Rachel Carson Essays - Counterculture Of The 1960s, Rachel Carson

Rachel Carson Hello, my name is Rachel Lousie Carson. I was born on a farm in Springdale, Pennsylvania on May 27, 1907. My mother, Maria McLean Carson was a dedicated teacher and throughout my childhood she encouraged my interests in nature and in writing. She also encouraged me to publish my first story A Battle in the Clouds in the St. Nicholas magazine while I was in fourth grade. After graduating from Parnassus High School, I enrolled into the Pennsylvania College for Women. I majored in English and continued to write but I also had to take two semesters of science, which changed my life. In my junior year I changed my major to zoology, even though science was not considered an appropriate avenue for women. After graduating college in 1928 I had earned a full one year scholarship to Johns Hopkins University in Baltimore. This scholarship did not relieve me or my family of our financial burdens, so I worked throughout graduate school in the genetics department assisting Dr. Raymond Pearl and Dr. H.S. Jennings and I worked as an assistant teacher in the zoology department at the University of Maryland. In 1932 I received my masters in marine zoology. I continued working part-time as a teacher after graduating to help support my family through the early years of the Depression. In 1935 my father had a heart attack and passed away leaving me to provide for my mother. In 1936, my sister Marion passed away at the age of forty leaving behind two young daughters, and my mother encouraged me to take them in. That same year I took the civil service examination necessary for promotion to full-time junior aquatic biologist. I scored higher than all the other candidates ( who were all male) and became the first female biologist ever hired by the Bureau of Fisheries whom I was employed by for sixteen years as a writer. My article entitled "Undersea" which had been published in the Atlantic Monthly, won praise from scientists, naturalists, and literary critics, inspiring me to write my first book. Under the Sea Wind debuted in 1941 to critical acclaim in both literary and scientific circles but sales plummeted with the bombing of Pearl Harbor. 1942 I began working for the Fish and Wildlife Service promoting fish as an alternative to foods in short supply because of the war. By 1948 I moved into an exclusively male domain, earning the grade of biologist, and becoming the editor-in-chief of the Information Division. It was not an easy climb though; my close friend and associate Bob Hines once said I was an able executive with almost a man's administrative qualities. But it was Hines who also said that my qualities of zest and humor made even the dull bureaucratic procedure a matter of quite fun. My second book The Sea Around Us written in 1950 was "a book for anyone who has looked out upon the ocean with wonder." I won the George Westinghouse Science Writing Award for one chapter of that book entitled "The Birth of an Island." The book itself remained on the New York Times bestseller list for eighty-one weeks. Marie Rodell decided to re-release my first book at this time and I then had two books on the best sellers list. The success of the two books had given me the financial security my mother and I had been needing so I could finally leave the Fish and Wildlife Service to dedicate my life to writing. I moved to the coast of Maine and began working on my third book, The Edge of the Sea in 1955 which would detail life at the ocean's shoreline. This book remained on the best sellers list for twenty-three weeks. During 1956 one of my nieces had passed away and I adopted her five year old son Roger who I had always been especially fond of. My mother passed away one year later at the age of eighty-eight. I received a letter from Olga Owens Huckins in 1958 which inspired me to write my fourth book Silent Spring which I completed in 1962. In her letter she told me she was horrified to find birds dead and dying throughout her property. A few days earlier local agencies conducted massive, unannounced spraying of the pesticide DDT. I had long suspected the dangers posed by the use of DDT. I researched the matter and the results were frightening and I felt the whole story needed to be put in a book. I

Blackmores Limited Analysis Essays

Blackmores Limited Analysis Essays Blackmores Limited Analysis Paper Blackmores Limited Analysis Paper Table of Contents Title Page Executive Summary 3 1. Company Overview 6 2. Industry Analysis 19 3. Current Issues 33 4. Blackmores Financial Analysis 42 5. Share Valuations 53 6. Valuation Discussion 72 7. Appendix – Financial Statements 80 References 92 Executive Summary Blackmores Limited is an industry leader in both natural health and research, basing its principle activity on the development and marketing of health products and natural supplements. Blackmores Limited (BKL) listed on the Australian Stock Exchange on the 2nd May 1985. Ownership structure has remained relatively constant, with the largest shareholder with a total substantial holding of 24. 69% of the company is the Executive Director Marcus Blackmore, son of the founder Maurice Blackmore. The company has over 150 products, catering for all areas in natural health and vitamins. Products are distributed primarily through retail pharmacies, supermarkets and health food shops and operations now stem offshore to New Zealand and throughout Asia. Products are developed by Blackmores Scientific Researchers and are governed under the strict guidelines and control of the Therapeutic Goods Administration (TGA). Blackmores’ initial process of the research of alternate medicines was initially via the supply of products and funds to external researchers. However, the late 1990s saw the company to shift towards a more in-house, formalised process, with the appointment of a research manager based at Southern Cross University. This involvement runs from the supply of products to the full funding of clinical trials. Commitment and attitude towards their socially responsible and environmentally friendly business practices sits high on Blackmores’ priority list, continually incorporating more and more socially and environmentally sustainable practices to all aspects of their business model. The Complementary health care industry in Australia distributes primarily through its pharmacy and supermarket channels and therefore caters to customers in each of these markets. Competition in both markets is derived from two major firms, namely Symbion and Sigma Health. Blackmores is currently operating in an industry which has witnessed recent rapidly accelerating growth, placing itself at the beginning of its mature growth life-cycle. Blackmores is the only mainstream brand that has been able to diversify its position across health food stores, pharmacy, grocery and practitioner channels. An aging population, exchange rates and the expected increase of patients, have all had a significant impact on the operations of Blackmores, with many of these contributing to a variety of key success factors. The well-knows pan Pharmaceuticals scandal has had an astounding impact on the entire complementary health-care industry, with it now acting as a precedent for all industry and issues going forward. DuPont analysis highlights the rapid accelerating growth seen by the industry and Blackmores specifically. This is evident across all aspects of DuPont analysis, with ROE, operating cash flows and dividend growth reaching all time company records, just to name a few. Our final company analysis reveals share price to be in fact undervalued by all relevant measures expect for Free cash Flows to Equity. Further research implies this can be contributed to the excessively large increases in Cap Expenditure witnessed over the past 2 years. Blackmores is currently positioned to continue to uphold its market leading position in an industry which is ever-expanding. Exciting new opportunities in Asia present avenues for future company growth. Management has remained fairly constant and it’s capability in the past and going forward should allow the company to further develop with the ongoing changes in health-care and alternate medicines. We believe as such the company’s full potential has not been reached and as such is not being fully valued for the market, consequently presenting a long-term investment opportunity. 1. Company Overview Company Overview Business Description Blackmores Limited is a leading expert in natural health and research. Its principle activity is the development and marketing of health products and natural supplements throughout Australasia. The company has over 150 products and caters for all areas in natural health and vitamins. Products are distributed primarily through retail pharmacies, supermarkets and health food shops. A key reason for the success of Blackmores is the strong brand platform that has been developed and remains a differentiating factor in the marketplace from its competitors. Blackmores strategic planning is closely linked to its focus on heritage and core values. This enables the company to maintain their market position and to achieve continuous ongoing success for the both the company and its shareholders. Core values have been identified to include: Passion for natural health Integrity Respect Leadership Social Responsibility Products are developed by Blackmores Scientific Researchers under the strict guidelines and control of the Therapeutic Goods Administration (TGA). Company growth is highly important and is driven by high levels of research and development with particular emphasis placed on growing areas and problems such as obesity, cardiovascular and joint problems. The company is highly interested in international diversification and since its initial break into the New Zealand market in 1981; the company has paid particular attention to other emerging markets in the South-East Asian regions. These areas are of particular importance to Management, in the quest to meet goals and expectation, further develop the Blackmores brand name and capture a larger market share of the industry. ?Blackmores is the idea and vision of its creator Maurice Blackmore a naturopath in the 1930s, considered ahead of his time. ?Blackmores considers itself a leader and innovator in the continuous clinical research of health products. ?Blackmores considers it to be a socially responsible company and was successful in winning the 2006 Pharmaceutical Packaging Action Award for the reduction in packaging waste across the business. Blackmores sales and manufacturing is stringently regulated and tested by the Therapeutic Goods Administration. Company History Blackmores had its beginnings in the 1930s through the vision and passion of its founder Maurice Blackmore (1906-1977), an English immigrant with ideas ahead of his time. Maurice Blackmores’ belief in the health-giving properties of herbs a nd minerals led him to develop a system of healthcare based on naturopathic principles. Maurice Blackmore first opened a naturopathic rest home in Rockhampton, Queensland in 1934. He than moved amongst other Queensland towns before settling in Brisbane in 1938 when he opened the first health food store in the Fortitude Valley. Blackmore was a pioneer in the naturopathic industry which heralded him the title,’ the father of Australian Naturopathy. Blackmore helped establish the Australian National Naturopathic Association, a body setup to set the standards and codes of naturopaths in Australia. The company was setup initially in Brisbane in 1962 as Blackmores’ Naturopathic Organisation Pty Ltd as a family naturopathy business and this later expanded to Sydney. Maurice Blackmore retired in 1973 leaving the company to his son, Marcus Blackmore. On the 2nd of May 1985, Blackmores Laboratories Limited was listed on the Australian Stock Exchange. The company in an expansion phase acquired ‘Russell Health Foods’ and retail chain ‘Healthy Life’. The latter was later disposed of in 1991. In 1988, Blackmores’ established a manufacturing and distribution base in New Zealand. Fiscal 2001 The 2001 year saw a slowdown in the Australian and New Zealand market which saw sales revenue set at $76. 97 million. This could be contributed to the introduction of the GST which automatically led to a 10% price increase, or perhaps a slowdown in overall Australian GDP. Sales across South-East Asia were up nearly 24% as Blackmores attempted to move into the growing kids healthy snack market with the introduction of the product Fruity Bitz. Total dividends paid to shareholders for the year increased to 18 cents per share. Fiscal 2002 2002 saw sales revenue increase by 6. 5% to $81. 4 million however profitability was down 7. % on last years profit figures. Blackmores also implemented their new business system which was somewhat successful for the purpose of assisting with the problems associated with multiple products, channels, retailers, ingredients, suppliers and regulators. South-East Asia continued to be a strong winner for the company with increased and unprecedented growth despite a downturn in the local Malaysian and Thailand markets. New Zealand continued to be a difficult market and saw the reduction in capital base and sell-off of the Auckland premises. Positively, the Australian Medical Association seen traditionally as a staunch opponent to complementary medicine publicly expressed and acknowledged support for the industry. Fiscal 2003 2003 was an unprecedented year in Australian complementary medicine industry with the license suspension and total recall of all Pan Pharmaceutical products. While Blackmores was not directly affected by the recall it did face a significant increase in demand as competitors products were removed from the shelves. Sales increased domestically, as well as in the hostile Asian market whereby sales were incidentally boosted during the SARS epidemic. Interestingly in the ailing New Zealand market Blackmores formed a strategic alliance with PSM Healthcare, the leading New Zealand pharmaceutical and toiletries company to stock Blackmores range. A total dividend of 35 cents was paid to shareholders, as Blackmores increased marketing and customer relations. The Blackmores Health and Wellbeing Survey was conducted, and in light of the Pan crisis a greater commitment was made to research and development with over $1. 