Global natural health products company Comvita (NZX:CVT) and Shenzhen Comvita
Natural Food Co Limited (SCNF), Comvita''s long term distribution partner in
China, today announced the signing of a Heads of Agreement to form a 51:49
joint venture (JV) in China.
SCNF has an extensive sales and distribution network in China including over
400 Comvita branded department store kiosks, as well as 35 branded Comvita
stores in tier one cities in China. SCNF has product registration expertise,
strong relationships with regulatory authorities and has built an excellent
brand position for Comvita. Approximately one-third of SCNF sales are
through e-commerce platforms including successful positions with Tmall and
JD.com, and they also sell through a number of duty free stores at key border
locations.
Under the Heads of Agreement, Comvita would acquire the 51% shareholding by
issuing 2.830m shares in Comvita at $10.60 per share, which currently values
51% of the business at $30m. The acquisition is expected to be earnings
accretive in its first full year of trading, disregarding any one off
start-up costs. The joint venture arrangements and issue of Comvita shares
are subject to full legal documentation and all legal and regulatory
approvals, together with the respective Board sign offs which must be
completed by 1 March 2017 with an anticipated commencement of operations on 1
April 2017.
Comvita CEO Scott Coulter says, "SCNF has worked with Comvita for more than
12 years and the relationship is very strong, beginning with just two staff
and now employing more than 200 staff throughout China. The SCNF-Comvita
business has experienced a compound annual growth rate (CAGR) of 30% since
2004."
"We estimate that Chinese customers ultimately consume approximately 60% of
our total sales, whether sold in Mainland China, or via tourists in
Australasia, Hong Kong or other parts of the world. We believe we need to be
as close as possible to these customers so we can provide an increasing range
of innovative products to meet their health needs. This JV will allow Comvita
to capture an increased margin on sales into China as well as allowing us to
build a pipeline of new Comvita branded products in the future. Being on the
ground inside China is a key building block to our future growth strategy."
"We have established a track record of building up exclusive distribution
positions globally and then acquiring them back at the right time", says
Coulter. This distribution JV will follow our successful purchase of our
distributor in the UK in 2005 and Hong Kong in 2007. China however, is a much
bigger and more extensive proposition and we chose to adopt a JV business
model with our Chinese partner who has a proven track record of achieving
results on the ground. Together, we will leverage our complementary
expertise to maximise marketing, sales and distribution synergies."
Comvita supplies all of the major e-commerce platforms in China. In Taobao,
the Chinese Consumer to Consumer site, the Comvita brand is now the number
one honey brand in China, data which also includes local brands. In Tmall,
which is the business to consumer site, Comvita is now the number two brand.
China is the largest honey producer and consumer of honey in the world so
this is an excellent position for our brand and a very strong platform to
grow from. Comvita sales have grown 33% overall across the entire Chinese
e-commerce market to the end June 2016, a very pleasing result.
"The Chinese market is moving more and more into a direct trade model and we
expect the grey channels used by a number of importing companies will become
increasingly difficult to navigate for many product lines over time as China
demands compliance with its ''Blue Hat'' Health Food legislation. Our JV will
provide Comvita with much more flexibility over time to optimise sales and
channel profitability through direct importation into China."
Mr Coulter says, "We welcome the continued evolution of our partnership with
SCNF and their owner, Mr Zhu Guangping. Under the Heads of Agreement, we are
retaining Mr Zhu''s considerable business skills and he will continue to be on
the board of the newly formed JV business.
As well as being an 80% shareholder in SCNF, Mr Zhu is a franchise owner in
China Duty Free Group, with premium locations of Zhuhai (Macau-China border)
and Shenzhen (Hong Kong-China border). He was the chairman of a publicly
listed company in Hong Kong for two years and has an EMBA in addition to over
20 years of experience in corporate management.
Mr Zhu says, "We have worked together with Comvita for over a decade and have
built a very strong brand position in the Chinese market. Originally I was
attracted to Comvita as a number of my friends recommended their products to
me, and after using them for some time I came to totally trust the brand, the
company and the Comvita team. I believe that Comvita can build on its premium
position in China and continue its progress in being one of the leading
foreign brands in the natural health food market. I am also a believer in
Comvita''s global business opportunities."
Mr Zhu''s wife Li Wang, who is a New Zealand citizen, currently owns 5.12% of
Comvita, and upon completion of the JV, Mr Zhu''s family would own 10.07% of
Comvita. The remaining 566,000 shares to complete settlement would be issued
to Ms Lily Sun, the current General Manager and 20% owner of SCNF. Lily Sun
is a Chinese citizen.
Coulter added "We have been working for several months with our Chinese
partner on this transaction and the JV will fulfil a significant step in
sustaining Comvita''s growth strategy."
Ends.
For further information:
Comvita CEO, Scott Coulter, 021 386 988.
Comvita Chairman, Neil Craig, 021 731 509.
Comvita Communications Manager, Julie Chadwick, 021 510 693.
Background information
About Comvita (www.comvita.com)
Comvita (NZX:CVT) is a global natural health company committed to the
development of innovative products, backed by ongoing investment in
scientific research.
End CA:00288461 For:CVT Type:JOINTV Time:2016-09-05 10:06:27