Blackmores Corporate Financial Analysis

Topics: Corporate finance, Finance, Debt Pages: 18 (6098 words) Published: March 24, 2015
1. Executive Summary
Blackmores Ltd is one of the leading contenders in the Health Care sector. The company specialises in a range of products including herbal and vitamin supplements. The company has a major share in the Australian and New Zeeland’s market generating almost 85% of the revenue from this region. Blackmore’s capital structure has been analysed as requested by the Board of directors to assist them in optimizing the company’s current capital structure. Firstly, the report analyses and compares Blackmores Ltd. financial data with two comparable competitors in the industry: Pharm-a-Care laboratories Pty Ltd and Swisse Wellness Pty Limited. Secondly, a detailed financial analysis was performed to analyse the capital structure of the organisation. The capital structure was compared to other similar organisations in the industry and analysed using various theories such as the security mispricing theory, management inertial theory and the pecking order theory. Thirdly, the report then aims to determine the optimal capital structure for the organisation. Several determinants of the optimal capital structure such as profitability, income, tax rates, growth etc. were analysed. Various managerial theories were considered, such as the trade-off theory, Agency theory, Stakeholder theory and the Predation theory to determine the optimal capital structure. Lastly, the report is finalized along with recommendations that the company can implement to optimize its capital structure along with the industry practices that can help the company be more efficient.

2. Company and industry Overview
Blackmores Ltd is an Australian public company, manufacturing and marketing a range of health products including herbal, mineral and vitamin supplements. The company employs over 500 workers in Australia, New Zealand and Asia. Blackmore was originally incorporated in 1962 Queensland as “Blackmores Naturopathic Organisation Pty Ltd”. The company’s name was changed to Blackmores Laboratories Pty Ltd in July 1980. Four years later, on 26th of April 1984 the company was made public and the name was changed to “Blackmores Limited” with ASX code BKL. (Datanalysis) BKL has a growing range of products that accommodate the natural health sector. These products include supplements for areas like arthritis, bone and muscle, brain health and animal health as well. The company’s products are sold throughout the globe through numerous mass merchants, super market and distributors. More than 85% of the company sales take place in the Australian region with international market increasing annually. (Blackmores.com) This has further been augmented with a proactive surge in health and supplement industry in the last two decades. This has resulted because of both consumer pull and government push. (Blackmores.com) The vitamin and supplement industry in a glance primarily develop products that can be taken orally for supplementing the diet. The main driver for this industry include real household discretionary income, trade weighted index, demand for grocery stores and supermarkets and lastly health consciousness. The industry has other related industry such as chemical manufacturing industry, pharmaceutical product manufacturing etc. The Vitamin and supplement industry in Australia has three major players. There are Swisse Wellness Pty Ltd, Blackmores Ltd and Pharm-a-Care Laboratories Pty Limited. The industry has high barriers to entry. The industry is characterised by small number of producers producing specialized product. The expectation for new entrants is constant graph of struggle, as it calls for both specialised knowledge of vitamin and supplement synthesis, moreover a high capital base as a start-up cost. That being said there are opportunities for niche product segments which cater for specialised health requirements. The industry is very competitive and mainly due to factors like price, quality and variety factors. The threats are not only...

References: Baker, M. & Wurgler, J. 2002, ‘Market Timing and Capital Structure,’ Journal of Finance, vol. 57, pp 1-32
BKL annual report: http://datanalysis.morningstar.com.au.ezproxy.lib.uts.edu.au/af/company/corpdetails?ASXCode=BKL&xtm-licensee=datpremium
Frank, Z.,M., Goya, K., V. 2005, ‘Tradeoff and Pecking Order Theories of Debt’, Centre for Corporate Governance, Tuck School of Business 2005, viewed 15 Oct 2014,
Grinblatt, S.,Titman,M
Hawawini, G. and C. Viallet. Finance for Executives: Managing for Value Creation. South-Western College Publishing, Cincinnati, OH, 1999.
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