Blackmores profit surges 115pc

Vitamin giant Blackmores says demand remains strong, despite a warning on sales that sent its shares stumbling.

Blackmores chief executive Christine Holgate.

Chief executive of vitamin giant Blackmores Christine Holgate says a drop in expected first quarter sales is due to changes in the wholesale market and doesn’t reflect continued strong underlying demand for its products.

Blackmores shares tumbled 13 per cent to a five-week low of $139.50 at the start of trade on Wednesday, as the company warned trading conditions in the first quarter of the new financial year will lead to lower sales.

Investors took it as the first signs of a slowdown in the company’s stellar growth story, which has capitalised on booming Chinese demand for health products.

Blackmores today said the Australian wholesale market was “volatile and has softened in recent weeks” as retailers destock items and exporters change how they buy products.

But Ms Holgate said the change reflected different buying habits from Chinese “diagou”, or entrepreneurs, who resell Blackmores products to consumers in the Asian market. Whereas before diagou purchased Blackmores products en-masse in supermarkets and traditional retailers, this was now being altered by the fundamental changes in online retailing. Consequently, retailers were now destocking due to the superficial drop in demand.

It was a slight soft note in an otherwise robust earnings story, in which Blackmores cracked the $100 million ceiling in annual profit as Chinese customers fuel robust sales growth.

Blackmores (BKL) today booked a net profit of $100 million for the year through June, an increase of 115 per cent year-on-year.

Revenue for the group surged 52 per cent over the year to $717.2 million with Blackmores registering its 14th straight year of sales growth.

Blackmores will pay a $2.10 final dividend, bringing the year’s total distribution to $4.10.

In April Chinese regulators released a “positive list” of commodities that could be imported through the cross-border, e-commerce channel, which created confusion and investor fear about the impact on Blackmores’ Chinese sales. Blackmores recorded its biggest ever one-day market fall on the back of the regulatory concerns.

Founded by naturopath Maurice Blackmore in 1932, around 50 per cent of Blackmores sales are now estimated to come from Asian consumers. The company said Chinese customers “now influence” around $250m worth of sales, which is a fourfold increase in the last 12 months.

Ms Holgate said the company was on the cusp of a demographic and regional boom.

“Many of our neighbours in Asia are seeing significant demographic changes with a growing middle class and two child families in China. Consumers universally are changing, with moves towards personalised health, an increasing role of digital technologies in product purchase and the evolution of food as medicine,” Ms Holgate said. “Blackmores is well positioned to benefit from these trends,” she said.

One of the biggest opportunities for the group is in China, where Blackmore’s infant formula will be released later this year.

It comes as infant formula has been stripped from local supermarket shelves as shoppers scoop up Australian infant formula to sell into China where consumers highly value Australia’s manufacturing and food security credibility.

Australia sales were up 56 per cent over the year, while sales from Asia were up 54 per cent over the year.