LISTING DOCUMENT. Oceania Natural Limited

Transcription

1 LISTING DOCUMENT NXT Market Compliance Listing Oceania Natural Limited Date: 31 March 2016 Warning The NXT Market (NXT) is a licensed market operated by NZX Limited that is designed for smaller companies that are typically at an earlier stage of business development and accordingly, the risks of investing in companies listed on NXT may be higher than the risks of investing in other companies. Under the NXT Market rules, NXT companies are required to immediately disclose information concerning specific events prescribed in the NXT Market rules. However, it is possible that some price-sensitive information may not be required to be disclosed, and therefore you could trade on NXT without the benefit of all price-sensitive information in relation to an NXT company. The NXT Market rules require NXT companies to have an insider trading policy and insider trading law applies to anyone trading on NXT. NZX has appointed market makers and research providers for NXT. However, there is uncertainty as to the level of liquidity on NXT, which may affect your ability to sell shares when you want to. This document gives you important information about this investment to help you decide whether you want to invest, but does not contain as much information as a Product Disclosure Statement prepared under the Financial Markets Conduct Act There is other useful information on the NXT website at: Oceania Natural Limited has prepared this document in accordance with the NXT Market Rules. You can also seek advice from a financial adviser to help you to make an investment decision. NXT Advisor _1

2 1. KEY INFORMATION SUMMARY WHAT IS THIS? This document has been prepared in accordance with the NXT Market Listing Rules in conjunction with the listing and quotation of the fully paid ordinary shares (Shares) in Oceania Natural Limited (ONL) on the NXT Market. Shares give you a stake in the ownership of ONL. You may receive a return if dividends are paid or ONL increases in value and you are able to sell your Shares at a higher price than you paid for them. If ONL runs into financial difficulties and is wound up, you will be paid only after all creditors have been paid. You may lose some or all of your investment. ABOUT ONL ONL is a company dedicated to the production and distribution of healthy, natural, and high quality products sourced from the Oceania region to the international market. ONL s suite of products, which it distributes, includes: High quality Manuka Honey and multiflora honey; Manuka Honey related products, such as lozenges; Noni juice; Dietary supplement capsules; and Body care products. Currently, all of ONL s products are manufactured under contract for ONL by specialist third party manufacturing and processing operations under any applicable Good Manufacturing Practice ( GMP ) or Risk Management Plan ( RMP ). ONL specialist third party manufacturers include The Honey Company Limited, GMP Pharmaceuticals Limited and Greenways Pure Fruit Juices Limited. ONL sells its products through the following sales channels: Distributor sales via ONL branded stores established by ONL distributors and third party retail shops; Online sales via ONL s own online stores ( and and other online stores through other online trading platforms (such as, WeChat in China); Distribution partners in overseas jurisdictions. ONL has established strong distribution channels in a number of provinces within the Peoples Republic of China. ONL s distributors have already established seven retail stores branded under ONL s Rich Garden branding. Additionally, Rich Garden product stands have been established in a number of retail stores and pharmacies. Further information about the business operations of ONL is provided in section 2 of this document (ONL and what it does) _1 1

3 COMPLIANCE LISTING STATISTICS AND IMPORTANT DATES Total number of Shares in ONL on 31 March 2016: Total capital raised in the last 12 months prior to listing date Financial year end Expected Listing and Quotation date 25,832,838 (percentage holdings on page 18) $1.6 million 31 March 31 March 2016 under code ONL No new capital is being raised in conjunction with the listing and quotation of ONL s ordinary shares on the NXT Market. HOW YOU CAN GET YOUR MONEY OUT ONL intends to quote these Shares on the NXT Market. This means you may be able to sell them on the NXT Market if there are interested buyers. You may get less than you invested. The price will depend on the demand for the Shares. Except in very limited circumstances under the Companies Act 1993, there is no mechanism that permits a holder of Shares to redeem their Shares for cash. The only way in which a holder of Shares can realise their investment is to sell their Shares on-market or via private treaty. KEY OPERATING MILESTONES Key Operating Milestone FY ended 31 March 2016 (Prospective) FY ended 31 March 2017 (Prospective) 1. Revenue ($000) Total Revenue $3,400 $5, Direct Sales ($000) Sales generated by ONL s own channels (i.e. internet, owned and operated retail stores) $650 $1, Distributor Sales ($000) Sales generated by third party distribution channels $2,750 $4, Gross Margin Percentage 41.0% 40.0% ONL considers that the combined key operating milestones in the above table taken together address the most significant factors by which the performance of ONL should be assessed and monitored and will result in understandable reporting for investors _1 2

