Health and Happiness (H&H) International Holdings Limited (BTSDF) Earnings Call Transcript

[Audio Gap] Group CEO and CEO for China; Mr. Jason Wang Yidong, Group CFO and COO; and myself, [ Mavis ], Head of Investor and Bank Relations. First, Mr. Luo Fei will deliver the opening remarks. Then Suceka will introduce the results review and outlook of the group. Next, Jason will present the financial performance for the first half of this year. After the presentation session, we will open up for questions. [Operator Instructions] Now let's welcome Mr. Luo Fei to give us the opening remarks.

Good afternoon, investors. Welcome to the 2025 Interim Results of H&H International Holdings Limited. As we know that the external environment is ever changing. And the keywords in the Chinese market is fierce competition. Under such a situation, we have proposed different strategies. For our 3 business, ANC, BNC and PNC have all realized growth. At the same time, we have made sure 15% of EBITDA margin, which is a very healthy profitability level. Such kind of results is attributable to our long-term strategy. I believe for those who are familiar with us, starting from 2020, during the COVID times, we have set up a gross profit for 2021 to 2023. Our CAGR has realized 9.8%, almost 10%, and the logic behind it is that we are very lucky to have the Supplements business. which includes Adult, Paediatric and Pet nutrition. It caters to the needs of health products for the market, and we are winning in such track, and we have a very good and professional team to realize such growth. If you look at 2024, because of the Guobiao transition for IMF, our growth was a bit dragging. But actually, if you exclude such factors, we have realized a double-digit growth. For 2025, Supplements already accounted for 65% of our business, and it has become the driving force for our growth in the future. I will share several highlights with you. For ANC business, for the core markets, which is Mainland China, we have realized 13% of growth. And we are very happy to share that in China, we have become the #1 brand for such category. And this is the first time that we have realized this target. And we are very happy to share that such realization is done through the mix of products and brands. We have our core brands and also the anti-aging products and categories, which has given us a leading position in such category. For the Swisse business, we have realized a structural change for our product mix, which provides growth for our future. And in the ANZ market, we have realized 5.6% of growth. So for the ANZ market, we have realized #1 position in terms of values and volumes. And this is the 10th anniversary for our acquisition of Swisse. Our original mission is to bring the brand from Australia to the world. China now contributed 70% of the Swisse business, and we have expanded into new markets, which includes Asia, Middle East and other European countries. And if we include the new expansion markets, we have realized 40% of growth for the first half of the year. So this is a very encouraging result for the expansion markets. And we are seeing profitable market share for our expansion markets. And our trend has been very focused for IMF due to the decrease of birth rate in the first half of 2025. Our market share has grew from 12.9% to 15.9%, and we have realized 10% growth for our IMF business. And last year, we had the transition of the Guobiao. We have such a challenge. And in 2025, we have realized growth under such circumstances. And the other business is the Probiotic business. Half of the business was contributed from the mid-market. And in the first half of the year, we still see a decline of our Probiotic business, which was around 10%. And if we split it between the maternity channels and the online channel, our Probiotic business actually was returned to normal. Another thing is about PNC. There was a 14% growth globally, and we are very happy to see that Solid Gold returned to 17.5% of growth. And for Zesty Paws, we have expanded from U.S. to European countries and Asian countries. We believe that our PNC business will continue to contribute more to our business. And we are also very happy to see that in the year beginning, we have finished the refinancing of USD 300 million. And this new financing loan would means higher percentage for our RMB financing, 70% will be coming from our Chinese market, which is in line with our business. And our interim dividend payout would be HKD 0.19 per share as a thanks to the support to our shareholders. And in the second half of the year, our teams will continue our efforts to realize our whole year targets. And now I would like to pass the time to our rotating CEO, also the CEO for China, Suceka.

