17ANNUAL REPORT 2017 p p p p p p 02 04 07 08 32 50 About Us Highlights Chairman’s CEO’s Year Sustainability, Directors’ Introduction In Review Community + + Remuneration People Reports
Operating + Financial Review 20 Consolidated Financial Statements 78 Annual General Meeting Group Strategy 22 Executive Team 44 The 54th Annual General Meeting of the Company will be held at 11am on 26 October Group and Divisional Results 24 Directors’ Profiles 48 2017 at the Blackmores Campus, 20 Jubilee Avenue, Warriewood NSW 2102. Financial Review 26 Auditor’s Independence Declaration 72 Cover image: Fiona Yeo, Assistant Marketing Operating Review 28 Independent Auditor’s Report 73 Manger, Export Sales. Fiona is profiled in this Group Risks 30 Directors’ Declaration 77 report on page 42. Additional Information 118 Company Information 119
OUR ANNUAL REPORT 2017 BLACKMORES ANNUAL REPORT 2017
OUR OUR #4 STRATEGIC VALUES PURPOSE PRIORITIES
Blackmores’ values are at Blackmores improves Blackmores is committed the heart of our business. people’s lives by delivering to superior business These values, known as the world’s best natural performance. Our strategic PIRLS, are both behavioural health solutions. We direction is focused on and aspirational. They achieve this by translating delivering growth and underpin our work practices our unrivalled heritage and continuous improvement to and are supported by legal knowledge into innovative, maintain Blackmores’ leading policies and procedures. quality branded healthcare position in the industry and solutions that work. to achieve ongoing success Passion for Natural Health for our company, our people Integrity and our shareholders. Respect Leadership #1 Consumer Centricity Social Responsibility #2 Asia Growth #3 Product Leadership #4 Operational Effectiveness
THE 2017 ANNUAL REPORT OF BLACKMORES LIMITED PROVIDES INFORMATION ON THE ORGANISATION AND COMPANY PERFORMANCE FOR THE YEAR 1 JULY 2016 TO 30 JUNE 2017.
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Blackmores is Australia’s leading natural health company. Founded by visionary naturopath Maurice Blackmore in 1932, Blackmores combines traditional naturopathic expertise with scientific research to help people achieve optimal health and wellbeing. Committed to developing innovative natural health products and services of the highest quality, Blackmores reaches consumers in 17 markets around the world.
supporting charitable with a market capitalisation community initiatives. of $1.5 billion. The Group Industry leaders for employs 1,000 people 85 years, Blackmores across Asia-Pacific and ABOUTBlackmores’ extensive established the includes BioCeuticals, range of vitamins, herbal Blackmores Institute in Australia’s leading and mineral supplements, 2012 to drive an evidence- practitioner range; Pure and nutritional foods uses based approach to natural Animal Wellbeing, natural premium ingredients from health through education, health products for pets; around the world, with research and professional and Global Therapeutics, products made to strict advisory services. For Australia’s leading provider Australian manufacturing health professionals of Chinese herbal medicine. standards and rigorous and consumers alike, Blackmores’ teams in quality checks. Blackmores Blackmores is a trusted Asia comprise sales and respects the innate link source of natural health marketing personnel as well between healthy people advice. as healthcare professionals. and a healthy planet, With a strong The Blackmores Campus implementing sustainable naturopathic heritage, head office and production packaging and waste- Blackmores is an ASX 200 facility is located on 02 reduction practices and publicly-listed company Sydney’s Northern Beaches. OUR BRANDS
ISOWHEY BIOCEUTICALS BLACKMORES PURE ANIMAL FUSION ORIENTAL WELLBEING HEALTH BOTANICALS
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COMPANY HEADQUARTERS, OPERATIONS OPERATIONS HEADQUARTERS, COMPANY AND SIGNIFICANT REVENUES AND SIGNIFICANT OPERATIONS REVENUE OR VENTURE OPERATIONS JOINT AND EMERGING MARKETS OPERATIONS BRAND PRESENCE KAZAKHSTAN KAZAKHSTAN Operations and Markets Operations GLOBAL FOOTPRINT GLOBAL USA JAPAN JAPAN KOREA KOREA CHINA CHINA MACAU NEW ZEALAND MALAYSIA MALAYSIA THAILAND TAIWAN TAIWAN VIETNAM HONG KONG INDONESIA INDONESIA CAMBODIA
MONGOLIA MONGOLIA
AUSTRALIA (REGIONAL HEADQUARTERS) SINGAPORE SINGAPORE BLACKMORES ANNUAL REPORT 2017
VITAMIN AND SUPPLEMENT NO. COMPANY IN AUSTRALIA – 1 BLACKMORES HIGHLIGHTS
NO. PRACTITIONER BRAND 1 – BIOCEUTICALS
HEALTH FOOD STORE 04 NO. BRAND – FUSION HEALTH 1
CONSECUTIVE YEARS AS AUSTRALIA’S MOST TRUSTED BRAND IN VITAMINS & 9 SUPPLEMENTS
NEW PRODUCTS LAUNCHED 110 ACROSS THE GROUP
MEMBERS ACROSS ONLINE AND SOCIAL MEDIA PLATFORMS MILLION1.9 ACROSS THE GROUP
EDUCATION TOUCHPOINTS ACROSS THE GROUP MILLION1.2
RELEASED INAUGURAL ST BLACKMORES GROUP 1 SUSTAINABILITY REPORT
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HIGHLIGHTS NET PROFIT AFTER TAX 58 $MILLION
Richard Henfrey, Blackmores’ newly appointed Chief Executive Officer.
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MARCUS BLACKMORE
In February I announced to shareholders that I was taking a sabbatical after 50 years in the business to give me the opportunity to ‘clean out the garage’, metaphorically speaking. Over the years we accumulate so much – some of it invaluable relics of our rich history and some of it junk – and occasionally it’s good to review what we have, so we can focus on our vision for the future and what we will need to get us there.
This is also true for increasing amount of time agent with a focus on better prepared to grasp Blackmores. We have in recent years, including business transformation the countless opportunities refocused on the pillars of our invaluable relationships and driving a performance that we have before us as growth for our business – with governments, culture. She has nurtured the demand for high quality our unwavering values, a regulators and business our people and our values natural health solutions strong purpose and a clear partners in Asia. and enhanced our strategy continues to grow. strategy – and as a result As the financial year enabling Blackmores to As a substantial our company has stronger drew to a close, we expand our brand portfolio shareholder, I share the foundations. announced the news that and our geographic disappointment of our My sabbatical was an our CEO of the past nine footprint. She has served investors that this year’s opportunity for Stephen years, Christine Holgate, as a wonderful role model results have not matched Chapman to step into the would be moving on to for our staff and for women last year’s exceptional role of Chairman, after take on new challenges as in corporate life. She profits; however, I am more than 20 years serving the CEO of Australia Post. leaves Blackmores with our confident about the on the Board, where he While this is disappointing very best wishes and our future opportunities for did an outstanding job. I’m for me personally, deepest gratitude. Blackmores, knowing pleased he will continue to Christine leaves behind I am looking forward that our ‘house is in share his extensive business an exceptionally capable to working with Richard order’ and I thank you expertise and strong executive team and Henfrey in his new role as for your support. corporate governance emerging opportunities Chief Executive Officer of experience as he continues that will yield continued Blackmores. The best of health in the role. growth for our business. Our business has had This will enable me to I would like to thank its challenges in the past devote more to the areas Christine for the wonderful 12 months, and we have of the business where I contribution she has made. met them standing up and have been spending an She has been a change are stronger for it. We are Marcus C. Blackmore AM 6 BLACKMORES ANNUAL REPORT 2017 7
I also thank the As well as making I’d like to thank my to I’d like Our commitment I look forward to sharingI look forward Blackmores ExecutiveBlackmores decline inThe Team. incentiveexecutive payments is consistent to alignwith our approach to remuneration executive It does returns. shareholder the passion ornot reflect commitment of this very who have team, strong our lead to tirelessly worked wonderful people through this period of change. leadershipthe recent we have refined changes, tothe business strategy onpursue the opportunities our doorstep and to better andfocus on our strengths competitive advantages. as with you our progress we embark on the next stage of our journey. Chapman Stephen Chairman fellow Board members whofellow Board have used their extensive to helpexperience the challenges ofnavigate I particularly the past year. Blackmore thank Marcus brings great as always, who, passion values and vision, to this company. is a strong foundation for foundation is a strong future. our industry’s quality of goods manufactured in Australia. to the communities in and towhich we operate was remarkably innovation this yeardemonstrated and Caroline when Marcus through Blackmore, made a their foundation, significant contribution at research to support Institute ofthe National Complementary Medicine. with Blackmores’ Together was the this contribution, donation ever largest by Western received University andSydney
Asia continues to be as a recognition The and the continuation ofand the continuation He strategy. our growth understands the natural industry, healthcare hishas demonstrated andmanagement capability he met all of the Board’s nextcriteria to become the ofleader business. our to our visionimportant it was very and therefore Blackmoressignificant that July in awas appointed in advisory role leadership key forAssociation to the China Quality Inspection (CAQI), a high-level non-profit withChinese organisation for product responsibility quality inspection. Company President Vice with was furthered of CAQI the appointment of Peter Blackmores’ Osborne, as Asia, Managing Director, of Chairman Vice CAQI’s – theAdvisory Committee citizenfirst and only foreign board to hold a CAQI the reflects This position. China has that respect stringent for Australia’s systems andregulatory its confidence in the
The board has declared board The has alsoLeadership of appointment The a final dividend of 140 cents making the totalper share yeardividend for the 2017 We 270 cents per share. believe this is consistent for the year, with the profit our sound financial position and our confidence in the future. been a theme this year initiatingwith the Board processan evaluation of internal and external to appoint acandidates new Chief Officer Executive following the resignation The of Christine Holgate. in agreement was Board to Blackmores for that continue our growth we would need journey, a CEO who understands uniqueBlackmores’ has heritage, and culture the ability to define and and has thedeliver strategy to carry forwardexperience Asia. our vision for who was Henfrey, Richard Blackmores’ previously Chief Officer, Operating a seamlesswill ensure for our teamtransition
The profit after tax of after profit The Though the remarkable Though Boards take the same take Boards when lookingapproach CHAIRMAN’S INTRODUCTION CHAIRMAN’S and BioCeuticals’ Institute Blackmores of part Blackmores. vernacular at the are checks Health understand the to better in diagnostics the latest constantly investigating are teams innovation of of wellbeing. or the indicators markers inflammation compromised of the health at business, a assessing the markers ofand indicators how a company is tracking itsand how robust tounderpinnings are deliver the strategy. $58 million this year was$58 million this year Whilst lowerdisappointing. profit exceptional the that it was a solidlast year toperformance compared our 2014 and 2015 profits of $25 million and $47 Our million respectively. balance sheet is sound and shareholders’ on return strong. equity remain momentum of recent by a was broken years disappointing first quarter with the I’m pleased result, we have made progress thesince then to strengthen our business refine and core phase the next for strategy have become We of growth. diversifieda much more and capable business in in and we are years recent global businessa growing healthcare. sector – natural BLACKMORES ANNUAL REPORT 2017 CEO’S YEAR IN REVIEW
GROUP SALES* $ Following two exceptional years of growth, 2016/2017 was a rebalancing MILLION693 year for the Blackmores Group, delivering $693 million in sales (down 3%) and a net profit after tax (NPAT) of $58 million (down 42%) on the prior year.
After a challenging TRANSFORMING OUR Speculation in The demand for start to the year, we are BUSINESS TO ADDRESS April 2016 about Blackmores products in pleased with our recent NEW CHALLENGES potential regulatory China remained strong performance. We finished In 2015 and 2016 we changes in China impacted throughout the year the year in a stronger were pleased to share the buying patterns of although the route to position than we entered extraordinary profit results Chinese entrepreneurs serve consumers changed it. We have changed with our shareholders. and tourists who previously significantly. Blackmores our expense structure This was the outcome were purchasing through responded quickly to the to reflect a different of strong performances Australian retailers. The changes in the market trading environment, across all brands and decline in sales to Chinese by both building a new although we maintained markets and was bolstered consumers through China Export Team and investment in core future by the opening of free Australian retailers was strengthening our in- growth platforms; we trade zones in China. The significant and came country China business have made appropriate rapid and unprecedented without warning. This and tightly managing our provisions to protect us growth compromised our was evident in the high inventory. We closed the in future years and, with continuity of supply of key levels of stock in the year with direct China sales tight management of our ingredients and product market in the first up 71% at $132 million inventory and cash, we lines and in response, quarter of the 2016/2017 and, including estimated exit the year with a strong inventory was increased financial year which sales through Australian balance sheet. in line with the growth could be seen in our retailers, China accounts for trajectory. first quarter results. approximately $250 million
Christine Holgate.
* ‘Sales’ refers to sales net of discounts. 8 BLACKMORES ANNUAL REPORT 2017
of Group sales. and the fit out of a state-of- Retail markets are as most trusted brand in Although sales the-art distribution centre no longer defined by the category by Reader’s recovered as the in Western Sydney that will geographic boundaries Digest and maintaining year progressed, the support future growth for and so a global approach our leadership position in changed Australian retail the Group. to channel management Australia. environment saw a return and e-commerce has been New product to market competition and STRONG FOUNDATIONS necessary. Continued development has yielded normalised levels of trading Business fundamentals are investment in this area was strong results this year terms, which diminished strong and the balance undertaken in the year with with key launches such our profits further on a year sheet demonstrates further work required as we as shelf-stable probiotics to year comparison. the focus on inventory, develop these capabilities. in Australia and line Management cash conversion, debt The Group achieved extensions for BioCeuticals responded to the pressure management and quarter on quarter sales delivering increased sales on profits across our working capital. growth over the year and shelf space. Blackmores Australia The investment in supported by healthy Blackmores Institute business by realigning infrastructure, including consumer demand. and BioCeuticals continue expenses without updated technology Macro global trends to lead in education and compromising our growth platforms, automation of towards natural health, research, with more than initiatives. Among these processes and the new ageing populations and 1.2 million education growth initiatives were new distribution centre, will fast growing middle classes touchpoints across the businesses in Indonesia support future growth. As in key markets in Asia are Group and 40 research and Vietnam, supporting we grow globally, these also encouraging. projects underway. the growth of BioCeuticals foundations will be more Brand health is and Global Therapeutics; important than ever before strong with Blackmores developing a world first as we continue to build receiving recognition for online education platform scale across our business. the ninth year running
9 BLACKMORES ANNUAL REPORT 2017 CEO’S YEAR IN REVIEW
SALES SALES SALES SALES $ $ $ $ MILLION372 MILLION216 MILLION102 MILLION4
AUSTRALIA & NEW ASIA BIOCEUTICALS GROUP NUTRITIONAL FOODS ZEALAND Our Asia direct sales were BioCeuticals and Global Sales of $4 million from Blackmores Australia and $216 million, up 36% Therapeutics delivered Blackmores’ infant nutrition New Zealand sales of highlighting the strategic sales of $102 million. products through our $372 million, including importance of Asia as a BioCeuticals achieved Bemore partnership Pure Animal Wellbeing growth platform for the sales of almost $80 million with Bega Cheese were (2016: $482 million) were Group. which was a 15% increase particularly impacted by down 23% primarily due The particular compared to the prior year. regulatory uncertainty to Chinese tourists and importance of the China BioCeuticals exceeded the in China. Half of these exporters changing their market is evident with ten year sales and earnings sales are accounted for buying patterns and Blackmores China direct goal, set when the business in Blackmores’ Financial following a return to market sales, including sales was acquired in 2012, within Statements through competitive pressures. through our Export division, five years. On a like-for-like our partnership with Excluding the impact of at $132 million, up 71%. comparison, sales of Global Bega Cheese. Prudent Chinese influenced sales, Many of our other Therapeutics products were provisions have been taken our Blackmores branded established Asian markets up 11% and the business is throughout the year against domestic sales were in line experienced strong now successfully integrated all finished inventory to with the prior year. growth, securing market into the Blackmores Group. reduce the possibility of share and benefiting from BioCeuticals continues to future potential risks. As new products, increased be the leading practitioner we look ahead, there are investment in the brand brand in Australia, and opportunities emerging and strong support from with pioneering product to expand further into the Blackmores Institute. In innovation it has secured export markets where local currencies Thailand 60% market share in consumer demand for was up 8%, Malaysia was pharmacy in this category. high quality product up 11%, Singapore was up Its education programs are offerings is growing. 13%, Hong Kong up 50%, renowned as world-class Taiwan was up 58% and and they are now in the Indonesia added $4 million top 10 health podcasts in in sales. As we moved to the world. our planned new operating model in Korea to improve profits, sales there were down 70%. Excluding the impact of both China and Korea, other Asia sales were $81 million, up 15%. In the year we launched in Indonesia and have progressed the establishment of a business in Vietnam, where we are preparing to launch with a range of Blackmores products in coming months. Blackmores Institute expanded its influence across Asia with new partnerships agreed with Rangsit University Thailand, National University of Malaysia and Taylor’s University, Malaysia.
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CHALLENGES spend levels and intense The balance sheet has team of people. The Blackmores Group has competition has returned. significantly strengthened, I’d like to congratulate more than 1,300 products The significant change in with inventory and debt Richard Henfrey on his across all brands and Australia highlights the reducing and cash appointment as your new markets. Consequently, importance of continuing generation improving in CEO. I’m extremely pleased forecasting demand to diversify the business the last 6 months. We have that the Board recognised and product mix is more into new markets such as taken prudent provisions someone from our complex than ever before. practitioner products and to reduce future risk and leadership team; it will bring In order to ensure the new geographies to ensure our investment in a world- stability to the business quality of our products we are not reliant on any class distribution centre to have someone who is never compromised, one business. in Western Sydney and in deeply understands our there is an average 12 Adapting the cost new technology platforms culture, the complexity of week lead time to produce base has been undertaken will support the growth the retail environment and each product line. The whilst continuing to invest we anticipate, including the strategic opportunities unforeseen disruption in for future growth and I’m additional volumes from for our Group, and I respect Australia in the first quarter pleased that controlling our emerging businesses Richard’s leadership and resulted in our inventory expenses has been a in Asia. integrity. Although we will peaking in September. focus throughout the year In line with our updates face new challenges, I know Careful management with underlying business over the year, reported the company is in strong delivered a significant costs carefully managed profits for the full year did hands for the future. reduction throughout the to enable funding of the not meet those of last year’s On a personal note, I year with Group inventory engines that will deliver exceptional results, though would like to thank all our down at $85 million at year returns in the medium term, represent 25% growth on shareholders, suppliers, end. However, in order such as our new business the very strong 2015 year. customers, business to protect against future in Indonesia, a world class The Board and partners, our Executive potential uncertainty and e-learning platform and a management expect year- Team and of course our ageing inventory, we have state-of-the-art distribution on-year growth this wonderful staff for their included an additional $10 centre. financial year. support of me and of million in provisions above We are well-placed for our strategy throughout normal levels, impacting OUTLOOK future growth with more my nine-year tenure as earnings by the same The financial health of the than 85 years of deep CEO. I will remain a large amount. business gives Blackmores expertise in natural health, shareholder reflecting my In 2016 when some a strong entry into the new 40 years of experience in continued belief in the key products were scarce financial year. The Group Asia, a house of leading strong growth prospects in Australia we benefited exited the 2016/2017 year and trusted brands, a for Blackmores. from lowered promotional in a stronger position than world-class research and discounts. Demand and we entered it. education program, a supply of these products Our underlying strong operational base of has now rebalanced and performance has improved facilities and infrastructure, Christine Holgate consequently typical trade as the year progressed. supported by a talented Chief Executive Officer
11 BLACKMORES ANNUAL REPORT 2017 CEO’S YEAR IN REVIEW
• Blackmores #1 vitamin and supplement brand and Group in Australia*. • Most Trusted Brand in Australia (nine years running) and key markets in Asia including Malaysia and Singapore**. • Strengthened our digital footprint, with 1.9 million Blackmores members across our websites and social media in Asia-Pacific. • Welcomed new brand ambassadors Lauren Burns, taekwondo Olympic gold medallist for Oriental Botanicals and Dr Katrina Warren, celebrity vet, for Pure Animal Wellbeing. • Opened two new Blackmores flagship stores in Hong Kong, plus increased airport presence in Sydney, Bangkok and Kuala Lumpur. • Strategic competitive positioning through customer planning days and in-store merchandising. • Expanded our supermarket reach, launching Blackmores products in Costco and Aldi and was number one vitamin brand in Coles and Woolworths. • Supported Australia’s top athletes through sponsorships with Collingwood Football Club, Collingwood Magpies Netball Team and an elite IsoWhey Sports cycling team. • Sponsored key sporting events in Australia and Asia, including the Blackmores Sydney Running Festival, Byron Bay Lighthouse Run, Run&Move in Thailand and Penang International Triathlon/Duathlon in Malaysia.
* Source: IRI MarketEdge, Vitamin and Dietary Supplement, Australia Grocery Pharmacy, Estimated Local Demand Sales MAT to 14/05/2017. ** Source: Reader’s Digest annual Most Trusted Brand surveys
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# CONSUMER CENTRICITY
Howard Dawson, Head of Grocery & Emerging Channels, Blackmores 1Australia.
13 BLACKMORES ANNUAL REPORT 2017 • Asian consumers represent almost 50% of Group sales CEO’S YEAR IN REVIEW and show strong loyalty to the Blackmores brand. • Chinese consumers, both in China and Australia, influence approximately $250 million of Group sales and our business is still growing. • $60 million in e-commerce sales across Asia, up 31% on prior year. • Launched in Vietnam via a distribution agreement with the Mesa Group, which has a strong retail network of 150,000 stores. • Announced a new partnership in Iran with Tasnim Pharma, one of the fastest growing life sciences companies in the Middle East. • First year of operations in Indonesia through Kalbe Blackmores Nutrition joint venture – 300 staff, 12 cities and 30 products launched. • Blackmores infant nutrition range was launched in 27 provinces in China, with an infant nutrition flagship store in Changsha, Hunan Province. • Built international relations by participating in a series of high profile events including the Australia China Economic and Trade Cooperation Forum (ACETCF), Business Council of Australia-China CEO Roundtable, Australia Week in China, and Australia Indonesia Business Week in Indonesia. • Blackmores was appointed Vice President Company of the China Association for Quality Inspection (CAQI). Blackmores Managing Director for Asia, Peter Osborne was appointed Vice Chairman of their Advisory Committee – the first and only foreign citizen to hold a CAQI board position.
Left: Nurul Imania, Nutritional Health Advisor, Indonesia. Page 15: Jeff Zhang, Country Manager, China.
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#
ASIA GROWTH2
15 BLACKMORES ANNUAL REPORT 2017 CEO’S YEAR IN REVIEW
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• 110 new products launched across the Group, including an innovative fridge-free probiotic range in Australia and market-leading beauty supplements in Asia. • Explored nutrigenomic testing for personalised nutrition and progressed partnerships in medicinal cannabis through BioCeuticals • Developed a new herbal extraction process through Global Therapeutics, delivering increased product potency and decreased environmental impact. PRODUCT • BioCeuticals FX Medicine podcasts were downloaded more than one million times in 100 countries achieving a #2 ranking in its category on iTunes. LEADERSHIP • More than 1.2 million educational touchpoints across the Group, reaching healthcare professionals, pharmacy students, retailers and vets. • Launched an online drug, herb and nutrient interactions 3 portal for health professionals through BioCeuticals in partnership with IM Gateway and the University of Sydney. • 44 research projects, clinical trials and scholarly activities across the Group, including a diabetes study in Thailand and Malay traditional herbs study in Malaysia. • Four research symposia in Australia, Thailand and Singapore with 1,860 delegates and esteemed international keynote speakers. • Blackmores Institute signed Memorandums of Understanding for educational partnerships with the Royal Melbourne Institute of Technology, Rangsit University Thailand, Malaysian Pharmaceutical Society, National University of Malaysia, Taylors University and University of Hawaii. • Blackmores Institute Advisory Service responded to 35,464 calls, emails, live chats and web posts. • Blackmores Institute launched a global multi-language online learning platform. 16 BLACKMORES ANNUAL REPORT 2017
Page 16: Jessica Jong, Product Development Project Manager. Below: Evan Hayes, Director of Sourcing and Brooke Crabbe, BioCeuticals Regulatory Affairs Manager
17 BLACKMORES ANNUAL REPORT 2017 CEO’S YEAR IN REVIEW
Right: Siony Castillo and Suma Kennaway, Production Operators. Main image: Adam Martin and BaLong Nguyen moving inventory to the the new Bungarribee warehouse which will be fully operational in October 2017.
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#
OPERATIONAL EFFECTIVENESS
• Produced more than 4 billion tablets and capsules shipped to 32,691 points of distribution globally. • Built a state-of-the-art 16,000m2 warehouse and distribution facility at Bungarribee in Western Sydney, doubling our capacity and supporting long-term growth. • 800+ batches of product quality checked every month. • Signed a Memorandum of Understanding with Alibaba for blockchain anti-fraud technology to assure product integrity. • First manufacturing and raw materials review completed to drive continuous improvement of supply chain, product innovation and sustainable4 partnerships. • Launched Supplier Code of Conduct with 100 per cent of inventory suppliers on board. • Launched inaugural Blackmores Group Sustainability Report to affirm our corporate governance, workplace practices and responsibility to the community. • 100% reduction in paper forms for accounts payable and human resources recruitment and induction processes. • Invested in 189 new roles across the Group. • 185 learning and development sessions for staff, including our Leadership Development Program and Blackmores Business Acumen Academy.
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OPERATING + FINANCIAL REVIEW GROUP STRATEGY 22 GROUP AND DIVISIONAL RESULTS 24 FINANCIAL REVIEW 26 OPERATING REVIEW 28 20 GROUP RISKS 30
Richard Henfrey meeting with Leandro Ravetti, Technical Director at Boundary Bend, one of Blackmores’ ingredient suppliers.
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GROUP STRATEGY 22 GROUP AND DIVISIONAL RESULTS 24 FINANCIAL REVIEW 26 OPERATING REVIEW 28 GROUP RISKS 30
21 BLACKMORES ANNUAL REPORT 2017 OPERATING + FINANCIAL GROUP STRATEGY REVIEW GROUP AND DIVISIONAL RESULTS FINANCIAL REVIEW OPERATING REVIEW GROUP RISKS
Blackmores is the leading Activities across the Group for the 2017 financial year natural healthcare company were aligned to four key strategic priorities: across the Asia-Pacific region. CONSUMER CENTRICITY PRODUCT LEADERSHIP Blackmores’ operations To promote our high quality Blackmores is a clear leader include product innovation products, supported by in the area of research and formulation, sourcing evidence and access to and development and we of the highest quality trusted advice, the Group have supported this with ingredients, quality has significantly increased increased investment in programs to ensure brand investment and the Blackmores Institute, compliance with standards our understanding of the a program of product of good manufacturing consumer in our core range innovations and practice and the marketing, markets in Australia the development of sales and distribution of and in Asia. independently accredited products to customers education programs. and consumers. ASIA GROWTH Our operations are Asia brings access to two OPERATIONAL structured to service and billion health conscious EFFECTIVENESS deliver to multiple channels consumers. This is an Improved operational including pharmacy, opportunity for Blackmores efficiencies were derived mass merchandisers, to grow, increase scale, from investment in and grocery, health food stores, diversify our earnings and with our supply chain practitioners and online. build a natural currency partners, leveraging our Our animal health range hedge into our business. Central Services business is also sold to vets and Blackmores’ Asian-based model and optimising wholesalers. regional structure is fully our increased size into operational to enable more scale benefits. efficient decision making and improved operational efficiencies.
LOOKING AHEAD
The Group’s strategic direction that yielded strong results in recent years has been reviewed by the Board and management in consideration of the changing retail and consumer landscape and the aspirations for future growth. The 2020 Strategic Priorities are:
CONSUMER INNOVATION & EXPERTISE GLOBAL ADVANTAGE OPERATIONAL FITNESS CONNECTEDNESS Growing the research Nurturing and growing Streamlining and Building deeper capacity of the Blackmores the Australian heartland simplifying operations, connections and leveraging Institute and BioCeuticals business to leverage building leadership and the opportunities that and leveraging Blackmores’ Blackmores’ leadership cross cultural skills and digital technology presents expertise to increase the position in other markets. capabilities. to the category to enhance knowledge base of natural Continuing to grow across the consumer experience. healthcare for product Asia and to explore new innovation and accredited frontiers. education.
22 BLACKMORES ANNUAL REPORT 2017
Erika Morvayova – Global Therapeutics Technical Services.
23 BLACKMORES ANNUAL REPORT 2017 OPERATING + FINANCIAL GROUP STRATEGY REVIEW GROUP AND DIVISIONAL RESULTS FINANCIAL REVIEW OPERATING REVIEW GROUP RISKS
Following two exceptional years of growth, 2016/2017 was a rebalancing year for the Blackmores Group, delivering $693 million in sales (down 3%) and a net profit after tax (NPAT) of $58 million (down 42%) on the prior year.
Blackmores introduced a dedicated Australia-based China Export Division in the year to appropriately service the sales made through larger exporters to China. As a result, the Australia and Asia reported sales numbers have been restated to ensure a more informed comparison. 01 03 AUSTRALIA & NEW ZEALAND BIOCEUTICALS GROUP Blackmores Australia and New Zealand sales of $372 BioCeuticals and Global Therapeutics together delivered million, including Pure Animal Wellbeing (2016: $482 sales of $102 million. BioCeuticals achieved sales of $79 million) were down 23% as Chinese tourists and exporters million which was a 15% increase compared to the prior changed their buying patterns. Underlying domestic sales year. BioCeuticals exceeded the ten year sales and earnings (excluding sales destined for Chinese consumers) are goal within five years of acquisition. On a like for like estimated to be flat. New Zealand sales of $19 million were comparison, sales of Global Therapeutics products were up down 5% compared to the prior year. 11% and contributed $23 million to the BioCeuticals Group. Blackmores Australia cemented its leadership position in the category and maintained the number one brand position in our heartland market across the category. 04 Additionally, Blackmores was recognised as the most NUTRITIONAL FOODS trusted brand for the ninth consecutive year in the Reader’s Sales of $4 million from Blackmores’ infant nutrition Digest Most Trusted Brand Survey 2017. Blackmores products through our Bemore partnership were impacted Australia amplified its brand presence through increased by continued regulatory uncertainty in China. Half of these social media activity and sponsorships of the Blackmores sales are attributable to Blackmores through our partnership Sydney Running Festival and the Australian Open. with Bega Cheese. Our share of Bemore operating loses totalled $7 million for the year with all finished goods inventory fully provided for. The Partners continue to 02 monitor the operating performance of the joint operation. ASIA The Australian market remains highly competitive, however, Total Asia sales were $216 million, up 36%. there are opportunities emerging to expand further into China direct sales were $132 million, up 71%. This export markets where consumer demand for high quality includes $62 million of in-country sales in China, up 46%, product offerings is growing. as well as $70 million through our Australian China export division, up 141%. Blackmores Other Asia sales were $84 million, up 4%. All core markets are in growth with smaller markets achieving particularly strong results including Singapore up 13%, Hong Kong up 51% and Taiwan up 58%. Thailand and Malaysia were up 8% and 11% respectively. We pay our respects to our colleagues in Thailand who have been in an official mourning period following the passing of their king during the year. Blackmores Korea transitioned to a new operating model. Sales are down 70%, though earnings have improved year-on-year and are expected to continue to improve. The impact of Korea’s performance and the investment in our new business in Indonesia masked an other wise pleasing performance from our Asia business. The investment in Indonesia is expected to yield strong returns as the consumer take-up of initial product lines has exceeded expectations since the September 2016 launch.
