April it seems, page-15

With history to go by, we should probably stay firmly on the cautious side and assume that these product launches *might* commence launching in Q1-Q3 but might take a good 6 months for a proper global launch, until the stock is consistently available for purchase via various retail / online mediums.

Normally I would then suggest (based on history) to allow for an additional 12 months or so after the launch date to observe the sales/revenue trends before we can try to make some kind of judgement on what it means for OBJ's bottom line. We only recently know that Magnemasks generates around 300k U.S$ per quarter, despite the ASX announcement for this launch being released in August, 2017. Any potential drop off in sales / non-repeat purchase should be offset by the addition of the cyan Magnemasks to the family so we can expect the 300k base figure to hold reasonably well (with fluctuations of course).

We do have some additional information this time though in conjunction with previous launch history to help us set realistic expectations for 2019 product launches and their financial impact to OBJ:

1) the SK-II integrated product will "initially target SK II's growing online business" (per the December 18 announcement).

This can reasonably be interpreted to meaning quicker sales from the get go (because of simpler logistics and supply chain), but fewer sales overall due to missing any potential retail sales during the online-only period.
To make matters more complicated, due to the nature of an integrated product, there will be increased sales due to throwing away the empty product/package and needing to purchase a new one to maintain the tech benefits (higher re-sales)

2) Only the licensing term sheet for the first integrated product has been released and that was almost 6 weeks ago now, is it reasonable to assume that the launch of the second integrated product is therefore at least 6-8 weeks behind the first one?

3) Seeing that the second integrated product should also be under SK-II brand (Olay didn't have any integrated packages mentioned on their slide in the 2018 AGM presentation), we can probably reasonably assume that the second integrated product will follow a similar path (online launch only to begin with)

4) we also have to consider now the improved terms & the fact that the integrated product(s) are paid in advance instead of arrears. If we consider that the repeat sales from the integrated product will largely offset any potential losses (at least for the first 12 months) from not being available in retail stores. This alone means we can reduce our conservative 12 months AFTER launch to see meaningful revenue (100's of 1000's US$) to perhaps 6 months instead.

So if integrated product #1 is launched March, 2019 and integrated product #2 is launched in May, 2019, I wouldn't bother looking at or trusting the increased revenue numbers or having high hopes/expectations until September, 2019 and November, 2019 respectively.

Finally, I'd like to comment on the decision to "initially target the growing online business", this decision can be interpreted in several different ways.

1) Somewhat of a "soft launch" (it's not as bad as it sounds), i.e. make sure there is demand & sales for the product before committing to a full-fledged retail release.

2) To expedite sales and get revenues in faster, while figuring out the "full global launch including retail stores". The logistics & supply chain demands are much simpler in an online-only model. This way they can get some sales cranking and get some reviews out there and get estimates of manufacturing needs before going retail?

3) This product to stay as online-sales forever and ignore retail? Train consumers and see if they will change their behaviors to getting used to online-only sales. Massive cost savings to be had for companies if majority of consumers embrace purchasing their skincare needs online.

I suspect there's a bit of all 3 scenarios at play here, and the decision to go global with a retail launch to be determined by demand and uptake of sales. This is a (and I hate to say it) a 1st generation or iteration of an integrated product and while it's not as much unknown and risk for SK-II as there was for the original eye wand, I feel there is still quite a bit of learning to be had here with P&G/OBJ and how well sales and uptake will go, not just for the integrated product, but for the general direction this relationship (and industry) is heading with high tech devices, linking with mobile phone, larger online presences, smart bottles etc...

Looking at it from another angle, the whole 1st generation eye wand, booster & magnemasks were far more riskier and trying changing consumer behavior/sentiment and tolerance to these magnetic devices was all under the microscope. The fact that P&G have decided to proceed with integrated products & this direction in general with smart tech and using devices to aid the penetration of skin care products / boost sales, is a very decent endorsement of strong performance in the eyewand / booster / magnemasks campaigns.

This apparent positive response/uptake to these products from consumers has laid the foundation for all of these second generation products, integrated products and basically any skin care product where there is an associated device to be used in conjunction with the cream (whether it's a magnetic applicator, blutooth via mobile phone, mobile app, a smart bottle, magnetic array built into the product packaging, 2nd generational products).

If the consumer uptake, feedback and additional revenues from sales didn't cut it over the past 5 years, then there simply would be no 2nd generation and integrated products etc, this whole project might have very well been canned. Not only have P&G endorsed our relationship and what we have been building towards by committing to a half-decent pipeline of future products until at least 2021 and beyond, but they are going all out on this whole high tech approach to skin care in a big way and that can only be a good thing for the P&G / OBJ story.