Blackmores' full-year profits slump by 42%, but firm bullish over China recovery

By Gary Scattergood and Cheryl Tay

- Last updated on GMT

Blackmores former CEO Christine Holgate stepped down to head Australia Post.
Blackmores former CEO Christine Holgate stepped down to head Australia Post.

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Blackmores' net profits fell by 42% to A$58m for the last financial year and sales slipped by 3% to A$693m, amid a significant decline in sales to Chinese consumers through Australian retailers.

Outgoing CEO​ Christine Holgate acknowledged it had been a challenging year, but maintained that the company "finished the year in a stronger position than we entered it"​.

The disappointing results came on the back of two years of considerable growth as it cashed in on the wave of Chinese 'daigou' shoppers who were buying large quantities of supplements in Australia to sell via e-commerce in China.

She said: "Speculation in April 2016 about potential regulatory changes in China impacted the buying patterns of Chinese entrepreneurs and tourists who previously were purchasing through Australian retailers. The decline in sales​ to Chinese consumers through Australian retailers was significant and came without warning.

"This was evident in the high levels of stock in the market in the first quarter of the 2016 / 2017 financial year, which could be seen in our first quarter results."

China team

Despite the downturn, Holgate said demand for Blackmores products in China remained strong throughout the year as the firm changed its strategy.  

"Blackmores responded quickly to the changes in the market by both building a new China export team, and strengthening our in-country China business and tightly managing our inventory. We closed the year with direct China sales up 71% at A$132m and, including estimated sales through Australian retailers, China accounts for approximately A$250m of group sales,"​ she revealed.

The 'daigou' downturn saw overall Australia and New Zealand sales slide by 23% to A$372m, while tougher domestic market conditions also took their toll.

"Although sales recovered as the year progressed, the changed Australian retail environment saw a return to market competition and normalised levels of trading terms, which diminished our profits further on a year-to-year comparison,"​ added Holgate.

Asian uptick

On a positive note, direct sales to Asia (excluding China) rose 36% to A$216m, following the launch of a new product range in Indonesia and the establishment of a business in Vietnam, where it is planning a product launch in the coming months.

Recently appointed​ CEO Richard Henfrey said, "Our underlying performance has improved as the year progressed. We have invested in a world-class distribution centre in Western Sydney and in new technology platforms that will support the growth we anticipate, including additional volumes from our emerging businesses in Asia."​ 

Takeover success

Meanwhile, Blackmores' practitioner sales outfit BioCeuticals saw sales increase by 15% to nearly A$80m, exceeding within five years its 10-year sales and earnings target that was set when the business was acquired in 2012.

Global Therapeutics sales, on the other hand, climbed 11%, with the business now successfully integrated into the Blackmores Group.

Holgate said new product development has yielded strong results this year, with key launches — such as shelf-stable probiotics in Australia and line extensions for BioCeuticals — delivering increased sales.

Looking ahead to 2018, the company is aware that Chinese authorities are likely to implement a new regulatory system for supplements imported into China via e-commerce. This will likely entail stricter overall rules for such products, and may affect its e-commerce sales to the country.

Holgate said: "Retail markets are no longer defined by geographic boundaries, so a global approach to channel management and e-commerce has been necessary. Continued investment in this area was undertaken in the year with, further work required as we develop these capabilities."

Regarding the company’s full-year results, Henfrey said, "In line with updates to shareholders over the year, reported profits for the full year did not meet those of last year's exceptional results, though (they) represent 25% growth on the very strong 2015 financial year.”

Blackmores' management and board expect year-on-year profit growth this financial year.

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