24 BLACKMORES ANNUAL REPORT 2017
SALES $MILLIONS
500 481 01 400 AUSTRALIA & NEW ZEALAND SALES 372 300 332
200 221 233
100
0
150 02 120 132 CHINA DIRECT SALES 90
77 60
30 7 1 2 0
100 2013 OTHER ASIA SALES
80 84 2014 81 76
2015 60 64 59
2016 40 2017 20
0
120
100 03 102 BIOCEUTICALS GROUP SALES 80
72 60 55 40 44 47
20
0
5
04 4 4 NUTRITIONAL FOODS SALES 3
2 2
1
0
25 BLACKMORES ANNUAL REPORT 2017 OPERATING + FINANCIAL GROUP STRATEGY REVIEW GROUP AND DIVISIONAL RESULTS FINANCIAL REVIEW OPERATING REVIEW GROUP RISKS
GROUP FINANCIAL Net debt has increased POSITION from $18 million to $45 The Group finished the million due to higher 2017 financial year in a gross debt required to strong financial fund record dividend, position with pleasing taxation and staff incentive improvements to financial payments made during the health measures through FY17 year in respect of the the second half of the year. prior year. Funding capacity Total net assets was increased in the year remained flat at $179 through the addition million. Total current assets of a new Asian banking decreased by $36 million partner to our established to $259 million, 12% down Australian lending group. on the prior year. The main The debt position of driver was a managed the Group remains low reduction throughout the with a 20% gearing ratio year in inventory levels, maintaining a conservative down $32 million or 27% level of headroom against compared to the prior year all debt covenants. Net after provisions. Strong interest cover at 20.6 times Net profit after tax was inventory management led (2016: 80.2 times) continues $58 million (2016: $100 to improved stock turns and to reflect a conservative million) a 42% decrease a reduction of inventory approach to servicing on the prior year and, days. Furthermore, this ongoing debt commitments. similarly, basic earnings result reflects a $49 million Cash generated per share (EPS) decreased reduction compared to from operations of $95 the peak inventory period million was delivered in from 580.6 cents per share reached in September the year. This represents to 342.6 cents per share, a 2016. The year-end position a 23% decline versus decrease of 41%. Dividends reflects a normalised the prior year, but per share were 270 cents inventory holding after compares favourably to (2016: 410 cents) reflecting inventory provisions. the 41% decline in EBIT. a 79% payout ratio. The Current liabilities have Pleasingly, cash generation business delivered strong decreased from $192 performance over the returns on assets and million to $143 million second half of the financial shareholders’ equity at largely due to trade and year was 93% ahead of 20% and 33% respectively other payables down 21% the same period last year, reflecting continued robust on the prior year. The lower reflecting an improved investment returns. Income balances that make up this balance sheet. tax expense was lower than total reflect lower taxation The cash conversion the prior year, reflecting the obligations, accrued ratio at 101% was a 20% profit results. Blackmores incentive payments and improvement on the continued to meet and pay outstanding inventory prior year and, similarly all its taxation obligations payments to suppliers. to cash generation in the jurisdictions in which Non-current liabilities performance, reflected a it operates. have increased from $71 strong performance over million to $91 million the latest six-month period largely due to an increase as working capital and in gross debt recorded as operating expenses Aaron Canning interest-bearing liabilities. were tightly managed. Chief Financial Officer 26 BLACKMORES ANNUAL REPORT 2017
RETURN ON SHAREHOLDERS’ EQUITY 800 % RETURN ON ASSETS SALES 700 60 $693 MILLION 600 500 50
The Group delivered 400 sales of $693 million 40 across all divisions 300 30 and brands, a 3% 200 decline on last year. 100 20
13 14 15 16 17 10
0 150 EBIT 13 14 15 16 17
120 $86 MILLION % CASH CONVERSION 90 Earnings before 120 interest and taxes of $86 million 60 100 were down 41% compared to the 30 prior year. 80 13 14 15 16 17 60
40 100 NPAT 20
80 $58 MILLION 0
60 13 14 15 16 17 Net profit after tax (NPAT) of $58 40 million, down 42% on prior year. % GEARING 20 60 13 14 15 16 17 50
40 600
EPS 30 500
342. 6 CENTS 20 400
Earnings per share 10 300 (EPS) of 342.6 cents, were down 41% on 0 200 prior year. 13 14 15 16 17 100
13 14 15 16 17 % DIVIDEND PAYOUT RATIO
95 500
DIVIDENDS 90 PER SHARE 400 85
270 CENTS 300 80 Dividends of 270 200 cents per share were 75 down 34% compared 70 to prior year. 100
65 13 14 15 16 17
13 14 15 16 17
27 BLACKMORES ANNUAL REPORT 2017 OPERATING + FINANCIAL GROUP STRATEGY REVIEW GROUP AND DIVISIONAL RESULTS FINANCIAL REVIEW OPERATING REVIEW GROUP RISKS
LEVERAGING SCALE INVESTING IN The rapid growth of the INFRASTRUCTURE Progressed the fit-out of a new Blackmores progressed past two years yielded 16,000m2 world-class warehouse strong shareholder returns the fit-out of a state-of-the- facility to double capacity yet resulted in some art distribution centre at ‘growing pains’ from an Bungarribee in Western operational perspective. Sydney to double the To counter this, the Group’s warehousing points of distribution Group has undertaken footprint and accommodate 32,691 a major supplier review the higher sales volumes. resulting in significant The technology will deliver purchasing efficiencies operational efficiencies and that will be realised over meet future needs as the tablets/capsules produced the coming years. New company expands across 4.0 BILLION supplier agreements will the globe. better enable Blackmores Supporting technology to accommodate growing upgrades is also core to volumes and adapt to the the Group adopting a 29.3 units produced demand changes and global mindset to better MILLION to maintain continuity enable the workforce. This of supply without has included investing in compromising margins, systems upgrades that will which have been negatively streamline core business 51.8 units shipped impacted by the volatility processes such as a MILLION of recent years. paperless accounts payable Blackmores’ system, cloud-based commitment to our technologies, a new human unrivalled quality standards resources management 800 of product quality had previously resulted system, warehouse BATCHES checked each month in supply challenges automation and introducing as demand grew and international payment meant Blackmores paid a systems such as AliPay. Full manufacturing and raw premium as our suppliers The introduction of also reached capacity. The robotics in our packing materials review completed newly negotiated supplier operation in the 2015/2016 agreements will bring a financial year has number of benefits: already delivered strong of raw material and manufacturing • Full compliance to productivity improvements % suppliers committed to Blackmores’ Blackmores’ Supplier and reduced workplace 100 new Code of Conduct Code of Conduct health and safety incidents. • Upholding commitment to sustainability • Access to broader selection of raw materials that will enable innovation and new product development • Better pricing leveraging Blackmores’ size and scale 28 BLACKMORES ANNUAL REPORT 2017
Blackmores’ new Bungarribee warehouse.
29 BLACKMORES ANNUAL REPORT 2017 OPERATING + FINANCIAL GROUP STRATEGY REVIEW GROUP AND DIVISIONAL RESULTS FINANCIAL REVIEW OPERATING REVIEW GROUP RISKS
There are countless opportunities in the RISKS POTENTIAL IMPACTS RESPONSE global health category as well as some inherent Industry risk Quality or claims breaches • High visibility and transparency of our full supply risks. Blackmores takes by competitors or suppliers chain and enforcement of Blackmores’ own quality impact the credibility of the standards. a proactive approach to industry domestically and • Crisis and communication response plans are managing these with a internationally. continually reviewed, updated and tested to ensure focus on the following core appropriate skills and capabilities are ready to be areas to mitigate risk: deployed. • Maintain a robust risk • Key government and regulatory relationships are actively maintained. governance framework, overseen by the Audit Supply Blackmores’ high quality and • Improved demand planning and forecasting and Risk Committee of constraints sustainability standards and processes. the Blackmores Board. limited availability of natural • Dedicated internal capability focused on sourcing. ingredients puts pressure • Increased direct sourcing of key and scarce • Attract and retain strong on the continuous supply of ingredients. management teams some key products. • Strengthened supplier relationships and contracts with local experience balancing volume requirements. in all markets. Product Financial loss due to: • Long-term relationships with suppliers, quality audits • Diversify revenues to quality issue • Delay in restoring supply and supply chain business reviews. ensure less reliance on of product for sale. • Product testing and validation procedures in place. any one brand, channel • Product recall and Every product has passed more than 30 tests and reformulation costs. quality assessments. or market. • Reduced industry • Retention of samples from every batch for ongoing • Ability to identify risks, capacity. testing and quality evaluation to cover the whole and the agility and • Industry concentration shelf-life of all products. capability to respond reducing competitor tensions and ability to accordingly. negotiate price and supply.
The material risks that could Brand Brand damage caused by a • High quality controls throughout the supply chain. affect Blackmores’ future damage product or industry related • Focus on complaint handling. event resulting in loss of • Active program to train stakeholders on Blackmores’ financial performance and share and value. business values and ethics practices. their potential impacts are • Consumer advisory line to provide product summarised in this table: information.
Treasury risk Treasury risks including • Diversification of currencies and working with supply change in exchange rates, partners to more effectively use these currencies for ingredient prices, interest Group procurement. rates and funding causes a financial loss.
Regulatory Government policy and • Employing strong, experienced local teams able to changes regulation may change and actively engage with local governments. restrict or limit the ability • Blackmores actively engages with key stakeholders to sell existing product or to monitor and react to regulatory changes in key ranges in key markets. markets such as China. • Continue to educate and inform stakeholders of the regulatory rules and routes to market in China through both the Australian and China business. • Engagement with industry associations in key markets to encourage informed policy setting and regulation. • Diversification of revenues. • Diversification of routes to market.
Reliance on • Financial loss due to • Focus on Blackmores’ brand health to drive brand customers reduced revenue of a key loyalty and consumption. and markets customer or market. • Drive category solutions to gain consumer loyalty. • Greater financial cost to • Close monitoring of customer payments and serve customers due to continued transparency across markets. aggressive competitors. • Diversification of revenues. • Financial loss due to a large bad debt.
30 BLACKMORES ANNUAL REPORT 2017
John Russell, Team Leader (Warehouse) and Alvin Chan, Export and Warehouse Manager – Eastern Creek.
31 BLACKMORES ANNUAL REPORT 2017
SUSTAINABILITY, COMMUNITY + OUR PEOPLE 32
Amy Wagner, Integrated Communications & Sponsorship Manager, Blackmores Australia.
32 BLACKMORES ANNUAL REPORT 2017 33 BLACKMORES ANNUAL REPORT 2017 SUSTAINABILITY
of raw material and % manufacturing suppliers % of our waste generated is committed to Blackmores’ diverted to recovery streams 100 Code of Conduct 69
Silver Partnership recognition with research projects, clinical the NSW Office of Environment trials and scholarly activities and Heritage Sustainability across the Group Advantage program 40
Healthy People, Healthy Planet
Blackmores has had a towards a healthy future, STAKEHOLDER long-standing commitment Blackmores committed to ENGAGEMENT, AN to sustainability and giving its first Sustainability Report ONGOING CONVERSATION back to the communities in 2016. In our quest for sustainable in which we operate. This The opportunity business outcomes, we started with our founder enabled Blackmores engage with an increasingly Maurice Blackmore whose to understand the complex range of views on preventive organisation’s overall stakeholders, with diverse medicine, supporting sustainability performance, expectations of key issues. people, the environment capturing actions that These stakeholders, both and recycling were ahead deliver wide societal value internal and external, of his time. including support for health, play an integral role in After more than 85 years regional development and the way we identify and many of these values and respect for the environment prioritise material risks and practices are intrinsically by promoting technologies opportunities for woven into both our values that reduce the emission of our business. and business practices. greenhouse gases. Stakeholder They extend beyond The 2017 Sustainability engagement helps us the protection of the Report, prepared in to identify and prioritise environment incorporating accordance with the material issues most our corporate governance, Global Reporting Initiative relevant to our business. workplace practices Standards describes our This in turn helps us and responsibility to the sustainability initiatives manage key risks and community. and the reporting of our achieve far greater positive With the objective progress. It will provide impacts on environmental, to accurately reflect the our stakeholders with social and economic issues. organisation’s sustainability transparency to help us position and bring our manage our performance customers, staff, suppliers and ensure our business and many other stakeholders continues to grow for with us on this journey generations to come.
> Blackmores’ full Sustainability Report is available at blackmoressustainability.com.au
34 BLACKMORES ANNUAL REPORT 2017 SUSTAINABILITY
Key areas of materiality FIFTEEN TOPICS CONSIDERED AS PRIORITIES FOR BLACKMORES
1. Work health & safety 2. Water > 8 3. Energy 5 4. Investment in research 5. Our people 6. Emissions 7. Anti-corruption 8. Effluent & waste 5 9. Product & service compliance 10. Business performance 11. Supply chain 12. Stakeholder engagement 13. Communities 14. Customer privacy
IMPORTANCE TO STAKEHOLDERS STAKEHOLDERS TO IMPORTANCE & data protection 15. Materials IMPACT ON BLACKMORES’ BUSINESS >
35 BLACKMORES ANNUAL REPORT 2017 SUSTAINABILITY
Sustainability focus areas To embed sustainability into our business and operations we are focusing our efforts on addressing the most material issues across our four sustainability commitments of:
1 2 3 4 Responsible Facilities Sustainable Supply Industry Leadership People and Community Management Chain Management To be a leader in natural To foster a responsible To reduce the To encourage, support and health solutions through workforce; a safe and environmental intensity facilitate an environmentally innovation, research, secure workplace and to and carbon footprint of our and socially responsible education and a robust maintain our ‘licence to facilities through innovation, approach to procurement, corporate governance operate’ in our communities best practice management, supplier management and framework. and markets. staff cooperation and product accountability and a quest for continual transparency. improvement.
1 2 RESPONSIBLE SUSTAINABLE FACILITIES SUPPLY CHAIN MANAGEMENT MANAGEMENT
New warehouse space, Bungarribee, Published Blackmores Supplier Code Western Sydney of Conduct
The lease of a new purpose built 16,000m2 Aligned to our existing Code of Conduct we warehouse in Bungarribee, Western Sydney will published our comprehensive Supplier Code future proof us for the growth that we anticipate. of Conduct that incorporates sustainability Securing this site has provided the opportunity actions. The code provides a basis for how to customise the site for operational efficiencies we plan to work with our suppliers who make while ensuring we are providing a workplace that genuine efforts to improve their sustainability is aligned to our values of supporting employee performance over time. Similar to a roadmap, wellbeing and environmental sustainability. The this code aims to identify the extent of our new state-of-the-art warehouse management suppliers’ sustainable business practices in order system will double our customer order picking to make improvements that are appropriate for capacity and the building includes a staff wellness their business. All Blackmores Tier 1 Inventory centre and a range of sustainable features such as suppliers agreed to this code of conduct. storm water reclamation, solar panels on the roof to reduce our purchased energy and additional insulation on roof and within walls to reduce thermal load.
36 BLACKMORES ANNUAL REPORT 2017
SUSTAINABILITY HIGHLIGHTS
3 4 INDUSTRY PEOPLE AND LEADERSHIP COMMUNITY The Blackmores Way Blackmores Twilight Community Market
Over the past 12 months our focus on those In December 2016, Blackmores Twilight behaviours that clearly demonstrate our values Community Market provided a platform for social (‘the PIRLS’) has been enhanced. We call these enterprises and fair trade organisations with a values-based behaviours ‘The Blackmores Way’ and community or environmental cause to sell goods they are set out in our revised Code of Conduct, and raise awareness about their social causes. which was launched in October 2016. Held at our Warriewood Campus, the initiative “Our Code of Conduct should do no more and attracted more than 60 stallholders and more no less than simply document the values-based than 2,500 Christmas shoppers were able to behaviours that are the hallmark of how we work feel good about buying gifts that give back to together.” Marcus Blackmore. communities in need. It also sets out the basic behaviours we expect from those with whom we do business including our suppliers, distributors, customers, and others who may act on our behalf. The Blackmores Way is focused on ‘doing the right thing’ in all locations where we work and is not only at the heart of our brand and reputation, it is a key component of our corporate governance framework. This year it has been brought to life through internal campaigns, staff training and revised policies and procedures.
37 BLACKMORES ANNUAL REPORT 2017 COMMUNITY
Giving back to the community
The Blackmores Group has $186,000 to a further the Byron Bay Lighthouse a long-term commitment 91 registered charities of Run sponsored by Global to social responsibility their choice through our Therapeutics, and at the and giving back to the matched donations scheme Blackmores Run&Move communities in which we whereby 0.5% of their event in Thailand, raising operate. Our company taxable pay is donated a total of $1.4 million for strives to make a difference with Blackmores matching various charitable causes. by building healthier this amount. Our Malaysia colleagues communities in Australia We hosted a Christmas teamed charitable giving and overseas. Twilight Market at with teamwork and This year Blackmores Warriewood Campus, painted the National supported more than 100 welcoming 2,500 visitors Cancer Society building charitable organisations who shopped for ethical, in Kuala Lumpur bright and inspirational individuals fair trade and community- yellow, while Executive who are helping to create a based products and wares. Team members in Sydney brighter future. Recognising Runners laced up their donned superhero that charity starts at home, shoes for the Blackmores costumes to raise $13,000 Group employees gave Sydney Running Festival, at for Bear Cottage.
Bottom left: Blackmores Malaysia team supporting National Cancer Society Malaysia.
38 BLACKMORES ANNUAL REPORT 2017 COMMUNITY
Other organisations proudly supported by Blackmores
Legacy TwoGood Formosa Cancer AUSTRALIA Enhancing the lives of A national provider of Foundation (Taiwan) AND NZ veteran families through beautiful food and lifestyle Supporting vulnerable Animal Welfare League innovative and practical products to domestic children and their families in Caring for abandoned, programs. violence refuges and soup Taiwan. surrendered and neglected Lifeline (Northern Beaches) kitchens. Heart Ali animals. The leading provider of United in Compassion Founded by Chinese Arthritis New Zealand suicide prevention services Advocating for patient actress Fan Bingbing, Improving the life of every in Australia. access to medicinal Heart Ali supports people person in New Zealand Macular Degeneration cannabis in a manner that suffering from congenital affected by arthritis. New Zealand is safe, effective, affordable, heart disease in Tibet. Bear Cottage Providing awareness, equitable and favourable National Cancer Society Support, respite and end-of- education and support for patients, for the Providing holistic education, life care for children with to those who suffer from dignified relief of suffering. care and support to people life-limiting conditions and macular degeneration. World Wild Fund for Nature affected by cancer in their families. Mat Belcher and Will Ryan Working to stop the Malaysia. Be Centre Olympic sailors who won degradation of the planet’s Project We Care A leading children’s mental silver medals at Rio 2016. natural environment and Encouraging corporate to build a future in which health charity providing OzHarvest giving and volunteerism play therapy. humans live in harmony for meaningful community Australia’s leading food with nature. Bilgola Surf Life Saving rescue charity, supporting causes in Singapore. Club people in need and Taiwan Breast Cancer Proudly serving the diverting food waste from ASIA Foundation community. landfill. Strengthening breast AiYou Foundation cancer prevention and CCNB Pollie Pedal The world’s largest support in Taiwan. Supporting people living An annual event of surgical treatment project with disability or ageing. politicians riding to help for orphaned and poor Taiwan Fund for Children Cure Brain Cancer veterans and their families children with congenital and Families Foundation to Soldier On. heart disease in China. Working to reduce cancer Australia’s peak Quest for Life Foundation Bumi Sehat Foundation incidence and mortality organisation for brain Providing practical skills Delivering community through public health cancer research, advocacy and strategies for people to health services in rural education and quality and awareness. create peace and resilience Indonesia with a focus on treatment. Exodus Foundation in their lives. maternal-child health. Tencent Charity Funds Meeting the needs School for Life Foundation The Cardiac Children The first online charity in China, Tencent helps a of Sydney’s poor and Empowering rural Foundation broad range of people and homeless with free meals, communities in Uganda to Under the Royal Patronage established the country’s counselling and outreach help themselves through of H.R.H. Princess Galayani annual ‘9th September services. the provision of education. Vadhana Krom Luang Charity Day’. Free to Shine Smith Family (Christmas Naradhiwas Rajanagarinda, Working to prevent sex Appeal) the Foundation provides trafficking in South East Helping disadvantaged medical and emotional Asia through community children get the most support to children with education, scholarship out of their education to cardiac disease and their materials and social create better futures for families in Thailand. support. themselves. Caritas (Hong Kong) Guide Dogs Australia The Liora Project Offering health services, Assisting people who Supporting victims of sex education and humanitarian are blind or have a vision trafficking in India and the assistance to the poor and impairment to gain freedom Philippines and creating distressed in Hong Kong. and independence. livelihood opportunities for Charis Home Homes for Heroes these women. A home for orphans and Contemporary veterans The Possibility Project the elderly in Malaysia homelessness and Delivering social justice providing spiritual assistance program. programs, including guidance, shelter, education livelihood and sanitation and healthy community programs in India, through activities. social entrepreneurship.
39 BLACKMORES ANNUAL REPORT 2017 COMMUNITY
AWARDS
The Blackmores Group WE ARE ALSO ESPECIALLY has been recognised with PROUD OF THE more than 36 awards FOLLOWING ACCOLADES: for product innovation, • Australian Packaging industry leadership and Covenant – APC our commitment to Signatory of the Year sustainability, including • Australian Pharmaceutical BUMI SEHAT a recent induction into Industries – Excellence in the Queensland Business Training FOUNDATION: Leaders’ Hall of Fame. • China Association for EMPOWERING Quality Inspection – OUR BEST IN CLASS Product and Service MATERNAL AND AWARDS INCLUDE: Quality Demonstration • Reader’s Digest Most BABY HEALTH IN Company Certificate Trusted Brand – Vitamins • CEO Magazine Executive INDONESIA & Supplements of the Year – MD of the (Australia) Year Proudly supported by Kalbe Blackmores • Reader’s Digest Trusted • CEO Magazine Executive Nutrition, Bumi Sehat Foundation runs Brand – Platinum Award of the Year – HR Leader Community Health Education and Childbirth (Malaysia) of the Year Clinics for impoverished rural populations • Brand Laureate – Brand • Complementary in Bali and Aceh, drawing on a blend of Influencer Award Medicines Australia allopathic and holistic medicine. (Malaysia) – Most Outstanding Recognising that many of their patients • Reader’s Digest Trusted Contribution to Research, can’t afford adequate nutrition, Bumi Sehat – or ‘Healthy Mother Earth’ – emphasises Brand (Singapore) Education or Training quality pregnancy nutrition as crucial to the • Superbrand Award • HKABA National Business health of mothers and babies. (Thailand) Awards – Business Bumi Sehat works at a village grassroots • Complementary Excellence Medicines Australia – level, delivering 29,000 consultations and • NSW Business Chamber 575 births per year. Their community health Vince Russell Retailer of Awards – Excellence in the Year workers see firsthand the positive difference Export a nutritious diet can make to improving • NSW Export Awards – public health and optimising the wellbeing Exporter of the Year of expectant mothers. • NSW Export Awards – By supporting the work of Bumi Sehat Health & Biotechnology Foundation, Kalbe Blackmores Nutrition is • NSW Government firmly committed to making a difference to Sustainability Advantage maternal-child health in Indonesia. program – Silver Partner Learn more at: bumisehatfoundation.org/bumi-sehat-bali
40 BLACKMORES ANNUAL REPORT 2017 COMMUNITY
GLOBAL LEADERSHIP: ADVANCING SCIENCE AND INNOVATION IN COMPLEMENTARY MEDICINE
As industry leaders, Blackmores believes it is our clinical trials, and education and training,” said NICM responsibility to invest in complementary medicine research Director Professor Alan Bensoussan. “Our country has the and to support innovation in this field. lowest level of industry-research collaboration in the OECD In March 2017, Blackmores and the Blackmore and this is a great example of universities and industry Foundation, Marcus and Caroline Blackmore’s personal collaborating to drive research.” philanthropic trust, each gifted $5 million to the National Blackmores’ untied gift will not only support the Institute of Complementary Medicine (NICM) at Western Australian research community, but most importantly, it will Sydney University to further natural health research. This advance the global evidence-base and help move research will be paid over seven years. NICM is a global leader in findings into practical healthcare solutions to improve complementary medicine research and policy and has been public health. Blackmores is enormously proud of the ranked by the Australian Research Council as operating at legacy that this gift to NICM will make toward boosting the higher standards than world’s best-practice. understanding and advancement of natural health for now “This very welcome gift will expand our research and and the future.
PARTNERSHIPS
ACADEMIC INSTITUTIONS INDUSTRY ASSOCIATIONS • Australian College of • ACNEM (Australasian Natural Therapies College of Nutritional • Australasian College and Environmental of Nutritional and Medicine Environmental Medicine • ARONAH (Australian • Australian Register of Naturopaths Research Centre in and Herbalists Complementary and • Australasian Integrative Integrative Medicine at Medicine Association University of Technology • Australian Traditional- Sydney Medicine Society • Chulalongkorn • China Association for University, Thailand Quality Inspection • Endeavour College of • China Medical Natural Health, Australia Pharmaceutical Material • National Institute Association of Complementary • Complementary Medicine at Western Medicines Australia Sydney University, • Global Organisation for Australia EPA and DHA Omega-3 • Royal Melbourne Institute (GOED) of Technology, Australia • Heart Research Institute • Malaysian • International Probiotics Pharmaceutical Society Association • National University of • Macular Disease Malaysia (Universiti Foundation Kebangsaan Malaysia) • MINDD Foundation • National University of • Naturopaths & Herbalists Singapore Association of Australia • Rangsit University, • Pharmaceutical Society Thailand of Australia • Taylors University, • Sports Dietitians Malaysia Australia • University of Hawaii, USA • Sports Medicine • University of Sydney, Australia Australia
41 BLACKMORES ANNUAL REPORT 2017 OUR PEOPLE
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DYNAMIC CROSS- CULTURAL IMMERSIONS, THE BLACKMORES WAY As Blackmores expands its geographic footprint, our workforce of the future will have greater fluidity, cross-cultural understanding, and dynamism than ever before.
To achieve this, Blackmores is creating unique growth opportunities for employees through career secondments, delivering myriad global benefits across the business. After three years working as a Senior Product Manager for Blackmores Singapore, Fiona Yeo, 33, was eager for her next challenge. A fluent Mandarin speaker with broad knowledge of the Blackmores Asia business, Fiona was seconded to the Group’s newly formed Export Division at Page 42 (clockwise): Fiona Yeo, Warriewood Campus in Sydney as an Assistant Marketing Assistant Marketing Manager, Manager in 2016. Export Sales. Paul Brazel, Team “It’s not just about how Fiona’s language and professional Leader, Grocery at Bungarribee. Leanne McLean, Advisory skills can strengthen the business, but also about enriching Naturopath and Chair of the our multicultural workplace, learning from each other’s Staff Liaison Committee with the diverse experiences, and building a fluid international team,” Australian native bee hive at the said Linda Redfearn, Head of Human Resources. Blackmores Campus. “My secondment has resulted in a deep sense of Page 43: Jodie Bauchop – belonging and I’ve come to truly know the Blackmores Health & Wellness Coordinator. brand beyond products on a Singaporean shelf to the way Edward Allardice, Head of Sales, Global Therapeutics. Kellie they are sustainably sourced, manufactured, quality checked Daley, Learning Management and aligned with 85 years of natural health values. It’s been System Executive. Danielle a wonderful opportunity to develop my career,” said Fiona, Steedman, Advisory Naturopath. who was one of 26 Group employees in a seconded role this year.
42 BLACKMORES ANNUAL REPORT 2017 >
WELLNESS AT WORK
Blackmores has a strong focus on the wellbeing of their employees.
Continuous workforce improvement through structured induction and training, refreshing and improving skills and the development of leadership capacity is a priority. Even with the significant growth of the past five years with double the volumes being packaged and distributed, the acquisition of new companies and additional staff, Workplace Health and Safety incidents have decreased. • Health and safety incidents are down 42% at the Warriewood Campus compared to the prior year • Lost time injuries have halved compared to the prior year • 87% of injuries reported resulted in no impairment These achievements are the result of a project that commenced seven years ago including the following modifications to infrastructure and processes: • Shipper designs were modified to reduce cardboard thickness and increase flap score width to reduce the force required to manually erect shippers as an interim measure while robotics were awaiting implementation. • Introduction of gravity conveyor systems for finished goods shippers to reduce over reaching by production operators during palletising process. • Stretching was introduced twice per shift to reduce likelihood of injury. • Mobile hydraulic lift tables were introduced to assist in lifting and moving heavy machine parts. • Introduction of cap elevators with the purchase of new capping machines on all lines in 2012 to reduce lifting heights of container caps when loading machinery. • Increased staff training. • Introduction of four new counting machines in 2015 reduced weights of machine parts (aluminium vs stainless steel parts). • Introduction of automated packing cells removing almost half of the manual lifting in the production operator role and completely eliminating the two most significant manual handling risks in the Production area. • Introduction of low platforms to reduce lifting / working heights for shorter operators when handling bulk tablets and capsules.
