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Edited Transcript of BAL.AX earnings conference call or presentation 28-Aug-19 10:59am GMT

Full Year 2019 Bellamy's Australia Ltd Earnings Call

LAUNCESTON Nov 23, 2019 (Thomson StreetEvents) -- Edited Transcript of Bellamy's Australia Ltd earnings conference call or presentation Wednesday, August 28, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew Cohen

Bellamy's Australia Limited - CEO

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Conference Call Participants

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* Aaron Yeoh

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Richard Barwick

CLSA Limited, Research Division - Research Analyst

* Sam Teeger

Citigroup Inc, Research Division - Analyst

* Shaun Robert Cousins

JP Morgan Chase & Co, Research Division - Senior Analyst

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Presentation

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Operator [1]

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Thank you for standing by, and welcome to the Bellamy's Australia Limited FY '19 Results Presentation Conference Call. (Operator Instructions) I would now like to hand the conference over to Mr. Andrew Cohen, CEO. Please go ahead.

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Andrew Cohen, Bellamy's Australia Limited - CEO [2]

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Good morning, and welcome, everyone, to the Bellamy's Full Year FY '19 Results Presentation.

I'll begin with the key messages on Slide 3. The FY '19 year was a challenging period, impacted by the delay in Bellamy's SAMR approval, recent China cross-border regulation, lower birth rate and increased competition for Chinese demand. Net revenue was $266 million, and normalized EBITDA was $47 million, reflecting these headwinds.

Our transformational rebrand is set to return the business to growth and is gaining momentum since its launch in March. Early indicators are positive, including an uptick in e-commerce sales, brand interest, Step 1 and 2 recruitment in China, consumer pricing and trade economics.

The recent 6/18 June e-commerce event is a tangible proof point, resulting in 41% like-for-like growth and a marked change in our brand ranking across key platforms. In parallel, we are investing more to activate the brand, doubling marketing this half, doubling our China team and step-changing investment in existing and new products.

A number of short-term trade-offs were required to implement these changes impacting the FY '19 financial results: legacy-label inventory was written off and market supply was realigned to underlying demand. This reset is now complete, and the business enters FY '20 with a clean balance sheet, positive consumer momentum and a healthy trade dynamic. It is on this basis that the business expects a return to sustained growth at FY '20. This confidence is strengthened by several positive initiatives in the coming period, including breakthrough new products, including Bellamy's organic ultra-premium and organic goat formulas to be launched in the second half of '20, accelerated growth in our food business and the launch of a China off-line food range, aggressive joint business plans with key e-commerce and social platforms in China and an expected reentry into the China off-line formula channel.

Our current outlook for FY '20 is 10% to 15% revenue growth and EBITDA margin in line with the prior year, reflecting continued higher investment levels. We remain confident in our growth strategy and medium-term target of $500 million in revenue but have needed to defer this target beyond FY '21 given the ongoing SAMR registration process.

The FY '19 year was a key inflection point in our multiyear transformation outlined on Slide 4.

It builds on the business stabilization initiatives in FY '18 that address fundamental profit, liquidity and market access risks and delivered a winning product and true premium positioning to realize the latent potential of an already strong brand. The FY '20 year will build on this foundation and focus on 3 clear investment themes: more aggressive brand activation and continued higher investment in marketing and China capability; a tiered product and premiumization strategy that will move Bellamy's from Australia's #1 organic brand to the world's #1 organic portfolio; new channels and markets, including reentering into the China off-line channel and a broader plan for emerging middle class Asia.

Turning to Slide 5. In March, we fundamentally transformed our brand and reset our business for long-term success. It was the most significant investment in our company's history and represented a profound change to our competitiveness, elevating the premium, prominence and nutritional credentials of our brand.

