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Edited Transcript of BWX.AX earnings conference call or presentation 22-Aug-19 11:30pm GMT

Full Year 2019 BWX Ltd Earnings Call

Aug 27, 2019 (Thomson StreetEvents) -- Edited Transcript of BWX Ltd earnings conference call or presentation Thursday, August 22, 2019 at 11:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David Fenlon

BWX Limited - Group CEO, MD & Director

* Rory G. P. Gration

BWX Limited - MD of Asia Pacific

* Vinod Somani

BWX Limited - CFO, Group Financial Controller & Company Secretary

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Conference Call Participants

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* Jonathon Higgins

Shaw and Partners Limited, Research Division - Analyst

* Philip Pepe

Blue Ocean Equities Pty Ltd, Research Division - Senior Industrials Analyst

* Sarah Mann

Moelis Australia Securities Pty Ltd, Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the BWX Full Year 2019 Results. (Operator Instructions) Please be advised that today's conference is being recorded.

I now hand the conference over to your speaker today, Group CEO and Managing Director, Mr. David Fenlon. Thank you. Please go ahead.

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David Fenlon, BWX Limited - Group CEO, MD & Director [2]

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Good morning, everybody, and thank you very much for joining the BWX results announcement for the full year ending 30th of June 2019. On behalf of the team, we really sincerely appreciate you giving us your time today. My name is Dave Fenlon, and I commenced in the group CEO role from the 1st of July 2019. I'm also joined here today by our CFO, Vinod Somani; and Rory Gration, Managing Director for our APAC region. You will see, on the following slide, a legal disclaimer. I don't intend to go through that in any detail.

If you don't mind, I'd like to start by going through the F '19 highlights and an overview of our operational progress. Following that, I'll give you some insights into our performance in detail by region and by brand. I'll then hand over to Vinod for the financial summary before taking back the reins to talk you through what I see as the future growth opportunities for BWX and what we're doing strategically to capture the growth before I open up for questions, which I'm sure there will be a few.

So let's start on the highlights. Net sales for the year were $149.5 million, and the U.S. business was strong in that momentum sales growth. Pleasingly, we've seen 19.5% sales growth in the second half. And importantly, this is against the backdrop of delivering targeted stock levels in markets and in channels. This is the right trajectory for the business and something we will continuously focus on. Our underlying EBITDA of $21.3 million is in line with our May trading update. This is supported by a strong H2 result. H2 EBITDA was $14.2 million versus $7.1 million in the first half, a 100% increase.

We achieved gross margin stability in the second half, delivering an improvement of 120 basis points, and we expect this to continue into F '20. Our brand health remains very strong. Sukin and Andalou Naturals were able to grow market share, while Mineral Fusion revenue reflected strong second half gains, and I will delve more into the detail of this later. Our refinancing was completed on more attractive terms on the 30th of June, ensuring we have a stronger balance sheet to pursue further growth opportunities.

Now I'm just going to talk and go into a little more detail about F '19. In the U.S., net sales are gaining momentum. They're being supported by strong market share growth in the natural category. We've successfully launched in the mass channel in the U.S. with retail partners, including Albertson's, the #2 U.S. grocery chain. And Mineral Fusion will experience future sales growth and strong sales growth in the second half of this year after gaining distribution rights in the mass channel. I will spend some more time on the next few slides on brand expansion. However, I have to say, we're pleased with our brand health and the scan out sales we're achieving in all brands in the second half. Sukin in Australia is now available in over 500 -- in over another 318 domestic retail stores, and Sukin in the U.S. is now available to consumers in over 500 U.S. stores. We've delivered strong double-digit growth in the number of our key international markets as well. The scan data from both Australia and the U.S. shows that we have the right brands and it is validating our multi-brand selling model for Sukin, Andalou and Mineral Fusion.

I'll now turn to the next slide. In any FMCG business, you have to have the ability to support and fulfill the sales momentum, and it's important that we've invested to grow the capacity in our facility to allow us to ship and pick 3,000 e-commerce orders in a single shift. This will allow us to unlock further growth from our B2C channels of all brands and our very successful Nourished Life platform. Our multi-channel strategy remains important to our success in building more brand penetration amongst different types of consumers at different price points. In the U.S., we are beginning to see the benefits of a fully consolidated facility, where warehouse production and all support teams share one single location.

