Eco Investor March 2017

Core Securities

Blackmores on Four Corners

Vitamin and mineral companies Swisse and to a lesser extent Blackmores were part of an ABC Four Corners program that was critical of complementary medicines. Although the sales of supplements are strong and growing both in Australia and overseas, the program cast doubt on the level of health benefits, if any, of many of the products.

The program was also critical of the marketing by manufacturers and pharmacies, saying it gives legitimacy to dubious products. But other pharmacists say they are giving the public what it wants. A current draft review of pharmacy regulations poses the question of whether complementary medicines even belong in pharmacies.

The program said there is scientific consensus that supplements are useful in treating specific deficiencies, such as folate for pregnant women. And proponents argued that multi vitamins are needed as many people do not eat enough fruit and vegetables. But others said that for the average Australian there is no benefit in supplementary vitamins and minerals.

Much of the program focused on unsubstantiated or dubious marketing of products and how consumers are not given complete information to make an informed decision.

The public debate around the benefits of supplements is not new, but the outcome of the review could impact Blackmores as its products are available through pharmacies. While critics say there is little evidence that supplements work, users of supplementary medicines say they do work or at the least do no harm, so there is a high level of customer loyalty.

An angle not explored by Four Corners is that there is growing evidence that pharmaceutical medicines are becoming an environmental problem, including in waterways. Eco Investor follows Blackmores because when preventative medicine works it can help to reduce the load of pharmaceuticals in the environment.

Operationally, Blackmores had a down half year after a stella 2015. Compared to the December 2015 half, sales were down 5 per cent, net profit was down 42 per cent, and the interim dividend was down 35 per cent.

Blackmores chief executive, Christine Holgate said the second quarter was better than the first quarter, which was impacted by changes to the buying patterns of Chinese exporters and by high stock levels held by Australian retailers. "We are encouraged by progress in the second quarter across the Group, though the Australian retail environment remains challenging," she said.

The damage was done by sales in Australia for the six months, which were down 31 per cent. This was too much to offset sales growth in China, up 92 per cent, and other Asian markets ex Korea which were up 16 per cent. Taiwan was up 93 per cent, Hong Kong up 49 per cent, Singapore 19 per cent, Malaysia 20 per cent and Thailand 6 per cent. There was just under $2 million in sales in the new market of Indonesia.

Sales for the BioCeuticals and Global Therapeutics businesses were up 54 per cent.

The board reiterated that the full year results will not match the exceptional 2016 financial year result but will still represent good growth on the 2015 profit.

The company's shares fell 12 per cent when the half year results were announced. (ASX: BKL)

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