43 BLACKMORES ANNUAL REPORT 2017 EXECUTIVE TEAM
01 to 2015. He leads a positive 05 07 CHRISTINE HOLGATE approach to engagement with PETER OSBORNE AARON CANNING regulators and governments Chief Executive Officer and to advocate for a greater Managing Director, Asia Chief Financial Officer Managing Director recognition of complementary Peter is a former Australian Aaron has a wealth of experience Christine has more than 30 medicines in the development trade diplomat with extensive gained from working in a variety years of diverse international of health policy and improved experience in business of general management and leadership experience in regulation of complementary development, sales and financial leadership positions highly regulated industries, medicines. Richard is a graduate marketing, trade development, in ASX listed and multinational including healthcare, media, of the Australian Institute of and export and investment. He is organisations in Asia, Australia telecommunications and finance. Company Directors. responsible for Blackmores’ Asia and New Zealand, the UK and the Christine was appointed to her business, including subsidiary US. Prior to joining Blackmores in current role as Blackmores Chief companies in Singapore, December 2014, Aaron worked 03 Executive Officer in November Thailand, Malaysia, Taiwan, Hong at Goodman Fielder, Westfield 2008. She has more than 20 DAVID FENLON Kong, Korea, China and Japan; and Diageo Plc. At Goodman years of public board experience Managing Director, Australia and joint venture Kalbe Blackmores Fielder he held several leadership as either a Non-Executive New Zealand Nutrition in Indonesia; roles including Managing Director or CEO and has held David brings more than 30 years distribution partnerships in Director Grocery Category, senior management positions in of retail and brand experience Vietnam, Cambodia, Kazakhstan, Managing Director Asia Pacific, Asia, the Americas and Australia. to Blackmores including an in- Mongolia, Iran and Pakistan; and and Finance Director Asia Pacific. Christine has three post- depth understanding of grocery overall strategy for Blackmores’ In 2016, Aaron was recognised as graduate diplomas and a and retail channel strategies. growth objectives in Asia. CFO of the Year (Runner Up) by Masters Degree in Business With an emphasis on driving Prior to joining Blackmores in CEO Magazine. Administration (MBA). She is the business transformation and 2009, Peter was one of Australia’s Aaron has a Bachelor of inaugural Chair of the Board of showcasing leadership, David most senior trade diplomats Commerce degree in Marketing the Australia-ASEAN Council, a has held key positions in Tesco working with the Australian Trade and Management and a post- Board Director of Collingwood throughout Europe and Safeway Commission in China, Taiwan graduate 1st Class Honours Football Club, and was a in the UK. In Australia, he has and Hong Kong. He also spent degree in Management. He is a Non-Executive Director of Ten held key leadership roles with a several years in Fiji as the Trade qualified accountant, a fellow of the Network Holdings Limited. diverse range of brands. and Investment Director of the Association of Chartered Certified In 2015 Christine was David joined Blackmores in South Pacific Forum Secretariat Accountants, a member of the recognised in the top 100 2013 as Managing Director of and served as Expert Adviser Chartered Accountants Association Women of Influence in Australia the Australian, New Zealand to the UN Conference on Trade of Australia and New Zealand and (Australian Financial Review), and Animal Health divisions. and Development and the UN graduate of the Australian Institute named CEO of the Year Previously he served on the Commission for Sustainable of Company Directors. (CEO Magazine) and highest Board of ASX-listed The PAS Development. Peter has lived performing CEO in Australia Group, is a graduate of the in Asia for nearly 30 years and 08 (Daily Telegraph), and received Australian Institute of Company speaks Mandarin-Chinese. Peter DR LESLEY BRAUN the Australian Growth Company Directors, a Director of the Quest is a graduate of the Australian Award for Women in Leadership. For Life Foundation, and is on the Institute of Company Directors, Director, Blackmores Institute In 2013 Christine was honoured Board of the Special Olympics. a Fellow of the Hong Kong Dr Lesley Braun is an Adjunct with the Rotary Paul Harris Award Institute of Directors, and the Associate Professor at the National and in 2016 she climbed Mount first foreigner to be appointed Institute of Complementary 04 Medicine (Western Sydney Kilimanjaro as part of Dr Charlie NATHAN CHEONG as Honorary Vice Chairman of Teo’s Million$Mission to help the China Association for Quality University) and has held research Cure Brain Cancer. Managing Director, BioCeuticals Inspection in Beijing. positions at The Alfred Hospital, Christine will be leaving With more than 20 years Monash University. She was Vice President of the National Blackmores on 29 September of experience in the 06 complementary medicine Herbalists Association of Australia, 2017 after nine successful years CECILE COOPER leading the Group. industry, Nathan is a qualified an Academic Board Member Naturopath and Herbalist, Company Secretary and Director of Endeavour College, and of Corporate Affairs former member of key industry 02 holding degrees in Health Science, Science and Social Cecile is an accountant and groups including the Australian RICHARD HENFREY Work, and graduating with Company Secretary with more Therapeutic Goods Advisory Chief Operating Officer majors in Biochemistry and than 30 years of commercial Council, Advisory Committee for (Appointed CEO 17 August 2017) Psychology. Prior to joining experience. She is responsible for Complementary Medicine (TGA), Richard Henfrey has more BioCeuticals in 2012, Nathan Blackmores’ Board administration, the Advisory Committee for the than 25 years of experience was the General Manager of secretariat, governance, risk Australasian Integrative Medicine in strategic and business Herbs of Gold, a subsidiary of management, compliance and Association, and the National development roles across a Vita Life Science. corporate communications e-Health Transition Authority wide range of blue chip, start Nathan sits on the Board of initiatives. She has held a variety (NeHTA) medicines up and strategy consulting Complementary Medicines of senior positions within terminology group. businesses in Europe, North Australia and their Complaints Blackmores, including Business Lesley is a current member America and Australia, including Resolution Panel and Practitioner Manager for Development, of the Clinical Oncology Society key leadership positions with Medicine Technical Committee. marketing and sales. of Australia’s Complementary Telstra. Much of his career has Named CEO Magazine’s 2016 Cecile is a Chartered Secretary and Integrative Therapies Group focused on developing and Managing Director of the Year, and a Certified Practicing Executive, Pharmaceutical implementing new businesses he is a graduate of the Australian Accountant and has a Bachelor Society of Australia, Australian or change initiatives in the highly Institute of Company Directors of Business (Accounting) and a Institute of Company Directors, regulated industries of healthcare and Australian Institute of Graduate Diploma of Applied Australia-China Business Council and telecommunications. Management. In 2015 Nathan Corporate Governance with Health, and Medical Research Richard joined Blackmores in was awarded the Rotary Paul the Governance Institute of working group, plus on the 2009 as the Director of People Harris Fellow and in 2016 he Australia. She is a graduate of the course advisory committees for and Strategy and became climbed Mount Kilimanjaro Australian Institute of Company nutrition at Endeavour College Director of the Strategic as part of Dr Charlie Teo’s Directors. Cecile serves on and the Think Group. She is the Sourcing Division in 2011. He Million$Mission to help Cure the Governance Institute of main author of four best-selling was appointed Chief Operating Brain Cancer. Australia’s Legislation Review textbooks, founding Editor-in- Officer in 2014. Richard served as Committee and is the Chairman Chief of the journal Advances Board President of the industry of CCNB Limited. In 2015 she in Integrative Medicine, and a association Complementary was awarded the Rotary Paul regular columnist for Australian Medicines Australia from 2011 Harris Fellow. Journal of Pharmacy. 44 BLACKMORES ANNUAL REPORT 2017 01 02
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45 BLACKMORES ANNUAL REPORT 2017
FINANCIAL REPORT 17 47 Five Year History 48 Directors’ Profiles 50 Directors’ Report 54 Remuneration Report 73 Auditor’s Independence Declaration 74 Independent Auditor’s Report 77 Directors’ Declaration 78 Consolidated Statement of Profit or Loss and Other Comprehensive Income 79 Consolidated Statement of Financial Position 80 Consolidated Statement of Cash Flows 81 Consolidated Statement of Changes in Equity 82 Notes to the Financial Statements 118 Additional Information 119 Company Information
46 BLACKMORES ANNUAL REPORT 2017
5 YEAR HISTORY $’000 2017 2016 2015 2014 2013
Sales (net of discounts)1 692,790 717,211 471,615 346,760 326,603 Earnings before interest, tax, depreciation and amortisation (EBITDA) 94,642 152,266 78,655 46,055 44,692 Depreciation and amortisation 8,411 7,045 6,391 6,266 5,989 Earnings before interest and tax (EBIT) 86,231 145,221 72,264 39,789 38,703 Net interest expense 4,180 1,810 3,432 4,826 4,752 Profit before tax 82,051 143,411 68,832 34,963 33,951 Income tax expense 24,023 43,391 22,276 9,534 8,975 Profit after tax 58,028 100,020 46,556 25,429 24,976
Net debt 44,717 17,793 7,069 54,401 69,043 Shareholders’ equity 177,541 178,263 132,915 104,226 98,051 Total assets 412,174 443,362 293,407 236,594 231,477 Current assets 258,662 294,624 187,844 131,376 124,030 Current liabilities 142,556 192,279 114,998 58,040 45,035 Net tangible assets (NTA) 117,330 116,484 90,809 65,185 58,860 Cash generated from operations 95,310 123,022 89,791 49,507 38,308
Number of shares on issue (’000s) 17,226 17,225 17,224 17,113 16,972 Earnings per share (EPS) - basic (cents) 342.6 580.6 270.7 149.2 147.9 Ordinary dividends per share (cents) 270.0 410.0 203.0 127.0 127.0 Share price at 30 June $95.84 $131.39 $75.27 $27.20 $26.94 Net tangible assets (NTA) per share $6.81 $6.76 $5.27 $3.81 $3.47
Cash conversion ratio2 100.7% 80.8% 114.2% 107.5% 85.7% Return on shareholders’ equity3 32.7% 56.1% 35.0% 24.4% 25.5% Return on assets4 20.2% 39.4% 27.3% 17.0% 19.1% Dividend payout ratio 78.8% 70.6% 75.0% 85.1% 85.9% Gearing ratio5 20.1% 9.1% 5.1% 34.3% 41.3% EBIT to sales 12.4% 20.2% 15.3% 11.5% 11.9% Effective tax rate 29.3% 30.3% 32.4% 27.3% 26.4%
Current assets to current liabilities (times) 1.81 1.53 1.63 2.25 2.75 Net interest cover (times) 20.6 80.2 21.1 8.2 8.1 Gross interest cover (times) 37.9 63.9 18.8 7.7 7.9
% change on prior year Sales (3.4) 52.2 36.0 6.2 25.2 EBITDA (37.8) 93.6 70.8 3.1 (4.7) EBIT (40.6) 101.0 81.6 2.8 (7.8) Profit after tax (42.0) 114.8 83.1 1.8 (10.2) EPS (41.0) 114.5 81.4 0.9 (10.8) Ordinary dividends per share (34.1) 102.0 60.0 0.0 0.0 1. Represents revenue from the sale of goods before promotional and other rebates and excludes other revenue items. 2. Calculated as cash generated from operations divided by EBITDA. 3. Calculated as net profit after tax divided by closing shareholders’ equity. 4. Calculated as EBIT divided by average total assets. 5. Gearing ratio is calculated as net debt divided by the sum of net debt and shareholders’ equity. 47 BLACKMORES ANNUAL REPORT 2017 DIRECTORS’ PROFILES
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48 BLACKMORES ANNUAL REPORT 2017 01 ASEAN Council, supporting 06 STEPHEN CHAPMAN the development of trade and DAVID ANSELL BCOMM, MBA, CA, FAICD cultural relations between BA (COMMUNICATION), GAICD Australia and the 10 member Chairman Independent Director countries of the ASEAN region. Mr Chapman is an experienced Mr Ansell joined the Board in Christine also serves on the corporate director, investor and October 2013, following a highly Board of Collingwood Football investment banker. He joined successful career in consumer- Club and was a Non-Executive the Board in September 1993. facing organisations in Australia, Director of Ten Network Holdings He is Chairman of Baron Partners Asia and the United States. Limited for five years, retiring in Limited, an Australian investment He played a pivotal role in the December 2015. bank. Mr Chapman is a Non- start-up years of Foxtel and was Christine will be leaving Executive Director of several CEO of renowned advertising Blackmores on 29 September ANZ Wealth group subsidiaries, agency Saatchi & Saatchi. He 2017 after nine years leading including Chairman of One Path has led business units of Mars the Group. Funds Management Limited Incorporated in Australia and and Share Investing Limited. He in the United States. Mr Ansell held the position as Blackmores 04 has a strong operating and Deputy Chairman from 24 BRENT W WALLACE supply chain skill set and a deep October 2007 to 1 March 2017 BCOMM (MARKETING), FAICD understanding of consumer when he was Acting Chairman Independent Director and customer strategy. He is until 27 June 2017 when he Mr Wallace joined the Board in also Managing Director and was appointed Blackmores October 2005 and is Chair of Chairman of Jacobs Douwe Chairman. the Audit and Risk Committee. Egberts ANZ, Australasia’s He is a co-founder and CEO of largest pure play coffee 02 Galileo Kaleidoscope (Galkal), a company, and a Board Member MARCUS C BLACKMORE AM company known for its strategic of Cycling Australia. ND, MAICD, D UNIV, D LITT marketing, brand and consumer research and insight solutions. Executive Director 07 Mr Wallace has more than Mr Blackmore has served on the JOHN ARMSTRONG 30 years of experience in Board since October 1973. He BBUS, MBA, MAICD marketing, advertising and brand holds an Honorary Doctorate Independent Director development across a wide from Southern Cross University Mr Armstrong joined the Board variety of consumer categories. for distinguished leadership in May 2015. Mr Armstrong He has held senior positions in in complementary medicines has more than 25 years of London and Sydney advertising in Australia and an Honorary experience in various financial agencies and until 1996 was Doctorate of Letters from and commercial management Managing Director of Ogilvy & Western Sydney University for roles. His most recent executive Mather in Australia. Mr Wallace his distinguished services to role was at SEEK Limited, is also a Governor of World business, charity and the broader the ASX 100 listed leading Wildlife Fund, the global community. recruitment and education environmental group. Marcus is an honorary provider, where he was the trustee of the Committee for Chief Financial Officer for over the Economic Development of 05 12 years. In recent years, he has Australia (CEDA), an Alumnus of HELEN NASH also had a focus on SEEK’s Asian Harvard Business School, and BA (HONS) GAICD operations and investments, an Honorary Fellow of the Heart Independent Director including directorships of SEEK’s Research Institute. Ms Nash joined the Board of business in China, Zhaopin Ltd Marcus Blackmore held the Blackmores in October 2013. (a US-listed company), and SEEK position of Chairman up to Ms Nash has more than 20 years Asia, which operates across 28 February 2017. of experience in brands and South East Asia. Prior to SEEK, marketing, including seven years he held management roles at 03 in fast moving consumer goods Carlton & United Breweries and CHRISTINE HOLGATE at Procter & Gamble, followed commenced his career at Ernst by three years in publishing at & Young. Chief Executive Officer and IPC Media. Mr Armstrong is a Non- Managing Director She held a variety of roles at Executive Director of Melbourne Ms Holgate has more than 30 McDonald’s Australia over a nine- IT and was a Non-Executive years of diverse international year period and most recently Director of ASX listed iProperty leadership experience in held the position of Chief Group Ltd until its sale to News highly regulated industries, Operating Officer, overseeing Corporation. including healthcare, media, restaurant operations, marketing, telecommunications and finance. menu, insights and research Christine was appointed to her and information technology. Ms current role as Blackmores Chief Nash is currently a Non-Executive Executive Officer in November Director of Metcash, a Non- 2008. She has more than 20 Executive Director of Southern years of public board experience Cross Media Group, a Non- as either a Non-Executive Executive Director of Inghams Director or CEO and has held Group Limited, and a former senior management positions in Non-Executive Director of Pacific Asia, the Americas and Australia. Brands Limited (2013-2016). Christine has three post-graduate diplomas and a Masters Degree in Business Administration (MBA). She is the inaugural Chair of the Board of the Australia-
49 BLACKMORES ANNUAL REPORT 2017
DIRECTORS’ REPORT 17
50 BLACKMORES ANNUAL REPORT 2017 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017
DIRECTORS’ SHAREHOLDINGS The following table sets out each Director’s relevant interest in all financial instruments issued by Blackmores as at the date of this report:
DIRECTORS FULLY PAID ORDINARY SHARES SHARE RIGHTS
David Ansell 1,000 - John Armstrong 800 - Marcus Blackmore 4,219,835 - Stephen Chapman 20,028 - Christine Holgate1 46,002 34,436 Helen Nash 1,487 - Brent Wallace 12,302 - Total 4,301,454 34,436 1. 12,127 share rights granted for the 2016 financial year (FY16) and 15,051 share rights granted for the 2017 financial year (FY17) were forfeited due to Christine Holgate’s resignation prior to completion of the service period. SHARE RIGHTS GRANTED TO DIRECTORS AND SENIOR EXECUTIVES Selected Senior Executives are invited annually by the Board to participate in the Executive Performance Share Plan (EPSP). Under this plan, eligible Senior Executives are granted rights to acquire shares in Blackmores. Refer to the Remuneration Report on pages 54 to 71. for more details. During the year, the following rights to shares were granted:
2017 NUMBER1, 2
Executive Director Christine Holgate3 15,051 Senior Executives Lesley Braun 2,166 Aaron Canning4 3,414 Nathan Cheong4 2,197 Cecile Cooper4 1,994 Dave Fenlon 3,045 Richard Henfrey4 3,076 Peter Osborne 2,352 Total 33,295 1. Nil share rights vested in FY17. 2. Rights granted during FY17 vest provided specific performance objectives and hurdles are met over the three-year period commencing 1 July 2016 to the year ending 30 June 2019 3. Share rights granted for FY17 were forfeited due to Christine Holgate’s resignation prior to completion of the service period. 4. Includes rights granted during FY17 under the Staff Share Plan. Rights to 31 shares for these Senior Executives will vest in the 2018 financial year (FY18). SHARE OPTIONS During and since the end of the financial year, no share options were in existence and no new share options were granted to Directors or Senior Executives of Blackmores.
REMUNERATION OF DIRECTORS AND KEY MANAGEMENT PERSONNEL Information about remuneration of Directors and Key Management Personnel is set out in the Remuneration Report of this Directors’ Report, on pages 54 to 71.
COMMITTEE MEMBERSHIPS As at the date of this Report, the Company had an Audit and Risk Committee, a Nominations Committee and a People and Remuneration Committee. Members of the Board acting on the Committees during the year were: Audit and Risk: Brent Wallace, Chairman David Ansell John Armstrong Stephen Chapman Nominations: Stephen Chapman, Chairman David Ansell John Armstrong Marcus Blackmore Christine Holgate Helen Nash Brent Wallace People and Remuneration: Helen Nash, Chairman Stephen Chapman Brent Wallace 51 BLACKMORES ANNUAL REPORT 2017 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017
COMPANY SECRETARIES Cecile Cooper, BBus, Dip Inv Rel (AIRA), CPA, GAICD. Company Secretary and Director Corporate Affairs. Ms Cooper joined Blackmores in 1991. As Company Secretary, Ms Cooper is responsible for company secretarial and corporate governance support across the Group. She has held a variety of positions within Blackmores and her experience includes financial and management experience including enterprise resource planning system implementations, design of business reporting solutions, business management, risk management and compliance. Ms Cooper is the Chairman of CCNB Ltd. Aaron Canning, BCom(Hons), FCCA, CA, GAICD. Chief Financial Officer. Mr Canning joined Blackmores in 2014 as Chief Financial Officer. He has extensive management experience in Asia, New Zealand, the UK, the USA and Australia from ASX listed and multinational organisations including Goodman Fielder, Westfield and Diageo Plc. His most recent experience was with Goodman Fielder as the Managing Director Grocery Category. Prior to this he was the Managing Director Asia Pacific and Finance Director Asia Pacific. Mr Canning is a qualified accountant, Fellow of the Association of Chartered Certified Accountants, member of the Chartered Accountants Association of Australia and New Zealand and a member of the Australian Institute of Company Directors.
PRINCIPAL ACTIVITIES The principal activity of the Blackmores Group in the course of the financial year was the development, sales and marketing of natural health products for humans and animals including vitamins, and herbal and mineral nutritional supplements. The Blackmores Group has operations in Australia, New Zealand and Asia.
RESULTS The financial report for the years ended 30 June 2017 and 30 June 2016 and the results herein have been prepared in accordance with Australian Accounting Standards. The net profit after tax (NPAT) of the Blackmores Group for the financial year was $58 million (2016: $100 million). A review of the operations of the Blackmores Group during the financial year and the results of those operations is set out in the Operating and Financial Review on pages 20 to 30 inclusive.
DIVIDENDS The amounts paid or declared by way of dividend since the start of the financial year are: • a final dividend of 210 cents per share fully franked in respect of the year ended 30 June 2016, as detailed in the Directors’ Report for that financial year, was paid on 21 September 2016 • an interim dividend of 130 cents per share fully franked in respect of the year ended 30 June 2017 was paid on 22 March 2017 • on 29 August 2017, Directors declared a final dividend for the year ended 30 June 2017 of 140 cents per share fully franked, payable on 26 September 2017 to shareholders registered on 12 September 2017. This will bring total ordinary dividends to 270 cents per share fully franked (2016: 410 cents per share fully franked) for the full year.
CHANGES IN STATE OF AFFAIRS During the financial year there was no significant change in the state of affairs of the Blackmores Group other than that referred to in the Consolidated Financial Statements or notes thereto and elsewhere in the Annual Report of the Blackmores Group for the year ended 30 June 2017.
SUBSEQUENT EVENTS There has not been any matter or circumstance, other than that referred to in the Financial Statements or notes thereto, that has arisen since the end of the financial year, that has significantly affected, or may significantly affect, the operations of Blackmores Limited, the results of those operations, or the state of affairs of the Blackmores Group in future financial years.
CORPORATE GOVERNANCE In recognising the need for the highest standards of corporate behaviour and accountability, the Board of Blackmores Ltd endorses the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations. The Company’s Corporate Governance Statement is available on the Blackmores website at blackmores.com.au (Go to ‘Investor Centre’, then click on ‘Corporate Governance’).
INDEMNIFICATION OF OFFICERS AND AUDITORS During the financial year, Blackmores paid a premium in respect of a contract insuring the Directors, the Company Secretary and all Executive Officers of the Blackmores Group against any liability incurred in their role as Director, Company Secretary or Executive Officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Blackmores has not otherwise, during or since the end of the financial year, indemnified or agreed to indemnify an Officer or auditor of the Blackmores Group against a liability incurred as such an Officer or auditor.
52 BLACKMORES ANNUAL REPORT 2017 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017
DIRECTORS’ MEETINGS The number of Directors’ Meetings held (including meetings of Committees of Directors) during the financial year are as follows:
PEOPLE AND BOARD OF AUDIT & RISK NOMINATIONS REMUNERATION DIRECTORS COMMITTEE COMMITTEE COMMITTEE DIRECTORS HELD1 ATTENDED HELD1 ATTENDED HELD1 ATTENDED HELD1 ATTENDED
David Ansell 9 9 4 4 - - - - John Armstrong 9 9 4 4 - - - - Marcus Blackmore2,3 9 7 - 1 - - - 1 Stephen Chapman 9 9 4 4 - - 3 3 Christine Holgate2,3 9 9 - 4 - - - 3 Helen Nash2 9 9 - 1 - - 3 3 Brent Wallace 9 9 4 4 - - 3 3 1. Reflects the number of meetings held during the time that the Director held office during the year. 2. Marcus Blackmore, Christine Holgate and Helen Nash attended the Audit and Risk Committee as invitees. 3. Marcus Blackmore and Christine Holgate attended the People and Remuneration Committee as invitees. STATEMENT OF NON-AUDIT SERVICES The Directors are satisfied that the provision of non-audit services during the year by the auditor (or by another person or firm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in note 12 to the Consolidated Financial Statements. Directors have accepted a statement from the auditor that it is satisfied that the provision of these services did not breach the independence standards included in the Corporations Act 2001. Based on this statement from the auditor and having regard to the nature and fees involved in the provision of these non-audit services, the Directors are satisfied that the provision of non-audit services during the year by the auditor (or other person or firm on the auditor’s behalf) did not compromise the audit independence requirements of the Corporations Act 2001.
AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor’s Independence Declaration is set out on page 72 of this Annual Report.
ROUNDING OFF AMOUNTS In accordance with the Australian Securities and Investments Commission (ASIC) Class Order 98/0100, dated 10 July 1998, the amounts in the Directors’ Report and the Financial Report are rounded off to the nearest thousand dollars, unless otherwise indicated.
53 BLACKMORES ANNUAL REPORT 2017 2017 REMUNERATION REPORT
Introduction from the Chairman of the People KEY POINTS and Remuneration Committee • Blackmores’ remuneration structure aligns Senior Executive Dear Shareholder, remuneration to Group performance I am pleased to present to you our 2017 Remuneration Report. This report outlines FY17 performance and remuneration outcomes for Blackmores, the Chief Executive Officer (CEO), direct • Blackmores’ long-standing reports to the CEO (Senior Executives) and Executive and Non- profit share scheme aligns the Executive Directors. remuneration of all employees to Our remuneration structure is linked to the achievement of profits of the Group year-on-year profit growth and shareholder returns. No Executive Director or Senior Executive received an award under the short- term incentive (STI) plan. Shares vested for the first time under the • No FY17 short-term incentives (STI) three-year long-term incentive (LTI) plan. Executive Directors and were paid to the Executive Directors Senior Executives were awarded the maximum under this plan due or Senior Executives to the achievement of significant earnings per share (EPS) growth during the FY15 to FY17 performance period. • Long-term incentive (LTI) awards in The Group has grown significantly in size, scope and complexity over the past three years. As a result, salary and fee levels have the year reflect achievement of the needed to be adjusted and this has been undertaken in a staged three year EPS growth targets for the approach over several years. The increases reported in the FY17 FY15 plans, granted in July 2014. remuneration report are part of this staged process. No LTI vested in relation to FY16 or Fixed Annual Remuneration (FAR) for the CEO and some Senior FY17 plans Executives was increased during the period. The increases reflect the staged approach actioned by the Committee over several years to close the considerable gap in Key Management Personnel • Non-Executive Director fixed annual (KMP) FAR relative to the median FAR of appropriately selected remuneration (FAR) increases industry benchmarks. The FY17 portion of the increase was have been staged over several deferred to the last quarter in FY17. The approach to increases of Non-Executive Director Fees has been on the same basis. years based on independent Following the exceptional prior year, in FY17 the Blackmores benchmarking reviews and only Australian business experienced challenges and rapid changes when significant gaps existed in the operating environment, particularly the diminishing role between Non-Executive Director played by Australian retailers in servicing demand from Chinese fees and comparable external consumers. While other Blackmores business units delivered strong growth in sales and profit this was not enough to offset the benchmarks shortfall in the Australian business with Group Sales down 3% and NPAT down 42% on the prior year. • Senior Executive FAR increases Throughout the year management responded to the changing have been staged over several dynamics while maintaining focus on delivering the Group years based on independent strategy: benchmarking reviews. CEO FAR • Invested in the Australian consumer – affirmed number one increases have been staged over brand status in Australia • Continued to grow Blackmores’ business in Asia – total Asia recent years as it previously sat sales up 36% below the 40th percentile compared • Continued to deliver on the Group strategy of Product to companies of similar market Leadership - Delivered 110 new products and launched a capitalisation leading global education platform • Advanced operational effectiveness - invested in the new infrastructure and commercial relationships that will deliver economies as a result of our new scale • Focused on strong capital management, balance sheet and cash management - solid cash generation from operations of $95.3 million, cash conversion ratio of 101%, net debt of $44.7 million and return on shareholder’s equity of 33%.
* Source: IRI MarketEdge, Vitamin and Dietary Supplement, Australia Grocery Pharmacy, Estimated Local Demand Sales MAT to 14/05/2017.
54 BLACKMORES ANNUAL REPORT 2017 55
As outlined in the 2016 Report, the FY17 LTI achievement the FY17 LTI Report, As outlined in the 2016 of following a review market increased were hurdles plan has an LTI The consultation. and further benchmarks compound annual of hurdle 5% three-year threshold increased the maximum to receive In order in EPS. (CAGR) rate growth will be of under the plan an achievement award 25% CAGR reward executive that will ensure new hurdles These required. focus a continuous value, shareholder is aligned with increasing ofon the successful achievement goals and long-term strategic management. of executive long-term retention key a staff with shareholders, align Senior Executives further To can contribute participants plan was established whereby share At the the year. of throughout salary for the purchase shares additional benefit an will provide Blackmores end of the year, on a pre-determined shares these purchased by matching subject to capping of ratio the total cost. matching have been staged over several fee increases Non-Executive growth capitalisation market in line with the Company’s years of benchmarks. external over the period and a review relevant quarter of to the fourth 26% was deferred FY17 increase The of $300,000 to an increase approved Shareholders of FY17. pool is total The AGM. the FY15 pool at Fee the total Directors FY18 annualised Non-Executive projected The now $1,000,000. on page 68. details are Full $785,000. fees are Director
5. 6. 7. REMUNERATION TO FY18 CHANGES we whereby philosophy, with our ‘One Blackmores’ Consistent STI the FY18 and set of a unified culture goals, strive to create in addition to component measure plan will include a strategic over prior year. performance growth of measure NPAT the current for any growth positive NPAT requires that hurdle current The remains to a Senior Executive component of to be awarded the STI in place. Mr terms of newly appointed CEO, FY18 key Blackmores’ The announcement datedASX included in the were Henfrey, Richard in the participation $950,000, FAR are These August 2017. 17 STI maximum potential plan, share cash based profit Company’s approval subject to shareholder and, 100% of at calculated FAR maximum plan at to rights in the LTI grants AGM, the 2017 at 150% of at potential calculated FAR. Committee, and Remuneration On behalf of and People the Board and welcome Report the 2017 Remuneration I invite you to read of to and disclosure Blackmores’ your feedback on our approach arrangements. remuneration Helen Nash Committee and Remuneration People Chairman,
Following the external benchmarking review, the Board benchmarking review, the external Following of the CEO (FAR) Annual Remuneration the Fixed increased and responsibilities whose role and some Senior Executives of in the with the growth the Group had significantly increased by 26% and some was increased FAR CEO’s The prior year. between 18% ranging increased were FAR Senior Executive’s until the last quarter deferred were increases These and 20%. until deferred were increases Other Senior Executives of FY17. on page 65. details are Full FY18. of set by was below the target decrease 42% FY17 NPAT The positive requires that rate for FY17 and the hurdle the Board aAs for any component of to be awarded. growth STI NPAT is inThis to any Senior Executives. was awarded no STI result, of growth 115% NPAT where to the FY16 payments, contrast payments of STI $3,563,981 to Senior Executives. triggered Board The payment for FY17. a STI CEO did not receive The outcomes for FY17 and FY16 highlight theconsider the STI shareholders’ alignment between financial performance, strong calculation STI The outcomes. and remuneration interests did not exercise and the Board NPAT was based on statutory for purposes of in changing the calculation discretion determining the financial achievement of targets. 7.5% of NPAT scheme, share Under the long-standing profit was paid to employees of being equivalent to Blackmores 16 days’ incremental salary. This compares to FY16 which met compares This salary. 16 days’ incremental of growth on year achieving year the conditional requirement was distributed resulting an additional 2.5% ofwhereby NPAT in a total payment of salary. 44 days incremental eligible to vest in FY17 were awards incentive (LTI) Long-term at the beginning LTI plan came into effect year as the first three the FY15 plan vested that is very pleased Board The of FY15. the maximum potential based on the performance metricat in (CAGR) rate of compound annual growth 32% three-year The over this period. growth exceptional the EPS and reflects totalThe plan. a three-year plans remain FY16 and FY17 LTI the details of which are for the financial year, remuneration for all includes an accounting expense shown on page 65, using thevested and unvested performance rights calculated value of the number of could vest over the three-year rights that plan. performance period of LTI each
Notwithstanding management’s focus on adapting the businessNotwithstanding management’s FY16 the exceptional market, Australian to the changes in the was growth however strong performance was not repeated good FY15 performance. achieved over the very total Blackmores 27% during the year. price decreased share The of decrease EPS of 25%, (TSR) was a decrease return shareholders’ of 34%. 41% and dividend decrease WITH BUSINESS PERFORMANCE ALIGNING REMUNERATION AND STRATEGY the scale and diversity of years has changedIn recent our business NPAT the Group (FY14) and FY17, Between 2014 significantly. period during this growth exceptional The than doubled. more on performance-based focus by the Committee more required for leading responsible for those Senior Executives remuneration it aligned and to ensure the delivery of strategy Blackmores’ In addition, returns. outcomes with shareholder remuneration had conducted a the Committee as outlined in the 2016 Report, Senior Executive of benchmarking review the CEO, comprehensive which considered Remuneration, Director and Non-Executive stagedA size of and the capitalisation the Company. market to adjust the relevant was adopted by the Committee approach years. over several KMP FAR FOR FY17 REMUNERATION OUTCOMES KEY 1. 2. 3. 2017 REMUNERATION REPORT 4. BLACKMORES ANNUAL REPORT 2017 1. Introduction 2017 2. Senior Executive Remuneration Outcomes Table REMUNERATION 3. Remuneration Governance and Framework 4. Senior Executive Remuneration Structure REPORT 5. Performance and Remuneration Outcomes 6. Senior Executive Remuneration Tables – Statutory 7. Employment Contracts 8. Non-Executive Directors’ Remuneration 9. Non-Executive Directors and Senior Executive Transactions
1. INTRODUCTION The Directors of Blackmores Limited present the Remuneration Report (the ‘Report‘) for the Blackmores Group. The Report outlines Blackmores’ remuneration framework and the outcomes for the year ended 30 June 2017 (FY17) for Blackmores Key Management Personnel. The Report has been prepared in accordance with the requirements of section 300A of the Corporations Act 2001. In this Report the following terms and phrases have the meanings indicated below: Directors – Executive Directors and Non-Executive Directors. Executive Directors – Marcus Blackmore and the Chief Executive Officer Senior Executives – Executive Directors and the other company executives who have authority and responsibility for planning, directing and controlling the activities of the Blackmores Group, directly or indirectly. Key Management Personnel – Non-Executive Directors and Senior Executives Exercised – Owned. Granted – Assigned to, but not yet vested. Vested – Met performance and service criteria and available to be exercised, but not yet owned. Key Management Personnel The following table lists all the current Key Management Personnel (KMP) and their titles as at 30 June 2017:
Non-Executive Directors
David Ansell Non-Executive Director and member of the Audit and Risk Committee and Nominations Committee
John Armstrong Non-Executive Director and member of the Audit and Risk Committee and Nominations Committee
Stephen Chapman Non-Executive Director, Chairman of the Board, Chairman of the Nominations Committee, member of the Audit and Risk Committee and People and Remuneration Committee
Helen Nash Non-Executive Director, Chairman of the People and Remuneration Committee and member of the Nominations Committee
Brent Wallace Non-Executive Director, Chairman of the Audit and Risk Committee, member of the People and Remuneration Committee and Nominations Committee
Executive Directors
Marcus Blackmore Executive Director, member of the Nominations Committee
Christine Holgate Chief Executive Officer, Managing Director and member of the Nominations Committee (resigned effective 29 September 2017)
Senior Executives
Lesley Braun Director Blackmores Institute
Aaron Canning Chief Financial Officer
Nathan Cheong Managing Director BioCeuticals
Cecile Cooper Company Secretary and Director of Corporate Affairs
David Fenlon Managing Director Australia and New Zealand
Richard Henfrey Chief Operating Officer
Peter Osborne Managing Director Asia
56 BLACKMORES ANNUAL REPORT 2017 57
3 ------712,830 586,519 492,918 553,324 452,776 821,128 767,899 625,619 EQUITY THAT 3,300,349
VESTED DURING 2017
$ TOTAL 794,441 593,970 683,282 632,969 971,642 767,252 363,418 316,613 538,081 375,420 336,905 591,693 483,036 392,643 1,954,683 1,030,265 1,020,987 8,449,491 1,021,205 4,419,014 8,313,362
- - $ 19,308 19,308 19,308 27,372 19,308 29,372 19,308 25,808 17,708 19,618 19,616 27,616 19,622 20,384 19,625 26,124 179,092 170,313 SUPERANNUATION
2 ------$ 4,011 1,633 2,004 1,748 1,825 OTHER 3,260 1,675 1,882 1,587 1,784 11,221 10,188
1 - - - $ NON- 6,713 4,625 9,550 5,815 8,060 37,901 25,596 42,017 15,352 82,201 37,218 20,521 18,701 11,652 251,623 111,650 185,949
$
SHARE MONETARY 17,356 17,119 60,596 28,433 20,326 18,222 26,482 26,482 29,014 368,691 286,818 512,940 347,650 335,871 486,882 486,882 391,508 244,030 1,037,454 4,254,696 STI AND PROFIT
$ FEES 364,530 281,131 446,303 300,972 261,097 430,848 419,909 375,744 304,573 279,876 931,443 474,542 316,771 284,765 432,349 420,586 363,629 SALARY AND SALARY 3,752,859
3,808,534 4 Directors
Leave movements – the statutory remuneration table shows annual leave and long service leave movements due to an increase in theto an increase movements due and long service leave table shows annual leave remuneration movements – the statutory Leave than cash payment. accruals rather statutory using the fair value of to be calculated expense payments the share-based require payments – the accounting standards Share-based table remuneration in the statutory Included period. performance and service over the relevant amortised date, grant at the shares of rights the FY16 and FY17 Vesting plan. of FY16 and FY17 under the LTI is the FY17 portion the fair value of in FY15, rights granted being met in the future. subject to performance and service conditions remains ‘Non-monetary’ includes motor vehicle benefits and any fringe benefits tax paid on these benefits. membership fees. ‘Other’ and superannuation includes insurance as a cash his LTI received Mr Blackmore June 2017. 30 price on the vesting date value disclosed is based on the share The grant. to the FY15 LTI relates year vested in FY17 equity that The equivalent in lieu of shares. to the period he was on sabbatical. payments relevant salary and fees include annual and long service leave Mr Blackmore’s
Braun esley
2017
2. OUTCOMES REMUNERATION SENIOR EXECUTIVE total in understanding the to assist shareholders information to disclose additional non-statutory following table has been provided The KMP of during the year. who were Blackmores ofvalue of Senior Executives, remuneration the paid or payable during the financial was either that the KMP became entitled to during FY17 and that table sets out the remuneration The or will be paid subsequent to the end ofyear the year. contained Act are 2001 by the Corporations as required with accounting standards in accordance outcomes prepared remuneration The isThis to the following table. of differ table on page 65 the Report remuneration in the statutory totals The on page 65 of the Report. because of the following: 1. 2. in the and $25.22 for the other Senior Executives $28.92 for one Senior Executive valued at FY15 rights have vested and were The which was $95.84, valued at awards which includes the FY15 LTI to the following outcomes table, differs This table. remuneration statutory June 2017 vesting date. price on 30 the share 2017 REMUNERATION REPORT 1. 2. 3. 4. Executives Senior L 2017 Executive Executive Blackmore Marcus 2016 2016 Holgate Christine 2017 Canning Aaron 2017 2016 872,325 2016 Nathan Cheong Nathan 2017 2016 Cooper Cecile 2017 2016 Fenlon David 2017 2016 Henfrey Richard 2017 2016 Peter Osborne Peter 2017 2016 Total 2017
2016 BLACKMORES ANNUAL REPORT 2017 2017 REMUNERATION REPORT
BLACKMORES REMUNERATION 3. FRAMEWORK REMUNERATION GOVERNANCE AND Rewards for the achievement of strategic goals, financial FRAMEWORK targets and operational performance Remuneration Governance People and Remuneration Committee Attract and retain talented Senior Executives and Directors The primary responsibility of the People and Remuneration Committee (the ‘Committee‘) is to make recommendations to Align Senior Executives to the enhancement of Blackmores’ the Board on remuneration strategy and policy for KMP and earnings and shareholder wealth other executives of Blackmores that are in the best interests of Blackmores and its shareholders. This includes recommendations related to Non-Executive Directors Fees, executive remuneration and Short-term Incentives (STI) and Long-term Incentive (LTI) schemes. The Committee also advises the Board on remuneration BLACKMORES REMUNERATION FRAMEWORK policies and practices for the Company. The responsibilities of the People and Remuneration Committee are set out in the Fixed Remuneration – Not at Risk Component Committee’s charter, which can be viewed or downloaded from the Company’s website at blackmores.com.au (go to ‘Investor Centre’, then click on ‘Corporate Governance’). The charter is Fixed Remuneration – It is targeted to be reasonable and reviewed annually by the Committee and the Board. fair, taking into account Senior Executives’ responsibilities and experience compared with competitive market The People and Remuneration Committee comprises three benchmarking against companies with relative size and independent Non-Executive Directors who have experience in scale of Blackmores’ operations. both remuneration governance and the Blackmores business. The members during FY17 were Helen Nash (Committee Chairman), Stephen Chapman (Chairman) and Brent Wallace. Performance-based Remuneration – At Risk Component
Advisors to the Committee Short-term incentives (STI) – comprise cash payments linked to The People and Remuneration Committee has established clearly specified annual group targets and individual objectives protocols for engaging and dealing with external advisors and and behaviours. This element of remuneration is considered to this is included in the Committee’s charter. The Committee obtains be an effective tool in promoting the interests of Blackmores and specialist external advice about remuneration structure and its shareholders. The STI scheme is designed around appropriate levels. The advice is used to support its assessment of the market performance benchmarks based primarily on Blackmores’ NPAT to ensure that Senior Executives and Non-Executive Directors performance relative to prior year and requires the achievement are being rewarded appropriately, given their responsibilities of year on year growth. and experience. Executive remuneration packages are also reviewed annually against suitable benchmarks to ensure that an Staff Share Plan – Participation is open to Senior Executives as appropriate balance between fixed and incentive pay is achieved. well as all permanent Blackmores staff. Under the plan, staff can The Committee did not use a remuneration consultant in the elect annually to participate and purchase shares. At the end of current financial year. Benchmarking of KMP was conducted by the financial year, Blackmores will provide an additional benefit utilising various independent published remuneration surveys. by matching these purchased shares on a pre-determined matching ratio subject to capping of the total cost. Exercise of Remuneration Framework the matched shares is at no cost and vesting takes place once the service condition has been met. The remuneration framework links remuneration to both the Group’s performance and the individual’s performance and Profit share – Executive Directors and Senior Executives behaviour and provides the opportunity to share in the success participate in the same cash based profit share plan as all and profitability of Blackmores in alignment with increased permanent Blackmores staff. The scheme allocates up to 10% shareholder wealth. The remuneration framework is included of the Group NPAT to eligible employees. in Blackmores’ remuneration structure and policies and the key elements of this framework are illustrated here: Long-term incentives (LTI) – Participation is open to Executive Directors and Senior Executives determined to be eligible by the Board. Under this plan, rights to acquire shares in Blackmores are granted annually to eligible Senior Executives at no cost and vest provided specific performance hurdles are met. Marcus Blackmore’s incentive is a cash-based equivalent.
