The Blackmores Limited (ASX: BKL) share price will be in focus on Tuesday after revealing a sharp decline in profit in FY 2020.
How did Blackmores perform in FY 2020?
For the 12 months ended 30 June 2020, Blackmores posted revenue of $568 million and a reported net profit after tax of $18.1 million on. This was 3% and 66% decline, respectively, year on year. The latter compares to the guidance range of $17 million to $21 million given with its half year results.
The main drags on the company's sales performance in FY 2020 were its ANZ and China businesses. The ANZ business posted a 15% decline in sales to $227 million due to lower retail foot traffic of Chinese shoppers and the impact of the pandemic. Whereas the China business recorded a 16% decline in sales to $103 million. Management blamed the pandemic, a reduction in inventory levels for key customers due to upcoming new label changes, and regulatory challenges.
This offset sales growth from its International and BioCeuticals businesses. The International business recorded a 30% increase in sales to $139 million thanks largely to double digit sales growth in Malaysia, Singapore, and Indonesia. The company's BioCeuticals business posted a 12% lift in sales to $99 million after the pandemic drove increased demand for immunity products.
In light of its weak profit result, the company will not be paying a final dividend.
Management commentary.
Blackmores' CEO, Alastair Symington, commented: "We have finished the year with some very good results in our International markets with revenue up 30% on the prior year, BioCeuticals revenue up 7% while Blackmores strengthened its leadership position in Australia with 16.4% share of the vitamin and dietary supplement (VDS) market."
"This is despite the unprecedented disruption due to COVID-19 and highlights the strength of our brands in meeting consumer health needs," he added.
Mr Symington was pleased with the progress the company is making in China, despite the sales decline.
He commented: "We are making good progress in China with stronger leadership in place and, for the first time, in market dedicated resources who are close to our China consumers and using these insights for our new product innovation pipeline."
Margin weakness.
The chief executive explained why its profits were down materially in comparison to its sales in FY 2020. He said: "Our full year results today reflect the anticipated transition to a vertically integrated business. However, this comes with a higher operating cost structure in the short term."
"I am pleased with the improvements that have been made to ensure we have much better visibility and control of our fixed costs, while delivering a very strong operating cash performance. We will continue to step up our business improvement program to aggressively manage our cost base and improve gross margins," he added.
FY 2021 outlook.
The company intends to enter the India market in FY 2021. And while its entry plans have slowed due to the onset of COVID-19, a Blackmores India entity has been formed and is planning for a test market entry. Management believes India represents a very attractive market.
And while no formal guidance has been given for FY 2021, management anticipates full year profit growth. Though, it has warned that this profit growth will come predominantly from the second half of the financial year.
Looking further ahead, management commented: "There is great confidence from the Board and Management that by implementing our strategic priorities, simplifying our operating model and delivering consumer led innovation consistently it will put the company back on the path to sustainable, profitable growth and restore future dividends."