Hello, I'm Suceka. Very happy to share with you our interim results here today. Since the beginning of H&H, our product innovation always fuel our growth. In the past 6 months, we continue to center around consumers to grow our business. For our ANC business, as you can see, the NAD and Swisse anti-aging products has led the market. Not only in Mainland China and ANZ region, we have also launched the suite of professional products in the European countries, which help us to expand the European market. And at the same time, we can see that we have the tablets supplements. We also have the [ effervescents ] and gummies, which are innovative products to support our presence. And for our BNC business, after the new GB, we have launched the new Biostime IMF. And we stay unwaver in executing our strategy, and we have won the love of many new mothers. And for the BNC business, we continue to launch new products. For example, in terms of Probiotics, we have the Super Gold probiotics and also the allergy probiotics as well. And for PNC, we continue to launch new products for our Zesty Paws. We have the [indiscernible] supplements and probiotics. And in China, we have launched new nutritional product lines for pets. We will continue to innovate and turn the innovation into our driving force for sustainable growth. Just like Fei said earlier, in the first half of 2025, we have realized over RMB 7 billion of revenue, which represents a 4.9% of growth. And in the 3 major business segments, we have realized a positive growth. In terms of profitability, we have maintained 15.7% of EBITDA margin, which is very sound and healthy, and our EBITDA reached RMB 1.1 billion. The adjusted net profit reached at RMB 363 million. The margin was 5.2%, and we have seen 4.6% of growth. And with the efficiency improvement for our working capital, we have realized a very strong operating cash flow. We have realized 100.2% of our operating cash flow of adjusting EBITDA. So just now, Fei was very happy to announce our interim dividend payout earlier. In terms of the product mix, our nutritional supplements are our core business, which accounts for 65.6% of our revenue, up by 4.1%. We have seen the positive growth of our nutritional products. And our IMF has also overcome the challenge of the GB transition and realized a 9.6% of growth year-on-year. So our nutritional supplements and IMF have shown positive growth momentum. Let's take a look at the detailed breakdown. For the Nutritional Supplement segment, ANC continued to realize stable growth, which accounts for 74.2% of our Nutritional Supplement revenue. Our PNC realized 15.5% of growth, accounting for 16.5% of our revenue. PNC has seen some adjustment, which presents a negative 60% of growth year-on-year, but this kind of decline is narrowing down. Just like Fei said, we have launched new products, which is our Gold line, and we are more focused on the online channel. And for our maternity shops, our Probiotics business has recovered to a 3-digit growth. Now it accounts for less than 10% of our Nutritional Supplement revenue. Let's take a look at the revenue mix and growth by geography. China accounts for 70% of our total revenue, which is our key region. The growth is mainly driven by the recovery of IMF sales, Zesty -- Solid Gold growth and our nutritional products. For North American market, we have seen 4.6% of growth, which is very sound and moderate and has become one of the major revenue contribution for us. And because of the Daigou channel's sales declined, we have seen 15.6% of decline for our ANZ business. But if we take a look at the local market for ANZ, we have seen a very stable single-digit growth. For our expansion market, it contributed [ 60 -- 6% ] of our revenue, grew by 18.6%, the highest of the group is the strongest growing momentum for us. And if you take a look at the geographical presence, a diversified market and selective brand promotion will help us to continue to grow. If we exclude China, for other overseas markets, we have also seen very strong and moderate growth momentum, which lay a good foundation for our future. Page 12, you can see the revenue mix and growth by business segment. We are very happy to share with you that we have realized a positive growth for all 3 business segments. ANC increased by 5.9%, BNC increased by 2.9% and PNC increased by 8.6%. And we are happy to share that we have recovered to a very healthy growth curve. We are back to the growing curve of 2021, which laid a very solid foundation for our growth in the second half of the year and the future. Now let's take a look at the breakdown of different business in different markets. First, for ANC and BNC. China -- Mainland China are still the biggest contributor for ANC and BNC business and the major contributor for PNC business is North America. According to our strategy, we will diversify our market and our brands as well as categories. We will consolidate our core market. And at the same time, we continue to vigorously expand into new markets, and we have seen good revenue growth. And for ANC and BNC, our expansion markets accounts for more than 7% of our revenue. So it has proven that our expansion market is continuing to grow in terms of the revenue size. Now let's take a look at the EBITDA. From the group level, ANC is still the biggest contributor. It