August 27, 2018 / 11:04 PM / 3 months ago

UPDATE 2-Australia's Blackmores profit jumps as China-direct strategy boosts sales

* Blackmores FY net profit A$70 mln vs A$59 mln previous year

* Domestic sales flat, China sales up 22 pct

* Company is taking on daigous by selling to China direct

* Shares up 10 pct, the most since Oct 2017 (Recasts with share reax, adds analyst comment)

By Byron Kaye

SYDNEY, Aug 28 (Reuters) - Australian vitamin maker Blackmores Ltd said on Tuesday annual net profit jumped nearly a fifth, sending its shares up the most in 10 months, as a strategy of sidestepping Chinese shopping agents and selling direct to the mainland paid off.

The result suggests the company’s decision to take control of its China exports and sell direct, bypassing Chinese shoppers who buy its pills in bulk locally for resale back home, is at last having the desired effect of maximising margins.

The first year Sydney-listed Blackmores took on those so-called “daigou” shoppers by going direct, fiscal 2017, the company’s annual profit plunged.

The A$2.7 billion ($2 billion) company quarter-owned by Marcus Blackmore, son of company founder Maurice Blackmore, said 2017-18 net profit bounced 18.6 percent to A$70 million, almost all the growth due to surging China exports.

The result was in line with analyst forecasts although short of Blackmores’ A$100 million annual profit in financial year 2016, before the company ramped up its non-daigou China business.

Blackmores shares were up 10 percent in morning trading, the biggest daily advance since October 2017, while the broader market was up less than 1 percent.

The company’s “strong growth in China offsets a flat domestic market”, Morningstar analyst Chris Kallos said.

Investors were also optimistic about a new partnership between Blackmores and Chinese e-commerce giant Alibaba Group Holding Ltd, and about its rising sales to Asia outside China, Kallos added.

Blackmores did not give details of its partnership with Alibaba except to say that it “demonstrates our shared vision to grow our presence on Alibaba’s platforms ... over the coming year”.

“Our vision for China is not limited to e-commerce sales, and we’re actively building an offline business,” said Chief Executive Richard Henfrey in a statement.

Sales to China rose 22 percent to A$143 million, the company said in a statement.

Blackmores said it would pay a final dividend of A$1.55 per share, up from A$1.40 the previous year.

$1 = 1.3669 Australian dollars Reporting by Byron Kaye in SYDNEY and Aaron Saldanha in BENGALURU; Editing by Rosalba O'Brien and Stephen Coates

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