CEO’S YEAR IN REVIEW 717 GROUP SALES $M 495 AUS SALES $M 129 ASIA SALES $M 69 BIOCEUTICALS SALES $M BLACKMORES ANNUAL REPORT 2016 23 OTHER SALES $M Dear Shareholder, I’m delighted to share our full year performance reflecting a year of significant growth across all divisions and brands in the Group delivering Group sales of $717 million (up 52%) on the prior year and resulting in net profit after tax (NPAT) of $100 million (up 115%) on the prior year. This follows the previous record year. Growing consumer demand for our products enabled us to realise further operational benefits and saw the Group double capacity over the year. Importantly, our unrivalled quality standards were extended further into our supply chain and were never compromised whilst productivity and efficiency was boosted. AUSTRALIA (INCLUDING PAW) Our heartland Australian business delivered $495 million (up 56%) in revenue over the year reflecting the strong growth from our domestic consumers and further boosted by sales to Chinese tourists and exporters to satisfy the appetite for Blackmores’ quality products in China. We estimate that Chinese consumers influenced over $200 million of our Australian revenues with a combination of sales through Australian retailers and exporters and incountry sales. Pure Animal Wellbeing, Blackmores’ animal health division, achieved $7 million in sales (up 31%) and maintained a strong leadership position in the natural pet health market. ASIA In-country sales in Asia of $129 million (up 54%) were through a range of channels including pharmacy, online retailers and health stores. Some of our more established markets did experience challenges, though pleasingly maintained top-line growth. Our established Asian markets achieved sales of $81 million (up 6%) including sales from Thailand and Malaysia. Singapore, Hong Kong and Taiwan delivered record growth with range extensions, increased distribution and further investment in our brand. Asia sales were further bolstered by in-country sales in China of $48 million (up 536%). The expansion of free trade zones and our ability to serve e-commerce customers through our bonded warehouse in China has enabled us to benefit from the growing Chinese demand. We estimate that Chinese consumers now influence over $250 million of our Group sales, almost a four-fold increase in the last 12 months. This is evidence of the strong demand for our products in such an important market. Blackmores experienced challenges in Korea. Excluding Korea, ‘Other Asia’ sales were up 11%. This, in addition to investment in Blackmores’ upcoming launch into Indonesia, and Blackmores International resulted in a reduction in earnings for Blackmores’ ‘Other Asia‘ compared to the prior year. BIOCEUTICALS BioCeuticals, our practitioner-only brand, delivered $69 million in sales (up 25%). New product innovation and education was central to their success as this brand does not have the benefit of established businesses in Asia. They have also commenced distribution in the United States, a market with a strong network of allied health practitioners. Since acquiring this business in 2012, we have doubled its profitability and paid down all debt required to fund the acquisition. BioCeuticals’ growth was particularly pleasing given that this year’s results include the payment of incentives and profit share to BioCeuticals employees following their adoption of the Blackmores Enterprise Agreement as well as the investment in new offices to support growth. DEVELOPING BUSINESSES Developing businesses including New Zealand, Blackmores’ contribution from their nutritional foods partnership with Bega, and sales from the recently acquired Global Therapeutics, contributed $23 million to Group revenue up from $15 million in the prior year. Sales in New Zealand of $16 million (up 53%) were positively impacted by a change to our business model in this country including the appointment of a Blackmores sales team. Our partnership to develop nutritional foods including infant formula with Bega has achieved early sales of $9 million of which Blackmores has a 50% share. In May 2016, Blackmores acquired Global Therapeutics, an Australian company, with two brands offering Chinese herbal medicine, Fusion Health and Oriental Botanicals. Each are market leaders in this category in health food stores and pharmacy with an estimated 80% market share of retail Chinese herbal medicine. We are excited about the growth opportunities for these products both in Australia and in Asia. Global Therapeutics contributed $3 million to our revenues since the acquisition. IN REVIEW 02 Raymond Chan, Deputy Managing Director of Blackmores Asia (left) and Jason Zhang, Country Director of Blackmores China THE GROUP FOCUSED ON FOUR STRATEGIC PRIORITIES 03 Belinda Reynolds, Senior Educator, BioCeuticals 04 Clement Smith, Warehouse Manager, Blackmores 01 Consumer Centricity 03 Product Leadership • Blackmores #1 vitamin and supplement brand and Group in Australia and number one brand in Thailand, Malaysia, Singapore and Hong Kong. • Most Trusted Brand in Australia, eight years running. • Integrated campaigns