annual results presentation · anc - robust growth continued in both china and australian markets...

2018 Annual Results Presentation20 March 2019

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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.

2018 Annual Results Presentation

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Our Team

2018 Interim Results Presentation

Mr. Luo Fei Chairman

Ms. Joy Tsai Investor Relations Director

Mrs. Laetitia Garnier Chief Executive Officer

Presenter Title

Mr. Jason Wang Chief Financial Officer

Financial Highlights

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(RMB million) For the Twelve Months Ended 31 December

2018 2017 Change

Revenue 10,132.5 8,095.3 25.2%

Adjusted EBITDA1 2,480.7 2,245.5 10.5%

Adjusted EBITDA margin 24.5% 27.7% -3.2 ppts

Adjusted net profit2 1,323.0 1,208.4 9.5%

Adjusted net profit margin 13.1% 14.9% -1.8 ppt

Operating cash flows3 2,409.7 2,405.4 0.2%

Adjusted EPS (RMB) 2.07 1.91 8.4%

Proposed DPS (HKD） 0.48 - -

Strong Growth Continued in 2018

Notes:

1. EBITDA for the year ended 31 December 2018 amounted to RMB2,158.6 million (2017: RMB2,060.4million). Adjusted EBITDA = EBITDA + Non-recurring losses of RMB16.2 million for the year ended 31 December 2018 (2017:

RMB94.7 million) + Non-cash losses of RMB305.9 million for the year ended 31 December 2018 (2017: RMB90.4 million)

2. Net profit for the year ended 31 December 2018 amounted to RMB843.1 million (2017: RMB928.5 million). Adjusted net profit = Net profit + EBITDA adjustment items of RMB322.1 million (2017: RMB185.1 million) + Other non-

recurring losses of RMB123.8 million (2017: RMB28.3 million) + Other non-cash losses of RMB34.0 million (2017: RMB66.5 million)

3. The operating cash flow is calculated on a pre-tax basis


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2018 Revenue

RMB 10,132.5 million

70.8%

24.8%

4.4%

Mainland China* Australia and New Zealand Rest of the World

67.7%

28.6%

3.7%

All Regions Achieved Growth while China Remained the Largest

Growth Driver

* Including active sales from Cross-border E-commerce (“CBEC”) and normal trade

2017 Revenue

RMB 8,095.3 million


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54.6%45.4%

Baby nutrition and care ("BNC")

Adult nutrition and care ("ANC")

58.1%

41.9%

Baby nutrition and care ("BNC")

Adult nutrition and care ("ANC")

Notes:

1. The revenue growth of the ANC segment is on a currency-adjusted basis

2. Adjusted EBITDA margin for the BNC and ANC segments was 23.0% and 26.5%, respectively

25.8%30.3%

8.4%

18.5%

BNC ANC

Revenue Adjusted EBITDA

Revenue Mix Adjusted EBITDA Mix Growth %

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Strong Revenue and Adjusted EBITDA Growth across Both Segments


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BNC Revenue Mix

24.4%

75.2%

Mainland China Rest of the World

BNC Revenue Growth %

BNC - Robust Growth in Core Segments with Increasing Diversification


96.2%

3.8%

Mainland China Rest of the World

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ANC - Robust Growth Continued in both China and Australian Markets

59.2%

35.6%

5.2%

ANZ Mainland China Rest of the World

ANC Revenue Mix

13.7%

63.2%

79.9%

ANZ MainlandChina

Rest of theWorld

ANC Revenue Growth %1


Note:

1. The revenue growth in all regions is on a currency-adjusted basis

Business Review

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Three Key Milestones in 2018

1. IMF Registration 2. Swisse Global Transition 3. New Categories

Under the new registration rules,

the Group successfully registered

and launched its new IMF series

with upgraded formulas and new

packages under the Biostime and

Healthy Times brands, while

smoothly completing the transition

from old to new products

The Group has completed the

transition of the Swisse business

in several global markets,

including Hong Kong, Singapore,

Italy, Netherlands and the United

Kingdom

The Group has launched new

products in different markets,

including pregnancy and infants

range, probiotics range and

lifestyle range under the Swisse

brand


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Adult Nutrition and Care

Six Aspirational Brands under One Group Umbrella With Two New Brands

Joining the Group in 2018

Baby Nutrition

H&H Mission – to make people around the world healthier and happier

H&H Vision – to become a leading global player in premium wellness through superior products and aspirational brands