Slide 6 illustrates the rebrand rationale against a simplified pyramid of e-commerce key success factors. Beginning at the bottom, Bellamy's brand awareness and credibility was already strong. It is the #2 organic brand globally and the #3 most recognized organic brand in China. But despite strong awareness and consideration, customer conversion was low given limited functional ingredients, including DHA, ARA and GOS. Functional ingredients are the #1 purchase criteria for new mothers in China with 74% of target mothers not considering a formula that does not contain DHA or Omega 3. Our new formula added all key functional ingredients while maintaining its organic status, including a world-leading level of DHA for an organic toddler milk.

Building on this foundation, the business can now drive positive word-of-mouth by addressing critical product comparison tables on social media and invest more aggressively in brand marketing given a stronger conversion and ROI.

In parallel, on Slide 7, it was critical to reengage and incentivize our trade partners in China, including grassroots daigou, e-commerce and social platforms, route to our retailers, pick-and-pack operations and gift stores. We wanted to both reposition our brand as a true premium brand with Chinese consumers and also establish more compelling trade economics to drive recruitment and brand push.

This was a 2-step process. First, we increased consumer prices in China by 30% to match the positioning of major competitors and reinforce the changes to the product and brand. Second, we reset market supply and channels to better match underlying demand. The net impact of these changes effectively doubled the available trade margin and incentive for our trade partners. In doing this, we recognize that lifting the price partition of our brand could have a short-term volume impact but would ultimately deliver a stronger position with both the consumer and the trade and set the brand up for long-term success.

Turning to Slide 8. The rebrand is the most significant investment in our company's history. Beyond the changes already outlined, it also included line extensions to Step 4 and pregnancy formulations, 3 new food lines, inclusion of fresh Australian milk, blue-dot traceability, a new brand identity and a refreshed packaging and a step-change in marketing. This required a number of investments that impacted the FY '19 results, including a reduction in trade inventory to ensure a clean changeover, an inventory write-down of legacy inventory, a doubling of marketing investment in the second half of '19 and a doubling of our China team to better activate the brand and engage consumers. This reset is now complete, and the business enters FY '20 with a clean balance sheet, positive consumer momentum and a healthy trade dynamic.

This has set a foundation for a stronger FY '20 outlook on Slide 9. Early momentum for the rebrand accelerated growth in our food business and a breakthrough new product portfolio gives us confidence in a return to sustained growth in FY '20 and an outlook of 10% to 15% net revenue growth. However, the FY '19 year was challenging, particularly the impact of both China off-line and cross-border regulatory change, which resulted in the loss of China label sales and an observed softening of the daigou channel.

On Slide 10, FY '19 profit has been predominantly affected by this lower revenue and scale. Headline numbers for the group were $266 million in net revenue and $47 million in normalized EBITDA. Gross margins for the core business improved 5 percentage points versus the prior corresponding period, reflecting improved revenue management and pricing and input savings that offset the increased cost of added functional ingredients, DHA, ARA and GOS. Direct cost per unit was largely impacted by scale as well as supply chain changes, including direct ingredient procurement and the establishment of a China warehouse.

Marketing doubled in the second half of '19 to support the rebrand launch, and China head count also doubled through the period but was offset by head count savings in Australia and lower employee incentive payments as a result of performance. Camperdown achieved a break-even result, performing better in the second half of '19 with strong growth in external customer volumes and the rollout of the Doraler brand.

There was one normalization adjustment made during the period relating to a $12 million inventory provision called out in the previous half, a transition of all legacy-label inventory following the rebrand and in preparation for COOL standards regulatory change.

Turning to Slide 11. The balance sheet remains strong, cash positive and positioned to support the company's growth agenda, including both supply chain and demand-side investment evaluation. The cash balance was $112 million with 0 debt levels and continued access to a $40 million undrawn facility. Cash conversion improved with a cash increase of $25 million above full year NPAT. Inventory increased marginally, reflecting the increased ingredients inventory and a shift to direct sourcing that both lowered our costs and increased supply availability. Finished goods decreased versus the prior year and within our target range of 3.6 months at the end of the year. All legacy-label inventory has been provided for in these numbers.

