China conundrum: Shares slide as Blackmores in-market sales slow but daigou channel still delivers

By Cheryl Tay

- Last updated on GMT

Blackmores' sales in China were down 11% in the half to US$46.3m (A$65m), compared to the previous corresponding period.
Blackmores' sales in China were down 11% in the half to US$46.3m (A$65m), compared to the previous corresponding period.

Related tags China Sales Revenue Profit financial report

Blackmores' in-market sales in China dipped in the first half of the financial year, causing its shares to slide and emphasising the difficulty in shifting from a daigou-based model to domestic Chinese trade.

Shares fell by 23% to US$67.70 (A$95.12) today (February 19) amid the release of its latest half-year report, despite the firm reporting record revenues.

The latest results showed that sales in China were down 11% in the half to US$46.3m (A$65m), compared to the previous corresponding period.

Blackmores has repeatedly stressed its ambition to improve sales in the China market. To date, the vast majority of its products make their way to the country via daigou​ e-commerce channels — and these are continuing to grow.

CEO Richard Henfrey said: "When China-influenced sales through Australian retailers are taken into account, we estimate growth in sales to Chinese consumers to be around 8%."

The firm attributed this to a 'channel shift', which involved Aussie retailers targeting the Chinese export trade more directly. This in turn benefited Blackmores' results in the Australia and New Zealand markets.

With regards to Blackmores' plans for China moving forward, Henfrey said: "Consistent with our strategy to further develop the Blackmores China in-country business, we have continued to invest in building our market capability. We are investing strongly in China, including the recent appointment of Shawn Dou as brand ambassador…and Sophia Tseng as country manager for China.

"Sophia will commence later this month, and brings an extensive background in the FMCG (fast-moving consumer goods) and consumer health sectors in China, and has strong experience driving strategic growth. We have commenced a review of our investment approach in China and the impact of channel shifts, which Sophia will carry forward."

Overall, in the six months ended December 31 2018, the Australian supplement giant also saw 'record revenue' of US$227.2m (A$319m) — up 11% from the same period in 2017 — and net profit after tax of US$24.2m (A$34m), which was "in line with the prior corresponding period"​.

Asian action

Outside of China, Blackmores reported revenue increases in its other Asian markets: Taiwan (150%), Indonesia (72%), South Korea (67%), Hong Kong (39%), and the rest of Asia (34%).

Blacmores also recorded an increase in its 'other Asia' EBIT (earnings before interest and tax) of 268%, which it attributed to successful NPD (new product development) and marketing, as well as greater distribution and improved supply.

The firm added that its revenue growth in Indonesia had been driven mainly by its entry into Kimia Farma, the country's largest pharmacy retail chain.

Domestic dominance

In addition, the company reported a 19% increase in ANZ (Australia-New Zealand) revenue to US$102.6m (A$144m). This was attributed to steady sales of its new products, such as the recently launched Essentials range, as well as its joint health supplements.

The company's completion of its acquisition of Impromy, a weight-management programme developed in collaboration with CSIRO, was also credited with contributing to its revenue growth.

Blackmores' practitioner-only firm, BioCeuticals, contributed 7% revenue growth, with its products ArmaForce and Ultra Muscleze seeing further range extensions amid steady sales.

Henfrey emphasised Blackmores' continued position as the top VDS (vitamin and dietary supplement) brand in Australia, with 16.7% market share.

How now?

Henfrey said that in terms of outlook, Blackmores expected "modest full-year revenue growth"​, but added that its Q3 China sales were "impacted by continuing changes to the way consumers purchase our products, as well as higher inventory in the trade and a general softening of consumer sentiment"​.

As such, he said, the firm did not expect its H2 profit performance to exceed its H1 results. However, he said the firm expected all its other markets to continue doing well, with overall group sales to increase in Q4.

"We are leading a Business Improvement Programme across the organisation to target US$42.7m (A$60m) of savings over the next three years. This work has already commenced. The intention is that savings will be redirected to investment in strategic initiatives, investment in people and capacity, and delivery of overall margin improvement."

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