Special long-term incentives (SLTI) – From time to time the Board may offer ‘one-off’ SLTIs to particular Executive Directors and Senior Executives in additionto the LTI. There are currently no SLTIs in place.
58 BLACKMORES ANNUAL REPORT 2017 59
3 LTI
STI / Profit Share / Profit STI is as follows: 2 1 34% 39% 27% 70% 16% 14% Fixed Remuneration Fixed Senior Senior Executives Executives
24% 28% 48% 55% 18% 27% CEO CEO
fixed (not at risk) and performance (at risk) remuneration risk) performance (at at risk) and (not fixed and long-term remuneration short equity. paid in cash and deferred remuneration Fixed remuneration includes cash, non-monetary benefits and superannuation. includes cash, remuneration Fixed LTI). plus Share Profit plus plus STI Remuneration (Fixed Reward Aggregate is the Total performance period. of the start at as the three-year Annual remuneration as the % of value is expressed Fixed LTI 1. 1. 2. 3. (FAR) Annual Remuneration Fixed non-monetary benefits (including fringe benefits tax and superannuation). includes base salary, FAR The the end of at for Senior Executives. financial year each of conducts an annual review remuneration and the Board Committee The No Executives individual and company performance. assessment of benchmarking, a comprehensive market incorporates process of in the last quarter FY17. increases deferred received Executives Some of as part the annual review. increases received At maximum levels of STI and LTI the mix of remuneration elements expressed as a % of expressed total remuneration elements the mix of remuneration At maximum levels of and LTI STI Maximum Reward Mix at Remuneration On Target Remuneration Mix Remuneration Target On 4. STRUCTURE REMUNERATION SENIOR EXECUTIVE Mix Remuneration Executive to find a balance between: aims the Board ofIn determining the mix remuneration, Senior Executive • • • of as a percentage total targetReport of disclosed in the at risk components of Executives Senior target and fixed current the Blackmores’ is as follows: for FY17, annual remuneration 2017 REMUNERATION REPORT BLACKMORES ANNUAL REPORT 2017 2017 REMUNERATION REPORT
Short-term Incentives (STI) – Performance Conditions Specific information relating to the actual annual performance awards is set out in the table on page 66.
What is the annual The STI plan provides eligible employees with a reward for annual performance against measured targets set at incentive and the beginning of the performance period. Eligible employees include the Executive Directors, Senior Executives who is eligible to and other nominated employees. participate?
What is the Chairman Chief Executive Officer Senior Executives amount the eligible employee Year on year EBIT/NPAT Growth % of FAR can earn?
Less than 4% 0% 0% 0% Sliding scale Sliding scale Sliding scale >60.4% 80% 100% 100%
What were the Measures Chairman Chief Executive Officer Senior Executives performance Group Divisional conditions for Financial measures: Roles Heads FY16? Group NPAT achievement of 100% 100% 100% 30% growth over prior year
Divisional EBIT achievement of - - - 70% growth over prior year
Individual objectives: N/A Personal multiplier of Personal multiplier of 0 – 1.25 applied to the 0 – 1.25 applied to the Financial (i.e. revenue, new outcome of financial outcome of financial product launches and other measures measures specific objectives) Non-financial measures (i.e. safety, employee engagement and other agreed objectives)
Why were these NPAT performance over prior year is a well-recognised measure of financial performance and a key driver of performance shareholder returns. It is the primary measure considered by Directors in determining the level of dividend measures payments to shareholders. Using NPAT as an incentive performance measure ensures that incentive payments are chosen? aligned with Blackmores’ business strategy and objectives. The incentive targets are set by the Board at levels designed to reward superior performance. A requirement of NPAT growth over prior year aligns remuneration outcomes with shareholders’ expectations. Similarly, EBIT as an incentive measure rewards divisional heads for the performance of the businesses under their direct management. Individual performance was selected as a secondary performance condition to ensure that Senior Executives have clear objectives and performance indicators that are linked to Blackmores’ performance. Blackmores’ policy is that STIs will only be awarded when Blackmores meets agreed performance hurdles. In addition, Senior Executives are not awarded any STI in the instance of the lowest personal performance assessment.
When are NPAT and Divisional EBIT is calculated by Blackmores at the end of the financial year, verified by Blackmores’ performance auditors and published in the Group’s Financial Statements before any payment is made. This method was chosen conditions tested? to ensure transparency and consistency with disclosed information. The person to whom a Senior Executive reports assesses an individual’s performance by reviewing his or her individual objectives, key tasks and performance indicators and the extent to which they have been achieved. Individual objectives are set at the start of each financial year and are formally reviewed every six months. The Board reviews performance assessments for KMP.
Does the Board The Board has adopted a Clawback Policy that is applicable to KMP with a view to further aligning the interests of have an Executive KMP with the long-term interests of Blackmores. In the event of any deliberate misstatement or manipulation of Clawback Policy? results in the financial statements for any of the immediately preceding three financial years, after assessment, the Board may require that KMP to repay all or a part of the STI Award and may withhold the payment or allocation of all or a part of an unpaid STI.
60 BLACKMORES ANNUAL REPORT 2017 61
Senior Executives participate in a profit share plan, whereby up to 10% of the Group NPAT is allocated to 10% of up NPAT whereby the Group plan, share in a profit participate Senior Executives remuneration. annual to their fixed basis by reference staff on a pro-rata to all eligible permanent Group STI award. in addition to the plan is share profit The a pro-rata As the amount is distributed on of NPAT. amount distributed is a percentage Group The achievement and the total NPAT depends on both the Group in any year the amount earned basis, maximum amount of annual fixed approximate The number of in the calculation. employees and salaries is 17%. can be earned that remuneration and an additional 2.5% is allocated 7.5% of NPAT Group Agreement, Collective Under the Company’s on the prior financial growth conditional on the achievement of NPAT allocated is Group of NPAT Group year. returns. ofkey driver of financial performance and a measure shareholder is a well-recognised NPAT aligned with incentive payments are that ensures as an incentive performance measure Using NPAT and objectives. business strategy Blackmores’ calculation. NPAT based on Blackmores’ is paid twice a year share Profit year each up to $1,000 of shares may purchase Blackmores including Senior Executives, All employees, under the would have otherwise been received Acquisition Plan with money that under the Staff Share plan. share profit All eligible permanent staff in the Group, including Senior Executives, can elect to contribute between Senior Executives, including staffAll eligible permanent in the Group, the At the end of the financial year, in the Company. shares be used to purchase $1,000 and $10,000 to each participant by purchased to the shares ratio applying a matching a benefit by will provide Company financial year. for that Company the is determined by the number ofearn can executive shares total benefit an matched The number is subject to capping and a maximum cost to the Company. This will provide. year. during the financial purchased shares for every three one share will match the Company FY17, For An $500,000. at shares for the matched has capped the total cost to the Company FY17 the Board For the during shares June 2017 and have purchased 30 at must be employed by the Company executive in the plan. which remain year directly become more their interests in Blackmores, their shareholding increase As Senior Executives aligned with those of other shareholders. Blackmores’ the completion ofJuly following each service period. the annual provided are shares Matched
What is the annual incentiveWhat and who is eligible to participate? Profit Share – Performance Conditions and Operation Performance – Share Profit is set out in the table on page 66. performance awards to the actual annual relating Specific information the is the amount What can earn? executive the performance were What conditions for FY17? theseWhy were performance measures chosen? performanceWhen are conditions tested? What is the annual incentiveWhat and who is eligible to participate? is the amount theWhat can earn? executive the performance were What conditions for FY17? theseWhy were performance measures chosen? performanceWhen are conditions tested? Staff Share Plan – Performance Conditions and Operation Conditions Plan – Performance Share Staff in the table on page 66. is set out to the actual annual performance awards relating Specific information 2017 REMUNERATION REPORT BLACKMORES ANNUAL REPORT 2017 2017 REMUNERATION REPORT
Long-term Incentives (LTI) – Performance Conditions Specific information relating to the actual annual performance awards is set out in the table on page 66.
What is the annual incentive Eligible employees are invited annually by the Board to participate in the Executive Performance Share and who is eligible to Plan (EPSP). Under this plan, eligible employees are granted rights to acquire shares in Blackmores. participate? Eligible employees include the Executive Directors, Senior Executives and other nominated employees.
What is the amount the Chief Executive Officer Chairman and Senior Executives eligible employee can earn? % of target performance % of FAR
Less than 5.0% 0% 0% 5.0% 25% 10% 5.0% to 10.0% Sliding scale Sliding scale 10.0% 50% 20% 10.0% to 25.0% Sliding scale Sliding scale 25.0% 200% 80%
What was the performance The performance condition is the three-year compound annual growth rate in EPS. The performance condition for FY17? period for measuring EPS growth is three years (FY17 to FY19).
Why were these performance In determining the performance conditions for Blackmores’ LTI plan, the Board has recognised EPS measures chosen? growth to be the key driver of shareholder value, influencing both share price and the capacity to pay increased dividends. Growth in EPS is simple to calculate and basing the vesting of rights on EPS growth encourages Senior Executives to improve Blackmores’ financial performance. As Senior Executives increase their shareholding in Blackmores through awards received under the EPSP, their interests become more directly aligned with those of Blackmores’ other shareholders.
How does the EPSP operate? The value of rights granted to eligible employees is equivalent to a percentage of their base remuneration at the time of grant. The number of rights granted equals the value of rights divided by: • the weighted average price of Blackmores’ shares for the five-day trading period commencing seven days after Blackmores’ results in respect of the prior financial year are announced to the ASX, less • the amount of any final dividend per share declared as payable in respect of the prior financial year. Rights are automatically exercised following vesting, audit clearance of the 2019 Financial Statements, Board approval and the first trading window. These Blackmores shares are issued to participants at zero cost. The number of shares issued is identical to the number of rights exercised. In the case of the Executive Director, Marcus Blackmore, a cash equivalent is paid in lieu of shares. Where regulations prohibit an equity based plan, a cash equivalent is awarded.
When are performance Compounded annual growth in EPS is calculated at the end of the three-year performance period and conditions tested? verified with reference to Blackmores’ audited Financial Statements prior to determining the number of rights that will vest. This method was chosen as it is an objective test that is easy to calculate and ensures transparency and consistency with public disclosures.
What happens if the If an executive ceases employment during the three-year performance period, the rights lapse. In certain eligible employee ceases circumstances the board has discretion to allow a portion of rights to vest for a ‘good leaver‘. employment during the performance period?
Does the Board have an The Board has adopted a Clawback Policy that is applicable to KMP with a view to further aligning the Executive Clawback Policy? interests of KMP with the long-term interests of Blackmores. In the event of any deliberate misstatement or manipulation of results in the financial statements for any of the immediately preceding three financial years, after assessment, the Board may require KMP to repay all or a part of the LTI Award, forfeit all or any unvested LTI; and withhold all or part LTI to the extent it has not been given to that KMP.
62 BLACKMORES ANNUAL REPORT 2017 63 33 2017 58 410 2017 2017 270 2016 2016 2016 2015 2015 2015 2014 2014 2014 2013 2013 2013 NPAT ($M) NPAT RETURN ON EQUITY (%) RETURN ON EQUITY DIVIDEND PER SHARE (CENTS) DIVIDEND PER SHARE 0 0 80 60 40 20 60 50 40 30 20 100 500 400 300 200 100 2017 95.84
2016 2015 2014
2013 SHARE PRICE ($) 0 90 60 30 Short-term Incentives (STI) Short-term achievement was selected as NPAT years, Similar to previous in respect awards for the STI performance measure the Group of FY17. a 42% of $58 million represented FY17 NPAT Blackmores on prior year. decrease for the FY17 STI to the Senior Executives amount awarded The is included under the award This was $Nil (2016: $3,563,981). disclosures remuneration column in the Share’ and Profit ‘STI table on page 65. is shown in the five years over the past NPAT Blackmores following graph. The exceptional FY16 performance was not repeated in FY17, in FY17, FY16 performance was not repeated exceptional The to the FY15 year. compared was good growth however there below: in the charts actual performance is illustrated The 5. AND PERFORMANCE REMUNERATION OUTCOMES 2017 Actual Performance Incentives – Performance Year Financial 2017 REMUNERATION REPORT 150 120 BLACKMORES ANNUAL REPORT 2017 2017 REMUNERATION REPORT
Long-term Incentives (LTI) EPS (CENTS) Similar to previous years, EPS achievement was selected as the Group performance measure for the LTI awards in respect of FY17. 600
A new LTI Plan that came into effect in FY15 included a three-year 500 performance period. The FY15 LTI awards were eligible to vest in
FY17. The FY16 and F17 awards were not eligible to vest in FY17. 400 The total remuneration for the financial year, the details of which are shown on page 65, includes an accounting expense 300 343 of $960,764 (2016: $2,026,265) for these performance rights. This amount has been calculated based on an assessment of 200 the achievement of the performance hurdle over the three-year performance period and represents one third of the total value of 100 the unvested rights. In the case of the Executive Director Marcus Blackmore, the incentive is cash based. 0 Blackmores EPS over the past five years is shown in this graph. 2013 2014 2015 2016 2017
CEO Remuneration Outcomes – Five Year History The Group’s remuneration framework is designed to reward Senior Executives based on the achievement of the Group’s performance goals and to share in the success and profitability of Blackmores in alignment with increased shareholder wealth. The history of the CEO performance related remuneration over the past five years illustrates this linkage to business performance.
STI earned as a LTI awarded as a AUS$m % of maximum Cents % of maximum
120 600
100 100 500 100
80 80 400 80
60 60 300 60
40 40 200 40
20 20 100 20
0 0 0 0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017
Net Profit After Tax (NPAT) Earnings Per Share (EPS) STI LTI
64 BLACKMORES ANNUAL REPORT 2017 65
$ TOTAL 890,621 730,441 831,674 786,660 990,609 676,557 502,525 743,904 425,517 652,096 505,746 446,859 627,248 833,002 2,844,642 1,106,037 1,213,633 1,158,353 5,413,454 10,552,670
$ 5,6 BASED SHARE- 72,026 PAYMENT 72,026 99,415 93,140 94,564 81,841 152,515 885,696 137,188 172,832 134,276 117,394 187,905 166,433 960,764 113,941 130,433 582,116 2,026,265 (306,712) PERFORMANCE
RIGHTS 4 - - $ 961 OTHER 2,264 1,401 2,800 7,088 OTHER 2,989 9,700 1,949 2,023 2,599 4,383 33,161 25,902 12,970 86,547 BENEFITS 63,945 18,183 22,119 LONG-TERM EMPLOYMENT - - $ POST- SUPER- 19,308 19,308 19,308 27,372 19,308 29,372 25,808 19,308 BENEFITS 19,625 26,124 19,616 19,618 27,616 20,384 17,708 19,622 ANNUATION EMPLOYMENT
3 $ 35,621 28,661 68,229 11,612 36,168 28,145 33,221 40,615 33,418 34,627 34,823 27,611 86,323 27,693 38,551 32,011 23,537 35,537
OTHER 2 - - - $ NON- 6,713 4,625 8,060 9,550 5,815 82,201 25,596 42,017 15,352 37,218 37,901 11,652 20,521 18,701 111,650 MONETARY 1 $ AND STI 18,222 26,482 26,482 29,014 17,356 60,596 17,119 28,433 20,326 486,882 391,508 286,818 512,940 347,650 335,871 486,882 368,691 1,037,454 4,254,696 251,623 315,690 179,092
SHORT-TERM EMPLOYMENT BENEFITS EMPLOYMENT SHORT-TERM PROFIT SHARE
$ SALARY AND FEES 407,735 317,937 775,198 267,401 421,343 284,143 240,275 366,955 357,770
260,630 409,158 391,626 346,485 265,998 435,717 312,613 169,165 856,348 3,438,757 3,447,740 244,030 185,949 340,713 170,313
7
Leave movements – annual leave and long service leave movements due to an increase in the statutory accruals rather than cash accruals rather in the statutory due to an increase movements and long service leave movements – annual leave Leave payments. of using the fair value to be calculated payments expense share-based require accounting standards The payments – Share-based table includes the remuneration statutory The period. performance and service over the relevant amortised date, grant at the shares have not yet vested. which which have vested and the FY16 and FY17 years for the FY15 year grants accounting value for LTI ‘STI and Profit Share’ includes amounts paid by way of profit share on 21 December 2016 and 28 June 2017. on 21 December 2016 and 28 includes amounts paid by way of share Share’ profit and Profit ‘STI ‘Non-monetary’ includes motor vehicle benefits and any fringe benefits tax paid on these benefits. for annual leave. to provisions relates ‘Other’ employment benefits shown in short-term for long service leave. to provisions ‘Other’relates shown in long-term employment benefits of theVesting FY15 rights have vested. The of FY16 and FY17. the FY17 portion the fair value of in FY15, rights granted and represent plan payments includes the LTI FY17 share-based The Mr Blackmore’s plan is paid as a cash equivalent in lieu of shares. LTI Blackmore’s Marcus subject to performance and service conditions as outlined on page 62. FY16 and FY17 rights remains This date. grant fair value at valued at Other KMP are June 2017 ($95.84). 30 price at the share valued on higher than other KMP as his rights are proportionately performance rights are LTI plan being paid as a cash equivalent. Mr Blackmore’s reflects difference of subject to service the FY17 plan remains Vesting of the FY17 portion the fair value of in FY17. Plan and represent rights granted payments include the Staff Share FY17 share-based The conditions as outlined on page 62. of of the combination that (a) reversal in prior financial years the fair value of payments ($596,204) expensed payments (-$306,712) represent share-based FY17 share-based Christine Holgate’s in previous to Ms Holgate of granted will not be met and (b) the FY17 portion the service period that the fair value awards and therefore of forfeited by her as the result her resignation were during FY17 ($289,492). expensed years
6. – STATUTORY TABLES REMUNERATION SENIOR EXECUTIVE Remuneration Statutory outcomes of June 2017. ended 30 of the financial year the Senior Executives for remuneration following table discloses the Blackmores The Act of2001 and has been audited. 300A with Section the Corporations in accordance table has been prepared The table on page 57 because of the following: the remuneration to differ table amounts in statutory The 1. 2. 2017 REMUNERATION REPORT
1. 2. 3. 4. 5. 6. 7. Peter Osborne 2017 Peter 2017 Cooper Fenlon Cecile 2017 Henfrey David 2017 Richard Canning 2017 Cheong Aaron 2017 Nathan 2017 Blackmore Marcus 2017 Executives Christine Holgate 2017 Braun Senior Lesley Directors Executive
2016 2016 2016 2016 2016 2016 2016 2016 2016 Total 2017 2016 BLACKMORES ANNUAL REPORT 2017 2017 REMUNERATION REPORT
Performance Related Remuneration Statutory Performance Related Remuneration Table The following table shows an analysis of the non-performance and performance related (STI, Profit Share and LTI) components of the FY17 remuneration mix detailed in the Statutory Remuneration table.
NON-PERFORMANCE STI AND PERFORMANCE TOTAL PERFORMANCE RELATED REMUNERATION1 PROFIT SHARE RIGHTS2,3 RELATED REMUNERATION % % % %
Executive Directors Marcus Blackmore 2017 28.0% 2.1% 69.9% 72.0% 2016 46.0% 37.2% 16.8% 54.0% Christine Holgate4 2017 133.1% 8.1% -41.2% -33.1% 2016 32.4% 36.5% 31.1% 67.6% Senior Executives Lesley Braun 2017 74.1% 4.0% 21.9% 25.9% 2016 42.0% 39.3% 18.8% 58.0% Aaron Canning 2017 78.2% 4.4% 17.5% 21.8% 2016 43.5% 42.3% 14.2% 56.5% Nathan Cheong 2017 77.3% 4.0% 18.7% 22.7% 2016 42.1% 41.8% 16.1% 51.9% Cecile Cooper 2017 77.6% 4.1% 18.3% 22.4% 2016 42.4% 42.7% 14.9% 57.6% David Fenlon 2017 85.4% 3.9% 10.6% 14.6% 2016 49.5% 44.0% 6.5% 50.5% Richard Henfrey 2017 75.0% 4.2% 20.8% 25.0% 2016 41.7% 42.0% 16.2% 58.3% Peter Osborne 2017 74.4% 5.8% 19.8% 25.6% 2016 38.9% 44.0% 17.1% 61.1%
Total 2017 77.7% 4.5% 17.7% 22.3% 2016 40.5% 40.3% 19.2% 59.0% 1. Non-performance related remuneration includes the accounting expense from all of the columns in the ‘Statutory Remuneration Table’ other than ‘STI and Profit Share’ and the LTI ‘Performance Rights’. 2. Performance Rights includes the LTI plan and represents the FY17 accounting expense of the FY17 portion of the rights granted in FY15, FY16 and FY17. 3. Performance Rights includes the Staff Share Plan and represents the FY17 accounting expense of the FY17 portion of the rights granted in FY17. 4. Christine Holgate’s Performance Rights represent the combination of (a) reversal of the fair value of share-based payments expensed in prior financial years that were forfeited by her as the service period will not be met owing to her resignation and (b) the FY17 portion of the fair value awards granted to Ms Holgate in previous years expensed during FY17.
66 BLACKMORES ANNUAL REPORT 2017 67
------$
- - - -
VALUE OF VALUE 267,893 356,487 346,826 440,134 346,826 223,586 283,610 246,707 313,048 385,324 450,007 246,707 313,048 RIGHTS NOT
% of number VESTED DATE LOCK END OF granted 2 09/2019 09/2018 09/2017 09/2019 09/2018 09/2017 09/2019 09/2017 09/2019 09/2018 09/2017 09/2019 09/2018 09/2017 09/2019 09/2018 09/2017 09/2019 09/2018 09/2017 09/2019 09/2018 09/2017 - - - -
5 ------VESTED Number HOLDING of rights EXERCISED VALUE 4 $
- - VALUE Date 164,636 202,063 216,085 119,139 145,595 148,736 154,346 868,476 31/7/17 31/7/17 31/7/17 31/7/17 ------% OF 100% 100% 100% 100% 100% 100% 100% 100% NUMBER GRANTED
3 1 ------OF
RIGHTS 6,528 8,012 8,568 4,724 5,773 5,143 6,120 value NUMBER 34,436 VESTED $4,730 $4,730 $4,730 $4,730 Total fair Total
------DATE 30/6/17 30/6/17 30/6/17 30/6/17 30/6/17 30/6/17 30/6/17 30/6/17
1 $ per right $152.58 $152.58 $152.58 $152.58 Fair value VALUE MAXIMUM 267,893 356,487 210,332 346,826 440,134 258,147 346,826 276,061 223,586 283,610 152,207 246,707 313,048 186,006 385,324 450,007 167,919 246,707 313,048 197,186 GRANT 1,714,309 1,109,528 2,176,797 31 31 31 31 SHARE 32.22 32.22 32.22 32.22 32.22 32.65 32.22 32.22 rights 113.90 179.50 113.90 179.50 113.90 113.90 179.50 113.90 179.50 113.90 179.50 113.90 179.50 113.90 179.50 PRICE Number of 2 $ $
VALUE
233,295 292,915 164,636 302,034 361,645 202,063 302,034 216,085 194,710 233,034 119,139 214,846 257,223 145,595 335,560 369,757 148,736 214,846 257,223 154,346 868,476 GRANT FAIR TOTAL 1,492,909 1,788,611
Date 31/7/16 31/7/16 31/7/16 31/7/16 99.19 25.22 99.19 25.22 99.19 25.22 99.19 25.22 99.19 25.22 99.19 28.92 99.19 25.22 99.19 25.22 147.49 147.49 147.49 147.49 147.49 147.49 147.49 PER RIGHT VALUE FAIR
2,352 1,986 6,528 3,045 2,452 8,012 3,045 8,568 1,963 1,580 4,724 2,166 1,744 5,773 3,383 2,507 5,143 2,166 1,744 6,120 RIGHTS 15,051 34,436 12,127 NUMBER OF $ DATE 7/11/14 7/11/14 7/11/14 7/11/14 7/11/14 7/11/14 7/11/14 17/11/16 24/11/15 17/11/16 24/11/15 17/11/16 17/11/16 24/11/15 17/11/16 24/11/15 17/11/16 24/11/15 10/12/14 17/11/16 24/11/15 17/11/16 24/11/15
6
Executive . The value disclosed represents the underlying value of shares at the time of the underlying value of at multiplied by the number grant shares value disclosed represents The Act of2001. under s300A the Corporations ofDisclosure maximum value is required if not achieved. minimum value of is zero performance conditions are The awarded rights of individual. to each rights granted over FY17 grant over the vesting period (i.e. to remuneration amount is allocated This total value of is the fair value of the time of in the year The at rights granted the rights calculated grant. The total value of rights granted in the year is the fair value of the rights calculated at the time of grant. This amount is allocated to remuneration over the vesting period (i.e. FY17 grant over FY17 grant over the vesting period (i.e. to remuneration amount is allocated This total value of is the fair value of the time of in the year The at rights granted the rights calculated grant. 1 July 2016 to 31 July 2017). July 2016 to 31 1 vested in the FY17 year. nil rights that were There 1 July 2016 to 30 June 2019). July 2016 to 30 1 issued in September following audit clearance are number ofJune and shares The and the number of rights vested is equal to the number of issued; vesting occurs on 30 shares rights exercised approval. and Board results of the Group’s of of rights vested is equal to the fair value per right multiplied by the number Value vested rights date. exercise price at multiplied by the share is equal to the number of of rights exercised exercise rights at Value prior to completion of FY16 $2,176,797 and FY17 $1,714,309. the service period were resignation forfeited due to Ms Holgate’s rights which were fair value of share The Ms Holgate
Peter Osborne Peter
Henfrey Richard
David Fenlon
Cooper Cecile
Nathan Cheong Nathan
Canning Aaron
(b) Staff Share Plan Share (b) Staff NAME 1. 2.
