(ACC60008) Accounting system and Reporting

ACC60008: ACCOUNTING SYSTEMS AND REPORTING
Assignment 3: Analysis of Business Performance for Blackmores Limited
Table of Contents
Executive Summary................................................................................................................................................2
Business Profile......................................................................................................................................................3
Financial Ratio Analysis.........................................................................................................................................4
Profitability.........................................................................................................................................................4
Efficiency............................................................................................................................................................5
Liquidity.............................................................................................................................................................5
Solvency.............................................................................................................................................................6
Share Market Performance..................................................................................................................................7
Conclusion..............................................................................................................................................................8
Recommendation....................................................................................................................................................9
References............................................................................................................................................................11
Appendices...........................................................................................................................................................13

Executive Summary
The objective of this report was to analyse the business performance of Blackmores Limited.
Blackmores Limited is a health supplement company founded in 1932, which sources, manufactures,
and markets a range of vitamins, herbal and mineral supplements. It has a market capitalisation of
A1.8Billion with operations across 12 markets including Australia and Asia Pacific with over 1400
employees.
Blackmores business performance is analysed across five different categories – Profitability,
Efficiency, Liquidity, Solvency and Share Market performance over a 3-year period looking at both the
business performance and the factors behind this. The report found, that despite being profitable,
Blackmores profitability has been on a downward trend over the last three years with significant
impacts due to COVID-19, regulatory changes relating to e-commerce in China as well as relabelling
requirements across all markets. Despite the drop in profits Blackmore’s management has continued
with a long-term focus on investing in the business by maintaining efficient use of assets including the
acquisition of a new facility in Braeside which will provide operational benefits over the long-term.
Blackmores also took direct steps to strengthen its liquidity and solvency through a very successful
share capital raising and institutional placement undertaken in 2020. Despite the best efforts of
Blackmore’s management, its share price has been volatile and has seen a drop over the last 3 years’.
A recommendation was made to shareholders to consider holding shares in the short-term as the
uncertainty of COVID-19 unfolds though there is potential for investors who are looking for long-term
growth to buy at the current price. Whilst there is short-term uncertainty due to COVID-19 the long-
term outlook for Blackmores is positive.
Business Profile

Blackmores Limited is an Australian health supplement company founded by Maurice Blackmore in
1932. It sources, manufactures, and markets a range of vitamins, herbal and mineral supplements, and
nutritional foods using premium ingredients from around the world for humans and animals, with
products made to strict manufacturing and quality standards.
Blackmores four strategic goals are to:
• Build a world class organisation
• Rejuvenate the Blackmores brand in Australia
• Deliver new growth in key countries and categories
• Win with the modern career woman in China
The Blackmores Group is an Australian Stock Exchange 200 (ASX 200) publicly listed company with a
market capitalisation of circa A$1.8 billion. It has geographically diverse with its operations across 12
markets, 16 office locations employing over 1,400 people, with an extensive presence across the Asia
Pacific with the largest being Australia and China markets. Its group headquarters is located at
Warriewood, Sydney. Blackmores Limited.
They have market presence in Australia, New Zealand, China, Hong Kong, Macau, Taiwan, Thailand,
Malaysia, Singapore, Indonesia, Korea, Cambodia, Vietnam, Kazakhstan, Japan, and the United States.
Blackmores Limited current range of brands includes Blackmores, its flagship natural health brand;
BioCeuticals, Australia’s leading practitioner range; Impromy, a pharmacy based weight management
program developed in collaboration with Commonwealth Scientific and Industrial Research
Organisation (CSIRO); Fusion Health & Oriental Botanicals, Australia’s leading providers of Chinese
herbal medicine; IsoWhey, weight management range; and Pure Animal Wellbeing, natural health
products for pets.
Blackmores Limited also focuses on research and practical healthcare education to support and drive an
evidence-based approach to natural medicine by its Blackmores Institute.