that have resulted in a step change in brand health metrics. • Opened a flagship store at Bondi in Sydney – the Blackmores Wellness Centre. • Opened Blackmores duty free pop-up stores at Sydney, Melbourne, Hong Kong, Shanghai and Gold Coast International airports. • New operating model in New Zealand with Blackmores sales team. • Hosted corporate wellness programs in leading organisations attracting more than 3,000 attendees. • Extended offering qualified naturopaths in pharmacies and health food stores to provide advice to consumers. • The iconic Blackmores Sydney Running Festival attracted more than 32,000 participants and achieved International Association of Athletics Federation (IAAF) Marathon Gold Label Road Race status. • 117 new products launched across the Group. • Explored partnerships in medicinal cannabis through BioCeuticals. • BioCeuticals launched in the USA, the largest practitioner market in the world, through a leading distributor. • BioCeuticals FX Medicine podcasts downloaded more than 65,000 times in 40 countries achieving a number three ranking in its category on iTunes. • Launch of BioCeuticals Liposomals range was a market first. • Blackmores Institute provided 25,000 healthcare professionals with accredited training across the Group in the last year. • 447,816 education touchpoints across the Group. • Grass roots approach to training with thousands participating in local training hubs in key markets. • Developed and delivered an accredited course in evidence-based complementary medicine partnering with Griffith University. • 24 research projects including clinical trials underway across Blackmores Group. • 01 Blackmores publication of clinical Junction Successful Wellbeing Centre at Bondi trial using Blackmores Insolar®. • Blackmores Institute expanded presence in Asia and NZ. • Launched medicinal foods, including infant formula, in partnership with Bega. • Acquisition of Global Therapeutics – leading Chinese herbal medicine brand in Australia and supporting growing consumer interest in Chinese medicine. 02 Asia Growth 01 01 Blackmores Wellbeing Centre at Bondi Junction 02 Raymond Chan, Deputy • Asian consumers represent almost 50% of Group sales Managing Director of Blackmores and shows strong desire for the Blackmores brand. Asia (left) and Jason Zhang, Country • Of that, Chinese consumers influenceof Blackmoresmillion Director over $250 China of Group sales and our business is still growing. 03 Belinda Reynolds, Senior • Invested in Thailand with moreEducator, BioCeuticals than 50 new in-store product advisors. 04 Clement Smith, Warehouse • Established joint venture with Kalbe Farma to facilitate Manager, Blackmores entry into the Indonesian market. • Blackmores regional headquarters in Singapore expanded operations enabling improved decision making and customer management in Asia. • Hosted events for our shareholders on ‘Doing Business in China’ to assist with understanding of this complex market in Sydney, Melbourne and Shanghai. • CEO appointed Chair of Australia-ASEAN Council. oup sia, BLACKMORES ANNUAL REPORT 2016 HE GROUP FOCUSED ON FOUR TRATEGIC RIORITIES 04 Operational Effectiveness 03 • Doubled our capacity to overcome supply challenges. • Doubled production output to meet growth and invested further in automation and staff. • Slow moving and obsolete stock at a 10 year low. • Progressed directed sourcing of scarce and key ingredients. • Extended our supplier base including stronger supplier 02 Raymond Chan, Deputy Managing Director of Blackmores Asia (left) and partnerships. • Jason Zhang, Country Director of Blackmores China Secured dual manufacturing supply of core products with partners in trusted markets including Germany and Canada. • New efficiency-driving technology installed including robotics and multi-head counters. • Hosted supplier quality awards. • Expanded our warehousing footprint. • Invested in 186 new roles across the Group including the addition of a production night shift and new front-line health advisory roles. • Increased investment in staff training. 02 01 01 04 01 02 03 04 04 02 03 02 03 03 Product Leadership • 117 new products launched across the Group. • Explored partnerships in medicinal cannabis through BioCeuticals. • BioCeuticals launched in the USA, the largest practitioner nge 10 market in the world, through a leading distributor. • BioCeuticals FX Medicine podcasts downloaded more than 65,000 times in 40 countries achieving a number three ranking in its category on iTunes. y, • Launch of BioCeuticals Liposomals range was a market first. • Blackmores Institute provided 25,000 healthcare professionals with accredited training across the Group in s the last year. • 447,816 education touchpoints across the Group. • Grass roots approach to training with thousands participating in local training hubs in key markets. s • Developed and delivered an accredited course in s. evidence-based complementary medicine partnering ed with Griffith University. nal • 24 research projects including clinical trials underway old across Blackmores Group. • Successful publication of clinical trial using Blackmores