Eu Yan Sang to acquire 15% of Healthzone

Acquisition will enable EYS to enter Australian mainstream health, beauty & natural health products market.

SGX mainboard-listed Eu Yan Sang International Ltd (“EYS”), a global healthcare company with core businesses in Traditional Chinese Medicine (TCM) and integrative healthcare, has acquired 14.99% of Healthzone Limited (HZL), an ASX-listed distributor, franchise retailer and brand owner of health, beauty and natural health products with franchise retail networks in Australia and China. The investment includes warrants which will enable EYS to increase its shareholding to 19.99%, as stated in an EYS report.

Mr Richard Eu, Group CEO, commented, “This acquisition is a strategic investment for EYS as HZL is the Australian market leader in the mainstream wellness industry. This is in line with our vision to become a global Integrative Healthcare provider.”

EYS’s strategic investment in HZL will allow it to ride on HZL’s franchise chain of 127 retail stores and extensive distribution network in Australia. EYS' s existing distribution channels in Australia are largely focused in the Chinese communities in the bigger cities. With the HZL acquisition, EYS will be able to leverage HZL' s existing network to reach the mainstream health product market in Australia.

HZL’s retail reach in China also offers EYS a new conduit to market its products there. HZL has started to operate a franchise in China, modeled after its Australian “Healthy Life” retail concept. Its Aurinda health supplement brand has also been sold in China for the last 15 years through more than 1,600 retail counters in pharmacies, supermarkets and departmental stores. This acquisition will add another distribution channel to our expansion plans in China.

HZL’s revenue grew 63% from A$63.7million in FY2008 (year ended 30 June 2008) to A$104.0million in FY2009 (year ended 30 June 2009). Net profit after tax also grew 23% from A$2.4million to A$3.0million over the same period. For the HY2010 (ended 31 December 2009) HZL’s revenue has reached A$56.8million and a net profit after tax of A$2million.

Mr Eu added, “When we were considering this acquisition, besides looking at HZL’s financial performance, we have also looked into its business strategy, business operations and growth plans. We find HZL’s business direction a good fit to our vision. At the same time, we can also strengthen our learning into the Vitamins and Dietary Supplements market. Both our business models complement one another and we feel that this partnership will yield good results”.

HZL distributes a wide portfolio of more than 4,500 products. HZL can potentially tap into the manufacturing expertise of EYS, which operates two Good Manufacturing Practice (GMP)-certified manufacturing facilities and the EYS retail network of 162 stores in its core markets.

Mr Peter Roach, Executive Chairman of HZL commented, “The acquisition by EYS of a strategic stake in HZL, Australia' s largest wellness products distributor and retailer, will provide competitive advantage and benefits of an unparalleled platform for growth in the Asian and Australian regions. The vision and confidence that has driven this strategic move by EYS further validates the strength of the wellness sector in the region as they seek new opportunities for growth through partnering with HZL to create an expanded regional model."

EYS has acquired from the open market 7.3million HZL shares at A$0.30 per share, a purchase consideration of A$2.2million (approximately S$2.7million). EYS further subscribed for a private placement of 4.6million shares at A$0.30per share, a purchase consideration of A$1.4million (approximately S$1.7million). The total investment cost of A$3.6million (approximately S$ 4.4million) will be funded by EYS’s internal cash resources. The private placement includes 4.0million warrants exercisable at A$0.38 per share, a total consideration of A$1.5million (approximately S$1.8million). The warrants can be exercised within 5 years when the HZL share price exceeds A$0.38. Should these warrants be exercised, EYS’s stake in HZL based on the current total number of issued shares, will be 19.99%.

EYS will be entitled to a board seat in HZL.

Mr Roach added, "We are committed to working hard together to leverage our collective expertise and resources to build Healthy Life as the leading wellness retail franchise in China in coming years, providing a conduit for our respective high margin branded product expansion in a rapid growth market much larger than our own local markets.”

Mr Eu concluded, “We believe that the future of healthcare is about the convergence of best eastern and western health practices. Healthcare beyond the 21st century is about being holistic and natural with a focus in preventive care and health maintenance. We see this collaboration a milestone step to bring us closer to realize that belief.”