Download - HLF Herbalife Dec 2009 Presentation
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
1/84
1
Herbalife Investors Day
December 2009
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
2/84
2
Safe Harbor Statement
This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act
of 1934, as amended. All statements other than statements of historical fact are forward-looking statements for purposes of federal and state securities laws, including any
projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerningproposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions
underlying any of the foregoing. Forward-looking statements may include the words may, will, estimate, intend, continue, believe, expect or anticipate and
any other similar words.
Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed
in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent
risks and uncertainties, such as those disclosed or incorporated by reference in our filings with the Securities and Exchange Commission. Important factors that could cause our
actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in our forward-looking statements include, among
others, the following:
our relationship with, and our ability to influence the actions of, our distributors;
adverse publicity associated with our products or network marketing organization; uncertainties relating to interpretation and enforcement of recently enacted legislation in China governing direct selling;
our inability to obtain the necessary licenses to expand our direct selling business in China;
adverse changes in the Chinese economy, Chinese legal system or Chinese governmental policies; improper action by our employees or international distributors in violation of applicable law; changing consumer preferences and demands;
loss or departure of any member of our senior management team which could negatively impact our distributor relations and operating results; the competitive nature of our business;
regulatory matters governing our products, including potential governmental or regulatory actions concerning the safety or efficacy of our products, and network marketingprogram including the direct selling market in which we operate;
third party legal challenges to our network marketing program; risks associated with operating internationally, including foreign exchange and devaluation risks;
our dependence on increased penetration of existing markets; contractual limitations on our ability to expand our business;
our reliance on our information technology infrastructure and outside manufacturers; the sufficiency of trademarks and other intellectual property rights;
product concentration; our reliance on our management team;
uncertainties relating to the application of transfer pricing, duties, value added taxes , and other tax regulations, and changes thereto; changes in tax laws, treaties or regulations, or their interpretation;
taxation relating to our distributors;product liability claims;
any collateral impact resulting from the ongoing worldwide financial crisis, including the availability of liquidity to us, our customers and our supplie rs or the willingness of ourcustomers to purchase products in a recessionary economic environment; and
whether we will purchase any of our shares in the open markets or otherwise.
We do not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events, except as required by law.
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
3/84
3
2009 Analyst & Investor Meeting Agenda
Michael Johnson Herbalife, The Growth Story
Chairman & CEO
Rich Goudis Infrastructure Strategy
Chief Operating Officer
Des Walsh Growth Initiative &
President Regional Updates
John DeSimone Distributor Metrics &Chief Financial Officer Financial Update
Executive Topic
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
4/84
4
Michael O. Johnson
Chairman and Chief Execut iv e Off icer
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
5/84
5
Recent News
Organizational Changes Announced December 16, 2009 Des Walsh President
Rich Goudis Chief Operating Officer
John DeSimone Chief Financial Officer
Guidance Updates
Reiterate FY09 Guidance
$3.19 - $3.22
Reiterate FY10 EPS Guidance $3.50 - $3.65
Based on late September spot FX rates
FY10 Guidance already includes ($0.20) impact from VZ
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
6/84
6
Protect Grow th Init iat ives
Invest incrementally in daily consumptionDMOs
Restructured the front-end/back-endprocess to improve alignment withdistributors, reduce layers andstreamline business
Open new markets to expand theHerbalife reach around the globe
Leverage Financial Strength
Remain conservatively capitalized duringcurrent credit crisis while using excesscash to buy-back stock as appropriate
Operational Impro vements
Initiate self-manufacturing Strengthen government relations
Maintain rigorous training and auditing
Guidance
EPS Guidance $3.00 - $3.20
December 2008 Scorecard
Why HLF? Deliver On Expectations
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
7/84
7
Why HLF? Misunderstood & Undervalued
The Growth Story Target Mega Trends - Obesity, Anti-aging & Emerging Markets
64% of HLF product line is in weight management
Increase access to our products and business opportunity
Evolution of the Business to Daily Consumption (deeper)
International Expansion (wider)
Under Appreciated Business Model High variable costs, High Margins
Low capital requirements, Strong Free Cash Flow model
Conservatively leveraged balance sheet
Successfully weathered 2009 economic challenges
Disciplined Return of Capital Share repurchases
Dividends
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
8/84
8
Why HLF?Growth Today, Tomorrow & the Future
NEW PRODUCTS &NEW PACKAGING
DAILY
CONSUMPTION
MANUFACTURING
& TECHNOLOGY
INTERNATIONAL
EXPANSION
Goal:
Triple the Size
of HLF by
2020 BRAND & IMAGE
LOWER
BARRIERS TO
ACCESS
FOCUS MARKETS
FINANCIALSTRENGTH
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
9/84
9
Why HLF?Growth Today, Tomorrow & the Future
NEW PRODUCTS &NEW PACKAGING
DAILY
CONSUMPTION
MANUFACTURING
& TECHNOLOGY
INTERNATIONAL
EXPANSION
BRAND & IMAGE
LOWER
BARRIERS TO
ACCESS
FOCUS MARKETS
FINANCIALSTRENGTH
Goal:
Triple the Size
of HLF by
2020
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
10/84
10
Why HLF?Opportunity for Health & Wealth
Estimates that medical costsassociated with obesity may be ashigh as $147 billion, annually.