Executives Senior Braun Lesley Director Executive Christine Holgate Share-based payments Share-based and Directors to Executive as compensation granted were that in the Company shares over ordinary table below outlines the rights The Payments. AASB 2 Share-based with accordance in fair value of is calculated The awards FY15. FY16 and FY17, during Senior Executives Plan (a) LTI Short-term Incentives Short-term achievement over prior year. NPAT being Group of financial measure respect was not achieved in Group potential award threshold The 2017 REMUNERATION REPORT No Executive Directors or Senior Executives were eligible for an STI payment for FY17 and 100% of maximum STI award was forfeited. payment for FY17 and 100% of award eligible for an STI maximum STI were or Senior Executives Directors No Executive NAME Senior Canning Aaron 1. Nathan Cheong Nathan Cooper Cecile Henfrey Richard 2. 3. 4. 5. 6.
BLACKMORES ANNUAL REPORT 2017 2017 REMUNERATION REPORT
7. EMPLOYMENT CONTRACTS The remuneration and other terms of employment are covered in employment contracts. No contract is for a fixed term.
TERMINATION Executive Directors’ and Senior Executives’ contracts can be terminated by Blackmores or the Senior Executive providing notice periods as shown in the following table:
Name Notice periods/Termination Payment
Christine Holgate1 Six months’ notice (or payment in lieu) including redundancy. May be terminated immediately for serious misconduct.
Senior Three months’ notice (or payment in lieu).3 Executives2 May be terminated immediately for serious misconduct.
Redundancy Payments
Years of continuous service Notice periods/Termination Payments.
Up to one year Two weeks’ pay.
Between one and 10 years Two weeks’ pay plus an additional three weeks of pay for each completed year of service.
10 years or more 29 weeks’ pay plus an additional three weeks of pay for each completed year of service following 10 years capped at a maximum of 52 weeks of pay.
1. For the purposes of calculating Christine Holgate’s payment, a month of pay is based on her total remuneration package at the time, being base salary, superannuation contributions and other benefits as agreed from time to time. 2. For the purposes of calculating the amount payable for all other Senior Executives, one week of pay is the average amount received by the individual as wages or salary over the four weeks of employment immediately preceding termination of employment. 3. David Fenlon has six months’ notice (or payment in lieu). 8. NON-EXECUTIVE DIRECTOR REMUNERATION Non-Executive Directors receive fixed annual fees comprising a Board fee, Committee fee and Committee Chair fee as applicable. No incentive-based payments are awarded to Non-Executive Directors. Blackmores makes superannuation contributions on behalf of Non-Executive Directors in accordance with statutory obligations and each Non-Executive Director may sacrifice their fees in return for additional superannuation contributions paid by Blackmores. Retirement allowances were accrued until 1 October 2003 for Non-Executive Directors appointed prior to this date. For Directors appointed prior to 1 October 2003, a retirement allowance applies of $15,333 per annum, which accrues each year but is capped after nine years of service at $138,000. No further retirement allowances have accrued to these individuals. Non-Executive Directors appointed after 1 October 2003 do not receive a retirement allowance. Shareholders at a meeting held on 29 October 2015 determined the maximum total Non-Executive Directors’ fees payable, including committee fees, to be $1,000,000 per year, to be distributed as the Board determines. Compensation arrangements for Non-Executive Directors are determined by Blackmores after reviewing published remuneration surveys and market information. The Company has grown significantly in size, scope and complexity over the past three years. As a result, salary and fee levels have needed to be adjusted and this has been undertaken in a staged approach over several years. The increases reported in the FY17 remuneration report are part of this staged process. In line with market capitalisation and following a review of relevant external benchmarks, base fees for Non-Executive Directors were increased in FY17 by 25.75% and committee fees by 0.42% effective 1 April 2017. Fees are below the 50th percentile of companies of comparable market capitalisation.
68 BLACKMORES ANNUAL REPORT 2017 69
- $ TOTAL 9,813 9,813 109,843 105,608 105,312 119,033 663,565 116,518 111,691 189,052 118,240 128,064
MEMBER 4 - - -
2016 $ $ 47,894 95,787 DEPUTY 9,170 9,170 8,337 9,738 9,689 9,689 CHAIRMAN 47,005 561,761 10,590 121,965 57,166 16,421 10,257 11,110 - - SUPERANNUATION 1 ------$
4,235 6,882 - 4,827 4,827 21,469 10,352 BENEFITS BENEFITS POST SHORT-TERM
EMPLOYMENT EMPLOYMENT EMPLOYMENT 1 MEMBER CHAIRMAN NON-MONETARY 2017 -
$ 16,356 16,425 9,855 16,356 16,425 9,855 96,438 96,438 86,623 239,615 120,450 493,287 102,413 111,375 601,572 102,002 102,002 107,983 116,954 172,631
FEES AND ALLOWANCES CHAIRMAN $ $ $ $
2,3
2,3 ‘Non-monetary’ includes benefits and any applicable fringe benefits tax. April 2015 to 30 November 2015. of Chapman was on an unpaid leave 14 Stephen absence from 2017. of 1 March Chapman was in the role Stephen Chairman from FY17 Non-Executive Directors’ fee levels are as at 1 April 2017, and the Chairman’s fees as at 1 March 2017. 1 March fees as at and the Chairman’s April 2017, 1 as at fee levels are Directors’ FY17 Non-Executive 2017. during FY16 and up to 1 March Director Chairman was an Executive fees payable. member fees with no additional committee double Board set at fees were Chairman’s 2017, 1 March Effective was vacated. Deputy Chairman role the 2017, 1 March Effective
Audit and Risk and Remuneration People Nomination 2016 Total 2017 2016 1. 2. 3. Armstrong John 2017 Chapman Stephen Directors Ansell Non-Executive David 2017
1. 2. 3. 4. for FY17 was $663,565 of Directors for the Board five Non-Executive remuneration Director total annual Non-Executive The Board (2016: $561,761). June 2017. ended 30 financial year for the of Directors the Non-Executive following table discloses the remuneration The 2016 Non-Executive Directors’ fees levels for FY17 include: fees levels Directors’ Non-Executive 2017 REMUNERATION REPORT FEES Helen Nash Wallace Helen 2017 Brent 2017 2017 2016 2016 2016 BLACKMORES ANNUAL REPORT 2017 2017 REMUNERATION REPORT
9. NON-EXECUTIVE DIRECTORS AND SENIOR EXECUTIVE TRANSACTIONS
EQUITY HOLDINGS During FY17 and FY16 there were no share options in existence. There have been no share options issued since the end of the financial year.
SHARES The table below outlines the fully paid ordinary shares of Blackmores Limited held by KMP.
FULLY PAID ORDINARY SHARES OF BLACKMORES LIMITED
RECEIVED ON BALANCE AT SETTLEMENT NET CHANGE BALANCE AT 2017 1/7/16 OF RIGHTS OTHER1 30/6/17 NUMBER NUMBER NUMBER NUMBER
Non-Executive Directors David Ansell 1,000 - - 1,000 John Armstrong - - 800 800 Stephen Chapman 20,028 - - 20,028 Helen Nash 1,000 - 487 1,487 Brent Wallace 12,302 - - 12,302 Executive Directors Marcus Blackmore 4,219,835 - - 4,219,835 Christine Holgate 45,002 - 1,000 46,002 Senior Executives Leslie Braun 7,855 - - 7,855 Aaron Canning 15,512 - 101 15,613 Nathan Cheong - - 94 94 Cecile Cooper 40,804 - 301 41,105 Richard Henfrey 7,547 - 94 7,641 Peter Osborne 190 - 400 590 Total 4,371,075 - 3,277 4,374,352 1. Includes shares issued under the Company’s Staff Share Plans. RIGHTS TO SHARES The table below outlines the rights to fully paid ordinary shares of Blackmores Limited held by KMP.
GRANTED AS BALANCE VESTED VESTED RIGHTS BALANCE COMPEN- NET OTHER BALANCE AS VESTED AT BUT NOT AND VESTED 2017 AS AT 1/7/16 SATION EXERCISED FORFEITED CHANGE AT 30/6/17 30/6/17 EXERCISABLE EXERCISABLE DURING YEAR NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER
Executive Director Christine Holgate 46,563 15,051 - (27,178) - 34,436 34,436 34,436 - 34,436 Senior Executives Lesley Braun 7,864 2,166 - - - 10,030 6,120 6,120 - 6,120 Aaron Canning 7,650 3,414 - - - 11,064 5,143 5,143 5,143 Nathan Cheong 7,517 2,197 - - - 9,714 5,773 5,773 - 5,773 Cecile Cooper 6,304 1,994 - - - 8,298 4,724 4,724 - 4,724 David Fenlon 8,568 3,045 - - - 11,613 8,568 8,568 - 8,568 Richard Henfrey 10,464 3,076 - - - 13,540 8,012 8,012 - 8,012 Peter Osborne 8,514 2,352 - - - 10,866 6,528 6,528 - 6,528
Total 103,444 33,295 - (27,178) - 109,561 79,304 79,304 - 79,304
70 BLACKMORES ANNUAL REPORT 2017 71
the receipt of dividends on their shareholdings, whether held privately or through related entities or through the employee share through entities or related or through whether held privately ofthe receipt on their shareholdings, dividends shareholders as all ordinary plans in the same manner terms and conditions of employment ofpurchases goods and services reimbursement. expense OTHER TRANSACTIONS WITH KEY MANAGEMENT WITH KEY TRANSACTIONS OTHER on the same basis as normal employee, are with KMP of the Group the year Limited and into during Blackmores entered Transactions length basis which include: on an arm’s and conditions and those dealings on the same terms supplier or customer relationship • • • • KMP. from was paid to or received No interest Act of made pursuant to s298(2) of with a Resolution 2001. the Directors the Corporations Signed in accordance On behalf of the Directors Chapman Stephen Chairman August 2017 29 in Sydney, Dated LOAN DISCLOSURES LOAN end of the during or at KMP (2016: $nil). the financial year from $100,000 due no loan balances exceeding were There 2017 REMUNERATION REPORT BLACKMORES ANNUAL REPORT 2017 AUDITOR’S INDEPENDENCE DECLARATION
72 BLACKMORES ANNUAL REPORT 2017 73 INDEPENDENT AUDITOR’S REPORT AUDITOR’S INDEPENDENT BLACKMORES ANNUAL REPORT 2017 INDEPENDENT AUDITOR’S REPORT
74 BLACKMORES ANNUAL REPORT 2017 75 INDEPENDENT AUDITOR’S REPORT AUDITOR’S INDEPENDENT BLACKMORES ANNUAL REPORT 2017 INDEPENDENT AUDITOR’S REPORT
76 BLACKMORES ANNUAL REPORT 2017 77
become due and payable; and due as and when they able to pay its debts will be the Company to believe that grounds reasonable are there opinion, in the Directors’ become as Standards, Reporting Financial with International in compliance are Statements Financial the attached opinion, in the Directors’ and Statements; in note 2 to the Financial stated Act 2001, with the Corporations in accordance are and notes thereto Statements Financial the attached opinion, in the Directors’ of and giving a true and fair view accounting standards including compliance with performance of the financial position and the Group; Act of2001. by s.295A the Corporations required declarations have been given the the Directors that: declare DECLARATION DIRECTORS’ Directors The (a) (b) (c) (d) Instrument Legislative ASIC Corporations is within the class of by the Company companies affected ofAt the date this declaration, creditor each to to the deed guarantees is party of company that each is such that deed of the nature guarantee The cross 2016/785. payment in full of with the deed of guarantee. any debt in accordance cross Dated in Sydney, 29 August 2017 August ASIC Class Order to which the and the companies the Company to believe that grounds reasonable are there opinion, In the Directors’ they are, or liabilities to which be able to meet any obligations as a group, will, Statements Financial as detailed in note 32 to the applies, 29 of subject by virtue the deed of guarantee. or may become, cross Act of made pursuant to s.295(5) of2001. with a resolution Directors the the Corporations Signed in accordance Sydney, On behalf of the Directors Chapman in Stephen Director Dated BLACKMORES ANNUAL REPORT 2017 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017
2017 2016 NOTES $’000 $’000
Sales (net of discounts) 5 692,790 717,211 Promotional and other rebates (143,547) (118,771) Other income 6 545 1,086 Revenue and other income 549,788 599,526 Raw materials and consumables used 236,184 214,263 Employee benefits expenses 7 120,209 134,933 Selling and marketing expenses 51,141 49,177 Depreciation and amortisation expenses 7 8,411 7,045 Operating lease rental expenses 7 7,942 4,496 Professional and consulting expenses 8,923 9,168 Repairs and maintenance expenses 5,172 4,683 Freight expenses 9,809 10,906 Bank charges 1,300 2,099 Other expenses 14,466 17,535 Total expenses 463,557 454,305 Earnings before interest and tax 86,231 145,221 Interest revenue 384 462 Interest expense 7 (4,564) (2,272) Net interest expense (4,180) (1,810) Profit before tax 82,051 143,411 Income tax expense 9.1 (24,023) (43,391) Profit after tax 58,028 100,020
Profit attributable to: Owners of the parent 59,013 100,008 Non-controlling interests (985) 12 58,028 100,020
Other comprehensive income
Items that may be reclassified subsequently to profit or loss: Exchange differences arising on translation of foreign controlled entities (1,922) (838) Net (loss)/gain on hedging instruments entered into for cash flow hedges, net of tax (39) 537 Other comprehensive income for the year, net of tax (1,961) (301)
Total comprehensive income for the year 56,067 99,719
Total comprehensive income attributable to: Owners of the parent 57,119 99,690 Non-controlling interests (1,052) 29 56,067 99,719
EARNINGS PER SHARE – Basic earnings per share (cents) 27 342.6 580.6 – Diluted earnings per share (cents) 27 340.1 576.2 Notes to the Consolidated Financial Statements are included on pages 82 to 117.
78 BLACKMORES ANNUAL REPORT 2017 79
9 628 $’000 7,588 1,134 3,655 5,252 2,330 5,849 2,160 3,960 29,371 70,490 37,653 55,446 37,753 67,626 12,257 10,255 24,204 32,736 180,593 443,362 192,279 180,593 178,263 134,636 116,486 160,478 262,769 135,258 294,624 148,738 2017 2016 235 $’000 7,471 2,160 1,320 4,111 1,372 4,085 1,278 4,831 9,960 1,811 78,968 37,753 34,251 32,293 10,224 11,549 90,799 84,794 29,461 74,207 178,819 142,556 178,819 132,146 233,355 153,512 412,174 177,541 124,365 135,703 258,662
19 21 23 15 26 25 20 16 17 33 9.2 9.2 35.1 NOTES
CAPITAL AND RESERVES CAPITAL 24 Reserves included on pages 82 to 117. are Statements Financial Notes to the Consolidated EQUITY Issued capital NON-CURRENT LIABILITIES NON-CURRENT liabilities Interest-bearing 22 Provisions LIABILITIES LIABILITIES CURRENT payables and other Trade 22 Provisions 18 Goodwill 14 Inventories ASSETS NON-CURRENT plant and equipment Property, ASSETS ASSETS CURRENT and cash equivalents Cash 13 Receivables AS AT 30 JUNE 2017 30 AT AS CONSOLIDATED STATEMENT OF STATEMENT FINANCIAL POSITION FINANCIAL interests to non-controlling Equity attributable Other assets tax assets Deferred Other liabilities liabilities Total Other liabilities tax liabilities Deferred earnings Retained Current tax liabilities Current Investment property Total equity Total Total current liabilities current Total Other assets Net assets Total current assets current Total Total non-current liabilities non-current Total Equity attributable to shareholders of Ltd to shareholders Blackmores Equity attributable Other intangible assets parties Amounts advanced to related
Total non-current assets non-current Total Total assets Total BLACKMORES ANNUAL REPORT 2017 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017
2017 2016 NOTES $’000 $’000
CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers 763,413 766,436 Payments to suppliers and employees (668,103) (643,414) Cash generated from operations 95,310 123,022 Interest and other costs of finance paid (5,897) (4,375) Income taxes paid (43,779) (34,971) Net cash flows from operating activities 35.3 45,634 83,676
CASH FLOWS FROM INVESTING ACTIVITIES Interest received 384 462 Net cash outflow on acquisition of subsidiaries - (22,661) Payments for property, plant and equipment and other intangible assets (14,567) (13,846) Amounts advanced to related parties (151) (3,960) Proceeds from disposal of property, plant and equipment 30 41 Dividends received 92 25 Net cash used in investing activities (14,212) (39,939)
CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from bank borrowings 23,727 11,357 Net proceeds from other borrowings 1,100 2,500 Dividends paid 28 (58,568) (57,704) Proceeds from issue of equity to non-controlling interests - 2,301 Net cash used in financing activities (33,741) (41,546)
Net increase in cash and cash equivalents (2,319) 2,191 Cash and cash equivalents at the beginning of the year 37,653 36,931 Effects of exchange rate changes on the balance of cash held in foreign currencies (1,083) (1,469) Cash and cash equivalents at the end of the year 35.1 34,251 37,653 Notes to the Consolidated Financial Statements are included on pages 82 to 117.
80 BLACKMORES ANNUAL REPORT 2017 81
- - 17 (56) Total 767 727 (230) (838) (301) $’000 3,362 2,301 (1,922) (1,961) 99,719 99,719 58,028 56,067 (57,704) (58,568) 132,915 100,020 180,593 178,819 178,819
------
12 17 17 29 (67) (67) Non- $’000 (985) 2,301 2,330 1,278 interest (1,052) controlling
- -
Ltd 17 (56) 767 727 (230) (855) (318) $’000 3,362 (1,855) (1,894) 99,690 59,013 57,119 (57,704) (58,568) 132,915 100,008 178,263 177,541 Attributable Blackmores to owners of to owners
------$’000 5,855 87,099 Retained 59,013 59,013 (57,704) (58,568) 100,008 100,008 135,258 135,703
------(855) (855) (855) $’000 (667) 2,043 1,188 (1,855) Foreign (1,855) (1,855) Reserve Earnings Currency
Translation Translation
------17 (56) (39) (39) 767 537 537 (913) (230) $’000 (376) (415) Reserve Hedging Cash Flow
------
727 $’000 6,933 3,362 4,440 5,167 (5,855) Reserve Benefits
Employee Equity-Settled
------
$’000 Issued Capital 37,753 37,753 37,753 July 2015 1 Balance as at FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017 YEAR ENDED 30 THE FINANCIAL FOR CONSOLIDATED STATEMENT OF STATEMENT CHANGES IN EQUITY CHANGES Notes to the Consolidated Financial Statements are included on pages 82 to 117. are Statements Financial Notes to the Consolidated Reclassification to retained earnings retained to Reclassification
Dividends declared
Profit for the period for the Profit Gain recognised on cash flow hedges Gain recognised
Income tax related to gain on cash flow hedges Income tax related Foreign currency translation of entities translation controlled currency Foreign Other comprehensive income for the year, net ofnet tax year, the for income comprehensive Other income for the year comprehensive Total Recognition of payments Recognition share-based Equity issued to holders of interests non-controlling Balance as at 30 June 2016 30 Balance as at Dividends declared
Profit for the period for the Profit Loss recognised on cash flow hedges recognised Loss Income tax related to loss on cash flow hedges Income tax related Foreign currency translation of entities translation controlled currency Foreign Other comprehensive income for the year, net of tax income for the year, Other comprehensive
income for the year comprehensive Total Recognition of payments Recognition share-based Balance as at 30 June 2017 30 Balance as at BLACKMORES ANNUAL REPORT 2017
NOTES NOTES TO THE FINANCIAL STATEMENTS –––– FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017
82 BLACKMORES ANNUAL REPORT 2017 83 Effective Interest Method Interest Effective Financial Assets Financial BASIS OF CONSOLIDATION EQUIVALENTS AND CASH CASH INSTRUMENTS FINANCIAL
has power over the investee; its involvement from to variable returns or has rights, is exposed, with the investee; and its returns. power to affect has the ability to use its 2.6.1.1 method is a method of the interest calculating effective The cost ofamortised a debt instrument and of interest allocating is the rate interest effective The period. income over the relevant (including cash receipts future discounts estimated exactly that rate of part form an integral that all fees on points paid or received costs and other premiums transaction rate, interest the effective or life of the expected or discounts) through the debt instrument, to the net carrying amount on period, a shorter appropriate) (where initial recognition. 2.6.1 classified into the following specified assets are Financial or loss’profit through at ‘fair value financial assets categories: (AFS) financial assets and ‘loans and ‘available-for-sale’ (FVTPL), and purpose depends on the nature classification The receivables’. ofat the time of the financial assets and is determined initial or sales of way purchases financial assetsAll regular recognition. Regular basis. date on a trade and derecognised recognised are or sales of purchases financial assets or sales are way purchases delivery of established by assets within the time frame require that or convention in the marketplace. regulation The Company is a company of the kind referred to in ASIC Classin to of is a company Company kind referred the The that with and in accordance July 1998, 10 dated 98/100, Order off to rounded are Statements in the Financial amounts Class Order unless otherwise indicated. thousand dollars, the nearest 2.4 the Financial incorporate Statements Financial Consolidated The of (including structured and entities Statements the Company is Control its subsidiaries. and by the Company entities) controlled achieved when the Company: • • • an investee if whether or not it controls reassesses Company The changes to one or are there that indicate facts and circumstances of elements of listed above. more the three control made to the Financial adjustments are necessary, Where ofStatements subsidiaries to bring their accounting policies into line with those used by other members of the Group. and expenses income, equity, assets and liabilities, All intragroup between members of to transactions relating the Group cash flows in full on consolidation. eliminated are 2.5 Cash is comprised of bank. Cash cash on hand and cash at are highly liquid investments that short-term, equivalents are subject which are to known amounts of convertible cash, readily to an insignificant risk of of in value and have a maturity changes are overdrafts Bank of the date months or less at acquisition. three liabilities in the Consolidated in current shown within borrowings of Position. Statement Financial 2.6 recognised when a assets and financial liabilities are Financial of provisions the to the contractual entity becomes a party Group instrument. at initially measured assets and financial liabilities are Financial to the attributable directly are costs that Transaction fair value. acquisition or issue of financial assets and financial liabilities (other at fair value through than financial assets and financial liabilities the fair value of added to or deducted from or loss) are profit on initial as appropriate, the financial assets or financial liabilities, to the acquisition attributable costs directly Transaction recognition. profit of or at fair value through financial assets or financial liabilities or loss. in profit immediately recognised loss are
POLICIES GENERAL INFORMATION GENERAL REPORTING ENTITY REPORTING OF COMPLIANCE STATEMENT BASIS OF PREPARATION SIGNIFICANT ACCOUNTING
The Financial Statements comprise the Consolidated Financial comprise the Consolidated Statements Financial The the purposes of the preparing For ofStatements the Group. entity. for-profit a is Company the Statements, Financial Consolidated Blackmores Limited (the Company) is a company domiciled in is a company domiciled Limited (the Company) Blackmores of Report) (Financial Report Financial Consolidated The Australia. June 2017 twelve months ended 30 and for the as at Blackmores and its subsidiaries (the Group). comprises Blackmores and of as at Report the Group Annual Financial Consolidated The the from June 2017 is available upon request ended 30 for the year Warriewood, Avenue, Jubilee at 20 of office Blackmores registered blackmores.com.au 2102 or online at NSW 2.2 Financial Purpose General are Statements Financial These with the in accordance been prepared which have Statements and Interpretations Accounting Standards Act 2001, Corporations of the law. and comply with other requirements 2 2.1 1 a public company listed on is Limited (the Company) Blackmores the symbol ‘BKL’), under (trading Securities Exchange Australian the Asia and New Australia, in and operating Australia in incorporated Zealand. and its principal place of office registered Limited’s Blackmores business is as follows: 20 Jubilee Avenue 2102 NSW Warriewood 5000 +61 2 9910 Telephone sales and activity is the development, principal Group’s The humans and animals including of for marketing products health nutritional supplements. herbal and mineral vitamins, NOTES TO THE FINANCIAL THE STATEMENTS FINANCIAL TO NOTES JUNE 2017 30 ENDED YEAR FINANCIAL THE FOR Accounting Standards include Australian Accounting Standards. Accounting Standards. Australian include Accounting Standards the that ensures Accounting Standards Australian with Compliance and notes of and the Group Statements the Company Financial (‘IFRS’). Standards Reporting Financial comply with International (IFRIC) Committee As a consequence of an IFRS Interpretation management has agenda decision issued in November 2016, tax a deferred amended its accounting policy to recognise of as part a businessliability on indefinite life intangibles acquired of in an increase $5.0 amendment resulted The combination. the beginning tax liabilities as at million to goodwill and deferred ofAn additional increase $4.3 period. of comparative the earliest as business combination Therapeutics to Global million related goodwill and June 2016, 30 as at Therefore, June 2016. 30 at by $9.3 million. tax liabilities increased deferred authorised for issue by the Directors were Statements Financial The August 2017. on 29 2.3 on the have been prepared Statements Financial Consolidated The assets and non-current for certain except basis of historical cost, revalued amounts or fairat measured are financial instruments that Historical in the following accounting policies. as explained values, based on the fair values of givencost is generally the consideration Australian in presented All amounts are for assets. in exchange unless otherwise noted. dollars, accounting policies and methods of in theThe computation are Statements of Financial the Consolidated preparation consistent with those adopted and disclosed in the Consolidated unless June 2016, ended 30 for the year Statements Financial otherwise stated. BLACKMORES ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017
2 SIGNIFICANT ACCOUNTING POLICIES (CONT.) Income is recognised on an effective interest basis for debt A financial liability is classified as held for trading if: instruments other than those financial assets classified as at FVTPL. • it has been acquired principally for the purpose of repurchasing 2.6.1.2 Financial Assets at FVTPL it in the near term; or Financial assets are classified as at FVTPL when the financial asset is • on initial recognition it is part of a portfolio of identified financial either held for trading or it is designated as at FVTPL. instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or A financial asset is classified as held for trading if: • it is a derivative that is not designated and effective as a • it has been acquired principally for the purpose of selling it in hedging instrument. the near term; or A financial liability other than a financial liability held for trading • on initial recognition it is part of a portfolio of identified financial may be designated as at FVTPL upon initial recognition if: instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or • such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise • it is a derivative that is not designated and effective as a arise; or hedging instrument. • the financial liability forms part of a group of financial assets A financial asset other than a financial asset held for trading may be or financial liabilities or both, which is managed and its designated as at FVTPL upon initial recognition if: performance is evaluated on a fair value basis, in accordance • such designation eliminates or significantly reduces a with the Group’s documented risk management or investment measurement or recognition inconsistency that would otherwise strategy, and information about the grouping is provided arise; or internally on that basis; or • the financial asset forms part of a group of financial assets • it forms part of a contract containing one or more embedded or financial liabilities or both, which is managed and its derivatives, and AASB 139 ‘Financial Instruments: Recognition performance is evaluated on a fair value basis, in accordance and Measurement’ permits the entire combined contract (asset with the Group’s documented risk management or investment or liability) to be designated as at FVTPL. strategy, and information about the grouping is provided Financial liabilities at FVTPL are stated at fair value, with any gains internally on that basis; or or losses arising on remeasurement recognised in profit or loss. • it forms part of a contract containing one or more embedded The net gain or loss recognised in profit or loss incorporates any derivatives, and AASB 139 ‘Financial Instruments: Recognition interest paid on the financial liability and is included in the ‘other and Measurement’ permits the entire combined contract (asset income’ line item in the Consolidated Statement of Profit or Loss or liability) to be designated as at FVTPL. and Other Comprehensive Income. Fair value is determined in the Financial assets at FVTPL are stated at fair value, with any gains manner described in note 36. or losses arising on remeasurement recognised in profit or loss. 2.6.2.5 Other Financial Liabilities The net gain or loss recognised in profit or loss incorporates any Other financial liabilities, including borrowings, are initially dividend or interest earned on the financial asset and is included measured at fair value, net of transaction costs. in the ‘other gains and losses’ line item in the statement of comprehensive income. Fair value is determined in the manner Other financial liabilities are subsequently measured at amortised described in note 36. cost using the effective interest method, with interest expense recognised on an effective yield basis. 2.6.1.3 Loans and Receivables The effective interest method is a method of calculating the Trade receivables, loans and other receivables that have fixed or amortised cost of a financial liability and of allocating interest determinable payments that are not quoted in an active market expense over the relevant period. The effective interest rate is the are classified as ‘loans and receivables’. Loans and receivables are rate that exactly discounts estimated future cash payments through measured at amortised cost using the effective interest method the expected life of the financial liability, or (where appropriate) a less impairment. Interest income is recognised by applying the shorter period, to the net carrying amount on initial recognition. effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. 2.6.3 Derivative Financial Instruments 2.6.2 Financial Liabilities and Equity Instruments The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate 2.6.2.1 Classification as Debt or Equity risk, including forward foreign exchange contracts and interest Debt and equity instruments are classified as either liabilities or rate swaps. Further details of derivative financial instruments are as equity in accordance with the substance of the contractual disclosed in note 36 to the Consolidated Financial Statements. arrangement. Derivatives are initially recognised at fair value on the date 2.6.2.2 Equity Instruments a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The resulting An equity instrument is any contract that evidences a residual gain or loss is recognised in profit or loss immediately unless the interest in the assets of an entity after deducting all of its liabilities. derivative is designated and effective as a hedging instrument, in Equity instruments issued by the Group are recorded at the which event, the timing of the recognition in profit or loss depends proceeds received, net of direct issue costs. on the nature of the hedge relationship. 2.6.2.3 Financial Liabilities 2.6.3.1 Hedge Accounting Financial liabilities are classified as either financial liabilities ‘at The Group designates certain hedging instruments, which include FVTPL’ or ‘other financial liabilities’. derivatives and non-derivatives in respect of foreign currency risk, 2.6.2.4 Financial Liabilities at FVTPL as either fair value hedges, cash flow hedges or hedges of net Financial liabilities are classified as at FVTPL when the financial investments in foreign operations. Hedges of foreign exchange risk liability is either held for trading or it is designated as at FVTPL. on firm commitments are accounted for as cash flow hedges. 84 BLACKMORES ANNUAL REPORT 2017 85
IMPAIRMENT OF NON-CURRENT ASSETS OF NON-CURRENT IMPAIRMENT BORROWING COSTS Buildings 25-40 years 3-13 years improvements Leasehold Plant and equipment 3-20 years Motor vehicles 4-5 years each asset over its expected useful life to its estimated residual useful life to its estimated asset over its expected each over the period depreciated are improvements Leasehold value. using the shorter, whichever is of useful life, estimated or the lease values residual useful lives, estimated The method. the straight-line the end of at annual each reviewed method are and depreciation of on a with the effect recognised any changes period, reporting basis. prospective upon plant and equipment is derecognised An item of property, expected to arise benefits are economic disposal or when no future gain or loss arising on theAny the continued use of from the asset. plant and equipment of item of an disposal or retirement property, and between the sales proceeds is determined as the difference or loss. the carrying amount of in profit is recognised the asset and useful following estimated The land is not depreciated. Freehold of used in the calculation depreciation: lives are • • • • 2.9 the reviews the Group period, At the end of reporting each carrying amounts of intangible assets to determine its tangible and those assets have suffered that is any indication whether there the recoverable If exists, any such indication an impairment loss. of to determine the extent amount of in order the asset is estimated the it is not possible to estimate Where the impairment loss (if any). the estimates the Group amount of an individual asset, recoverable amount of unit to which the asset the cash-generating recoverable basis of and consistent allocation a reasonable Where belongs. to individual also allocated assets are corporate can be identified, to the allocated are or otherwise they units, cash-generating and of units for which a reasonable smallest group cash generating basis can be identified. consistent allocation amount is the higher of less costs to sell andRecoverable fair value cash future the estimated In assessing value in use, value in use. discount value using a pre-tax discounted to their present flows are assessments of market of the time value current reflects that rate specific to the asset for which the estimatesmoney and the risks of cash flows have not been adjusted. future amount of unit) isIf an asset (or cash-generating the recoverable the carrying amount to be less than its carrying amount, estimated to its recoverable of unit) is reduced the asset (cash-generating in profit immediately An impairment loss is recognised amount. or loss. the carrying an impairment loss subsequently reverses, Where amount of unit) other than goodwill is the asset (or cash generating but so amount, of estimate its recoverable to the revised increased the carrying does not exceed carrying amount the increased that would have been determined had no impairment lossamount that unit) in prior for the asset (or cash-generating been recognised in of immediately reversal an impairment loss is recognised A years. or loss. profit 2.10 construction to the acquisition, attributable costs directly Borrowing necessarily assets that which are ofor production qualifying assets, a substantial period of for their intended usetake time to get ready until such time as the added to the cost of are those assets, or sale, for their intended use or sale. substantially ready assets are investment of on the temporary Investment income earned specific on qualifying assets is pending their expenditure borrowings All costs eligible for capitalisation. the borrowing deducted from or loss in the period in profit recognised costs are other borrowing incurred. in which they are SIGNIFICANT ACCOUNTING POLICIES (CONT.) POLICIES ACCOUNTING SIGNIFICANT INVENTORIES AND EQUIPMENT PLANT PROPERTY, Cash Flow Hedges Cash
Inventories are stated at the lower of cost and net realisable value. the lower of value. at stated cost and net realisable Inventories are of portion and variable fixed including an appropriate Costs, assigned to inventory on hand by the are expenses, overhead with class of particular to each inventory, method most appropriate realisable Net the majority being valued on a first-in-first-out basis. costs selling price less all estimated the estimated value represents of the sale. completion and costs necessary to make 2.8 in the course of construction for land, and associated Property, less any cost, is carried at purposes, or administrative production fees and, includes professional Cost impairment loss. recognised costs capitalised in accordance borrowing for qualifying assets, of these assets, Depreciation accounting policy. with the Group’s commences when the assets, on the same basis as other property for their intended use. ready assets are are improvements Plant and equipment and leasehold and impairment. depreciation cost less accumulated at measured includes Cost cost. at is stated in progress Construction to the acquisition or attributable is directly that expenditure construction of the item. plant and equipment, on property, is provided Depreciation is Depreciation land. buildings but excluding including freehold basis so as to write off the net cost of on a straight-line calculated 2.6.3.2 of portion changes in the fair value of effective that derivatives The recognised in cash flow hedges is and qualify as designated are under the heading income and accumulated other comprehensive to therelating The gain or loss ofreserve. cash flow hedging and is or loss, in profit immediately is recognised portion ineffective gains and losses’ line item. included in the ‘other income in other comprehensive recognised Amounts previously or loss in the to profit reclassified equity are in and accumulated in the or loss, in profit periods when the hedged item is recognised Other and Loss or of Statement ofline Profit same Consolidated the However, hedged item. Income as the recognised Comprehensive in the recognition results transaction when the hedged forecast the gains and of liability, a non-financial asset or a non-financial income and in other comprehensive recognised losses previously and included equity from transferred are in equity accumulated of the cost ofin the initial measurement the non-financial asset or nonfinancial liability. the revokes Hedge accounting is discontinued when the Group or expires when the hedging instrument hedging relationship, or when it no longer qualifies or exercised, terminated, is sold, in otherAny gain or loss recognised for hedge accounting. time that in equity at income and accumulated comprehensive is transaction when the forecast in equity and is recognised remains transaction When a forecast or loss. in profit recognised ultimately in the gain or loss accumulated to occur, is no longer expected or loss. in profit immediately equity is recognised 2.7 2 the entity documentsAt the inception of the hedge relationship the hedged between the hedging instrument and the relationship objectives and its strategy along with its risk management item, the at Furthermore, transactions. various hedge for undertaking the Groupinception of the hedge and on an ongoing basis, in hedging instrument is highly effective documents whether the flows of changes in fair values or cash the hedged itemoffsetting to the hedged risk. attributable ofNote 36 sets out details the fair values of derivative the Movements in the hedge purposes. instruments used for hedging of Statement Consolidated also detailed in the in equity are reserve Changes in Equity. NOTES TO THE FINANCIAL THE STATEMENTS FINANCIAL TO NOTES JUNE 2017 30 ENDED YEAR FINANCIAL THE FOR BLACKMORES ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017
