All good things must come to an end in the stockmarket. We have seen it with resources stocks, retailers, dairy companies and now the great China vitamin boom is on the verge of deflating, judging by the reception given to the 2015-16 profit report and outlook from market darling, Blackmores (BKL).
Shares in Blackmores slid 13% at one stage after the company warned that its first quarter results for 2016-17 will be lower than the same quarter in the previous year.
It was the first hard evidence of a slowdown in growth of the Asian vitamins boom that had seen Blackmores’ shares pushed well above $220 in January and rivals such as Swisse and Vitaco being taken over or receiving bids from Chinese buyers.
Blackmores reported the more than doubling 2015-16’s full year profit to $100 million (from $46.6 million in 2014-15), and lifted its final dividend of $2.10, taking the full year result to $4.10, up 102% from the previous year.
But that was not enough for investors who have been increasingly worried about the health of the vitamin boom. So when the company yesterday warned about a weak September quarter, those fears were crystalised and an early bout of selling eventuated. The shares fell sharply to a five-week low of $139.50, as the company warned trading conditions in the first quarter of the new financial year will lead to lower sales.
The later rebounded a touch to trade around $1.44 before turning down in early afternoon trading to be around $139.56 just after 1pm. Blackmores said the Australian wholesale market was “volatile and has softened in recent weeks” as retailers destock items and exporters change how they buy products.
CEO, Christine Holgate said the change reflected different buying habits from Chinese ‘entrepreneurs’, who but Blackmores’ products here to resell to consumers in the Asian market.
These buyers have changed their buying habits from sweeping shelves clean in Australian stores, such as chemists and wholesalers and are now ordering and buying online.
That has seen Australian retailers (such as chemists) forced to destock because of the fall in demand.
“The Australian wholesale market is volatile and has softened in recent weeks impacted by retailers destocking and some exporters changing the channels through which they acquire products,” Ms Holgate said yesterday.
“We expect sales will improve as the year progresses,” she said.
The company said that in-country sales to China rose more than sixfold from $7.55 million in 2015-16 to $48 million in the 12 months to June 30. However Blackmores estimates that more than $200 million of its total $717 million sales came from Chinese consumers as tourists and visitors to Australia took products home.
That appetite from visitors helped lift sales from Blackmores’ Australian business 56% to $495 million. Net sales revenue jumped 52% to $717 million for the year to June.
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.
The company sees one of the biggest opportunities is in China, where it plans to release its own infant formula later this year.