On Slide 12, the second half '19 revenue result is a story of 2 quarters. Q3 was materially below the prior year and impacted by trade destocking and our planned trade reset, but this impact was more acute than originally expected. Q4 was stronger following the launch of the rebrand in March and closely aligned to underlying consumer demand and improved performance. This result was driven by the net effect of strong growth in China B2C and social platform performance, offset by an observed softening of the Australian daigou channel following a recent cross-border regulatory change.

On Slide 13, and more important than ex factory sales data were the positive early consumer indicators for the rebrand. Since the relaunch in March, we have seen strong momentum in underlying consumer indicators on a like-for-like basis versus the prior year. Awareness is up with material growth in our WeChat social media index and website traffic. Interest is up, both in terms of expressed brand interest and traffic for key platforms and also trade interest with growth in the number of stores distributing Bellamy's in Alibaba. And purchase is up, including strong like-for-like growth in B2C sales and a step change in sellout of Step 1 and Step 2 volumes in China.

On Slide 14, the results from the most recent 6/18 e-commerce event was an important test and proof point for the rebrand. Sales for key platforms were up 41% on the prior June event and our brand ranking for cross-border formula improved 2 places for Alibaba, 2 places for Kaola and more than 13 places for JD.

On Slide 15, another positive indicator is the growth in our food business, which was rebranded earlier in September 2018 and is continuing to demonstrate strong momentum. Second half sales were up more than 40% on the prior corresponding period for food. The chart on the left shows total cross-border e-commerce sales. The better news is that cross-border e-commerce is only 1/7 of the total online market with Chinese label online representing the majority of sales. The second half '19 launch of our Chinese label cereal and ambient yogurt range will therefore step change our addressable market and underpin another horizon of growth for our food portfolio.

On Slide 16, our gross margin continues to expand and fuel investment with stronger revenue management, cost disciplines and pricing growing margins despite the addition of new functional ingredients, DHA, ARA and GOS, to our formulas. The next wave of improvement will focus on our portfolio premiumization strategy and new product launches, further savings from liquid Australian milk and channel optimization.

On Slide 17, we have outlined how we are reinvesting these gains to return to growth. This include the doubling of marketing in the second half of '19, doubling our China team in the second half of '19, investing in our existing products and functional ingredients and investing in our new product pipeline.

Turning to Slide 18. Our marketing investment has focused on a refresh of all-digital assets with stronger content and claims, including our original founder story, local outdoor media campaigns, platform campaigns, city launch events, an A-grade ambassador in Stefanie Sun and online search and social presence, including more than 500 active KOLs.

On Slide 19, our China team investment has built a winning capability to better activate the brand and engage consumers with a local perspective. This includes dedicated key accounts and trade marketing across key B2C and social platforms, a larger digital and social marketing team to drive search and social presence, a larger trade marketing team to increase trial and consideration and implement a new CRM recruitment system for the O2O channel.

On Slide 20, our key account and trade marketing team are also investing heavily in emerging social e-commerce platforms with powerful influence and large membership bases. The growth from these channels were significant in FY '19, and we expect them to emerge in FY '20 as an important source of incremental growth with aggressive joint business plans in place.

On Slide 21, one of our most exciting initiatives for the second half of '20 is the launch of 2 new organic formula series that will look to both compete in higher pricing partitions and grow the relevance of organic by extending our addressable market for science and gentleness. First is our organic ultra-premium product. And second is our organic goat product. We believe these products will move Bellamy's in time from Australia's #1 organic brand to the world's #1 organic portfolio.

Turning to Slide 22. Despite the ongoing process, we do -- we remain confident in our SAMR application. The timing of Australian facility audits remains unclear, but we note several recent audits in European countries with some brands approved. The business continues to plan and prepare for an audit in the coming year and has invested $4.5 million in our facility and expert advisers to prepare for this audit.

On Slide 23, in addition to our Camperdown formula series, we are pursuing 2 additional opportunities in the China off-line channel in FY '20. The ViPlus artwork amendment has been approved and is awaiting a final certificate. This product is a high-quality Australian-made formula, including the high-demand and premium ingredient, lactoferrin, to support an infant's digestive system by promoting the growth of good bacteria. The product will target the premium segment of the market and extend Bellamy's reach to Tier 3 and Tier 4 cities, supported by a more affordable price point and attractive trade margins. Additionally, we will release an ultra-premium range of organic functional foods, including a cereal and ambient yogurt range.