5 million granted toward external research at Southern Cross University. Fiscal 2004 2004 witnessed Blackmores’ achievements in protecting the market share that as captured in the post Pan-Pharmaceuticals fallout. Fully-franked dividends for the year were paid to shareholders at a rate of 46 cents. Debt levels were reduced to $6 million when compared to $8. 2 million in the year previous. Consumer sentiment seemed to be at a high, with specific atonement to the Wellness Revolution and widespread interest in maintain ing health. Fiscal 2005 2005 was an exciting year for the healthcare industry and in particular for Blackmores with sales climbing to $134 million and Group Net Profit growing by 26% over the year. A total fully-franked ordinary dividend of 46 cents per share was paid to shareholders as well as a special dividend of 14 cents. Debt levels were once again reduced, and excitingly the Company announced the construction of a new home base in Warriewood, on the Northern Beaches of Sydney. Fiscal 2006 The 2006 fiscal year saw Blackmores win the prestigious Hewitt Best Employer award with over 160 organisations over Australia and New Zealand taking place. The Asian market continued to flourish, with combined sales growth of 27. % in both the Thailand and Malaysian markets. Furthermore, Blackmores announced its intention to track and enter the Taiwanese market. This would represent the company’s first market entry for nearly a decade. Sales grew to $148 million as profit increased 20% over the previous year. Dividends grew to a fully-franked amount of 69 cents. Recent Financial Performance Source: IbisWorld Research and Development Blackmores places a large emphasis on the resear ch and development of products, and in particular the validation of products and their claims. This has mainly come about through a shift in ideas and attitudes mainly pushed by regulatory bodies, health professionals, consumers and suppliers. Blackmores has always been involved in the research of alternative medicines. This had been a difficult process in the past given the magnitude of products. This was initially through the supply of products and funds to external researchers. However, in the late 1990s, the company decided to formalise this with the appointment of a research manager based at Southern Cross University. This involvement runs from the supply of products to the full funding of clinical trials. Blackmores focus is mainly on clinical research rather than scientific research, with an overall goal of supporting the medium to long-term objectives of business development and marketing. Social Responsibility and the Environment Blackmores is highly regarded for their commitment and attitude towards their socially responsible and environmentally friendly business practices. Blackmores adopts socially and environmentally sustainable practices to all aspects of their business model. Blackmores places extreme importance from its clinical research, to responsible regulation, marketing claims, education and thoughtful attention to its employees. The company believes strongly in environmentally sustainable practices, and has achieved solid outcomes in its broad based approach to reducing packaging waste across all aspects of the business. The company has maintained the ability to reduce packaging waste in landfill, achieved a waste-free flow of packaging between the Balgowah plant and Brookvale warehouses; and has implemented a system of re-use for all cardboard cartons, shippers and pallets. The company has also created a virtually paperless system at its Brookvale warehouse with state-of the-art technology and software in which stock is electronically recorded on arrival and actioned on departure. Furthermore, the design of the new Warriewood site incorporates a number of features that will minimise Blackmores’ impact on the environment and incorporate the latest concepts in environmental stability. The following diagram outlines the flows of manufacturing, packaging and transportation that are taken to deliver the Blackmores range to the consumer. Furthermore, the company holds strong intrinsic values in terms of their employees and employee benefits. The companys executive chairman, Marcus Blackmore believes in â€Å"the 3 Ps – people, product and passion. † The belief is that if you can get those parts of the business right, the rest of the business takes care of itself. Some benefits that staff members enjoy include: A company subsidised on-site gym A subsidised staff cafeteria A profit-share scheme whereby twice a year all permanent employees receive a proportion of after-tax profit which can either be taken as cash, or Blackmores shares Staff discounts on the Blackmores range Paid maternity and paternity leave Extensive staff training and career development Weekly in-house massages A program that encourages all employees to donate 0. 5% of their salary to the charity of their choice, which the company than matches. Ownership Structure Blackmores Limited (BKL) listed on the Australian Stock Exchange on the 2n d May 1985. The largest shareholder with a total substantial holding of 24. 69% of the company is the Executive Director Marcus Blackmore, son of the founder Maurice Blackmore. The ownership registry of Blackmores is not dominated by one particular private company or individual investor. It should also be noted that managed fund investors do not hold a large percentage of the shares on issue. TOP 20 SHAREHOLDERS 30 April 2008 – Courtesy Blackmores Ltd No. HolderTotal Holdings% I/C 1Mr Marcus C. Blackmore3,994,30224. 68 2Dietary Products (Aust) Pty Ltd576,1323. 56 3JP Morgan Nominees Aust Ltd 436,7792. 7 4National Nominees Limited348,7102. 16 5Milton Corporation Limited305,1151. 89 6ANZ Nominees – Cash Income211,1271. 3 Gowing Bros Limited207,3631. 28 8Ms Jennifer Tait202,2811. 25 9Blackmore Foundation Pty Ltd200,0001. 24 10Sister Esther Whellan182,8681. 13 11Queensland Investment Corporation178,8111. 11 12Citicorp Nominees Pty Ltd155,0000. 96 13Mr Roy Shepherd109,6510. 68 14Trans State Nominees Pty Ltd109,1500. 67 15Rathvale Pty Ltd100,4110. 62 16Mrs Queenie Hannah Elisabeth Praeger94,9800. 59 17Invia Custodian Pty Ltd94,3020. 58 18HSBC Custod y Nominees80,5410. 5 19Mrs Patricia Gladys Wright78,8680. 49 20Patricia Gladys Wright Mark Gregory Wright James Gregory Wright76,6880. 7 Blackmores Limited Subsidiary Companies Source: IbisWorld Directors/Senior Management Source: IbisWorld Share Price Performance 5 YEAR SHARE PRICE PERFORMANCE – as at 28th April 2008 Source: IbisWorld BKL Historic Performance on $10,000 investment Source: Aspect Huntley Recent Company Announcements 28th April 2008 – Blackmores announce quarterly profits On the 28th April 2008, Blackmores announce a third quarter net profit after tax of $17. 5 million. This represented a 19. 6% increase on the same period last year. Australian sales increased by 6. % with moderate growth across the industry, with Blackmores’ market share remaining strong at 21. 6%. No new products were made available during the quarter but a number of new products a planned for the last quarter. Current Debt levels stand at $21. 8 million increasing due to the construction of the new Warriewood site which is nearing completion. Relocation remains scheduled for the first quarter in 2009. 24th April 2008 – Change of Directors Interest Notice Marcus Blackmore disposed of 100,000 shares as a donation to a private philanthropy program approved by the ATO. After the change and as of the 24th April 2008, the number of securities held directly and indirectly by Marcus Blackmore include: 3,994,302 ordinary shares held in the name of Marcus Blackmore; 2,1094 ordinary shares held in the name of Marcus Blackmore [Darlene Howie Account]; 576,132 ordinary shares held in the name of Dietary Products Australia P/L; 182,868 ordinary shares held in the name of Ester Mercie Whellan; and 14,364 ordinary shares held in the name of Estate of Late D Howie. . Industry Analysis Market Characteristics Definition The Complementary Health Care Industry is difficult to define, because it can encompass everything from organic food to homeopathic medicines such as food supplements, natural medicines and external products, such as skincare. This sector can also include over-the-counter products available without prescription. Nonetheless, complementary health care products are intended to maintain health, rather than treat illnesses. For the purpose of this analysis we define Complementary medicines as those of herbal, vitamin, mineral and/or other substance, presented in a ‘pharmaceutical’ dose form – these include, tablets, capsules, liquids, powders and/or other forms. Figure 1: Entire spectrum of complementary medicine. Statistics In Australia in 2000, it was estimated that 52% of the population used at least one complementary healthcare product. Recent studies have shown that it has now risen to more than 70% of the population using complementary healthcare products and a quarter of the population visit complementary health practitioners each year. Furthermore in regards to the entire world population it is estimated that between 40% and 90% use complementary medicine. A News poll survey conducted by the CHC (Complementary Healthcare Council of Australia) in September 2001 showed that out of all participants polled: -86% agreed that supplements have a role to play in maintaining good health; -83% agreed that supplements have a role to play in preventing illness; and -66% agreed that supplements have a role to play in helping cure illness. Research cited by the Australian Medical Association shows that more than 80% of GP’s have referred patients for some form of complementary therapy. Australian domestic sales of natural healthcare products exceeds $A1. 5 billion. The total expenditure on healthcare in Australia was estimated to be approximately $57 billion in the financial year ending June 2002, which would have equated to approximately $2,850 per head of population. Of this amount, the public cost is around $2,000, whi le the individual contributes $850. However the actual cost was $60 billion. More than $2. 5 billion a year is now spent on alternative and complementary healthcare in Australia in which the figure is growing by the day. Regulation – Complementary Medicines In previous years, complementary medicines were often regulated around the world as a subset of food regulation; however they were very often limited in what they could claim on labels and in advertising, and the quality standards for manufacture varied considerably. But over the past decade the increase in demand has caused complementary medicines to be regulated in global markets as â€Å"medicines† and â€Å"health care† products and not â€Å"foods†. With this shift have come improved manufacturing standards. Blackmores’ products are referred to in Australia as complementary medicines. They can also be referred to as traditional or alternative medicines and can include vitamins, minerals, nutritional supplements, herbal, aromatherapy and homeopathic products. Blackmores’ products are developed by in-house experts, using a combination of scientific evidence and hundreds of years of traditional knowledge. Products are made to exact requirements, with quality ingredients sourced from all over the world and produced under good manufacturing practices. Products are approved by regulatory bodies in each country where they are sold and are approved by Australias and the various importing governments stringent standards of safety. Complementary medicines are generally used for self-medicating of small minor deficiencies and for the purpose of maintaining general health and well-being. In Australia, complementary medicines are regulated by the Therapeutic Goods Administration (TGA) and all medicines must be registered with the Australian Register of Therapeutic Goods (ARTG). The Therapeutic Goods Act (TGA) 1989, came into effect on 15 February 1991 aims to ensure the quality, safety and efficacy of medicines and ensure the quality, safety and performance of medical devices. More than 15,000 medicines are listed on the Australian Register of Therapeutic Goods. Registered medicines have been evaluated by the TGA for quality, control and importantly efficacy. When any company makes claim in regard to efficacy they must have the supporting research. Complementary Medicines is a highly regulated industry in Australia which has put the industry at the forefront, helping protect all Australian and overseas consumers, ensuring that Australian consumers have medicines produced at a high level of quality control. Key competitors The Complementary health care industry in Australia distributes primarily through its pharmacy and supermarket channels and therefore caters to customers in each of these markets. Blackmores major competitors are tiered in these two distinct markets; the pharmacy channel where Bullivants (part of the Mayne Group) trading as Symbion on the ASX, is the main competitor, and the retail / grocery market where Nature’s Way, Cenovis and Golden Life all compete for market share. In terms of actual of product range and image within the pharmacy market Symbion can be considered Blackmores’ major competitor. However, there does not seem to be any no clear dominate service providers reaching Blackmores target industry, with much of this being contributed to the Pan Pharmaceuticals scandal, which essentially removed from the market a large amount of competition. In light of this, Blackmores recorded its market share, based on combined retail sales in both of the two channels, remained strong at 21. 