Our ERP is beginning to show the benefits we always knew it would. As you're aware, this did cause some significant issues in the first half performance of F '18. I'm very pleased to advise it is now operational in Australia and Phase 1 of the implementation is underway in the U.S. We will be taking the learnings from the Australian rollout and ensuring that we are successful in our U.S. rollout. The benefits we're achieving are improving efficiency and most importantly, an increased margin visibility across the group at all levels. We're getting better at forecasting stock and the ERP is helping us with our decision-making based on fact. We're very confident that we will prevent overstocking in the future, and we're very confident that we won't be repeating unprofitable promotions, they are now a thing of the past. There is still a lot to be done in our systems, but we're on a stable footing.

On capability growth and new leadership, we've made some great inroads. We've appointed a Company Secretary and a Chief Legal Officer, who will commence on the 30th of September. We're a long way down the track of recruiting a Group Chief Marketing Officer and also a Chief Transformation Officer. And of course, we'll keep you updated on these appointments. They're coming from a very strong talent pool both from here and the U.S.

In the APAC business, we've recruited well, and we've recruited a success -- a very highly credentialed Sales Director as well as an Operation Director who is extremely experienced. Both are great hires, and I'm very proud to have them on the team. In our U.S. business, we're very close to the recruitment and finalization of the President for BWX USA.

As I said, on the next slide, I want to talk a little bit more about brand health. F '19 performance for Sukin net sales was $52.9 million, a decline compared to the prior period. This was due to us not repeating unprofitable promotions. In May and June, we have broken the practice of stock loading. It's unprofitable. It's unnecessary. We now will have more control on pricing in channels, and we will have an improved trade spend effectiveness moving forward. It's really important that we understand, we won't be repeating stock filling exercises that the business has encountered previously.

In F '18, we do know there were impacts in the delays of shipping some orders due to the teaming issues of ERP, and we've solved those issues. We've also made some changes to be more selective in our international market approach, and we're very confident we will see the benefits of this in the medium term, i.e. F '20. As I've said, our ERP system is operational and the experience that we've taken from Australia will help us with a better implementation in the U.S. Across the group, we will continue to unlock its full potential.

Sukin's revenues, ex factory, as I've said, were in line with the prior corresponding period. However, in the Sukin performance as the heartland of pharmacy, we're showing strong growth with very limited cannibalization as we bring the brand into more channels. The brand's health is reflected in the strong scan out sales data. In supermarkets, we've seen growth for 38% in skin care sales. In pharmacy, Sukin is outstripping growth in the natural segment, growing 4.4% versus a category decline of 3.7%. And in the latest August data, that performance is further improved with Sukin tracking at 7.5% growth versus a category that is in decline by 3.7%. As I've said, we've added another 318 stores to Sukin in Australia in F '19. The brand continues to grow in line or faster than the market in both the facial skin and hair category, and we expect with the increased focus, this will be the norm moving forward.

Now let me touch on Sukin's international performance. We've delivered strong double-digit growth across the key markets of the U.K., Canada, New Zealand, Malaysia, Singapore and China. Some of these may be small bases, but in all markets, we have the great potential, and we're focused on unlocking it further. We have teams on the ground in Europe and Canada and both teams are led by very experienced and capable people. In China, Sukin is showing resilience to the impact of the domestic export sales decline due to changing Daigou postal tax impacts. I would like to point out and it is very worth noting, Sukin is only 15% reliant on export sales as opposed to key competitors in the net space, some sitting as high as 60% to 90%. Across our total group, our China influence revenue is circa 5% to 6%. We do see this as an opportunity that we need to unlock in the future.

On the critical measures of brand health and future focus for Sukin, we have strategic expansion opportunities both in the direct-to-consumer model as well as a strong pipeline of new products that have been accepted by our retail partners for rollout through 2020. And as you can see from the deck, a number of these are margin-accretive and are winning with consumers.