Insolar®. • Blackmores Institute expanded presence in Asia and NZ. • Launched medicinal foods, including infant formula, in partnership with Bega. • Acquisition of Global Therapeutics – leading Chinese herbal medicine brand in Australia and supporting s growing consumer interest in Chinese medicine. n 01 04 Operational Effectiveness 03 03 Belinda Reynolds, Senior Educator, BioCeuticals CEO’S YEAR IN REVIEW 04 04 Clement Smith, Warehouse Manager, Blackmores 11 BLACKMORES ANNUAL REPORT 2016 • Doubled our capacity to overcome supply challenges. • Doubled production output to meet growth and invested further in automation and staff. • Slow moving and obsolete stock at a 10 year low. s in • Progressed directed sourcing of scarce and key ingredients. rket • Extended our supplier base including stronger supplier partnerships. OUTLOOKSecured dual manufacturing supply of core products with • We have proven demand for our brand across the Asia and Canada. partners in trusted markets including Germany Pacific region and have been positively impacted by including • New efficiency-driving technology installed external dynamics, including the expansion of free trade robotics and multi-head counters. zones in•China andsupplier quality awards. Hosted growing consumer interest in our category. Our population is ageing andfootprint. • Expanded our warehousing governments are faced with risingin 186 new roles across the our • Invested healthcare costs. Many of Group including the neighbours in Asia areaseeing significant shift and new front-line health addition of production night demographic changes with a growing middle class and two child advisory roles. families • China. in Increased investment in staff training. Consumers universally are changing, with moves towards personalised health, an increasing role of digital technologies in product purchase and the evolution of food as medicine. OUTLOOK Blackmores isproven demand to benefit from thesethe Asia We have well positioned for our brand across trends with ourregion and havesustainability, ingredient by Pacific commitment to been positively impacted traceability, proven efficacy including the expansion of free trade external dynamics, and quality, we have strong consumer demand, high staff engagement andinterest in our zones in China and growing consumer multiple routes to market. Our population is ageing and governments category. These opportunities are balanced by an increasingly are faced with rising healthcare costs. Many of our complexneighbours in Asia are seeing significant demographic business environment, including an evolving regulatory landscape in growing middle class and two child changes with a Asia and volatility in the Australian wholesale market as a result of changing families in China. retail dynamics. Consumers universally are changing, with moves We’re continuing to invest health, an increasing role of digital towards personalised in long-term growth platforms for the Group,product purchase and the evolution of technologies in including our new business in Indonesia. as medicine. food The Board remains confident in our strategic Blackmores is well positioned to benefit from these priorities and we will continue to diversify our revenues, trends with our commitment to sustainability, ingredient invest in traceability, proven and progress the ongoing strong new opportunities efficacy and quality, we have re-shaping of our business. high staff engagement and multiple consumer demand, BLACKMORES ANNUAL REPORT 2016 CEO’S YEAR IN REVIEW nded 11 routes to market. Thank you for youropportunities are balanced by an increasingly These support of Blackmores. BLACKMORES ANNUAL REPORT 2016 complex business environment, including an evolving regulatory landscape in Asia and volatility in the Australian wholesale market as a result of changing retail dynamics. Christine Holgate continuing to invest in long-term growth We’re Chief Executive Officer Group, including our new business platforms for the in Indonesia. The Board remains confident in our strategic priorities and we will continue to diversify our revenues, invest in new opportunities and progress the ongoing re-shaping of our business. Thank you for your support of Blackmores. 13 Christine Holgate Chief Executive Officer Clockwise from top right Duncan MacKellar, Blackmores Campus team, ensuring effective paper recycling Isabella MacKellar, Blackmores Campus DuncanTruong, Advisory Pharmacist, Blackmores Institute team, ensuring effective paper recycling Wellbeing and Felicia Tam, Julien Calvet, General Manager, Pure Animal Isabella Truong, AdvisoryWellbeing Veterinarian, Pure Animal Pharmacist, Blackmores Institute Media Manager, Blackmores Susan Mahoney, Social JulienSkilton, Senior Educator, BioCeuticals Amie Calvet, General Manager, Pure AnimalNofo’Akifolau, Distribution Operator, Pick To Light, and Graeme Fookes, Soane Wellbeing and Felicia Tam, Veterinarian, Pure Animal Wellbeing Warehouse Operations Support and Inventory Controller, Blackmores Susan Mahoney, Social Media Manager, Blackmores Amie Skilton, Senior Educator, BioCeuticals Soane Nofo’Akifolau, Distribution