6 per cent. Market Distribution and Access to Complementary Health Care Complementary health care are available to consumers through a number of different channels, with the total complementary health care market achieving a value in the target of $800 million to $1 billion AUS. Pharmacy remains a primary outlet for many complementary healthcare products, which is reflects approximately 40% of the entire market. This suggests the changing face of pharmacy practice as Pharmacists are becoming more knowledgeable about recommending appropriate complementary health care and otherwise employing in-store naturopaths to meet consumer’s needs. Health food stores are also an important distribution channel for many complementary health care products provided by Blackmores, which represents approximately 20% of the market. However in recent years there has been a shift in the availability of major brands through grocery channels which now has also increased to approximately 20% of the market, not only within the vitamin and mineral supplement shelves, but within the medicinal aisles competing alongside pharmaceutical products such as cold, flu and allergy relief. Direct to Consumer (DTC) sales also remain a consistent channel which are approximately 7% of the market for complementary health care, particularly those products with high brand loyalty to companies that provide a wide range of complementary medicine products. This distinct relationship is evident across a wide variety of Blackmores’ products. Another source of distribution is availability from a complementary health care professional such as; Herbalist or Naturopath which in itself represents approximately 10% of the market. It has become increasingly popular for appropriate medicines to be supplied as a part of a holistic consultation regarding the immediate and longer term health needs of a patient rather than just addressing immediate symptomatic problems. Barriers to entry The level or degree of barriers to entry into the Complementary Health Care industry will indicate how limited the industry is to new entrants. Ultimately Blackmores will be seeking to raise the level of barriers to entry into the industry, to minimise other potential competitors from entering the market and taking a portion of its market share. As stated before in previous sections of the paper the Complementary Health care industry is difficult to define as it covers so many different sectors. But if we focus on the products that Blackmores distributes, namely herbal, vitamin, mineral and other substances we can see that the industry is not dominated by any group of major competitors. We are aware that Blackmores is a recognised and strong performing company and based on its retail sales its share of the market only accounts for 21. 6%, which seems quiet small considering its industry leading position. The industry’s low level of concentration limits the power that the leading companies have over the rest of the market; hence they are unable to set the price like an oligopoly market and effectively remove the other competitors. In addition companies are not able to experience the full benefits of economies of scale due to their relatively small size. Thus no company has any significant cost advantage over any of the other competitors. There is a considerable level of regulation within the industry which has increased more so in the recent years from Australian government. Entry into the complementary health care industry requires strict processes which can potentially be a lengthy process. As mentioned, in Australia complementary health care products are regulated under the Commonwealth Therapeutic Goods Act 1989 and regulations are administered by the Therapeutic Goods Administration. These goods must be manufactured under the strict pharmaceutical standards of good manufacturing practice by Australian manufacturers and on many occasions regulators have been forced to take action. In one instance in April 2003 the TGA suspended the licence of Pan Pharmaceuticals, Australia’s largest manufacturer of herbal products, mineral and nutritional supplements at the time, and ordered the immediate withdrawal of hundreds of products it had manufactured. This in turn would deter many potential entrants into the industry. Overall, the current barriers to entry are high, this industry is on track to continue to grow in the future where we will possibly see a further increase to the restrictions into the industry and further developments in regards to regulation. SWOT Analysis StrengthsWeaknesses Most of the products used in Australia are manufactured in Australia to some of the highest standards in the world, based on GMP validation and strict therapeutic regulations. Low risk dietary supplements are effectively regulated under the same law as pharmaceutical drugs, except the supplements attract 10% GST where most drugs are GST-exempt. According to the CHC, complementary healthcare products can be of benefit in the management of some age-related diseases such as arthritis, certain types of cancer, heart disease and brain function disorders such as dementia, and help relieve symptoms of age-related changes such as the menopause. There is a 30% private health insurance rebate that is applied to some consultations, there is no subsidy for complementary health therapy. The increase use of complementary health care medicine can effectively reduce health care costs, as it evident that vitamin and mineral supplements and herbal supplements can reduce certain diseases, therefore there would be a reduction in hospital costs, maintenance costs etc. Pan recall has caused customers to think twice about purchasing complementary health care products. The non-prescription nature of these medicines means that the consumer is empowered to pursue a strategy of self-care. Greater training in undergraduate courses for medicine, pharmacy and nursing. There are minimal side effects with complementary health care products. Blackmores is the only mainstream brand that has diversified its position across health food stores, pharmacy, grocery and practitioner channels. Life Cycle The industry life-cycle illustrates the growth path of an industry and indicates the level of sales over the cycle’s time period. This is illustrated in the diagram below. Life Cycle of an Industry Based on the analysis of the Complementary Health Care market, the industry is at the ‘Rapid Accelerating’ stage of its life cycle. The primary reason is that people are living longer. Over the past century, life expectancy at birth has increased from 57 to 80 years. As an ageing population becomes more health conscious the greater demand for complementary health products will be a logical progression. More than $2. 5 billion a year is now spent on alternative and complementary healthcare in Australia and the figure is growing by the day. As people increasingly turned to complementary health cures, analysts forecast the emergence of a multi trillion dollar, global industry. Support Complementary Healthcare Council of Australia (CHC) The CHC of Australia is the peak body representing the overall natural and complementary healthcare industry in Australia. The CHC aims to enhance the health and wellbeing of Australia’s population through providing education and information on the use of complementary healthcare products. The CHC seeks to show that part of the answer in reducing public healthcare costs requires a different approach to healthcare policy. The CHC contends that by adopting healthcare practices that prevent illness, existing resources will be made available to provide improved levels of acute and crisis care. Implicit in this approach is the need for public education on the ability of individuals to take control of their health and prevent illness and disease, and the proven health benefits of lifestyle and natural approaches to maintaining good health. Basis of Competition The industry primarily competes on quality rather than price, although price does bare some importance. The stringent regulation of contemporary health care ensures the quality, safety and efficiency of medicines The industry however would have suffered substantially from decrease in revenue growth due to the Pan Pharmaceutical recall situation, where Pan Pharmaceuticals were accused of substituting ingredients, manipulating test results and for having substandard manufacturing processes. This caused the TGA to suspend the licence of Pan Pharmaceuticals and ordered the immediate withdrawal of hundreds of products it had manufactured. This reduced sales dramatically which in essence decreased the industries revenue. There is however no real external competition to this industry and it contains very low levels of globalisation. Most of the products used in Australia are manufactured in Australia to some of the highest standards in the world, based on GMP validation and strict therapeutic regulations. In addition the Australian companies do not have any significant exposure to any overseas markets. Although Blackmores is adopting a globalistic approach and as such does have significant and expanding operations in New Zealand and increasingly parts of Asia, which are mentioned throughout this report. Market Sensitivity The key factors that impact the performance of the Complementary Health Care industry include: Ageing of population The proportion of the population aged 65 or more is set to double over the next 40 years due to the fact that life expectancy for the average person is longer. Older age groups are typically more health conscious and are prepared to seek alternative ways to increase their general well being. Disposable Income This factor does not have a major impact on the performance on the industry but does contribute to the industries revenues. Changes to household disposable income directly affect the budget and expenditure paid on complementary health care products and may case some people to opt for cheaper alternatives. Typical economic factors that impact disposable income are petrol prices, interest rates, tax rates and the labour market growth, all of which are ripe in current economic conditions both nationally and abroad. Technological changes There is always constant research and developments when considering the prevention of illnesses. This is despite complementary health care products not being presented to the population as a cure for illnesses. Increasing patient expectations The public is demanding more autonomy and involvement in their own health care. They want to prevent or slow down ageing and aim to optimise health by achieving higher levels of functioning. Additionally, the exponential increase in scientific studies being published on these products has no doubt added to public interest and confidence in its use. Key success factors The key success factors to the Complementary Health Care industry are: Unwillingness to restrict healthcare to prescribed medication when ill and being prepared to test a range of natural products for our own condition all for a sense of wellbeing; There are minimal side effects with complementary health care products; Recent studies have indicated that complementary medicine is finding a growing preference amongst patients with chronic or serious diseases who are looking for natural options to assist in the ongoing management of these conditions; The population as a whole are longer-lived, more urbanised, more readily informed, more affluent, demanding and mobile; and Whilst interest in complementary medicine has increased among practitioners and patients, this has been paralleled by increasing support by the government. This is evident by recent moves to grant degree status to schools of natural medicine, exemption of some complementary medicines from GST, as well as government support for private health insurance, many of which cover complementary health care. 3. Current Issues Recent Acquisitions The PAN Pharmaceutical recall in Australia A ‘virtual tsunami’ was taken against the Complementary Health industry after Pan Pharmaceuticals was closed down by the TGA in early April 2003. Pan was the fourth largest supplier of natural ingredients in the world, and privately owned. It was serious competition to the drug industry, which was taking steps to get into the supplement market. The company was accused of substituting ingredients, manipulating test results and for having substandard manufacturing processes. The TGA was first alerted to the possible manufacturing problems when dozens of adverse reaction reports to a pharmaceutical motion sickness tablet known as Travacalm were lodged, a product that had been produced under licence by Pan Pharmaceuticals. After some investigation it was found that manufacture of this product was substandard and doses of active ingredient varied enormously from that stated on the label. Pan Pharmaceuticals was not given a chance to fix this product before the TGA closed the company down, and all of its 1400 other natural health products were ordered removed from the shelves by the regulator. Health food shops and chemist’s shelves were stripped nearly bare of product overnight. Pan was placed into the hands of a corporate liquidator which was well known as a consultant to the multinational pharmaceutical industry. Pan was disposed of (in record time) only six months later for a miniscule fraction of its true value, destined never to be a serious competitor to the drug companies