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Management Accounting

Memorandum

TO: BOARD OF DIRECTORS, BLACKMORES LTD.

FROM: CONSULTING FIRM

DATE: SEPTEMBER 12, 2020

SUBJECT: RECOMMENDATIONS TO THE BOARD OF DIRECTORS ON THE ISSUES, MANAGEMENT TECHNIQUES AND TOOLS TO BE APPLIED TO RESOLVE PROBLEMS.

Recommendation: The Board of Directors are asked to approve the resolutions recommended with matter to the appeal submitted to the consulting firm.

Background

The Blackmores is experiencing decline in its revenue in Australia and China. The Blackmores share was at its high in February, 2020. Where after the share prices have faced a low of about 27.4%. The share price has rolled down from $98 to $68 approximately. Whereas at the current position it is trading at $63.

Weak Performance in China and Australia

As per the annual reports announced by the company on 31st October, 2019, the revenue was up by 1% whereas the Net Profit after Tax has declined from the previous year. Gross margin has been encountered lower than previous year’s total. It has been seen that Blackmores Ltd. has lost its momentum and growth in Australia and China due to few reasons i.e. slump in Australia, reduced net sales revenue in China and increased operational costs. Where the operational cost and the pandemic have impacted the firm in Australian and China, the firm have achieved growth in net sales and other margin in Asian market excluding China. The firm has also reported less growth than its competitors in the current financial year. As the earning fell, the company also decided to not distribute the dividend to preserve the money for the operational expenses.

Potential Strengths/Opportunities and Weaknesses/Threats

The Blackmores Ltd has a successful record of developing innovative products. Blackmores Ltd has a strong distribution market. Blackmore is in market since 1930 and has established its business in Australia, Cambodia, China, Hong Kong, Indonesia, Japan, Kazakhstan, Korea, Macau, Malaysia, New Zealand, Singapore, Taiwan, Thailand, United States and the Vietnam. It has reached majority of the market. As the company is aiming to undertake business venture in Indian market in coming months, it could fetch profits to Blackmores Ltd. It has an opportunity to reach out the customers out there in different countries via digital medium. Blackmores can build its online channel for better distribution.

One of the major weaknesses of Blackmores is high operational costs. Even after earning good gross margins and sales revenues the company is unable to earn bottom line profits. Due to which the company do not have enough money to finance its further productions. Its average inventory holding period is high as compared to the competitors which means that a significant portion of working capital is blocked in inventory which in turn affects the availability of quick assets to the entity to meet its ability to pay current liabilities.

  1. As consumers are moving towards more of online purchasing than the traditional ones. It could be a threat to the company if it doesn’t go under required technological changes and advancements.
  2. Shortage of skilled workers, currency fluctuations due to operating in several nations, changing consumer buying behaviour because of advancements, rising raw material due to rising demand, intensive competition and lawsuits because of operating in different countries can be the major threats to the company.

Management Accounting Techniques

Management accounting is the technique that is used for analysing business to form strategies, execution of plans, risk and disaster management and decision making. It analysis both the financial measures and non-financial factors. This type of analysis is different from financial analysis. The following are the management accounting tools that are advised to be used by Blackmores for better profitability:

  1. Activity Based Analysis: Activity bases accounting is a term where different activities are identified and costs are assigned to them accordingly. This analysis enables the firm to have better control over the costs and help firm formulate better pricing strategies. Unproductive activities increases costs and time to complete the task. If the company will apply this activity it will be able to identify and eliminate the unproductive activities.
  2. Cost Benefit Analysis: The outcome of this analysis will help the firm to decide the profitability and pursuance of that project. The company shall remove irrelevant costs, such as, to control variable costs.
  3. Demand Forecasting: It’s a process under which analysts analyse the historical sales data to develop the expected demand from the customers. It helps the businesses to estimate about the goods such as, medicines, herbs, other hair and skin supplements that customer will purchase. It helps in reducing risks and make efficient financial decision. If the company will forecast the demand it can allocate its resources to different activities wisely.
  4. Lifecycle Cost Analysis: This analyse the lifetime cost of an assets. For instance, the health supplement companies are engaged more in Research and Development as compared to production. Therefore, they need to analyse the lifetime cost that any medicine or a supplement will hold and what revenue it will generate in its entire life. It will help the company to manufacture what is profitable to them.

