Wattle Health takes duty free road in tough infant formula market

Melbourne infant formula company Wattle Health Australia, which sells its products through duty free stores across Australia, is ploughing ahead with ambitious plans to list on the ASX despite the uncertainty in the sector, where big player Bellamy’s Australia is in the spotlight.

Wattle outsources the production of its infant formula and milk powder and also intends expanding into vitamins, but has highlighted to potential investors the risks posed in the sector because of Chinese regulatory changes on rules surrounding the importation of dairy products.

Wattle Health is undertaking roadshows in Sydney and Melbourne and is aiming to list on the ASX early next month.

But its prospectus is unable to give any forecasts for revenues or profits because it concedes it is an “early stage” business. It does outline that in the four months ended October 31, 2016 it generated sales of $771,255.

A letter from executive chairman Lazarus Karasavvidis to potential investors in the prospectus said seven of its formulations were now commercialised for use in infant formula and dried milk products. But he acknowledged that Wattle Health was a relatively new player in an industry that is enveloped in uncertainty, with the changes in regulations for the sale of dairy products into China due to become operative from January next year.

He said Wattle Health had an exclusive sales agreement with JR Duty Free for the sale of the company’s infant formula and dried milk products in all the retail and airport stores operated by that firm.

First major Chinese sales

Wattle Health had also just made its first commercial sales of its Export Infant Formula in China, after the product received China CIQ registration.

Under that registration, Wattle Health is required to purchase its Export Infant Formula from a company called Blend and Pack and use Suzhou Peloris Trading Co Ltd as its import agent. The CIQ registration allows Wattle’s export infant formula to be sold in all sales channels in China, including at a retail level and online.

Mr Karasavvidissays in the letter to shareholders the business model is built around increasing domestic sales in Australia and also concentrating on export sales across Asia.

Seeking to raise $8m

Wattle Health is aiming to raise a maximum of $8 million through the issue of 40 million shares priced at 20¢ each. The minimum target is $6 million. The company was established in 2011.

It also points out the impact on tax imposts by the Chinese government on what it calls the “grey channel” route to market where consumers buy products in Australia and then carry them into China to sell them.

“These taxes have been implemented to restrict market opportunities and revenue generation for foreign companies” planning to use the grey channel.

The shifts in regulations in China helped up-end the fortunes of Bellamy’s, which was a market darling as it tapped into demand for “clean and green” brands from Australia.

Vitamins firms such as Blackmores have fared better after a hiccup late last year caused by a slowdown in the buy-up of vitamins in Australia by daigou re-sellers.

Check original article here.