Power Our Passion Let’s be Brave One Big Team I Trust You

Baby Nutrition and Care Adult Nutrition and Care

Baby Care Baby FoodVitamin, Herbal, and Mineral Supplements

(VHMS) Skincare

Corporate Values


Celebrate Life Everyday

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Two Core Strategic Businesses with Diversified Product Categories


IMF & Probiotic Supplements

Baby Care Products

Baby Food VHMS Skin Care

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BNC – Delivered Robust Growth by Strong Branding, New Product

Development and Channel Investment • In 2018, the BNC segment achieved robust revenue growth both in China and international markets. Revenue derived from

the BNC business, which includes the Group’s IMF, probiotic and baby care products, reached RMB5,888.3 million in 2018,

up 25.8% compared to the previous year

• Thanks to our premium positioning, strong branding and marketing initiatives and channels investment, our IMF business

grew by 21.3% in 2018, which was mostly attributed to the Group’s premium and super premium IMF series

Branding Categories Channel


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13.8%10.6%

9.2%7.5% 7.3% 6.2% 5.9% 5.8%

3.6% 3.2%

#7 IMF player in the Chinese IMF market1

23.5%

11.3%10.3% 9.2% 9.2%6.4% 5.1% 4.2% 4.0% 3.9%

#3 in the super premium tier2 in the Chinese IMF market

55.7%

63.3%

16.4%

19.7% 12.5%

27.8%

4.5%

Industry Average

H&H

Baby specialty stores Supermarkets VIP Pharmacies E-commerce

Notes:

1. Source: Nielsen market share data for the past twelve months as of 31 December 2018

2. According to a Nielsen report, super premium tier products is the fastest growing segment in the IMF market and is driving the continuous growth towards premiumization

3. The Group’s BNC presence in the Chinese market as of 31 December 2018 included 31,355 baby specialty stores; 5,023 supermarkets; 4,626 VIP pharmacies and 613

regional distributors

Sales Contribution by Brand

(RMB million)

IMF Sales by Channel in China3

95.0%

4.7% 0.3%

Biostime Healthy Times Adimil

BNC – Strong Momentum with Overall IMF Market Share Gain

Incremental Sales Growth

(2018 versus 2017)

680.3

-23.2

134.2

(2017: 5.5%) (2017: 10.6%)

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#4 in IMF sales in baby specialty stores #6 in IMF sales in supermarkets

19.5%

15.1%

10.7%

9.7%

9.0%

8.3%

6.2%

5.8%

4.0%

4.0%

11.2%

8.3%

7.6%

7.2%

6.7%

5.5%

5.4%

5.3%

3.6%

3.1%

15.6%

12.0%

9.1%

5.7%

5.0%

4.7%

4.6%

4.1%

3.4%

3.2%

2.0%

#12 in IMF sales in e-commerce

Source: Nielsen market share data for the past twelve months as of 31 December 2018

BNC – Maintained A Leading Position in Baby Specialty Stores

20.9%

(2017: 6.8%)

(2017: 7.4%)

(2017: 1.9%)


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BNC – Healthy Times Sales Momentum Continued Alongside Appointment

of New Brand Ambassador

• The Chinese organic IMF market1 grew a rapid 42.4% in 2018

• During the year under review, Healthy Times demonstrated robust

growth of 171.8% compared to 2017. The Group appointed a Chinese

celebrity as the brand ambassador for Healthy Times, while also

promoting the benefits of organic and natural raw ingredients for

infants

• Available at 11,323 baby specialty stores in China


Note:

1. Nielsen market share data for the past twelve months as of 31 December 2018

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• According to Euromonitor1 statistics certification, Biostime is the No.1

brand of pediatric probiotic supplements in the world

• Probiotic supplements maintained strong sales momentum in 2018, with

sales up by 33.6% YoY, which was mostly attributed to comprehensive

branding and marketing campaigns, and continued robust consumer

demand towards probiotic products

• Biostime probiotic supplements are now available in approximately 1,700

stores in the French market

Offline Presence of Probiotic

Supplements in Baby Specialty Stores

French VersionChinese Version Hong Kong Version

BNC – Probiotic Supplements Continued to Deliver Strong Revenue Growth


Source: Euromonitor's research findings as generated via desk research and trade interviews, in terms of

retail sales value in 2017

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BNC – Dodie Continued to Drive Further Brand Exposure with Appointment

of New Brand Ambassador

Offline Presence of Dodie Diaper Range

Dodie’s Peppa Pig Collection and Offline Presence in French Market


• In the French market, the Group leveraged the 60th

anniversary of the iconic Dodie brand to launch a new

accessories collection, brand campaigns and a baby personal

care range which received very positive consumer feedback

• In the offline Chinese market, the Group rapidly grew the

presence of its premium diaper range under the Dodie brand,

with Guo Jingjing appointed as new brand ambassador. The

diaper range is currently available for sale in 7,656 stores

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China sales3 through CBEC and Normal Trade contributed

35.6% of Swisse’s total sales in 2018

Australian Market Leader

Natural Health Brand

Chinese Market Leader

VHMS Brand Online2

VHMS

Market Share1

18.6% 29.9%

Multivitamin

Market Share1

6.5%

5.4%

2.5% 2.5%2.4%

Notes:

1. This data is based on LTM IRI scan data for the past twelve months as of 31 December 2018

2. Based on sales data from Earlydata for the past twelve months as of 31 December 2018

3. Swisse China sales for the twelve months as of 31 December 2018

ANC – Swisse Retains Leading Position in Australia and China Online

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ANC – Swisse Leveraged Strategic Initiatives to Expand Sales Exposure

• In 2018, Swisse continued to invest in its home markets, while launching new product categories and expanding into new markets

• Thanks to a well-coordinated marketing strategy and new product development, the Group strengthened Swisse’s brand’s premium

position in the Australian and Chinese vitamin, herbal and mineral supplements (“VHMS”) markets, with the launch of new products

ranges, including new pregnancy and infant series, probiotics and lifestyle ranges

Adult Probiotics RangePregnancy and Infants Range

Lifestyle RangeCollagen Drink

Hyaluronic Acid Tablet

Swisse New Product Categories Launched in 2018 Swisse Offline Exposure in Different Markets

United States

Hong Kong Singapore

South Korea (Duty Free)


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ANC – Innovative Marketing Campaigns and Channel Expansion in China

• Swisse launched interactive marketing campaigns on a number

of Chinese E-commerce platforms, and was named the number

one health brand and number one imported consumer brand

across all industries during TMall’s landmark “Single’s Day”

shopping festival in November 2018

• A collaboration with Chinese celebrity Zhu Zhengting further

enhanced the premium image of Swisse among young Chinese

consumers and improved consumer awareness


CosmeticsSupermarkets PharmaciesMBS

E-Commerce Normal Trade

• Last August, Swisse has become the first Australian company

to obtain a blue hat approval through filing for its best selling

product Calcium + Vitamin D and launched this newly

approved SKU in the Chinese offline market in October 2018

• At the end of 2018, 17 SKUs were available for sale in 12,698

retail stores in the China offline market, including cosmetic

channels

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South Korea

Netherlands:

#3 beauty

supplements

US

Singapore: #2multivitamins

Hong Kong: #1 beauty

supplements

New Zealand

Australia: #1 VHMS brand

UK

Italy: #2 beauty

supplements

ANC – Swisse’s Global Market Footprint

• As of the end of June 2018, the Group had gained complete ownership of Swisse’s global distribution rights following the transfer of

rights for the Hong Kong, Singapore, Italy, Netherlands and United Kingdom markets from PGT Healthcare LLP (“PGT”)

• Following each market transition, the Group quickly deployed its well-tested global brand assets and partnerships and also enhanced

Swisse’s product portfolio with Beauty In & Out, which also provided new growth levers in Australia, New Zealand, China and globally


Italy: #2 beauty

supplements

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Sustainability Commitment & Development

