H&H Group announces profitable first-half growth and interim dividend

  • Total revenue grew 2.6% on a like-for-like basis1 to RMB 5,167.2 million
  • Adjusted net profit2 grew 8.9% on a like-for-like basis to RMB 658.3 million
  • Revenue from Chinagrew 12.8% year-on-year on a like-for-like basis, accounting for 82.6% of total revenue
  • Immunity-focused ranges across both BNC and ANC segments continued to deliver robust growth of 45.4% and 48.5%
  • IMF revenue in China fell 3.5% due to slower offline traffic but online revenue grew by 32.8%
  • Interim dividend payout of 50% of net profit (HK0.63 per ordinary share)

Global family nutrition and wellness provider, Health and Happiness International Holdings Limited (H&H Group, HKSE: 1112), today announced a strong result for the six months ended 30 June and outlined positive business initiatives for the challenging period through the pandemic.

The Group’s interim results disclosed a 2.6 percent revenue lift year-on-year with adjusted net profit up 8.9 percent on a like-for-like basis. Importantly, operating cash flow increased by 25.4 percent and an interim dividend of 50 percent of net profit (HK0.63 per ordinary share) was announced to reward shareholders.

Group Chief Executive Officer, Ms Laetitia Garnier, credited agility of the business and team for positive growth in the first half and noted the particularly strong performance of the core China market.

“The first half of 2020 has been unpredictable on many fronts, but the business has responsively worked its way through the six months to deliver a profitable outcome. Our proactivity during the initial outbreak positioned us to adapt and respond to the changes in consumer needs and behaviors, and importantly, enabled supply continuity to ensure we could deliver product into their hands,” Ms Garnier said.

“The China core market delivered double-digit revenue growth of 12.8 percent (YoY, LFL) and accounted for almost 83 percent of the Group revenue in the half. Within that territory, sales of Swisse increased 27.9 percent – a really strong result reflecting a rewarding combination of internal and external forces. The teams globally have moved fast to change approaches and capture shifting demand such as the increase in our immunity-related supplements across both our BNC and ANC segments; the robust acceleration of online sales, especially in China; and the continued segmentation of the nutrition market and fast-growing categories such as goat milk formulas, infant nutrition supplements, super premium infant diapers (Dodie’s China market share now 11.3%) and ‘beauty from within’ supplements.

“Adopting new ways to communicate with our consumers over the past six months is a particularly important development. We want H&H Group to be a company that comes out from this pandemic with a better operating system and a stronger model of business to drive forward. The past six months has shown us that we will continue to evolve where needed, and to create opportunities. We are confident that the core business will continue to generate profitable growth.”

As part of its philosophy to maintain our profitable growth and high cash conversion business model, the Group been able to significantly increase its cash position and reduce net debt leverage year-on-year to 1.38x.

As a commitment of H&H to continue to invest in disruptive innovation and technologies related to the field of wellness, the Group (via NewH2) invested in Else Nutrition in February, a company focused on developing innovative, clean and pant-based nutrition products. Else’s revolutionary 100% plant-based non-soy infant formula is an important development in infant nutrition, and a unique opportunity to enter into a niche growing market and develop solutions that cater to market segmentation. The company’s corporate innovation arm has also increased its investment in existing NewH2 businesses: Metaflow’s Lumen metabolic device developed in Israel, and Proven personalized skincare (California) whose personalised science-based solution and online channel has enabled it to grow faster during this challenging time.

“Our commitment to a steady and dependable growth sits hand in hand with delivering value to our shareholders and broader stakeholder group. Over the past year we have been building our sustainable model of business and I am delighted to report that H&H Group has recently been named in the Hang Seng ESG50 for top ESG companies, and we continue our drive for the Group to be one of the first Hong Kong listed companies to become B Corp certified. Our French organic children’s food brand – Good Goût – has recently become our first brand to gain the B Corp certification (August 2020) and this has encouraged us further on this journey towards shared value.

