Alarm bells go off as Blackmores' China business takes a beating

Sydney

AUSTRALIAN vitamin maker Blackmores Ltd said it would review its China business and issued a surprise profit warning, citing soft consumer demand on the mainland, sending its shares down the most since listing three decades ago.

The sharp sales reversal for Blackmores, which raked in double-digit growth last year on exploding China demand, makes it Australia's first casualty of a slowdown in the world's No 2 economy that is also scalding businesses worldwide.

Just last month, tech behemoth Apple issued a rare revenue warning citing weaker demand for its iPhones in China. Many others have followed suit since then to complain about slower China demand.

Blackmores said its sales to the mainland sank more than a tenth in the six months to December and that the weakness was continuing amid "a general softening of consumer sentiment".

The vitamin maker's CEO, Richard Henfrey, said the company was now reviewing its investments in its biggest offshore market where it hired Chinese-Canadian actor Shawn Dou as a brand ambassador last November to draw "eyeballs" to its product.

Blackmores, which turned in a net profit increase of just 0.4 per cent for the first half ended December, said its annual revenue growth would be "modest".

Shares of the Sydney-based firm went into a tailspin on the grim outlook, falling as much as a third at one point in their biggest percentage drop since the company's listing in 1985.

The stock hit its lowest since 2015 in intraday trade. By late afternoon, it was down 24 per cent, while the broader market was up 0.3 per cent. Investors are now waiting for results on Wednesday from infant formula maker A2 Milk Co Ltd for more cues on the impact of a China slowdown and the crippling Sino-US trade war that has upended global supply and demand trends. China is the top export market for A2, New Zealand's biggest company.

"You've got a property market over there that's very weak, you've got all these trade tensions, you've got the lowest economic growth in 20 years in China (but) for Blackmores that space was supposed to be growing no matter what," said Steve Johnson, chief investment officer at Forager Funds Management.

"They're almost certainly buying more of that type of product, it's just that when the demand increases so does the competitive response." JP Morgan described Blackmores' update as a "meaningful downgrade relative to consensus expectations".

In a sign Blackmores' woes might be specific to the company, Australia's top exporter of consumer goods to China, winemaker Treasury Wine Estates Ltd, reported a jump in sales to Asia, largely China, for the same six months.

But Blackmores has a different sales channel that relies partly on online sales and informal exports from Chinese visitors shipping goods home from abroad, known as daigou, versus Treasury's more direct approach.

Amid concerns about its domestic market being overrun with foreign-made goods, Beijing has begun a crackdown of goods being bought overseas, including forcing distributors who order foreign goods online to register and pay tax. REUTERS