Blackmores CEO downplays China e-commerce tax as shares sink

[SYDNEY] The head of Blackmores Ltd, the Australian vitamin maker whose shares posted the steepest two-day drop since 1987, said investors are overreacting to China's tax changes on imported goods bought online.

Chinese authorities last week announced a list of products that will be subject to new e-commerce tax rules, amid an overhaul of its system aimed at making levies on products posted to shoppers from overseas more comparable with rates paid locally. Blackmores fell as much as 19 per cent in Sydney on Tuesday, extending yesterday's 13 per cent drop.

"People assume the worst," chief executive officer Christine Holgate said in a phone interview Tuesday from Beijing. "There is nothing on those lists today that I can see that gives us any concern."

Blackmores soared more than 500 per cent last year as its profit jumped on demand from mainland Chinese buyers willing to pay a premium for goods made Down Under. Other Australian niche exporters have also tumbled since the tax changes were unveiled, with Bellamy's Australia Ltd, which makes organic baby formula, falling 11 per cent on Tuesday. A2 Milk Co declined 6.5 per cent, while Blackmores pared its drop to close 6.8 per cent lower in Sydney.

China's government said in March it would remove a so- called parcel tax that was previously levied on imports sold online. Rates ranged from 10 per cent on food and infant items that came into the country through special zones, to 50 per cent on cosmetics and alcohol.

Instead, it will charge value-added and consumption duties that are currently imposed on most products sold in China but with a 30 per cent discount, according to a Ministry of Finance statement. Items on the list published last week are also eligible for streamlined importing procedures.

"Historically, there have been two different import methods: personal use articles subject to the postal tax and the trade of goods subject to duties and consumption tax," Dolly Zhang, director of indirect tax and business advisory services for Deloitte China in Shanghai, told Bloomberg BNA last week. Now there's effectively a third category, she said.

"Regulation evolves on a daily and weekly basis," said Blackmores CEO Holgate. "There will be more lists and more clarity." Blackmores has spent three decades developing a range of products from osteoarthritis pain relief to nutrition supplements and skin cream. It estimates China accounts for 40 per cent of sales.

Bears are targeting the stock like never before. Short interest rose to 9.9 per cent of outstanding shares on April 8, the highest on record, Markit Group Ltd data show. Blackmores is down 24 per cent this year after a 519 per cent surge in 2015.

Bellamy's is confident the e-commerce tax will not impact sales, said its chief executive officer, Laura McBain, in a statement.

Freedom Foods Group Ltd noted in a regulatory filing on Tuesday that long-life milk products and adult milk powder weren't included on the list published last week, while saying its Chinese sales of UHT milk come mainly through traditional retail stores. Its shares fell 4.2 per cent in Sydney trading.

Murray Goulburn Co-Operative Co, Australia's largest dairy foods company, said its Devondale milk powder has been temporarily removed from some websites for immediate sale. The company said it doesn't currently see a material impact to its business.

Online sales of imported goods to Chinese shoppers have grown at a compounded rate of 63 per cent in the five years to 2015, reaching 638 billion yuan (S$133.2 billion) and accounting for 17 per cent of China's total online retail sales, according to data from Mintel Group Ltd.

Australian Prime Minister Malcolm Turnbull is in China this week on his first official visit and is due to meet President Xi Jinping and Premier Li Keqiang. Ms Holgate said she would use the support of the government to promote partnerships soon to be announced. One is with Leyou.com, a Chinese mother and baby store chain that has 500 stores, Ms Holgate said.

BLOOMBERG