I've revisited annual reports from 2019, 2020, and 2021, in...

I've revisited annual reports from 2019, 2020, and 2021, in conjunction with the most recent quarterly report. The bar for Yowie has been set quite low, but there are positive signs the turnaround is in effect. The annual report for 2022 should provide a clearer indication, however, it probably won't be for another 12-18 months before the turnaround's success or failure becomes obvious. Key points of interest relate to nominal shareholder dilution, ongoing relatively strong gross margins, revenue increases (increases, and also the rates of increase), better cost controls, and what to me generally appears to be an improvement in production and inventory management. I must admit that my understanding around treatment of allowances for disposal isn't great, and would definitely appreciate input on this point, and also the balance of my post.

The significant cash on balance sheet, coupled with no debt has ensured that there has been only nominal shareholder dilution, with 215m shares on issue as at 30 June 2018, and 218.5m shares on issue as at 30 June 2021 (a 1.6% increase). In addition to this, gross margins since 2018 have generally remained consistent between 48% and 49%.



It was pleasing to see revenue for the 12 months to June 2021 reflected a 17% increase on the previous year, however, the $12.6m in revenue was still markedly lower than revenue for the 12 months to June 2018. Notwithstanding this, the quarterly report notes unaudited sales for the 12 months to June 2022 of $15.6m, which is a 24% increase on the previous year (albeit still lower than the 12 months to June 2018, however, higher than the 12 months to June 2019). The 2 consecutive years of sales growth, with the increase in rate of sales growth for both years is exciting, providing green shoots of growth and clearly showing the impact of the business' efforts. The rapid growth in sales from Australia (+53% on the pcp) is likely to be attributed to the recent contract win with Coles, however, most excitingly, that contract was only awarded in the second half of the FY. Whilst the revenue growth story is in its infancy, the business' ability to improve is constrained by management's ability to keep costs under control.



At its most basic, management has taken the business from making a loss after income tax for the year of $4.9m for FY2018, to making a $0.9m profit after income tax for FY21. Given for the most part, revenues were decreasing until FY21, it's clear this profit was achieved through prudent cost controls. Even in the face of generally declining revenue, it's interesting to note that administration costs in total were reduced by 12%, 9%, and 36%, for FY2019, FY2020, and FY2021, respectively; with the administration/sales ratio reflecting 23.4%, 24.9%, 30.5%, and 16.6% for the same periods. In absolute terms, administration costs in FY2018 were $4.1m, and this was reduced to $2.1m in FY2021. Whilst management has also been able to decrease the total cost of marketing, selling and distribution, it's clear their approach is working, as revenues continue increasing. Based on the 4C, it appears the marketing/sales ratio has dropped below 5% for FY2022, almost 55% of a typical ratio associated with packaged consumer goods (9.1%). As at FY2018, this ratio was 13.6%. Overall, there's a seemingly clear picture that whilst revenues are increasing (in both absolute terms, and in respect of an increasing rate of change), costs are being brought under control. Again, this picture will become clearer once we're able to see the annual report for FY2022, which should begin to touch on the inflationary challenges the 4C notes. I believe management's prudence can once again be seen in their production and inventory management, however, as noted earlier, would appreciate comments, particularly relating to treatment of "allowance for disposal".



Whilst the trade debtors has increased significantly, more than doubling between FY2021 and FY2020, which may sometimes provide cause for concern, importantly, the annual report indicates no amounts are past due or impaired, noting generally having 30 day terms. Further to this, it's clear that the raw materials are being processed at a reasonably rapid pace, noting the increase in WIP, with corresponding sales evidently picking up, noting finished goods diminishing at a more rapid rate than raw materials are becoming WIP (in particular, over the last 2 years), and more rapidly than WIP being converted into finished goods. Further to this, it's good to see the allowance for disposal reducing by 61%.

Overall, it appears the business is moving in the right direction, and given there is no debt, and a net cash position at, or around, market cap (indicating an EV of $3.5m) and therefore, a fcf yield (to EV) of 68%, with 48% gross margins, and a healthy ROE (admittedly off a low base), there are numerous things to be positive about, with additional runways for growth including, but not limited to, at least seeing a full year's worth of data associated with Coles sales in Australia.