Bellamy’s turnaround in China

• Main Authors: HUANG, Sterling, ZHOU, YouTing
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2019
• Subjects: Auditing; Types of Audits; Financial reporting; Qualified opinions; Management Controls; Crisis Audit; Turnaround strategies; Accounting
• Online Access: https://ink.library.smu.edu.sg/cases_coll_all/260; https://smu-my.sharepoint.com/personal/chiweichan_smu_edu_sg/_layouts/15/onedrive.aspx?listurl=https://smu.sharepoint.com/sites/admin/CMP&id=/sites/admin/CMP/cases/SMU-19-BATCH [PDF-Pic]/SMU-19-0020 [Bellamy's]/SMU-19-0020 [Bellamy's].pdf&parent=/sites/admin/CMP/cases/SMU-19-BATCH [PDF-Pic]/SMU-19-0020 [Bellamy's]
• Institution: Singapore Management University

Set in December 2017, the case discusses Bellamy’s Australia Limited (BAL)’s debacle in China, and its subsequent turnaround. BAL was the leading supplier of infant milk formula and baby food products in China, its largest export market. In mid-2016, the Chinese government, in a bid to control the growing proliferation of sub-quality products in the industry and boost consumer confidence, introduced new import regulations. These regulations restricted all companies, domestic and foreign, to selling a maximum of three product lines, and mandated their pre-approval and registration with the Certification and Accreditation Administration of the People's Republic of China (CNCA) and China Food & Drug Administration (CFDA). BAL’s top management’s subsequent liquidation of part of their shares in the market, coupled with an attempt to mislead the shareholders regarding the impact of the new regulations on the company’s sales in the country, triggered a strong negative investor sentiment. BAL’s stock prices plummeted by more than 40% overnight, leading to the company requesting for a voluntary trading suspension of its shares at the Australian Securities Exchange (ASX). In January 2017, the board of directors undertook a series of corrective steps including the appointment of Andrew Cohen as the new CEO. By December 2017, the market situation had improved with BAL reporting reduced inventory, positive operating cash-flow, renewed momentum in sales and a significant improvement in investor outlook. BAL’s share price picked up by 60%. Yet, there were many concerns going forward. Would BAL be able to sustain and build upon the positive results, given the highly sensitive nature of the infant milk formula and baby foods industry in addition to the complex legal structure and bureaucracy of the Chinese market? What would be a prudent financial accounting and reporting strategy for BAL management to pursue in order to rebuild its market credibility?