Australia's Blackmores changes tack in China as profit falls
* FY profit falls 23.6% to A$53.5 mln vs A$59.9 mln analysts
* Warns of challenging trading conditions in China
* Daigou channel will not go back to what it was - deputy
* Shares tumble 12% to a 4-year low
(Adds management quote, portfolio manager comment)
By Paulina Duran and Shriya Ramakrishnan
SYDNEY/BENGALURU, Aug 15 (Reuters) - Australian vitamin
maker Blackmores Ltd warned first-half profit would
decline due to tougher conditions in China, as it disappointed
investors on Thursday with weaker-than-expected earnings and a
dividend cut, sending its shares down 12%.
Blackmores, once an investors' darling as China's appetite
for health products drove double-digit annual sales growth, is
now struggling with tougher import rules and a slowdown in
consumer spending in its biggest overseas market.
Deputy Chief Executive Office Aaron Canning said rule
changes in China had led to 40% lower sales through the
company's "daigou" network of informal exporters, once the
lynchpin of its success in China.
"The daigou channel has been impacted by regulatory change,
so that channel will not go back to what it was unless there's
further regulatory change," Canning told Reuters in a phone
"So the strategy is to invest in China directly."
Blackmores was seeing double-digit growth from "in-country"
sales driven by investments in its brand in China and
partnership agreements with Chinese online platforms such as
Alibaba Group Holding Ltd, he said.
The company also planned to raise prices on its products
from Oct. 1 to protect its margins and to reflect its "premium"
Overall sales to China, which include direct exports and
in-country sales, fell 15% in the year, prompting a
bigger-than-expected 23.6% drop in full-year profit. Blackmores
shares fell 12% to A$73 after the result, their lowest level
since July 2015.
"What's alarming is that ... the trend - both in revenue and
EBIT - is deteriorating meaningfully, and of course the outlook
seems very weak," said Jun Bei Liu, a portfolio manager at
Tribeca Investment Partners.
"The issue with China is also that Blackmores never really
had a sustainable take-up of products to get consumers really
Net profit fell to A$53.5 million ($36.1 million) in the
year ended June 30, down 21% from 2018 and below the A$59.9
million average forecast by nine analysts, according to IBES
data from Refinitiv.
It declared a final dividend of 70 Australian cents per
share - down from 155 cents last year - and said it would
undertake a A$60 million savings programme over three years.
On top of its declining sales and profitability, analysts
expressed concern about the unexpected departures of two company
non-executive directors and its country head in China.
In a call with analysts, Canning said the directors had
resigned after "some differences in opinion", without
The company was recruiting a managing director to head its
Chinese business after the previous head left for family
reasons, he added.
Blackmores last month hired Alastair Symington as its chief
executive, hoping his experience in China would help revive
sales growth in the country. Symington will join the company on
($1 = 1.4813 Australian dollars)
(Reporting by Paulina Duran in Sydney, and Shriya Ramakrishnan
and Niyati Shetty in Bengaluru; Editing by Stephen Coates)
First Published: 2019-08-15 04:33:18
Updated 2019-08-15 07:53:08
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