4 You should also read page 24 for more information about the key operating milestones, including the reasons why ONL selected the key operating milestones, ONL s strategies and plans for achieving the targets included in the above table, and the key assumptions relating to those targets. KEY RISKS AFFECTING THIS INVESTMENT Investments in shares are risky and investing on the NXT Market carries additional risks compared with investing in other securities markets operated by NZX (see the warning statement at the start of this document for further information). You should consider if the degree of uncertainty about ONL s future performance and returns is suitable for you. The price of these Shares should reflect the potential returns and the particular risks of these Shares. The Board of ONL consider that the most significant risk factors that could affect the value of the Shares are: Supply and Quality of Honey and Noni ONL produces natural products that are reliant on climatic conditions in the area they are produced. In particular, ONL has a reliance on the availability and the quality of Manuka honey and Noni fruit: Honey: There is a supply constraint on Manuka honey production in New Zealand, due to the unpredictability of honey yield and quality across growing regions, Manuka blocks and seasons. The limited availability of Manuka honey (due to unfavourable weather or reduction in supply) could have an adverse impact on ONL s total honey inventory, which in turn would impact adversely upon the financial performance of ONL. To mitigate this risk, ONL sources its honey from a variety of honey suppliers in New Zealand and endeavours to build longterm relationships with these honey suppliers. To maintain quality, ONL undertakes testing on its suppliers honey prior to purchase to ensure it is of the quality specified in the terms of the purchase order. Noni: ONL sources its Noni juice supply from a single supplier of product in the Cook Islands. As a result, ONL are at risk of severe weather events or poor seasonal yields constraining Noni fruit supplies. The Noni fruit is also acquired without a written legally binding contract. Accordingly, there are currently no contractual assurances regarding quality and quantity, which are risks that must be managed by ONL. ONL mitigates the lack of legal documentation and security of supply by growing stock inventories in New Zealand, commissioning independent testing to ensure quality, maintaining strong working relationships with the supplier and actively pursuing alternative sources of Noni fruit. These risks reflect the inherent variability of biological products, such as honey and Noni. Geographical and Regulatory Risk Approximately 75% of ONL s revenues generated during the 6 month period ended 31 January 2016 derives from the distribution of ONL s product via its distributors in China. Accordingly, the following risks are relevant: Distribution relationships: A decision by any of ONL s distributors to cease to distribute ONL s products, or if a distributor s business fails, it may have a material adverse impact on sales volumes and financial performance of ONL. To mitigate these risks, ONL continue to develop new distribution channels in its existing markets as well as entering new markets that provide strong growth opportunities _1 3

5 Regulation: ONL is dependent on importing/exporting regulations and standards remaining favourable for its products both domestically and in key export markets, in particular, China. Any restrictive regulatory change could have an adverse effect on ONL s ability to supply products to such markets. To mitigate these risks, ONL intends to leverage the benefits of the New Zealand-China Free Trade Agreement and utilise the services of New Zealand Government agencies such as New Zealand Trade and Enterprise. Additionally, ONL has implemented processes to ensure compliance with all current regulations and monitors any pending and possible regulatory changes (such as the Natural Health and Supplementary Products Bill). Exchange rate and China s economy: Currently approximately 75% of ONL s sales are from the Chinese market, and therefore exposure to exchange rate fluctuations and China s economy exist. To mitigate this risk, ONL intends to focus on developing other key off-shore markets where it sees growth opportunities. Manufacturing Production and Capacity Constraints ONL is dependent on its continued ability to access or contract sufficient processing capacity for its products in order to meet sales forecasts as the company expands. Additionally, there may be bottlenecks where ONL cannot procure processing services for raw materials within required timeframes. This risk is mitigated by ONL focusing on maintaining strong working relationships with existing manufacturers, taking steps to diversify its manufacturing base and (where possible) entering manufacturing contracts which guarantee price, timing and volumes. Key Personnel ONL is an early stage company and is still developing its human resources pool. As such, ONL is reliant on key persons in the business, such as Wei (Walker) Zhong. Walker is a key person given his contacts, expertise and industry knowledge. ONL seeks to mitigate this risk by developing and formalising internal sales and supplier processes, developing its organisational training and knowledge base, and recruiting an experienced and knowledgeable Board. Further Risks This summary does not cover all of the risks of investing in the Shares. You should also read section 6 of this document (Risks to ONL s business and plans) and to other places in this document that describe risk factors (for example, risks arising for investors from the nature of the product), and the strategies the ONL Board has to mitigate those risks where practicable, and to the information about the risks of investing in the NXT Market at the start of this document. WHERE YOU CAN FIND ONL S FINANCIAL INFORMATION The financial position and performance of ONL are essential to an assessment of this investment. You should also read section 5 of this document (ONL s financial information and key operating milestones). Copies of financial statements of ONL are also available on the NXT Market website at: and on ONL s website: _1 4

6 TABLE OF CONTENTS 1. KEY INFORMATION SUMMARY OCEANIA NATURAL LIMITED AND WHAT IT DOES TERMS OF THE SHARES KEY FEATURES OF THE SHARES ONL S FINANCIAL INFORMATION AND KEY OPERATING MILESTONES RISKS TO OCEANIA NATURAL S BUSINESS AND PLANS TAX OTHER MATERIAL INFORMATION WHERE YOU CAN FIND MORE INFORMATION DIRECTORS CERTIFICATION CONTACT INFORMATION _1 5

7 2. OCEANIA NATURAL LIMITED AND WHAT IT DOES OVERVIEW OF ONL S BUSINESS Oceania Natural Limited (ONL) is a New Zealand company involved in the production and distribution of healthy, natural, and high quality food and supplement products sourced from New Zealand and the Pacific Islands and sold to domestic and international markets. ONL s current product focus is on products derived from Manuka honey and Noni fruit which are marketed under its Rich Garden brand. ONL s key export market for its products is currently China. ONL s strategy is to broaden its product range, increase market share in current markets and expand into new export markets such as the United States, Taiwan, Canada and Australia. ONL s suite of products which it distributes includes: High quality Manuka honey and multiflora honey; Manuka honey related products, such as lozenges; Noni juice; Dietary supplement capsules; and Body care products _1 6