“While some our teams around the globe continue to work remotely, we are taking the care to ensure the mental and physical health of team members is closely supported. Beyond our H&H team, we are reaching out into our communities, working with charity partners and relief organisations to donate over RMB 10 million of cash and in-kind donations over recent months. The H&H Foundation has continued its philanthropic efforts in the first half, donated over AUD$100,000 to support the Australian Bushfire Emergency Relief in January and launching a new community partnership for young Indigenous women and girls in the Northern Territory (Aboriginal and Torres Strait Islander) with partner, Bluearth Foundation.

“Looking forward, the potential to expand our business into regions such as Europe, North America and Asia remains strong. We launched our Swisse brand in India and Malaysia in recent months, and Biostime’s probiotics range in Singapore, and continue to see sustained growth momentum for our IMF, baby food ranges and immunity-related products in Italy, France and the Netherlands which is very encouraging. The Group launched Swisse Wellness in the UK in May, further strengthening the direct-to-consumer brand hub in the region alongside Swisse Me and CBII, with both brands launching new immunity-related products.

“The second half of 2020 will retain focus on profitable growth led by core market growth, and a focus on digitalization. We believe that continued profitable growth will be led by our digitalization (increasing contribution from E-commerce) and distribution expansion to bring gradual recovery – for IMF in particular – from the pandemic. We anticipate the pressure on daigou trade in ANZ to continue in H2 due to extended lockdown measures and much of our effort will be on growing domestic sales where we see upside potential in local consumers, particularly for our immunity ranges.”

The Group expects that the recent acceleration of consumer demands and behaviors – in particular, the digitalization of sales and engagement, and growing interest in immunity-related products – will become part of the ‘new normal’ and is likely to be sustained, first online and then offline as markets emerge from lockdown. “We are incredibly well-positioned to capture these emerging consumer trends, and to continue our role in improving consumers’ lives through their wellness journey,” Ms Garnier added.

Double-digit revenue growth in China with improved operational efficiency

Our BNC and ANC businesses in China delivered strong revenue growth, supported particularly by robust growth in our online channels and increasing demand for immunity products. Following the outbreak of covid-19 in China, we deftly shifted our marketing activity online, utilizing live streaming, online consumer education activities and brand ambassador endorsements – an approach that paid off strongly.

Revenue growth from the BNC business in China was mostly driven by the strong performance of goat IMF and probiotics products. Probiotics performed solidly in line with the growing demand for immunity-enhancing products, supported by growing awareness about the immune benefits of probiotics following the outbreak. This has further consolidated Biostime’s position as the No.1 brand of pediatric probiotic supplements in the world. The Group’s cow IMF ranges experienced a slowdown in the second quarter as a result of higher inventory levels across channels following ‘pantry loading’ in the first quarter.

China is still the growth engine for the ANC business, with Swisse continuing to deliver rigorous revenue growth, particularly around our expanded immunity and beauty-related ranges.

Australia and New-Zealand challenged by falling daigou trade

In the ANZ market, conditions remain challenging in the near-term due to the continued decline of daigou activity – already pressured by the new E-commerce law implemented in China last year. Travel and logistics restrictions such as limited freighting services, also impacted activity. As such, revenue growth in the ANZ market in the first half decreased by 35.8% on a like-for-like basis to AUD127.2 million.

The domestic business however, made positive progress in both online and offline channels, with an increased focus on digital sales leading to a 400% upturn on combined online sales platforms. The Swisse Nutra+ nutraceutical range exclusive to pharmacy channels was also launched in Australia, opening up a further revenue stream within the supplements category.

ANZ also remains one of our core production locations, particularly for supplements and goat milk. Despite harsh lockdown regimes in both countries and a recent return to lockdown in much of Victoria, the Group’s supply chain has experienced no major disruptions.

1. Like-for-like basis is used to indicate sales growth of this year compared with the same period of the previous year, excluding the impact from merger and acquisitions and FX changes.

2. Adjusted net profit = Net profit-EBTIDA adjustment items of RMB80.1 million for the six months ended 30 June 2020 (six months ended 30 June 2019: RMB104.1 million) + Other non-cash losses of RMB20.5 million for the six months ended 30 June (six months ended 30 June 2019: nil)

3. China mentioned in this article refers to Mainland China.