• FY19 guidance – short term weakness but medium and longer-term fundamentals remain intact. Management expects Australia Label to see “up to 10% year on year growth” in revenue as FY19 group EBITDA margin continue at 2H18 normalised levels of 22-25%. Management has seen “more competitive trading environment for [their] Australian-label business in recent months and expect more moderate sales growth in FY19 as a result”. BAL continues to execute its ‘premium brand strategy’ which in FY19 will “include the roll-out of a brand refresh, including nutritional enhancements, product line extensions and regulatory labelling transition across food and formula”. Separately, in terms of medium term guidance, according to management, BAL has laid the foundations to build a “+$500m revenue business by FY21” which will be further detailed at the upcoming investor day after the AGM.
• SAMR registration on track. BAL submitted its SAMR (previously CFDA) application in December 2017. Note that the CFDA was part of a restructuring process and a new regulatory body, SAMR was established. Registration relates to Chinese label formula sold in the China offline channel (6% of FY18 revenue). SAMR registration of Chinese-label formula continues to progress and management “remain confident that registration will be achieved”.
• Forays into Vietnam in 1H19. BAL highlighted the positive demographics and thematic of Vietnam and its baby formula and food market noting:

1. Large population of 96m;

2. Vietnam apparently has the fastest growing upper and middle class in South East Asia from 25m in 2015 to 33m in 2020 with 1.6m annual births (versus 300k in Australia and ~17m in China).

3. In terms of the Vietnamese baby formula and food market, Global Data estimates the size to be ~$1bn and growing at 15-20% per annum (versus China at ~$30bn).

4. Vietnam has similar concerns about food safety, quality and nutrition.