8 Critical to the success of ONL s strategy is the quality of its core product ingredients to maximise the potential benefits of the products to customers. ONL sells its products through the following sales channels: Distributor sales via ONL branded stores established by ONL distributors and third party retail shops; Online sales via ONL s own online stores ( and and other online stores through other major online trading platforms (such as, WeChat in China); Distribution partners in overseas jurisdictions. ONL has established distribution channels in a number of provinces within the Peoples Republic of China. ONL s distributors have already established seven retail stores branded under ONL s Rich Garden branding. Additionally, Rich Garden product stands have been established in a number of retail stores and pharmacies in China. (From top left clockwise) Rich Garden branded retail shop in Wuxi City; Rich Garden product stand in Shanxi retail shop; Rich Garden products on display in Rich Garden branded retail shop in Zhejiang; and Rich Garden shop branding in Rich Garden branded retail shop in Wuxi City. ONL is currently in advanced discussions with a large supermarket chain owned by one of the largest retail chain enterprises in China to commence selling Rich Garden products _1 7

9 ONL was incorporated in May 2015, and continues to operate the high quality food and supplement products business established by its wholly-owned subsidiary Rich Garden Limited in ONL is already a profitable company. In the six months ending 30 September 2015 its unaudited net profit before tax was $215,063. ONL anticipate that the growth in New Zealand s honey export industry will contribute to further growth in the Company s honey revenue stream. Statistics New Zealand data indicates that the value of New Zealand s honey exports increased to $285 million in 2015 from $202 million in From $36 million in 2005, total honey exports have experienced, on average, a compound growth rate of 23% per annum over the last 10 years. Growth is anticipated to continue as the Ministry of Primary Industries has entered into a Primary Growth Partnership project with a consortium of private companies which aims to increase the value of New Zealand s Manuka honey industry towards $1.2 billion by Accordingly, ONL considers that the Manuka honey market offers significant continuing growth opportunities. ONL intends to leverage the benefits of the New Zealand-China Free Trade Agreement (FTA) and utilise the services of New Zealand Government agencies such as New Zealand Trade and Enterprise. Due to the FTA, ONL has a significant competitive advantage in the cost of supply of finished products to China, which will not be available to ONL s competitors based outside of New Zealand and in countries that do not have a similar trade agreement with China. GROUP COMPANY STRUCTURE An organisation chart illustrating the corporate structure for the ONL Group of companies is provided below: Oceania Natural Limited Wholly owned subsidiaries Camsing Trading Limited Rich Garden Limited Function: Camsing Trading Limited predominantly trades in Manuka honey, dietary supplements and related products, and is the predominant source of sales revenue for the ONL group. Function: Rich Garden Limited owns the Rich Garden brand and the ONL group s noni fruit importing business. Since incorporation on 27 May 2015, ONL has remained a shell holding company, with the value of the ONL group remaining in its wholly owned trading subsidiaries Camsing Trading Limited and Rich Garden Limited. 3 Since acquisition by ONL, Camsing Trading Limited has remained the material 1 Statistics New Zealand, Harmonised Trade - Export Statistics, Free on Board Table Reference: TEX001F, updated on 28 January ONL are not currently a member of the Primary Growth Partnership project. 3 Please refer to the information timeline at page 29 which illustrates the lifespan of the ONL entities. For further details regarding the acquisition of Camsing Trading Limited and Rich Garden Limited by ONL, please refer to Acquired Businesses at page _1 8

10 trading entity of the group. As illustrated below, for the six months to 30 September 2015 approximately 90% of the Group s revenue and total tangible assets is attributable to Camsing Trading Limited. Revenue (six months to 30 September 2015) Total tangible assets (as at 30 September 2015) Camsing Trading Limited $1,391,000 (90.7% of Group) $1,328,000 (90.8% of Group) Rich Garden Limited $141,978 (9.3% of Group) $134,430 (9.2% of Group) A breakdown of the Group s revenue in accordance with ONL s product line is provided below. For further financial details of the ONL group, please refer to ONL s Financial Information and Key Operating Milestones at page 24. DIVERSE REVENUE STREAMS AND GEOGRAPHICAL EXPOSURE ONL derives revenues from the following business operations: The sale of honey products in New Zealand and internationally; The sale of Noni juice products in New Zealand and internationally; The sale of heath product supplements domestically and internationally. Revenues deriving from the above business operations in FY 2014 and FY 2015 were as follows: Source of Revenue FY Ended 31 March 2014 (un-audited) FY ended 31 March 2015 (un-audited) 6 month period ended 30 September 2015 (un-audited) Manuka Honey $36,000 / 28% $920,000 / 61% $650,000 / 47% Other Honey $18,000 / 14% $500,000 / 33% $350,000 / 25% Noni Juice N/A $25,000 / 2% $250,000 / 18% Other products N/A N/A $141,000 / 10% Discontinued Services $73,000 / 58% $67,000 / 4% N/A Total $127,000 / 100% $1,512,000 / 100% $1,391,000 / 100% ONL s current revenues derive from a combination of domestic and international geographies. The table below illustrates the principal geographies where ONL received revenues during FY 2014 and 2015: Geographical source of revenue FY ended 31 March 2014 (un-audited) FY ended 31 March 2015 (un-audited) 6 month period ended 30 September 2015 (un-audited) New Zealand $61,000 / 48% $287,000 / 19% $455,000 / 33% China $66,000 / 52% $1,225,000 / 81% $936,000 / 67% Total $127,000 / 100% $1,512,000 / 100 % $1,391,000 / 100% _1 9

