BKL
Well aware
Shares in Blackmores have pushed higher following last week’s strong profit result. The shares are up almost 25% in the past four trading sessions. The stock is around 2½ year highs, and this has vindicated our decision to back the company’s turnaround plan, and amidst the pandemic, when we initiated on the stock in March last year around $68.60. The shares have also staged a healthy advance since our buy recommendation at $76.80 last month.
Blackmores (ASX:BKL) has an infant milk angle, but has positioned itself a “more rounded” vitamins company. This has proven the right call during the pandemic, and with people becoming increasingly ‘wellness aware.’ This was evident in the full year results announcement.
Image Source: Blackmores (ASX:BKL)
The company reported an 89% increase in full year net profit to $28.6 million. Revenues were up 1.3% to $575.9 million, while gross profit margins ticked up to 52.3%. The company is paying a fully franked final dividend of 42 cents per share. China was a bright spot, with sales there up 28% to $131.6 million. A general shift away traditional retail channels towards e-commerce and health practitioners has also been supportive of earnings.
The company has continued to rein in costs, and drive supply chain efficiencies. A business improvement program yielded $28 million of annualised gross cost savings benefits in FY21. The program is on track to deliver a further $55 million annualised gross savings by FY23.
Full year Highlights
Source: Blackmores (ASX:BKL)
Turnover in Australasia (-14% at $280.6 million) was impacted by border restrictions (on the daigou trade) and the lockdowns (which also resulted in a milder ‘flu’ season), but this should bounce back strongly as the country reopens, and with a heightened awareness of the need to be healthy. Blackmores remains the #1 provider of vitamin and dietary supplements in Australia.
Underlying earnings (EBIT) in Australasia rose 1.7% to $40.3 million. The lockdowns saw a trend away from the pharmacy channel to the grocery segment where the average spend per trip is much lower. Blackmores however managed to put through underlying price increases of over 2% which supported margins. Product wide the company continued to see strong growth in PAW the company’s pet health brand.
The international side (ex-China) was a picture of strength, with revenues up 17.7% to $163.7 million while underlying earnings surged 49.5% to $20.7 million. Key markets in Asia, including, Thailand and Malaysia, performed well. The increase in demand for immunity products has been accelerated by “low containment in levels of containment across several of these markets,” leading to a significant increase in the category as well as the penetration of the Blackmores brand. Management see further strong growth in Southeast Asia in FY22 with the launch of Halal products.
International Segment Sales
Source: Blackmores (ASX:BKL)
In China revenues rallied 27.8% to $131.6m and underlying earnings increased to $14.3 million from $0.2 million the prior year. Unlike A2 Milk, Blackmores saw strong growth in the cross-border e-commerce channel, of 36%. This channel now accounts for more than 70% of net sales. Innovation has proven part of the success, and the company established a Global Innovation Centre in Shanghai in FY21 to ensure products are meeting local requirements (and opening up new angles) as best they can.
China Segment Revenues
Source: Blackmores (ASX:BKL)
Balance sheet wise the company is in great shape. The group reported a net cash balance as at 30 June 2021 of $70.1 million. This represents a massive improvement from the company’s net debt balance of $37.3 million a year ago. The improvements was driven by higher operating cash flows, and last year’s cap raise.
Blackmores (ASX:BKL) offers a reopening angle as border restrictions and ultimately removed, but also as the company pushes ahead with a growth phase. The company’s target is to ‘reach’ 1 billion consumers by 2025, and has just launched in India. The company sees strong organic growth opportunities across Asia, key channels in Australia, Digital Commerce and Pet, which represents a $250-300 million revenue uplift opportunity by FY24.
The company’s investment in digital capabilities, along with ‘price mix’ initiatives should help support margins, and earnings growth. Management are expecting an uplift in earnings margins to the mid-teens by FY24.
The company has in our view made strong progress over the past 18 months. Blackmores (ASX:BKL) has strived to refresh its strategy, simplify its portfolio, connect with a large potential customer base and after bolstering the balance sheet via a capital raising and debt paydown.
We continue to recommend Blackmores (ASX:BKL) as a Buy to Members without exposure.
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