Finance News Network transcript for interview with Blackmores Limited (ASX:BKL) CEO, Christine Holgate, Thursday, August 18, 2011. Clive Tompkins:Hello, Clive Tompkins reporting for the Finance News Network. Joining me from Blackmores Limited
(ASX:BKL) for its full year results is CEO Christine Holgate. Christine, welcome back. Net profit increased 12.4 per cent to $27.3 million on record sales of $234.4 million – the ninth year of record sales and profits. What do you attribute this to?
Christine Holgate:The real star performer was for us this year was our Asian sales performance. We achieved more than 20 per cent growth in local currencies in each of those markets, and overall we grew Asia by more than 40 per cent. It contributed to 65 per cent of our growth this year, at group level and at sales, and 20 per cent of our profit performance. And that’s an increasingly important part of our business. We also had a pretty solid performance in Australia – three per cent ex Blackmores and a really strong fourth quarter where it was up 12 per cent in Australia. So that was a primary factor for the drive of growth for the business.
Clive Tompkins: Thanks Christine, so how have you managed to defy the odds in one of the most difficult retail environments in decades?
Christine Holgate:Well, it’s been a bit of a tough challenge, but I guess defying the odds, I’m assuming you’re meaning having good retail growth and good profit growth in a very challenging market. Well the first thing is, two years ago we set upon the strategy to diversify our total dependency on the Australian market. So clearly, growth in Asia has worked really well in building up new, powerful revenue stream for us. But perhaps one of the most important things we did as a company this year too, was actually change the way we look at our sourcing strategy, so we’ve set up a specialist team inside Warriewood, we’re buying some of our core raw materials directly, and that’s enabled us to use some of the cash flows from Asia, to pay for those ingredients, save on exchange rate movements, and perhaps buy better quality ingredients at better prices [that are] exclusive to us. So it’s been a combination of factors that’s really delivered this winning result. But all of those has enabled us to protect our gross margins and in fact improve them, even though we’ve really led our sales improvement with a strong Asian performance.
Clive Tompkins:Now to Asia Christine, you mentioned sales grew 40 per cent, contributing close on 20 per cent of group profits, what are your key markets in the region, and what are they consuming?
Christine Holgate:What are they consuming? Well, each market interestingly consumes different things. One of the things we have done in our five existing Asian markets, and that’s Hong Kong, Singapore, Thailand, Malaysia and Taiwan, is actually really increase the range of products that we’ve got in those marketplaces, but Bio C in Thailand continues to perform very strong, but each of those markets have different products.
In Korea when we entered into that market we actually entered in with one product, which is a very different strategy for us, we’re very pleased to say it worked extremely well. We sold, I think, in one day in January, 46,000 bottles of Omega Daily, which is probably a record for us! It’s probably a record for any natural health company in one day of sales.
We’ve also launched some specialist products just for the Asian market this year, and that’s a real first for the company, and an example of that is another Korean product called Triple Action Multi, and that’s effectively a multi-vitamin with a concentrated fish oil blended together.
So, it is different by different markets, and that’s got partly to do with the temperatures, so in Korea as you know their winters are very cold and they like their fish oils, and it’s partly got to do with local conditions, so in Thailand there’s always been very strong regulations which have limited what ingredients you can put together and it’s been always a concern about immunity and hence why vitamin C is so powerful there.
Clive Tompkins:And Christine do you have plans to enter other Asian markets in fiscal 2011-12?
Christine Holgate:Look, I’d love to be entering more Asian markets. When I’ll be able to enter them has got as much to do with the local governments and those giving me clearance on core products because our products actually go through the same stringent tests that many drug companies go through and so there’s actually quite a complex registration complex that we need to go into. But we’re certainly looking at expanding into new Asian markets, we’re just working through some of those countries and when we can do it. We’re very excited about our prospects. Going into Korea has taught us a lot, we’ve entered a new market and we can do it really well if we partner with the right people. So partnering is very key to that strategy too.
Clive Tompkins:Christine, now to your new pet health business, PAW, how long has it been a part of Blackmores, and what has sales done in that time?
Christine Holgate:So, PAW has been a part of Blackmores for about a year now, the first six months since having Paw I think it would be fair to say we were integrating that business into ours, the team into the building, the products at the distribution into our Warriewood campus, and in the last six months we’ve done an enormous amount of work reformulating and building those products, into perhaps formulas that are more in line with Blackmores standards. We’ve now done that, we have over 23 different PAW products, we have over 370 points if distribution in pet speciality shops and vet clinics, and in the coming year, you’ll see us move into pharmacy and more grocery. They will be slightly different products for those markets, they will be tailored for individual needs in those markets, but you will see that PAW as an organisation expand its reach. In the year, sales are up 60 per cent, I think personally PAW has got huge potential, I think you’ll see it come through more in the second half of this year as we really wait to get shelf space from some of those major customer groups.
Clive Tompkins:Thanks Christine, now to earnings per share, growth and dividends, up 11.2 and 10.7 per cent respectively, what are the full year figures for both earnings per share and dividends?
Christine Holgate:Our earnings per share are up to $1.63, and we have just over a 75 per cent pay-out ratio, and that gives shareholders a $1.24 yield in a year, 80 cents second half dividend. I think that’s a really great performance for shareholders to get that, on the back of actually can I say, some great capital growth too in our share price in the year.
Clive Tompkins:Very good. And, Christine, what can investors expect for the year ahead, growth in earnings per share and dividends of the same order?
Christine Holgate:I’m never allowed to make a forecast of that magnitude Clive, but what I would like to say is I’m very confident we have a really good strategy, a great management team, a really strong pipeline of new products. We’re starting now to really move into new areas. We’re moving into functional foods, we’ve got topical creams, we’re moving into new markets, we think we’ve got a really exciting year ahead, even if the Australian retail market remains as volatile and challenging as it is, and even if the Aussie dollar goes up to US$1.10 again and makes my exports so expensive again and dilutes my translation, I’m confident that this time next year I’ll look you in the eye and give you the 10
th year of record profit and sales.
Clive Tompkins:OK, and what about franking, can this be expected to fall as Asia contributes more to profits?
Christine Holgate:Well look, at this moment in time, 80 per cent of our profits are still coming from Australia, we can be fully franked in our dividend. But I guess in the years ahead as we continue to grow the profitability of that region and the contribution to Asia, we will have to look at that. But at this moment, fully-franked is still fine.
Clive Tompkins:Christine Holgate, congratulations on the results.
Christine Holgate:Thank you.