June 2009
Of all the developing countries, only inMexico is the rate of increase inbecoming overweight among adultsfaster than in China.
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
11/84
11
Why HLF?Leader in Global Nutrition
% of 2008Net Sales:
TopProducts:
63% 21% 4% 6%
Formula 1
Herbal TeaConcentrate
PersonalizedProtein Powder
Aloe Concentrate
Niteworks
Herbalifeline
Best Defense
Liftoff
H3O
Nourifusion
Skin Activator
Daily Nutrition
* Not shown: Literature/Other which 6% of 2008 net sales
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
12/84
12
Why HLF?Daily Consumption Drives Key Products
2009
% of Total VPs VPs
51% 1,439m
2003
% of Total VPs VPs
37% 573m
+ 151%
*
* Annualized figures based on 2009 YTD sales.
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
13/84
13
Why HLF?Ongoing Product Innovation
Niteworks
2003
2004
Garden 7
Liftoff
Nourifusion
2005
2006
H3O
Kids F1
Best Defense
2007
2008
Active Fiber Complex
Powdered Aloe
Soft Green
Mango Flavored Aloe
F1 Meal Replacement Bar
2009
Endorsed by Dr.Lou Ignarro
1998 NobelLaureate inMedicine
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
14/84
14
Why HLF?Ongoing Product Enhancement
Enhanced with Current Science
9 Products Re-launched in the USA
AdvancedJoint Support
AdvancedXtra-Cal
SnackDefense
TotalControl
HerbalTea
Concentrate
TangKuei
Cell-U-Loss SchizandraPlus
RoseGuard
Over 400 SKUs scheduled over the next 3 years
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
15/84
15
Why HLF?Globalizing the Product Line1Q 09 2Q 09 3Q 09
F1 Caf Latte /Cookies & Cream (CA,
TW)
Total Control (PM, IS)
Heart Health(MX, HK, HN)
Aloe Powder in CI & COand Aloe Drink in JA)
Skin Activator Line(HR)
Radiant C Line(GT, CY)
Lively Fragrances(BR)
F1 Packettes (RU) Protein Bar (RU)
PersonalizedProtein Powder
(DR)
Mango flavored Herbal AloeConcentrate (US)
Active Fiber
Complex(JM, MX, JA &
KS)
Aloe Powder (CH)
NouriFusion Line (SV)
NouriFusion Whitening Serum(TW)
F1 Packettes (BR, TU)
Herbal Tea Concentrate(MY, TH)
Heart HealthDistribution Drive
(ID, TW)
Aloe Powder in AR & PE and AloeConcentrate in TU
Triple Berry (HK)
Skin Activator Line(SAM & RO)
Nourifusion Line(CS, GT, PM)Herbal Aloe (EC)
F1 Packettes (JM)
Radiant C Face Quencher(SV)
F1 Express MealReplacement Bar
(EMEA)
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
16/84
16
Key 2010 New Produc t Launches
Hand Sanitizer RegionallyDevelopedProducts
New Flavors
Ongoing1Q10 Launch Ongoing 3Q10 Launch
Why HLF?Preparing For The Next Decade
SatietyBrain Health
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
17/84
17
Why HLF?Growth Today, Tomorrow & the Future
NEW PRODUCTS &NEW PACKAGING
DAILY
CONSUMPTION
BRAND & IMAGE
LOWER
BARRIERS TO
ACCESS
FINANCIALSTRENGTH
Goal:
Triple the Size
of HLF by
2020
MANUFACTURING
& TECHNOLOGY
INTERNATIONAL
EXPANSION
FOCUS MARKETS
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
18/84
18
Why HLF? Evolution of the Business
TRADITIONAL DAILYCONSUMPTION
Monthly Purchasing
Low Penetration
High Turnover
High Customer AcquisitionCosts
Medium to High PricedPurchases Infrequently
Club Models
Weight Loss Challenge
Healthy Breakfast
Daily Purchases
Deeper Penetration Higher Retention
Better Visibility
Small Purchases Regularly
24 Month Conversion
Localize
2003A 2009 Guidance
Volume Points 1.5 billion 2.8 billion
Net Sales $1.2 billion $2.3 billion
Operating Margin 9.2% 12.8% 13.0%
EBITDA $168 million $355 - $360 million
(1)
(1) Provided in the companys November 3, 2009 earnings release.