contributed more than [ 65% ] of our EBITDA. ANC's EBITDA margin has declined slightly from 22.1% to 20.9% for the first half of this year is mainly because of the change of the channels in the Chinese market. We have a higher percentage of business from Douyin and also the expansion markets. For BNC, our EBITDA margin declined to 12.4% is mainly affected by the new GB [Audio Gap] We are very happy to see that the PNC business increased from 5.1% from the same last -- same period of last year to 6.7% to the same period of this year. And it's because of our premiumization strategy and our promotion of our high-value products. And our EBITDA is maintained at 15.7%, which is a very healthy level, which can help us to balance our growth of revenue and also the investment in our sustainable profitability. Next page, let's take a look at the EBITDA by market and by BU. Here, you can clearly see the results of our strategy. AMC's EBITDA margin declined slightly, but as you can see that ANZ's EBITDA margin reached 31.1%. Mainland China, 19%, a slight decrease mainly due to the channel change. But as we can see that the ANC EBITDA margin is maintained at a very healthy level, more than 20%. For the PNC business, the overall growth curve reminded me of the Swisse curve, we continue to invest in our core market and the new expansion markets. For our core market, which is North America, we have seen the EBITDA margin increase, which can help us to continue to promote the Zesty Paw's rapid growth and consolidate our adjustment for Solid Gold in North America. Our new and emerging market is mainly -- Mainland China, we have seen the EBITDA margin increase. We have narrowed down the decline to 19.4% from the premiumization and the strategic selection of our channels, we have seen the possibilities of stable profitability. Now let's take a look at the performance by geography and the performance of different brands in the past 6 months. Let's take a look at the Swisse in Mainland China. We have the mega-brand strategy has been executed, and we can see that the brand is very attractive to the Chinese consumers and the ANC Mainland business revenue grew by 13.1%. Our CBEC increased by 18.1%, contributed 81.5% of total ANC sales in Mainland China. For the online and omnichannels, Swisse has realized #1 ranking. We have been very focused on Douyin. The growth on Douyin channel has exceeded all other brands. And now we are #4 in the VHMS category across Douyin channel. In terms of new retail channel and O2O channel, we have realized a revenue growth of 28.2%, contributed 9% of the total ANC sales in Mainland China. This is also a high profitability channel, which can help us stabilize our ANC revenue growth and make sure that we can continue to invest in such channels. And for the subcategories, for example, Little Swisse revenue grew by 32.9%, leading to the growth in the Mainland China market. The anti-aging category with Swisse Plus has realized a revenue of 31.9% contributed the strongest growth momentum. Swisse will continue to lead with product innovation and driven by the subcategories and focus into consumer education. We will continue to lead the market. Now let's take a look at our BNC business, which is the Biostime in Mainland China. We have seen the transition of the new GB. We have walked out of the challenge of 2024. We have realized growth for IMF and BNC. IMF revenue grew by 10% and is flat compared to the industry level. We continue to increase our overall market share. For Biostime, we focus more on the super premium IMF segment, and it has proven that our strategy is executable and can be realized with the results in the first half of the year. And our super premium IMF business has realized a historic high of 15.9% growth, up by 3% compared to the same period of last year. And for the main momentum is from our Stage 1 and Stage 2 IMF. We have realized high double-digit growth for both stages, outpacing the overall market growth, which gives us a lot of confidence for the second half of the year. We will continue to stabilize our Biostime IMF growth and overall business. According to our observation, in the past 12 months, Biostime has changed the mother's impression on the brand. For important online platforms such as RedNote and Douyin, we have realized double growth on such platforms. And the sales of paediatric probiotics and nutritional supplements have both declined, but we are very confident with the launch of new products. And with our focus on the off-line pharmacy channels and the online channels, we can come back to positive growth and stabilize our #1 leading position in BNC and Probiotics. Now let's take a look at the PNC business in Mainland China. In the first half of 2025, Solid Gold returned to double-digit growth. Our overall PNC business grew by 17.5%, thanks to the successful premiumization of our products portfolio such as the Cat's food and the Nutritional Supplements. We are very happy to see that for Solid Gold, fish oil being top 10 after a launch. We are very happy to say that we have more MOA products launch to the market. So that's -- these are the highlights of the Chinese market. Now let's take a look at the ANZ market. If we take a look at the revenue contribution of the ANZ market, the local business accounted for 70% -- almost 70% of our revenue. And