All importantly, brand awareness, Sukin now sits directly below major synthetic brands, scoring 73% awareness with Australian consumers. It's an amazing group to be part of that Sukin is now fourth behind Nivea, L'Oreal and Garnier and well ahead of others such as Thursday Plantation, Thankyou, A'kin and Trilogy. The brand has improved its own awareness by 26% in 18 months. This means that consumers understand Sukin. They understand it stands for natural, eco and safe. The brand really owns these attributes and over 1/3, 37% of consumers who trial Sukin make it their preferred choice. I just want to remind everybody, we're the #1 natural skincare in Coles and Australian pharmacy. We're the #1 natural hair care brand in Australian pharmacy, and we're the #2 total skincare brand in all the pharmacy across Australia.

Let me delve now a little more detail into Andalou Naturals. The F '19 performance of Andalou's net sales was $48.6 million, demonstrating significant growth year-on-year as the brand continues to outperform its home market of the U.S. Andalou's second half sales performance was up 15% versus the previous corresponding period. This growth was helped by a successful launch of CannaCell in the U.S. Wholefoods and natural market, the #1 natural retailer as well as Albertson's, the second largest grocery retailer in the U.S.

It means that this brand is seen by millions of shoppers every week. We grew Andalou's sales by 19% in F '19 in Whole Foods alone, as I said, the #1 natural grocery retailer in the U.S. And the innovative CannaCell range, which we launched in June, accounted for 21% of total Andalou sales in facial skincare. This is a huge endorsement of the levels of consumer acceptance of the brand. In Australia, Andalou is ranked now the number 11th natural brand, and we're confident this will climb as we continue to roll this out locally. Looking a little further into the future and the outlook for Andalou. It is a brand that is distributed in 22 countries worldwide and is well positioned for growth in those markets as well as Australia.

On Mineral Fusion, F '19 performance. Sales were $24.6 million, which does represent a decline compared to the prior year. The second half, however, showed strong momentum with a 37.5% increase versus the first half. This is really critically important. It signals consumer acceptance and uptake of the packaging relaunch that we undertook in January 2019. This coupled with a successful sell-in into the mass grocery channel, which will go live in the U.S. from January of 2020.

On Nourished Life, on the next slide. Sales for Nourished Life in F '19 were $20.9 million, reflecting what we can call a stable performance. However, in July of 2018, sales were $1.3 million. In the corresponding period of July of 2019, these sales have accelerated to $1.8 million. Directionally, this is what we expect to see moving forward in F '20. The platform's membership, the critical measure of how many consumers are in love with this brand, are up 29% year-on-year, close to just over -- close to 300,000 consumers. The second half performance reflected a measured 4% increase in daily orders, and we are confident that with the improvements we've made on the website and user experience and the improved availability, we will see this grow moving forward. We also now have the availability and capability to directly ship internationally.

On our international performance of Nourished Life, as I've said, we now can ship to many regions, and we do have the capacity to extend and expand our private-label Life Basics range. This is important, and it will be a key pillar for growth as we continue to grow our Nourished Life revenue moving forward. The platform of Nourished Life is a strategic imperative for BWX, and it gives us the opportunity to understand deeply the consumer insights from natural wellness and beauty trends. It add weight -- it adds weight significantly to our understanding of the end consumer in the end market, and it will help us lead the education of consumers in what we call the natural wellness revolution. Our investments in the platform, including website upgrades, will continue to deepen basket size and penetration.

Now in Nourished Life, I wasn't joking about it being a leading digital platform. Our newly launched podcast, Talking Clean with Irene, topped the podcast charts in Australia and even hit the charts in the U.K. and [Germany]. For any of you that have a daily commute, I would urge you to listen in. I can certainly tell you, it's considerably more on trend than Alan Jones right now.

Looking at performance of the group by geography. The next slide provides a snapshot of where we're playing and revenues for each of the countries and regions in which we're in. The U.S. and China represent 2 big consumer economies in the world. And within these regions, we believe opportunities for growth in consumer demand for natural wellness products is available to us. Focusing a little on the U.S., as I've said, our revenues in F '19 grew strongly against '18, again, showing our multi-brand selling model and channel expansion is working. I would like to point out, this is not a like-for-like comparison, given our U.S. revenues in '18 did not reflect a full year of BWX ownership of Andalou. Our focus, as it is in all markets, in the U.S. will be on consumers and retail execution, and our new team and also the ERP will help us with the execution in this market.