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
19/84
19
Herbalifes business is evolving to be more dai ly purchases
Dai ly touch pointprovides HLF with competitive advantage
Why HLF? Daily Consumption, Our Competitive Advantage
BENEFITS OF DAILY CONSUMPTION
Improves sustainability and penetration
Daily fee expands addressable population
Daily fee improves retail profit for distributors
Efficient model - customers come to distributors
? ?
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
20/84
20
Why HLF? Increasing Access to Products
DAILYMONTHLY
PREPAY
~$6$180
Aloe
Tea
Formula 1
Club Model
~ $3$106
Convenience Service
Cost Relationships Community
+1100 calories
*includes: Big Mac, medium fry and medium Coke
280 calories
Aloe
Tea
Formula 1
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
21/84
21
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
Why HLF?Daily Consumption Drives Growth
2002 2005 2009 YTD
Volume Points (YTD) 75,748 246,105 371,035Total Distributors 85,672 170,942 253,384Total Supervisors 13,952 33,077 64,438HLF Country Ranking #4 #2 #2
The Mexico Story
Growth in Mexico led by DailyConsumption (Clubs)
Daily Consumption modelproved to be much moreresilient than traditional model
Stable during difficult times (VAT,
growth pains and economy)
Club In flec t ion Po in t 30,000 Clubs
4.9x mo re
Volume Points
3.3x mo re
Volume Points
Volume Points
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
22/84
22
1.2
5.1
2.3
9.3
2.9
6.7
1.21.7
0.40.8
0.00.0 0.3
0.6
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Mexico US Latino Taiwan Korea Brazil India Total
Company
2003 2008
Why HLF? We Are Going DEEPER
Key Cou ntry Per Capita Penetrat ion: 2003 & 2008
Club Inflection Point
HLF VP Ranking in 3Q09
2006
1
2009
10
2008
4
2007
5
2003
2
2006
3
VolumePoints
Globalize
Localize
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
23/84
23
Home ClubMexico
Why HLF? Ongoing Localization of Daily Consumption
Shenzhen
Missouri Central Club
Russia
Breakfast Club
MalaysiaCommercial Club
Shenzhen
Sole
Proprietor
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
24/84
24
Why HLF? Growth Today, Tomorrow & the Future
NEW PRODUCTS &NEW PACKAGING
DAILY
CONSUMPTION
BRAND & IMAGE
LOWER
BARRIERS TO
ACCESS
FINANCIALSTRENGTH
Goal:
Triple the Size
of HLF by
2020
MANUFACTURING
& TECHNOLOGY
INTERNATIONAL
EXPANSION
FOCUS MARKETS
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
25/84
25
Why HLF?Company Sponsorships
LA Galaxy
Indy Racing
Tour of California
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
26/84
26
Why HLF?Marketing Co-op Sponsorships
San Martin, Peru
Internazionale FC (Inter), Italy
Jesse Saarinen (Finland Hockey)
Valencia CF, Spain
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
27/84
27
Why HLF?Distributor Sponsorships
Peace Jam UK Cycling, Team Herbalife Wheelbase
Subic Bay Triathlon Philippines San Luis FC, Mexico
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
28/84
28
Des Walsh
President
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
29/84
29
Why HLF? Growth Today, Tomorrow & the Future
NEW PRODUCTS &NEW PACKAGING
DAILY
CONSUMPTION
BRAND & IMAGE
LOWER
BARRIERS TO
ACCESS
FINANCIALSTRENGTH
Goal:
Triple the Size
of HLF by
2020
MANUFACTURING
& TECHNOLOGY
INTERNATIONAL
EXPANSION
FOCUS MARKETS
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
30/84
30
Why HLF? Increase Access To Product & BusinessOpportunity
Daily Consumption- Daily fee increases addressable population
- Nutrition Club ~ $3 per day
- Healthy Breakfast ~ $2 per day
Marketing Plan changes provide the following:
Allow distributors the ability to earncommissions sooner
Ability to build a sustainable business
Makes the business opportunity moreaccessible in emerging markets
Portions of the plan were tested in Russia
with success Extended payment plan (test in 2010)
Leverage global technology platform to increaseaccess & improve productivity
China 0.09
Japan 0.37
Brazil 0.86
Italy 1.52
Malaysia 1.57Korea 1.69
USA 2.38
Venezuela 2.62
Mexico 5.12
Taiwan 6.73
Company Average 0.56
Company Average (ex.India & China)
1.07
Deeper
Top 10 Markets 2008 VP/Capita
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
31/84
31
50%Discount
(Retail Profit)
$797 mi l l ion1
$1.8 bil l io n1
Improved earnings opportunity
Distributor incentive to recruit
12 month supervisor qualification
Increase in new distributors
Increase in order activity
Higher retention
Why HLF?Modified Marketing Plan in 4Q09
(1) Actual results referenced in Herbalifes 2008 10K, not including China.