• The Group launched its first ESG Report for the 2017 period, covering all businesses and operations worldwide, and has been

accepted in the United Nations Global Compact

• The Group has built on community programs with the launch of the global H&H Foundation, while kicking off World Community

Day with team members from all regions volunteering in their local communities

• The Group is listed among the top 90 companies in the Hang Seng Corporate Sustainability Benchmark Index

H&H World Community Day


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Prospects

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BNC – Regulatory and Market Updates


• The IMF market further consolidated as domestic brands benefit more given their deeper penetration of low-tier cities,

following the commencement of the new registration rules at the beginning of 2018

• The Group expects the overall market to remain competitive as major IMF brands step up their investment in branding and

marketing initiatives to grab the market share left by small brands due to the registration rules

• Despite several challenges including the declining birth-rate, weakening economic growth, and the stricter registration rules,

the Group’s outlook on the IMF market remains positive, particularly on the premium and super premium segments, due to

increasing premiumization

Infant Milk Formula Market

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BNC – Premium Branding with Consumer and Customer Engagement


• In January 2019, the Group became one of the key sponsors of the high-profile annual ceremony “Weibo Night”, achieving

12 billion brand exposures from the event

• “Weibo Night” invited top celebrities from across China and Biostime’s collaboration with the event further enhanced brand

awareness among consumers

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BNC – High-profile Launch of Biostime Organic Series in Australian Market

• Leveraging on H&H’s existing distribution network, the Group launched Biostime’s organic IMF products and probiotics products in

Australia in the beginning of 2019, in order to drive further brand visibility

• The Group has appointed Australian supermodel Miranda Kerr as Biotime’s brand ambassador in Australian market


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BNC – Expansion into Organic Baby and Kids Healthy Food Categories

• During the course of the third quarter of 2018, the Group completed its acquisition of “Good Goût”, the fastest growing

organic baby food company in France

• This acquisition will enable the Group to better capture the strong growth momentum of the organic baby food segment

in France, China and other international markets


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BNC – Expansion into Fast-growing Goat Milk Infant Formula Market

Australia-based Factory and Its Production Process


• The Group recently acquired a CNCA-approved factory

based in Australia, which has the capacity to produce

goat milk infant formula for the Chinese offline market

• This acquisition will enable the Group to explore new

opportunities in the fast-growing international goat milk

infant formula market

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ANC – Regulatory and Market Updates


Vitamin, Herbal and Mineral Supplements Market

• The Group’s ANC business growth is currently facing some headwinds from the impact of the new E-commerce law in China targeting

daigou-related channels. This law, which was first announced in August 2018 and came into force on 1 January 2019, requires all online

merchants, including daigou, to register with SAMR and file taxes with the Tax Bureau

• While the implementation of the new E-commerce law could benefit larger players operating within a more regulated environment, small-

scale merchants and daigou who are currently operating without an appropriate license may face pressure to exit the market

• Although its daigou channels are currently being impacted, the Group believes that overall demand for VHMS products will remain strong

and will gradually shift to major CBEC and other emerging online platforms. At the same time, the Group will continue to invest in marketing

globally in order to drive brand awareness, consumer education and conversion through its omni channels that better meet ever-changing

consumer demand across different channels

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ANC – Introducing Swisse New Global Brand Ambassador Chris Hemsworth


• The Group introduced an influential and recognized Hollywood actor Chris Hemsworth, and

his wife Elsa Pataky, an actress and supermodel, as Swisse’s new global brand ambassadors

• Chris Hemsworth and Elsa Pataky join Swisse's team of global and local ambassadors,

including highly-acclaimed actress Nicole Kidman, former international cricketer Ricky Ponting

and Australia’s No.1 men’s tennis player Alex de Minaur. These ambassadors enable the

Group to reach a wider consumer base and further enhance brand awareness

Marketing Campaigns (work in progress) of New Brand Ambassadors Chris Hemsworth and Elsa Pataky

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ANC – Expanding the Care Segment and Exploring the Online Direct-to-

