130. Write 3500-4000words group report. Finance majored

130. Write 3500-4000words group report. Finance majored. Please read the requirements and the grading rubric very carefully. This task is extremely important. Please make sure it’s quality is good. And similarities cannot be over 15per cent even with references. I have also attached a sample for you. Please make sure you can handle this task and you answer fits all the requirements. Thank you.Please note: The company you chose has to be from the given company list. No other companies allowed!!!!!
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Financial Statement Analysis Group Assignment
A. Macro-economic Analysis
1. Global economy prospects
Since 2012, World gross product (WGP) has performed at a median annual ratio of 2.5 per
cent, appreciably below the average of 3.4 per cent recorded at a decade preceding the
financial crisis (Figure 1) (United Nations 2016). Driven by prolongation of enfeebled global
investment, dwindling world trade growth, low inflation, receding productivity, weak wage
growth as well as high debt levels, 2016 marked as a slowest pace for the global growth of
output (United Nations 2017). In comparison with 2008, 2016’s WGP is merely higher than
0.3 per cent. Besides mentioned factors, the heavy economic losses are also contributed by
low commodity prices and heightened conflicts and geopolitical tensions in various regions
(Global Conflict Tracker 2017).
Figure 1 (United Nations 2017, p. 2)
At issue is whether a sluggish economy growth will be ingrained for a longer period.
According to some projections, with the end of American destocking cycle and Japan’s
supporting policies, there will be a slight increase for developed economies in gross
domestic product growth (United Nations 2017). Even though fiscal incentive, if effectuated,
may boost global growth, risks to growth forecast could tilt to the downside, including
heightened policy uncertainty, financial market disruptions (World Bank Group 2017).
Furthermore, commodity exporters in developing nations are forecast to grow modestly, as
stabilisation of commodity prices and inflation pressures influenced by depreciations of
exchange rate ease (United Nations 2017). World gross product is projected to swell by 2.7
and 2.9 per cent in 2017 and 2018 (Appendix Table 2), respectively, with this moderate
improvement more like a signal of stabilization than an indication of a robust amelioration of
global economy.
2. Regional economies
2.1 Australia
In 2012-2013, Australian GDP increased 3.75% (Budget 2012-2013). The growth was belowtrend due to mining investment cut down, average growth of consumer expenditure as well
as continuing fiscal restraint (RBA 2013). Being impacted by the downturn of global economy,
the decline of commodity prices and the threat of international financial status which might
turn negative, in 2012, RBA decided to cut down interest rate in by 25 basis points (Janda
2012). Until 2013, the rate reached 2.5%, which was historically low (McGrath 2013). It
encouraged dwelling price and construction as well as the turnover housing market (RBA
2013). According to data from the ATO (2017), CPI of June 2012 was 100.4, below the target
set. A boost from the incline of fuel prices led to the rise of inflation rate in September
Quarter, however, a decline happened at the end of the year as a direct result of the drop of
carbon price (RBA, 2013). With a not-too-bright economy picture, Blackmore sales only rose
$65,771 from 2012 to 2013 (Blackmores 2016).
Australian GDP in 2014 climbed due to 0.4% rise in household spending, 0.8% in net exports,
however, being pulled by 0.5% drop in business investment together with 0.2% fall in
government investment (Janda 2014). In 2015, GDP slightly increased from 2.7% of 2014 to
2.5% (Tang 2016). In September quarter of 2015, the Australian inflation rate experienced a
growth of 0.5%, which was lower than expected (Cauchi 2015). Consequently, the interest
rate in 2015 was remained the same as a decision of the RBA (Parker 2015). The cut of
interest rate offers consumers more discretionary money, which has positive affect on their
spending willingness (Parker 2015). A positive economy influenced the boost by $124,855 of
Blackmore sales (Blackmores 2016).
Due to eases of the detraction from mining investment, in 2015-2016 and 2016-2017,
Australian economy is expected to rise 2.5% then surge to 3% in 2017-2018. The slowdown
in the growth of non-mining investment is a risk of real GDP. And if it continues to remain
unchanged in 2016-2017 and 2017-2018, real GDP would be 0.5% lower than forecast
(Treasury 2016). Over 2016, the Australian inflation rate was 1.5% with CPI went up by 0.5%,
which was lower than prediction. Consequently, pricing dropped all over the year. Moreover,
the unemployment rate has experienced a decrease from 6.1% to 5.5% from 2014-2017 and
is expected to remain until 2020. Generally, Australian economy has significantly gone up
since 2015. As a result, a surge has been occurred in Blackmores sales from $471,615 of
2015 to $717,211 of 2016. With a brighter picture predicted for the economy, Blackmores
might also have a better future if the company’s managers still maintain and develop good
strategy.