On Slide 24, our rollout continues to emerging middle-class markets in Asia. The Vietnam entry is moving to plan, including ranging in approximately 500 stores throughout Hanoi and Ho Chi Minh. We're also in the process of planning entry into the Philippines and Indonesia in calendar year 2020, where we have identified distributors and are currently working with them in undertaking a 12-month regulatory process.

Before concluding, we want to make 3 simple points. First, on Slide 25, organic is a highly attractive segment for both infant formula and food, where purity and food safety is paramount. It will become the industry standard.

Second, on Slide 26. Bellamy's occupied a highly strategic position in the organic infant formula industry. It is the #2 organic brand globally and has a scalable and integrated organic supply chain established over a decade. Bellamy's has the credibility and authenticity to lead the category to the next level.

Third, on Slide 27. Prior to SAMR approval of our Camperdown product, our existing markets have headroom for significant growth and are growing rapidly. We have revitalized and upgraded our brand, lifted marketing and brand investment rates and are building out a multi-brand and multi-product portfolio to execute against this opportunity. We certainly anticipate SAMR approval, but we can also succeed independently in the meantime. Implementing these changes will require time and a multiyear transformation journey. However, we are confident in both our plan and its latest potential, and we believe that the FY '20 will be a great indicator of this potential.

On Slide 28, our revenue outlook is a return to growth of 10% to 15% in FY '20, weighted to the second half with the planned product launches in Q3 for food and Q4 for formula. Given the later release of our new products, we believe the exit growth rate for revenue in FY '20 will be materially higher. EBITDA margins are expected to be consistent with the prior year, reflecting continued investment in marketing, in capability and in the long-term success of our brand.

Thank you. I'll now open for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Sam Teeger with Citigroup.

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Sam Teeger, Citigroup Inc, Research Division - Analyst [2]

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Andrew, first question, one of your key competitors appears to have slightly elevated inventory levels right now. And in the past, whenever this has occurred, it's often adversely impacted Bellamy's sales. Can you provide some insight into how you see this playing out right now?

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Andrew Cohen, Bellamy's Australia Limited - CEO [3]

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I think in earlier periods, we did lose customers when our competitors' prices came down. And I would sort of split up our customers between people that were considering both versus people that were much more loyal to organic. I think the customer base that we have now is very loyal to Bellamy's and to organic. And so I don't see this to be a problem going forward. I see that hasn't been a historical problem in the past, where we definitely had customers that overlap against both.

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Sam Teeger, Citigroup Inc, Research Division - Analyst [4]

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Right. Okay. And to what extent are you going to let whole and your other key distributors bundle your new products when they're launched?

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Andrew Cohen, Bellamy's Australia Limited - CEO [5]

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We don't believe that, that is a good strategy. And what we see is when that strategy is adopted, the marginal cost of the product ends up being the cost that gets charged in China. And so it can really affect the premiumness of how that product is perceived. And so we wouldn't be looking for a bundling strategy. We would rather make sure that we are supplying at the rate of underlying demand and work harder on the marketing and recruitment of the underlying product.

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Sam Teeger, Citigroup Inc, Research Division - Analyst [6]

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Makes sense. And when do you expect the final certificate for ViPlus to be received? And once you get it, what's the lag before sales can start?

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Andrew Cohen, Bellamy's Australia Limited - CEO [7]

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We expect it -- look, we expect it pretty soon. But obviously, we respect the SAMR process. It has been approved and is on the portal. And so we hope to get it soon, it should be about a 3-month lag between receiving that and getting produced product off to China. So we hope we can begin selling towards the end of this half and definitely into the next half.

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Sam Teeger, Citigroup Inc, Research Division - Analyst [8]

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Got it. And just finally, a big improvement in the manufacturing segment. How should we be thinking about what type of sales and EBITDA this segment can generate in '20?

