BEST WORLD: How China licence will unleash sales surge

Chief operating officer Huang Ban Chin. Photo: CompanyOn 1 July 2016, Best World International announced that it had been granted a direct-selling licence by China' s Ministry of Commerce, about two years after it submitted an application.  What next? Best World' s chief operating officer, Huang Ban Chin, shared insights into this at a 1H2016 results briefing recently. Turns out that Best World is not going to incur much capex -- and will instead be able to unleash a growing sales force in as many cities of China as it cares to target.   Best World, clearly, can scale up fast and the market is clearly massive: China is the No.2 largest direct-selling market in the world after the US. South Korea is No.3.

1. Before licence becomes effective:  The licence granted to Best World is for doing business in Hangzhou city.  Before the licence becomes effective, Best World needs to set up a service outlet in each of the nine districts of Hangzhou. 

This is a simple matter and is not as capital-intensive as some investors might have worried over.

Best World already has customers using its skincare products who are owners of, for example,   nail spas, beauty salons, lady spas and hair salons

Best World will select nine of their outlets and, with the owners' agreement, designate them its service outlets.

The authorities will inspect and audit these outlets before activating the licence. Best World is confidernt that this can be achieved by the end of this year, and it can then begin its direct-selling business.

Best World' s distributors in Taiwan (photo) have made the market the No.1 for the company.  Photo: Facebook2. Unleashing the sales force:  In recent years, Best World has been getting the ground ready to unleash a surge in direct-selling of its products in China. 

It has been reaching out to owners of, for example, nail spas, beauty salons, lady spas and hair salons. It has introduced and sold them Best World skin-care products, which they have in turn promoted and sold to their own customers.

This accounts for the $22.4 million revenue (up 165% y-o-y) in 1H2016 attributable to the China market.

Now that Best World has secured a direct-selling licence, these business owners are poised to become distributors whose customers can in turn also become direct sellers of Best World skin care products.

In  direct-selling parlance,  the business owners are the " upline" while their customers are the " downline" .

&diams China-led growth for the next 5-8 years

" We believe in the potential of China&rsquo s large and growing market will lay the foundation for growth of the Group in the next 5 to 8 years and will continue to expand our footprint in the country."   -- Dora Hoan, Co-Chairman, Best World International (Photo: Facebook)  Doreen Tan, Co-Chairman of Best World International.

1. Total revenue surged by 145.2% year-on-year to S$51.6 million, underpinned by strong growth from the key markets of Taiwan, China and Indonesia.
2. Consequently, net profit rocketed by 273.4% to S$7.37 million.
3. As of 30 June 2016, Best World&rsquo balance sheet has S$48.3 million in cash and cash equivalents and just S$2.51 million in debt. This is an improvement from a year ago when there was S$34.5 million in cash and cash equivalents and S$1.5 million in debt.
4. Best World ended the reporting quarter with S$2.65 million in operating cash flow and S$0.28 million in capital expenditure. This gave rise to S$2.37 million in free cash flow (operating cash flow minus capital expenditures). A year ago, Best World had free cash flow of a  negative  S$1.1 million.
5. Best World reported 421,208 members as of 30 June 2016, an increase of 2% from the last sequential quarter and 12.3% from a year ago.

&ldquo We shall continue to drive both top and bottom line growth through consistent improvements in our operations and offer more products & services in our key markets. For the other markets, we shall also step up our marketing efforts to improve our performance.

In addition, to achieve better control over inventory lead time, product quality and to cater to the anticipated increasing demands from our skin care line, we are in the process of setting up a state-of art skin care manufacturing facility in Tuas, slated to be completed in 3Q2017.&rdquo

&ldquo Looking ahead, the approval of our direct selling license in China marks another exciting chapter for the Group.

Leveraging on our proven business model and management experience in the market, we are confident to be able to tap into the mammoth market potential of China, setting the stage for further growth for at least the next five years.&rdquo

&ldquo The bonus issue will increase the issued share capital base of the Company to reflect the growth and expansion of the Group&rsquo s business as well as encourage a wider spread of shareholders and increase market trading interest.&rdquo