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UPDATE 2-Australia's Blackmores cites China challenges as H1 profit slumps
February 21, 2017 / 10:52 PM / 9 months ago

UPDATE 2-Australia's Blackmores cites China challenges as H1 profit slumps

* Net profit A$28.5 mln, tracking below FY expectations

* Domestic sales down 31 pct

* Exports to China rise on shift in sales focus

* Chinese market is “complex and challenging” - exec (Adds shares, background)

SYDNEY, Feb 22 (Reuters) - Australian vitamin maker Blackmores Ltd said on Wednesday that first-half net profit plunged 41 percent, as a strategy to target exports to China rather than Chinese shoppers in Australia backfired.

The company last year switched its sales focus away from Chinese shopping agents, or “daigou,” who buy products from stores across Australia to ship home to family and friends, to chase direct sales to China instead.

Analysts said the move, made partly in response to regulatory changes in China, contributed to a 31 percent drop in domestic sales. Direct exports to China almost doubled, but did not make up the shortfall.

Net profit fell to A$28.5 million ($21.9 million) for the six months to Dec. 31, on a slump in domestic sales. It follows a record result a year ago, and tracks well behind an average forecast from seven analysts polled by Thomson Reuters I/B/E/S for full-year profit of A$75.8 million.

“The first quarter was impacted by changes to the buying patterns of Chinese exporters,” Blackmores Chief Executive Officer Christine Holgate said in a 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.”

The one-time market darling suffered its biggest intraday share price fall since reporting weak results last August, touching a low of A$102.44 before rebounding slightly. The broader Australian market traded flat.

Blackmores shares soared 500 percent in 2015, but have halved since 2016 amid doubts about the China strategy.

The result mirrors a plunge in sales and stock price at Bellamy’s Australia, which also chased direct sales in China ahead of domestic Chinese shoppers.

And it contrasts with Zealand dairy firm A2 Milk Company Ltd , which stuck with the daigou channel and last week said its half-year profits jumped nearly 300 percent.

Blackmores announced an interim dividend of A$1.30, lower than A$2.00 a year ago.

$1 = 1.3033 Australian dollars Reporting by Tom Westbrook; Editing by Stephen Coates

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