Voila:
Paul, I note that your website says, “New orders are temporarily on hold.” Due to the huge demand over the last few weeks. But you also put out a statement announcing a distribution agreement with someone in The Middle East, which we’ll get onto in a moment, but you said in that, “Zoono does not have any supply issues for large quantities at this stage.” Is the thing that you’re prioritising distribution agreements rather than online sales?Let me explain. Zoono has two very distinct parts to the business. The B2B part of the business, business to business, is where we sell our products in thousand litre totes. We sell it in these big thousand litre plastic containers. We can produce about 40,000 litres a day in New Zealand, about 40,000 in the US and similar in the UK, and we send these all around the world. That’s easy business for us. The B2C part of the business is where we have to put it in small bottles, put a label on it, post it, get it out the door – and the problem is that bottles have been like... We chartered an aircraft actually to fly bottles in, but we’ve still got to print labels, we’ve got to get the liquid into the bottles, we’ve got to get it into the system and that just takes time.Our B2C part of the business, we were producing 40 or 50 orders a day in January and it went to 3-4,000 a day literally overnight. We got caught short there, we didn’t have any idea at all that it was going to happen. At the time it happened, all the plastic factories in China were closed for Chinese New Year, then the COVID-19 hit in China and no one went back to work. They only went back to work about two weeks ago in China, so we’ve been flying plastic in. We’re in full production at the moment for these bottles. We’ve printed 20 kilometres of labels to go on the bottles. We’ll have the shop up and running again in about two to three weeks. In the meantime, we are focusing really carefully on filling our back-orders, which I really apologise for…We’ve got two shifts at the moment, we’ve got 40 people in the warehouse, we’re pumping out about 1,000 to 1,500 orders a day at the moment and we have about 9-10,000 back orders still that we are trying to fulfill.I actually didn’t raise that as a criticism of you, I mean it seems to me that it wouldn’t be surprising at all if you just gave away the retail side of things completely because you could easily do your whole business through wholesale distributing and just become a wholesaler, why don’t you do that?Well, I like the retail side of the business because our product gets out to people and they buy our brand and it comes directly from us. It’s also good cash flow for us because every day is a pay day. You get to work in the morning and you open your computer up and you’ve got money in the bank. I like the business and rather than be a wholesaler and sell through Coles or Woolworths, where you give away a heap of margin, you have to put up with all their ‘bull’ if you like. I’d rather work directly online. We just have to gear up for it, we are gearing up for it, we’ve got millions of bottles on order. Within three weeks we’ll be in full swing again and we’ll be able to supply. I’m also going to outsource the [3PL] to a large company in New Zealand who can do up to 3,000 orders a day no problem at all. We’re getting there, I’m trying to stay ahead of the game.I also assume your margin for the online B2C side of things is better than it is through distributors, is that right?Much better, but remember also that the Chinese bottle manufacturers have increased their prices 100 per cent, our freight has gone from $16 dollars a kilogram to $18 dollars a kilogram. Everyone’s gouging us all the way through, so I’ve gone to a company here in New Zealand and within six weeks we’ll be making all our own bottles, we won’t have to buy a bottle from China ever again.What will that do to your margin, will they be cheaper bottles?It’ll be about the same because it’s not cheaper in China anymore, that’s a real misconception. I’d rather make as much as we can in Australia and New Zealand and support local business.When I spoke to you a month ago, your price was $11 dollars a litre for your material. Have you put your price up since then?We’ve had to. The wholesale price was about $11 dollars a litre, it’s now about $14 dollars a litre. We’ve had to increase it to cover the freight charges and raw material charges and things like that. We’ve also had to increase our prices on the online shop.Can you tell us what your current run rate is on a monthly basis, your revenue run rate?We’ve got about $10 million dollars’ worth of orders in the system at the moment, B2B orders from all around the world. Probably it’s $2-4 million dollars a month, something like that. I don’t really look at it all that much because I’ve been focusing at the moment on setting up new blending operations in the UK; in the US, making sure that we are moving our concentrate into all these places; transportation’s difficult now with the airlines going out of business. It’s a full-time job just running the logistics at the moment.But I presume you’re selling everything you can make at the moment, is that right?We are, yeah – not quite. We’re over-producing by about probably 30 per cent. We’re over-producing because I want to be able to supply people quickly. Just this morning, for instance, we had a phone call from Auckland Airport and Christchurch Airport, urgently after product. It’s going out this afternoon and they’re taking it in thousand-litre totes. We’ve got a supermarket chain here, for instance, who’s buying product off us at the moment in thousand-litre totes, they’re going to have these thousand-litre totes in the supermarket and people are going to refill their own hand sanitiser bottles. That’s a good idea, it’s quite a good idea, they’ll have refills.Yeah, right, and they’ll just charge for the refill?Yeah, they’ll