73% Distributor Payout Q4 2009 Changes
Benefits
15% RoyaltyOverrides
7% Production Bonus
1% MH Bonus
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
32/84
32
Why HLF?Improved Access to the Business
DISTRIBUTOR
Requirement: $49 IBP
Benefit:25% - 42%Discount
SUPERVISOR
Requirement:
$2,800 in 1 month
or
$3,000 over 2 months
DISTRIBUTOR
SUPERVISOR
Requirement:$3,000 over 12
months($250 per month)
Benefits:50% Discount
Royalty Eligibility
USA Example
NEW PLAN CHANGE
NEW PLAN CHANGE
Requirement:
Qualified Producer
Benefit:
40% discount for 12 months
Can earn on down line
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
33/84
33
Why HLF? Plan Changes Drive Improvements
0%
10%
20%
30%
40%
50%
2002 2006 2009 2011
200000
225000
250000
275000
300000
325000
350000
1Q'08 2Q'08 3Q'08 4Q'08 1Q'09 2Q'09 3Q'09
Marketing Plan
Chang e in 2005
???
Marketing Plan
Chang e in 2009
Annual Superv iso r Reten tion New Dis tr ibu to rs (per Quarter)
Marketing plan changes expected to improve
1. New distributor growth
2. Supervisor productivity
3. Supervisor retention
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
34/84
34
Why HLF?Increase Access To The Business
3 market test in 2010 (leverage Oracle platform)
Allow new Distributors ability to collect on products before they pay
Limits: Dollars, time and frequency
Limited HLF working capital investment (Up-line does not receive commissions/royalties untilpayment is made
Micro Credit
Stimulate Growth
Emerging Markets
High TurnHigh Interest Cost
Extended Payments
Stimulate Growth
Emerging Markets
New DistributorsLimited Risk/Time
No Interest Cost
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
35/84
35
Why HLF?Growth Today, Tomorrow & the Future
NEW PRODUCTS &NEW PACKAGING
DAILY
CONSUMPTION
BRAND & IMAGE
LOWER
BARRIERS TO
ACCESS
FINANCIALSTRENGTH
Goal:
Triple the Size
of HLF by
2020
MANUFACTURING
& TECHNOLOGY
INTERNATIONAL
EXPANSION
FOCUS MARKETS
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
36/84
36
Why HLF?
Go Wider - International ExpansionHerbalife is currently open in 72 markets
2009 2011-20202010
Q3 Q4
New Markets: 6 new countries,estimated
Vietnam
Paraguay
2010 2020
GOAL: open in130+ markets by2020
TotalMarkets: 70 72 130+80
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
37/84
37
Why HLF?
2010 Regional Expansion
Global , Seamless Market ing PlanUAE Gulf Markets Africa
Leverages momentum andexisting business in SE Asia(India, Philippines &
Indonesia) Large ex-pat markets
Opportunity for futureleverage in openingadditional Middle Eastern
markets.
Barrier to access has beenlow disposable income
Daily Consumption andlower price point opensmarket
First President Team onAfrican continent emergingin Lesotho
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
38/84
38
Why HLF?Growth Today, Tomorrow & the Future
NEW PRODUCTS &NEW PACKAGING
DAILY
CONSUMPTION
BRAND & IMAGE
LOWER
BARRIERS TO
ACCESS
FINANCIALSTRENGTH
Goal:
Triple the Size
of HLF by
2020
MANUFACTURING
& TECHNOLOGY
INTERNATIONAL
EXPANSION
FOCUS MARKETS
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
39/84
39
Regional Updates
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
40/84
40
Herbalifes Global Presence
North America
MexicoSouth & Central America
EMEA
China
Asia Pacific
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
41/84
41
North America
NORTH AMERICA YTD
Volume 1.4%
Local Currency Growth 4.2%
Active Supervisors 4.3%
New Supervisors (14.1%)
New Distributors (4.9%)
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
42/84
42
North America Update
Latino market driving growth, 69% of total NA volume in
Q3 2009 Volume up 7% in 3Q 2009
Largely club driven
Evolving to more Commercial Clubs
General Market shows signs of potential growth
Early stages of adopting daily consumption
Volume declined 5.3% in 3Q 2009
Leaders emerging, four recent President Team members
Acculturating daily consumption through Weight LossChallenges and Commercial Clubs
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
43/84
43
Daily Consumption Case Study U.S.A. #1 Market
300,000
350,000
400,000
450,000
500,000
550,000
600,000
650,000
700,000
750,000
800,000
2002
2003
2004
2005
1Q'
06
2Q'
06
3Q'
06
4Q'
06
1Q'
07
2Q'
07
3Q'
07
4Q'
07
1Q'
08
2Q'
08
3Q'
08
4Q'
08
1Q'
09
2Q'
09
3Q'
09
Trailing4Q
Vo
lumePoints
Introduction of Daily
Consumption DMO
Daily Consumption
Inflection Point
2004 Latino Volume Points as % of Total North America 37%