again. Although the original product in question was a pharmaceutical drug, media attention remained focus on natural medicine products, with some commentators seizing the opportunity to call into question the value of complementary medicine in general. The regulator claimed that the public’s confidence in the Australian supplement industry had been undermined. This was done deliberately by the TGA after creating mass consumer panic by calling a ‘class one’ recall on vitamins, minerals and other health supplements. Class one meant the TGA claimed that Pan’s vitamins, minerals and other supplements had caused death or serious injury when in fact nobody had died of any of Pan’s supplements or anyone else’s supplements. As a result the Federal Government set up an expert committee to examine the role of complementary medicines in the health care system, including the supply of safe, high quality complementary medicines, quality use and timely access to these medicines, and the maintenance and responsible and viable complementary medicine industry. After Pan, the TGA began a regulating frenzy. The TGA closed dozens of companies, fined others and imposed crippling compliance fees on the rest of the mainly Australian based supplement industry. This created a nationwide shortage of natural health products and eliminated much of the multi national pharmaceutical industry’s local competition. Pan Recall Impact Lingers 30 Jun 2003 Two months after the Pan Pharmaceutical recall, the complementary health care industry is still reeling from the shock of Australias biggest medical recall. One WA retailer has been forced to close and industry groups have stated that hundreds of jobs have been affected across the country. Complementary Healthcare Council executive director Val Johanson said several retail outlets and small companies in the Eastern States had gone to the wall. Bigger companies had to contract and there had been hundreds of jobs lost. She said â€Å"overall turnover was estimated to be down about 15 per cent to 20 per cent, which was not as bad as had been initially expected†¦ Between 30 per cent and 40 per cent of products were still off the shelves. † We had reports of people coming in and buying up bottles of products that had been recalled but which they had used for many years and still had faith in, she said. The picture that is coming through is that there is still very strong support out there for natural health care products. But we are not out of the woods yet. The council had no knowledge of any serious adverse effects from Pan Products despite the company having made up 11. 4 billion doses last year. Ms Johanson further added that there had been 71 cases reported to the Therapeutic Goods Administration but the TGA did not believe most could be linked to Pan. She epeated concerns voiced at the time of the recall that the entire complementary health care industry was being targeted by the TG A because of the sins of one manufacturer. Marcus Blackmore, chairman of natural health care company Blackmores, which did not have any products manufactured by Pan, said the industry was devastated but people still strongly believed in the products. Where is the evidence that these products were ever harmful? he asked. Its like the weapons of mass destruction. The Government just went ahead with what they wanted to do anyway. He said Blackmores own research showed 14 per cent of people in Australia went ahead and used recalled products despite Government warnings. A spokeswoman for the TGA did not comment on the number of cases of adverse effects but it was made known that this would be carefully assessed. At this stage there was no link to any of the Pan products. She said it was disturbing that companies were in the position of having to close, but the health and safety of Australians was most paramount. Red tape and GST continue to hamper Australians’ wellbeing April 19, 2006 Marcus Blackmore made an impassioned plea to the Federal Australian Government to make access to complementary medicines cheaper and easier for Australian consumers. The Executive Chairman of the leading vitamins producer Blackmores Ltd. old the Australian Financial Review (AFR) that an independent review of the ‘red tape’ associated with complementary medicines was badly needed. Mr Blackmore, has been talking to government ministers about high industry manufacturing costs, and is lobbying for the removal of GST from complementary medicines, in line with the current GST waiver for prescription medicines. Mr Blackmore spoke to Tony Abbott, stating he believed said it is the treasurer’s problem. He believes federal and state government support is needed to remove the GST on complementary medicines. Consumers may also face higher prices for vitamins and minerals across all brands because the federal drug regulator, the Therapeutics Goods Administration (TGA) is trying to raise listing fees. Rent increases and falling revenues for the TGA have been cited as reasons for the increased fees that manufacturers will need to pay the regulator. Upcoming Issues Remove the GST from the complementary health care products for which there is evidence to show they are as effective as PBS listed pharmaceuticals; Remove the GST from complementary health therapies conducted by approved therapists for which there is evidence of effectiveness; Provide reliable public information of the safety and efficiency of complementary health care, including information software for GP’s and pharmacies; Continue to penalise poor manufacturing practice but reduce the need for costly testing, in line with the relative risk of the product; Integration of complementary health training into university based courses for conventional health care providers, particularly GP’s, nurses and physiotherapist; and Funding for more research into complementary health product and therapies. High Barriers to entry This industry specific issue has great impact on future earnings of Blackmores. The Complementary health care has relatively high barriers of entry. It is now highly regulated which can potentially discourage prospective entrants entering the market therefore Blackmores will have higher market share which in turn typically means higher earnings. If the barriers to entry were Blackmores could risk other companies taking portions of future earnings. By continuing to build on their service to customers, Blackmores can maintain industry leader and eliminate any issues of low barriers to entry. Interest rates Blackmores has recorded a relatively low debt to equity ratio of under 40% at the end of the 2007 calendar year. This ratio has been maintained over the past 10 financial years. It can then therefore be assumed that a considerable amount of their acquisitions are funded via equity rather than debt. This essentially removes a substantially the impact of interest rates on their borrowings. Although increasing the interest component of the liability, in the context of current financials this affect will be marginal at that. Maintaining such a low debt (gearing) ratio has the ultimate affect of allowing financing costs to remain down and as such potentially increasing their cash flow and future earnings. Exchange rates Fluctuating exchange rates have an impact on Blackmores. Their recent increase exposure and as a result sales activity in Asian markets means they are subject to the favourable and unfavourable movements in the Australian and Asian currencies. Either way the currencies move will have a significant impact on their future earnings of Blackmores, and will cause the value of their international acquisitions to either increase or decrease, respectively. Ageing Population The longer people live the greater the impact on Blackmores’ future earnings. Over the past century, life expectancy at birth has increased from 57 to 80 years. Older age groups are typically more health conscious and are prepared to seek alternative ways to increase there general well being. If people know that there are products out there to help achieve this then they will be more willing to purchase and use these products. 4. Blackmores Financial Analysis Recent Financial Performance Blackmores’ financial performance and share price activity is heavily dependant and strongly affected by market trends for both domestic and international macroeconomic conditions. In particular, is consumer confidence in which the company relies on heavily to enhance its revenues, and subsequently profit. Blackmores’ sales have increased sharply over 5 years with an 81. 83% increase rom 2003 to 2007, this has led to an increase in Profit before Interest and Tax (EBIT) of 147. 34%. 2007 witnessed an increase in revenue of 15. 99% and subsequent increase in EBIT of 21. 15%. 2003 to 2007 has been a period of sustained growth for the company due t o an increase brand awareness, increase in market share (as international markets such as the Asian markets flourished) and furthermore a shift in attitude towards the benefits of complementary medicines. Source: Blackmores Annual Report 2007 2003 was an unparalleled year in the area of complementary medicines due to the Pan Pharmaceutical Crisis whereby a number of Blackmores’ competitor’s products were removed from stores. Blackmores’ products were not directly affected by the recall and as a result, the company faced a significant increase in demand. The industry crisis caused sales to increase 14. 08% from 2002 to 2003. Earning per share has continually increased as has the amount of dividends paid to shareholders. Blackmores share price has steadily increased each year, finishing at $20. 56 as at the 30th June 2007. Figures: Aspect Huntley Similarly to Blackmores’ sales trend, total assets have grown considerably from 2004 to 2007. This is largely due to the development and construction of a new site in the Northern Beaches of Sydney, set for completion in mid-2008. Long-term debt has also increased from $10 million in 2006 to $15. 4 million in 2007. Net borrowings are at its highest since 2004, but unlike 2004 where Net Gearing was at 21. 81%, Net Debt Levels are now 12. 11%. Furthermore, the increase in gearing should not warrant a large increase in Blackmores’ riskiness as the funds are being used for investment purposes with the aim of streamling business activities and the clear intention of increasing profitability. Figures: Aspect Huntley Operating cash flows has increased to its highest ever levels in 2007 to $16. 79 million. This is a result of increased revenues and cash receipts from its customers. The large investment spending from acquisitions and the purchase of operating assets in 2007 was partly offset by the greater increase in customer receipts. Investment Cash Flows grew to an outflow of $7. 58 million in 2007. This is directly related to the purchase and investment in property and production infrastructure. Interestingly, Blackmores’ purchased $13. 61 million of production, parts and equipment in 2006 however this was offset with the sale of $9. 8 million of non-current assets. 2006 and 2007 witnessed a combined total borrowing of $31. 88 million which was offset by a combined total repayment of $22. 50 million. Furthermore, dividends grew to over $10 million for the first time. Du Pont Analysis The Du Pont Analysis system aims to provide a measure of a firms return on its total assets. The return on total assets can be made up of the net profit margin that is depicted on the left hand side of the chart, and the total asset turnover of a firm, which is depicted on the right hand side of the chart. The formula for calculating a firm’s total return on assets is: (Net profit/Total asset)= (Net profit/Net sales) x (Net sales/Total assets) According to this formula Blackmores’ historic return on assets is: Source: Aspect Huntley In 2007, Blackmores has made a 20. 41% return on its total asset base. Return on Equity (ROE) The Return on Equity (ROE) measures Blackmores’ return from the capital raised by its shareholders equity. This ratio can be broken into the contributing factors of a firms ROE. Du Pont ROE analysis distinguishes between the results of a firm’s decisions regarding operating and financial leverage, which is accomplished by measuring the underlying determinants of the return of assets used by separating the effects of the amount of debt used by the firm from the cash flow implications of that chosen amount of debt. The Du Pont ROE framework is as below: We have chosen to compare Blackmores (BKL) with two of its closest competitors in the industry of complementary medicines. When deciding upon Blackmores most relevant competitors we took into consideration opposition products that consumers would directly compare against, when purchasing from supermarkets and retail outlets. A summary of the companies are outlined below: Symbion Health Limited Symbion Health Limited formally Mayne Group Limited, is a health-care focused company comprising of 5 divisions, medical centres, imaging, pharmacy services and Symbion consumer services. Symbion complementary and consumer brands include Natures Own, Cenovis, Golden Glow, Bio Organics, Natures Nutrition, Bullivants and Vitelle. Symbion Health Limited provides wholesale distribution of pharmaceutical and healthcare product lines to around 3,000 retail pharmacies, as well as public and private hospitals. Its brands include Terry White Chemists and Chemmart. Furthermore, it is a provider of nutraceuticals (vitamin and mineral supplements) with over 1. 