1
Figure 2 – Blackmores operations and markets (Blackmores 2016, p. 3).
Figure 3 – Blackmores Geographical Segments – Revenue (IBIS World 2016, p. 8).
Figure 4 – Blackmores Revenue & Net Profit After Tax (IBIS World 2016, p. 6).
2
2.2 East Asia and Pacific
2.2.1 China
In 2016, national output estimated at 6.7 per cent, marginally decreased from last year
growth of 6.9 per cent (Figure 5). As being projected, the economic growth in China would
continue to decelerate steadily and is likely to hit 6.4 per cent in 2017-19 (Zhang 2016). After
several years (2012-15) of being negative, producer price inflation eventually bottomed out.
This is mainly contributed by overcapacity eased and recovery of raw material prices (World
Bank Group 2017). The low inflation of 2 per cent along with benign financing conditions are
direct factors in making strong domestic demand growth in 2016 (World Bank Group 2017).
Figure 5 (World Bank Group 2017, pp. 86-88)
Varied accommodative policies have been promulgated to support economic activity,
multiple policies to cut down interest rates in 2015, for example (World Bank Group 2017).
Whilst total credit of non-financial sector reached a new GDP high – 255 per cent in the
2016 second quarter (BIS 2016), financial markets have endured steady since the first.
Capital outflows have also eased (at less than 4 per cent of GDP in quarter two of 2016),
however still maintain sizable compared to period of 2011-14 (Figure 6).
Figure 6 (World Bank Group 2017, pp. 84-85)
3
Foreign reserves continued to drop in 2016 (depreciating at $3 trillion for the year ending),
yet more optimistic than the previous year (Dufour 2017). In comparison with 2015, the
Renminbi has devalued almost half against the Australian dollar (AUD) and touched bottom
at 0.19 AUD for a Chinese Yuan during 2016 last quarter (Figure 7).
Figure 7 – Chinese Yuan to Australian Dollar Chart 2015-2016 (XE 2016).
2.2.2 Rest of the region
Growth in other East Asia Pacific regions maintained at 4.8 per cent. The major factor is the
weakened external demand was primarily offset by resilient domestic demand (World Bank
2017). Low and dwindling inflation (3 per cent) permitted regional central banks to keep
accommodating monetary policy standpoints (Figure 5) (World Bank Group 2017). Economic
growth recovered in importers of commodity, preceded by Philippines and Thailand (World
Bank 2017).
In Malaysia, as a consequence of diminished revenue from exporting energy, the current
account surplus was narrowed and growth rate was burdened, but strong domestic demand
has made up at some aspects (World Bank Group 2017). Meanwhile, in Indonesia,
accommodative monetary policy lifted domestic demand, boosting Indonesian growth to 5.1
per cent (World Bank Group 2017).
In the last quarter of the year, majority of regional currencies have come under renewed
strain, especially the Malaysian Ringgit, reflecting intensified world volatility and deficiency
of stimulated measures to enhance the foreign exchange market liquidity (World Bank
Group 2017).
4
2.2.3 Impacts
To build on substantial trading relationship between China and Australia, the China-Australia
Free Trade Agreement has entered into force on 20 December 2015, and shall be fully
implemented on 1 January 2029 (‘China-Australia Free Trade Aggreement’ 2016). Particularly
with pharmaceuticals including vitamins and health products, the elimination of tariffs is up
to 10 per cent (‘China-Australia Free Trade Aggreement’ 2016).
With the strong growth in China domestic demand, Blackmores (2016) estimates that earned
revenue of 2016 from the second largest economy operations accounted for 6.7% total
revenue (Figure 4) (AU$48 million), much higher than approximately 7.5 million recorded in
2015. The extended scale, at the outcome of Asia growth, has enhanced Blackmores’s
profitability, and has permitted over 100 job opportunities in Australia (MarketLine 2016).
The falling strength of the Renminbi was expected to soften the demand for imports as they
become more expensive for domestic buyers. Nonetheless, final data tell the otherwise. As
being stated in 2016 annual report, sales revenue of year to the China market increased by
636% (Blackmores 2016). This reflects the firm’s strategy to target in middle and upper class
consumers. As a result of the strong performance of Australian dollar in recent years, Asian
imports have become cheaper, which enables Blackmores to obtain procurement benefits
from the exchange rate movements (Clearly 2017).
B. Industry Analysis
Allday (2016) states that the industry is forecast to develop significantly due to the rise of
consumer expenditure as well as positive export opportunities. Consumer health awareness,
real household discretionary income and downstream demand from food together affect the
industry Allday (2016). Furthermore, the industry can also be influenced by exchange rate
and consumer sentiment (Allday 2016).
