The virus that is China’s fickle demand for products such as coal, iron ore milk, baby milk, foods, vitamins and other so-called struck Blackmores (BKL) yesterday, sending the shares down more than 10% at the close.
The China virus has struck a variety of companies – Bellamy’s for example is one notable victim, Bega Cheese for a while, A2 on suspicion. BHP Fortescue, Whitehaven and Rio Tinto have been burned for a while in resources.
Retailers such as Coles, Woolworths and Metcash have also been hit by a surge in buying of milk, vitamins and associated products by Chinese and other Asian visitors, only to find the buying rush evaporates as quickly as it started.
Yesterday it was the turn of Blackmores, the vitamins industry leader, to confirm that it had been infected – that saw the shares fall as much as $13 on Wednesday morning.
The shares fell 12% to $102.50 after Blackmores released its half-year results, before recovering and trading sidesways for the rest of the session. They ended the day on $104.66, down 10.2%.
The company said it recorded $158 million in local sales in the last six months of 2016, down 31% on the same period in 2015, as what it called “Chinese-influenced sales” fell and buying patterns “evolved”.
At the same time Blackmores has started selling directly to customers in China, a business that grew 92% to $64 million in the half. That was the good news in the release because if that figure continues growing Blackmores will eventually recover its sales lost as the number of Chinese visitors buying in Australia dropping away.
The result reflects a shift from relying on so-called “daigou” shoppers who buy in Australia on visits and then return to China to sell, to Blackmores trading in China directly.
“The first quarter was impacted by changes to the buying patterns of Chinese exporters and by high stock levels held by Australian retailers,” Blackmores chief executive Christine Holgate said in yesterday’s statement.
"The Chinese market is both complex and challenging, though it remains a very important part of our business and we are pleased with our growth.
"We are encouraged by progress in the second quarter across the group, though the Australian retail environment remains challenging." After a big fall in the first quarter, Blackmores said second quarter sales returned to modest year-on-year growth.
Blackmore’s would "continue to review this business to ensure we have the right structure in place for the future", directors said.
Across the business total revenue was down 5.7% on the same half last financial year, while net profit fell 41% to $28.4 million.
Blackmores will pay a $1.30 interim dividend on March 22, down 30% from $2 last year. That is the most telling sign.
For all the confidence in yesterday’s statement from the company and the CEO, the board played it safe yesterday by trimming the payout and conserving cash, just in case the slide in Chinese demand continues, or rather that Chinese demand doesn’t recover.