On China, this represents a huge opportunity for BWX. As I said, in total, this still only accounts for just under 7% of group revenues. I'd want to point out, this does include domestic influence sales and also direct-to-platform sales in China. We've refined our strategy with an exclusive distribution agreement into China and our in-platform consumer sales with our key partners are performing strongly. We do believe there are more opportunities as we unlock Sukin's brand proposition and ensure it continues to resonate with Chinese consumers. We will continue to assess the benefits and the potential of establishing an offline channel in China to expand our brand's accessibility and increased consumer trial.

Cross border e-commerce remains a strong pathway to the Chinese consumer. And with the implementation of the e-commerce legislation, it has enhanced the integrity of this market, and we have not been materially impacted by these Daigou regulatory changes. We must point out, however, our lower international sales versus the prior year. And as is the case in domestic, we will not enhance our revenues with short-term promotional activities. We will think about the long term. We will not overstock. We will ensure that we don't have margin dilution and we have stability of our pricing and control over supply.

I'd like to now just circle back to Australia for a little bit more detail. It is performing well. But as I've said, our revenues were impacted by overstocking at the end of FY '18, and we have cycled the last of the unprofitable promotions, and we will not have this issue going forward. We did, [through the half], experience delays with the teasing problems of our ERP, and we have changed our approach to be more selective and offer better models moving forward. We've continued to roll out Sukin in Australia to BWX target. And importantly, we haven't seen considerable cannibalization, and we will cover that in a little more detail in the next couple of slides. Our U.S. brands of Andalou and Mineral Fusion are being trialed in Priceline and My Chemist with great consumer perception, indicating strong potential upside in the future.

I'll now hand over to Vinod to give you a bit more color on the key financials.

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Vinod Somani, BWX Limited - CFO, Group Financial Controller & Company Secretary [3]

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Thank you, Dave. As Dave has already touched on the key financial highlights, I will now take you through a few of the key drivers of the underlying financial performance for FY '19 presented on Slide 14. Net revenue for the period was $149.5 million compared to $148.7 million for the prior corresponding period. 63% of the group revenue came from the 3 acquired businesses, Andalou Natural, Mineral Fusion and Nourished Life, compared to 55% in the prior corresponding period.

Sales, excluding acquisitions, were down 18% on the prior corresponding period, attributable to revenue from the Sukin brand in first half '19. However, the group sales in second half '19 were up 19.5% compared to first half '19.

Group gross profit margins declined from 59.4% in the prior corresponding period to 52.2%. The period saw a full 12-month contribution from the Nourished Life and Andalou Naturals acquisition and those are lower-margin businesses. The first half '19 business disruptions had a significant impact on Sukin revenue, which is the company's highest-margin brand. The gross profit margin percentage from Sukin brand are in line with FY '18. Also to note, the group margin improved 120 basis points in the second half. The increase in operating expenses in FY '19 are mostly attributable to the 12-month inclusion of the Nourish Life and Andalou Naturals cost base. Other factors include the restructure of the Nourished Life distribution facility and ERP disruptions in quarter 1 of the year.

Our consumer marketing spend was 8.7% of the net revenue and is in line with the expectations. We also finalized the Australian field sales restructure in this financial year, and that provides us a cost saving and an opportunity to allocate resources to growing markets.

Compared to the prior corresponding period, NPAT declined from $24.2 million to $11 million and underlying EBITDA declined from $40.3 million in the prior corresponding period to $21.3 million with the EBITDA margin falling from 27.1% to 14.2%. The margins improved by 700 basis points in the second half of the year driven by the top line growth with the same operating or a similar operating cost base.

Higher depreciation and amortization is due to recognition of intangibles stemming from the finalization of Nourished Life acquisition and amortization of the ERP in Australia. Our effective tax rate declined from 34% in the prior corresponding period to 24% in FY '19. This was due to a tax benefit relating to a $5.2 million payment of deferred payments made during the period for the Andalou Naturals acquisition. We expect our effective tax rate in FY '20 to follow the industry average with a combination of Australia and U.S. corporate tax rates. A final fully franked dividend of $0.027 per share has been determined for FY '19 and is within our dividend payout guidance of 35% to 50%.

Now turning to Slide 15 on balance sheet. The group refinanced the debt facilities via extension until July 2022 and at an improved margin. The group is also compliant with its obligations under the facilities and we expect this to remain so. Furthermore, no adjustments to carrying value of assets have been required post an external review performed.