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Andrew Cohen, Bellamy's Australia Limited - CEO [9]

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Yes. I think that, that will continue to improve. The Doraler brand is growing strongly. But obviously, we hope to also produce our own brand. And I think the second half result is a good indicator of how that would look, and we expect it to be, yes, profitable going forward.

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Sam Teeger, Citigroup Inc, Research Division - Analyst [10]

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Right. So also just to be clear, second half, we should just take what EBITDA is in the second half and carry that forward into FY '20. No further step-up, correct?

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Andrew Cohen, Bellamy's Australia Limited - CEO [11]

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It is a bit lumpy. That portfolio is always a bit lumpy. So the first half will always be lower. The second half will always be stronger. But we expect, in total, continued growth in that product and growth in the profit of Camperdown. It's just the way that they order. The year it's manufactured is quite important on the team from their perspective.

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Operator [12]

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Your next question comes from Shaun Cousins with JPMorgan.

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Shaun Robert Cousins, JP Morgan Chase & Co, Research Division - Senior Analyst [13]

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I guess just a question in regards to sort of marketing. How are you sort of seeing marketing as a percentage of sales going forward? Should we anticipate it sort of stays at this sort of 10% to 11% level?

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Andrew Cohen, Bellamy's Australia Limited - CEO [14]

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I think -- anticipate that it stays at around the same level as the full year percentage is the way that we think about it. But obviously, when it comes to marketing, we will continue to invest in things that we think will drive the top line result. And so we need to make those decisions in the year. But our expectation is it will continue at the higher full year run rate.

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Shaun Robert Cousins, JP Morgan Chase & Co, Research Division - Senior Analyst [15]

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And then maybe, I mean, as competitors continue to sort of increase their sort of marketing spend, how confident are you that as you increase your spend, you're actually gaining share of voice? Or is this just an effort where all players have to sort of increase spend in somewhat of an arms race or somewhat to sort of keep up with each other? And just curious about how you're confident that you're getting sort of cut-through with what you're spending and it's actually incrementally advantaging the brand or whether it's just something that's, again, keeping up with where others are at.

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Andrew Cohen, Bellamy's Australia Limited - CEO [16]

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Yes. Look, I think it's how and where that spend is being directed. I think you'll find that competitors are spending a lot in their off-line channel. And that's where a lot of the trade marketing is going. Obviously, when we launch in that off-line channel, we will also spend there. But all of our spend is really directed at the e-commerce channel. And it is -- and I think the fact that we are more focused on that channel at the current time probably means that we still get a lot of cut-through from increasing our marketing spend.

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Shaun Robert Cousins, JP Morgan Chase & Co, Research Division - Senior Analyst [17]

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Great. And just finally, in regards to the $500 million target, recognize it's sort of been moved beyond '21. Is there a way that we should think about that as being the target sort of kicks in once SAMR approval is received and then maybe it's the 12 months in advance or 24 months in advance. I mean is that a way that we could consider that the $500 million is still a target that exists, but you've got this uncertainty around timing of SAMR, and so that would be a better way for us to sort of consider that target in terms of when it can be achieved, just given that externality that's out of your control?

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Andrew Cohen, Bellamy's Australia Limited - CEO [18]

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Look, I think, to be honest, we hope it's only 12 months delayed. It is not dependent on that SAMR approval. We think that we've got more than enough growth drivers through the increase in our portfolio, both in terms of e-commerce, but also we hope to begin our ViPlus sales as well to be able to make that target relatively soon. I think what people do think about Bellamy's is it's a bit of a binary investment. And I think what they're missing and I think we tried to show that in the second to last slide of the investor presentation is that the e-commerce market is very significant now in China. And so we've got a lot of headroom to grow. And that channel is also growing very rapidly. So there's a lot of headroom. There's a lot of underlying growth there that we can tap into. And you only have to believe that we take a percentage point, a share away from that competitor. And suddenly, we're at that target. We've changed the brand. So we're working very hard to change the product, the brand and to release a portfolio that we believe can achieve that. So it's certainly not dependent on the timing of that registration. But it is going to be longer than FY '21. We actually hope it's literally 12 months later. But until we see the rebrand continues the momentum that we're already seeing, the new portfolio hit the market, we're just not putting a stated time line on that yet, but that's certainly our anticipation.