11 HONEY PRODUCTION ONL currently sources its honey from third party beehive growers located around New Zealand. Commercial beehive operators in New Zealand must undertake professional training and be licensed as suppliers. This regime, together with independent testing of the honey commissioned by ONL, ensures that the Manuka honey sourced by ONL and used in its products is of the highest quality and purity. Manuka honey, unique to New Zealand and parts of south eastern Australia, is produced by honey bees extracting the nectar of the Manuka tree flowers (Leptospermum scoparium) and is recognised around the world for its special properties. New Zealand is currently the world s third-largest exporter of honey by value. Summary of Honey Business Operations All of ONL s Manuka honey is currently sourced from third party honey suppliers. By 29 February 2016, ONL secured approximately 45,000 kilograms of Manuka honey from its honey suppliers. ONL contracts with each of its honey suppliers on terms specifying quantity, price per kg and the required chemical markers which must be present in the honey (discussed below). Honey supply contracts generally only apply to the supply of honey for one season. This is because suppliers are reluctant to enter contracts covering multiple seasons which guarantee a certain volume of honey at a certain price due to the unpredictability of seasonal honey yields and market prices. To ensure the quality of the honey supplied to ONL, ONL s honey suppliers (or ONL itself) commissions independent laboratory testing to identify the presence of certain chemical markers in all the honey supplied to ONL. This ensures ONL has: (a) been supplied honey to the requisite quality prescribed in its agreements with its honey suppliers; and (b) independently verified the quality/grade of the honey as claimed on the packaging in which it is sold. Honey purchased from honey suppliers is either stored at the supplier s premises (in order to increase the chemical markers in the honey, as discussed below) or at third party RMP facilities, organised by ONL, where the honey is stored prior to processing or distribution. To assist the future supply of Manuka honey at a competitive price, ONL has entered into a long-term strategic business alliance with one of its principal honey suppliers. Under the alliance, ONL agree to treat the supplier as the preferred supplier and will purchase honey from the supplier if there are similar offers available in the market. In return, the supplier will ensure the quality of its honey products and will treat ONL as a key customer and give preference to ONL s purchase orders. ONL believes that certain chemical markers in particular batches of Manuka Honey may increase overtime when stored for a month period. This means that over the duration of the storage period the Manuka honey may increase in value and be able to be sold to the market as a higher grade of Manuka honey. To assist ONL in financing the purchase and storage of a large quantity of Manuka honey, ONL has borrowed funds from its bankers, and has entered into financial arrangements whereby third party investors will lend ONL money to purchase Manuka honey and additional interest may be payable in accordance with any value increase of the honey over the storage period. This minimises the cost of ONL acquiring and storing the honey for month periods and aligns the costs with ONL s product s sale value _1 10

12 Due to supply constraints for Manuka honey produced in New Zealand, ONL has taken steps to minimise its supply risk by entering into minimum sale and purchase commitments and ongoing supply and purchase relationships with certain leading honey suppliers in New Zealand. Over time ONL also intends to establish its own hives and Manuka tree plantations to enhance security of supply. The honey acquired by ONL is dealt with in the following ways: (a) Utilised by ONL to produce its own branded honey food product, under its brand Rich Garden, and sold domestically and internationally; or (b) Incorporated into ONL s other Rich Garden branded products, including Manuka honey lozenges, capsules and body care products. Manuka Honey Grading System Not all Manuka honey is the same, and is available in a variety of grades based on the content of the Manuka honey. The labelling of Manuka honey has recently been reviewed by MPI. MPI no longer permits the honey to be labelled with a grading system based on the anti-bacterial characteristics found in Manuka honey (which has been previously been adopted by other honey producers and retailers). ONL has adopted its own grading system based on the methylglyoxal (MGO) level (mg/kg) found in its Manuka honey, which is permitted by MPI. The MGO content is verified by independent laboratory testing commissioned by ONL. Manuka honey is complex and is made up of a variety of components. Currently, there is an element of uncertainty about which components must be present to identify honey as Manuka-type honey and this is being investigated by MPI. 4 ONL considers that MGO content is not the sole Manuka honey identifier. The testing commissioned by ONL also monitors the dihydroxyacetone, 5- hydroxymethylfurfural (HMF), Non Peroxide Activity (NPA) and c-4 sugar levels in the honey. However, ONL considers that MGO levels in Manuka honey are the best indicator of quality and purity. ONL intends on constructively engaging MPI through consultation regarding any future regulatory change concerning the definition of Manuka honey and the Manuka honey industry. Customers for Honey Products ONL currently sells most of its honey products through its distribution channel partners in China and through the ONL website. Details of the distribution channel partners are provided under the Product Distribution and Marketing section below. NONI JUICE PRODUCTION Noni juice is derived from the fruit of the Morinda citrifolia tree which is indigenous to Southeast Asia and the Pacific Island nations. Noni has been traditionally used in Polynesian culture to help treat a variety of health related problems. ONL sources its Noni fruit from the Cook Islands which is known to harvest the highest quality Noni fruit. 4 see Ministry of Primary Industries Interim Labelling Guide for Manuka Honey (31 July 2014) _1 11