Our cash balances in FY '20 were impacted by deferred payments for Andalou Naturals acquisition and MBO-related expenses. Our financial liabilities decreased due to the deferred payments relating to Andalou Naturals acquisition and the reversal of deferred consideration of Nourished Life acquisition, offset by some movement in the working capital facilities.

Moving onto Slide 16 with further details on the movements in working capital. The group's aging debt profile of trade debtors in FY '19 has significantly improved, in particular, debtors aging from -- over 90-day payment terms, which have reduced from 12% to 1.6% of the total trade debtors. The group benefited from the successful delivery of smarter working capital plans set at the start of second half '19 to reduce inventory and prepayments. The group also reduced payables by $7 million in the second half, while maintaining a healthy cash position at the end of the year.

On the next slide, we have further details on movement in group's inventories. Key projects for inventory reduction across Australia and U.S. were delivered on time in full for both raw materials and finished goods during the second half of the year. The business is now benefiting from the intelligence provided by the ERP and the S&OP processes introduced during the year, which has resulted in inventory holding decreasing by 17% in the second half.

Now turning to Slide 18 on cash flow reconciliation. There was a significant improvement in operating cash flow in the second half, which was a positive $11 million compared to a negative $7.3 million in first half '19. Nonrecurring costs of $4.9 million relate to the disruptive MBO as well as the other restructure and acquisition costs of $1.7 million. Below the operating cash line, the company incurred $4.6 million of capital expenditure, including $2.2 million of ERP implementation costs in Australia. Capital expenditure in FY '20 is expected to remain under 3% of net revenues.

I will now hand back to Dave to talk about our strategic priorities and outlook. Thank you.

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David Fenlon, BWX Limited - Group CEO, MD & Director [4]

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Thanks, Vinod. What I'd like to do now is spend a bit of time talking to you about how we expect to accelerate the natural beauty revolution. 54 days into the role and whilst I was on the Board in previous year, and I always knew that BWX had potential and a strong market position, the actual global opportunities that are in front of us, I have to say, are quite astonishing. In my short tenure, I've been completely inspired by the strong sense of purpose across this business. Everyone's commitment to the transformation journey ahead gives me complete confidence that we have the right team in place. I've seen 80% of the team, I've conducted 31 listening sessions, I've met over 30 customers/retail partners, I've been to Petaluma, our U.S. office twice, and I've got some experience of picking and packing in the warehouse as well as working in product development. I can't tell you the products are developed is ever going to make it to market. I'm not quite sure if there is a place for a blue shower gel, but anyway, I'll keep trying.

After this roadshow is complete at the end of next week, I'll have personally met or spoken with more than 50 of you, our shareholders and our investor community. I've conducted shopping trips and I've shadowed over 15 families as they shop the natural beauty category. I've tried over 100 of our products and for all of you that know me know that even the hair care because that even our products won't get that to grow back. I've got family and friends working on understanding our products and the whole of the leadership team is leaning in to fully understand this natural beauty revolution. On the roadshow when I see you over the next few days, I'm happy to give you products and samples, but with one condition, we do want your feedback on our products.

But let me just touch on that massive market opportunity. The industry data you can see in front of you shows that we've got the compound annual growth rate of personal care at 5.8%. It's being outperformed by the natural personal care market in the U.S. at 8.6%. This fundamentally shows that natural is a movement, this is not a trend. Skin care is going to dominate as the largest category. It represents more than 1/4 of that opportunity, and it sits at the intersection of beauty and wellness. And importantly, it's viewed by consumers as a nondiscretionary spend. We also understand the Australian skin care market is valued at $2.2 billion and growing annually at 7%. This is our opportunity. Importantly, we're an early adopter. BWX's brands are entrenched in this marketplace. They're credible. They're both having the clear understanding of natural positioning. Sukin and Andalou are both #1 in their respective segments of natural skin care. But we know the challenge. We must build on our position and grow our revenue. We must do this by working with our retail partners and consumers, and we intend to educate them all on the benefits of natural sustainable products.

