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.
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.
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.
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.
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:
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.
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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].
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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].
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