13 Summary of Noni Business Operations ONL, through its wholly owned subsidiary Rich Garden Limited, has an informal and non-contractual arrangement to acquire Noni fruit from a supplier in the Cook Islands. Under this arrangement, the supplier is paid a per kg price for the Noni fruit. The Noni fruit harvested is stored and fermented in facilities arranged by ONL before being shipped to New Zealand. Since ONL began importing Noni fruit in May 2015, it has imported approximately 12,000 kilograms of Noni fruit from the Cook Islands. The Noni fruit imported by ONL is dealt with in the following ways: (a) The Noni fruit is manufactured into 100% noni juice by ONL s New Zealand based contract processor and is bottled and labelled, under its brand Rich Garden, and sold domestically and internationally; and (b) Incorporated into ONL s other Rich Garden branded products, such as Noni capsules. ONL commissions independent testing of the imported Noni fruit to ensure the raw material is of the highest quality. Testing is done under procedures approved by International Accreditation New Zealand (IANZ). This helps to ensure the safety of the products, maximises the potential benefits of the products and confirms that the labelling claims are accurate. Customers for Noni Juice Products ONL currently sells most of its Noni products through its distribution channel partners in China and through ONL s online channels. Details of the distribution channel partners are provided under the Product Distribution and Marketing section below. OTHER PRODUCT LINES To complement its honey and Noni product range, ONL also sources under contract a range of dietary supplements manufactured by a New Zealand based manufacturing company certified and licensed to manufacture pharmaceuticals and natural health products. Dietary supplements sourced from the New Zealand based contract manufacturer are supplied on an as required basis and are labelled and bottled under its Rich Garden brand. ONL s dietary supplements include: Honey related dietary supplements (such as propolis and royal jelly capsules, and Manuka honey lozenges); General range of dietary supplements derived from natural foods which assist with general health and wellbeing. ONL also intends to create a body care product range (such as soaps), which contain extracts of ONL s raw products (such as Manuka honey). Currently, ONL s dietary supplement range is only distributed through ONL s online store. However, ONL intend on distributing its dietary supplements, along with ONL s honey and Noni products, through its distribution channels in the future _1 12

14 PRODUCT DISTRIBUTION AND MARKETING ONL sells its products through the following sales channels: Distributor sales via ONL branded stores established by ONL distributors and third party retail shops; Online sales via ONL s own online stores and other online stores through other online trading platforms; Distribution partners in overseas jurisdictions. ONL s primary product distribution avenue is currently through the strong distribution channels ONL has built in the People s Republic of China. Currently approximately 75% of ONL s total product is exported for distribution in China. Currently, the ONL group has entered into exclusive distribution agreements with the following distributors in the following territories: Distributor Territory Term Jinan Qiufan Trading Co. Limited Shandong Province of China 5 years (renewable) Guizhou Yuehesi Trading Co. Limited Wuxi Zhongxinhuitong Trading Co. Limited Guizhou Province of China Wuxi City, China 5 years (renewable) 5 years (renewable) Under these distribution agreements, distributors place orders with ONL for ONL products which are invoiced to and paid by the distributors post shipping. The distributors have been granted a license to sell ONL products under its branding Rich Garden and the distributors are solely responsible for any retailing operations. Currently, the distributors establish Rich Garden retail stores, sell ONL products in other stores established by the distributors or seek third party retail stores to stock ONL product. ONL makes further sales of its products directly to consumers via its online store. ONL is actively looking to develop further distribution arrangements within China and in the pan- Pacific region, including North America, Taiwan, Canada and Australia. ONL has a marketing arrangement in place with Wuxi Rich Garden Co Limited (WXRG), a company registered in The People s Republic of China. Wei Zhong and Lei Ding (Wei Zhong s wife) are both directors and majority shareholders of WXRG and ONL. WXRG has entered into an arrangement whereby WXRG acts as an agent for ONL and will assist ONL in importing, marketing and selling its products. Under the agreement, WXRG does not make any margin on the products sold, but are reimbursed for any expenses incurred while acting as an agent. Branding ONL s Manuka honey, multiflora honey, Noni juice and dietary supplement product range (and its future body care product range) is sold by ONL under the brand Rich Garden. The product is sold primarily into China under the various distributions arrangements outlined above, but also domestically. ONL owns registered trade marks for the brand Rich Garden in both New Zealand and China. ONL is committed to growing brand awareness for Rich Garden. ONL s quality assurance procedures _1 13

