Blackmores is anticipating up to three months of disruption from the coronavirus fallout in China, one of its main growth markets.
The outbreak had increased demand in key immunity products in Australia and Asia such as vitamin C, but that had been countered by supply chain disruptions across the region, Mr Symington said.
“It’s very difficult for us to move products around inside China,” he said. Disruptions in the supply chain were happening in a ”very dynamic situation”. He said the only place to source medical-grade glass for product containers was in China.
Mr Symington also said it usually took six weeks to ship product from Australia to China and delays were occurring.
He didn’t want to comment on the share price mauling, which hits Rich Lister and 23 per cent shareholder Marcus Blackmore particularly hard. Mr Blackmore holds 4 million shares worth around $304 million, but his stake was worth $880 million in early 2016. His losses from Wednesday’s price fall would amount to around $46 million.
“I’m not really here to comment on the share price,” Mr Symington said.
But he said his new management team had the right solutions over the longer term, including cutting back on aggressive promotions.
“There is a lot of work to do to restore the trust of our shareholders,” Mr Symington said.
Some e-commerce partners in China had cancelled or modified February promotions because of a slowdown in in-bound and internal freight services.
Blackmores warned that even though second-half revenue would likely be about the same level as the $303 million in the six months ended December 31, the drag from higher Braeside factory costs, and the coronavirus impact could mean the company might make close to zero profit in the June half.
Blackmores has forecast that full-year net profit will be in the range of $17 million to $21 million.
That compares with the glory days for Blackmores when it made an annual profit of $100 million four years ago. China was a pot of gold for Blackmores in 2015 and 2016 when its share price soared to a record $220 as unprecedented demand from Chinese consumers fuelled buoyant annual profits.
First-half revenue fell 5 per cent to $303 million and net profit after tax plunged 48 per cent to $18.3 million.
Blackmores has been cutting costs hard to try to save $60 million. In October it took ownership of the Catalent tablet and capsule-manufacturing facility in Braeside as part of a strategy to make more of its own vitamins rather than relying on third-party manufacturers. But that has caused upheaval and a profit downturn in the short term. It warned it would take a $9.5 million hit from higher costs of goods sold in the second half because of capacity under-utilisation, higher raw materials costs and changes to the product mix.
The company said on Wednesday it would not pay an interim dividend. Chairman Brent Wallace acknowledged shareholders would be ”bitterly disappointed with the financial performance of the business”.
The coronavirus impact adds to a tough time for Mr Symington, who has been aggressively overhauling his senior management team. He said there would be costs associated with new labelling for Blackmores products in an upgrade which in part stems from new product regulations imposed by the Therapeutic Goods Administration across the industry.
The label overhaul will have a $7 million EBIT impact. The company also intends backing off on promotions in the March quarter in an attempt to improve margins.
Rival vitamins group Swisse is being hit by similar market forces. A Swisse spokeswoman said last Thursday that demand had been rising in China, particularly for Vitamin C. But Swisse said the ban on tourists from China was hurting the so-called “suitcase trade” where tens of thousands of tourists stock up on large volumes of vitamins and supplements from Australian retail outlets like Chemist Warehouse, and take them back to their home country.
Some of these products are for personal use, while some people also sell them online on Chinese e-commerce sites which has been a lucrative side business.