The JV leverages the respective strengths of both companies to drive sales growth.

Diversified health and wellness company Wellnex Life (ASX:WNX) has signed a key deal heading into year-end, as it joins forces with the ASX-listed Australian Dairy Nutritionals Group (ASX:AHF).

Both companies announced a strategic joint venture this morning, to launch Australia’s first organic A2 protein infant formula range using 100% Australian milk.

It marks another example of strong execution from the WNX management team, as the company leverages its leading distribution footprint in the Australian pharmacy sector.

Joining forces

Under the terms of the deal, Australian Dairy will manufacture the infant formula range at its state-of-the-art facility that is currently being commissioned in Camperdown, Victoria.

The milk will be sourced from ADNG’s existing farm network located 20 minutes from the manufacturing hub.

In turn, WNX will be responsible for driving sales growth across its broad network of retail and pharmacy channels in the domestic market.

“WNX will also distribute the future Gradulac Gentle infant formula range through its pharmacy distribution network,” the company said.

ADNG will also have exclusive rights to distribute its A2 protein infant formula to global markets including China.

In return for its use of WNX’s China distribution network, ADNG will pay a royalty on all sales generated through cross-border ecommerce channels.

For Peter Skene, CEO of Australian Dairy, the JV marks a key step forward in the distribution for an important A2 protein-only milk product that the company has spent five years developing.

“We see the joint venture with Wellnex as a vehicle to accelerate distribution of both future Gradulac Gentle and organic A2 infant formula ranges in Australia and overseas in a capital efficient manner,” Skene said.

Commenting on the deal, Wellnex CEO George Karafotias said it allows both companies to leverage their respective strengths and drive sales growth.

“We’re very excited about the potential of this agreement to formulate new and innovative products for Australian and international shelves in a cost-effective manner.”

Key terms

Under the terms of the deal, a new company will be established with equal 50/50 ownership by both parties.

The arrangement is subject to WNX achieving distribution with a major Australian pharmacy retailer for the Gradulac Gentle infant formula range by 1 July 2022, and other A2 organic infant formula products by 1 December 2022.

Upon the satisfaction of those conditions, ADNG will manufacture products for the joint venture for a minimum of 12 months, with the opportunity to extend for a further two years if monthly sales targets are met.

Any royalties paid to WNX on cross-border ecommerce sales will be capped at $500,000 per annum.

“The royalty is payable for a period of three years provided WNX achieves specific listings of the relevant products in the Australian market,” WNX said.

In addition, at any time from 24 to 60 months after the commencement of the agreement, ADNG will have the right to acquire WNX’s shares in the JV, at a value determined by an independent valuer.

 

This article was developed in collaboration with Wellnex Life, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

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