3 billion tablets and capsules produced annually. Sigma Pharmaceuticals Limited Sigma Pharmaceuticals Limited (SIP) is a developer of generic pharmaceutical products and a distributor of pharmaceuticals for pharmaceutical companies across Australia. Sigma Pharmaceuticals Limited is the new name of the company listed on the Australian Stock Exchange (ASX) following the merger between Sigma Company Limited and Arrow Pharmaceuticals Limited on 19 December 2005. The operation of a pharmaceutical business encompasses the manufacturing, development and distribution of own branded and contract over the counter, prescription and generic pharmaceutical products for the Australian and overseas markets. Sigma’s product range includes Herron, Amcal, Chemist Own and all Guardian generic products. Sigma Company Limited was founded by two Melbourne pharmacists in 1912 and aims to be the leading Australian pharmaceutical manufacturer and marketer, and the most efficient pharmaceutical wholesale distributor and retail banner group in Australia. Summary of Extended DuPont Analysis Year end 31st December, 2005 Total RevenueBlackmoresSymbion HealthSigma Pharmaceuticals EBIT/Sales13. 10%4. 51%5. 66% Sales/Total Assets227. 00%93. 88%112. 59% EBIT / Total Assets29. 86%4. 23%6. 37% Profit Before Tax / Total Assets28. 54%3. 69%5. 11% Total Assets / Total Equity193. 00%162. 58%154. 49% Profit Before Tax / Total Equity55. 32%6. 00%7. 74% Return on Equity38. 39%3. 32%5. 21% Inventory Turnover917. 97%918. 80%744. 56% Current Ratio1. 54%1. 12%1. 09% Gross Gearing Ratio21. 24%26. 79%20. 25% Asset Turnover Ratio227. 92%93. 89%103. 93% Summary of Extended DuPont Analysis Year end 31st December, 2006 Total RevenueBlackmoresSymbion HealthSigma Pharmaceuticals EBIT/Sales14. 09%4. 64%6. 12% Sales/Total Assets217. 71%159. 01%132. 69% EBIT / Total Assets30. 68%7. 37%8. 13% Profit Before Tax / Total Assets29. 80%3. 69%6. 50% Total Assets / Total Equity185. 59%264. 03%153. 86% Profit Before Tax / Total Equity55. 32%16. 45%10. 01% Return on Equity39. 28%-0. 06%7. 32% Inventory Turnover1031. 3%11122. 00%762. 25% Current Ratio2. 38%1. 09%1. 89% Gross Gearing Ratio27. 18%7339. 00%22. 73% Asset Turnover Ratio217. 83%15898. 00%103. 93% Summary of Extended DuPont Analysis Year end 31st December, 2007 Total RevenueBlackmoresSymbion HealthSigma Pharmaceuticals EBIT/Sales14. 25%4. 83%5. 27% Sales/Total Assets207. 45%171. 87%145. 44% EBIT / Total Assets29. 56%8. 30%7. 67% Profit Before Tax / Total Assets29. 43%6. 58%9. 11% Total Assets / Total Equity191. 26%254. 19%172. 48% Profit Before Tax / Total Equity56. 29%16. 72%-4. 09% Return on Equity38. 34%13. 32%6. 43% Inventory Turnover1134. 34%1368. 43861. 23% Current Ratio2. 52%1. 111. 82% Gross Gearing Ratio35. 41%68. 6639. 04% Asset Turnover Ratio207. 50%93. 89145. 45% EBIT / Sales This ratio calculates the operating profit margin of the business and reflects the rate of profit (before interest and tax) on sales. It also gives an insight into the relative cost structure of the firm. Blackmores’ EBIT / Sales ratio has grown slightly over the three year period in question returning 14. 25% in 2007. The other peers seem to be negatively performing with relatively low percentage figures. Sales / Total Assets This ratio represents total asset turnover, which indicates the effectiveness of the company’s use of its total asset base. Blackmores shows to be making quite effective use of its total asset base. Although this has decreased over the 3 year period, it is likely to increase upon completion of the new site. Both Symbion and Sigma have made large percentage gains, mainly due to also being in a development stage. EBIT / Total Assets This ratio represents operating profit relative to the firm’s total assets. It indicates the effectiveness of the company to generate profits from its asset base before allowing for the effects of financial leverage and taxation. Blackmores seems to be well established in their asset turnover as, again they financial figures seem to keep them much above the rest of their international peers with 29. 6% in 2007. Symbion overtook Sigma in 2007 with a 0. 93% gain. Profit before Tax / Total Assets This ratio represents return on assets prior to the distortion of taxes. Calculating return of assets prior to taxes is particularly relevant in this instance as we are comparing fi rms with international operations. Blackmores’ are producing higher returns in comparison to their asset base with 29. 43%. Their closest competition is Sigma with 9. 11%. Total Assets / Common Equity This ratio represents the financial leverage multiplier (FLM) which demonstrates how much a company has leveraged its shareholders equity (by raising debt) to build its asset base. A higher FLM implies higher financial risk and a greater risk to return for equity holders due to an increased portion in cash flows to debt holders. Profit before Tax / Common Equity This ratio represents the return to equity holders prior to the payment of tax. Blackmores is returning a considerable amount of their profit to equity holders in comparison to their peers with 56. 29%. Return on Equity Return on Equity (ROE) is an important measure of the performance of a business as it indicates the rate of return that management has earned on capital provided by shareholders. This ratio can be broken into the contributing factors of firms ROE. Blackmores have a significantly higher return on equity than any of their other international peers, recording a current ROE of 38. 34%, in comparison to Symbion, with the next highest ROE of 13. 31%. It is a financially healthy sign that Blackmores’ growth in comparison with its peers is successfully being achieved. Inventory Turnover Ratio Inventory turnover aims to determine how productively the company has been utilising their inventory. This is particular important for firms such as Blackmores who rely heavily on the movement of inventory in order to produce income. Current Ratio Calculated by dividing current liabilities by current assets. This ratio is a useful measure of the short term debt-paying ability of the company. The higher the ratio, the more liquid the company is. Whilst a ratio of 2 or more was traditionally considered desirable many companies have reduced this in recent years, as operating cycles have shortened. It is more relevant to understand the ratio in the context of the sector average and the trend over the last few years. Blackmores’ current ratio has increased over the period while both Sigma’s and Symbion’s have reduced from 2005 to 2007. 5. Blackmores Share Valuation Assumptions Evaluation Timing All of our evaluations are as at the 8th May 2008, where our forecasts for 2008 and beyond incorporate the relevant data and market news of the past four years. Beta (? ) Beta is a standardised measure of systematic risk that relates the individual asset covariance to the variance of the market portfolio. Blackmores’ Beta is measured against the Australian market and was listed as 0. 671. The All Ordinaries, the primary Australian market index, was listed as 1. 092. Risk Free Rate (Rf) We have assumed the Australian Government 10 year bond rate as the relevant measure of risk free return. The current 10 year bond rate is 6. 19%2 on the 8th May 2008. Market Risk Premium (Rm Rf) The valuation of Blackmores using the CAPM approach requires the calculation of a market risk premium. This can be defined as the difference between the expected return on the market and the risk free rate. The market risk premium represents the compensation risk adverse investors require to be enticed into investing in the riskier market portfolio. Using the SP 200 index as our benchmark market portfolio, we have assessed the expected market return to be 11. 12% on the 8th May 2008. Based on this assumption, the market risk premium is 4. 93%. Expected market return can be defined as follows: Ke= Rf+ ? (Rm-Rf) Where: Rf = Risk Free Rate of Return ? = Beta (Rm-Rf) = Equity Risk Premium Based on Blackmores’ beta and the market risk premium, their cost of equity is equal to: Ke=6. 19%+0. 67(4. 93%) = 9. 4931% 1. Aspect Huntley FinAnalysis 08/05/2008 2. Comsec All Ords Index 08/05/2008 Dividend Discount Model (DDM) The dividend valuation model is a commonly used discounted cash flow model that assumes that the current value of a companies stock is equal to the present value of all future dividends. V=? (Dt/1+k) Where: V = Value of common stock Dt = Dividend during period t K = Required rate of return However this model does not take into account a company’s future growth prospects. As such, the DDM can be extended to assume that future dividends grow at a constant rate for an infinite period. In effect, this approach treats dividends as a growing annuity. V=? (Do (1+g)/ ke-g) Where Do = Dividend payment in the current period G = Expected growth rate of dividends Ke = required rate of return While this approach is not suitable to companies with varying rates of growth, it becomes a suitable valuation technique in the analysis of companies such as Blackmores, who have historically been able to maintain a relatively stable dividend growth rate. This stems from the first major assumption that the DDM, which intuitively concludes that dividends are steady, or grow indefinitely at a constant rate. However, even for the most historically proven steady, reliable, blue chip-type stocks, it can be a seemingly difficult task to forecast exactly what the dividend payment will be next year, let alone the preceding decade. In itself, the DDM attempts to demonstrate the underlying principle that a company is worth the sum of its discounted future cash flows. The question of reliability and accuracy of this means of cash flow measurement becomes an entire other question. The real challenge thus lies in ensuring the model remains in keeping as applicable as possible to reality, incorporating the most reliable and up-to-date information in assumption models. Blackmores’ Dividend Policy History Since listing on the stock exchange on 2 May 1985, Blackmores have paid dividends in each year. The payout ratio has remained comparatively stable throughout the past ten years, maintained at just below 90%. Dividend Forecasts Blackmores’ future dividend growth will heavily reflect the growth of its revenues. Despite the supernormal growth that has been observed over the past number of years, industry growth rates from prior years are not sustainable. Despite becoming an industry leader following the Pan Pharmaceuticals scandal in 2003, we believe that the market will mature with competition re-joining in the long-term (post 2013), thus reducing the market power held by Blackmores. In light of this, Blackmores is uniquely positioned to benefit from an ageing population and increasing health conscious consumers. Management has established a strong long-running reputation consistently providing shareholders with steady returns and growth. They will, therefore, continue to enjoy a healthy growth rate, however at a much lower, steady rate. It is forecast that over the next five years, an ageing population, increased popularity of alternate medicines and an increase in the Asian market growth, along with the strong and steady Australian currency, should allow the industry to maintain its credibility and maintain growth. Looking beyond 2012, these steady returns can again be maintained through a matured industry and large barriers to entry, making it difficult for competitors to penetrate the market. Substantial overseas gains may be eaten away due to the currency impact affecting these off-shore revenues. As a result, we believe Blackmores will grow going forward in a constant manner, with dividend growth rates eventually increasing in line with a constant-growth model. Utilising a constant growth model, we have split the stages of growth into three time periods. They are: To reflect and assist in most accurately assessing the sensitivity of changes to our valuation assumptions, we utilised the multi-stage model in our analysis. Multi Stage models take the DDM a step closer to reality by assuming that the company may experience differing growth phases in the future. Stock analysts build complex forecast models utilising many phases of differing growth to better reflect real prospects. By incorporating a Multi-Stage growth model into our sensitivity analysis, it essentially allows any changes to future company growth outside the constant growth model to become evident and the overall affect this will have on the forecasting of share prices. Considering our forecast dividend growth rates, we have applied them to the Dividend Discount Model (DDM) below: Based on our model Blackmores is valued at $21. 81, which is at a premium to the current market price of $19. 45 (05 May 2008). Therefore, according to the DDM Blackmores is considerably undervalued by the market, trading at just over 12% below our estimation. Sensitivity Analysis The DDM is sensitive to both the

38 Amazing Cause and Effect Essay Topics (Updated 2019)

