Ann: BWX Update, page-5

From TBF Investment Feb 2016 Report:

Delivered a strong maiden interim result with total sales up 25%, EBITDA up 53% and underlying NPAT up 62%. Pleasingly the company delivered key margin expansion. The strong earnings growth was to a large extent driven by the sales of Sukin in the domestic market with an increase in the number of retail outlets stocking the product. Cash conversion was reasonable at just under 80% of EBITDA for the period. The IPO enabled the repayment of debt, providing the company with a clean balance sheet with net cash. Earnings momentum continues to look strong and the company upgraded FY16 prospectus earnings guidance. The earnings guidance implies a slightly softer second half and time will tell whether that is a function of management being overly conservative.

A key question asked by investors over the results period was when the company will begin selling into China. On FY15 numbers only 16% of Sukin sales were derived from international markets with no sales into China. The response from management was that the company is taking its time to ensure the right model, distribution strategy and partner into China. Basically given the scale of the opportunity they want to get it right from inception. The rising size of the Chinese middle class and their growing appetite for natural products provides a significant opportunity for the company. We see evidence of entry into the Chinese market and evidence of sales momentum as key catalysts for the share price. If BWX is able to secure even small fraction of market share in the natural skin care market in China, it has the capacity to provide material revenue growth upside. We believe that the company can generate international sales equivalent to its current domestic sales over the next 3+ years.

That being said the company still has considerable opportunity to grow sales in its existing markets. At the end of the month BWX also announced the acquisition of Lightning Brokers, a national distributor of personal care products. Lightning has been distributing the Sukin product range throughout NSW, VIC, ACT and TAS. The acquisition provides a fully integrated business spanning brand development, manufacture, wholesale sales and distribution. The acquisition will also provide margin improvement to BWX through the elimination of distribution fees. The purchase will be funded by a mix of cash and shares. BWX will be added to the S&P/ ASX 300, and the All Ordinaries index during March.