15 are intended to make Rich Garden a premium health food and supplement brand. To develop brand recognition, ONL is also a partner sponsor to the Auckland-based New Zealand Breakers basketball team. GROWTH STRATEGY AND ACQUISITIONS ONL has grown its business operations significantly over the last two years. ONL believes strong opportunities remain for further growth within the Group s existing business operations in the future given ONL s focus on large international markets, such as China. ONL considers that there is also an opportunity for it to grow both organically and via acquisition. ONL is actively looking at: acquiring beehives, Manuka tree stands and honey processing assets in New Zealand; developing new lines of honey related products; developing new lines of Noni-juice related products; developing new lines of natural products. As a listed company, ONL will have the option of funding acquisitions through Share issues to vendors, capital raising, bank debt, from retained earnings, or from a combination of all these sources. The extent to which funding structure ONL utilises will ultimately depend upon a range of factors, including market conditions, vendor expectations, and the ability of ONL to leverage its balance sheet to fund an acquisition. ONL has very specific and achievable growth strategies to implement, which the Board considers will ultimately impact positively on the overall key metrics of ONL s business operations. ONL s growth strategy is based on: Continuing to grow the existing business operations organically; Acquiring honey making assets and businesses which are complementary to the existing business operations; Increasing ONL s market share in the various markets it operates within; Entering new geographical markets; Growing revenues and strengthening margins with a view to continuing to develop sustainable EBITDA performance; Entry into supermarkets, tourist outlets, health stores and pharmacy retail shops; Engagement with offshore strategic partners to open flagship shops in Hong Kong, Taiwan, America, Canada and Australia; Gaining support from New Zealand Trade and Enterprise and other government agencies to enter markets in other countries; Gaining support from relevant Chinese Government authorities to further grow Chinese market share; Participation in New Zealand tourism and exporting events in order to promote the concept that our products are proudly made in New Zealand; Establishing flagship shops in targeted jurisdictions; Establishing flagship online shops with most major e-commerce platforms; Developing strategic relationships with honey suppliers to secure honey supply; Developing its own beehive operations; Working with farmers and manufacturers to establish strategic relationships for honey and Noni juice supply; Investing in Manuka tea tree lots to ensure at least 50% of ONL s Manuka honey is produced internally by ONL; _1 14

16 Establishing a GMP factory to manufacture a portion of Noni juice products, honey products and other natural products within 3 years; Setting up a research centre to develop ONL s own products within five years. ACQUIRED BUSINESSES Camsing Trading Limited On 27 May 2015, ONL acquired 100% of the shares on issue in Camsing Trading Limited from Wei Zhong. At the time of acquisition, Wei Zhong was the sole shareholder and director of both Camsing Trading Limited and ONL. The consideration for the acquisition was nominally set at $89,408 (a figure based on the shareholder current account balance) which was satisfied by the issue of 9,374,999 new ordinary fully paid shares to Wei Zhong. This nominal consideration reflected the acquisition being a transaction between two companies wholly owned by Wei Zhong. Camsing Trading Limited s audited financial statements for the year ended 31 March 2015 (which includes comparatives for the financial year ended 31 March 2015) are available on the NXT website ( under ONL. Rich Garden Limited On September 2015, ONL acquired 100% of the shares on issue in Rich Garden Limited from Lei Ding. Lei Ding is married to Wei Zhong, the Executive Chairman and majority shareholder of ONL. As ONL had additional shareholders at the time of acquisition following capital raising undertaken in June and September 2015, the sale and purchase agreement specified that the purchase price for Rich Garden Limited was to be determined by an independent valuation. The independent valuation was undertaken by a firm of Chartered Accountants. The independent valuation assessed Rich Garden Limited to be worth $450,509 (the goodwill of the company was valued to be $450,000, plus fixed assets of $509). Rich Garden Limited s goodwill was calculated on the basis of the Future Maintainable Earnings (FME) of the company, which was found to be $168,452, adjusted by the level of risk associated with the company. 5 This assessment valued Rich Garden Limited s goodwill between $336,904 and $505,356. Due to the company s trading history and future growth potential from its Noni juice distribution channels in China, the goodwill of Rich Garden Limited was assessed to be at the higher end of the range at $450,000. $450,509 was the adopted purchase price for the acquisition of the company by ONL. The ONL Board have endorsed this valuation and have resolved that the valuation price was fair value for Rich Garden Limited. At present the purchase price is unpaid and is recorded as an interest free shareholder loan repayable by ONL at the end of 2017 (as detailed at page 19 below). Repayments of the loan are conditional on ONL satisfying the solvency test immediately following any such repayment. Rich Garden Limited s unaudited financial statements for the years ended 31 March 2015 and 31 March 2014 are available on the NXT website ( under ONL. 5 i.e. the valuation of the company is determined by multiplying the FME of the company by the EBITDA multiple _1 15

