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Blackmores posts 24% decline in full year profit due to China weakness

James Mickleboro
Blackmores vitamins

The Blackmores Limited (ASX: BKL) share price will be on watch today after the health supplements company released its full year results.

How did Blackmores perform in FY 2019?

Following a disappointing fourth quarter, Blackmores reported a 1% increase in full year revenue to $610 million and a 24% decline in full year net profit after tax to $53 million. Underlying full year net profit after tax came in a touch higher at $55 million, representing a 19% year on year decline.

On a per share basis, earnings were 24% lower at 309.2 cents. This led to the Blackmores board cutting its final dividend down to 70 cents per share fully franked, which brought its full year dividend to 220 cents per share. This was a decline of approximately 28% on FY 2018’s dividend.

Blackmores ended the period with inventory of $125 million, $21 million higher than a year earlier. However, this was due to the company building safety stock levels in order to ensure continuity of supply ahead of its Catalent transition.

What were the drivers of the result?

This biggest drag on the company’s performance in FY 2019 was its China segment. Sales in the China segment (key export accounts and in-country sales) were down 15% to $122 million due partly to changes in e-commerce laws. Segment EBIT dropped 40% due to increased investments in brand and the expansion of its in-country capabilities.

The Australia and New Zealand segment performed a little better, posting a small increase in sales to $267 million. Management advised that its sales were impacted by disruption in channels to China in the second half.

One big positive was the performance of the Other Asia segment. Sales from across Asia markets (excluding China) increased 30% to $107 million in FY 2019. The Korea and Vietnam markets were highlights, with Blackmores growing sales in them by 28% and 157%, respectively. Segment EBIT increased 218% thanks to continued operating leverage.

Finally, the BioCeuticals segment posted a 4% lift in sales to $113 million after the BioCeuticals business offset weakness from the Global Therapeutics business. Looking ahead, management advised that a medicinal cannabis trial is underway ahead of a potential product launch in FY 2020.

Outlook

Unfortunately, the tough trading conditions in China are expected to continue during the first half of FY 2020. As a result, management expects its performance during the half to be below the prior corresponding period.

However, it is optimistic that the second half will be stronger due to the benefits of operational efficiencies from business improvement initiatives.

Overall, the Blackmores board “remains optimistic about the significant opportunities available to the business and is focused on ensuring these are seized and delivered.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Blackmores Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019