There are ‘five forces’ that contribute to the average profitability of an industry.
1. Rivalry among existing firms – Moderate
1.1 Industry Growth
According to Allday (2016), an incline in Australian health consciousness has led to the rise of
10.8% in the industry revenue, reaches $1.4 billion total revenue. Remaining healthy life
style by purchasing and consuming imported goods is a trend in middle class consumers of
Asian countries, especially China, which is predicted to the dramatically growth of vitamin
and supplement industry in these countries (Allday 2016). Also, Allday (2016) expects that
there will be a strong but slower increase of 3.9% annually over five years through 20212022.
5
Figure 8 (Allday 2016, p. 7)
1.2 Concentration
According to Allday (2016), due to the brand-recognition demand, an increase of market
share has occurred critically over the past five years. With an average level of concentration,
major players of the industry still take into account of 2/3 of the industry revenue (Allday
2016). Two biggest companies of the industry, Blackmores and Swisse, are expected to
endure preeminent in the next 5 years thanks to their growing of scales and worldwide
presence (Allday 2016).
Figure 9 (Allday 2016, p. 24)
1.3 Differentiation
Vitamin and supplement industry differentiates themselves by a wide range of product lines.
Allday (2016, p. 12) states that there are 3 main segments including 65.9% of health and
wellbeing products, 18 % of dietary and weight control products and fitness and functional
supplement accounting of 16.1%.
1.4 Scale and learning economies
Allday (2016) highlighted that in order to lower marginal costs and increase profit margins,
vitamin and supplement manufacturers could produce greater volumes, spread production
cost over a wider amount of goods to lower cost-per-unit.
6
Figure 10 (Allday 2016, p. 13)
1.5 Excess capacity and exit barriers
According to Allday (2016), purchase cost, wages cost as well as rent and utilities cost of
vitamin and supplement industry has experienced a growth in 2016-2017. Allday (2016)
indicates that a high level of capital intensity is the reason that drives the entry and exit cost
of the industry expensive.
2. Threat of new entrants – Medium
An expectation of increase in the industry new entrants concentrating on niche or specialty
products has been forecasted, which drives higher competition in the industry and puts a
burden on prices (Allday 2016).
2.1 Economies of scale
Over the past 5 years, the increased real household discretionary causes the rise in demand
of vitamin and supplement market. Consequently, major players have raised the volume of
manufacturing which results in the growth of economies of scale (Allday 2016). This is a
challenge for new entrants to approach the market.
2.2 Access to channels of distribution and relationships
Following Allday (2016), with the domination of all the existing firms on the distribution
channels, it causes difficulties for new companies those want to enter the industry.
Moreover, in the coming years, all the material players will be expected to carry on
expanding their relationship with channels of distribution to secure their position in the
market towards in entrance of new competitors.
7
2.3 Legal barriers
Allday (2016) notes that all the vitamin and supplement products are governed by
Therapeutic Goods Act 1989 under regulation by the Australian Therapeutic Goods
Administration (TGA). The act also mentioned about the manner and social responsibility of
the products marketing as well as adequate and appropriate labelling (Allday 2016). With
that high level of regulatory barriers, there will be difficulty for any companies that want to
join the industry.
3. Threat of substitute products
There are no risks of substitution for vitamin and supplement industry. However, according
to Dr. Jill Silverman, people can be provided sufficiently vitamin from all the fruits and
vegetable that they eat (Becker and Salahi 2010). Moreover, Dr. William Kormos also insisted
that obtaining nutrients from food is better than depending on vitamin and supplement
products (Willett, Sesso and Rimm 2013). To an extent, published opinion of specialists may
create impact on consumers’ thoughts towards vitamin and supplement products and
influenced the sales of firms in the industry.
4. Bargaining power of buyers
4.1 Key buyers
Vitamin and supplement manufacturers primarily supply direct-to-consumer retailers (Allday
2016). These encompass:
•
•
•
•
Supermarkets and grocery stores;
Pharmacies;
Specialty stores;
Others (department stores, direct mail orders from consumers, Internet orders from
manufacturers’ and wholesaler websites, and health service providers).
Figure 11 (Allday 2016, p. 14)
8
4.2 The bargaining power
4.2.1 Price Sensitivity
Price sensitivity of buyers depends on whether the manufacture using differentiation or
switching costs as strategy, and emphasis of goods on their cost structure (Palepu 2013).
Additional, the significance of the product to buyers’ quality of products can also be in
consideration of whether price is the key component of purchase (Palepu 2013).