2 SIGNIFICANT ACCOUNTING POLICIES (CONT.)
2.11 LEASING • it is probable that the economic benefits associated with the Leases are classified as finance leases whenever the terms of the transaction will flow to the Group; and lease transfer substantially all the risks and rewards of ownership to • the costs incurred or expected to be incurred in respect of the the lessee. All other leases are classified as operating leases. transaction can be measured reliably. 2.11.1 The Group as Lessee Specifically, revenue from the sale of goods is recognised when goods are delivered and legal title is passed. Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another 2.14.2 Promotional and other rebates systematic basis is more representative of the time pattern in Recognition of rebates requires management to exercise significant which economic benefits from the leased asset are consumed. judgement with respect to the amount of the required accruals Contingent rentals arising under operating leases are recognised which are based on customers’ sales volumes for the period as well as an expense in the period in which they are incurred. as growth and/or contributions by customers towards promotional 2.12 PROVISIONS activities (known as case deals). Provisions are recognised when the Group has a present obligation 2.14.3 Dividend and Interest Income (legal or constructive) as a result of a past event, it is probable that Dividend income from investments is recognised when the Group’s the Group will be required to settle the obligation, and a reliable right to receive payment has been established (provided that it is estimate can be made of the amount of the obligation. probable that the economic benefits will flow to the Group and the The amount recognised as a provision is the best estimate of the amount of income can be measured reliably). consideration required to settle the present obligation at the end of Interest income from a financial asset is recognised when it is the reporting period, taking into account the risks and uncertainties probable that the economic benefits will flow to the Group and the surrounding the obligation. Where a provision is measured using amount of revenue can be measured reliably. Interest income is the cash flows estimated to settle the present obligation, its accrued on a time basis, by reference to the principal outstanding carrying amount is the present value of those cash flows (where the and at the effective interest rate applicable, which is the rate that effect of the time value of money is material). exactly discounts estimated future cash receipts through the When some or all of the economic benefits required to settle a expected life of the financial asset to that asset’s net carrying provision are expected to be recovered from a third party, the amount on initial recognition. receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable 2.14.4 Government Grants can be measured reliably. Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching 2.12.1 Onerous Contracts to them and that the grants will be received. Government grants Present obligations arising under onerous contracts are recognised are recognised in profit or loss on a systematic basis over the and measured as provisions. An onerous contract is considered to periods in which the Group recognises as expenses the related exist where the Group has a contract under which the unavoidable costs for which the grants are intended to compensate. cost of meeting the obligations under the contract exceeds the economic benefits estimated to be received from the contract. 2.15 FOREIGN CURRENCIES 2.15.1 Individual Controlled Entities 2.13 EMPLOYEE BENEFITS The individual Financial Statements of each Group entity are A liability is recognised for benefits accruing to employees in presented in the currency of the primary economic environment in respect of wages and salaries, annual leave and long service leave which the entity operates (its functional currency). For the purpose when it is probable that settlement will be required and they are of the Consolidated Financial Statements, the financial results and capable of being measured reliably. financial position of each Group entity are expressed in Australian Liabilities recognised in respect of short-term employee benefits Dollars (‘$’), which is the functional currency of the Company, are measured at their nominal values using the remuneration rate and the presentation currency for the Consolidated Financial expected to apply at the time of settlement. Statements. Liabilities recognised in respect of long-term employee benefits 2.15.2 Foreign Currency Transactions are measured as the present value of the estimated future cash In preparing the Financial Statements of the individual entities, outflows to be made by the Group in respect of services provided transactions in currencies other than the entity’s functional by employees up to reporting date. currency (foreign currencies) are recognised at the rates of 2.14 REVENUE RECOGNITION exchange prevailing on the dates of the transactions. At the end Revenue is measured at the fair value of the consideration received of each reporting period, monetary items denominated in foreign or receivable. Revenue is reduced for estimated customer returns. currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in 2.14.1 Sale of Goods foreign currencies are retranslated at the rates prevailing on the Revenue from the sale of goods is recognised when all the date when the fair value was determined. Non-monetary items that following conditions are satisfied: are measured in terms of historical cost in a foreign currency are not retranslated. • the Group has transferred to the buyer the significant risks and rewards of ownership of the goods; 2.15.3 Foreign Operations • the Group retains neither continuing managerial involvement For the purpose of presenting Consolidated Financial Statements, to the degree usually associated with ownership nor effective the assets and liabilities of the Group’s foreign operations are control over the goods sold; translated at exchange rates prevailing at the end of the reporting • the amount of the revenue can be measured reliably; period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate
86 BLACKMORES ANNUAL REPORT 2017 87 INVESTMENT PROPERTY INVESTMENT Current and Deferred Tax for the Year for the Tax and Deferred Current 2.18.3 or loss, in profit recognised tax are and deferred Current in other recognised are that to items when they relate except in which case in equity, income or directly comprehensive in other also recognised tax are and deferred the current Where respectively. in equity, income or directly comprehensive the initial accounting for a tax arises from tax or deferred current in the accounting is included the tax effect business combination, for the business combination. 2.19 and/ rentals held to earn which is property Investment property, including its cost, initially at is measured or for capital appreciation investment Subsequent to initial recognition, costs. transaction Investment on a cost basis. will continue to be measured property applicable. where will be depreciated property including on investment property, is provided Depreciation is calculated Depreciation land. buildings but excluding freehold basis so as to write off the net cost ofon a straight-line asset each The value. residual useful life to its estimated over its expected method are values and depreciation residual useful lives, estimated with the effect period, the end of at annual reporting each reviewed basis. of on a prospective any changes recognised upon disposal or when is derecognised An investment property use and from is permanently withdrawn the investment property Any the disposal. expected from economic benefits are no future as (calculated of gain or loss arising on derecognition the property and the carrying between the net disposal proceeds the difference amount of or loss in the period in the asset) is included in profit is derecognised. which the property be available against which those deductible temporary differences differences those deductible temporary be available against which not are tax assets and liabilities Such deferred can be utilised. goodwill or from arises if difference recognised temporary the a business combination) (other than in the initial recognition from neither theof affects that and liabilities in a transaction other assets profit. nor the accounting taxable profit temporary for taxable recognised tax liabilities are Deferred with investments in subsidiaries and associated differences the Group where except in joint ventures, and interests associates, and it of difference the reversal the temporary is able to control in the will not reverse difference the temporary that is probable deductible tax assets arising from Deferred future. foreseeable with such investments and associated differences temporary that probable it is that to the extent only recognised are interests against which to utilise the taxable profits will be sufficient there expected to and they are benefits of differences the temporary future. in the foreseeable reverse the end at carrying amount of reviewed tax assets is The deferred it is no that to the extent period and reduced of reporting each will be available profits taxable to sufficient that longer probable ofallow all or part the asset to be recovered. that the tax rates at measured tax assets and liabilities are Deferred to apply in the period in which the liability is settled expected are have that (and tax laws) based on tax rates or the asset realised, end ofbeen enacted or substantively enacted by the the reporting of tax liabilities and assets measurement deferred The period. the manner would follow from the tax consequences that reflects to period, the end of at the reporting expects, in which the Group the carrying amount of or settle and liabilities. its assets recover is a legally when there offset tax assets and liabilities are Deferred tax tax assets against current right to set off current enforceable levied by the same to income taxes liabilities and when they relate tax its current intends to settle the Group authority and taxation assets and liabilities on a net basis. SIGNIFICANT ACCOUNTING POLICIES (CONT.) POLICIES ACCOUNTING SIGNIFICANT TAXATION GOODS AND SERVICE TAX AND SERVICE GOODS SHARE-BASED PAYMENTS Deferred Tax Deferred Current Tax Current
where the amount of GST incurred is not recoverable from is not recoverable incurred the amount ofwhere GST of as part of the cost it is recognised authority, the taxation acquisition of of an asset or as part an item of or expense; inclusive of recognised and payables which are for receivables GST. 2.18.2 between differences on temporary tax is recognised Deferred the carrying amounts of assets and liabilities in the Consolidated tax bases used in the and the corresponding Statements Financial generally tax liabilities are Deferred ofcomputation taxable profit. tax Deferred differences. for all taxable temporary recognised for all deductible temporary recognised generally assets are will taxable profits that it is probable that to the extent differences Income tax expense represents the sum of payable the tax currently represents Income tax expense tax. and the movement in deferred for the payable is based on taxable profit tax currently The reported year as the for profit from differs profit Taxable year. Loss and Other or of Statement Profit in the Consolidated Income because of items ofComprehensive income or expense are and items that is taxable or deductible in other years that tax is liability for current Group’s The never taxable or deductible. have been enacted or substantively that using tax rates calculated period. enacted by the end of the reporting 2.18 2.18.1 Cash flows are included in the Consolidated Statement ofCash FlowsStatement Consolidated included in the flows are Cash component of cash flows arising from GST The basis. on a gross or payable from, recoverable investing and financing activities which is cash flows. authority is classified within operating the taxation to, For cash-settled share-based payments, a liability is recognised for is recognised a liability payments, share-based cash-settled For the fair value initially at measured the goods or services acquired, period until the liabilityAt the end of reporting each of the liability. the fair value of of the liability the date and at settlement, is settled, or in profit with any changes in fair value recognised is remeasured, loss for the year. 2.17 net of recognised the amount and assets are expenses Revenues, except: of goods and services tax (GST), • • the or payable to, from, recoverable net amount ofThe GST of or payables. authority is included as part taxation receivables The fair value determined at the grant date of date share- grant the the equity-settled fair value determined at The the vesting basis over on a straight-line based payments is expensed of estimate equity based on the Group’s and holding lock periods, increase vest with a corresponding will eventually instruments that its revises the Group period, At the end of reporting each in equity. The ofestimate the number of to vest. expected equity instruments in is recognised ifimpact of of any, the revision the original estimates, with corresponding remaining vesting period, or loss over the profit reserve. employee benefits adjustment to the equity-settled Equity-settled share-based payments to employees and others payments share-based Equity-settled the fair value of at the measured similar services are providing by use value is measured Fair date. the grant equity instrument at the model has life used in expected The of model. a binomial for the estimate, best based on management’s been adjusted, and behavioural restrictions exercise ofeffects non-transferability, considerations. 2 ofat the dates therates exchange in which case the significantly, are if any, arising, differences Exchange used. are transactions in and accumulated income in other comprehensive recognised as appropriate). interests to non-controlling equity (attributed 2.16 NOTES TO THE FINANCIAL THE STATEMENTS FINANCIAL TO NOTES JUNE 2017 30 ENDED YEAR FINANCIAL THE FOR BLACKMORES ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017
2 SIGNIFICANT ACCOUNTING POLICIES (CONT.)
2.20 INTANGIBLE ASSETS 2.21 BUSINESS COMBINATIONS 2.20.1 Intangible Assets Acquired Separately Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination Intangible assets with finite lives acquired separately are carried at is measured at fair value which is calculated as the sum of the cost less accumulated amortisation and accumulated impairment acquisition-date fair values of assets transferred by the Group, losses. Amortisation is recognised on a straight-line basis over their liabilities incurred by the Group to the former owners of the acquire estimated useful lives. The estimated useful life and amortisation and the equity instruments issued by the Group in exchange for method are reviewed at the end of each reporting period, with control of the acquiree. Acquisition-related costs are recognised in the effect of any changes in estimate being accounted for on a profit or loss as incurred. prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated Goodwill is measured as the excess of the sum of the consideration impairment losses. transferred over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after 2.20.2 Internally-generated Intangible Assets reassessment, the net of the acquisition-date amounts of the 2.20.2.1 Research and Development Expenditure identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling Expenditure on research activities is recognised as an expense in interests in the acquiree and the fair value of the acquirer’s the period in which it is incurred. previously held interest in the acquiree (if any), the excess is An internally-generated intangible asset arising from development recognised immediately in profit or loss as a bargain purchase gain. (or from the development phase of an internal project) is Where the consideration transferred by the Group in a recognised if, and only if, all of the following have been business combination includes assets or liabilities resulting demonstrated: from a contingent consideration arrangement, the contingent • the technical feasibility of completing the intangible asset so consideration is measured at its acquisition-date fair value, with that it will be available for use or sale; corresponding adjustments against goodwill. Measurement period • the intention to complete the intangible asset and use or sell it; adjustments are adjustments that arise from additional information • the ability to use or sell the intangible asset; obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances • how the intangible asset will generate probable future that existed at the acquisition date. economic benefits; The subsequent accounting for changes in the fair value of • the availability of adequate technical, financial and other contingent consideration that do not qualify as measurement resources to complete the development and to use or sell the period adjustments depends on how the contingent consideration intangible asset; and is classified. Contingent consideration that is classified as equity is • the ability to measure reliably the expenditure attributable to not remeasured at subsequent reporting dates and its subsequent the intangible asset during its development. settlement is accounted for within equity. Contingent consideration Subsequent to initial recognition, internally-generated intangible that is classified as an asset or liability is remeasured at subsequent assets are reported at cost less accumulated amortisation and reporting dates in accordance with AASB 139, or AASB 137 accumulated impairment losses, on the same basis as intangible ‘Provisions, Contingent Liabilities and Contingent Assets’, as assets that are acquired separately. appropriate, with the corresponding gain or loss being recognised in profit or loss. Brand names recognised by the Company have an indefinite useful life and are not amortised. Each period, the useful life of this asset is 2.22 GOODWILL reviewed to determine whether events and circumstances continue Goodwill arising on an acquisition of a business is carried at cost as to support an indefinite useful life assessment for the asset. Such established at the date of the acquisition of the business (see note assets are tested for impairment in accordance with the policy 2.21 above) less accumulated impairment losses, if any. stated in note 2.9. For the purposes of impairment testing, goodwill is allocated 2.20.2.2 Website Development Expenditure to each of the Group’s cash-generating units (or groups of cash Website development expenditure is recognised as an intangible generating units) that is expected to benefit from the synergies of asset to the extent that the above recognition criteria is met and the combination. the website will generate probable future economic benefits. A cash-generating unit to which goodwill has been allocated is Otherwise, it is expensed as incurred. tested for impairment annually, or more frequently when there is 2.20.3 Intangible Assets Acquired in a Business Combination indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the Intangible assets acquired in a business combination and impairment loss is allocated first to reduce the carrying amount of recognised separately from goodwill are initially recognised at their any goodwill allocated to the unit and then to the other assets of the fair value at the acquisition date (which is regarded as their cost). unit pro rata based on the carrying amount of each asset in the unit. Subsequent to initial recognition, intangible assets acquired in 2.23 INTERESTS IN JOINT OPERATIONS a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same A joint operation is a joint arrangement whereby the parties that basis as intangible assets that are acquired separately. have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. 2.20.4 Derecognition of Intangible Assets Joint control is the contractually agreed sharing of control of an An intangible asset is derecognised on disposal, or when no future arrangement, which exists only when decisions about the relevant economic benefits are expected from use or disposal. Gains or activities require unanimous consent of the parties sharing control. losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset are recognised in profit or loss when the asset is derecognised. 88 BLACKMORES ANNUAL REPORT 2017 89
Expected to be initially applied in the financial year ending 30 June 2019 30 June 2020 30 June 2018 30 June 2018 30 June 2019 1 January 1 January 2018 Effective for annualEffective periods beginning on or after 1 January 1 January 2019 1 January 1 January 2017 1 January 1 January 2017 1 January 1 January 2018 APPLICATION OF NEW AND REVISED ACCOUNTING STANDARDS ACCOUNTING AND REVISED OF NEW APPLICATION SIGNIFICANT ACCOUNTING POLICIES (CONT.) POLICIES ACCOUNTING SIGNIFICANT STANDARDS AND INTERPRETATIONS AFFECTING AMOUNTS REPORTED IN THE CURRENT PERIOD THE CURRENT IN AMOUNTS REPORTED AFFECTING AND INTERPRETATIONS STANDARDS (AND/OR PRIOR PERIODS) STATEMENTS THE FINANCIAL ON WITH NO EFFECT ADOPTED AND INTERPRETATIONS STANDARDS ADOPTED YET NOT IN ISSUE, AND INTERPRETATIONS STANDARDS
its assets, including its share of including its share assets held jointly; any its assets, of jointly; including its share any liabilities incurred its liabilities, the sale of of the joint operation; from its share the output arising from its revenue of the sale and of from the output by the joint operation; its share the revenue jointly. of incurred including its share any expenses its expenses, AASB 15 ‘Revenue from Contracts with Customers’, AASB 2014-5 ‘Amendments to AASB 2014-5 ‘Amendments with Customers’, Contracts from AASB 15 ‘Revenue to AASB 2015-8 ‘Amendments AASB 15’, arising from Accounting Standards Australian ofAASB 15’ date – Effective Accounting Standards Australian Standard/Interpretation AASB 16 ‘Leases’ AASB 2016-1 ‘Amendments to Australian Accounting Standards – Recognition of – Recognition Accounting Standards Australian to AASB 2016-1 ‘Amendments Losses’ Assets for Unrealised Tax Deferred AASB 2016-2 ‘Amendments to Australian Accounting Standards – Disclosure Initiative: – Disclosure Accounting Standards Australian to AASB 2016-2 ‘Amendments AASB 107’Amendments to AASB 9 ‘Financial Instruments’ AASB 9 ‘Financial Standards affecting presentation and disclosure presentation affecting Standards or disclosure. presentation affecting Statements in these Financial adopted and Interpretations Standards no new and/or revised are There position or financial results the reported affecting and Interpretations Standards results the reported affecting Statements in these Financial adopted and Interpretations Standards no new new and/or revised are There or financial position. 3.2 Statements. adopted in these Financial and Interpretations no new Standards are There 3.3 on issue but not yet effective. were of and Interpretations a number Standards ofAt the date of Statements, authorisation the Financial In the assessment of we have not quantified the impact. ofThe the date the impact of is ongoing and as at this report these standards in by the Group to impact the amounts reported most likely are on issue but not yet effective following Standards the opinion, Directors’ financial periods: future 3 3.1 2 in a to its interest in relation recognises as a joint operator the Group under joint operations, its activities entity undertakes When a Group joint operation: • • • • • with the in accordance in a joint operation to its interest relating and expenses revenues liabilities, accounts for the assets, Group The expenses. and revenues liabilities, assets, particular AASBs applicable to the NOTES TO THE FINANCIAL THE STATEMENTS FINANCIAL TO NOTES JUNE 2017 30 ENDED YEAR FINANCIAL THE FOR BLACKMORES ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017
4 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the accounting policies, which are described in note 2, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
4.1 PROMOTIONAL AND OTHER REBATES For the year ended 30 June 2017 the Group recognised promotional and other rebates of $143.5m (2016: $118.8m) which have been charged against sales revenue as disclosed in the Consolidated Statement of Profit and Loss and other Comprehensive Income. Accruals for promotional and other rebates as at 30 June 2017 are included within ‘Other creditors and accruals’ in note 19. Recognition of rebate accruals at balance date requires management to exercise significant judgement in respect of the amount of the required accruals which are based on customers’ sales volumes for the period as well as growth and/or contributions by customers towards promotional activities (known as case deals).
4.2 INVENTORY Inventories are stated at the lower of cost and net realisable value. The Directors assess slow moving or obsolete inventory on a regular basis and a provision is raised to write down inventory to net realisable value as described in note 2.7. As at 30 June 2017 the Group has a provision of $14.1m (2016: $2.1m), against total inventories of $98.9m (2016: $118.6m) as disclosed in note 14. Significant judgement is required in estimating the value of slow moving and potentially obsolete items, some of which have a limited shelf life. Furthermore, there is uncertainty over changes in consumer preferences and spending patterns, which are primarily driven by wider trends in the wellness sector which may impact inventory provisioning requirements. There is a recoverability risk associated with new product launches and significant judgement is required in forecasting demand, including the possible change in demand between the time the inventory order is placed with the supplier and the ultimate date of sale.
4.3 IMPAIRMENT OF GOODWILL Determining whether goodwill is impaired requires an estimation of the value in use of the cash generating unit to which goodwill has been allocated. The value in use calculation requires the directors to estimate the future cash flows expected to arise from the cash- generating unit and a suitable discount rate in order to calculate present value. The carrying amount of goodwill at 30 June 2017 was $29.4m (30 June 2016: $29.4m).
90 BLACKMORES ANNUAL REPORT 2017 91
25 41 358 565 410 777 $’000 1,086 3,027 6,480 2,877 1,020 1,085 7,045 6,280 4,496 2,272 3,362 10,200 717,211 125,291 134,933
92 30 30 614 - 2017 2016 545 423 510 111 781 $’000 7,901 3,592 1,816 6,632 8,411 7,942 4,564 2,554 1,899 17,917 549,243 598,440 692,790 (143,547) (118,771) 112,182 120,209
PROFIT PROFIT FOR THE YEAR INCOME OTHER
REVENUE Interest on bank loans Interest Net settlement of interest rate swaps of rate Net settlement interest Defined contribution plans Bank margin activation and undrawn facility fees and undrawn activation Bank margin Equity-settled share-based payments share-based Equity-settled Cash-settled share-based payments share-based Cash-settled Profit for the year has been arrived at after charging: at after has been arrived year for the Profit expense Interest for stock obsolescence Provision losses exchange Net foreign on disposal of assets Loss non-current Depreciation of assets non-current Depreciation as incurred and development costs expensed Research
7 Sale of goods (net of discounts) Revenue 6 5 NOTES TO THE FINANCIAL THE STATEMENTS FINANCIAL TO NOTES JUNE 2017 30 ENDED YEAR FINANCIAL THE FOR
Government grant
Employee benefits expense Employee benefits Amortisation of assets Amortisation non-current and other rebates Promotional Dividends received
Post-employment benefits: Post-employment expense and amortisation depreciation Total Proceeds from the disposal of assets from fixed Proceeds
Operating lease minimum payments lease Operating payments: Share-based expense interest Total
Other employee benefits
BLACKMORES ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017
8 SEGMENT INFORMATION Information reported to the Group’s Chief Operating Decision Maker for the purposes of resource allocation and assessment of segment performance is largely focused on geographical regions. The Group’s reportable segments under AASB 8 are therefore as follows: ANZ (Australia and New Zealand) China (In country and China Export Division) Other Asia BioCeuticals Group Other Corporate Costs The principal activity of each segment is the development and/or marketing of health products including vitamins, herbal and mineral nutritional supplements. The accounting policies of the reportable segments are the same as the Group’s accounting policies.
SEGMENT REVENUES The following is an analysis of the Group’s revenue from continuing operations by reportable segment:
2017 2016 $’000 $’000
ANZ1 371,962 481,967 China (In country and China Export Division) 132,091 77,291 Other Asia2 84,384 81,360 BioCeuticals Group3 102,311 72,267 Other4 2,042 4,326 Total Segment Revenue5 692,790 717,211 The Group had one customer (2016: one) who contributed more than 10% of the Group’s revenue in the year. Included in external sales of the Australian segment of $371,962 thousand (2016: $481,967 thousand) are sales of $162,103 thousand (2016: $183,875 thousand) which arose from sales to the Group’s largest customer.
1. ANZ segment revenue also includes Pure Animal Wellbeing and the benefit of sales made to Australian and New Zealand customers which we believe are ultimately intended for Asian Markets. 2. Other Asia comprises the markets of Thailand, Malaysia, Singapore, Hong Kong, Taiwan, Korea, Indonesia, Kazakhstan and Cambodia. 3. BioCeuticals Group comprises FIT-BioCeuticals Ltd and Global Therapeutics Pty Ltd. 4. Other comprises Bemore Partnership. 5. Excludes interest revenue and other income.
SEGMENT RESULTS The following is an anlaysis of the Group’s EBIT results from continuing operations by reportable segment:
2017 2016 $’000 $’000
ANZ 62,912 117,046 China (In country and China Export Division) 27,904 25,753 Other Asia 895 2,310 BioCeuticals Group 14,316 9,951 Other (6,965) (818) Corporate Costs (12,831) (9,021) Earnings before interest and tax 86,231 145,221 Segment profit represents EBIT earned by each segment. This is the measure reported to the Chief Operating Decision Maker for the purposes of resource allocation and assessment of segment performance.