17 ONL S DIRECTORS AND SENIOR MANAGERS Board of Directors The Board of Directors of ONL comprises four directors: Wei (Walker) Zhong: Executive chairman; Zhongyang (Sean) Meng: Non-Executive director; Zhi Jun Shi: Non-executive independent director; Ross Keeley: Non-executive independent director. Biographies for each of the directors are provided below: Wei (Walker) Zhong PhD, MBA Executive Chairman Walker is the founder and director of Camsing Trading Limited and Oceania Natural Limited. Prior to moving to New Zealand in 2013, Walker held a variety of senior management roles in China in a number of large multinational corporations, including PepsiCo Inc. and Tetra Pak. Walker has more than 20 years of experience in China national media and the fast-moving consumer foods (FMCG) industry, with extensive experience in strategic planning, mergers and acquisitions and marketing. Walker holds a doctoral degree in law and a MBA from China and Singapore respectively. Zhongyang (Sean) Meng MCA Non-Executive Director Sean Meng is the director of the accounting firm Meng & Associates Limited, and is a qualified Chartered Accountant with a certificate of public practice. Meng & Associates were the former accountants of ONL and Camsing Trading Limited. Sean has worked in the Chartered Accounting profession (including as a partner of Lowthers Chartered Accountants from May 2014 to July 2015) and the Government sector where he has held a variety of executive level positions, including Chief Financial Officer of an Auckland City Council subsidiary and Corporate Service Manager with the Health and Disability Commissioner. Sean has significant experience in the areas of strategic planning, statutory reporting, financial management and cash flow forecasting. Sean holds a Master s Degree in accounting from Victoria University of Wellington. Zhi Jun Shi MBA Non-executive Independent Director Zhi Jun Shi, a Canadian Chinese, is the co-founder and the first Chairman of the board for Credit China Holdings Limited (Nov 2010 Oct 2013), a Hong Kong listed company (listed in 2011, ticker code 8207.HK). Zhi Jun has particular experience in mergers and acquisitions, business financing and strategic planning and development. Prior to pursuing a career in the finance industry, he was a surgeon in Shanghai, China. Zhi Jun holds a MBA degree from Nanyang Technological University in Singapore. Ross Keeley Non-executive Independent Director Ross is currently completing a 12 month contract as the Honorary President of SeaDragon Ltd (SEA) a listed company on the NZX _1 16

18 Prior to this Ross was the CEO and Executive Director of SeaDragon, building a small private company to a size to enable it to list on the NZX in SeaDragon has during the 11 years under Ross s leadership championed the Omega-3 industry in New Zealand and through a number of expansion projects diversified the business to such an extent that it the largest company in the Omega 3 market sector in Australasia. In 2014 SeaDragon won the prestigious Exporter of the Year award. Business growth was based upon Ross s experience in international trade dealing with products regulated under strict Ministry of Primary Industry regulations, thereby ensuring cross border trade was able to be completed with minimal regulatory obstruction. Ross has extensive operations, procurement and sales experience, having managed these functions while SeaDragon was growing and only recently have these responsibilities been passed over to the new team at SeaDragon. Ross has been an active participant in a number of domestic and international organisations associated with the natural products and dietary supplements industry. He received an Outstanding Contribution to the New Zealand Natural Products Industry award in Ross has worked in many primary related industries including, being the head of a major division of Tegel Foods Ltd, a senior executive of Ngai Tahu Fisheries, and commercialised scientific innovation with New Zealand s largest CRI (AgResearch). Ross also has farming interest being the owner of dairy farm on the Canterbury Plains. Senior Managers The senior managers of ONL comprise: Malcolm Lindeque: Chief Financial Officer; Lei (Regina) Ding: Sales and Marketing Manager Biographies for each of the senior managers are provided below Malcolm Lindeque CA Chief Financial Officer With over 23 years of accounting and corporate governance experience across both public and private sector companies, Malcolm is highly skilled at leading finance teams in the implementation of effective governance models. Malcolm qualified as an accountant in South Africa, working initially for Ernst & Young, before arriving in New Zealand in He is a member of the Chartered Accountants Australia and New Zealand and has held various roles as Group Financial Controller and Chief Financial Officer in both the public and private sectors in New Zealand. Today, through his consulting business, The Virtual CFO, he works with a range of listed and private businesses assisting finance teams in delivering governance and financial reporting to the relevant stakeholders. Previously as a Company Secretary for both NZX Main Board (SeaDragon Limited (SEA)), NZAX listed (Cooks Global Foods Limited (CGF))and NXT listed companies (Snakk Media Limited (SNK)), Malcolm has a thorough understanding of the NZX listing rules and is responsible for corporate governance initiatives. He has worked in industries as diverse as financial services, forestry and manufacturing. Current and former NZX clients include Snakk Media Limited, Cooks Global Foods Limited and SeaDragon Limited _1 17

19 Lei (Regina) Ding MBA Sales and Marketing Manager Regina joined ONL in October 2015 after 15 years in sales and marketing roles for international corporations. Regina was the chief representative in the Far East for German listed company, Gerry Weber International AG (GWIG), and led the team responsible for supply chain management, including purchasing, sales and marketing from July 2005 to April Regina holds a MBA degree from Singapore. TABLE OF SUBSTANTIAL SHAREHOLDERS AND OF RELEVANT INTERESTS HELD BY DIRECTORS AND SENIOR MANAGERS Relevant Interests of Substantial Shareholders As at the date of this document, the following persons hold relevant interests in not less than 5% of the total number of ordinary shares on issue in ONL: Name of Substantial Shareholder Wei Zhong, Lei Ding and Zhong Family Trustee Limited Nature of Relevant Interest Number of Shares/ Percentage Holding Registered Holder 15,937,500 / 61.69% Zhongyang Meng Registered Holder 2,072,264 / 8.02% Sub-total of substantial shareholders 18,009,764 / 69.72% Total shares on issue 25,832,838 / 100% Relevant Interests of Directors and Senior Managers As at the date of this document, the following directors and senior managers of ONL hold relevant interests in the ordinary shares of ONL: Name of Director/ Senior Manager Role within ONL Nature of Relevant Interest Wei Zhong Executive Director Power to control shares held by associated family trust Number of Shares/ Percentage Holding 15,937,500 / 61.69% Zhongyang Meng Non-Executive Director Registered holder 2,072,264 / 8.02% Zhi Jun Shi Non-Executive Director Registered holder 625,000 / 2.42% OPTIONS TO ACQUIRE SECURITIES OF ONL There are no options to acquire equity securities on issue in ONL, and there are currently no plans to issue any options to acquire ordinary shares in ONL as at the date of this document. DIRECTOR REMUNERATION AND INTERESTS The table below discloses the details of the total remuneration and the value of other benefits for the directors of ONL in respect of ONL as at the date of this document: _1 18

