Company Overview - Yowie Group Limited is a brand licensing company. The Company specializes in the development of consumer products designed to promote learning, understanding and engagement by exploiting its over six Yowie characters. The Company operates through confectionery business segment. The Company employs its rights in the outsourcing of the manufacturing and distribution of the Yowie chocolate confectionery product; in the development of a Yowie digital platform, and Yowie branded licensed consumer products. Yowie confectionery is a character-molded, 28-gram chocolate inclusion product. The Company operates Yowieworld.com, which consists of applications, three-dimensional (3D) games and other fun activities. Yowieworld.com is a multiplatform experience, which lets users build their own virtual sticker book that enables to keep track of their Playmate collection. The Company is focused on distribution of Yowie product in North America, Australia, New Zealand and throughout Asia.
 

 

YOW Details
Starting second foiler at Madelaine: Yowie Group Ltd (ASX: YOW) reported for commissioning of second high speed foil wrapping machine (foiler) at the Madelaine Chocolate Company, US as planned. The foiler is capable of foiling 20m units per annum. With the ongoing growth of Yowie’s business in the US, the addition of the second foiler in the US would enable YOW’s manufacturing capacity to meet the demand needs. YOW has become the top selling immediate consumption novelty chocolate item in the US market while the second foiler has doubled the foiling capacity to 40m units per annum at manufacturing facility in the US.
 
Strong first quarter FY 17 performance: YOW has reported an outstanding net sales growth of 104% to USD $4.9 million in the first quarter of FY 17 as compared to the prior corresponding period (pcp). The company has reported a huge quarterly cash receipt from sales since inception. The group reported a net operating cash outflow of USD$1.7 million during the quarter while cash receipts reached USD$4.4 million.  YOW incurred marketing costs of USD$891K while operating costs and staff, administrative and corporate costs reached USD$3.5M and USD$1.8M respectively. Moreover, YOW has launched a second series of Yowie limited edition collectibles, in the first quarter which is the All-Americas Series in the US market. The new series got favorable response from retail partners and consumers. The unit volumes produced during the first quarter of FY 17 were strong rising 103% (doubled) at 3.3 million which is above the last year’s first quarter.
 

Net Sales Performance (Source: Company Reports)
 
Investing to strengthen brand position in the US: In the first quarter of FY 17, YOW has launched the largest brand building investment to date of USD$1.2 million. The group made investment in a pre-Halloween/Christmas marketing campaign and focused on the two important markets, San Antonio and Chicago. The marketing program included the social media using You Tube, Face Book, Instagram and Twitter. Since the campaign got launched, including post quarter, there have been over 7 million views on You Tube and Face Book. The campaign also incorporated Bus Kings and broadcast television starting on October 2016. YOW was said to be on TV for the first time for such popular shows as Nickelodeon, Nick@Nite, Cartoon Network and NBC. YOW in the first quarter has added new accounts including two divisions of Kroger, Food For Less, Brookshire’s Grocery and Winco Foods. In addition, YOW has continued to improve the plant operations and has delivered customer service levels of +95%. Meanwhile, YOW is looking for an opportunity to implement the cost efficiencies at the plant through the savings programs. YOW is expected to deliver up to USD$500K in FY17.  Strong national U.S distribution along with ongoing sales momentum of the group in the U.S market led the group to start their second phase campaign. This campaign is focusing on Illinois and Texas while the success of the campaign would help them to plan the development and timing of a follow-up campaign.
 
Entering New Market: After the successful entry in the US market, YOW has maintained its earlier guidance of entering the two additional markets outside of the US before the end of FY17 for which YOW is developing launch plan. Moreover, YOW is developing market research for the expansion in North America, and has conducted Focus Group research in Asia. Yowie is also developing distribution plan for Australia, and assessing the distribution partners in Europe while exploring lower priced product for price segmentation.
 
Focusing on Digital & Entertainment Segment: Yow in the first quarter of FY 17 has finished 6 Yowie book collection centered on the story of Yowie World and the six Yowie characters set in a US environment. The discussions are undergoing with the publishers in preparation for the launch in third quarter of FY 17. The group believes that these books would raise the profile of the Yowie characters in conjunction with brand awareness efforts. Moreover, YOW made progress on the plans in the first quarter of FY17 to develop the digital assets through the enhancement of the Yowie Play & Learn proposition on the YOW consumer web site.
 
Favorable ruling in the legal matters: Yowie got favorable ruling on September 15^th in the case against Hank Whetstone (Atlantic Candy Company) in the company’s claim to recover either the YOW owned wrapping machine or the cash equivalent. The Court would give the final judgement in second or the third quarter of FY 17. On the other hand, the outstanding litigation case against Whetstone (ACC) needs several quarters to finalize.
 
Key Objectives for FY 17: Yowie is expecting to deliver a strong top line growth for fiscal year of 2017 while strengthening the brand awareness through innovative marketing. Moreover, there will be permanent planogram placement at major US retailers, which would achieve the breadth and depth for the national US distribution. YOW is planning to launch publishing in FY 17. The group is on track for strong growth for the coming year versus 2016, and accordingly enhancing their US sales team and add new accounts. Yowie is planning to enhance the cash outflow as compared to 2016 despite significant talent acquisition and marketing investment.
 

Yowie growth trajectory (Source: Company Reports)
 
Promising potential market in the US: YOW has already achieved the positive market share results in the US, wherein xAOC (extended All Outlet Combined) market share reached 0.7% as per their update in the recent quarter, based on Nielsen market share data for the 52-week ending October 8, 2016 (which includes Food, Drug, Mass, Dollar, Club and excludes Convenience). The group’s North America CEO, expressed his confidence of the group’s performance in the US market which added in store merchandising and also new accounts. As per Nielsen data, Yowie is the number 1 selling item when taking account of Yowie share of the total front of store Chocolate segment, referred to as instant consumables. Despite being in early stages, Yowie was a top 10 selling item in both Drug and Convenience.  During the first quarter, Yowie placed 17,500 x 48 unit count floor stands and end caps, which is greater than earlier quarters from their introduction to enhance their in-store merchandising presence. The group added two divisions of Kroger, Food For Less, Brookshire’s Grocery and Winco Foods.
 

Growth Pillars (Source: Company Reports)
 
Stock Performance: YOW stock has fallen 37.4% in the last six months (as of December 12, 2016) as investors aggressive expectations over the group’s US market penetration did not meet. On the other hand, we view this correction as a lucrative entry opportunity as the group continues to make solid efforts to create brand awareness of their products in the US markets. Yowie is a multi-million dollar brand in the US and generated over $23 Million in sales since its launch (till  October, 2016). Yowie Group also appointed Cove Overley as Global Chief Marketing Officer of Yowie Group Ltd. The latest demonstration of ability has been to deliver on short-term retail goals and investing in future opportunities for growth through in-licensing brands for sales expansion and leveraging the Yowie brand into publishing, entertainment and other products. The group is expected to be profitable in FY17 at the back of higher gross margins owing to higher production volumes and the elimination of patent and exclusivity royalties on previous capsule design. Yowie stock has been consolidating since the last few days and delivered a rise of over 7.2% in last five days (as of December 12, 2016) and we believe the performance to improve in the coming periods. We give a “Buy” recommendation on the stock at the current price of – $0.60

 
YOW Daily Chart (Source: Thomson Reuters)

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