92 BLACKMORES ANNUAL REPORT 2017 93
523 643 957 789 788 (146) (362) (735) (181) $’000 (4,727) (1,265) 43,391 43,391 42,748 43,023 47,475 143,411
(4) 2017 2016 288 844 155 (968) $’000 (124) (290) (162) 1,086 (3,092) (1,541) 27,239 24,147 82,051 24,615 24,023 24,023
TAXES INCOME LOSS OR IN PROFIT RECOGNISED TAX INCOME
entities on corporate ofAustralian tax rate 30% payable by above is the corporate 2016 reconciliations used for the 2017 and tax rate The tax law. Australian under taxable profits Income tax expense calculated at 30% at calculated Income tax expense in determining taxable profit not deductible of are that Effect expenses Total income tax expense recognised in the current year relating to continuing operations to continuing operations relating year in the current recognised income tax expense Total to the income taxreconciles accounting profit on pre-tax prima facie income tax expense The as follows: Statements Financial in the Consolidated expense tax: Deferred reversal of differences and temporary to the origination relating tax benefit Deferred tax before Profit 9 9.1 NOTES TO THE FINANCIAL THE STATEMENTS FINANCIAL TO NOTES JUNE 2017 30 ENDED YEAR FINANCIAL THE FOR Current tax: Current (Over)/under provision of year (Over)/under provision income tax in previous Adjustments recognised in the current year in relation to the deferred tax of deferred to the prior years in relation year in the current Adjustments recognised Effect ofEffect tax concessions Current tax expense in respect of the current year of year in respect expense the current tax Current Income tax expense recognised in profit or loss in profit recognised Income tax expense Effect of dividend Effect withholding tax on intercompany Adjustments recognised in the current year in relation to the current tax of current to the prior years in relation year in the current Adjustments recognised Effect of Effect tax losses recognised Effect of Effect tax losses not recognised Rate differential on overseas operations operations on overseas differential Rate Other items BLACKMORES ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017
9 INCOME TAXES (CONT.) 9.2 DEFERRED TAX BALANCES Deferred tax assets arise from the following:
CURRENT YEAR CURRENT YEAR MOVEMENT FILING MOVEMENT RECOGNISED DIFFERENCES RECOGNISED IN OTHER RECOGNISED OPENING IN PROFIT COMPREHENSIVE IN PROFIT CLOSING BALANCE OR LOSS INCOME OR LOSS ACQUISITIONS BALANCE $’000 $’000 $’000 $’000 $’000 $’000
Temporary differences 2017 Property, plant and equipment (69) 16 - 21 - (32) Prepayments and other (62) 165 - - - 103 Provisions 3,820 (10) - (273) - 3,537 Accruals 6,638 (3,595) - 262 - 3,305 Cash flow hedges 163 - (17) - - 146 Foreign currency monetary items (351) (191) - - - (542) Capitalised expenses (4) (20) - 4 - (20) Indefinite life intangible assets (9,339) - - - - (9,339) Other 1,205 543 - 830 - 2,578 2,002 (3,092) (17) 844 - (264)
Presented in the Consolidated Statement of Financial Position as follows: Deferred tax asset 9,960 Deferred tax liability (10,224) (264) Temporary differences 2016 Property, plant and equipment (10) 20 - (79) - (69) Prepayments and other (114) 52 - - - (62) Provisions 4,579 (930) - 69 102 3,820 Accruals 2,033 4,085 - 435 85 6,638 Cash flow hedges 393 - (230) - - 163 Foreign currency monetary items (475) 98 - 26 - (351) Capitalised expenses 32 (3) - (33) - (4) Tax losses recognised 12 (12) - - - - Indefinite life intangable assets (5,001) - - - (4,338) (9,339) Other 61 1,417 - (272) - 1,205 510 4,727 (230) 146 (4,151) 2,002
Presented in the Consolidated Statement of Financial Position as follows: Deferred tax asset 12,257 Deferred tax liability (10,255) 2,002 UNRECOGNISED DEFERRED TAX ASSETS
2017 2016 $’000 $’000
The following deferred tax assets have not been brought to account as assets: Tax losses - capital (no expiry date) 1,230 1,230 Tax losses - revenue (expiry: 2017) - 34 Tax losses - revenue (expiry: 2018) 15 67 Tax losses - revenue (expiry: 2019) 69 120 Tax losses - revenue (expiry: 2020) 122 147 Tax losses - revenue (expiry: 2021) 29 572 Tax losses - revenue (expiry: 2022) 487 - Tax losses - revenue (expiry: 2023) - - Tax losses - revenue (expiry: 2024) - - Tax losses - revenue (expiry: 2025) - - Tax losses - revenue (expiry: 2026) 127 - Tax losses - revenue (expiry: 2027) 186 - Tax losses - revenue (no expiry date) - - 2,265 2,170
94 BLACKMORES ANNUAL REPORT 2017 95
$ $
$ N/A PRICE 99.19 147.49 AVERAGE EXERCISE WEIGHTED GRANT DATE 11,114,431 FAIR VALUE AT VALUE FAIR
$ - - - N/A N/A 2017 2016 PRICE 63,945 86,547 157,999 227,479 226,097 960,764 2,026,265 117,326 EXERCISE 157,999 OF RIGHTS 4,824,831 8,775,522 6,077,019
N/A DATE PRICE VESTING AVERAGE EXERCISE NUMBER WEIGHTED 30 Jun 2018 30 30 Jun 2019 30 2017 2016 - -
DATE GRANT 51,851 40,673 175,463 175,463 (34,387) OF RIGHTS 157,999 25 Nov 2015 17 Nov 2016
40,673 51,851 NUMBER OF RIGHTS NUMBER
YEAR YEAR 2016 2017 THE THE COMPENSATION PERSONNEL MANAGEMENT KEY PAYMENTS SHARE-BASED
IN IN 10 NOTES TO THE FINANCIAL THE STATEMENTS FINANCIAL TO NOTES JUNE 2017 30 ENDED YEAR FINANCIAL THE FOR The allocation is based on a percentage of the Senior Executive’s and Senior Manager’s base remuneration and the allocation varies and the allocation base remuneration and Senior Manager’s of is based on a percentage the Senior Executive’s allocation The as follows: year for the relevant delivered depending on the actual EPS growth issued in September of subsequently following audit year are that and shares grant after years June three 30 vested at rights are Share will be determined in in the 2017 financial year rights granted issue price for share The approval. and Board result ofclearance the Group’s September 2019. Balance at the beginning ofBalance at the year GRANTS Granted the beginning and end of outstanding at arrangements the year: the share-based following reconciles The Granted benefits Post-employment Other long-term benefits payments Share-based periods: and prior reporting the current during in existence were payment arrangements following share-based The SHARE RIGHTS SERIES 11 Option Plan and Employee Share Executive is open to Participation Meeting in October 2016. Annual General Blackmores’ at Plan was approved Share Performance Executive The annually to granted are Company in the shares rights to acquire Under this plan, Board. determined to be eligible by the Senior Executives met. are specific performance hurdles no cost and vest provided at eligible Senior Executives Executive Under the Company Payments’. AASB 2 ‘Share-based with fair value of in accordance is calculated The rights granted specific provided of shares to an allocation entitlements granted ordinary the Company during the year Plan, Share Performance If theJune 2019. ending 30 July 2016 to the year period commencing 1 year met over the three are performance objectives and hurdles number of the minimum is could be vested under the entitlement rights that met, are performance and employment vesting conditions applied to these dates grant Several of6,481 (2016: 6,780) and the maximum number could be vested is 51,851 (2016: 40,673). rights that number of the following fair values applied to the rights; as a result rights listed below. Short-term employee benefits Short-term of and a discussion of of policies the Group compensation the the of compensation Management Personnel member of each The the Key Statements. Financial Consolidated which accompany these Report and Remuneration Report detailed in the Directors’ are Company The aggregate compensation made to Key Management Personnel of the Group and the Company is set out below: of and the Company the Group Personnel Management to Key made compensation aggregate The
GRANTS during the year Granted during the year Forfeited during the year Exercised during the year Expired the end of at the year Exercisable Balance at the end ofBalance at the year BLACKMORES ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017
11 SHARE-BASED PAYMENTS (CONT.) 2017
RATE OF EPS GROWTH PERCENTAGE OF PARTICIPANT’S BASE REMUNERATION OTHER SENIOR CHIEF EXECUTIVE SENIOR COMPANY OFFICER EXECUTIVES MANAGEMENT
5.0% 25.0 10.0 5.0 5.0% to 10.0% prorata between 25.0 to 50.0 10.0 to 20.0 5.0 to 10.0 10.0% 50.0 20.0 10.0 10.0% to 25.0% prorata between 50.0 to 200.0 20.0 to 80.0 10.0 to 40.0 25.0% 200.0 80.0 40.0 Greater than 25.0% 200.0 80.0 40.0
2016
RATE OF EPS GROWTH PERCENTAGE OF PARTICIPANT’S BASE REMUNERATION OTHER SENIOR CHIEF EXECUTIVE SENIOR COMPANY OFFICER EXECUTIVES MANAGEMENT
3.90% 25.0 10.0 5.0 3.9% to 7.8% prorata between 25.0 to 50.0 10.0 to 20.0 5.0 to 10.0 7.80% 50.0 20.0 10.0 7.8% to 17.9% prorata between 50.0 to 150.0 20.0 to 60.0 10.0 to 30.0 17.90% 150.0 60.0 30.0 Greater than 17.9% 150.0 60.0 30.0
Share-Based Conditions The number of shares to be issued to a Senior Executive is determined by dividing the percentage amount of base remuneration calculated in accordance with the above by: • the weighted average price of the shares for the five day trading period commencing seven days after Blackmores’ results in respect of the prior financial year are announced to the ASX, less • the amount of any final dividend per share declared as payable for the prior financial year. Staff Share Acquisition Plans The Group has established two Staff Share Acquisition Plans. The first plan is open to all eligible employees including Senior Executives and enables them to purchase up to $1,000 of Blackmores shares tax free (subject to taxable income thresholds) each year with money that would have otherwise been paid as profit share. 651 shares were issued during the year ended 30 June 2017 (2016: 872 shares). In July 2017, 726 shares (2016: 651 shares) will be issued to employees, including Senior Executives, for profit share entitlement that would otherwise have been paid in cash during the year ended 30 June 2017. The second plan, established in the 2017 financial year, is open to all eligible employees including Senior Executives and enables them to purchase up to $10,000 of Blackmores shares each year out of after tax pay. For every three purchased shares acquired using the employees contributions, subject to employment vesting condition and scaling applied under the plan, the company will provide one extra share. The vesting date for the year ended 30 June 2017 is 31 July 2017. The maximum cost of the shares provided by the Company for 2017 financial year has been set at $500,000. Options Plan At 1 July 2016 and at 1 July 2015 there were no share options outstanding, none was issued during the years ended 30 June 2017 (2016: nil) and as at 30 June 2017 there were no unexercised share options (2016: nil). The compensation of each member of the Key Management Personnel of the Group and a discussion of the compensation policies of the Company are detailed in the Remuneration Report which accompanies these Consolidated Financial Statements.
96 BLACKMORES ANNUAL REPORT 2017 97
$ 2016 2016 2016 $’000 $’000 1,432 3,125 1,717 1,443 (1,218) (1,096) 17,440 23,725 135,518 253,293 228,335 133,204 134,636 316,065 228,335 679,358 110,000
$ 2017 2017 2017 254 $’000 $’000 1,650 1,704 8,035 (1,059) (1,061) 90,000 36,691 26,698 219,793 132,616 322,672 924,672 130,496 132,146 512,000 219,793
1
1 RECEIVABLES AUDITOR OF REMUNERATION
The average credit period on sale of goods is 60 days from the end of the month of invoice. No interest is charged on trade receivables and the Group does not hold any collateral over these does not hold any collateral the Group and receivables on trade period on sale of the end of is charged credit from No interest goods is 60 days the month of average The invoice. regions. geographic channels and retail several consist of across number of receivables a large spread customers Trade balances. Other non-audit services is comprised of fees in relation to the provision of to the provision Other non-audit services is comprised of services. accounting advice and consulting fees in relation Allowance for doubtful debts An allowance has been made for estimated irrecoverable trade receivable amounts arising from the past sale of goods, determined by the past sale of amounts arising from goods, receivable trade irrecoverable An allowance has been made for estimated considers any change in the credit the Group of receivable, a trade In determining the recoverability to past default experience. reference risk with manages credit Group The date. up to the reporting was initially granted credit the date from quality of receivable the trade necessary. where of action is taken review the balances outstanding and restrictive regular Due But Not Impaired Ageing of Past 0 - 30 days past due date 1. than 5% of the total trade comprising amounts greater had two customers (2016: two customers) each the Group June 2017, At 30 thousand (2016: $46,000 thousand) and accounted for approximately than $36,000 more customers owed the Group These receivables. 28% (2016: 35%) of owing. all receivables Current Current other receivables and trade Current The auditor of Blackmores Limited is Deloitte Touche Tohmatsu. Touche auditor of Limited is Deloitte The Blackmores 1. 13 Statements Financial the Auditing or reviewing Auditor Company ofNetwork Firm the Parent Statements Auditing the Financial 12 Entity Auditor of the Parent NOTES TO THE FINANCIAL THE STATEMENTS FINANCIAL TO NOTES JUNE 2017 30 ENDED YEAR FINANCIAL THE FOR recoverable Goods and services tax (GST) Allowance for claims 31 - 60 days past due date Taxation services Taxation 61 - 90 days past due date > 90 days past due date Other non-audit services Total BLACKMORES ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017
13 RECEIVABLES (CONT.)
2017 2016 $’000 $’000
Ageing of Impaired Trade Receivables 0 - 30 days past due date 14 16 31 - 60 days past due date 198 711 61 - 90 days past due date 14 481 > 90 days past due date 925 10 Total 1,151 1,218 Included in the allowance for doubtful debts are individually impaired trade receivables with a balance of $357 thousand (2016: $31 thousand). The Group does not hold any collateral over these balances. The Directors believe that there is no further credit provision required in excess of the allowance for doubtful debts.
Movement in the Allowance for Doubtful Debts Balance at the beginning of the year 1,218 169 Amounts written off as uncollectable (287) (1,107) Increase in provision 128 2,156 Balance at the end of the year 1,059 1,218
14 INVENTORIES Ingredients 13,524 9,873 Raw materials 27,784 50,300 Finished goods 43,486 56,313 84,794 116,486 The provision at balance date to cover inventory write downs is $14,141 thousand (2016: $2,107 thousand).
15 PROPERTY, PLANT AND EQUIPMENT
2017 2016 $’000 $’000
Cost 124,170 110,000 Accumulated depreciation (49,963) (42,374) 74,207 67,626 Carrying amounts of: Freehold land 12,848 12,848 Buildings 29,208 30,123 Leasehold improvements 3,200 1,132 Plant and equipment 22,464 19,899 Motor vehicles 52 121 Capital work in progress 6,435 3,503 74,207 67,626
98 BLACKMORES ANNUAL REPORT 2017 99
- - (1) 27 (80) 126 561 186 (245) (352) $’000 TOTAL TOTAL 3,631 (7,901) (4,030) (6,480) 67,626 13,535 14,495 74,207 99,935 (49,963) (42,374) (39,200)
124,170 110,000 ------$’000 6,435 3,503 3,503 6,290 6,435 3,503 1,277 (1,277) (3,358) CAPITAL CAPITAL WORK IN
PROGRESS ------(6) 57 15 60 52 (69) (57) (73) (32) 187 121 256 314 (135) $’000 (135) (157) MOTOR MOTOR VEHICLES
24 24 15 (73) 119 106 399 (132) (262) $’000 1,251 5,438 3,143 8,946 3,321 (6,036) (3,579) (5,265) 63,104 19,899 22,464 54,728 47,687 (40,640) (34,829) (32,638) PLANT AND PLANT
EQUIPMENT 7 (7) 23 26 12 (25) (44) (84) 215 147 250 826 (877) (378) (252) $’000 (550) (476) 4,597 2,751 1,132 1,086 MENTS 3,200 1,682 (1,397) IMPROVE-
LEASEHOLD ------16 (931) (931) $’000 (7,791) (6,860) (5,929) 36,999 30,123 29,208 36,983 36,983
BUILDINGS ------LAND $’000 12,848 12,848 12,848 12,848 12,848 FREEHOLD
(CONT.) AND EQUIPMENT PLANT PROPERTY,
Net foreign currency exchange differences arising on translation on translation arising differences exchange currency Net foreign expense Depreciation on translation arising differences exchange currency Net foreign Disposals Net foreign currency exchange differences arising on arising differences exchange currency Net foreign expense Depreciation on arising differences exchange currency Net foreign June 2016 30 Balance at Disposals June 2017 30 Balance at June 2017 30 As at transfers Category Disposals June 2016 30 Balance at Additions transfers Category June 2017 30 Balance at business combinations Assets obtained through Value Book Net June 2016 30 As at (2016: $nil). year in the current No impairment losses have been recognised of of operations translation financial statements foreign of of operations financial statements foreign Depreciation Accumulated June 2015 30 Balance at of of operations translation financial statements foreign of of operations financial statements foreign Cost June 2015 30 Balance at Additions business combinations Additions obtained through Disposals 15 NOTES TO THE FINANCIAL THE STATEMENTS FINANCIAL TO NOTES JUNE 2017 30 ENDED YEAR FINANCIAL THE FOR BLACKMORES ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017
16 INVESTMENT PROPERTY
2017 2016 $’000 $’000
Cost of investment property 2,160 2,160
At Cost Balance at beginning of year 2,160 2,160 Balance at end of year 2,160 2,160 Investment property in the form of a plot of land at 15 Jubilee Avenue, Warriewood, NSW 2102 was acquired during the financial year ended 30 June 2010. At the date of the signing of these Consolidated Financial Statements there were no plans to use this land for the production of goods or services or for administrative purposes, nor for sale in the ordinary course of business. In line with the Group’s accounting policy on investment property, this property has been measured at cost. The cost of the purchased investment property comprises its purchase price and any directly attributable expenditure. Directly attributable expenditure includes professional fees for legal services, property transfer taxes and other transaction costs. As the property in question is freehold land, no depreciation is recognised in relation to it. This investment property is tested for impairment annually. To date no impairment losses have been recognised and the Directors remain confident that the carrying amount of the investment property will be recovered in full.
17 OTHER INTANGIBLE ASSETS 2017 2016 $’000 $’000
Cost 35,824 35,629 Accumulated amortisation (3,531) (2,893) 32,293 32,736
CAPITALISED REGISTRA- TRADE- FORMULA- ROYALTY WEBSITE TIONS1 MARKS1 TIONS1 STREAM BRANDS1 PATENTS TOTAL $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Cost Balance at 30 June 2015 2,670 893 288 272 450 15,313 972 20,858 Additions ------Additions from internal development 311 ------311 Assets obtained through business combination - - 1,160 - - 13,300 - 14,460 Effect of foreign currency exchange differences ------Balance at 30 June 2016 2,981 893 1,448 272 450 28,613 972 35,629 Additions 69 ------69 Category reclass 108 3 (96) - 96 - - 111 Effect of foreign currency exchange differences 15 ------15 Balance at 30 June 2017 3,173 896 1,352 272 546 28,613 972 35,824
Accumulated Amortisation Balance at 30 June 2015 (1,940) - - - (278) - (110) (2,328) Amortisation expense (392) - - - (90) - (83) (565) Effect of foreign currency exchange differences ------Balance at 30 June 2016 (2,332) - - - (368) - (193) (2,893) Amortisation expense (342) - - - (103) - (65) (510) Category reclass (111) ------(111) Effect of foreign currency exchange differences (17) ------(17) Balance at 30 June 2017 (2,802) - - - (471) - (258) (3,531)
Net Book Value As at 30 June 2016 649 893 1,448 272 82 28,613 779 32,736 As at 30 June 2017 371 896 1,352 272 75 28,613 714 32,293 1. These assets are considered to be of indefinite life and therefore do not require amortisation, but are subject to impairment testing.
100 BLACKMORES ANNUAL REPORT 2017 101
7,507 1,189 1,015 4,339
20,849 29,371 15,481 21,864 31,130 14,460 29,371 54,043 160,478 102,096
90 2017 2016 2017 2016 $’000 $’000 $’000 $’000 1,189 3,608 1,015 7,597 7,507 31,130 75,820 15,481 29,371 14,460 20,849 29,461 29,461 44,937 124,365
20 years years years 20 5 3 years
in the category to be in line with sales growth is expected Budgeted sales growth consistent to remain expected are Budgeted margins is 8%. Therapeutics and Global BioCeuticals Wellbeing, Animal used for Pure post-tax discount rate The
1
PAYABLES AND OTHER TRADE GOODWILL OTHER INTANGIBLE ASSETS (CONT.) ASSETS INTANGIBLE OTHER ALLOCATION OF GOODWILL TO CASH-GENERATING UNITS CASH-GENERATING TO OF GOODWILL ALLOCATION
The average credit period on purchases is 30 days from the end of the month of invoice. The Group has financial risk management policies in place to ensure all payables are paid within the all payables are financial risk management policies in place to ensure has Group The the end of from is 30 days the month of period on purchases invoice. credit average The time-frame. credit
1. Budgeted Margins Discount rate 19 payables Trade Budgeted sales growth following cash-generating units: following cash-generating Intangible assets with indefinite lives have been allocated for impairment testing purposes to the allocated Intangible assets with indefinite lives have been Animal Wellbeing Pure BioCeuticals Therapeutics and Global BioCeuticals Wellbeing, Animal Pure uses cash flow calculation This determined on a value in use calculation. of amounts units are these cash-generating recoverable The and also use a terminal value calculation. and endorsed by the Board, by management plan approved based on the five year projections The cash flows (net of working capital changes. tax) and estimated in EBITDA growth based on estimated are flow projections Cash long-term inflation which is the projected rate 2% per annum growth using a steady extrapolated period have been five-year beyond that amount is based would not assumptions on which recoverable possible change in the key any reasonably believe that Directors The rate. of amount unit. the cash-generating recoverable the aggregate carrying amount to exceed cause the aggregate cash-generating Therapeutics and Global BioCeuticals Wellbeing, Animal for Pure assumptions used in the value in use calculations key The as follows. units are 18.1 units: for impairment testing purposes to the following cash-generating Goodwill has been allocated Animal Wellbeing Pure BioCeuticals Cost Cost beginning ofBalance at the year The amortisation expense has been included in the line item ‘depreciation and amortisation expenses’ in the Consolidated Statement of Statement in the Consolidated expenses’ and amortisation ‘depreciation has been included in the line item expense amortisation The Loss. or Profit 18 17 of expense: used in the calculation amortisation following useful lives are The website development Capitalised NOTES TO THE FINANCIAL THE STATEMENTS FINANCIAL TO NOTES JUNE 2017 30 ENDED YEAR FINANCIAL THE FOR stream Patents Royalty Goods and services tax (GST) payable Goods and services tax (GST) Global Therapeutics Global Therapeutics Additional amounts recognised from business combinations occuring during the year (note 38) the year occuring during business combinations from Additional amounts recognised end ofBalance at the year Other creditors and accruals Other creditors
BLACKMORES ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017
20 CURRENT TAX LIABILITIES
2017 2016 $’000 $’000
Income tax payable 1,669 24,093 Withholding tax payable 142 111 1,811 24,204
21 INTEREST BEARING LIABILITIES
2017 2016 $’000 $’000
Non-current Secured - at amortised cost: Bank bills1,2 78,968 55,446 Summary of borrowing arrangements: 1. Secured by registered mortgage debentures and a floating charge over certain assets of the Group. 2. In accordance with the security arrangements of liabilities, as disclosed in this note to the Consolidated Financial Statements, effectively all assets of the Parent Entity have been pledged as security.
22 PROVISIONS
2017 2016 $’000 $’000
Current Employee benefits 8,566 7,440 Directors’ retirement benefits 148 148 Other 2,835 - 11,549 7,588 Non-current Employee benefits 1,372 1,134
23 ISSUED CAPITAL
2017 2016 $’000 $’000
17,225,807 fully paid ordinary shares (2016: 17,225,156) 37,753 37,753
2017 2016 2017 ISSUED 2016 ISSUED NUMBER CAPITAL NUMBER CAPITAL ’000 $’000 ’000 $’000
Fully Paid Ordinary Shares Balance at beginning of financial year 17,225 37,753 17,224 37,753 Issue of shares under Executive and employee share plans (notes 11, 34.3) 1 - 1 - Balance at end of financial year 17,226 37,753 17,225 37,753 Fully paid ordinary shares carry one vote per share and carry a right to dividends. Employee Share Plans Further details of the Group’s Executive and employee share plans are contained in note 11 to the Consolidated Financial Statements.
102 BLACKMORES ANNUAL REPORT 2017 103
537 (913) (376) (855) (376) 5,252 4,440 6,933 2,043 3,362 5,855 4,440 1,188 1,188 (5,855) 87,099 (57,704) 135,258 100,008 135,258 - - (39) 2017 2016 2017 2016 727 $’000 $’000 $’000 $’000 (376) (415) (667) (667) (415) 1,188 5,167 4,440 4,085 5,167 (1,855) 59,013 (58,568) 135,258 135,703 135,703
RETAINED EARNINGS RETAINED
RESERVES earnings Retained Balance at beginning ofBalance at year 25 Balance at beginning ofBalance at year RESERVE TRANSLATION 24.3 FOREIGN CURRENCY and the of operation forming part monetary items in a foreign the net investment currency to foreign relating differences Exchange as reserve, translation currency to the foreign to account by entries made directly brought entities are of controlled translation foreign Statements. Financial described in note 2.15 to the Consolidated HEDGING RESERVE FLOW 24.2 CASH The cumulative of portion cash flow hedges. on the effective gains and losses recognised hedging represents hedge reserve The or is included as a or loss, impacts the profit or loss when the hedged transaction in profit gain or loss on the hedge is recognised deferred with the applicable accounting policy. consistent item, basis adjustment to the non-financial hedged RESERVE BENEFITS EMPLOYEE 24.1 EQUITY-SETTLED plans. and employees under various share of rights to Executives arises on the grant reserve share employee benefits equity-settled The Statements. Financial is in note 11 to the Consolidated and employees payments to Executives share-based about information Further beginning ofBalance at year 24 reserve employee benefits Equity-settled NOTES TO THE FINANCIAL THE STATEMENTS FINANCIAL TO NOTES JUNE 2017 30 ENDED YEAR FINANCIAL THE FOR the beginning ofBalance at the year Cash flow hedging reserve flow hedging Cash earnings retained to Reclassification (net of tax) Net (loss)/gain on revaluation entities controlled the foreign arising on translating differences Exchange Recognition of payments (net ofRecognition share-based tax) Balance at end ofBalance at year Reclassification of equity-settled employee benefit reserve of employee benefit Reclassification equity-settled for the year Profit reserve translation currency Foreign end ofBalance at year Balance at end ofBalance at year Payment of dividends Payment Balance at end ofBalance at year BLACKMORES ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017
26 EQUITY ATTRIBUTABLE TO NON-CONTROLLING INTERESTS
2017 2016 $’000 $’000
Balance at the beginning of the year 2,330 - Non-controlling interests arising on the incorporation of Kalbe Blackmores Nutrition - 2,301 Share of (loss)/profit for the year (985) 12 Share of other comprehensive (expense)/income (67) 17 Balance at end of year 1,278 2,330
27 EARNINGS PER SHARE
2017 2016 CENTS PER CENTS PER SHARE SHARE
Basic earnings per share 342.6 580.6 Diluted earnings per share 340.1 576.2
Basic Earnings per Share The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows:
2017 2016 $’000 $’000
Earnings (reconciles directly to profit for the year in the Consolidated Statement of Profit or Loss) 59,013 100,008
2017 2016 NUMBER NUMBER
Weighted average number of ordinary shares on issue during the financial year used in the calculation of basic earnings per share 17,225,802 17,225,093
Diluted Earnings per Share Earnings and weighted average number of ordinary shares used in the calculation of diluted earnings per share are as follows:
2017 2016 $’000 $’000
Earnings (reconciles directly to profit for the year in the Consolidated Statement of Profit or Loss) 59,013 100,008
2017 2016 NUMBER NUMBER
Weighted average number of ordinary shares used in the calculation of basic earnings per share 17,225,802 17,225,093 Shares deemed to be issued for no consideration in respect of: Employee share plans 126,079 132,673 Weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted earnings per share 17,351,881 17,357,766
104 BLACKMORES ANNUAL REPORT 2017 105
- - 493 348 145 $’000 TOTAL 3,906 3,862 1,198 3,906 5,378 9,635 6,576 5,773 21,075 23,254 34,450 57,704
70 70 135 200 998 335 2017 2016 2017 2016 2016 140 $’000 $’000 $’000 $’000 8,190 2,150 8,190 4,087 1,200 6,285
4,026 6,176 28,538 CENTS PER
$’000 SHARE TOTAL 24,117 36,174 58,568 22,394
210 2017 140 340 130 CENTS PER
SHARE
FOR EXPENDITURE COMMITMENTS DIVIDENDS
Non-cancellable operating lease commitments are disclosed in note 30 of the Consolidated Financial Statements. disclosed in note 30 of Financial commitments are lease the Consolidated Non-cancellable operating Sponsorship Not longer than 1 year Commitments Lease Plant and equipment Not longer than 1 year Services Promotional Not longer than 1 year and Development Contracts Research Not longer than 1 year 29 shares ordinary paid Fully tax rate 30% corporate at dividend – fully franked Final Financial Consolidated recognised in these June 2017 has not been ended 30 for the year respect of shares final dividend in ordinary The June 2017. subsequent to 30 final dividend was declared because the Statements COMPANY shares paid ordinary Fully June 2015) June 2016 (2016: 30 ended 30 dividend for year Final Amounts Unrecognised 28 NOTES TO THE FINANCIAL THE STATEMENTS FINANCIAL TO NOTES JUNE 2017 30 ENDED YEAR FINANCIAL THE FOR Recognised Amounts Recognised Adjusted franking account balance Adjusted franking than 5 years and not longer than 1 year Longer and not longer than 5 years than 1 year Longer than 5 years and not longer than 1 year Longer tax rate 30% corporate at – fully franked June 2016) June 2017 (2016: 30 ended 30 Interim dividend for year than 5 years Longer
tax rate 30% corporate at – fully franked BLACKMORES ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017
30 OPERATING LEASES Leasing Arrangements Operating leases relate to business premises and the Group’s motor vehicle fleet with lease terms of between three and six years. All operating lease contracts contain market review clauses in the event that the Group exercises its option to renew. The Group does not have an option to purchase the leased asset at the expiry of the lease period.
Non-cancellable Operating Lease Payments 2017 2016 $’000 $’000
Not later than 1 year 4,642 5,414 Later than 1 year and not later than 5 years 8,374 12,389 13,016 17,803 No liabilities have been recognised in respect of non-cancellable operating leases.
31 CONTINGENT LIABILITIES Blackmores is currently undergoing a detailed review of exemption claims that have been made under the various free trade agreements in place between Australia and the countries with which Blackmores trades. This review is ongoing and includes a review of potential risks and opportunities pertaining to the use of and compliance to detailed requirements relating to different export classification codes. As at the signing date, no conclusions have been reached and discussion with relevant external regulatory bodies are continuing. A reliable estimate of potential risks or probable outflows as an outcome of the completion of this review cannot be determined. Accordingly no liability has been recorded in the accounts for 30 June 2017.
32 SUBSIDIARIES Details of the Group’s subsidiaries at the end of the financial year are as follows.
OWNERSHIP INTEREST COUNTRY OF 2017 2016 NAME OF ENTITY INCORPORATION % % PRINCIPAL ACTIVITY
Blackmores Nominees Pty Limited1 Australia 100 100 Management of employee share plans Pat Health Limited Hong Kong 100 100 Marketing of natural health products Blackmores Beijing Co., Limited China 100 100 Marketing of natural health products Blackmores China Co., Limited China 100 100 Marketing of natural health products Blackmores (Taiwan) Limited Taiwan 100 100 Marketing of natural health products Pure Animal Wellbeing Pty Limited Australia 100 100 Holder of intellectual property for Animal Health Division Blackmores (New Zealand) Limited New Zealand 100 100 Marketing of natural health products Blackmores (Singapore) Pte Limited Singapore 100 100 Marketing of natural health products Blackmores (Malaysia) Sdn Bhd Malaysia 100 100 Marketing of natural health products Blackmores Holdings Limited Thailand 100 100 Holding company Blackmores Limited Thailand 100 100 Marketing of natural health products Blackmores Korea Limited Korea 100 100 Marketing of natural health products Blackmores International Pte. Limited Singapore 100 100 Regional head office PT Kalbe Blackmores Nutrition Indonesia 50 50 Marketing of natural health products FIT-BioCeuticals Limited Australia 100 100 Marketing of natural health products FITBioCeuticals (NZ) Limited1 New Zealand 100 100 Marketing of natural health products PharmaFoods Pty Limited1 Australia 100 100 Marketing of natural health products FIT-BioCeuticals Limited United Kingdom 100 100 Marketing of natural health products FIT-BioCeuticals (HK) Limited Hong Kong 100 100 Marketing of natural health products Hall Drug Technologies Pty Limited1 Australia 100 100 Marketing of natural health products Blackmores SPV Co Pty Limited Australia 100 100 Holding company New Century Herbals Pty Limited1 Australia 100 100 Holding company Global Therapeutics Pty Limited1 Australia 100 100 Marketing of natural health products Blackmores Japan Limited Japan 100 - Marketing of natural health products 1. These wholly owned subsidiaries have entered into a deed of cross guarantee with Blackmores Limited pursuant to ASIC class order 98/1418 and are relieved from the requirement to prepare and lodge an audited financial report.
Companies incorporated outside Australia carry on business in the country of incorporation.
Economic Dependency The Group is not significantly dependent upon any other entity.