38 Amazing Cause and Effect Essay Topics Every cause has an effect and every effect has a cause. In philosophy this is known as the First Cause principle. The Greeks established this line of thinking centuries ago and the West picked it up and ran with it. While philosophers of the modern era might reject the notion of causality, they won’t help you get out of having to write a cause and effect essay. So to help you out, here are some cause and effect essay topics that might make your job a little easier. Table of Contents1 Cause and Effect Essay Topics1.1 Good Cause and Effect Essay Topics1.2 College Cause and Effect Essay Topics1.3 Easy Cause and Effect Essay Topics1.4 Creative Cause and Effect Topics2 Conclusion Cause and Effect Essay Topics Good Cause and Effect Essay Topics Good cause and effect essay topics are all around us. Think about the world in which you live and then ask yourself, â€Å"Why are things the way they are today?† Focus on anything—some element of politics, some social norm, some economic practice—and it will serve as good a place as any to start your inquiry. Try these questions for starters. What were the direct and indirect causes of the Civil War? The Civil War is known for being a controversial topic—and many historians are still divided as to what really caused it. A good cause and effect paper on this topic will look at the many different direct and indirect factors that can be said to have led to the outbreak of war between the North and the South. And there are plenty of variables to discuss! What was the effect of WW2’s outcome on the geopolitical world order throughout the second half of the 20th century? In many ways World War Two defined the latter half of the 20th century. It instituted a new world order with the U.S. essentially calling the shots in the West as the new dominant role player. It is also paved the way for an increase in tension between the Eastern and the Western spheres. Geopolitical games were just beginning with the end of WW2. So a good way to broach this subject would be to discuss the many different ways that WW2 impacted geopolitics in the latter half of the 20th century. What caused the Great Depression? Some—like former Fed Chairman Ben Bernanke—say it was the Fed, others an increase in easy credit that led to unwise spending and speculation. Researching the crash and the after effects of this interesting time in American history can be a good way to begin work on finding the causes that led to the Great Depression. What effect has cultural Marxism had on the West? The Frankfurt School had some interesting things to say about modern culture. They also had some interesting ideas about how to change the world to align it more with the ideals of the Marxist doctrine. Starting with Adorno and his pals in the Frankfurt School, you could begin tracing the effects that the cultural Marxists had on the West. No doubt you’ll certainly come to understand a little more about why things are the way they are today. What is the effect of carbon emissions on the atmosphere? Cars and trucks get blamed a lot for the increase of greenhouse gases in the atmosphere. However, what would you say if you were told that the agriculture and farming industry along with the energy industry are responsible for the lion’s share of pollution in the atmosphere? Researching the effect of carbon emissions on the atmosphere can be a good way to find out what might really be behind global warming. What is the cause and effect of political correctness? Ever wonder where the idea of political correctness came from? Ever wonder what kind of effect the practice of political correctness has on society? Here’s a good place to start. What effect does the melting of the polar ice caps have on the global environment? Everyone’s heard of global warming—but not many people know all the ways in which the melting of the polar ice caps could impact the planet. What is the cause of inflation? How does money work and what makes a currency lose value over time? Moreover, what effect does inflation have on the economy, on one’s savings, and on one’s job? Answer these questions by finding the cause and effect of inflation. What effect has the Federal Reserve had on the value of the dollar over the past 100 years? The Fed was founded more than a century again amid some very peculiar backroom dealings on Jekyll Island. Since that time, it takes significantly more USDs (or Federal Reserve notes) to buy what one could have purchased for far fewer notes 75 years ago. Is there a correlation between the institution of the Fed and its power to print money? What has been the effect of globalization on Western society? Western society—and indeed much of the world—used to be far more divided and insular than it is today. Today, while we may have borders and laws about immigration the fact is that much of the world has become homogenized and open. How did this happen? Start your cause and effect paper by researching the causes and effects of globalization. College Cause and Effect Essay Topics College cause and effect essay topics can be ambitious or simple. The key to writing a good college cause and effect essay is to ask a good question and then start tracing out the ways in which events transpire so as to show the cause of the subject in question and its effect. Here are some questions to help jump start some creative ideas on your part. What were the primary causes of Brexit and what will the effects of the UK leaving the EU be on the West? England’s vote to leave the EU was certainly historic in many regards—and no one knows quite what impact it will have on the West. However, there are plenty of good opinions out there backed up by solid, logical claims—which makes this a particularly good cause and effect essay for your college paper. How are the effects of populism and nationalism manifesting in countries around the world today? Nationalism and globalism seem to be in a head-to-head contest today, though with the nature of society being so thoroughly globalized it is difficult to see how any real nationalist movement could have much impact on things. Nonetheless, the growing tide of populism and nationalism can be seen everywhere people are dissatisfied with the current state of government in their country. What will the effects of this rising tide of nationalism be in the long run? And what caused it to come about in the first place? What has been the economic effect of Qualitative Easing? Quantitative Easing (QE) was launched in the wake of the 2008 collapse—and markets have not been the same since. What caused the fall of Lehman Brothers? The fall of Lehman Brothers set off a cascade of defaults and collapses all around the globe. How and—more importantlywhy did this happen? What caused the fall of Enron? Enron was for a short period of time the darling of Wall Street. Ken Lay and Jeff Skilling could do no wrong—until suddenly they could do nothing right. Find out what caused the fall of Enron. What was the cause and effect of Confucianism in the East? Confucius was a kind of Renaissance Man of the ancient East. Where did his ideas come from and what did they lead to in places like China and Japan? You might be surprised to find that in many ways Confucius was simply passing on what he himself received†¦. What is the effect of violence in the media on society? No one can argue that violence in the mainstream media has diminished over the years. Quite the contrary: there seems to be more violence today than ever before on both the big and small screen. So what is the effect of all this blood and guts getting spilled out all over screens across America? Does it actually have an impact on society? What is the effect of listening to Mozart while doing homework? A few studies have examined the claim that listening to Mozart actually improves your brain’s capacity to focus and retain information for a short-term duration. Find out how this happens and explain the effects of classical music on the brain. What was the cause and effect of humanism on the Italian Renaissance? The Italian Renaissance was a time of swirling activity and shifting balances of power. Artists were hired to propagate new ideas and a clear shift in thinking could be discerned as the effects of humanism spread throughout Europe. What caused the fall of the Soviet Union? The Soviet Union and the U.S. were engaged in an ideological battle throughout the Cold War. Then things began to turn south for the Russians. What caused the once proud Soviet Union to fall apart? What was the cause and effect of the Counter-Reformation? Most people know that the Reformation was fueled by men like Luther, Calvin, Knox and Henry. But do you know what led to the rise of the Counter-Reformation, who spurred it on, and what it achieved? What is the effect of poor leadership on organizational culture? Everyone loves a good leader—but what happens when you have a bad leader in your workplace? If good leaders produce positive results, do poor leaders cause negative results to happen? Easy Cause and Effect Essay Topics Easy cause and effect essay topics don’t necessarily have to be based on simplistic questions. Sometimes what makes an easy topic is the fact that there is so much written about it that you’ll have no trouble identifying causes and effects. Try some of these ideas below to get your paper going. What is the cause of the epidemic of obesity in America? Obesity is a major problem in America. But what causes it and what are the serious effects of being overweight?   Many studies have been conducted in recent years to help researchers address this question.   Places like PubMed are great databases to use to start getting the information you’ll need to write this one. What causes a tornado to form? Tornado chasers have one of the most thrilling jobs—when there is action to chase. What happens though when there is not a tornado in sight, and what kind of conditions are needed for tornado formation?   Find out by writing a cause and effect essay on tornadoes. What effect did Prohibition have on U.S. society in the 1920s? Prohibition was meant to restore law and order—but it turned out to have quite the opposite impact. One of the most heinous effects of Prohibition was the rise of the bootleggers and organized crime.   There’s nothing like a little reform to make things worse all the way around. What do we know about the cause and effect of laughter? Did you ever wonder what makes us laugh and why it’s different for so many people? Did you ever wonder what effect laughter has on the body or on the mind?   Did you ever wonder if laughter can ever be a bad thing or if there are types of laughter than are less positive than others? Is genetics the cause of diabetes—or is it diet? Some studies have shown that a bad diet can be the cause of diabetes. Others point to poor environment.   Others point to genetics and the Pima Indians as proof.   Scientists may argue over the cause, but there’s plenty of research on the subject to help you make up your mind. What is the cause and effect of indigestion? If you’ve ever enjoyed a nice, hot plate of Mexican food only to experience terrible indigestion afterwards, this might be just the topic for you. How have the effects of U.S. foreign policy in the Middle East materialized over the past 50 years? What are some of the effects of America’s foreign policy in the Middle East? Iraq has crumbled and millions have been killed.   ISIS is now an existential threat to much of the civilized world not to mention to innocent civilians in the Middle East.   Parts of Syria have been destroyed.   Russia is now engaged in military operations there to help keep things stable.   Has it always been this way?   The past 15 years don’t look so good.   Have a look at the past 50 and see if it’s any better. What is the political effect of bipartisanship? Everyone who loves American politics, loves to talk about bipartisanship. So what’s the political impact of getting bipartisan support for a bill?   Is it always positive?   If so—how do you explain the Freedom Caucus? What are the positive and negative effects of social media on society? Social media is a great way to instantly communicate with friends. But there is also a hidden danger with social media—the loss of privacy.   With social media, the line between a private and a social life has been blurred—perhaps past the point of all return. What is the cause and effect of homelessness in U.S. cities? Homelessness is a subject that few like to talk about: it makes people uncomfortable because there are no easy solutions.   However, what causes homelessness to occur and the effects it has on society are far less difficult to point out. Creative Cause and Effect Topics What effect does teen usage of social media have on teen face-to-face social skills development? Teenagers are using social media and mobile phones to communicate now more than they ever have in the history of the planet. This new method of communication puts a lot of emphasis on digital and virtual connectivity.   So while teens may be more virtually connected, all this energy spent on the Internet may be causing a breakdown in face-to-face, real word contact. What is the cause and effect of â€Å"fake news†? Fake news made its debut in the media recently—so what brought it about? Is it something that is characterized by content, provider, or intent?   Moreover, what effect does fake news have on our culture? What is the cause of the tension between Russian and American political relations? The two nations were allies in WW2—yet ever since the start of the Cold War there has been incredible tension between the two nations. Why is this? What is the cause and effect of laughter? Why do people laugh? Why do they like to laugh?   Why does one person laughing invariably cause others to laugh?   Why are we attracted to laughter?   Why is laughter considered the â€Å"best medicine†?   What effect does laughter have on the brain and body? What is the cathartic effect of watching a tragedy on the stage? How does drama help to cleanse the soul? Why does viewing a character’s tragic story help an audience?   What did Aristotle have to say about tragedy? What is the cause and effect of usury? Usury was, once upon a time, forbidden in the West. Now it is taken for granted and even celebrated in the form of interest rates!   What is the idea behind usury as a practice, and what are the effects of usury—whether negative or positive? Conclusion Cause and effect essay topics are easy to come up with—they are literally all around us. As the Greeks pointed out long ago—and Shakespeare after them (â€Å"Nothing will come of nothing†)—for things to happen there has to be a cause. And for every cause there is an effect. The picture at the top of the page says it all: Newton’s cradle might have been used to demonstrate a point about the conservation of force—but that last ball doesn’t move unless someone moves the first.