20 Name of Director Nature of Benefit Quantum/Value of Benefit Wei (Walker) Zhong Walker is not paid director s fees and is paid $120,000 per annum a salary in accordance with his contract of services as CEO of ONL. Zhongyang (Sean) Meng Director s fees $40,000 per annum Zhi Jun Shi Director s fees $40,000 per annum Ross Keeley Director s fees $40,000 per annum There are no existing or proposed arrangements between ONL and the existing or proposed Directors in respect of retirement benefits or other compensation for loss of office. The maximum aggregate Director s fees have been set at a pool of $200,000 per annum. This level of remuneration is considered appropriate to attract and maintain Directors with an appropriate level of expertise and experience and ultimately reflects the substantially increased governance responsibilities of ONL. If the total number of Directors holding office exceeds four, the Directors may, without the authorisation of an ordinary resolution of shareholders, increase the total remuneration by such an amount as is necessary to enable ONL to pay the additional Director or Directors of ONL remuneration not exceeding the average amount then being paid to each of the other non-executive Directors (other than the Chairman) of ONL. Shareholder Loan ONL have entered into a shareholder loan with Lei (Regina) Ding, the wife of director and majority shareholder Wei (Walker) Zhong dated 12 February 2016, whereby Regina has advanced $459,675 (includes the purchase price for the acquisition of Rich Garden Limited by ONL and a cash sum of $9,116) to ONL on an unsecured and interest free basis (the Loan). The maturity date of the Loan is 31 December 2017 and is only required to be repaid on that date if ONL is able to satisfy the solvency test, immediately after payment of the Loan. SENIOR EXECUTIVE REMUNERATION AND OTHER BENEFITS Remuneration There is one employee of ONL who during the 6 month period ended 30 September 2015, received remuneration and any other benefits in their capacity as employees that in value exceeded $100,000 per annum: Remuneration Number of Employees $100,000 - $110,000 0 $110,001 - $130,000 1 Other Benefits From 5 July 2015, ONL had engaged Sean Meng s accounting practice Meng & Associates Limited to provide professional accounting services. Meng & Associates Limited are no longer accountants for ONL in light of Sean Meng joining the ONL Board as a non-executive director and ONL appointing its own CFO. To date, Meng & Associates Limited have invoiced ONL accounting fees and disbursements of $57,045 (excluding GST) _1 19

21 ONL has a marketing arrangement in place with Wuxi Rich Garden Co Limited (WXRG), a company registered in The People s Republic of China. Wei Zhong and Lei Ding (Wei Zhong s wife) are both a directors and majority shareholders of WXRG and ONL. WXRG has entered into an arrangement whereby WXRG acts as an agent for ONL and will assist ONL in importing, marketing and selling its products. Under the agreement, WXRG does not make any margin on the products sold, but are reimbursed for any expenses incurred while acting as an agent _1 20

22 3. TERMS OF THE SHARES DESCRIPTION OF SHARES TO BE QUOTED 25,832,835 Shares are to be quoted on listing. Each Share gives the holder the right to: attend and vote at a meeting of ONL, including the right to cast one vote per Share on a poll (subject to any voting prohibitions under the NXT Market Listing Rules); an equal share with other Shares in any dividends authorised by the Board; an equal share with other Shares in the distribution of surplus assets in any liquidation of ONL; be sent certain information by ONL; and other rights as a shareholder conferred by the Companies Act 1993 and ONL s Constitution. No new Shares are being issued as part of ONL s application to list on the NXT Market. The most recent Shares were issued by ONL at an issue price of 64 cents per share, which implies an initial market capitalisation of ONL at approximately $16.4 million. The principal terms of the share issue were as follows: date of issue: September 2015; number of shares issued: 1,008,288 ordinary fully paid shares; participants in the share issue: 11. The $0.64 per share issue price for the September 2015 capital raise was agreed with new investors based on the current and anticipated profitability of ONL. ONL anticipates that the un-audited normalised net profit after tax (NPAT) for the period ending 31 March 2016 will be between $700,000 to $900,000. This NPAT range reflects: That 1 large export order of approximately NZ$1m may be despatched on or before 31 March 2016, which would mean that it is booked as a sale for the 2016 financial year. If not completed, this sale will fall into the 2017 financial year and normalised NPAT may be at the lower end of the range: NPAT on a normalised basis excludes any abnormal or extraordinary items that may arise into the 2016 audited financial statements. For example, this excludes NXT listing related costs and capital raising costs incurred in the 2016 financial year. This normalised NPAT would translate to a price to earnings ratio of 23.4 to 18.3 based on a market capitalisation of $16.4 million (i.e. $0.64 per share). While ONL s NPAT for the 6 month period ended 30 September 2015 was $155,000, ONL s sales revenue increases in the second half of the financial year. This is due to Christmas, Gregorian New Year, Chinese New Year and Valentine s Day falling within this period. These four events generate higher than normal sales in ONL s key market of China _1 21