we have seen a single-digit growth for the domestic market revenue, which further solidify our leading position in the supplement -- Nutritional Supplement market in ANZ. And in the first half of the year, Swisse has become #1 VMS (sic) [ VHMS ] brand across the overall domestic market in Australia. So in terms of values and volumes, we have both been #1. Apart from the Australian domestic market, our channel sales also grew by 14.8% compared to the industrial level, which is 8.7%. This is quite encouraging. And with the product innovation, our -- we focus on the consumer and also on reforming our communication with the market. For the ANC market, we can continue to realize growth and grasp more market share. Now let's take a look at the North American market. We have realized a positive growth of 4.6% on a like-for-like basis. For Zesty Paws, it grew by 12.8% year-on-year. And -- we are a leader on Amazon and Chewy channel, and we have expanded our off-line distribution channels as well. The 2-pronged strategies can help us to continue to realize double-digit growth. For Solid Gold, we have made different adjustments. We used to focus on individual stores coverage. Now we have switched to channels that are more premium, and we have adopted the portfolio premiumization strategies. So we have adjusted a structural change for our Solid Gold and now 25% of our sales in the North America are high-margin products and channels. With the continuous expansion of Zesty Paws and Solid Gold, we believe that we will have a very clear and stable growth track for our PNC business in North America. Now let's take a look at our expansion markets. We are very happy to say that Swisse brands continue to sustain very strong growth in the first half of the year. The revenue in Asia grew by 71.7%. For Hong Kong, Thailand, Malaysia, India and Middle East, we have seen a very robust growth, which laid a very good foundation for our future growth. For the Swisse brand in Singapore, which includes the beauty products, the liver health products and men's health products continue to maintain #1 in the market. We'll continue to focus on the specific categories so that we can lead in most of the categories. And in European market, we have seen a moderate decline, negative 0.1%. For the beauty nutritional products in Italy, we are #2. Biostime and pharmacies in France maintained #1 in organic IMF and goat milk. For Zesty Paws, we have already entered the EU and U.K. market successfully. So generally, we would say that we have realized the expected growth for Asia and European market, and we will continue the structural adjustments. So that's sharing for the performance of different markets. Let's share with you the sustainability progress. We are very happy and very proud to say that we continue to advance our ESG performance to make people healthier and happier. We have speed up our pace and coping with climate change, and we have enhanced our overall workplace environment and our ranking for Hang Seng and MSCI is AA and A+. And we have also been awarded with the Company of Good, 3 Hearts in Singapore. And we are also featured in the S&P Sustainability Yearbook China in the top 10%. We will continue to make people healthier and happier on the basis of sustainable development. So that's a review of our performance in 2025. So -- what is our conclusion for the first half of 2025. We continue to stay unwaver for our overall strategy. We continue to serve our consumers in the premium nutrition and health, and we continue to lower our leverage and pursue sustainable and profitable growth. And for the second half of the year, we will carry on this trend. Now let's take a look at our outlook for different BUs. For ANC, we will continue to focus on Mainland China's mega brand strategy. And we will also continue to capitalize on evolving consumer segmentation trends to cater to the needs of different consumer groups so that we can continue to maintain #1 position. And in the ANZ market, we will continue the premiumization position and [ solidified ] our leadership position. For the expansion markets, we will drive higher growth and improve profitability. And we are very happy to see that the profitability has been enhancing continuously. For the BNC business in the Mainland China market, we will focus on the IMF growth. We will focus on new mother education and older stage IMF conversion so that we can consolidate our leading position in super premium IMF. We will also continue to gain shares in super premium IMF segments such as the off-line mother care shops. And for North America, we will continue to maintain #1 position for Zesty Paws, and we'll focus on premiumization of Pet Nutritional products. We will also continue to adjust the profitability of the e-commerce business in North America and cover more retail channels. And for the Mainland China market, we will leverage on our high profitability food and nutrition and continue to promote the growth of our BNC business. Zesty Paws as a global brand will be continue to be promoted in the European markets, Asia and other emerging markets. And we will continue our premiumization and diversification strategy and realize our whole year target for the second half of the year. Now I'll pass the time to Jason to talk about the financial performance in the first half of 2025.