2009 Latino Volume Points as % of Total North America 68%
Volume Points Per Capita
At Inflection Point 1.51
As of FY08 2.38
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
44/84
44
Mexico
MEXICO YTD
Volume (14.3%)
Local Currency Growth (12.7%)
Active Supervisors (9.3%)
New Supervisors (23.0%)
New Distributors (21.4%)
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
45/84
45
Mexico Update
Birthplace of Nutrition Clubs
Currently approximately 30,000 clubs, mostly home basedmodel
New Regional Leadership
Access to Product Improving
Waldos pick-up counter adds almost 300 points of access 80% of Mexican population lives within a 2 hour commute of a
Waldos location
Anniversaried the imposition of a 15% VAT on 65% ofMexican volume
Reformulated product introduced in Q4 2009 Distributor Leadership created an integrated road map to
grow business
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
46/84
46
Daily Consumption Case Study Mexico #2 Market
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
2000
2001
2002
2003
2004
2005
1Q'
06
2Q'
06
3Q'
06
4Q'
06
1Q'
07
2Q'
07
3Q'
07
4Q'
07
1Q'
08
2Q'
08
3Q'
08
4Q'
08
1Q'
09
2Q'
09
3Q'
09
Trailing4Q
VolumePoints
Introduction of Daily
Consumption DMO
Daily Consumption
Inflection Point
15% VAT Impact
-2.5% 1.2%-8.1%
Volume Points Per Capita
At Inflection Point 1.72
As of FY08 4.96
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
47/84
47
EMEA
EMEA YTD
Volume (8.2%)
Local Currency Growth (5.1%)
Active Supervisors (3.5%)
New Supervisors (18.7%)
New Distributors (4.6%)
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
48/84
48
EMEA Update
Tale of Two Europes
Eastern Europe
Growing obesity problem
Successful replication of HealthyBreakfast model
Western Europe
Challenging direct selling market
Stabilizing, working towardsuccessful acculturation of dailyconsumption
Success Stories
Russia
Nutrition Clubs, HealthyBreakfast
Turkey
Transitioning to DailyConsumption
Success of sachet
program (single servepackets)
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
49/84
49
South & Central America
SOUTH & CENTRAL AMERICA YTD
Volume (8.7%)
Local Currency Growth (4.8%)
Active Supervisors 1.7%
New Supervisors (39.4%)
New Distributors (8.1%)
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
50/84
50
South & Central America Update
Brazil
Utilizing daily consumption to reach a larger audience
Soft Green personal care line targets market specific need
Extended Payment program test market in 2010
3Q09 local currency sales growth of 16.2% despite new supervisors having
declined 31.9%
Key Metric: Average Active Distributors increased 10.1% in 3Q09
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
51/84
51
Daily Consumption Case Study Brazil #3 Market
100,000
110,000
120,000
130,000
140,000
150,000
160,000
170,000
180,000
190,000
2004
2005
1Q'
06
2Q'
06
3Q'
06
4Q'
06
1Q'
07
2Q'
07
3Q'
07
4Q'
07
1Q'
08
2Q'
08
3Q'
08
4Q'
08
1Q'
09
2Q'
09
3Q'
09
Trailing4Q
VolumePoints
Introduction of Daily
Consumption DMO
Daily Consumption
Inflection Point
Volume Points Per Capita
At Inflection Point 0.78
As of FY08 0.84
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
52/84
52
China
CHINA YTD
Volume 1.9%
Local Currency Growth 6.1%
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
53/84
53
China Update
Retail based model with 77 stores
In the midst of the 2-year evolution to daily consumption
Sole proprietorships
Currently about 600 clubs throughout China
Evaluating updates to Chinese business model
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
54/84
54
China Entering Phase II
0
50,000
100,000
150,000
1Q
'06
2Q
'06
3Q
'06
4Q
'06
1Q
'07
2Q
'07
3Q
'07
4Q
'07
1Q
'08
2Q
'08
3Q
'08
4Q
'08
1Q
'09
2Q
'09
3Q
'09T
railing4QVolumePoints
Phase I Goals:
License product
Hire management team
Direct selling provincial licensingapproval
Build infrastructure
Phase I Phase
II
Phase II Goals:
Balanced growth
Ongoing direct selling provincial
licensing approvalsIntroduce nutrition clubs, i.e. soleproprietorship
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
55/84
55
Asia Pacific
ASIA PACIFIC YTD
Volume 28.6%
Local Currency Growth 29.1%
Active Supervisors 8.8%New Supervisors 21.2%
New Distributors 30.4%
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
56/84
56
Asia Pacific Update
Taiwan, Korea, Malaysia
Strong, unified regional leadership
Premium HOMs, Roadshows, Commercial Nutrition Clubs
India
