The new chief executive of Blackmores says there’s little prospect of a quick return of the flood of Chinese tourists and entrepreneurs buying up vast amounts of vitamins in Australia which 18 months ago sent the share price soaring beyond $220.
Richard Henfrey said the disappearance of a substantial chunk of those entrepreneurs known as daigou traders from the Australian scene after regulatory uncertainty in China had meant the short golden era of very little discounting and rebate deals with big retailers had finished for now.
“We don’t anticipate another gift year like we had in 2016,” Mr Henfrey told The Australian Financial Review. “It’s really a return to business as usual.”
The company revealed on Tuesday that bottomline net profit dropped 41 per cent $59 million in the year ended June 30, 2017, prompting a sharp cutback in dividends as the boom times of the previous year faded.
Blackmores had notched a stellar $100 million bottomline profit in 2015-16 and Mr Henfrey acknowledged it would be some time before that might be repeated.
“I don’t have a crystal ball,” he said.
Blackmores pruned its final dividend back to $1.40 per share from $2.10 a year earlier. The big dip in profits means that Mr Henfrey faces a much harder road as he takes over from long-serving boss Christine Holgate. Sales revenue slipped by 3 per cent to $692.8 million.
But Mr Henfrey said underlying demand in China was still strong, and the long-term dynamics of people being focused on health and well-being augured well for the long term.
“We’re in an industry that resonates so well with consumers,” he said. “I’m pretty excited”.
Blackmores on August 17 announced that Mr Henfrey had been elevated to the role, after Ms Holgate announced in late June she would be resigning to take on one of the toughest jobs in corporate Australia, running Australia Post. She is replacing Ahmed Fahour as chief executive at the postal service.
The Blackmores Australasian business bore the brunt of the pullback by Chinese tourists and entrepreneurs, with sales down 23 per cent to $372 million. Ms Holgate said the decline in sales to Chinese consumers through Australian retail had come “without warning” and had prompted a “turbulent” start to what was to be her swansong year at the company.
Chinese tourists and exporters changed their buying patterns and the Australian market became much more competitive with high levels of stock left in the market. Blackmores was forced to increase inventory provisions from $2 million to $14 million because of the excess stock.
“There was a lot of stock in the retailers,” Mr Henfrey said. Blackmores has set up a special export division to service some of the big daigou traders in Australia who continue to sell large volumes into China, but some of the more opportunistic entrepreneurs have departed the scene. “I don’t think they will go away completely,” he said.
Blackmores shares soared to $220 in January, 2016 on the strength of enormous appetite from Chinese buyers for “clean and green” vitamins brands. It was largely driven by the Chinese entrepreneurs buying up large volumes of vitamins from Australian supermarkets and big box outlets like Chemist Warehouse and then selling them online on e-commerce sites in China. The shares gained around 5 per cent on Tuesday to $96 in early trading after the results were released.
Landscape is evolving
Blackmores’ direct sales to Asia were up 36 per cent to $216 million. Direct sales into China jumped even higher, up 71 per cent to $132 million helped along by the new Blackmores export division which has been set up.
Mr Henfrey said it was important to put the results into context. He said while the 2016-17 net profit after tax didn’t meet the “exceptional results” of the previous year, they were still 25 per cent up on the 2014-15 profits.
He said market conditions were continuing to change and evolve within both Australia and Asia. But the company expected year-on-year profit growth for 2017-18 compared with 2016-17.
Blackmores is continuing to use retired Chinese tennis star Li Na as an ambassador for the company in the China market. Blackmores’ total sales to China account for about $250 million in total annual sales when direct sales were added to the sales made in Australia to the lower numbers of Chinese tourists and entrepreneurs.
by Simon Evans
Australia Financial Review