Natrol, Inc., a Chatsworth-based manufacturer of nutritional products, has entered into a joint venture to distribute its products in China. Partners in the joint venture are a group of Chinese businessmen who will help develop an operational platform in the country for marketing and distributing Natrol’s products. The company recently opened an office in Hong Kong to house a sales staff and regional distributors. “We believe that the market opportunity for our products in China and the Asian region is extremely compelling,” said Wayne Bos, Natrol’s president and chief executive officer. “Chinese culture has, for thousands of years, understood and accepted the wisdom of herbs for wellness.” According to Bos, venturing into China will give the company a much-desired foothold in the Asian market, as it’s an important region for trading and growth. Although the company’s more than 200 products are already distributed worldwide, an office in Hong Kong “gives us a little point of presence” there rather than doing business from L.A., Bos said. The Chinese venture isn’t the company’s first foray outside the United States. Bos, an Australian native, said as much as 8 percent of Natrol’s revenue is from international distribution. The company has an existing office in the United Kingdom and is interested in expanding throughout Europe, he said. According to Gerry David, owner of Certified Nutrition For Less, based in Florida, many nutraceutical companies are expanding into foreign markets. “There’s a major trend going into the Asian market, especially China,” he said. The Chinese market has been largely untapped in the past, due to its heavy restrictions which are the most severe in Asia. For the few who have penetrated the market, Asian sales have reached more than $1 billion, David said. Expansion is important, David said, because “The U.S. market is fairly well saturated with (nutraceutical) companies selling their product.” But that may soon change. The FDA will start regulating the manufacture of nutraceutical products in the near future. Subsequently, some U.S. companies won’t be able to afford to adhere to the new rules and will be forced to shut down, David said. Natrol’s Chinese venture comes about a year after the company experienced an economic turnaround. In 2005, the company experienced a net loss of $2.6 million, or $0.20 per share on sales of $67.5 million. The drop in sales of Natrol’s Carb Intercept product came during a declining market overall for low-carbohydrate products. Bos, who joined the company a year ago, said heavy investment in a new product, Brain Speed, also affected revenues during that period. Sales of the brain-enhancing tablets were initially sluggish but are improving substantially, he said. In the first quarter of 2006, the company posted a profit, with net income of $73,000, or $0.01 per share, on net sales of $17 million. In the first quarter of 2007, the company had an operating income of $743,000, compared with an operating income of $719,000 during the same period the prior year. In late May, Natrol stock was selling for $3.15 per share. Bos attributes the turnaround to managing costs, new management and continued investment and stabilization of the company’s core business. A $26 million lease-buyback deal for Natrol’s corporate headquarters and shipping center in Chatsworth in April eradicated the company’s debt. Natrol agreed to lease back the space for five years, with two five-year renewal options, which brought the company $12 million after taxes and debt. The money from the deal will be used to help Natrol grow, but it wasn’t used to start its Chinese venture, Bos said. Bos said it may take a long time for the company’s products to begin selling successfully in China, but he isn’t worried. “I’m not expecting a lot at first,” he said. Natrol’s hair growth products may be one of the best sellers, according to Bos. Regulatory approvals for Natrol’s products in China are pending.
