'Not fantastic': Blackmores to overhaul business strategy as Q3 profits plunge by 43%

By Cheryl Tay contact

- Last updated on GMT

Blackmores' overall sales to Chinese consumers were estimated to be 6% lower on a year-on-year basis, due to slowing sales through Australian retailers. ©Getty Images
Blackmores' overall sales to Chinese consumers were estimated to be 6% lower on a year-on-year basis, due to slowing sales through Australian retailers. ©Getty Images

Related tags: China, Australia, financial report

Australia supplements giant Blackmores has announced weak Q3 results thanks to slower domestic and China sales, but the firm is confident its new development strategies will get it back on track.

The company saw a 4% decrease in overall revenue from Q3 the previous year to A$141m, as well as a 43% dip in profits to A$10m.

This was attributed to lower sales and a higher level of investment in its brands; the softening sales in Australia were part of a deliberate move to clear inventory in China.

At the same time, overall sales to Chinese consumers were estimated to be 6% lower on a year-on-year basis, due to slowing sales through Australian retailers; this was despite China segment sales being up 19% on a quarterly basis.

In its other Asian markets, however, Blackmores saw its revenues rise by 18% in Hong Kong, 81% in Taiwan, 13% in South Korea, 32% in Malaysia, and 99% in Indonesia up 99% and turned profitable in the quarter.

Navigating the Far East

At its April 16 investment briefing, the company said it was "accelerating the plan to streamline the business and target A$60m in savings over three years"​.

Separately, in a letter addressed to shareholders, boss Marcus Blackmore said the implementation of the the PRC Electronic Commerce Law during the quarter had resulted in lower sales to Chinese consumers through Australian retailers, as daigou​ and C2C sellers reviewed their operating models.

"Reflecting the ongoing evolution in the way Chinese consumers access our products, we have undertaken a major strategic review on how to maximise our Chinese consumer-facing opportunity, including supporting daigou to more deeply engage with the Blackmores brand. Outcomes of the review will be implemented in the fourth quarter."

Speaking to NutraIngredients-Asia​, he said: "Our results are not fantastic by any means. We struggled with our added growth and our China business, because we lost a lot of the daigou sales we used to have.

"We've gotten comments like 'Blackmores didn't have enough new products', which I completely agree with. We've been light on new products for the last 12 months or more, and we just have to do a better job at that."

He added that the firm's 'substantial two-month review' of how to better approach the daigou​ platform would help it determine whom it should look for as partners to help it expand the business with logistical developments and perhaps, a retail presence.

"We're starting to engage better with these sellers, and I think they didn't understand in the early days the influence they had on not just supply chain mechanic, but also their ability to sell products and become a market force.

"They're incredibly knowledgeable and we've had a lot of them visit our premises here in Australia — we just haven't engaged them like we've needed to."

Due to its large population and growing middle class, he continued, China presented a 'massive opportunity', but it was important for Blackmores to properly navigate the attendant risks​, which were considerably greater than in the firm's other Asian markets.

"A lot of people trying to do business in China often make the mistake of judging Chinese businesses and people by the corporate and consumer behaviours they see in their own countries.

"We're very lucky we have our Asia MD Peter Osborne there — he's spent a large part of his life in China, having worked with Austrade and the Chinese government."

With regards to the increasingly strict regulations​ in China that have been speculated to disproportionately affect daigou​ sellers, Blackmore is confident the company has an advantage in the situation.

"The Chinese government now wants daigou sellers to register their businesses and pay taxes, and we know they work with very small margins, so we think we can help with that.

"We have a highly regulated environment in Australia, and I think we're well placed to handle any new regulations in China."

Down the line

Blackmore further said the board was 'not comfortable' with the results, which have spurred the company to be more 'aggressive' about growing its top line.

"We've committed to taking about A$20m per year for the next three years out of our coffers and reinvesting some of that in our people," ​he said.

"We are streamlining the business and so far, the fundamentals look good. I think that over time, we will absolutely deliver in spades on what we've set out to do."

Meanwhile, the board is continuing its search for a new CEO in light of former CEO Richard Henfrey's sudden resignation, after which Blackmore took over as interim CEO​.

In his letter to the firm's shareholders, he said the search process was 'progressing well'.

"We've narrowed down our list of candidates, and in the next month or two, we'll get it down to the final few.

“We're keen to get an entrepreneurial CEO who has a history of engaging with the staff and perhaps, someone with a strong Asian background, as that would be particularly useful to us.

"I'm confident we'll have a new CEO in place before the end of this financial year, which will be in June."

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