Testament to the benefits of daily consumption model
Building successful leadership
Training on duplication of Clubs
Vietnam
Unique market opening through distributor-led initiatives
No Instant Supervisors
Mandatory ethics training
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
57/84
57
Daily Consumption Case Study Taiwan & Korea
75,000
95,000
115,000
135,000
155,000
175,000
195,000
215,000
2004
2005
1Q'
06
2Q'
06
3Q'
06
4Q'
06
1Q'
07
2Q'
07
3Q'
07
4Q'
07
1Q'
08
2Q'
08
3Q'
08
4Q'
08
1Q'
09
2Q'
09
3Q'
09
Trailing4QVolumePoints
Introduction of Daily
Consumption DMO
Daily Consumption
Inflection Point
Volume Points Per Capita
At Inflection Point 4.66
As of FY08 6.73
Taiwan
40,000
50,000
60,000
70,000
80,000
90,000
100,000
110,000
120,000
130,000
2004
2005
1Q'
06
2Q'
06
3Q'
06
4Q'
06
1Q'
07
2Q'
07
3Q'
07
4Q'
07
1Q'
08
2Q'
08
3Q'
08
4Q'
08
1Q'
09
2Q'
09
3Q'
09
Trailing
4QVolumePoint
Korea
Introduction of Daily
Consumption DMO
Daily Consumption
Inflection Point
Volume Points Per Capita
At Inflection Point 1.22
As of FY08 1.72
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
58/84
58
Poster Child for Market Evolution - India
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
26,000
28,000
30,000
32,000
2004
2005
1Q'
06
2Q'
06
3Q'
06
4Q'
06
1Q'
07
2Q'
07
3Q'
07
4Q'
07
1Q'
08
2Q'
08
3Q'
08
4Q'
08
1Q'
09
2Q'
09
3Q'
09
Trailing4Q
VolumePoints
Introduction of Daily
Consumption DMO
Daily Consumption
Inflection Point
Volume Points Per Capita
At Inflection Point - 0.1
As of FY08 0.2
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
59/84
59
Adoption/Acculturation of Daily Consumption
Predominantly Daily Consumption
Largely Traditional
Mexico
US Latino
Brazil
Italy Taiwan
US - General
Russia
China70+
othermarkets
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
60/84
60
Rich Goudis
Chief Operat ing Off icer
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
61/84
61
Why HLF?Growth Today, Tomorrow & the Future
NEW PRODUCTS &
NEW PACKAGING
DAILY
CONSUMPTION
BRAND & IMAGE
LOWER
BARRIERS TO
ACCESS
FINANCIALSTRENGTH
Goal:
Triple the Size
of HLF by
2020
MANUFACTURING
& TECHNOLOGY
INTERNATIONAL
EXPANSION
FOCUS MARKETS
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
62/84
62
Why HLF?Technology Platform to Support Long Term Growth
t On-line tools
t Mobile Technology
t On-line Training
t Bizworks
t International Expansion
t Mobile Technology
t Extended Payments
t Support Daily Consumption
t Supply Chain Management
t Distributor Analysis
t Self Manufacturing
GrowthInitia
tives
DistributorPro
ductivity
CompanyPro
ductivity
ORACLEOne Worldw ide Enterpr ise System
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
63/84
63
Why HLF?Increase Self-Manufacturing
Adhere to all quality requirements on a global basis
Increase Speed to Market
Protect IP of uniquely formulated products
Shrink Licensing lead times
Utilize cash for high ROI return
Reduce Landed Costs of HLF Products Regional manufacturing minimized freight/duties
Start HLF sourcing company for raw materials
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
64/84
64
Why HLF?Margin Enhancement Opportunity
% of
Cost
Source
70%Ingredient Costs
Packaging
15% Overhead
10% ContractManufacturing Profit
5% Labor
* Based on 2008 Cost of Sales amount of $458.4m.
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
65/84
65
Why HLF?World Class Operations Team
Building an operations group of experienced executives
Goal: build a global manufacturing platform for competitive advantage
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
66/84
66
Why HLF?Self Manufacturing Drives ROIC
$20-25m
Goal: up to 80% ver ti cal manufac tur ing
Envision 5 additional regional facilities over5-7 years
$100+ million potential investment
$10-15Capex In
2010
+
Herbalized
$10m purchase ofMicelle Labs in 2009
Original
R i l M f t i I C titi
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
67/84
67
Benefits ofRegional Manufacturing
Why HLF?Regional Manufacturing Is CompetitiveAdvantage
1) Lowest landed costs
a) Take advantage of regionaltrade agreements
b) Freight cost savings
c) Labor savings
2) Natural currency hedge
3) Speed to market on newproduct and market-specificproduct development
4) Government and communityrelations
Potential RegionalManufacturing Locations
HLFFacility
% of HLFVolume *
USA 28%
China 4%
Latin America 17%
South America 14%
India 1%
Eastern Europe 17%
Southeast Asia 19%
* Based on 2009 YTD Volume Points.
