BANGKOK -- The star of the Australian Stock Exchange's benchmark ASX200 index last year was not a mining company, a financial services group or the hottest tech startup, but a health supplement supplier, Blackmore's, which has been listed for 30 years.
In 2015, the share price of the family-controlled company soared 620% on the back of accelerating growth in sales and profit as Chinese and other Asian middle-class consumers displayed an apparently insatiable demand for health products.
"Recent growth in the sale of vitamins in Australia has been driven by rising demand from offshore consumers, particularly those from China," noted JPMorgan Chase, an investment bank, recently.
The Chinese are showing more interest in healthy foods and lifestyles, especially in response to the country's continuous food contamination scares. Dietary supplements are one choice for consumers looking to adopt a healthy lifestyle.
"In China and many parts of Asia, where traditional medicine is universally used, you never have to explain the benefits -- it's just a Westernized and clean version of traditional remedies," Christine Holgate, Blackmore's chief executive, told the Nikkei Asian Review.
Blackmore's sells more than 500 different vitamin and herbal supplements, ranging from popular fish oil products, evening primrose oil and milk thistle pills to special supplements for pregnant women and new mothers.
Its share price has risen from 20.24 Australian dollars in November 2013 to a peak of A$220.90 in January 2016.
The company posted a net profit of A$46.6 million ($33.2 million) for the year ended June 30, 2015, a jump of 83 % from a year earlier as sales increased 36% to A$471.6 million. For the first half of the current fiscal year, revenues rose 65.5% to A$341.4 million, while net profit after tax soared 159.5% to A$48.3 million.
Blackmore's has seen its share of sales from the rest of Asia climb from 2% in 2010 to about 33% in the last fiscal year, and it may hit 50% this fiscal year, according to Holgate, who took over the company's management in 2008.
Although Blackmore's had a presence in Asia, the "Asian part of the strategy had wilted," when Holgate took over, she said. She renewed the company's focus on Asia by expanding subsidiaries in China, Taiwan, Hong Kong, South Korea, Singapore, Malaysia and Thailand and distribution partnerships in Macau, Cambodia and Vietnam.
Holgate said China accounts for the company's biggest market among the 12 Asian countries where it sells products, while Thailand, Singapore and Malaysia are also important. In addition, Blackmore's set up a 50/50 joint venture with Indonesian healthcare giant PT Kalbe Farma last November to build the group's first factory outside Australia for between A$8 million and A$10 million.
Noteworthy is the fact that only 20% of sales to the Chinese are from direct transactions in the country, mainly through e-commerce websites such as Taobao's T-Mall and JD.com. The rest is accounted for by "Chinese tourists, entrepreneurs and students who come to Australia. There are even bus tours of pharmacies run by tour groups for this specific purpose," Holgate said. They return to China with the products and sell them online, sometimes for twice their original price.
Direct sales to China are executed through the company's base in the Shanghai Free Trade Zone. This has a number of benefits. "We can sell products made in Australia. Retail and import taxes of a combined 75% are removed -- all we need to pay is 15% VAT [value-added tax]," Holgate said.
JPMorgan noted that the use of free trade zones to reduce import taxes on Australian products, combined with the lower Australian dollar, has meant that Australian vitamin products are about 50% cheaper for Chinese consumers than two years ago.
Holgate joined Blackmore's after a career in investment banking and then as a senior executive at Australia's telecoms group Telstra for almost six years.
"The job came up when my sister had cancer which she learned about after the birth of her second child," and the family was researching natural health remedies to improve the sister's quality of life and emotional condition in the last stages of her illness.
"My sister's illness had given me a different perspective, it was almost a vocation, a chance to do something, a way of giving back," Holgate said.
Holgate met Marcus Blackmore, the company chairman, and son of founder Maurice, the day after she returned to Sydney from her sister's funeral in England and a job offer soon followed.
In the past decade, Asia has emerged as the biggest market in what is known as the "global dietary supplement" sector, which is expected to see annual growth of 7.4% annually between 2014 and 2020, according to Persistence Market Research last year. It estimated that the market, valued at $109.8 billion in 2013, would reach $179.8 billion in 2020.
Asian demand is driving the increased production. Three years ago, Blackmore's was making 3,000 jars of its Vitamin E cream a year, but volume has exploded to an annual production rate of 750,000 jars.
The sector's growth has also encouraged industry mergers. In its most important acquisition, Blackmore's purchased family-run group FIT-Bioceuticals for A$40 million and has retained it as a separate brand.
Auckland-based Vitaco Holdings added Australian brands Nutralife and Musashi in the year before it launched a A$232 million initial public offering on the ASX in September 2015, when its shares started trading at A$2.50, a 19% premium over its IPO price of A$2.10. Vitaco chief executive Ryan d'Almeida said the acquisitions had resulted in the company increasing its sales in China from next to nothing to 8% of the overall sales.
In November 2015, privately held Sydney-based Swisse Wellness was sold to listed Hong Kong group Biostime International Holdings for A$1.67 billion.
However, the industry has not escaped the turmoil hitting financial markets in early 2016, with shares in Blackmore's and its competitors falling due to worries about the Chinese economy and reduced consumer demand. Blackmore's share price fell to A$158.78 on Feb 29.
Holgate is not worried, since the share price rose very fast in the first place. In addition, she admitted that the company faces supply constraints for some of its more popular products. "Many of our products are natural. Evening primrose, for instance, takes two years to grow and is only harvested once a year," she said.
To help counter such shortages and diversify its product portfolio, Blackmore's started sales in January in a joint venture with Australian diary group Bega Cheese to tap into another fast-growing, health-conscious market in China: baby formula.
The Blackmore's-Bega partnership offers customers in Australia and China a "cow-to-customer" guarantee of supply, Holgate said.
If the Chinese success of New Zealand dairy giant Fonterra Co-operative Group and Australian baby food producer Bellamy's Organic is any guide, Blackmore's could be onto another winner.