Proposals/Lessons to the Board

After studying the case it is clear that the phase of this pandemic is not permanent. It is not completely negative. Blackmores will expect profit and better sales in few months. It is believed by the experts that the share price of the company will steadily improve. Non-payment of dividend in the fiscal year 2020 is professionally justifiable as in the situation where company is facing financial strain it is more important to preserve its retained earnings to safeguard the future expenses rather than paying dividends to the shareholders.

The Company’s strategy to operate in India will be profitable because it is a vast market in Asia as people in China and India have become more conscious about their health and intake of health supplements is trending in this part of the continent. Blackmores shall rejuvenate and re-construct the business and its strategies in China and Australia with simpler business structure and branding strategies. It shall be the duty of the new executive team appointed by the management at different countries to control the cost at the very business locations.

The world has come across uses and importance of digital platforms and technology in the daily lives and most commonly in the businesses. It is easier for the entrepreneurs to reach to international markets more efficiently via internet. As in today’s world people prefer online purchasing over traditional purchasing habit. The consumption of health supplements, such as vitamins, herbs, minerals, natural skin and hair treatment products, is inevitable even in situation like Covid-19. Therefore, the most important suggestion to the Blackmores is to transform into digital world and reach to its customers through digital media. It will help Blackmores increase its business in those countries also where it has no business place.

Reference List for Blackmores Limited Analysis

Australian Financial Review. (2020). Blackmores in trading halt amid China uncertainty. [Online] Available at: https://www.afr.com/companies/healthcare-and-fitness/blackmores-in-trading-halt-amid-china-uncertainty-20200210-p53z9f [Accessed 12 Sep. 2020].

Blackmores (2019). BLACKMORES Vitamins & Supplements - Australia’s #1. [Online] Blackmores.com.au. Available at: https://www.blackmores.com.au/ [Accessed 12 Sep. 2020].

Dyer, G. (2020). Blackmores Doubles Down On Strategy despite Profit Dive. [Online] ShareCafe. Available at: https://www.sharecafe.com.au/2020/02/26/blackmores-doubles-down-on-strategy-despite-profit-dive/ [Accessed 12 Sep. 2020].

Fern Fort University. (n.d.). Blackmores Limited [SWOT Analysis] Weighted SWOT Matrix. [Online] Available at: http://fernfortuniversity.com/term-papers/swot/nyse/4956-blackmores-limited.php [Accessed 12 Sep. 2020].

Koe, T. (2019). Blackmores’ full year growth dragged down by sluggish China performance and rising costs. [Online] nutraingredients-asia.com. Available at: https://www.nutraingredients-asia.com/Article/2019/10/31/Blackmores-full-year-growth-dragged-down-by-sluggish-China-performance-and-rising-costs [Accessed 12 Sep. 2020].

Lynch, J. (2020). Blackmores to slash jobs, axe dividend, as profit dives 66 per cent. [Online] www.theaustralian.com.au. Available at: https://www.theaustralian.com.au/business/companies/blackmore-to-slash-jobs-axe-dividend-as-profit-dives-66-per-cent/news-story/49b0806904ab656f9c796f8009e93426 [Accessed 12 Sep. 2020].

markets.ft.com. (n.d.). Equities, ETF and Funds prices, indices and stock quotes - FT.com. [Online] Available at: https://markets.ft.com/data/equities/tearsheet/summary?s=BKL%3AASX [Accessed 12 Sep. 2020].

Walton, S. (2019). Blackmores shares slide 14% on 2019 full-year results. [Online] IG. Available at: https://www.ig.com/en/news-and-trade-ideas/blackmores-shares-slide-14--on-fy19-results-190815 [Accessed 12 Sep. 2020].

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help

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