The Fair Tax should be Implemented in the United States Essay - 1

The Fair Tax should be Implemented in the United States - Essay Example The fair tax enhances the fact that there is the same rate of tax without exemptions and exclusion on every taxpayer. There will be a total tax exemption to those who share on the cost of the government. The tax rate is determined and affected by the rate of purchase. To promote reutilization, the used items will not be subject to tax. In goods and services production, the purchase from business to another business will not be taxable. This fair tax will thus act as a replacement on the federal income tax on individuals, tax on capital gains, tax on self employment, and taxation on gifts and the estates. (Kotlikoff and Laurence, 2005). According to congressional report p 20190, the fair tax of 2003 was introduced to promote fairness, freedom, and economic opportunity by repealing the income tax and other taxes, abolish the revenue services that are interest, and enacting a sales tax nationally. In another term, the fair tax can commonly be called national sales tax. It is an essential tax reform item and that was unjust to replace it with a tax system that is simple and fairness. The fair tax Act of 2003 would repeal taxation on individual income, taxation on corporations, taxes on capital gains, payroll taxes, taxation on self employment, gifts and Estate taxes in lieu of 23 percent tax on all goods and services final sales. These taxes eradication will bring about simplicity and equality within the US system of taxation. The bill also provides transactions on business to business tax relief. The transactions are not subject t tax on sales including transactions on products and this helps in abrogating double taxation that may arise. Under the bill of fair tax, Medicare benefits and social security would not be touched. To either one of the vital programs, there would be no financial reduction. The trust fund revenue source

Organizational behavior Assignment Example | Topics and Well Written Essays - 250 words - 1

Organizational behavior - Assignment Example Positive organizational culture helps to improve the relationship between the organization and the regulatory authorities. Organizations with a positive corporate culture are guaranteed of success in the long-run. This is because customers gain a lot of interest in the products of a company whose organizational culture is strong (Bratton et al 10). It is also necessary for organizations to have a positive culture since it creates a favorable work environment. As a result, the employees feel motivated to work and give their best while performing the assigned tasks. Organizations whose cultures are positive can have the tasks performed effectively and with a lot of efficiency. Moreover, organizational culture helps organizations to adapt to change with a lot of ease. Compared to organizations whose corporate culture is weak, firms with a positive culture can adapt to changes in technology, as well as advancements in the way business is conducted. Organizations with a strong culture have the ability to create unique brands and at the same time perform well financially (Schein

Indian Luxury Consumer Essay Example for Free

Indian Luxury Consumer Essay The Indian Luxury Consumer: Rapidly maturing and looking for more Any study of the luxury market needs to conclusively address core questions around the luxury customer Who, What and Where. To fully understand answers to these questions, we interviewed existing and prospective customers across various locations, income and age groups. We also interviewed industry leaders across all luxury categories on the Indian consumer and the changes that they have observed over the last few years. In this section, we shall provide answers to three basic questions: 1. What constitutes luxury in India? 2. Who is the luxury consumer? What has changed in the last 2-3 years? 3. How is the behavior of the luxury consumer changing? 4. What are their specific tastes and preferences? 5. Where do they make their purchase? Luxury in India – more aspirational luxury than ultimate luxury Industry leaders across categories believe that luxury is not only determined by price. Exclusivity is a far more important parameter for a product or service to be called luxury. As such customization, uniqueness, and even understatement is important. Design, use of exquisite materials, presentation and personalized service all contribute to luxury. Consumers also talk about exclusivity, uniqueness and appeal to personal taste. This is not as yet corroborated by increased sales of â€Å"ultimate and subtle† luxury products. The majority of the market is still far away from this definition and brand/logo/badge value drive luxury purchases very clearly. Size, flashiness, clearly visible logos, well known brand are the key considerations in the purchase. That said, traditional attributes such as high quality, heritage, longevity, the â€Å"stories† associated with brands are beginning to emerge as drivers of purchase. Bulk of the Indian market is still dominated by the more accessible and aspirational luxury products. Status – announcing your arrival into the elite segment of the society – is the biggest motivation still. The mindset is still that of an â€Å"aspirer† not that of a â€Å"connoisseur†. The Indian luxury consumer new insights The Indian luxury consumer has been studied a few times now. Various segments have been identiofied by earlier studies. The old money/new money/gold cuffs/.. (Luxury Brands) and Industrialist/Corporate/Professional/ (Economic Times – A. T. Kearney India Luxury Review 2007). The focus of our consumer research was to find out how the consumer has evolved in the last 3-4 years. The accepted wisdom is that industrialists and traditionally wealthy families is the largest segment, senior corporate executives are a smaller but emerging segment and young professionals are entering the market. Our research has shown that by and large the consumer segments that constitute the bulk of the market have not changed significantly, although finer sub-segments are now more apparent: Medium size enterprise owners: This is the largest segment in terms of number these are typically the medium enterprise owners – industrialists and traders who run businesses with revenues upwards of 50 cr. The source of their spending is the surpluses generated by the business. Many of these have grown as the economy grew rapidly in the last twenty years. Their wealth is their passport to the elite segment of the society and conspicuous consumption is their way of announcing it to the society. The children who tend to be second or third generation are the bigger spenders, having been educated abroad and hence familiar with brands and the luxury way of living. They are now educating and enticing their more conservative elder generation into spending. Interviews also reveal that those who generate cash need to necessarily spend it and luxury goods are a good avenue for spending. These are very frequent luxury consumers and consume the entire gamut of products and services and some assets like cars and real estate. These consumers shop around for deals and bargains, including international travel. Traditionally wealthy families / large industrialists: This group comprises two sub-segments – the first is the traditionally wealthy families – who have been consuming luxury for several decades and go for the finer things in life. The largest business houses in the country and historically wealthy Marwari, Gujarati, Parsi, Punjabi families epitomize this class. The other sub segment comprises the promoters of some very large businesses which have come up in the last two decades and have created disproportionate wealth very quickly. Builders, miners, diamond merchants, stock brokers, new age enterprise owners fall in this category. Many of them have migrated to the highest ladder of luxury consumption very quickly by acquiring yachts, jets, houses and really expensive cars. Corporate executives: Senior executives of corporate India who are paid in excess of Rs. 1 crore and bankers who earn big bonuses epitomize this category. These executives are well traveled and are aware of brands. Most of these are in their mid-late forties and represent some of the brightest minds in the country. Many of them though have come from middle class backgrounds and hence have a conservative approach on conspicuous spending. While they can well afford to spend, their propensity to spend is low. A gradual change is being seen as they see more and more of their compatriots spend. These consumers spend on some luxury products such as watches, accessories, select apparel, fine dining, international and domestic travel and high end cars. They also tend to shop on their frequent international trips to get the best deals. Self employed professionals: These comprise of professionals such as lawyers, doctors and architects: A small but niche segment, comprising the top stars in their profession, who have made it big. While many of these come from middle class backgrounds, they use their new found wealth to live a good life. They shop for the entire range of products and services although are found less often at the absolute top end of the ladder. Young professionals: Working in service industries – these earn the least compared to the others, but since they don’t have family responsibilities, the disposable part of the income is high. They are in tune with the latest fashion trends, travel abroad once in a while and believe in spending on what they fancy. They tend to consume entry level products and are infrequent consumers. Other segments: Expatriates: Expatriates in the country are growing and they are staying for longer periods: These are on expatriate packages and are accustomed to luxury consumption in other parts of the world. However most of these fly back very frequently and stack up on their luxury products need on these trips. Luxury services and assets (mostly cars) are influenced in a small way by this segment. The segment is definitely driving the increasing awareness and need for luxury products Politicians and bureaucrats: Interviews reveal that politicians and bureaucrats are a large segment for all luxury products, but have a much more pronounced preference for jewellery, watches, cars and real estate. Contrary to the popular perception that is generated by the flashy lifestyles of film and television actors, they are not large spenders by themselves and collectively it is still not a large segment. Luxury consumption of film and TV stars is paid for by the producers. They alsoi shop abroad a lot. Many celebrities belong to rich business families and owe their luxury consumption to their family wealth or get a lot of luxury products as gifts. Citywise sub-segments: There are sub-segments in each city that drive most of the purchases: * Mumbai stock brokers, diamond merchants/exporters * Delhi – industrialists, traditionally wealthy, politicians, bureaucrats * Chennai – traditionally rich, industrialists * Bangalore – builders, IT top brass * Kolkata – traditionally wealthy Marwari businessmen, traders Age profile. The average consumer is still young – between 30-45. This is in line with the overall demographics and is expected to stay that way for some time. It is thus a young luxury market in contrast with some of the mature markets like Europe and the USA where the average consumer is much older (need some data here). Consumer Behavior We found that while the average Indian luxury customer values High Quality, Exclusivity and Social Appeal as key drivers of luxury purchase, they are also very Price Conscious and often straddled with a â€Å"middle-class mindset†. Corporate Professionals in particular tend to be more price sensitive than the Traditionally Wealthy and Business Owners. This is also due to the fact that the average â€Å"fashion consciousness† of Indian consumers is still quite low – most consumers prefer â€Å"well known† brands and make luxury purchases for â€Å"brand value† and not â€Å"fashion value†. The table below summarises the typical behavior patterns of the consumers in each of the segments | Medium Size Enterprise Owners| Traditionally Wealthy Families Large Industrialists| Corporate Executives| Self Employed Professionals| Young Professionals| Average Age| | | | | |. Awareness| Low| High| High| Medium| High| Fashion consciousness ( apparel and accessories)| Low| High| Low| Low| High| Price Consciousness| High| Low| High| Very