One characteristic of the industry is rather than price competitiveness, quality of goods;
investment in manufacturing appliances; and number of available products are more a
concern for vitamin and supplement manufacturers. This is principally due to differentiation
to meet diverse demand of health conscious consumers.
4.2.2 Relative Bargaining Power
The bargaining power of buyers is governed by the correlativity of number of buyers to
number of suppliers, each buyer’s volume of purchases, and number of available substitute
products for buyers to switch (Palepu 2013).
Vitamin and supplement manufacturers are more likely to produce high-quality goods in an
efficient manner. Manufactures that have a good reputation in the market and wide product
offerings are favoured and dominated at approximately 60% the market. Because of this
number of alternative products is somehow limited. Similarly, with only few vitamin and
supplement suppliers in the market – 184 firms, it is unlikely to meet the constantly rising
demand (Allday 2016).
5. Bargaining power of suppliers – Limited
Most domestic vitamin companies source largely ingredients from overseas including the big
names. While the outsourcing makes 90 per cent of Blackmores’ product, it accounts for 70
per cent of Swisse’s supplement (Clearly 2017). This is part of cost cutting strategy and
capturing the surge demand of general wellbeing products in Chinese market.
Said by Richard Henfrey – the Blackmores chief operating officer, the major source of supply
for its vitamin C and glucosamine was China (Clearly 2017). Additional, krill oil – main
ingredient for the famous krill oil capsules was supplied by a Norwegian fishing and biotech
company – Aker Biomarine Antarctic (Marine Stewardship Council n.d). Blackmores also
approaches load production from Canada, America, Germany, Sweden and Holland such as
its probiotics from BioGaia (AB) – a Swedish enterprise (Table 2), and only uses local
producers to meet demand when necessary. For key contractors in Australia, Blackmores
works with Lipa Pharmaceutical in Sydney, and Catalent in Melbourne.
9
Vitamin and supplement ingredients and sources are the crucial component to businesses
within the industry. However, as the diversity in types of suppliers and competitive prices,
buyers have a great deal of power over suppliers and are able to switch one from another
easily.
Table 1
Supermarkets
Pharmacies
Specialty Stores
Others
Price sensitivity
Level
Fraction of buyers’ cost
Low
Moderate
Sales of grocery play as the main
income rather than supplements
consumption.
Relative bargaining power
Level
Medium
Number of businesses in industry
of supermarkets and grocery stores
is accumulated to more than 2000
(Allday 2016), while only 184
authorised vitamin and supplement
manufacturers (Allday 2016).
Further, health products account
for 10.7% of supermarket
segmentation (Cloutman 2017).
Medium
Large
Medium
Specialised in pharmaceutical
Over 4000 businesses with 79% of
products and vitamin and
prescription and non-prescription
supplements
medicines of products
segmentation (Richardson 2017).
Medium
Large
Low-to-medium
Income largely based on sales of specialist products including dietary and
weight control products, and fitness and functional supplements
High
Small-to-moderate
Low
Orders from firms that are likely with limited capital, therefore, price is
most influenced purchasing factor.
6. Conclusion
Within vitamin and supplement industry, rival among existing companies remains moderate.
Due to the rise in purchase, wages as well as rent and utilities costs from 2016-2017, the
industry is considered as expensive to enter and exit. For new entrants to participate into
the market, economies of scale increase, the lack of possibility to approach channels of
distribution due to all the big players existing relationships and heavy legal barriers are
challenges they might have to overcome to sustain. There are no threats of substitute for
this industry but natural healthy foods such as vegetables. Buyers bargain power is medium
while it is low for suppliers. Overall, the competitive level in this industry is moderate to high.
10
Table 2 – Blackmores Product Pipeline (Medtrack 2016).
11
Figure 12 – Porters’ five forces
DEGREE OF ACTUAL AND POTENTIAL COMPETITION
Moderate rivalry among
Existing firms
Medium threat of New
Entrants
Threat of Substitute
Products
•
•
•
•
•
•
•
10% industry growth
rate in 2016
Moderate degree of
concentration
Differentiation
Medium scale
Medium-high
entry/exit barriers.
•
•
Arise economies of
scale
Moderate access to
distribution channels
Heavy level of
regulation and
continue to remain.
No substitute
products.
INDUSTRY PROFITABILITY
BARGAINING POWER IN INPUT AND OUTPUT MARKETS
Limited bargaining Power of Suppliers
Bargaining Power of Buyers
•
•
Various retailers including super
markets, pharmacies and specialty
stores with significant purchase
volume
Price sensitivity and Relative
bargaining power depend on the
number of purchase …
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