Oceania Natural gets funding to form Hong Kong subsidiary

Oceania Natural [NXT:ONL] has secured about $3.5 million to form a Hong Kong-based subsidiary that will help build the company’s Chinese distribution network.

The Albany-based company, which makes food supplements from manuka honey and noni fruit, listed on the small cap growth market NXT in March.

It announced this morning it had secured $HK19.5 million to establish Oceania Natural Asia, which has been incorporated as a joint venture to serve as a holding company for Oceania’s Chinese business operations.

Ownership is shared between Oceania – which has 51% – and a number of New Zealand and Chinese investors, many with distribution networks, including access to 2000 pharmacies across China.

Oceania has earmarked Wuxi City for its China headquarters and has established a new subsidiary, Oceania Natural (Wuxi) Co to be its physical presence in the city.

The company will continue to supply product through its three existing independent distributors in Shandong, Guizhou and Wuxi, which are not affected by the new structure and maintain their five-year distribution agreements.

Oceania chief executive Walker Zhong says the funding deal lets the company fast-track its distribution networks without needing to ask shareholders for funding.

“This will allow us to expand more quickly and build our distribution and supplier networks to ensure we are in a strong position for the latter half of the financial year when our sales are traditionally stronger due to celebrations around Christmas, New Year, Chinese New Year and Valentine’s Day taking place.”

Discussions are under way with a potential new South Korean distribution partner and New Zealand honey suppliers, he says.

As previously reported, Oceania’s net profit after tax was $182,584 in the year ended March 31, 2016. The company was started by Mr Zhong on May 27 last year as a shell to acquire two of his companies. 

Its total revenue for the year increased 121% to $3.35 million, below the targeted $3.4 million. Sales by third-party distributors were $2.68 million, below the $2.75 million target while gross margin was 40.1%, rather than the aimed for 41%.

It reached its direct sales target with sales of $655,000 ahead of the forecasted $650,000 and had $461,365 in cash and cash equivalents at the end of the financial year.

It made an unaudited normalised net profit after tax of $560,000, within the revised range of $550,000 to $600,000.  In its listing documents, Oceania had forecast normalised NPAT – or earnings adjusted for unusual or one-off items – to be between $700,000 and $900,000.

For 2017, Oceania is forecasting total revenue of $5.38 million, direct sales of $1.38 million, and distributor sales of $4 million with a gross margin of 40%. 

Oceania’s shares first traded on March 31 at 74c, up from the 64c touted in the compliance listing of 25.7 million shares. There has been a 282% gain in share price since then to $2.45, giving it a market capitalisation of $64.2 million.

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