annual results presentationlivewebcast.todayir.com/hhgroup_17ar/ppt.pdf · • these new product...

2017 Annual Results

Presentation26 March 2018

2

Disclaimer

These materials have been prepared solely for the use at the presentation by Health and Happiness (H&H) International Holdings Limited (“the

Company”) and have not been independently verified. No representation or warranty, expressed or implied, is made and no reliance should be placed

on the accuracy, fairness, correctness or completeness of the information presented or contained in these materials. The Company or any of its

affiliates, advisers or representatives accepts no liability whatsoever for any loss howsoever arising from any information presented or contained in

these materials. The information presented or contained in these materials is subject to change without notice and its accuracy is not guaranteed.

These materials contain certain forward-looking statements with respect to the Company, including its beliefs and expectations about the future as at

the date of this presentation. These forward-looking statements are based on a number of assumptions regarding the Company's operations and

factors beyond the Company's control, including but not limited to, the political and economic environment in which the Company and its subsidiaries

will operate in the future. Our actual results of operations, financial condition or business prospects may differ materially from those expressed or

implied in these forward-looking statements for a variety of reasons and as such, no reliance should be placed on these forward-looking statements.

The Company and its affiliates, advisors and representatives undertake no obligation to update these forward-looking statements for events or

circumstances that occur subsequent to such dates. This presentation does not constitute or form part of any offer for sale or invitation, or solicitation of

an offer to subscribe for or purchase any securities in the United States, Hong Kong or anywhere else. No part of this presentation shall form the basis

of or be relied upon in connection with any contract or commitment whatsoever. The information of the presentation should not be relied upon as

representation of the Company.

These materials are highly confidential, are being given solely for your information and for your use and may not be copied, reproduced or redistributed

to any other person (whether within or outside your organization/firm) in any manner. You agree to treat the contents of this presentation and these

materials as strictly confidential.

2017 Annual Results Presentation

3

Mr. Luo Fei Chairman and Chief Executive Officer

Ms. Joy Tsai Investor Relations Director

Mr. Jason Wang Chief Financial Officer

Presenter Title

Ms. Laetitia GarnierChief Strategy Officer

Managing Director, Swisse Wellness China

Our Team


Financial Highlights


5

(RMB million) For the Twelve Months ended 31 December

2017 2016 Change

Revenue 8,095.3 6,505.6 24.4%

Adjusted EBITDA1 2,245.5 1,804.7 24.4%

Adjusted EBITDA margin 27.7% 27.7% -

Adjusted net profit2 1,208.4 884.0 36.7%

Adjusted net profit margin 14.9% 13.6% 1.3 pt

Operating cash flows 1,950.8 1,543.2 26.4%

Adjusted EPS (RMB) 1.92 1.25 53.6%

2017 Annual Results Highlights

Notes:

1. EBITDA refers to earnings before interest, income tax expense, depreciation and amortization. EBITDA for the year ended 31 December 2017 amounted to RMB2,060.4 million (2016:

RMB2,043.1 million). Adjusted EBITDA = EBITDA – net foreign exchange gains + net fair value losses/(gains) on derivative financial instruments + fair value loss of financial liabilities associated

with put options + one-time expense paid to the original shareholders of Swisse on some tax refund + one-time restructuring costs on early childhood education business + non-recurring

integration costs

2. Net profit for the year ended 31 December 2017 amounted to RMB928.5 million (2016: RMB1,052.0 million). Adjusted net profit = Adjusted EBITDA –depreciation and amortization– finance

costs + interest income – income tax expense + one-time accelerated amortization of intangible assets of PGT royalty agreement due to the distribution rights buy back + non-recurring loss on

redemption / repurchase of convertible bonds + bank charges relating to the financing for the acquisition of the remaining 17% minority interest in Swisse in 2017 /re-financing in 2016


6

Revenue and Adjusted EBITDA Contribution by Segment

55.6%

44.4%

Baby nutrition and care ("BNC")

Adult nutrition and care ("ANC")

57.8%

42.2%

Baby nutrition and care ("BNC")

Adult nutrition and care ("ANC")

Notes:

1. Adjusted EBITDA margin for BNC and ANC is 26.7% and 29.2%, respectively

2. The growth contribution for ANC segment is on RMB basis

BNC ANC

Revenue Adjusted EBITDA

22.5%20.5%

27.3%29.7%

Revenue Mix Adjusted EBITDA Mix Growth %


7

Revenue Mix by Geography

2017 2016 2016

67.7%

28.6%

3.7%

China

Australia and New Zealand

Rest of the World

63.9%

33.2%

2.9%

China

Australia and New Zealand

Rest of the World


Business Review


9

Group Integration


10

BNC and ANC are Core Strategic Businesses

Adult Nutrition and Care

Vitamin, Herbal and Mineral Supplements (VHMS)

Skin Care Sports Nutrition

Baby Nutrition and Care

Infant Milk Formulas (IMF) Baby Care Products Probiotics & Supplements


11

PPA Continues to be Our Core Model

Premium

We source the most

premium ingredients

from all over the world

Proven

We use a science-based approach

to developing new and improved

products across the food and

therapeutic sectors of nutrition

Aspirational

We connect with sports stars, actors

and actresses, and celebrities who

share the values of our brands. Our

partners help us to share our

messages of health and happiness

at a local and global level


12

Strong Consumer Demand in China Driving Consumption Trade-up

Note:

1. Under Nielsen’s definition, IMF products priced at RMB 290-390 per kilogram are categorized as premium,

while IMF products priced above RMB 390 per kilogram are categorized as super premium

According to data released by Nielson, China’s Consumer Confidence Index (CCI) has continued to grow steadily, reaching

a historical high of 114 for the past four years. This clearly demonstrates a steady rise in consumer confidence supported by

the sustained and sound growth of the Chinese economy

111

111

111

107

106

107

106

107

105

106106

108

110

112

114 114

107

106

112

100

102

104

106

108

110

112

114

116

Q11

4

Q21

4

Q31

4

Q41

4

Q11

5

Q21

5

Q31

5

Q41

5

Q11

6

Q21

6

Q31

6

Q41

6

Q11

7

Q21

7

Q31

7

Q41

7

20

15

20

16

20

17

Consumer Confidence Index (CCI)

2016 2017

>RMB290/kg <RMB290/kg

Premium and Super Premium Segments1 Accounting

for Higher Portion in Total China IMF Sales


51.8%60.8%

13

New Retail Landscape - Online and Offline Merge to Maximize Traffic

Enhance Shopping Experience Elevate branding image

Increase basket size

Sales Personnel

Display

EntertainmentService

Promotion


14

14.3%

10.6% 9.7%8.1% 6.9% 5.5% 5.2% 4.8% 4.0% 3.5%

#6 IMF player with leadership in the Chinese market1

26.7%

14.4%10.2%

7.9% 6.1% 5.6% 4.8% 4.8%2.4% 1.6%

#3 in the super premium tier2 infant formula market1

19.6%

21.1%

52.8%

63.9% 11.4%

27.6%

3.6%

IMF Industry Average

Biostime

Supermarkets Baby specialty stores VIP Pharmacies E-commerce

BNC - Leading Brand in the Premium IMF Segment in China

Notes:

1. Source: Nielsen market share data for the past twelve months as of 31 December 2017

2. According to a Nielsen report, the super premium tier products is the fastest growing segment in IMF market, which drives continuous growth

in pemiumization

3. BNC's presence in the Chinese market as of 31 December 2017 includes 26,709 baby specialty stores; 5,389 supermarkets; 4,756 VIP

pharmacies and 534 regional distributors

Sales Contribution by Brands

(RMB million)

Sales by Channels3

96.9%

1.0% 2.1%

Biostime Adimil Healthy Times

510.5

-61.0

64.1

Incremental Sales Growth

(2017 versus 2016)

15

#3 in IMF sales in baby specialty stores #5 in IMF sales in supermarkets

20.5%

17.0%

10.3%

8.6%

7.5%

7.3%

5.7%

4.7%

4.7%

4.5%

11.9%

7.8%

6.8%

6.5%

6.3%

6.2%

5.5%

4.8%

4.1%

2.8%

22.1%

14.9%

12.9%

8.7%

5.9%

5.1%

3.9%

3.5%

3.5%

3.4%

2.0%

1.9%

#12 in IMF sales in e-commerce2

BNC - Diverse Distribution Channels1

Notes:

1. Source: Nielsen market share data for the past twelve months as of 31 December 2017

2. Due to a data upgrade by Nielsen, the total e-commerce market was upgraded to a larger estimated market size after more IMF

brands were included in its ranking of the e-commerce market

16

BNC - Probiotic Supplements Sales Momentum Continued

BiostimeTM Strengthened Leading Position in Kids and Infants

Probiotic Supplements with Growth of 54.7% in 2017

• The global probiotic market* (including probiotic

supplements and yogurt)

− US$36 billion in 2017 (Global)

− US$7 billion in 2017 (China)

− US$13.8 billion by 2020 with an average CAGR of

25% (China)

• Probiotic supplements have become one of the

fastest-growing dietary segments

*Source: Euromonitor report2017 Annual Results Presentation

17

BNC - Continuous Marketing Campaigns to Enhance Consumer AwarenessTV Campaign and Live Show with Brand Ambassadors Liu Ye (刘烨) and Juliette Binoche

Biostime partnered with brand

ambassadors Liu Ye and

Juliette Binoche to enhance

consumer awareness through

various campaigns and

consumer initiatives

These initiatives further

strengthened the brand’s

positioning in the premium

and super premium segments

in the Chinese IMF market


18

BNC - Launch of the Organic Series in Different Markets

Offline presence of Biostime organic formula at Charles de Gaulle

Airport and local stores

Offline Presence of HT organic IMF series in the Chinese and US Markets

• The Chinese organic IMF market1 displayed strong

growth of 47% driven by industry consumption

trade-up, and it currently accounts for 4.5% of the

offline IMF market

• Approximately 4,000 baby specialty stores in China

• Offline launch in US organic grocery stores such as

Arvil and Jimbo’s Market, and organic grocery

store such as Whole Foods and New Season

Market

• Launch of organic version in the French market in

March 2017

• Approximately 300 organic stores and pharmacies,

including Bio C’ Bon and La Vie Claire

• CBEC launch and offline launch in the HK market

Note:

1. Nielsen market share data for the past twelve months as of 31 December 2017

19

BNC - Dodie Products Launched in Chinese Online and Offline Platforms

• In September 2017, Dodie launched a premium diaper range on

top of its existing baby care accessories, including feeding bottles,

pacifiers, etc

• The diaper range is currently available for sale in around 1,800

baby specialty stores in the Chinese market

• These new product portfolios will expand the Group’s presence

and accelerate its exposure in the Chinese market, as well as and

other international markets with existing distribution channels

Offline Presence of Dodie Diaper in

Chinese Baby Specialty Stores


20

ANC - Achieving Fast Growth in the Chinese Market while Maintaining a

Leading Position in Australia

Australian Market Leader

Natural Health Brand

Chinese Market Leader

VHMS Brand Online

27.6% Multivitamin Market Share1

16.1% VHMS Market Share1

Notes:

1. Based on LTM IRI scan data as of 31 December 2017

2. Based on YTD sales data from Earlydata

3. Swisse China sales for twelve months as of 31 December 2017

#1 in VHMS segment on Alibaba.com2

6.9%

5.6%

3.5%2.3% 1.9%

China sales3 through CBEC and Normal Trade

contributed 28.5% of Swisse’s total sales in 2017


21

ANC - Marketing Campaigns Enhanced Premium Brand Positioning

July-August: National Consumer Promotion

focused on Ultivites Range. In-store support

across the entire market as well as ATL support

April - Sept: AFL campaign featuring

our 4 new incredible AFL ambassadors

, including TV, digital, POS & Brownlow

red carpet integration

Mar - Sept: Ferrari Campaign continues

throughout F1 Internationals broadcast and

digital support during key race meets

Mar - Oct: Wallabies campaign including TV,

digital, POS, Consumer Promotion in Terry

White Chemmart and GWP promotion in

Community Pharmacy

July – Dec: SKINCARE

Always on targeted digital campaign

July - Nov: PURE WARRIOR

Always on targeted digital campaign


22

ANC - Double 11 Campaign in E-commerce platforms Appointed Chinese Actress Fan Bingbing (范冰冰) as Brand Ambassador

On Singles’ Day, the total sales on Tmall platform reached over RMB100 million

The Swisse Flagship Store was ranked No.1 on the sales list of all flagship stores of overseas brands on Tmall, and was

crowned “The Most Popular Overseas Brand Among Chinese Consumers”

