How a skincare start-up became this year’s top IPO
20 January 2016 | Minutes to read: 3

How a skincare start-up became this year’s top IPO

By Liz Smith

Until early November, few people had heard of BWX Limited, a hair, body and skincare manufacturer based in Dandenong.

While the company’s leading brand Sukin is among Australia’s top pharmacy stocked skincare ranges, BWX remained relatively out of the spotlight, that is, until it became 2015s most successful IPO.

BWX commenced trading on the ASX on the 11th of November, with its shares opening at $2.12. By the close of trade the same day, BWX shares were trading at $2.26 a share, a 51% premium on the initial share price offering of $1.50.

At a time when market sentiment around Australian manufacturing remains cautious at best, how did a skincare company from Dandenong defy the odds and become the year’s best performing ASX listing?

Having been fortunate enough to work with BWX during this exceptional growth period, as well as working with them on their IPO, here are my thoughts about what it takes to outperform the market.

1. A clear growth strategy around an identified market opportunity

As consumers have become increasingly aware of the potential hazards of synthetic chemicals in traditional cosmetics, the demand for cleaner, greener and more ethical skincare products has grown.

BWX’s founders identified a rising market in organic and natural beauty products as a result of this consumer demand and used it to their advantage.

Their comprehensive understanding of this growth market led BWX to strategically acquire business operations in the natural and organic segments of the beauty and personal care market in Australia.

Recognising the importance of quality, BWX set out to acquire leading brands within its segment, including Sukin, which is ranked among the top five skincare brands sold in Australian pharmacies.

2. A skilled management team

BWX actively brought together a management team with skills and experience across sales, manufacturing, mergers and acquisitions and capital markets.

There is no doubt that the combined skills of this team has been instrumental to the company’s capacity to deliver on its growth strategy to date.

3. A business model built for growth

The company’s vertically integrated business model is structured for growth.

BWX owns the underlying Intellectual Property to the majority of the products that it manufactures. Products are then wholesaled to a distribution network, largely controlled by BWX through agency arrangements.

This vertically integrated business model enables BWX to maximise margins and quickly adapt and respond to changes in consumer tastes and trends.

4. High end, efficient manufacturing facilities located in Australia

As an Australian manufacturer, the first question everyone asks BWX is why they chose to develop a purpose-built manufacturing facility in Dandenong, rather than outsourcing the manufacturing of their products to lower cost labour countries in Asia.

The answer, once understood, seems obvious. It is imperative that consumers feel confident that their products are natural and have been produced to the highest quality and safety standards.

The location of BWX’s manufacturing facilities in Australia has not precluded the company from being a low cost manufacturer. The gross margin of 59.9% forecast for FY16 is testament to the business’ focus on maximising efficiencies and reducing costs at each stage of the process, from production planning through to distribution.

5. Transitioning customers with low profitability margins

Whilst most strategy text books recommend that businesses cease servicing customers that do not adequately contribute to profitability, in my 25 years of accounting and advisory experience, I have never come across a client with the courage to transition such a significant proportion of their revenue base.

BWX management undertook a review of each customer within the manufacturing business and chose to transition customers that did not adequately contribute to profitability.

These customers often created production bottlenecks from low volume orders and additional administrative and financial burdens.

Whilst the impact of this decision was lower revenue and profitability in the short term, it was a key part of BWX’s strategy to scale the business for growth and capitalise on higher margin opportunities in the market.

6. Strong relationships with advisors

It’s rare to come across a business so focused on building quality relationships with its major suppliers and advisors.

The relationship and respect that the BWX Board and management team have built overtime with their business networks was a key factor in their ability to attract the debt and equity funding it needed to implement the strategy.

7. Exploiting both overseas and online growth opportunities

BWX has established export markets for the Sukin brand in New Zealand, the US, Singapore, the UK and Canada, with significant opportunities identified for its products in Asia.

It has also taken advantage of the move to online shopping with an e-commerce website, and is currently planning to considerably grow its presence online.

8. Commitment to the plan

The Chairman of BWX, Mr Denis Shelly, recently lamented that too often management teams become distracted by opportunities that do not clearly align with their declared strategy.

Denis’ strength, and that of his team, lies in their ability to remain focused on the execution of their agreed strategic objectives.

It’s been a real pleasure personally and professionally to watch the mounting success of BWX.

How a skincare start-up became this year’s top IPO

Liz Smith

Liz is a Partner in our Corporate Advisory division, with over 25 years of audit and corporate finance experience. She advises clients across a broad range of industries with expertise in business valuation, due diligence and independent expert reports for corporate acquisitions. She works with companies through the IPO process, assisting external auditors on complex financial accounting and valuation issues, and strategic board advice.

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