Consumer (DTC) Model

• Leveraging the trend towards natural organic cosmetics, as well as

innovations in probiotic skincare, the Group is taking steps to expand

its ANC segment beyond the Swisse brand with the acquisition of

Aurelia, an ultra-premium skincare brand that combines sustainably

sourced Bio-Organic botanical ingredients and probiotics

• The Group is exploring new DTC channels with Aurelia, which

currently reaches 40 overseas countries through its DTC platform


Online Direct-to-Consumer (DTC) Model

Additional

Financial Information

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(RMB million) 2018 2017 Change (%)

Infant Formulas 4,508.5 3,717.2 21.3%

Probiotic Supplements 1,044.6 781.7 33.6%

Other Pediatric Products 335.2 182.5 83.6%

Adult Nutrition and Care Products1 4,244.2 3,413.9 24.3%

Total 10,132.5 8,095.3 25.2%

2018 2017

Revenue Mix - Fast Growth across All Product Categories

Infant Formulas, 44.5%

Adult Nutrition and Care products,

41.9%

Probiotic Supplements,

10.3%

Other pediatric products, 3.3%

Note:

1. The ANC revenue growth is 30.3% on currency-adjusted basis

Infant Formulas, 45.9%Adult Nutrition and

Care products, 42.2%

Probiotic Supplements,

9.7%

Other pediatric products, 2.2%


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Gross Profit Margin Analysis

66.8%

77.1%

54.4%

64.5% 66.5%67.2%

75.8%

54.5%60.7%

65.0%

Infant Formulas Probiotic Supplements Other PediatricProducts

Adult Nutrition andCare Products

Total

2018 2017

1


37

(RMB million)

S&D Expenses Ratio of SalesSelling and Distribution Expenses

2018 2017 2018 2017

A&M

1,485.6 A&M

843.9

A&M

10.4%

A&M

14.7%

Note:

A&M: Advertisement and Marketing

Selling and Distribution Expenses

3,703.4

2,711.7

36.5%33.5%


2,217.8

1,867.8

21.8%

23.1%

2018 2017

38

(RMB million)

Administrative Expenses Ratio of Sales

Administrative Expenses

Administrative Expenses

2018 2017

619.6

486.0

6.1%


6.0%

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(RMB million)For Twelve Months

Ended 31 December

2018 2017

Reported EBITDA 2,158.6 2,060.4

Non-recurring transaction costs in relation to attempted refinancing of senior notes and M&A 16.2 -

Non-recurring integration costs - 29.9

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

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

Subtotal of Non-recurring items: 16.2 94.7

Net foreign exchange losses/ (gains)1 275.9 (53.9)

Net fair value losses on the financial instruments and partial derecognition of early redemption option

embedded in the senior notes30.0 144.3

Subtotal of Non-cash items: 305.9 90.4

Adjusted EBITDA 2,480.7 2,245.5


Adjusted EBITDA

Note:

1. The net foreign exchange loss of RMB275.9 million mainly consisted of: 1) unrealized loss of RMB64.7 million from the revaluation on the Group’s term loan post refinancing on 27

June 2018 till late September 2018 upon completion of syndication and entrance into hedge agreements, and 2) unrealized loss of RMB153.4 million due to the revaluation on intra-

group loans between the Company and its subsidiaries resulting from historical intra-group transactions

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Trade and Bills Receivables

Turnover DaysInventory Turnover

Days

Trade Payables

Turnover Days

Working Capital Management

2018 20172018 2017 2018 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 133 and 141, 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

28 27

137

114 7874


41

Cash Flows and Cash Balance

(RMB million) (RMB million)

2018 2017

Operating Cash Flows1 Cash Balance

Note:

1. The operating cash flow is calculated on a pre-tax basis


1,905

1,955.7

135.0

2018 2017

2,101.31,932.32,405.42,409.7

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2,692.3 2,352.7

3,274.7 3,930.7

2018 2017

Senior Notes Term Loan

(RMB million)

Type Principal Amount Maturity

Senior Notes US$475 million 2021-06

Term Loan US$400 million 2021-06

Net Leverage Ratio1Overview of Debt Instruments

Improved Capital Structure

Note:

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

2018 2017

5,966.96,283.4

1.6

1.9

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annual results presentation · anc - robust growth continued in both china and australian markets...

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