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
68/84
68
Why HLF?Trade Blocks Align With HLF Business
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
69/84
69
Why HLF?Margin Enhancement Opportunity
2008 2013-2015
5-7 YEAR PROJECT
100+ bpsMARGIN EXPANSION OVER 3-5 YEARS
Vertical Manufacturin g
Sourc ing Company
$458mCOGS
95% Outsourced 20% Outsourced
$??mCOGS
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
70/84
70
John DeSimone
Chief Financial Off icer
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
71/84
71
Why HLF?Growth Today, Tomorrow & the Future
NEW PRODUCTS &
NEW PACKAGING
DAILY
CONSUMPTION
MANUFACTURING
& TECHNOLOGY
INTERNATIONAL
EXPANSIONBRAND & IMAGE
LOWER
BARRIERS TO
ACCESS
FOCUS MARKETS
FINANCIAL
STRENGTH
Goal:
Triple the Size
of HLF by
2020
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
72/84
72
Distributor Metrics
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
73/84
73
Why HLF?Transparency of Key Metrics
DISTRIBUTOR
SUPERVISOR
With the influence of Daily
Consumption and MarketingPlan changes to our business,
Herbalife will disclose additionalrelevant Distributor metric
beginning in 2010
Daily Consumption promotesslower, but more stable growthfrom Distributor to Supervisor
This will be augmented by therecent changes in the Marketing
Plan
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
74/84
74
10.4% 10.9%
-0.7%
-19.5%-17.5% -16.9%
-8.7%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009
9.0%
10.6%
3.7%
-9.1%
-1.4%
-5.9%
5.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009
10.6%
9.7%
4.5%
-0.3%
1.3% 1.6%
4.9%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009
22.7%
15.7%
2.8%
-7.6%-6.2%
-9.1%
4.2%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
1Q'08 2Q'08 3Q'08 4Q'08 1Q'09 2Q'09 3Q'09
Volume Points
New Sales Leaders Average Act ive Superviso rs
New Distr ibutor s
Current New
Why HLF?Transparency of Key Metrics
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
75/84
75
Financial Update
Why HLF? Strong Constant Currency
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
76/84
76
Why HLF? Strong Constant CurrencyPerformance in Q3
Source: Herbalife web site, http://www.ir.herbalife.com.
Net Sales - 7.5% * 60bps Marg in Improvement *
21% EPS Growth *
* Note: All f ig ures
adjusted for FX.
$0.89 $0.85
$1.08
$-
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
Q3 2008 Q3 2009 Reported Q3 2009 FX Adjusted
$602.20 $600.20$647.40
$-
$100.00
$200.00
$300.00
$400.00
$500.00
$600.00
$700.00
Q3 2008 Q3 2009 Reported Q3 2009 FX Adjusted
14.7%13.0%
15.3%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
Q3 2008 Q3 2009 Reported Q3 2009 FX Adjusted
http://www.ir.herbalife.com/http://www.ir.herbalife.com/ -
8/14/2019 HLF Herbalife Dec 2009 Presentation
77/84
77
2006
(1)
2007 2008 YTD '08 YTD '09Net Income 159.7$ 191.5$ 221.2$ 187.5$ 147.7$
Other 40.3 79.3 51.8 14.1 79.6
Cash Flow from Operations 200.0 270.8 273.0 201.6 227.3
Capital Expenditures (2) (66.9) (49.0) (106.8) (82.8) (42.1)
Free Cash Flow 133.1$ 221.8$ 166.2$ 169.0$ 185.2$
Returned to Investors -$ 407.3$ 189.6$ 132.5$ 70.4$
% of Net Income 212.7% 85.7% 70.7% 47.6%
Total Debt (Due 2012/2013) 185.4$ 365.2$ 351.6$ 372.9$ 326.2$
Total Debt / LTM EBITDA(3) 0.6x 1.0x 0.9x 0.9x 1.0x
Net Debt 31.0$ 175.0$ 200.8$ 223.5$ 110.8$
Net Debt / LTM EBITDA(3)
0.1x 0.5x 0.5x 0.6x 0.3x
(1)Excludes $16.6 million in cash recapitalization expenses
(2)In FY06 - includes $7.5 million in TI allowances that will be amortized over the life of a new facility lease
(3)Excludes certain one-time items
Why HLF? Strong Cash Flow and Balance Sheet
(Dollars in Mil lions)
Why HLF? Industry Leading Return to
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
78/84
78
FY'07 FY'08 YTD
Dividends $41.5 $50.7 $36.7
Shares Repurchased $365.8 $138.9 $33.6
Total Returned toShareholders $407.3 $189.6 $70.4
% of Net Income 213% 86% 48%
Peer Group 151% 68% 46%
Why HLF? Industry Leading Return toShareholders
* Peer Group consists of AVP, TUP, NUS and USNA, company filings
Returned approximately $670 mi ll ion to shareholders during the last 3-years
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
79/84
79
Why HLF? Industry Leading Financial Metrics
HLF(1)
AVP(2)
TUP(2)
NUS(2)
USNA(2)
Sales Growth (2.5%) to (3%) (3.1%) (2.0%) 4.1% 1.6%
Operating Margin 12.8% - 13.0% P 12.5% 12.8% 11.2% 11.4%
EPS Growth (9.3%) (16.2%) 7.8% 37.3% (0.9%)
Forward P/E 11.4x P 15.2x 14.1x 16.4x 13.3xEPS (CAGR) 15.7% P 8.2% 12.0% 13.6% 15.4%
EBITDA per share $5.63 P $3.28 $5.16 $3.01 $3.83
FCF Yield 13.3% P 3.6% 6.0% 13.2% 5.6%
1 Herbalife sales, margin and EPS growth based on companys guidance provided November 3, 2009. Other metrics based on First Call consensus estimates.2 Peer group based on First Call consensus estimates for 2009 versus 2008 actual results and P/E based on 2010 estimates from Capital IQ vs. the closing stock price on Dec. 11, 2009.
