Profits slump at Blackmores as 'challenging' China market continues to take its toll

By Gary Scattergood contact

- Last updated on GMT

The first quarter was impacted by changes to the buying patterns of Chinese exporters, said the firm.
The first quarter was impacted by changes to the buying patterns of Chinese exporters, said the firm.

Related tags: China

Net profits at supplements manufacturer Blackmores slumped by 42% in the first of half of the financial year, with the firm reporting reduced demand from Chinese ‘daigou’ shoppers who buy in Australia and then ship goods back to their homeland.

The company posted group sales of $322m, 6% down for the first half compared to the previous corresponding period. Overall, net profit fell to $28.5m, well below analyst expectations.

In Australia, Blackmores notched up sales of $158m in the six months to the end of 2016, down 31% year-on-year. 

Sales to ‘daigou’ shoppers in recent years have helped the firm recorded record profits and surging share prices, which peaked at $200 a little over a year ago.

However, new cross-border commerce regulations in China and a change in the firm’s strategy have seen these tail off.

Blackmores CEO Christine Holgate said: "The first quarter was impacted by changes to the buying patterns of Chinese exporters. The Chinese market is both complex and challenging, though it remains a very important part of our business and we are pleased with our growth."

The growth she refers to was a 92% rise in direct sales in China to $64m. However, it was not enough to offset the drop in local Australian demand.

Other Asia sales (excluding Korea) delivered almost $40m in the first half, up 16%.

The firm told shareholders: "All our core markets are in growth and the smaller markets particularly have delivered strong performances - Taiwan, up 93%, Hong Kong, up 49%, Singapore, up 19%, Malaysia, up 20%, and Thailand, up 6%, in local currencies. In September Blackmores launched in Indonesia with a limited range, contributing just under $2m in sales."

Nevertheless, it has cut its interim dividend payout by 35% and will pay shareholders a $1.30 dividend on March 22.

Joint venture

Shares on Wednesday dropped by as much as $13 at one point, and as of lunchtime Wednesday were trading around $106, almost half the value of their peak in January 2016.

Blackmores also said it would continue to review its infant nutrition products developed with Bega Cheese.

The companies linked up in January 2016 to form the Bemore partnership on the back of booming Australian infant nutrition sales to China.

We reported in October how a combination of a market saturated with Western companies​, new regulations seeking to better control and restrict the number of brands on the shelves, and the resulting heavy discounting by firms wanting to shed stock before the new rules come into place, had hit sales.

Holgate today said that sales were growing but it would "continue to review this business to ensure we have the right structure in place for the future.”

Related topics: Manufacturers, Supplements, Financial plays

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