The campaign was well leveraged, featuring both of Swisse’s brand ambassadors Nicole Kidman and Fan Bingbing (范冰冰),

with Nicole Kidman also being appointed as the opening guest at the Double 11 gala event which was a big hit among Chinese

consumers


23

ANC - Normal Trade Kicked off in April with Offline Presence in Diverse

Outlets in the Chinese market

On 8 April 2017, Swisse has officially kicked off the normal trade in Chinese market, leveraging H&H’s new and existing

nationwide retail network starting with conventional foods, which are now being sold through close to 5,000 retail stores

Swisse’s Offline Presence in Diverse Retail Outlets Post Normal Trade Launch

Personal CareBaby Specialty Cosmetics PharmacySupermarkets


24

ANC - Products Launched Offline as Conventional Food in 2017

List of our products available offline as conventional food

1 Hair, Skin & Nails (HSN) Liquid 300ml

2 Hair, Skin & Nails (HSN) Liquid 500ml

3 Hair, Skin & Nails (HSN) Liquid 1L

4 Cranberry Liquid 300ml

5 Cranberry Effervescent 60 Tablets

6 High Strength Wild Fish Oil 1,000 mg 90 capsules



9 Whey Protein Powder 450g

10 Protein Powder 450g

11 Manuka Honey 450g

12 Kid Probiotics 48g

13 Pregnancy DHA 30 capsules


25

ANC - Buy Back of Distribution Rights and China Option from PGT PGT

On 13 November 2017, Swisse and PGT entered into an Asset Transfer and Termination Agreement, in which Swisse will buy

back all distribution rights previously granted to PGT for an aggregate consideration of US$100 million. The China option was

cancelled immediately and distribution rights for other markets are scheduled to terminate prior to June 30, 2018

Swisse’s Offline Presence in International Markets

Italy Netherlands Singapore UK Hong Kong

26

ANC - Global Market Footprint with Celebrity Endorsements and Sponsorships

Claudio

Marchisio

(Italy)

Fan

Bingbing

(China, HK and AU)

Miriam

Yeung

(HK)

Nicole

Kidman

(Global)

Rebecca

Lim

(Singapore)

Sven

Kramer

(Netherlands)

Giusy

Buscemi

(Italy &

Netherlands)

Ashley

Hart

(AU&US)

Ricky

Ponting

(AU)

George

Calombaris

(AU)

Kieran

Read

(New Zealand)

27

Prospects


28

Hong Kong OfficeFrance Office Guangzhou Office

Accelerate H&H’s International Expansion

20182017

29

ANC - Ensure Business Continuity for Both Business Segments through

Product Innovation

ANCBNC


30

Regulatory Conditions Become Clearer in both IMF and VHMS Markets

Formula Registration Rules Cross-Border Ecommerce Regulations VHMS Filing and Registration

Regulations

• The government has released new

filing and registration regulations in

July 2017 for any health foods that are

intended for sale in the China offline

market

• H&H has submitted its filing

procedures for its hero products such

as Calcium + Vitamin D, and expects

to launch more conventional food in

2018

• The China Food and Drug Administration

(CFDA) requires all IMF products sold in the

country to be registered before 1 January

2018. Each factory can register no more than

3 series and 9 formulas

• H&H has registered five series with the China

Food and Drug Administration’s (“CFDA”),

including three existing series renamed ɑ-star,

β-star and π-star series under the BiostimeTM

brand, the organic series under the Healthy

TimesTM brand, as well as the Manle series

under the AdimilTM brand

• The new CBEC regulation, which was

first announced on 8 April 2016, has been

further postponed to the end of 2018, as

stated by the State Council in September

2017

• In December 2017, the Ministry of

Commerce expanded the number of trial

cities under the new CBEC business

policy framework from 10 to 15

• Currently, all commodities imported via

CBEC are considered personal goods

and are not subject to trading goods

requirements until further notice


31

BNC - New Packaged Products Launched with Upgraded Formula

• The Group has launched new packaged products with upgraded

formula around March this year, featuring and ɑ-star (Golden

Care series), β-star (previously know as Premium series) and π-

star (Supreme series) series under the BiostimeTM brand

• The Group submitted two more series for registration in last

December, and expects to submit the Supreme Care series

under the BiostimeTM brand in the second half of 2018

Presence of New Packaged Products in Chinese Offline Market

Additional

Financial Information


33

(RMB million) 2017 2016 Change (%)

