H&H Group announces strong Q1 revenue performance

  • First quarter total revenue grew 13.0% on a like-for-like basis[1] to RMB2,423.7 million.
  • Solid growth in China[2] revenue of 19.4%, accounting for 81.6% of Group’s total revenue despite the COVID-19.
  • Strong cash balance and healthy cash flow ensure business continuity and future developments.
  • Overall margin pressure from foreign exchange fluctuations impacting cost of goods, and changes to product and channel mix (largely due to Australian-based daigou activities).

Global family nutrition and wellness provider, Health and Happiness International Holdings Limited (H&H Group), has today announced robust operational statistics for the three months to 31 March 2020.

The Group’s revenue grew 13.0% to RMB2,423.7 million compared to the same period of last year, with strong performance in both business segments (Baby Nutrition and Care - BNC, Adult Nutrition and Care - ANC) in China despite challenges of COVID-19 in the first quarter.

The Group’s Chief Executive Officer, Ms Laetitia Garnier, outlined the results and emphasized that the pre-emptive measures taken across the global operations had placed the Company in good stead to continue delivering sustainable growth.

“Despite some operational challenges, we have proactively responded to consumer demand and adapted our business model during those periods. Our agility is ensuring stable supply with little disruption and our ability to capture opportunities through a more digital focus during the lockdowns. Our new optimised capital structure better positions us for formulating new ways to unlock growth while continuing to build our leadership in premium family nutrition and wellness,” she said.

“We remain confident on prospects for our BNC and ANC businesses, particularly in the China market, where the performance of both segments has held strong through the coronavirus period and we have continued consumer demand for our products. Revenue from China grew 19.4% year-on-year during the three months to 31 March, with double-digit growth of our domestic BNC and ANC businesses.

“Whilst overall demand for our products has been relatively unchanged, the pandemic has resulted in pockets of uplift in some areas. In our vitamin and supplements range – primarily through our Swisse Wellness brand and Biostime probiotics – we experienced sales uplift on immunity products, initially in retail outlets and then subsequently online, as consumers moved into period of isolation. The pandemic has certainly impacted the ability of individuals to freight and to carry product overseas due to travel restrictions and higher costs, so we were expecting, and have seen, that impact flow through our Swisse brands more significantly than with some of our competitors.

“In response to the COVID-19 pandemic, we have united around our mission to make people healthier and happier. We are working closely with our business partners within our supply chain and our customers and teams to support their operations and successfully navigate challenges.

“In supporting our communities, we have worked with charity partners and other relief organisations to donate supplies to healthcare professionals, masks and products to those in need, and financial donations and support to assist frontline medical workers and families in need. As the situation has impacted more countries, individuals and families, our commitment continued and will remain strong into the future. Our efforts have included: sourcing and sending over 200,000 face masks to health workers, business partners and residents in China, Italy and France through the China Red Cross, cash donations for emergency medical equipment and product donations across all H&H brands, valued at over USD $1.5 million.

“Our product portfolios are in resilient categories, and we will move forward beyond current challenges by continuing to evolve our business model with growth opportunities to meet the new trends and consumer patterns. Post-pandemic we expect the global focus on health to remain elevated, so we must be positioned to capture uprising demand as wellness gains momentum across the spectrum of life stages and both our H&H Group business segments,” Ms Garnier said.

Detailed Market and Category Performance – Q1

China: delivering robust revenue growth despite COVID-19

Revenue from China grew 19.4% year-on-year during the three months ended 31 March 2020, supported by the double-digit growth of our BNC and ANC businesses domestically. The China market accounts for 81.6% of our total revenue, compared with 77.2% same period last year. This is due to continued strong consumer demand for premium nutrition and care products in China, and preventive operational measures taken at the beginning of the COVID-19 outbreak, which enabled largely normal operations and the ability to overcome temporary disruptions.

Within the BNC segment, revenue from our infant milk formula (“IMF”) business increased by 8.6% year-on-year, as we proactively shifted our branding, marketing and consumer engagement activities to digital channels in response to COVID-19 lockdown restrictions. Sales of Biostime branded cow milk IMF products maintained moderate revenue growth, and our new goat milk IMF, which was successfully launched in November 2019, also continued to demonstrate robust growth and accounted for 5.0% of total IMF revenue in China. In the twelve months ended 31 March 2020, we jumped from the seventh to fifth in the overall cow milk IMF market3 in China.