Over the last 54 days and using the time I had also as a Board member, we're in a position to be able to share some of what we believe to be our strategic priorities. And I understand very clearly, the proof point is our ability to execute. The 4 strategic pillars that you can see underpin our direction and the transformation that we're going to undertake. We are going to be relentless in connecting to our consumers. We'll enhance their experience. We'll go direct to them. We'll engage with them through clever marketing. And we are going to invest more in new product development to meet their ongoing needs. As you've heard, we're going to go global, we're going to go mainstream. We're going to build our network and scale. The natural segment is growing, and we're competing with mainstream skin care.

As I stated earlier, Sukin is already competing and sits directly below the major synthetic brands with Nivea, L'Oreal and Garnier. The difference is that consumers understand Sukin to stand for and own natural, green and safe. We're going to maintain and build on the momentum that we've achieved in the second half by building a customer base that allows consumers to see our Sukin, Andalou and Mineral Fusion brands. We will launch Nourished Life into new markets. And we will invest in supermarket and mass market channels, and we have an objective of delivering a $50 million supermarket skincare business in Australia and a $75 million conventional and mass skin care business in the U.S. And as I've said, we've already achieved some of that by getting ranging in Albertson's, and we continue to be the #1 brand in Whole Foods Markets.

All of that will be done and underpinned by a very clear focus on investing in ourselves by putting our people first. I've talked about the capability building. I couldn't be happier with the people that we've brought into the team and the capability of the existing members of this team. Those new hires alongside the very experienced people in this business have and will give us the potential to be the successful brand we know we can be. We've put it out there. We're going to put people first, and we have every intention of being the employer of choice in the wellness market. And we're going to get clean, we're going to get healthy and we're going to deliver operational excellence. This means an absolute razor focused on operational efficiency, and we will underpin that with investments to improve our system capability.

Best practice governance is also top of mind. And our new Co Sec and Chief Legal Officer, who joins in September, will be a welcome addition to the team. I don't apologize, you are going to hear a lot more about these strategic pillars. We're going to be relentless and unapologetic about the need for execution. We will be dramatically consistent in what we aim to do, and we're going to be obsessed by simplifying this business in which we operate. We're going to devote our time and effort on our consumers, our people, we're going to drive efficiency, and we're going to unlock the profitability that this business has the capability to do. But we need to do this by accelerating natural beauty revolution. The strategic pillars are our vehicle to do that. Unashamedly focused and action-orientated at restoring shareholder confidence with performance. We're going to be consumer-led on innovation. We're going to be the #1 in natural with all of our SKUs profitable. We're going to have strong partnerships across key markets, and we're going to have great people who are highly qualified and passionate about natural health.

And let me be very, very clear. We're going to simplify the number of SKUs that we have, and we're targeting a speedy reduction of at least 10%. We've started on and will execute on the need to prioritize our international markets and our channels better. We will unlock the China business, and we've reset our China strategy in the last 6 months. We've got great alignment across the senior executive team. And as I've said, we are very close and we will imminently announce the appointment of the U.S. President.

Now I understand we're going through these slides fairly quickly, and I'm sure we want to get into some questions, but I just want to quickly touch on how we will win. You've seen, on this slide, what our growth initiatives are. They're underpinned by some very, very actionable improvements. Horizon is our first -- horizon one is the first 100 days of F '20. We're onto a fast start. The initiatives of developing and investing in a global enterprise approach to marketing, appointing a CM, investing across border and launching Sukin Germany are well underway. They're actions that have been taken.

The key initiatives in horizon two include a target of 15% of net revenues from NPD. We need to continue to develop our joint business plans with key retail customers, and we will be launching some China influence SKUs, and as I've said before, expanding Nourished Life into new markets. And on horizon three, we'll continue to invest in future natural partnerships, we'll transform our cost base, and this will fund our investment for growth. We'll accelerate our direct-to-consumer model, and we will be the destination brand for talent who want to work in natural health.

So thank you for your patience. We've walked through the slides, we've outlined where we're heading, and the last slide is probably what you've all been waiting for. I truly believe there are significant opportunities for this business via the brands we've built, using the platforms we have and we've got established key geographies. We're operating in a category that has experienced major tailwinds, and we can accelerate our growth. Many of the first steps of this journey have been taken. We're in a more focused and improved and more robust situation. We've made appointments with a key to see leadership team, and we've set some firm foundations. We continue to cement those priorities I've taken you through. And importantly, we know we will measure our success and you will measure us on that.