just charge so much a refill, that’s right.Are you in the process of ramping up production on a permanent basis, is that what you’re trying to do?A lot of the companies that we’re signing distribution agreements with currently, I can think of multinational companies at the moment who we’ve been chasing for years and they weren’t interested in us but all of a sudden they are of course. I’m making them sign seven-year distribution agreements. When this dies down a little bit, they still have to buy a certain amount of quantities off us.These are take or pay, are they? I mean, I notice the one with the Al Rabban in The Middle East, you’ve got minimum annual purchases of $4.8 million for the first 12 months…That’s right.And then $12 million in year three – they’re take or pay, are they?That’s right. If they don’t meet the volumes they lose the contract, they lose the exclusivity under the contract. They’ll need the volumes…But it’s not exactly take or pay, it’s basically that the deal’s off if they don’t meet the volumes?Absolutely. We’ll deal with other companies.These seven-year deals, give us a sense of what your volumes look like in two or three years’ time? When all this has died down, the crisis has passed and you’re operating and you look at your agreements, what does your business look like in two or three years?It would be in excess of probably $50 million dollars a year, conservatively.What’s your sort of gross margin on that?They’re probably going to drop a bit, it’s probably going to end up somewhere between 60 and 70 per cent.Do you think you can increase production? I mean, you’re getting the stuff made in the US and in New Zealand, is that right?Yes, we’ve got a production facility in the UK and we’re about to go to a second facility in the UK as well. We’ve got a production facility in the US that’s a big facility, they can do up to 100 totes a day there if they have to. And we’ve got three production facilities in New Zealand, three smaller facilities here. We may look to actually build our own one in years to come, but currently, we are using local suppliers, local facilities. We are ramping up, we’ve got the ability to ramp up quickly because it’s a water-based product. It’s non-dangerous goods, so it’s very easy to ship, it’s very easy... so we can ramp up production very quickly if we have to.And I think we have ramped it up because in our first half we did revenues of $2 million dollars. I think in our second half it’s going to be a lot more than that – like we’re at $15 million already in the second half.Right, okay, and it’s only the end of March, heavens! That means your second half revenue is going to be $40 million or something, is it?It could be somewhere between $25 and $40 million. I’d rather not be too specific if you know what I mean. Anything could happen.Fair enough. I notice that Myers has got your stuff, but they got it from a distributor, did they?Yes, we’ve got a new arrangement over in Australia with a company called Winc, who are a very big wholesale distributor. They’ve got six large distribution centres in Australia.What did you say their name was?Winc, W-I-N-C.Oh, okay, Winc.They are Staples and OfficeMax combined, and they’ve got six large distribution centres in Australia, they’ve got 250 sales reps on the road. They are studied by significant amounts of office and we’ve also got a new supply agreement also into the G8 childcare centres, into the 500 centres, they’re becoming a big user as well.I presume if they haven’t already, some potential competitors have given the product to their laboratories and instructed the scientists to replicate the formula, are you aware of any of that going on?No, but look, the copy-cat products will pop up and they’ll make claims and they’ll say they can do this and they can do that. When we make a claim, we make sure that we’ve got a test report to back the claim from a laboratory that operates under good lab practice and signed by at least two microbiologists, and they’re always independent. We make a claim, we can support the claim. Lots of companies make the claims but you ask them for the documentary evidence that their product works on certain bacteria or virus groups and they can’t provide the evidence, we can, that’s the difference.Speaking about claims and everything, you put out a clarification and an update on the 23rd of March saying that with regard to COVID-19 your product was tested on a COVID-19 surrogate known as the feline coronavirus, not the COVID-19 itself. That was what you were referring to with regard to 99.99 per cent coverage, right?Yes. Basically, we made an announcement on the 28th of February that our product was effective against COVID-19. In that announcement we also said in the middle of the announcement that it was tested against the accepted COVID-19 surrogate, the globally accepted laboratory surrogate because the actual virus itself is too dangerous, so we made that. Somebody complained to the ACCC, the ACCC came to us and they asked us if we could restate the announcement with more emphasis on the headline that it was tested against the surrogate, that’s all that was.Okay, so you weren’t hiding anything to begin with, you always said it was a surrogate?No, not at all to be honest. If you actually read the release on the 28th, we clearly said that it was tested against the surrogate. The ACCC were very pleasant to deal with, we didn’t have an issue, they just asked us if we could restate it putting more emphasis on the fact that it was tested against the surrogate which is feline coronavirus and it was actually accepted. We sent the ACCC out a test result, etcetera and we worked everything out very amicably.Very good. Well, it was good to talk to you, Paul. I better let you get back to work, you’ve got a lot to do.I’ve got a lot to do and thanks for the chat.
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