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Operator [19]

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Your next question comes from Aaron Yeoh with Goldman Sachs.

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Aaron Yeoh, Goldman Sachs Group Inc., Research Division - Equity Analyst [20]

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Andrew, a couple of questions from me this morning. Just with regards to the revenues for FY '20. You've attributed some of the sort of growth to new products. Are you able to sort of provide a bit more detail what your expectation is around sort of the revenue contribution from the new products that you're releasing next year?

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Andrew Cohen, Bellamy's Australia Limited - CEO [21]

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Yes. It's not that much in terms of the total year to be honest because the formula products really -- because we're hesitant to release them during the Chinese New Year period, we'll probably release them in the fourth quarter. And so it's not a huge amount. But the good news is we think the exit rate on the '20 year because of these new products will actually be well above what we're targeting for the full year.

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Aaron Yeoh, Goldman Sachs Group Inc., Research Division - Equity Analyst [22]

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Right. And then just with regards to the third quarter for FY '19, I think you called out the extent of the destocking being greater than expected. Can you provide us a bit more color as to what drove that sort of greater level of destocking?

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Andrew Cohen, Bellamy's Australia Limited - CEO [23]

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Yes. Look, I think you always know the level of trade inventory at the first line of distributors. But it's actually very difficult to know how much trade inventory is held below that. And I think there was more trade inventory held below our first line distributors than we had initially expected. And what we wanted to do was to realign the level of trade inventory below our first line distributors with underlying demand. And so that would then, in turn, increase the available trade margins and the pricing, and we thought that was very important from a recruitment perspective. And that was deeper than we had first expected. They were definitely holding more than we had anticipated.

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Aaron Yeoh, Goldman Sachs Group Inc., Research Division - Equity Analyst [24]

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Right. And then just broadly, with regards to the rollout of the e-commerce law and the impact on the daigou channel. What is your view on, I guess, the long-term sustainability of that channel? And I guess has the rollout of the e-commerce law -- has that changed your strategy around sort of the channels to market that you're looking to sell through?

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Andrew Cohen, Bellamy's Australia Limited - CEO [25]

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Look, it's certainly had an impact. And I think what we certainly know is that B2C and social platforms in China have grown strongly as a result and will continue to grow strongly as a result. And so we have to make sure that we are highly competitive in those channels. I don't mean from a price perspective but from a sort of marketing and activation perspective.

And then the daigou channel will always be important. But -- and I don't think it's going anywhere. These are often the custodians of our brand. And so I think -- I don't think it's necessarily going backwards at a rate of knots. But I don't think -- it's not growing the way it was prior to the regulatory change. And so I also sort of see that whole channel consolidating a lot into pick and pack.

So it's probably 3 or 4 trends. One is we're going towards B2C platforms and social platforms. We're seeing less growth in the overall daigou channel. And we're sort of seeing consolidation within that channel with the increased requirements.

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Aaron Yeoh, Goldman Sachs Group Inc., Research Division - Equity Analyst [26]

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Okay. Great. Sorry, one last question from me. Just with regards to gross margin, just on Slide 16 of your presentation, you've called out 3 waves in terms of the drivers. How should we think about, I guess, your gross margin moving forward? Is there much more room to see that expand? And then just on Wave III, you've also noted growing B2C e-commerce channel mix as part of that. Is that effectively implying that B2C e-commerce or cross-border e-commerce sales are at a higher gross margin to, I guess, Australian retail or daigou sales?

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Andrew Cohen, Bellamy's Australia Limited - CEO [27]

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Yes, correct. So it doesn't always work out like that net-net because you do have to put more money into trade marketing, obviously. But yes, that's right. I think that our gross margin does have yet further headroom to move. And certainly, our premiumization strategy, I think, will be the most significant change to that line item. We are an organic product. That does mean that our cost of goods is always high. And so it's hard for us to match conventional gross margins. But I believe that there's still material headroom in that gross margin number that we will continue to build over the next few years.