HLF is the least expens ive (P/E, Cash/EBITDA), high est marg in com pany in the peer grou p
HLF EPS 3-year CAGR out perform s the p eers
Wh H F? N b 2009 G id S
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
80/84
80
Why HLF? November 2009 Guidance Summary
1 Provided in the companys November 3, 2009 earnings release.
Volume Point Growth in 2009 ref lects econom ic resi l ience of HLF Net Sales & EPS growth returns in 2010 as U.S. dollar weakened throug hou t 2009
Q4 20091
20091
20101
Low High Low High Low High
Volume point growth (decline) 8.5% 9.5% 1.0% 1.5% 5.0% 6.0%
Net sales growth (decline) 15.5% 16.5% (3.0%) (2.5%) 11.0% 13.0%
EPS $0.88 $0.91 $3.19 $3.22 $3.50 $3.65
Capex ($ in mm's) $18.0 $23.0 $60.0 $65.0 $65.0 $75.0
Effective tax rate 30.0% 31.0% 30.5% 31.0% 30.0% 31.0%
Wh HLF? V l Al d i th G id
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
81/84
81
Why HLF? Venezuela, Already in the Guidance
Previously communicated 4Q09 events:
One time repatriation of 100m bolivars at an unfavorable rate.
Write down of cash, approximately $30 million
Recording P&L expense for repatriation unclear
Previously communicated 2010 events:
On-going repatriation of excess bolivars at curb rate was a negative $0.20, already included in2010 guidance.
Guidance assumes FX rate of no worse than 6.5 bolivars/$US
Awaiting SEC guidance for potential change in 2010 accounting treatment.
2010
Expect to regularl y
repatri ate Boli vars
Early - 2009
CADVI
Closed
October -
VZ bond
offering, $0
allocation
November -
Announced
decision to
repatriate
excess cash
from VZ
4Q09 -
Write down
of cash
anticipated
Early - 2009
Adjusted
distributor
compensation
to reflect
curb rate
Wh HLF? E l i H d i St t
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
82/84
82
Why HLF? Evolving Hedging Strategy
0%
90-100%
T=0 T+18mo
%hedged
Hedge Accounting Eligible Rolling monthly hedges. This results in
a hedge portfolio where due tolayering, a higher percent of exposureis hedged in the near term; lowerpercent farther out.
Currently employed only for Euroexposures.
0%
90-100%T=0 T+18mo
%hedged
Not Eligible for Hedge Accounting Quarterly hedges. Hedge portfolio is
initiated at the beginning of eachcalendar quarter with final maturity atthe end of that calendar quarter.
Currently employed for other major
currency exposures (MXN, TWD, KRW,BRL, JPY, RUB, CNY, THB).
60% hedged on the Euro for 2010 @ 1.461
Wh HLF? A t bilit
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
83/84
83
Why HLF? Accountability
Focus On Growth Initiatives Wider & Deeper
Invest incrementally in dailyconsumption
Launch satiety and brain healthproducts
Open new markets to expand theHerbalife reach around the globe
Test extended payment program Leverage Financial Strength
Utilize excess cash prudently
Invest in high ROI programs
Operational Improvements
Leverage self-manufacturing
Utilize technology platform to driveproductivity
Strengthen government relations
Guidance
EPS Guidance $3.50 - $3.65
Volume Guidance 5.0% - 6.0%
2010 Analyst Day Scorecard
-
8/14/2019 HLF Herbalife Dec 2009 Presentation
84/84
84
Q&A