Infant Formulas 3,717.2 3,203.6 16.0%

Probiotics Supplements 781.7 505.4 54.7%

Other Pediatric Products 182.5 114.1 60.0%

Adult Nutrition and Care Products 3,413.9 2,682.5 27.3%

Total 8,095.3 6,505.6 24.4%

2017 2016

Diversified Revenue Mix

Infant Formulas, 45.9%Adult Nutrition and

Care products, 42.2%

Probiotics Supplements,

9.7%

Other pediatric products, 2.2%

Infant Formulas, 49.2%

Adult Nutrition and Care products,

41.2%

Probiotics Supplements,

7.8%

Other pediatric products, 1.8%


34

Gross Profit Margin Analysis

65.7%

75.9%

38.9%

57.5%

62.4%67.2%

75.8%

57.5%60.7%

65.0%

Infant Formulas ProbioticsSupplements

Other PediatricProducts

Adult Nutrition andCare Products

Total

2016 2017

Note:

The gross profit margin of other pediatric products excluded the impact from the inventory clean-up of discontinued SKUs under the BMcare brand

1


35

(RMB million)

S&D Expenses Ratio of SalesSelling and Distribution Expenses

2016 2017

1,951.7

Selling and Distribution Expenses

2016 2017

2,711.7

A&M

843.9A&M

607.8

A&M

9.3%

A&M

10.4%

30.0%

33.5%

Note:

A&M: Advertisement and Marketing 2017 Annual Results Presentation

36

(RMB million)

Administrative Expenses Ratio of Sales

Administrative Expenses

Administrative Expenses

2016 2017 2016 2017

357.2

486.0

5.5%

6.0%


37

Adjusted EBITDA

(RMB million)For the Twelve Months

ended 31 December

2017 2016

EBITDA 2,060.4 2,043.1

Reconciled by:

(1) Net foreign exchange gains (53.9) (99.1)

(2) Net fair value losses / (gains) on the derivative financial instruments 144.3 (160.5)

(3) Fair value loss of financial liabilities associated with put options - 21.2

(4) One-time expense paid to the original shareholders of Swisse on some tax refund 34.8 -

(5) One-time restructuring costs related to early childhood education business 30.0 -

(6) Non-recurring integration costs 29.9 -

Adjusted EBITDA 2,245.5 1,804.7


38

Trade and Bills Receivables

Turnover DaysInventory Turnover

Days

Trade Payables

Turnover Days

Working Capital Management

2016 20172016 2017

27

2016 2017Notes:

1. Turnover days of accounts receivable is derived by dividing the arithmetic mean of the opening and closing balances of trade and bills receivables for the relevant period by turnover

and multiplying by 360 days

2. Turnover days of inventory is derived by dividing the arithmetic mean of the opening and closing balances of inventory for the relevant period by cost of sales multiplying 360 days, and

the inventory for BNC and ANC is 103 and 126, respectively

3. Turnover days of accounts payable is derived by dividing the arithmetic mean of the opening and closing balances of trade payables for the relevant period by cost of sales and

multiplying by 360 days

32

120

84

114

74


39

Cash Balance and Cash Flows

(RMB million)

1,162.2

1,955.7

344.0

134.5 995.511.1

2016 2017

Pledged depositsTime depositsCash and bank balances

(RMB million)

2016 2017

Operating Cash Flows Cash Balance

1,944.3

2,405.4

2,501.7

2,101.3

1,950.8

(Pre-tax)

1,543.2

(After tax)

(After tax)

(Pre-tax)

1,506.2*

2,090.2*

Note:

*Free cash available for operation2017 Annual Results Presentation

40

2,792.2 2,325.8

2,743.9 3,930.7

1,223.6

2016 2017

Convertible Bonds Senior Notes Term Loan

(RMB million)

Type Principal Amount Maturity

Senior Notes US$600 million 2021-06

Term Loan US$450 million 2019-04

Net Leverage Ratio2Overview of Debt Instruments

Group Capital Structure

Notes:

1. The total amount of convertible bonds were fully redeemed in February 2017

2. The net leverage ratio is calculated by dividing the sum of the net debt by adjusted EBITDA

2016 2017

6,256.56,759.7 2.4

1.9

1

41

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