1% 1.1% 1.4% 1.6% 1.7% 1.9% total baby formula Source: Euromonitor 11 MEL
FY18 focus on realising further cost reductions and reinvesting for growth Create fuel for grow th: • Reduce COGS, logistics Strategically and overhead reinvest in: • Revenue management • Brand and and price realisation marketing • Product upgrades and development • Strategic Trade partnerships • Supply-chain flexibility, provenance and traceability • Internal capability Leverage scale to drive superior economics, including access to supply rebates and reduced shortfall payments 12 MEL
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