Day of reckoning approaches for Zoe Foster Blake backers at BWX

Tattarang investment manager Michelle Hepworth joined the board on August 11 as Forrest’s nominee, but she resigned barely a month later – just days before BWX delayed the release of its accounts for the second time.

Tattarang declined to comment, but it cannot be a good sign that one of BWX’s largest investors so suddenly distanced itself from the company.

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Shares have not traded since August 26 thanks to the trading suspension which was put in place until BWX sorts out its accounts. But it will certainly plunge below the 63 cent price at which the stock last traded.

Foster Blake by comparison is looking all the wiser for getting 51.1 per cent of her business, Go-To, for $89.9 million and retaining the option to sell the remainder of her business to BWX as early as September 2024.

The value of the option is recorded in BWX’s accounts at $93 million, but the sale price depends on a valuation of the Go-To business at that time.

Whatever the price, it will only confirm that BWX almost certainly paid Foster Blake way more than the business was worth. More importantly, it will need to negotiate a potentially unpalatable deal to sell it back to her – at a much lower valuation – if the contract to acquire the remainder of the business proves too onerous.

The only downside for Foster Blake is any operational reliance Go-To has with BWX.

It would almost certainly mean current shareholders, such as Forrest’s Tattarang which now owns 19.9 per cent, would need to put more money into their disastrous BWX investment.

The big issue for investors is what has spooked the auditors so much that financial accounts, which were meant to be approved in August, are still awaiting approval 3 months later.

BWX flagged in July that it engaged in channel stuffing – where retailers inflate sales by “selling” more products to their distributors than they can readily sell to consumers.

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BWX’s recently appointed chief executive, Rory Gration, said this was no longer tenable as high inflation and rising interest rates hit consumer spending.

But something more serious is afoot given the huge delay and statements to the ASX that include “certain revenue recognition issues for FY21 and 1H FY22 and the likely impairment of intangible assets”.

It is not the only issue BWX is grappling with. Last week, the company revealed that 2500 Flora & Fauna customers had been affected by a cyberattack between mid-August and late September.

BWX said no other operations, including the Go-To business, had been impacted by the incident.

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