High| Very High| Badge Consciousness| High| Medium-Low| High| High| Very High| Propensity to buy overseas| High| High| High| High| High| Greater awareness rapidly increasing and the entry of brands, development of malls and magazines has helped. Compared to three-four years ago, the number of people who can correctly pronounce Chanel and Gucci correctly has increased dramatically, although there is still a long way to go. What is interesting to note is that the Indian luxury customer is maturing rapidly and brand awareness has increased significantly over the past 3-5 years. Brands are beginning to see loyal customers who have their preferred set of brands. Among brands, the pedigree of a brand is very important. There is a heritage value with luxury brands – customer typically put more value on brands that have been around for many years. When it came to Indian brands, there is clearly a mixed perception. While most customers were willing to purchase luxury services from Indian players, the luxury products market still has a long way to go. Specifically in services, Indian service quality is considered to be at par with the best in the world. Within products, the categories that customer preferred have a high class value attached to it. Hence very select categories like jewellery and Indian designer apparel products are considered ‘luxury’. Fashion consciousness – changing very fast, dressing for a look increasing in the metros – still a long way to go – in the words of one of the luxury fashion CEOs Indians are â€Å"sartorially challenged†. The younger members of the rich families and the young professionals are leading are leading the pack. Badge consciousness – continuing, no doubt. A logo is probably the most important thing about a product. It is easier to sell a pair of sunglasses or a polo shirt where the logo is clearly visible than a shirt where it is not so obvious. Price consciousness – here to stay. The entire industry acknowledges this and both the principals and the Indian parties strive hard to match prices to make it price neutral for the Indian consumer who would not mind taking a flight to Singapore or Dubai or ask someone to get it, if the difference is more than 3-5%. The economics is simple – its costs 15-20,000 for a return trip (economy of course! ) to Dubai or Singapore. On a product costing upwards of Rs. 200,000, this is less than 10% of the product price. That puts a limit on the amount of premium that anyone will be willing to pay for products that can be easily purchased overseas and carried back. The grey market will willingly carry products for a fraction of the cost of a return trip. The only exception is cars – where it is not possible to bring it in – either legitimately or smuggled. Propensity to buy overseas – reducing but still very significant. One interesting observation is that Indian luxury customers are not averse to buying from India, just that they feel there are better avenues abroad. One of the key challenges is to provide luxury shopping destinations that offer a variety of brands under one roof. While most of them purchased from boutiques in New York or Malls in Dubai, in India there are not many avenues for luxury purchase. While most consumers also make luxury purchases in India, shopping abroad is still by far the preferred option. Consumers have certain perceptions about luxury shopping in India, that have held them back making large scale and frequent purchases in the local market. Interviews with industry leaders reveals that the consumer wants the same package here – merchandise (range, freshness), convenience (location), price and experience (ambience, service) – with an extra expectation of service, given that this is India, where labor is cheap. The development of the Indian duty free has meant that Indians have an option of buying duty free products in India when they arrive rather than carting it all the way from popular shopping destinations overseas. Consumers still believe that the widest, most recent range is not available here and that prices are more expensive here, though at least two of these clearly are myths that need to be broken. In fashion, collections are designed for the whole world once, no one creates separate collections for India and old collections are not available. Width of range is a trade-off that has to be made depending on the depth of the market, so that is a possibility. Converting the overseas market is a big challenge for retailers. Propensity to buy from the grey market – by all accounts, this is reducing in established brands. Concerted efforts by players to bring in the latest merchandise, efforts by brands to supply products at lower prices to India and Indian retailers willing to work on thin margins has meant that the consumer now gets a good bargain. New brands which consumers want and are not available find their way through this channel. Driver of Luxury consumption: Number of HNIs, HNI Wealth or Household Income? It is generally accepted that luxury market size is positively correlated to household income (GDP/capita), the number of high networth individuals and/or their wealth. Discussions on luxury are never complete without a reference to these parameters. A correlation between the size of the luxury market, the GDP/capita, number of HNIs and HNI wealth over the years 2004-2009 shows that in terms of importance the number of high networth individuals is the most important driver, followed closely by GDP/capita and HNI wealth. Interviews with leading luxury brands in India points to the fact that family wealth is a very strong determinant of spending than household income. Consumer interviews with traditionally wealthy families indicates a very interesting pattern – they are habitual consumers of luxury and less price conscious. Some of the segments mentioned above would fall in the HNI category. However luxury consumption in India is not limited to only the HNIs. The masstige phenomenon can be observed very clearly in India. Luxury products in India are appealing to, and purchased by, middle-class consumers that do not fit the typical profile of an elite consumer segment. For these shoppers, luxury represents status and prestige, a place in society that they fit into as a result of their purchase of high-end products. This phenomenon is observed even in the large mature markets such as UK, where a large number of individual consumers buy very small volumes. Luxury goods companies develop products that re-enforce the â€Å"masstige† and drive volumes. As such it is very important to look at the other indicator of the market – the GDP/capita. In India given the fact that wealth is being created due to the rapid growth, growing household incomes are converting the middle class into emerging luxury consumers. As such there is a large segment (below the 1 cr income category) where while the wealth might be low, it is the incomes that are driving the consumption. Measured in PPP terms, 25 -100 lakhs in India is equal to $ XX-YY,000 of income in the US or EUR AA-BB,000 in Europe, which is definitely a luxury consumer. The above two factors combine to make the consumer spectrum in India very broad. Our research shows that sporadic/ infrequent luxury consumption for products and services begins when annual household income goes upwards of Rs. 20 lakhs, becomes frequent when annual household income crosses the Rs. 1 crore mark and becomes habitual when the wealth crosses the HNI milestone ($1 mn in liquid assets). For luxury assets, the markers are understandably much higher and even within assets, the ladder become quite steep as one goes higher. For example, consumer for private jets would be the top 200-400 richest families in the country – the billionaires, super rich families (the HNIs) – anywhere around 200-400 families – such as the private jets, yachts and the largest houses – earning anywhere upwards of 50 cr per annum or with family wealth in excess of 100 cr. The spectrum thus begins at rupee millionaires and goes all the way to real billionaires. While the small traditionally super wealthy families who know what absolute or real exclusive luxury means, and can be called connoisseurs, bulk of the incremental wealth generation in India has been the the handiwork of new age businessmen/industrialists who were not so wealthy a couple of generations ago. As the â€Å"new money† matures, one can expect that the tastes and preferences will also evolve. | | Rupee Millionaires| Near Millionaires| Real Millionaires| Category| Household Income| 10-25 lakhs| 25 lakhs – 1 cr| 1-5 cr| 5 cr+| | Networth/Wealth| | | | |. Estimated number of households| 2,373,000| 1,292,000| 141,000| Typical Occupations| Service Industry professionals| Corporate Executives, Self Employed Professionals| Medium Enterprise OwnersTraditionally wealthyCompany CEOs, top bankers| Large IndustrialistsTraditionally wealthy| Luxury products| Low ticket value items such as leather accessories ties, cuff-links,Wines and spirits, personal care| Watches, some apparel, accessories| All| All| Luxury Services| Spas, Infrequent fine dining| Travel, frequent fine dining, hotels, spas| All| Luxury Assets| | | Cars, YachtsReal estate, Paintings| Private jets|. Geographical distribution of consumers Luxury consumption in the country has so far been concentrated in Delhi and Mumbai with Bangalore being a distant third. Brands have been thinking of expanding their footprint beyond these cities and have been wondering about where their next store should be opened. We now believe that the distribution of the rupee millionaires is a good indicator of the luxury consumer distribution in the country. We also believe that for luxury consumption to take off a minimum critical mass is needed in a city. While Delhi and Mumbai continue to be the mainstay markets for luxury consumption, there are several other cities with a large base of potential luxury consumers. A look at the figure below suggests that while Mumbai, Delhi and Bangalore are the top three cities, other cities also have significant potential for luxury consumption. Show a chart between the number of families (X-axis) and the growth 2006-2009 (Y-axis) and number of such households as the bubble size. Use the data below. Year| 2006-07| 2009-10| | Income Category| Annual income Rs. 10,00,000/-| CAGR| Top 20 Cities ranked on the basis of Annual Market Size| Number of Households| Number of Households| | Delhi| 132,258 | 348,000| 38%| Mumbai| 98,164 | 347,000| 52%| Bangalore| 101,550 | 126,000| 7%| Thane| 69,658 | 137,000| 25%| Pune| 57,130 | 106,000| 23%| Chennai| 28,025 | 109,000| 57%| Ahmadabad| 45,224 | 91,000| 26%| Hyderabad| 26,670 | 69,000| 37%| Surat| 34,457 | 60,000| 20%| Coimbatore| 18,076 | 37,000| 27%| Salt Lake (Urban Areas in North 24 Parganas district)| 14,373 | 65,000| 65%| Kolkata| 15,790 | 94,000| 81%| Thiruvallur| 17,837 | 22,000| 7%| Lucknow| 20,654 | 29,000| 12%|. Jaipur| 27,011 | 21,000| -8%| Vadodara| 22,911 | 53,000| 32%| Nagpur| 23,637 | 46,000| 25%| Kancheepuram| 13,920 | 24,000| 20%| | 767,345 | 1,784,000 | 32%| Source: Indicus Analytics| | | | Extrapolating the growth rates seen in these cities, over the next 3 years implies that several new cities will become potential centres of luxury consumption. Kolkata, Chennai, Hyderabad, Pune, Vadodara are high potential destinations to watch out for. A quick comparison with China shows that there are atleast 20 cities/towns where luxury brands are present. Comparison between luxury stores in India and China. | LV| Burberry| Chanel| Hugo Boss| Beijing| 3| 2| 2| 9| Shanghai| 3| 2| 5| 5| Other Tier I| 6| 6| 0| 8| Tier II| 12| 10| 1| 22| Others| 11| 13| 0| 43| | LV| Burberry| Chanel| Hugo Boss| Mumbai| 2| 1| -| 1| Delhi| 2| 1| 1| 1| Bangalore| 1| 1| -| 1| Others| -| 1| -| -| We believe in the next 5-7 years, atleast 5-7 new towns will get added on the luxury map of India. We also believe that the potential in Delhi and Mumbai has not been fully exploited and that there exist a few more micro markets within these cities that need to be tapped. Pockets of wealth and good infrastructure could be the next big destinations. In Mumbai, South Mumbai, Central Mumbai, Bandra/Juhu, Powai and Thane are micro markets which are far enough from each other, have concentration of wealthy families and decent infrastructure. In Delhi, similar micro markets could be South Delhi, Gurgaon, Saket, †¦.. In summary, while the Indian luxury market is evolving, so is the luxury customer. Understanding the nuances of the customer is extremely critical to succeed in this dynamic industry.