Wattle Health Australia expands infant formula empire in mainland China

Wattle Health Australia ASX WHA infant formula China

Nutritional products supplier Wattle Health Australia (ASX: WHA) has agreed on a deal with Chinese company Shandong Weihai Port International Trade Co for the supply of Wattle’s conventional cow infant formula range.

Shandong is a large products distributor based in north-eastern China with an operating revenue of around RMB3.7 billion (A$760 million) per year, generated across its range of businesses in import, export, logistics, warehousing, sales and distribution.

According to Shandong, it operates its own state-of-the-art “cross-border e-commerce industry park” comprising over 160,000 square-metres which cost a total of RMB384 million (A$8 million) including CBEC customs supervision, bonded warehousing, goods sorting as well as a commercial shopping area.

The two companies announced a non-exclusive term sheet which sees Shandong committing to progressively escalating order volumes for the next three years. Shandong has agreed to buy a minimum of A$6.6 million in the first 12 months, then A$11.5 million in year two and around A$16.5 million in the final year.

In total, the agreement with Shandong represents approximately A$34 million in revenue for Wattle over the coming three years.

Wattle said that extension of the agreement and volumes after the third year will be negotiated at the expiry of the agreement, and added that to continue with this agreement, volumes must not be less than the guaranteed volume for the last 12 months.

Latest deal

Today’s agreement with Shandong further adds to Wattle’s sales pipeline following the recent agreement with International Supplies and Distribution Company (ISDC) signed in April this year.

The deal meant that Wattle’s conventional cow infant formula would be made available for sale in traditional retail centres in mainland China and ensured that the company reached an important milestone which boosted its growing footprint in the country.

The total size of that particular deal was substantially larger compared to the one announced today with Shandong – Wattle said it anticipated revenues to exceed A$100 million across a three-year period and confirmed that the deal is backed by a bank guarantee.

“This agreement with Shandong is another important milestone for Wattle Health Australia which will further grow our footprint and brand awareness in the Chinese market,” said Lazarus Karasavvidis, executive chairman of Wattle Health.

Mr Karasavvidis added that the security provided by the minimum order guarantees included in its two most-recent deals would “allow the company to plan with confidence and further expand its distribution network and product offerings,” as the company continues its expansion across China.

Filip has written in both Australia and abroad during his career, covering everything from the global economy, politics and geopolitical issues to commodities and small cap stocks on the ASX.