Thank you, Suceka. Now let's take a look at the P&L summary. I will share with you some highlights for our financial performance in the first half of the year. Our revenue grew by 4.9%. Just like the Chairman and CEO said, we have realized a very encouraging performance. And for the whole year, we believe that we can realize a high single-digit sales growth, which is in line with what the Chairman said, our continuous high single-digit growth from 2021 to 2023. The adjusted EBITDA has maintained at a very healthy level. If we compare to the first half of last year, there was some gap. But this is in line with what we have shared with the market. In 2024, we had a high base and our investment in the new GB mainly happened in the second half of 2024. So if we compare with the level of the whole year of 2024, which is 15%, then 15.7% of EBITDA margin actually is very healthy, and we have the confidence to realize the guidance that we have given to the market for the whole year, which is around 15%. For adjusted net profit, we are very happy to see that with our refinancing effort, we continue to optimize our financial expenses in the first half of the year. Our adjusted net profit increased by 4.6%. The net profit margin reached 5.2%. For the whole year, we have the confidence to realize a mid-single-digit adjusted net profit margin. Some investors might have a question, how come the net profit on our financial statements is not the same as the adjusted net profit. There is a gap of 2.6 percentage points. Let me explain a little bit about this. We hope that the market can use the adjusted net profit as a benchmark for the valuation, which can truly reflect the operations and the financial status of the company. And for the financial statements, there was some nonrecurring and consistently adjusted items. And as the Chairman said, we have completed the USD 300 million refinancing. The refinancing can give us a lower rate of senior notes to replace the high interest bonds. And we will redeem the old bonds, which has realized a USD 200 million of expenses, which is a one-off. But with such replacement in the future 3 to 3.5 years, we can enjoy lower interest bonds. This is a favorable act for our future, which can lower our overall financial expenses. Another big factor is the derivatives, the fair values of the derivatives, there is some changes, which is around RMB 68.5 million. The main purpose is to help us to manage the exchange rate and also the risk of the exchange rate for our loans in U.S. dollars. This is a swap transaction and the exchange rate was 7.2 for U.S. to RMB. Maybe you still remember that in the end of June, there was a depreciation of U.S. to RMB, which was around [ 7.1%. ] And that's why there is such a fair value variation, a loss of RMB 68 million. But in July and August, as you can see that the exchange rate has returned to 7.2. So such a fair value loss actually has been offset. And after making such swap, our company can enjoy a 2% of interest savings for our U.S. dollar loans and U.S. dollar bonds. So such kind of hedging can protect our loss and gains for exchange rates and also give us opportunity to save financial expenses. So we want to emphasize again that for our capital market, when you do the valuation of the companies, so please use the adjusted net profit as the main measuring standard. Next page, Page 30. We are very happy to see that in the first half of the year, the gross profit margin increased by 1.4 percentage points. For our core product categories, which includes ANC and BNC, we have seen both enhancement. We mainly benefited from the mix -- product mix enhancement and the channel mix enhancement. And we have also optimized our overall procurement costs, and we have the confidence to maintain a healthy gross profit margin in the future. And for the IMF, it decreased by -- to 55.4% is because we have some impairment provision for the first half of the year. And for the second half of the year, such kind of provision impact will decrease, and we believe that for the whole year, our IMF gross profit margin can increase back to more than 57%. And for the PNC business, as Suceka has said that in the past year, we have adjusted our products for both Mainland China market and the North American market. We will continue to optimize our procurement cost. At the same time, Therefore, our PNC food gross profit margin has returned to more than 40%. We are very happy to see that the gross profit margin has seen great growth. Next page, Page 31. For our selling and distribution expenses ratio of sales. For the first half year, we have seen some slight increase to 41%. There are 2 reasons. First, as Suceka mentioned that for ANC China, we have seen more contribution from Douyin channel. So there is a mix change for channels in China. Secondly, for ANC and PNC, we have invested in the new emerging markets, which is a necessary move for our sustainable growth in the future. With the completion of the transition of GB for IMF and also the rapid growth, our PNC selling and distribution expenses have been optimized. Next page is about the admin expenses. We have benefited from the continuous operation efficiency enhancements. The