We've entered the new financial year on a robust footing. Our team is focused. We will continue to invest in our brands, our processes and will continue to add capability to the team. Doing so, we're confident that we can drive deeper consumer penetration, basket size and grow revenue and EBITDA in F '20. We've also listened to your requests, and we're committed to the following guidance for F '20. We expect our revenues to grow between 20% to 25% year-on-year, and we expect our EBITDA to grow 25% to 35% year-on-year. We know we have to rebuild your trust, and we give you these guidance numbers after extremely careful consideration. But please don't expect that I'll give you guidance every year. We do acknowledge that we are in exceptional circumstances, which require exceptional clarity. That is the end of the formal presentation.

And I'm now happy to take any further questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Philip Pepe from Blue Ocean Equities.

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Philip Pepe, Blue Ocean Equities Pty Ltd, Research Division - Senior Industrials Analyst [2]

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I guess I have 2 questions, or 2 issues I've been debating with people over the past 12 months. The first one is, are the brands there to invest to stay in the brands? Obviously, you put some market share data in the presentation. But what due diligence did you do personally on the brands before taking on the role to convince yourself that they can grow despite share price performance of the operating company?

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David Fenlon, BWX Limited - Group CEO, MD & Director [3]

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Okay. So Philip, importantly, you do due diligence based on 3 factors: one, your experience with the products; secondly, some data points around market share and growth; and thirdly, you talk to other retail partners that you've known for a long time. All of that was undertaken. And I think it's important that we reference back to the data that we've shared with you today. Scan data is clearly evidence that consumers love the brands, Coles is up 38%, and we're outstripping growth in the natural channel and pharmacy. Ranging of additional NPDs is locked in with retail partners both in Australia and in America. So I think evidence is clear that the brands have got great acceptance from consumers in both the key geographies, and our opportunity is to really unlock a multi-brand strategy across those 2 key geographies.

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Philip Pepe, Blue Ocean Equities Pty Ltd, Research Division - Senior Industrials Analyst [4]

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Okay. And secondly, if I can. Revenue growth historically has been volatile, as you pointed out, what some people call channel stuffing hasn't occurred. You're talking about 25% revenue growth in FY '20 and potentially accelerating that. Any comments on what's a sustainable level of growth over a 5-year period? Or it is see how we go?

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David Fenlon, BWX Limited - Group CEO, MD & Director [5]

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Look, I think it's important that we are clear that F '20, we are confident in that number as I said, we wouldn't have put that number out without careful consideration. I think there is, in our eyes, a commitment for that number. I think we need to be clear that CAGR in both skin care, hair care and natural in total is circa 8% to 10%. Will we be able to achieve that 20% to 25% growth in '21, '22 and '23? At this moment in time, I'm unsure about that. I do know that we'll continue to strive to be ahead of the category growth. But I think we should all be pleased that we're confident we can drive 20% to 25% in F '20. I don't have a crystal ball further into the future that that.

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Operator [6]

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(Operator Instructions) And our next question is from Jonathon Higgins from Shaw and Partners.

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Jonathon Higgins, Shaw and Partners Limited, Research Division - Analyst [7]

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Just a couple for me. Just tying in just with the question just before a little bit. In the annual report, you've sort of talked towards implementing an LTI for the group based upon, I think just having a look here, compound annual EPS growth of 50%. Is there -- are you able to sort of provide any more clarity on that? I mean that's -- is that from a FY '19 year moving forward, that would obviously be, sort of, substantially above the 2020 guidance moving forward?

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David Fenlon, BWX Limited - Group CEO, MD & Director [8]

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I think it's very clear, Jonathon, and thank you for the question, this business needs to give confidence back to shareholders and its stakeholders. We've given you those guidance numbers with confidence. I think what we need to do is rebuild that confidence by delivering what we said we're going to do. That's what we're going to hold to.

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Jonathon Higgins, Shaw and Partners Limited, Research Division - Analyst [9]

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Okay. In regards to just the business and the run rate into this year, the guidance for FY '20 sort of implies sort of the second half of '19 number sort of being annualized into next year. You've obviously got a large number of moving parts that happened during FY '19. You spoke towards various things around unprofitable promotions internationally, et cetera. Is the business run rate substantially in the last couple of months improved? And what sort of seasonality should we expect in this business with the various brands in various geographies around the world?