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Operator [28]

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Your next question comes from Richard Barwick with CLSA.

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Richard Barwick, CLSA Limited, Research Division - Research Analyst [29]

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Apologies if you've actually clarified this, I missed a little bit of the call. But I just wanted to be just crystal clear on this year's -- or sorry, FY '20 growth guidance, 15% to 20%. Are you assuming that there is no SAMR approval for the organic product or certainly no Chinese label product sold to make up that 15% to 20% revenue growth?

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Andrew Cohen, Bellamy's Australia Limited - CEO [30]

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There is some off-line products sold. As I sort of said, we are expecting to be able to begin to sell the ViPlus product in the second half and into the back half of this half.

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Richard Barwick, CLSA Limited, Research Division - Research Analyst [31]

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So my question is on the organic product.

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Andrew Cohen, Bellamy's Australia Limited - CEO [32]

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Yes. But in terms of the organic and consistent with the way that we've framed guidance previously until we have actually got it ticked, we're not putting it into our guidance. That doesn't mean that we don't anticipate the audit in the next 12 months. We do. But even if we did get the audit, by the time you go through that process, produce product, get it through customs, it's unlikely to occur in the FY '20 year.

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Richard Barwick, CLSA Limited, Research Division - Research Analyst [33]

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All right. I just wanted to be very clear on that. And the ViPlus product, I know that you're targeting off-line in the Tier 3 and 4 cities. I'd just be interested to hear how you describe or how you're going to manage, effectively in time you'll have an organic and this -- the standard product in the market at the same time. How do you keep those 2 products separate in the way they're marketed? And I guess what worries me a little bit, if you spend all this money on rebranding, relaunching, clearly seeing the credentials of being an organic product. And yet, there's going to be an organic -- sorry, a Bellamy's nonorganic product in there as well. How do you manage that from the consumers' perspective so they don't get confused and actually, in the end, sort of degrading or devaluing the -- all the money you spent on the organic product?

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Andrew Cohen, Bellamy's Australia Limited - CEO [34]

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I think, first, with any kind of multiproduct portfolio, you have some risks. But we think that the benefits far outweigh the risks in terms of our ability to win share in that segment. We know that it is a really high-quality Australian product and that Bellamy's brand is actually associated equally with Australia as it is organic, and so they have a rightful place.

The second thing is to know that every formula company really in China, with the exception of probably a2, has a multiproduct portfolio and different price partitions. And often, they'll have an organic product at the very highest part of that partition, and they'll have other products below that. And so it's not an unusual thing for China, and it shouldn't be an unusual thing for consumers to sort of understand. And I think from a differentiation perspective, we're not going to be marketing this in terms of our brand marketing. Now e-commerce marketing, that is going to be a very separate world to the specific stores where this is marketed at a trade marketing level. And so it's very much the brand marketing will still remain around Bellamy's organic. The e-commerce marketing will be certainly around Bellamy's organic. But then in some mom-and-pop stores, you will be able to find a different product, a ViPlus product in those stores. And we actually don't think there'll be a lot of contagion across the brand.

And it's also important to note that this is not something that's new to Bellamy's either. Like HiPP has always had a conventional product in off-line and organic products online. And so we don't -- we have seen this historically done successfully in the past.

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Operator [35]

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That does conclude our question-and-answer session for today. I'll now hand back to Mr. Cohen for closing remarks.

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Andrew Cohen, Bellamy's Australia Limited - CEO [36]

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Many thanks. I don't have much to say in closing other than to sort of say we are really excited about the underlying consumer indicators that we're seeing for the rebrand. We're feeling very confident about the FY '20 year, and we're also confident that our strategy and the product portfolio that is going to be executed this year has more than the capacity to meet our medium-term targets and see Bellamy's go from strength to strength. Many thanks. I'll close the call.