Financial Ratio Analysis
Profitability
Profitability ratios are used to assess the ability for a company to generate income and management’s operating
effectiveness (Investopedia, 2020).
Based on the analysis in this section and the information gathered from the annual report, Blackmores
Limited continues to be a profitable entity, however, compared to their market peer, they have been
inconsistent in generating stable profits over the past 3 years.
The net profit margin has been on a downtrend (see appendix A) impacted by growing competition in
the Australian and Chinese markets and the disruption from the COVID-19 pandemic which has seen
sales dropping. The reported NPAT decreased by 24% in 2019 from previous year, and further
decreased by 65% in 2020. Operating revenue increased from $601 million in 2018 to $610 million in
2019, however, it dropped 3% to $568 million in 2020 (see appendix C). Whilst the international
markets and the BioCeuticals Group are continuing to see increasing sales growth across 2018 to
2020, it was not enough to offset the losses in ANZ and China, (Annual Report 2020, p. 26). The
Chinese regulatory changes made in 2018 impacted the e-commerce business which increased tax
costs and COVID-19 related impacts on both markets (Annual Report 2019, p.28), this included lower
retail foot traffic and destocking related costs to product relabelling aligning to TGA requirements
which incurred $7 million in transition costs (Annual Report 2020, p.29). Overall, the net profit
margin is still favourable which shows that Blackmores Limited has capability to generate profits;
however, when compared to their peer (see appendix B) they are inconsistent in maintaining stable
profits.
Equally this is reflected by the downtrend on the return on equity ratio (see appendix A). This is the
result of the deteriorating net profits from 2019 and 2020. Conversely, shareholder equity has
increased to $306 million in 2020 (see appendix D). This was due to capital raising performed during
Q2, which raised $141 million by completing a share purchase plan. This raised $49 million and $92
million from institutional placement (Annual Report 2020, p.46), this will enable Blackmores Limited
to withstand any unexpected events in the future.

When compared to their market peer Probiotec (see appendix B), the ratios suggest that Blackmores are
inconsistent with their asset utilisation in comparison.
Efficiency
Efficiency ratios are used to measure how efficient a company is at utilising its assets as well as how it
manages its liabilities (Investopedia, 2020).
Based on the efficiency ratios analysis in this section and the information gathered from the annual
report, Blackmores Limited has been seeing a decline in inventory and asset turnover over the past 3
years (see appendix A). This is highlighted by the inventory and asset turnover ratios.
In 2019 a decision was made to build safety stock ahead of acquiring the Catalent Braeside
manufacturing plant (Annual Report 2019, p.32), which increased inventory holdings by $21 million
from previous year. Total assets have also increased over the years (see appendix D), with increases in
current assets cash and held sales and non-current assets property, plant, and equipment by acquiring
the Braeside plant. Increases in COGS by $17 million in 2020 related to undesirable mix, volume,
price variance and the allocation of direct labour and overheads relating to production at the Braeside
manufacturing plant. With the 3% drop in sales in 2020 impacted by increased competition in ANZ and
China, and the effects of COVID19 saw inventory turnover and asset utilisation decrease.
When compared to their market peer (see appendix B), the ratio suggests that Blackmores is not
managing their stock control and assets as effectively, whereas its competitor Probiotec has seen
consistency with their stock control and asset utilisation.
Liquidity
Liquidity is a measure of a company’s ability to meet its short-term obligations by comparing its
current assets (assets which can be liquidated in the short-term) against the current liabilities
(Investopedia, 2020).

Based on the liquidity ratio analysis in this section and the information gathered from the annual
reports, Blackmores Limited has seen its liquidity position improve over the last 3 years with direct
steps taken to ensure its short-term viability.
With its profitability and cash flow being reduced by new regulatory changes and COVID impacts as
noted in the profitability section above, Blackmores directors decided to strengthen the company’s
cash position by initiating a share capital raising and institutional placement. This allowed Blackmores
to build cash reserves and use some of the cash to reduce its accounts payable and thereby the current
liabilities from $174 million to $135 million (see appendix D). Blackmore’s also decided to reduce
stock levels at some of its larger customers (Annual Report 2020, p. 24) reducing accounts receivables
from $150 million to $97 million (see appendix D). Blackmores also made a deliberate decision not to
not to pay out any dividends for the first half of the FY2020 (Annual Report 2020, p. 8) to maintain its
cash reserves thereby strengthening its cash and debt position. The combined actions above led to
Blackmores improving their current and quick ratios resulting in higher levels of liquidity (Annual
Report 2020, p. 24) and the ability to also consider future investments and growth opportunities.
Blackmores as a company has strong focus on short term financial management which is highlighted
by the incentives it offers its executives to meet short term goals for the organisation as well as its
focus on annually releasing new products (31 products in 2019 and 142 products across the entire
group) and building its brand (Annual Report 2019, p. 28) in order to maintain an ongoing cashflow.
When compared to their market peers, Blackmores has consistent liquidity ratios which are trending
upwards whereas its competitor Probiotic has seen fluctuations in its ratios highlighting instability with
their liquidity.
Solvency
Solvency is a measure of a company’s ability to meet its long-term obligations by comparing its short and
long-term debts to the available assets and equity. (Investopedia, 2020).
Based on the solvency ratio analysis in this section and the information gathered from the annual reports,
Blackmores Limited had seen its solvency deteriorate slightly from 2018 to 2019 followed by significant
improvement in 2020 after direct steps were taken by the company to improve its cash and debt position.