Australian health, wellness and beauty company McPherson’s Limited (ASX: MCP) has signed a joint venture agreement with Access Brand Management to expand sales of the Dr LeWinn’s range of anti-ageing products in Greater China.
Under the terms of the agreement, Australian-based Access will acquire a 51% stake in a joint venture entity to be incorporated with McPherson’s in Hong Kong SAR for a nominal value.
McPherson’s will transfer to the joint venture entity certain trademarks registered in mainland China, Hong Kong SAR, Macau SAR and Taiwan, for a nominal value.
Access and the joint venture entity will be granted exclusive distribution rights for Dr LeWinn’s branded products throughout Greater China.
Both companies will also look to create joint teams over the next six months engaging marketing, research and development, supply chain and operating functions.
McPherson’s said the teams would help “take plans to the next level” to ensure the joint venture is ready to service an expected increase in demand.
Based in Sydney, Access represents Australian and international brands in the People’s Republic of China market including mainland China, Hong Kong SAR, Taiwan and Macau SAR (Greater China).
The joint venture agreement requires Access to achieve $35 million in annual purchases of Dr LeWinn’s products from McPherson’s in any year prior to 30 June 2022, or aggregate purchases of $82.5 million over three years to 30 June 2022.
The target represents a compound annual growth rate in purchases from McPherson’s of approximately 30% over three years.
If Access does not achieve either target, the Dr LeWinn’s trademarks which were transferred to the joint venture entity by McPherson’s will be sold back to McPherson’s at the initial nominal valuation.
McPherson’s managing director Laurence McAllister said the joint venture agreement will help the company drive growth in export markets by capitalising on strong Chinese demand for Dr LeWinn’s products.
“[It] fits perfectly into our strategic approach to expand international exports in Greater China, which we believe is extremely attractive given the demographics and size of the market,” he said.
“We will be targeting further growth of Dr LeWinn’s in Greater China [and also] elevating the value of the brand globally.”
Mr McAllister said the Dr LeWinn’s range had seen “incredible success” in the Chinese market with consumers attracted to its clinically-proven formulas and premium products.
The Dr LeWinn’s range has experienced rapid growth during the 2019 financial year, with a 125% increase in sales on the previous period driven by a significant rise in export business and strong domestic demand.
Growth has also been achieved through an investment in product innovation – of 10 new products released during the year, a range of anti-ageing masks contributed 30% to sales figures.
Dr LeWinn’s has been managed and distributed by Access across Greater China for the past two years.
Regional sales have grown from $400,000 in the 2017 financial year to $3.3 million in 2018 and $16.7 million this year.
McPherson’s is targeting net sales of $25 million for the 2020 financial year.
If that target is achieved, the Chinese market would become the largest offshore market for McPherson’s, accounting for approximately 12% of total sales, and Dr Lewinn’s would become the company’s most profitable brand.
At mid-afternoon, shares in McPherson’s were trading 7.60% higher at $2.69.