China's e-commerce laws tough pill to swallow for Blackmores

China's e-commerce laws tough pill to swallow for Blackmores

Australia's leading vitamin supplement company Blackmores (ASX: BKL) saw strong results in almost all its markets in FY19, but there's one important exception - China.

The Sydney-based company's net profit after tax (NPAT) was down 24 per cent at $53 million, despite good results and home and aggressive diversification efforts in other parts of Asia.

In its results announcement this morning, the group noted sales in China were disrupted by changes to e-commerce laws which took effect in January.

"We continue to see an ongoing evolution in the way Chinese consumers access our products, with a shift away from Australian retailers to more direct purchasing from e-commerce platforms in China," Blackmores said.

"Sales in the China segment, comprising key export accounts and in-country sales were $122 million (down 15% compared to the prior year)."

There were however positive signs in Blackmore's largest export market with a sales increase of 22 per cent for its in-country business.

Importantly, Blackmores noted a massive 65 per cent jump in sales for the November 11/11 Single's Day promotion, which is China's equivalent of Cyber Monday but on a much larger scale with Alibaba notching $30.8 billion in sales in last year's 24-hour event.

Amidst these changes, Blackmore's business elsewhere in Asia has started to close the gap on China, bringing a 30 per cent rise in sales to hit $107 million.

"Across Asia, we saw strong growth in both well-established and new markets due to increased distribution and new product launches," the company said, noting the benefits of free trade agreements in the region which includes Korea, Japan, Thailand, Malaysia, Singapore

"This includes Vietnam up 157% and Korea up 28%. Indonesia sales were up 90% and pleasingly, the business turned profitable for the first time during the second-half.

"We are focused on continuing to diversify into new markets with new products. The business is continuing its evaluation of market entry into India."

While much attention is often given to Blackmores' China-oriented exports as a growth indicator, it is worth remembering sales in Australia and New Zealand are still its largest source of revenue with around 43 per cent of the total share.

"Sales in Australia and New Zealand of $267 million were slightly ahead of the prior year (with a modest gain in Australia and a slight decline in New Zealand)," the company said.

"Blackmores remains the number one vitamin and dietary supplement (VDS) brand in Australia with 15.9% domestic market share and a strong gap over our nearest domestic competitor.

"Blackmores was again recognised as Australia's most trusted brand for the 11th year running, and our products are now used in more than one-in-five households."

Outlook

The company explained challenging trading conditions in its channels in China were likely to continue during the first-half of FY20.

"The impact of changes to China's e-commerce laws and costs associated with restructuring and the Braeside acquisition are expected to result in profit for the first-half being below the prior corresponding period," Blackmore said.

"The second-half of FY20 is expected to benefit from operational efficiencies as a result of the execution of business improvement initiatives.

"Despite a challenging year, the Board remains optimistic about the significant opportunities available to thebusiness and is focused on ensuring these are seized and delivered."

Blackmores' AGM will be taking place on 31 October.

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