SYDNEY (Reuters) - Infant formula company Bellamy's Australia Ltd on Wednesday said its half-year profit fell almost two thirds, hit by regulatory delays in China and falling domestic sales as it lost market share, sending its shares sharply lower.
The former market darling has been waiting for 14 months for clearance to sell its products directly in its biggest growth market, and said the foregone sales would shrink annual revenue and margins would be squeezed as marketing costs rose.
The delay, for which the firm has no clear explanation, underscores the regulatory challenges of doing business in China and has left Bellamy's to rely almost entirely on sales via notoriously fickle Chinese shoppers in Australia.
"I don't think the model has blown up, but the question will be: 'Can they get the traction back?'" said Mathan Somasundaram, market portfolio strategist at stockbroker Blue Ocean Equity.
Bellamy's shares dropped as much as 10 percent to a six-week low in early trade, before recovering to trade about 2 percent below Tuesday's close by mid-session, while the broader market rose 0.3 percent.
The company's flagging sales come amid a broader consumer slowdown in China which has affected firms ranging from U.S. tech behemoth Apple Inc to Australian vitamin maker Blackmores Ltd.
Bellamy's said its net profit fell 63.7 percent to A$8.1 million ($5.8 million) in the six months ended Dec. 31.
Sales also dropped by a quarter to A$129.6 million as customers swapped to New Zealand rival a2 Milk Company Ltd, which posted a record half-year profit.
Bellamy's Chief Executive Officer Andrew Cohen gave no firm date for finally securing permission to stock the company's organic milk powders and formulas in shops in China, which he had previously hoped to secure by the end of 2018.
"We fully respect the process and we don't want to take guesses about how that process is going to go on," Cohen said.
The company was hopeful officials would audit its premises in Melbourne by the end of the year as part of the accreditation, he added.
The company said it expected full-year revenue of between A$200 million and A$300 million, compared with A$329 million in 2018.
It expected an earnings margin of between 18 percent and 22 percent, compared with a previous forecast of 22 percent to 25 percent as a rebranding effort lifts marketing costs. ($1 = 1.3910 Australian dollars)
(Reporting by Tom Westbrook in Sydney. Additional reporting by Shanima A and Nikhil Kurian Nainan in Bengaluru; editing by G Crosse and Stephen Coates)