absolute expenses and the ratio have improved very evidently. Now let's take a look at our balance sheet for the working capital analysis. For our account receivables and payables have maintained at a very stable level. For the inventory turnover days, we have a major improvement to 131 days is mainly because of the sales of IMF is better than expectation. Therefore, in the first half of the year, our inventory turnover days has decreased from 146 days from last year to 131 days for the first half of this year. We need to make a balance between the optimization of inventory turnover days and secured supply. And in the future, our turnover days for IMF inventory should be maintained at 140 days. With such an assumption, we are very confident that we can maintain more than 90% of our operating cash flow generation. Next page is the liquidity status of the group. In the first half of the year, we have benefited to our greater profitability and cash flow generation. We have realized RMB 1.8 billion of cash surplus. And we also have the USD revolving credit facility and RMB credit lines on the book. These resources can give us abundant funding for our business expansion. And we have benefited to our healthy liquidity in the first half of the year. We don't need to use the revolving credit facilities and RMB facilities. So this is a very good proof for our sound and healthy liquidity status. Now let's take a look at our leverage status. Here, you can see that for our debt and liabilities based on the exchange rates, our overall liabilities actually decreased by USD 20 million. And we believe that our overall liabilities will decrease by RMB 250 million to RMB 300 million. And we believe that our leverage ratio will continue to decrease for the whole year from 3.89% for the first half of the year. And for the first half of last year, we were impacted by this transition of GB, and that's why in 2024, we had a temporary increase of our leverage ratio, but we want to share with the capital market that we continue to maintain the trend of decrease for our leverage ratio and our net debt. And this year, as you can see, such results. And our finance cost as I have mentioned, we have included different measures such as hedging. We have realized RMB 293 million for the interest expense, a 10% saving compared to the same of last year. If we look at the exchange ratio, it's around 6.63%. Last year was around 7%. So as you can see, there is an improvement. And for the whole year, we believe that the actual interest rate would be close to 6%. All in all, we are very happy to share that our business segments continue to grow in a steady manner, and this will continue for the whole year. And we'll continue to maintain a very healthy adjusted EBITDA around 15%, adjusted net profit margin around 5%. And for the leverage ratio for the whole year, we expect that it will be decreased to 3.7x to 3.8x. So we are very happy about the outstanding performance for the first half of the year. Thank you, management, for the presentation. Now we will start the Q&A session.

[Operator Instructions] The first question is from [ Jess Jessie. ]

Do you have any guidance update for the whole year's performance?

Let me take this opportunity to share again our guidance for the revenue. For the whole group, we expect to realize high single-digit growth. Adjusted EBITDA margin around 15%. Adjusted net profit margin. This is the first time that we give such guidance. Adjusted net profit margin will be close to 5%. And if we were to break it down by BUs, ANC for the whole year is expected to grow at mid- to single-digit for the whole year, and we can maintain a healthy EBITDA margin around 20%. Suceka has already mentioned about this. For the BNC, IMF, we expect for the first half of the year, we realized a 10% of growth. For the whole year, we will accelerate the growth to low double digits. At the same time, for the probiotics for babies, we expect to grow on par with the same level of last year. So the PNC EBITDA margin is expected to increase year-on-year and realize low double-digit growth. For PNC, for Zesty Paws, for the whole year, we expect to realize 12% to 15% of revenue growth. For Solid Gold, we expect that we can realize low single-digit growth. For PNC EBITDA margin, we expect to maintain at a mid-single-digit level because we need to balance the enhancement of profitability and also the investment in the expansion markets and new markets for PNC business. So this is the guidance for 3 BUs for the whole year.

Thank you, Jason. Next question.

For the PNC business, we have seen outstanding growth apart from the expanded presence in new markets. What is the other key drivers? Is it product innovation to enhance the shelf space or to enhance the penetration of the current products? What is the growth target and the profitability targets? And second question is about IMF gross profit margin. For the noncore, IMF and Probiotics had a big impact on the BNC's profitability. Does it mean that the product mix and the brand will be restructured strategically? Do you have plans to reduce or remove the noncore or nonperforming SKUs to enhance the profitability of the BNC business?