Our probiotic supplements segment experienced a pronounced uptick in demand during the three months under review, with revenue rising 36.3% year-on-year as consumers in China increasingly recognize the immune-enhancing benefits of probiotics following the COVID-19 outbreak. Revenue from our other pediatric products segment grew by 82.3% year-on-year, driven by the strong performance of our Dodie diaper lines and our Good Goût baby and kids’ food range in China.

Within our ANC segment, active sales in China continued to rise, growing 32.3% year-over-year, with demand for Swisse’s Immunity ranges spiking in response to rising consciousness around health and disease prevention following the COVID-19 outbreak.

ANZ: further short-term challenges in daigou channel

Revenue from sales into the ANZ was down 8.5% year-on-year, on a like-for-like basis, over the same period. While the demand in the domestic market is stable, the slowing of retail daigou and export sales is attributed to travel restrictions and freight disruptions caused by the COVID-19 pandemic. Production for supplements and goat milk IMF manufactured in Australia is experiencing no major disruptions.

Rest of the World: mixed performance across different regions

Revenue attributed to ‘Rest of the World’ fell by 9.1% year-on-year in the three months ended 31 March 2020, which was mainly attributable to a sales decline in the Hong Kong SAR market due to the COVID-19 pandemic. Despite this, we saw sustained moderate growth momentum for our IMF, baby food ranges and immunity-related products in the Netherlands, Italy, France and United Kingdom. We continued to launch our brands in new markets as planned - India launched on Amazon and more than 10 other major e-commerce platforms, while Biostime’s probiotics range was introduced in Singapore, both in online and offline channels.

Multiple initiatives to stabilise operation during COVID-19 pandemic

While the global supply chain for our BNC and ANC segments are currently operating normally, additional lockdowns and market volatility could put further pressure on our operations. Our future gross profit may be affected by changes to our product and channel mix, as well as from foreign exchange fluctuations and increased logistic costs that may increase the cost pressures faced by our manufacturers. However, we are building sufficient safety stock to ensure our business continuity and are closely monitoring the overall supply situation to optimize our operational efficiency.

In China, we will continue to strive to deliver sustainable growth with new product development initiatives and channel expansion in this market remaining the two pillars of our growth strategy for 2020. Following the successful launch of the goat milk IMF series, we will continue to tap further growth momentum in China and reach more consumers with specific needs with our newly approved IMF series, Dodie diaper range, and Good Goût baby and kids food range.

The COVID-19 pandemic has opened up a new opportunity for our ANC business to capture rising global demand for immunity-boosting health products. During the three months ended 31 March 2020, sales of Swisse's immunity range grew 93.4% globally year-on-year and accounted for 38.2% of total ANC revenue. We will continue to prioritise obtaining new “blue hat” licenses from the State Administration for Market Regulation (“SAMR”) to introduce more Swisse products into normal trade channels, especially pharmacies, while maintaining Swisse’s current growth momentum in our CBEC channels.

Outside of mainland China, travel restrictions throughout the first half of the year have been suppressing daigou activities in the ANZ market and other markets, putting pressure on our sales in these markets and causing disruption to our sales channel, which in turn will negatively affect our margins partly. Furthermore, a potential weakening of the Australian dollar may reduce the ANZ market’s contribution to revenue and EBITDA when consolidated into the Group’s financial statement, which is denominated in RMB.

Strong cash balance and healthy cash flow supporting future developments

Thanks to our defensive product portfolio management and agile business model, the Group generated positive cash flow and maintained a strong liquidity position during the three months ended 31 March 2020. As a preventive measure in response to market volatility, we drew down USD50.0 million from our revolving credit facility in March to build up an additional liquidity buffer. As of 31 March 2020, our cash balance stood at RMB3.08 billion, which is RMB860.0 million higher than RMB2.22 billion for the same period last year.

Furthermore, our long-term currency exposure was fully hedged in the second half of 2019 and the majority of currency exposure related to the purchase commitment with our contract manufacturers has also been hedged since the beginning of 2020.

NewH2 Strategic Investments

The Group’s strategic investments through NewH2 in the fields of health, wellness and personalised and AI technology, are demonstrating strong momentum in a differentiated experience for the consumer, and we will continue to support those ventures. The partnership with Bod Australia has begun delivering synergies with the H&H business, recently launching a CBD range in the UK under our new CBII brand, and our first hemp seed products under the Swisse brand in Australia.

NewH2 recently invested in Else Nutrition, a TSXV-listed company which has developed innovative, clean and plant-based food and nutrition products for infants, toddlers, children and adults. We are particularly excited about our partnership in relation to its vegan toddler formula.

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

[2] China mentioned in this article refers to Mainland China.