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David Fenlon, BWX Limited - Group CEO, MD & Director [10]

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We work both on, obviously, the northern hemisphere and the southern hemisphere, so we can't really say that we have seasonality. It is the same across both of those brands -- and both -- across both those markets. I would say the trajectory in the second half year is something we're pleased with. I think we need to expect that half 1 will not be a replication of EBIT level of $14 million, there is some seasonality. There is also some timing around the CannaCell launch, and there is also some other timing around other NPD launch. But obviously, we've been confident enough to give you a run rate for F '20. We're confident enough in our scan sales data, as I've mentioned before, that we'll continue to outstrip the market, and we're confident on the ranging that we've achieved with certain customers to be able to stand behind those numbers.

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Operator [11]

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Our next telephone question is from Sarah Mann from Moelis Australia.

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Sarah Mann, Moelis Australia Securities Pty Ltd, Research Division - Analyst [12]

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Just a quick question on domestic Sukin. So clearly, there's been some issues in the period, which you've already talked about. But you mentioned you had an okay, decent market share number. I just want to understand, like, how much of that came from some of the discounting? And then when you do switch that off going forward, like, how comfortable are you that you'll be able to kind of maintain that market share going forward?

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David Fenlon, BWX Limited - Group CEO, MD & Director [13]

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So obviously, yes. Thank you, Sarah. Yes, we did get some good sales growth. And obviously, we're very conscious around the discounting. I do have Rory with me, but I will answer and see if he has anything else to add. I would just point out that, obviously, there was an improvement in gross margin of 1.2 points half 1 to half 2. So don't believe that all of those sales come from discounting. Rory, anything to add?

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Rory G. P. Gration, BWX Limited - MD of Asia Pacific [14]

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Yes, the bit I'd add is we actually saw some really significant growth through our NPD as well, not just our signature range. So there was some incredible NPD launched throughout the year, and we've been getting better momentum through the second half. And a lot of that NPD has been coming at higher dollar per unit, higher dollar per kilo and higher gross margin. So we're finding ourselves in a position where we're actually, year-on-year, our base versus promotional sales are pretty much in line. So we're not buying sales, if that answers your question more directly. But we have an opportunity going forward to make our trade spend more efficient. Particularly with the strength of the Sukin brand now, there's an opportunity to make sure that we're doing the right consumer promotions and balancing trade investment with potentially an increase in marketing investment to continue to strengthen the brand.

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David Fenlon, BWX Limited - Group CEO, MD & Director [15]

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Does that answer your question, Sarah?

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Sarah Mann, Moelis Australia Securities Pty Ltd, Research Division - Analyst [16]

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Yes. Perfect. So in terms of, obviously, you mentioned some of the benefits that you got from new product development and that's potentially going forward also improving, I guess gross margin. Can you tell me how you think about I guess R&D spend around that from where we are now? And maybe, like, do you have, like, a target percent of total revenue that you want NPD to kind of represent?

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David Fenlon, BWX Limited - Group CEO, MD & Director [17]

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So obviously I mentioned earlier on, across the group, we're looking for, in the next couple of periods, for that to accelerate from where we currently are up to 15%. That does require us to make sure that, however, we've unlocked efficiencies in the other parts of the business, there's no point putting product into market if it hasn't got a consumer promotion or a consumer push point to it. So we're confident we can get to that 15%. And we're confident as we unlock, through our transformation program, costs in the business. We'll be able to invest heavily into our A&P spend, but it doesn't mean that our cost growth is going to be greater than our sales revenue growth in F '20 and '21.

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Operator [18]

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There's no more further questions from the telephone lines. I would like to hand the call back to the speaker for any closing remarks. Please go ahead.

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David Fenlon, BWX Limited - Group CEO, MD & Director [19]

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As I started at the beginning, I wanted to thank you very much for your time. It is very much appreciated. We certainly are clear that we need to rebuild shareholder and stakeholder confidence. That is why we have clearly given you a forecast sales and EBITDA expectation. If there are any further questions throughout the day, we're always happy to receive them, and I look forward to seeing some more of you in some one to ones, and I'll close the call by thanking you for your time. Much appreciated.

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Operator [20]

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Ladies and gentlemen, that does conclude the call for today. Thank you to all participating. You may all disconnect. Goodbye.