The Food Revolution Group (ASX: FOD) has inked a strategic deal to distribute its juice, beverage and vitamin products in China, targeting at least $20 million in additional sales per year within the first two years.
The company today announced the signing of a binding subscription deed that will see investors headed by Careline Australia Pty Ltd and its chief executive Dr Tao Norman Li invest up to $20.25 million in the company, subject to shareholder approval.
Under the agreement, the parties have also committed to a distribution agreement to expand Food Revolution’s sales into China through Careline’s growing network of more than 10,000 affiliate marketing agents, also known as “daigous”.
The news follows last month’s announcement that Food Revolution had signed a deal with Australia’s largest daigou and e-commerce distributor, Health More, to develop innovative beverage products for the Chinese market.
This latest agreement contains minimum targets of $20 million per annum of additional sales within two years at current company margins.
Careline has been offered the further incentive of up to 190 million performance shares for rapidly growing Food Revolution’s sales from around $35 million to at least $100 million over the next three to five years.
Careline is an Australian manufacturer and exporter of skincare products, food, supplements and infant formula with strong distribution and marketing expertise in China.
The company’s products are currently sold in thousands of stores in more than 20 provinces and cities including Hong Kong, Macau, Beijing, Shanghai and Guangzhou.
Through the proposed distribution agreement, Dr Norman Li is planning to adjust Food Revolution’s existing product lines and develop new ones for export including various types of bottled beverages, new high-end healthy shot and sachet drinks, and a new series of health products.
Careline currently has around 10,000 daigous in its network but is aiming to grow this figure to more than 30,000.
Food Revolution executive chairman Bill Nikolovski said this latest deal would be transformational for the company.
“Entry into the Chinese market has been a long-term goal for us,” he said.
“We have been achieving strong growth of our branded products in Australia and with the partnership with Careline it will give us a step change in sales with access to the Chinese market.”
Dr Norman Li said Careline had been seeking high-quality products that can be rapidly produced in high quantities.
“We have now found [this high-quality capacity] in the Food Revolution Group’s manufacturing assets which are currently only used to about a 30% capacity,” Dr Li said.
“The partnership gives us the ability to more fully utilise our China distribution and sales capacity through Careline’s proven networks,” he added.
Food Revolution’s stock had climbed more than 22% to $0.099 by afternoon trade.