106 BLACKMORES ANNUAL REPORT 2017 107 - - - - - 537 252 537 2016 6,544 3,262 7,390 3,886 8,431 2,041 (1,979) (2,231) 98,970 98,970 98,970 98,433 98,433 98,433 11,079 31,685 16,367 (86,744) (39,744) 620,937 545,272 140,156 138,177 213,207 112,303 405,116
- - (39) (39) 2017 166 $’000 $’000 7,200 3,497 7,683 6,142 7,062 4,138 7,253 1,239 (4,200) (4,366) 51,587 51,587 51,626 75,246 71,046 51,626 51,626 51,587 94,527 32,087 17,634 (19,420) 597,844 489,640 229,429 414,394 (111,701)
SUBSIDIARIES AND OTHER RELATED COMPANIES (CONT.) COMPANIES RELATED OTHER AND SUBSIDIARIES FINANCIAL SUPPORT FINANCIAL
to: attributable income comprehensive Total Owners of the parent interests Non-controlling
net of tax into for cash flow hedges, Net (loss)/gain on hedging instruments entered Owners of the parent are: ofPosition of to the deed the entities party cross ofFinancial Statement Consolidated Loss and the or of Statement Profit Consolidated The guarantee Sales 32 32.1 Loss or ofStatement Profit NOTES TO THE FINANCIAL THE STATEMENTS FINANCIAL TO NOTES JUNE 2017 30 ENDED YEAR FINANCIAL THE FOR and other rebates Promotional and consumables used materials Raw to: attributable Profit income Other comprehensive or loss subsequently to profit may be reclassified Items that Profit before tax before Profit revenue Interest Income tax expense interests Non-controlling Other comprehensive income for the year, net of tax income for the year, Other comprehensive Other income expense Employee benefits Profit for the year Profit expense Interest Total comprehensive income for the year income comprehensive Total Revenue and other income and other Revenue expenses Selling and marketing Net interest expense Net interest expenses and amortisation Depreciation expenses rental lease Operating and consulting expenses Professional expenses and maintenance Repairs expenses Freight Bank charges party Impairment of to related loan Other expenses expenses Total Earnings before interest and tax interest Earnings before BLACKMORES ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017
32 SUBSIDIARIES AND OTHER RELATED COMPANIES (CONT.) 32.1 FINANCIAL SUPPORT (CONT.) Statement of Financial Position
2017 2016 $’000 $’000
ASSETS CURRENT ASSETS Cash and cash equivalents 12,565 10,512 Receivables 117,952 129,554 Inventories 70,950 99,429 Other assets 6,544 4,493 Total current assets 208,011 243,988
NON-CURRENT ASSETS Property, plant and equipment 72,291 66,126 Investment property 2,160 2,160 Other intangible assets 31,011 31,450 Goodwill 19,464 19,374 Deferred tax assets 9,136 8,864 Other financial assets 10,883 15,588 Total non-current assets 144,945 143,562 Total assets 352,956 387,550
LIABILITIES CURRENT LIABILITIES Trade and other payables 113,635 147,012 Current tax payable 1,435 21,902 Other financial liabilities 481 - Provisions 11,878 8,844 Total current liabilities 127,429 177,758
NON-CURRENT LIABILITIES Interest-bearing liabilities 75,000 52,000 Provisions 1,372 1,134 Other financial liabilities 199 1,139 Deferred tax liability 843 1,160 Total non-current liabilities 77,414 55,433 Total liabilities 204,843 233,191 Net assets 148,113 154,359
EQUITY CAPITAL AND RESERVES Issued capital 37,753 37,753 Reserves 4,115 3,419 Retained earnings 106,245 113,187 Total equity 148,113 154,359
108 BLACKMORES ANNUAL REPORT 2017 109
- - 4
510 822 626 (814) (814) (814) (818) 6,477 1,781 3,254 5,029 5,000 7,291 1,945 2,127 4,329 (1,075)
30 June 2016
- 6 97 567 2017 2016 773 682 981 217 556
$’000 $’000 $’000 $’000 1,513 7,200 8,546 6,433 2,042 (7,773) (6,959) (7,773) (6,965) (1,061) 30 June 2017
1 1
DISCLOSURES PERSONNEL MANAGEMENT AND KEY PARTY RELATED OPERATIONS JOINT RELATED PARTY TRANSACTIONS PARTY RELATED OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL MANAGEMENT WITH KEY TRANSACTIONS OTHER PARTIES IN RELATED INTERESTS EQUITY DISCLOSURES LOAN
Galileo Kaleidoscope Pty Ltd, a company of which Brent Wallace is a Director, performed certain consulting services for the Company performed certain is a Director, Wallace a company of which Brent Pty Ltd, Galileo Kaleidoscope for which fees of charged. $48,400 (2016: $100,675) were Other payables Joint operators from Loans Provisions Raw materials and consumables materials Raw Total assets Total No balances outstanding at the end of the financial year with related parties that are not members of (2016: $nil). are the Group that parties related the end ofNo balances outstanding at with the financial year transactions party parties related related Other parties: related and its other between the Group occurred the following transactions June 2017, ended 30 During the financial year with • Balances 34 1. Included in these balances are amounts owing to the Blackmores Group of Group $4,111 thousand (2016: $3,960 thousand). owing to the Blackmores amounts Included in these balances are 1. Cash and cash equivalents Cash Inventory
Sales (net of discounts) 33 in joint operations: has the following interest Group The Pty Ltd Partnership Bemore 50% the Group’s representing the joint operation, to in relation Statements Financial Group’s included in the following amounts are The Pty Ltd: of Partnership share Bemore NOTES TO THE FINANCIAL THE STATEMENTS FINANCIAL TO NOTES JUNE 2017 30 ENDED YEAR FINANCIAL THE FOR No interest was paid to or received from Key Management Personnel. Key from was paid to or received No interest 34.4 Australia). in Limited (incorporated of Blackmores is party the Group controlling and ultimate parent immediate The During the year, Group entities did not enter into any trading transactions with related parties that are not members of (2016: $nil). are the Group that parties with related transactions entities did not enter into any trading Group During the year, Key Management Personnel received dividends on their shareholdings, whether held privately or through related entities or through the entities or through related or through whether held privately dividends on their shareholdings, received Management Personnel Key shareholders. plans in the same manner as all ordinary employee share transactions on have been eliminated of parties the Company, related which are and its subsidiaries, between the Company Balances and transactions disclosed below. are parties and other related Details of between the Group transactions not disclosed in this note. and are consolidation Trading There were no loan balances exceeding $100,000 due from Key Management Personnel during or at the end of during or at nil). (2016: the financial year Management Personnel Key $100,000 due from no loan balances exceeding were There 34.3 Equity interests in subsidiaries in interests 34.1 Equity Statements. Financial disclosed in note 32 to the Consolidated entities are held in controlled Details of of shares the percentage ordinary 34.2 Total liabilities Total Accumulated losses Accumulated Net liabilities Payables to Joint operators to Payables expenses Operating interest before Loss and other rebates Promotional Receivables Interest income Interest Revenue and other income Revenue Net loss for the period BLACKMORES ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017
35 NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS 35.1 RECONCILIATION OF CASH AND CASH EQUIVALENTS For the purposes of the Consolidated Statement of Cash Flows, cash and cash equivalents includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the financial year as shown in the Consolidated Statement of Cash Flows is reconciled to the related items in the Consolidated Statement of Financial Position as follows:
2017 2016 $’000 $’000
Cash and bank balances 34,251 37,653 Cash and cash equivalents 34,251 37,653
35.2 FINANCING FACILITIES Unsecured bank overdraft facility, reviewed annually and payable at call: • amount used - 570 • amount unused 5,000 4,430 5,000 5,000
Unsecured revolving term debt facility under Common Terms Deed: • amount used 78,968 55,446 • amount unused 157,933 82,060 236,901 137,506 The Group restructured borrowings during the year to unsecured debt under a Common Terms Deed with three banks. The Group has access to financing facilities at reporting date as indicated above. The Group expects to meet its other obligations from operating cash flows and proceeds of maturing financial assets.
35.3 RECONCILIATION OF PROFIT FOR THE YEAR TO NET CASH FLOWS FROM OPERATING ACTIVITIES
2017 2016 $’000 $’000
Profit for the year 58,028 100,020 Loss on disposal of non-current assets 30 358 Interest revenue disclosed as investing cash flow (384) (462) Dividend income disclosed as investing cash flow (92) (25) Proceeds from disposal of property, plant and equipment disclosed as investing cash flow (30) (41) Depreciation and amortisation of non-current assets 8,411 7,045 Revaluation of investments (724) (67) Share-based payments 781 3,362 Other1 (1,632) (743) (Decrease)/increase in current tax liability (22,393) 11,330 Increase/(decrease) in deferred tax balances 2,267 (4,830) Decrease in deferred tax balances related to hedge reserve in equity 17 (230)
Movements in working capital: • Current receivables 2,490 (24,212) • Current inventories 31,692 (73,845) • Other assets (2,315) (481) • Current trade payables (36,113) 62,927 • Provisions 4,199 1,412 • Other liabilities 1,402 2,158 Net cash flows from operating activities 45,634 83,676 1. Includes foreign exchange translation of controlled entities.
110 BLACKMORES ANNUAL REPORT 2017 111
834 471 55,446 37,653 17,793 (37,653) 178,263 172,760 216,758 134,636 215,924
2017 2016 580 $’000 $’000 1,165 20.1% 9.1% 78,968 34,251 44,717
(34,251) 177,541 167,562 203,913 132,146 203,333
36.8 NOTE
INSTRUMENTS FINANCIAL FOREIGN CURRENCY RISK MANAGEMENT RISK CURRENCY FOREIGN OBJECTIVES MANAGEMENT RISK FINANCIAL POLICIES ACCOUNTING SIGNIFICANT CAPITAL MANAGEMENT CAPITAL
2
1 Debt is defined as long and short-term borrowings, as detailed in note 21. borrowings, Debt is defined as long and short-term managed as capital. are that Equity includes all capital and reserves The Group undertakes transactions denominated in foreign currencies; consequently exposures to exchange rate fluctuations arise. arise. fluctuations rate to exchange consequently exposures currencies; in foreign denominated transactions undertakes Group The contracts. exchange utilising forward policy parameters approved managed within are exposures rate Exchange Dollar (CAD). and Canadian Dollar (USD), United States Dollar (NZD), to New Zealand is mainly exposed Group The The Group’s Corporate Treasury function provides services to the business, coordinates access to domestic and international financial to domestic and international access coordinates services to the business, function provides Treasury Corporate Group’s The of to the operations the Group. relating and monitors and manages the financial risks markets financial instruments to hedge these risk risk by using derivative rate of risk and interest to minimise the effects seeks currency Group The written which provide of by the Board Directors, approved policies use of by the Group’s is governed The financial derivatives exposures. limitsexposure Compliance with policies and use of risk and the rate financial derivatives. interest risk, exchange principles on foreign financial including derivative financial instruments, does not enter into or trade Group The internally on a continuous basis. is reviewed purposes. for speculative instruments, 36.3 of and the basis measurement recognition, including the criteria for Details of the significant accounting policies and methods adopted, are disclosed in of class of in respect each financial asset and financial liability, recognised, are and expenses the basis on which revenues Statements. Financial note 2.6 to the Consolidated 36.4 36.2 Liabilities Financial hedge accounting relationships instruments in designated Derivative 1. 1. Assets 2. of financial instruments Categories Financial and bank balances Cash Debt The Group’s Audit and Risk Committee reviews the capital structure of the Group on a semi-annual basis. Based upon recommendations Based upon recommendations of on a semi-annual basis. the capital structure the Group reviews Audit and Risk Committee Group’s The buy- issues and share new share the payment of through dividends, capital structure will balance its overall the Group of the Committee, parties. related if appropriate, and, as well as the issue of of parties backs new debt or redemption debt with third existing ratio Gearing the end of at was as follows: the year ratio gearing The The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the returnable to continue as a going concern while will be entities in the Group that manages its capital to ensure Group The 2016. unchanged from remains strategy overall Group’s The of optimisation and equity balance. the debt through to stakeholders by cash and cash equivalents as disclosed of of consists in note 21 offset as disclosed capital structure the Group net debt (borrowings The 24 and 25 in notes 23, as disclosed earnings and retained reserves in note 35) and equity of (comprising issued capital, the Group respectively). in which the Group the markets and subsidiary companies established in the Company primarily through globally, operates Group The imposed capital requirements. None of is subject to externally the Group the entities within trades. routine the as make as well assets, and distribution production Group’s expand the used to maintain and cash flows are Operating using a variety ofmarket capital centrally, policy is to borrow The Group’s repayment of debt. and dividends maturing outflows of tax, 2016 during established a debt facility in Singapore Group The funding requirements. to meet anticipated facilities, issues and borrowing Asian funding. to assist with 36 36.1 NOTES TO THE FINANCIAL THE STATEMENTS FINANCIAL TO NOTES JUNE 2017 30 ENDED YEAR FINANCIAL THE FOR Net debt to (net debt plus equity) ratio Cash and cash equivalents Cash and receivables Loans Loans and payables Loans Net debt Other financial assets Equity BLACKMORES ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017
36 FINANCIAL INSTRUMENTS (CONT.) The Australian Dollar carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period are as follows:
LIABILITIES ASSETS 2017 2016 2017 2016 $’000 $’000 $’000 $’000
United States Dollar (USD) 12,380 19,363 790 3,045 New Zealand Dollar (NZD) 2,132 10,917 - 297 Euro (EUR) 248 832 - - Canadian Dollar (CAD) 934 690 - - Swiss Franc (CHF) (4) 93 - - British Pound (GBP) 4 - - - Chinese Yuan (CNY) - 4 2 57 Japanese Yen (JPY) 11 17 - - South Korean Won (KRW) - 47 - - Thai Baht (THB) - 5 - 12 Singapore Dollars (SGD) - 2 - - Malaysian Ringgit (MYR) - 7 - - Taiwan Dollars (TWD) 35 - - - Foreign currency sensitivity analysis The following table details the Group’s sensitivity to a 10% increase and decrease in the Australian Dollar against the relevant foreign currencies. 10% is the sensitivity rate used when reporting foreign currency risk internally to Key Management Personnel and represents management’s assessment of the possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. A positive number below indicates an increase in profit or equity where the Australian dollar strengthens 10% against the relevant currency. For a 10% weakening of the Australian dollar against the relevant currency, there would be a comparable impact on the profit or equity, and the balances below would be negative.
PROFIT/ (LOSS) 10% INCREASE 10% DECREASE 2017 2016 2017 2016 $’000 $’000 $’000 $’000
USD impact 1,117 1,483 (1,211) (1,813) NZD impact 194 965 (237) (1,180) EUR impact 23 75 (28) (93) CAD impact 85 63 (104) (76) CHF impact - 9 - (10) GBP impact - - - - CNY impact - (5) - 6 JPY impact 1 2 (1) (2) KRW impact - 4 - (5) TWD impact 3 - (4) - This is mainly attributable to the exposure outstanding on foreign currency payables in the Group at the end of the reporting period.
EQUITY 10% INCREASE 10% DECREASE 2017 2016 2017 2016 $’000 $’000 $’000 $’000
USD impact (1,260) (2,499) 845 2,098 THB impact (500) - 739 - MYR impact (196) - 292 - NZD impact - (24) - 73 From time to time during the year, the Group entered into NZD, USD and CAD forward exchange contracts in order to reduce foreign currency risk. Option contracts The Group did not utilise any option contracts during the year, so there were no open contracts at 30 June 2017 (2016: $nil). Forward foreign exchange contracts The Group utilised forward foreign exchange contracts during the year. At 30 June 2017 there were open contracts of USD8.0m, MYR8.0m and THB160m (2016: NZD2.0m, USD18.5m and MYR1.2m). These contracts are a partial hedge for upcoming raw material purchases and intercompany payments. 112
BLACKMORES ANNUAL REPORT 2017 113
- - -
(90) (20)
2016 (110) $’000
20,000 (55,446) (35,446) FAIR VALUE FAIR - -
(14) 2017 2016 $’000 $’000 $’000 (150) (164) (3,968) 75,000 (78,968) - -
$’000 5,000 15,000 20,000
- -
$’000
35,000 40,000 75,000 NOTIONAL PRINCIPAL AMOUNT PRINCIPAL NOTIONAL
- -
% 5.61 1.89 2.82
% FIXED INTEREST RATE AVERAGE CONTRACTED AVERAGE 2017 2017 2016 2017 2016 0.00 1.86 2.16 0.00 2.02
1 FINANCIAL INSTRUMENTS (CONT.) INSTRUMENTS FINANCIAL INTEREST RATE RISK MANAGEMENT RISK RATE INTEREST
OUTSTANDING FIXED FOR FLOATING CONTRACTS FIXED FOR FLOATING OUTSTANDING The average interest rate is based on the outstanding balances at the end of the is based on the outstanding balances at the financial year. rate interest average The during the year $5m matured (2016: $15m), the 2017 financial year swaps during rate into $75m in new interest entered Group The Swap Contracts Rate Interest amountsrate interest and floating between fixed the difference to exchange agrees the Group swap contracts, rate Under interest on the fair the risk of rates to mitigate changing interest enable the Group Such contracts notional principal amounts. on agreed calculated period is determined by discounting the future the end of swaps at the reporting fair value of rate The interest value of debt. variable rate and is disclosed below. in the contract risk inherent and the credit period at the end ofreporting cash flows using the curves the bearing. are non-interest years) and prior financial current All other financial assets and liabilities (in the (2016: $nil). during the 2017 financial year (2016: $39m) and $15m was terminated Interest Rate Sensitivity Analysis Sensitivity Rate Interest and non-derivative for both derivative rates to interest based on the exposure sensitivity analyses below have been determined The the beginning of change taking place at and held constant and the stipulated the financial year date the reporting instruments at Management risk internally to Key rate interest is used when reporting or decrease 50 basis point increase A the year. throughout assessment of rates. the possible change in interest management’s and represents Personnel held constant, had been 50 basis points higher or lower and all other variables were if rates interest June 2017, ended 30 the year For by $677 thousand (2016: $273 thousand) by $677 thousand (2016: $273 thousand) or increase would decrease net profit the Group’s bank bills. applicable to commercial of rates as a result changes in the interest respectively held constant, had been 50 basis points higher or lower and all other variables were if rates interest June 2017, ended 30 the year For by $154 (2016: increase by $683 thousand respectively by $502 thousand or decrease would increase other equity reserves the Group’s of swap. mainly as a result the changes in the fair value of rate by $166 thousand respectively) the interest thousand or decrease year. the previous the risk from manages and measures has been no change to the manner in which the Group There than 1 year Less All rate. bank bill swap bid Australian swaps is the rate on the interest rate floating The basis. on a quarterly swaps settle rate interest The as cash flow hedges. designated are swap contracts rate interest on a net basis. interest and floating between fixed the difference settle will Group The
36 36.5 NOTES TO THE FINANCIAL THE STATEMENTS FINANCIAL TO NOTES JUNE 2017 30 ENDED YEAR FINANCIAL THE FOR by the usethe Group The risk is managed by basis. rate interest funds on a floating risk as it borrows rate to interest is exposed Group The swap contracts. of rate interest risk. rate to interest exposure Group’s following table sets out the The 1. Represents the notional amount of the interest rate swaps. swaps. the notional amount of rate the interest Represents 1. date: reporting outstanding as at swap contracts terms of rate and remaining following table details the notional amounts interest The Financial Liabilities Financial Borrowings Interest rate swap rate Interest Net exposure 1 to 2 years 2 to 5 years > 5 years > 5 years
BLACKMORES ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017
36 FINANCIAL INSTRUMENTS (CONT.) 36.6 CREDIT RISK MANAGEMENT Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties. The Group only transacts with entities that have a positive credit history. The information used to determine creditworthiness is supplied by independent rating agencies where available and, if not available, the Group uses publicly available financial information, trade references and their own trading record to rate their major customers. Ongoing credit evaluation is performed on the financial condition of accounts receivable and, where appropriate, credit guarantee insurance cover is purchased. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with sound credit ratings assigned by international credit-rating agencies. The carrying amount of financial assets recorded in the Consolidated Financial Statements, net of any allowances for losses, represents the Group’s maximum exposure to credit risk. There has been no change to the Group’s exposure to credit risk or the manner in which it manages and measures the risk from the previous year.
36.7 LIQUIDITY RISK MANAGEMENT Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has established an appropriate liquidity risk management framework for the management of the Group’s short-, medium- and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves and banking facilities and through the continual monitoring of forecast and actual cash flows. Liquidity and Interest Risk The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The tables include both interest and principal cash flows.
WEIGHTED AVERAGE 3 MONTHS EFFECTIVE INTEREST <1 MONTH 1-3 MONTHS TO 1 YEAR 1-5 YEARS 5 YEARS TOTAL RATE % $’000 $’000 $’000 $’000 $’000 $’000
2017 Trade and other payables 0.00 - 124,365 - - - 124,365 Borrowings 2.05 - - - 78,968 - 78,968 - 124,365 - 78,968 - 203,333 2016 Trade and other payables 0.00 - 160,478 - - - 160,478 Borrowings 2.73 - - - 55,446 - 55,446 - 160,478 - 55,446 - 215,924 There has been no change to the Group’s exposure to liquidity risks or the manner in which it manages and measures the risk from the previous year. The following table details the Group’s liquidity analysis for its derivative financial instruments. The table has been drawn up based on the undiscounted net cash inflows/(outflows) on the derivative instrument that settle on a net basis and the undiscounted gross inflows/ (outflows) on those derivatives that require gross settlement. When the amount payable or receivable is not fixed, the amount disclosed has been determined by reference to the projected interest rates as illustrated by the yield curves existing at the reporting date.
3 MONTHS <1 MONTH 1-3 MONTHS TO 1 YEAR 1-5 YEARS 5 YEARS TOTAL $’000 $’000 $’000 $’000 $’000 $’000
2017 Net settled: Interest rate swaps (49) - (152) (155) - (355) (49) - (152) (155) - (355) 2016 Net settled: Interest rate swaps (84) - (74) 40 - (118) (84) - (74) 40 - (118)
114 BLACKMORES ANNUAL REPORT 2017 115
------580 580 110 471 110 471 $’000 $’000 TOTAL TOTAL 1,165 1,165 ------471 471 1,165 1,165 LEVEL 3 LEVEL 3 ------110 110 LEVEL 2 LEVEL 2 ------580 580 LEVEL 1 LEVEL 1
$’000 $’000 $’000 $’000 $’000 $’000
FINANCIAL INSTRUMENTS (CONT.) INSTRUMENTS FINANCIAL INSTRUMENTS OF FINANCIAL VALUE FAIR
the fair value of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance within accordance are determined the fair value of instruments) derivative (excluding and financial liabilities other financial assets transactions. market observable current cash flow analysis using prices from accepted pricing models based on discounted generally not are include inputs for the asset or liability that techniques that valuation those derived from are 3 fair value measurements Level (unobservable inputs). data based on observable market the fair value of derivative instruments are calculated using quoted prices. Where such prices are not available, a discounted cash flow not available, are such prices Where prices. using quoted calculated the fair value of are instruments derivative of and option pricing the applicable yield curve for the duration analysis is performed using for non-optional derivatives the instruments and models for optional derivatives; observable for are 1 that prices included within Level inputs other than quoted those derived from are 2 fair value measurements Level prices). derived from (i.e. as prices) or indirectly (i.e. either directly the asset or liability, the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are markets traded on active liquid the fair value of terms and conditions and with standard financial assets and financial liabilities prices; to quoted market determined with reference for identical assets or liabilities. in active markets quoted prices (unadjusted) those derived from are 1 fair value measurements Level
There were no transfers between Levels 1 and 2. between Levels no transfers were There Derivatives and discounted based upon the applicable yield curves value of cash flows estimated present future at measured swaps are rate Interest rates. quoted interest derived from Unquoted equities FVTPL liabilities at Financial financial liabilities Derivative Assets: FVTPL Assets at Financial Financial financial assets Derivative Available-for-sale Financial Liabilities at FVTPL Liabilities at Financial financial liabilities Derivative 2016 Available-for-sale Financial Assets: 2017 FVTPL Assets at Financial Financial financial assets Derivative Available-for-sale Unquoted equities • • • of Position Statement Financial in the Consolidated recognised value measurements Fair grouped at fair value, recognition subsequent to initial measured an analysis of are following table provides instruments that financial The observable. to which the fair value is 1 to 3 based on the degree into Levels • The Directors consider that the carrying amounts of financial assets and financial liabilities recognised at amortised cost in the cost in at amortised the carrying amounts of recognised consider that financial assets and financial liabilities Directors The their fair values. approximate Statements Financial Consolidated fair values ofas follows: are determined The assets and financial liabilities financial • • 36 36.8 applied for the purpose of techniques and assumptions fair value measuring Valuation NOTES TO THE FINANCIAL THE STATEMENTS FINANCIAL TO NOTES JUNE 2017 30 ENDED YEAR FINANCIAL THE FOR Total Total Asset-backed securities reclassified from fair value through profit or loss profit fair value through from securities reclassified Asset-backed Asset-backed securities reclassified from fair value through profit or loss profit value through fair from securities reclassified Asset-backed financial assets held for trading Non-derivative financial assets held for trading Non-derivative Total Total BLACKMORES ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017
37 ASSETS PLEDGED AS SECURITY In accordance with the security arrangements of liabilities, as disclosed in note 21 to the Consolidated Financial Statements, all assets of the Parent Entity have been pledged as security. The holder of the security does not have the right to sell or repledge the assets.
38 BUSINESS COMBINATIONS 2017 No subsidiaries were acquired during the financial year ended 30 June 2017. 2016 Acquisition of Global Therapeutics On 10 May 2016, the Group signed an agreement to acquire 100% of the issued capital of Global Therapeutics Pty Limited and 100% of New Century Herbals Pty Limited (together ‘Global Therapeutics’). The Group paid cash of $22.9m and acquired net assets with a fair value of $15.4m, resulting in Goodwill on Acquisition of $7.5m. During the financial year ended 30 June 2017, adjustments to provisional accounting were made, which increased goodwill by $0.1m to $7.6m at balance date.
116 BLACKMORES ANNUAL REPORT 2017 117
537 3,906 3,504 91,701 61,096 91,164 37,753 98,808 221,831 140,065 361,896 207,705 154,191 160,735
(39) 2017 2016 2017 2016 $’000 $’000 $’000 $’000 8,190 4,186 40,899 37,753 94,669 81,180 209,401 123,119 332,520 114,732 156,829 175,691 40,938
STATEMENTS OF FINANCIAL APPROVAL EVENTS AFTER THE REPORTING PERIOD THE REPORTING AFTER EVENTS INFORMATION ENTITY PARENT
The Consolidated Financial Statements were approved by the Board of Directors and authorised for issue on 29 August 2017. of for issue on 29 and authorised by the Board Directors approved were Statements Financial Consolidated The 40 dividend Final August 2017 as described in note 28. final dividend of on 29 140 cents per share a fully franked declared Directors The 41 Commitments for the acquisition of property, plant and equipment by the Parent Entity plant and equipment by the Parent for the acquisition ofCommitments property, Not longer than 1 year Non-current assets Non-current assets Total income Other comprehensive agreements trade of have been made under the various free that claims a detailed review exemption undergoing is currently Blackmores of a review is ongoing and includes potential risks review This trades. and the countries with which Blackmores Australia in place between As codes. classification export to different relating to the use of pertaining and compliance to detailed requirements and opportunities reliable A continuing. bodies are regulatory external and discussion with relevant no conclusions have been reached the signing date, at no Accordingly outflows as an outcome of ofestimate or probable potential risks the completion ofreview cannot be determined. this June 2017. in the accounts for 30 liability has been recorded The Company has provided Letters of Support in relation to Pat Health Ltd, Blackmores International and Blackmores (Taiwan) Ltd, all Ltd, (Taiwan) and Blackmores International Blackmores Ltd, Health Pat to of in relation Support Letters has provided Company The Partnership. as well as for Bemore wholly owned subsidiaries of the Group, to enable payment financial accommodation of the have sufficient will the Company that expectation have a reasonable directors The of of Statements the date for a period ofsubsidiaries’ debts as and when they fall due signing the local Financial 12 months from least at the abovementioned entities. liabilities Contingent Financial performance Financial year for the Profit the debts of to its subsidiaries Entity in relation by the Parent into entered Guarantees Current liabilities Current Equity Issued capital Reserves position Financial Assets assets Current Liabilities Plant and equipment 39 the same as those are shown below, information have been applied in determining the financial which Entity, accounting policies ofThe the Parent to the Group. note 2 for a summary of to relating Refer accounting policies the significant Statements. Financial applied in the Consolidated NOTES TO THE FINANCIAL THE STATEMENTS FINANCIAL TO NOTES JUNE 2017 30 ENDED YEAR FINANCIAL THE FOR Total equity Total Non-current liabilities Non-current earnings Retained Total comprehensive income comprehensive Total Total liabilities Total BLACKMORES ANNUAL REPORT 2017 ADDITIONAL INFORMATION
NUMBERS OF HOLDERS OF EQUITY SECURITIES AS AT 31 JULY 2017
ORDINARY SHARE CAPITAL 17,226,533 fully paid ordinary shares are held by 20,795 shareholders. All issued ordinary shares carry one vote per share, and are entitled to participate in dividends. There are no options in existence. There are no restricted securities. There is no current on-market buy-back. DISTRIBUTION OF HOLDERS OF EQUITY SECURITIES
SPREAD OF HOLDINGS NO. OF ORDINARY SHAREHOLDERS
1 - 1,000 18,626 1,001 - 5,000 1,527 5,001 - 10,000 112 10,001 - 100,000 81 100,001 and over 15 Total 20,361 Holdings less than a marketable parcel 434
SUBSTANTIAL SHAREHOLDERS
FULLY PAID ORDINARY SHAREHOLDERS NUMBER PERCENTAGE
Marcus C Blackmore 4,219,835 24.50
TWENTY LARGEST HOLDERS OF QUOTED EQUITY SECURITIES AS AT 31 JULY 2017
FULLY PAID ORDINARY SHAREHOLDERS NUMBER PERCENTAGE
Mr M C Blackmore 3,316,401 19.25 Citicorp Nominees Pty Limited 996,409 5.78 HSBC Custody Nominees (Australia) Limited 968,032 5.62 Dietary Products Aust Pty Limited 601,270 3.49 Milton Corporation Limited 367,014 2.13 JP Morgan Nominees Australia Limited 343,275 1.99 Blackmore Foundation Pty Limited 278,200 1.61 National Nominees Limited 218,002 1.27 Mrs E M Whellan 191,934 1.11 Ms J A Tait 118,813 0.69 Mrs P G Wright 116,812 0.68 Mr R Shepherd 115,000 0.67 Rathvale Pty Limited 103,205 0.60 Blackmore Superannuation Fund 99,230 0.58 BNP Paribas Nominees Pty Ltd (DRP) 98,953 0.57 HSBC Custody Nominees (Aust) Ltd – GSCO ECA 61,268 0.36 BNP Paribas Nominees Pty Ltd (Agency Lending A/C) 60,223 0.35 Citicorp Nominees Pty Limited (Colonial First State Inv A/c) 45,342 0.26 Ms C Holgate 45,002 0.26 Ms C Cooper 40,164 0.23 Total 8,184,549 47.50
118 BLACKMORES ANNUAL REPORT 2017 119
Marcus C Blackmore Marcus (ChiefChristine Holgate Officer) Executive 29 September 2017 effective – resigned, of not Executives the Group: who are Directors David Ansell John Armstrong Chapman (Chairman ofStephen Directors) Helen Nash Wallace Brent Auditor Tohmatsu Touche Deloitte Solicitor David Lemon Online Blackmores on has a popular website containing information Blackmores Directors who are Executives of Executives the Group: who are Directors in general. Company and the to health approach natural a more is blackmores.com.au. address The blackmores.com.au Reports’). then click on ‘Annual (go to ‘Investors’, Shareholdings Consolidate To shareholdings their separate who want to consolidate Shareholders in writing. registrar into one account should advise the share Investor Information informationSecurities analysts and institutional investors seeking Financial Group should contact Dee Henz, about the Company on +61 2 9910 5162. Manager and Investor Relations Controller INFORMATION COMPANY ofBoard Directors receiving more than one copy should advise the share registrar registrar the share than one copy should advise more receiving all other will continue to receive shareholders These in writing. information. shareholder is available on our website at annual report The Corporate Governance Principles Governance Corporate the adopted by Governance Principles Corporate The blackmores.com.au available on our website at are Board Governance’) then click on ‘Corporate (go to ‘Investors’, Secretary. or contact the Company Mailing Annual Report or who are the annual report who do not want Shareholders
Company Secretary Company Canning. Aaron and Cooper Cecile are Secretaries Company The of Place Business Principal 20 Jubilee Avenue 2102 NSW Warriewood 5000 +61 2 9910 Telephone Office Registered 20 Jubilee Avenue 2102 NSW Warriewood 5000 +61 2 9910 Telephone Registry Share Limited Investor Services Pty Computershare COMPANY COMPANY INFORMATION Street 60 Carrington 3, Level Sydney NSW 2000 NSW Sydney +61 2 8234 5050 Facsimile Listing Securities Exchange quoted by the are shares ordinary Limited’s Blackmores (GPO Box 7045 Sydney NSW 1115) NSW 7045 Sydney (GPO Box +61 2 8234 5000 Telephone listing code BKL. Limited, Securities Exchange Australian Accounts Bank to Shareholders’ Payment Direct building society or credit to bank, Dividends may be paid directly electronically payments are These Australia. union accounts in The and confirmed by mail. on the dividend date credited so in this arrangement, you to participate encourages Company registry. contact our share please Change of Address should advise our share who have changed address Shareholders in writing. registry Number File Tax in lodging their tax file may be benefit to shareholders There registry. number with the share Discount Plan Shareholder 30% off the for personal use at can buy products Shareholders have been givenAll shareholders price. retail recommended Secretary contact the Company but please details of the plan, information. on +61 2 9910 5137 if more you would like BLACKMORES ANNUAL REPORT 2017 NOTES
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120 DESIGN | XANDERCREATIVE.COM.AU Blackmores Limited Australia’s Leading Natural Health Company ACN 009 713 437 20 Jubilee Avenue Warriewood NSW 2102, Australia Phone: +61 2 9910 5000 Fax: +61 2 9910 5555 blackmores.com.au