Star Combo Pharma (ASX:S66) driving sales & synergies

Interviews

by Jessica Amir

Star Combo Pharma (ASX:S66) CEO, Su Zhang discusses strategy including its move online, into retail stores and mainland China.

Jessica Amir: Thanks for tuning into the Finance News Network, I’m Jessica Amir. Today, I’m at Star Combo Pharma’s (ASX:S66) Smithfield production facility, with CEO, Su Zhang and Chairman, Richard Allely. Su, Richard, thanks for having us.

Richard Allely: Pleasure thank you.

Jessica Amir: Firstly over to you Su. For those who aren’t familiar, you’re a manufacturer of beauty and health products, as well as vitamins and supplements that go into pharma and retail. But maybe you could give us an introductory comment?

Su Zhang: Star Combo Pharma Limited (ASX:S66) has been around since 2004. Now our current site is about 20,000 square metres, and you’ve seen the production site today. We do about one million capsules in vitamins per day, as an output. And we make all kinds of products, spanning from softgel capsules, hard capsules, tablets, to powders. So the vitamin market is a $2.8 billion industry within Australia alone.

We also have a branded range of vitamins under Living Healthy, currently distributed across the Terry White Chemmart network, domestically. And we also do contracts for other private labelling jobs as well, in the vitamin space. Us being of nine TGA-licensed softgel manufacturers around in Australia, provides us in a good shape to compete in this space.

Jessica Amir: Speaking about that good shape, maybe you can tell us about your financial position Su?

Su Zhang: We’ve actually just had our Annual General Meeting this morning. So spanning from that, our growth of revenue stream is up 11 per cent. Our gross profit is up, at $4.5 million and our gross profit margins are improving. So we’re in a very good financial position, the best we’ve had in the past 14 years of trade.

Jessica Amir: Thanks Su, now over to you Richard. The company is really aiming to be a leading integrated health company, but maybe you could explain what that actually means?

Richard Allely: When we say fully integrated, we start from the research and development of the products that we ultimately want to produce, into either a softgel or hard tablet form. So our capability extends right at the very, very start of the integrated process. So we do the research, the design, we then put it into production, so we manufacture. We then package it, distribute it and we put it through a variety of channels. Coming now onto e-commerce platforms and we have a wholesale distribution channel, through Sydney.

Jessica Amir: Speaking about that e-commerce. What’s your timeframe Richard for e-commerce sales and sales for retail?

Richard Allely: We do a small amount of e-commerce today, but we’re right at the backend of a due diligence on an acquisition that will provide us with a significant e-commerce capability. I can’t say much about that at this stage, because the acquisition is not complete. It’s in the final stages of due diligence and I’m hoping that that’s going to be completed, next month.

Jessica Amir: Thanks Richard, now back to you Su. You’ve recently opened a China office, just tell us about the importance for the company?

Su Zhang: This is actually a very big move for us, completing our China strategy. The China office will predominantly support the ground troops in China, for the sales and marketing of our branded range in Living Healthy. At the moment, we’ve already got seven products, which we received registration in China for offline distribution. So that includes your supermarkets, pharmacies, convenience stores etc. So you can actually purchase them in store.

A lot of the other products that’s on the market in the vitamin space can only be sold by across border means, which means they can only sell one bottle of this, two bottles of this, from e-commerce platform. But we can sell in bulk and you can purchase it directly in store, in China. Also furthermore to that, we’ve got two products in the pipeline, pending registration in China. So that means we will have nine product lines in the kids range, ready for distribution into the mass China market.

Jessica Amir: Thanks Su. Can you give us a little more detail about the kids range?

Su Zhang: The new range of the product lines that’s registered in China is called, The Living Healthy Little Koala range. It’s basically Australian milk calcium chewable tablets that are made from Australian milk calcium, raw material. That’s a unique formula that differentiates ourselves in the market, to anything comparable. These product clients will give us a competitive advantage in this market space.

Jessica Amir: Lastly to you both. What’s your outlook for the first half of this financial year?

Richard Allely: We’re tracking well above last year in revenue and in gross profit. We expect that 2019 will just be another year of growth, built on a very solid foundation after the transformational year that we’ve had, in 2018.

Su Zhang: Adding on to Richard’s point, we’re really looking at the growth of Living Healthy through the Terry White Chemmart network, now that we’ve secured Symbion as a distributor of the range. We’re expecting access to grow and also the sales to improve in the domestic market. And then the second part is our China registration coming through. We’ve already got distributors interested in the Living Healthy Little Koala range. So we’re also expecting that to grow into 2019. And thirdly, we’ll also be finalising the acquisition that Richard has already mentioned. Strategically that will add value into the business, growing both our revenue stream and also our earnings, substantially.

Jessica Amir: Su Zhang, Richard Allely, thank you so much for your time and having us here.

Su Zhang: Thank you Jess.

Richard Allely: Thank you very much.


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