By-health Publishes Its 2019 Annual Report and Announces a Revenue Increase by 20.94%

2020.03.12

On the night of March 12, By-health Co., Ltd. (SZSE: 300146, hereinafter referred to as “By-health” or “the Company”) published its 2019 Annual Report. The report shows that, in 2019, By-health’s revenue amounted to 5,262 million yuan, 20.94% higher than a year earlier. Affected by the provision for impairment of the goodwill and intangible assets of Life-Space Group Pty Ltd (hereinafter referred to as "LSG"), the net profit attributable to shareholders of the listed company was -356 million yuan, 135.51% lower than a year earlier.

Excluding the effects of provision for impairment of the goodwill and intangible assets, the Company recorded approximately 1,046 million yuan of net profit attributable to shareholders of the listed company, higher than the same period last year.

2019 operating results fall short of expectations due to mounting external pressure

Affected by policies such as the E-Commerce Law and the market environment, LSG's business revenue declined significantly in 2019. The Company made provision for impairment of goodwill and intangible assets totaling 1.57 billion yuan, causing the operating results in 2019 to fall below expectations. It is mentioned in the annual report that the implementation of the E-Commerce Law led to the exit of some purchasing agents. The remaining purchasing agents and dealers correspondingly reduced inventory and transactions down in response to the operational risks brought by the policy changes, which imposed a great negative impact on LSG's businesses. During the period, the Company proactively took a series of measures such as business and organizational structure adjustment, product optimization, inventory management, and price control, and continued to increase brand cultivation to cope with market challenges. In 2019, LSG's sales to local Australian customers maintained a steady growth, and its cross-border platform business in China achieved substantially higher growth than the industry.

Meanwhile, in the 2019 Annual Report, By-health discussed and analyzed the domestic market environment. In 2019, the Company faced a severe external market environment. Factors such as the rectification on the "health care" industry conducted by the relevant state departments, the reform and regulations in the pharmaceutical retail industry, and the implementation of the E-commerce Law have increased the pressure on market stakeholders and posed greater challenges, which will continuously affect the industry over a longer period of time.

The Company maintains a stable growth momentum and good performance in main businesses

Despite the severe challenges on the domestic market, the Company's main businesses maintained a faster growth than the industry in the previous year.

The annual report shows that the Company realized a revenue of 5,262 million yuan in 2019, an increase of more than 20% year-on-year. The main businesses grew steadily. Among them, the “hero product” strategy played a vital role as the "main engine": “KEYLID” achieved a revenue of 1,190 million yuan, an increase of about 47% year-on-year; the “Jian Shi Jia” pilot project was expanded to 6 key provinces, targeting those prone to visual fatigue in a bid to expand product categories. The master brand “By-Health” recorded a revenue of 3,212 million yuan, an increase of about 8% year-on-year. Protein powder continued to maintain a commanding lead among all categories, which effectively promoted the master brand to overcome policy factors and achieve squeezing growth in a severe external environment. According to data from Euromonitor International, the scale of China's VDS industry in 2019 reached 178.5 billion yuan, an increase of 2.1% year-on-year.

In terms of channels, revenue from online channels accounted for about 20% of the Company's domestic revenue in 2019, an increase of about 17% year-on-year; that from offline channels accounted for about 80%, an increase of about 20% year-on-year. The Company continued to advance its e-commerce brand strategy and "user-centric" e-commerce digital strategy. In the meantime, the Company constantly accelerated the building of supermarket channels and mother & baby channels so as to further explore offline market opportunities. Among them, the professional maternity-baby-children nutrition brands "Nature’s Bay" and "Life-Space" were orderly distributed to the mother & baby channel, with good sales performance, which further expanded channels and outlets.

In addition, in order to further promote cooperation on collaborative innovation and continuously improve the technological innovation ability of the Company, in 2019, the Company and the Shanghai Institute of Nutrition and Health, CAS jointly established a “Nutrition and Anti-aging Research Centre”, and entered into partnership with four global top ingredient suppliers such as BASF, Fonterra Limited, DuPont Nutrition and Biosesciences and IFF Health to jointly carry out research on anti-aging and nutritional intervention. In addition, the Company started the construction of intelligent factory in 2019, which greatly enhanced the hourly output per capita and plant utilization rate, shortened the production cycle, and by continuously developing Transparent Factory and Nutrition Exploratorium, strengthened consumer education and market cultivation, and consolidated the foundation for endogenous growth, so as to contribute to the Company's mid- and long-term development.

"Activating" 2020, By-health is expected to lead the industry to achieve restorative growth

As for the industry environment this year, the Company made an assessment in the annual report and proposed a systematic response strategy. In face of the severe external environment, the Company will continue to firmly implement the major strategic measures and layout concerning consumer health.

In You Can Never Discover a New Continent with an Old Map, a letter to investors, Chairman of By-health indicated that By-health would continue to activate brands and businesses in order to lead the industry to achieve restorative growth. He mentioned, "The first step is to activate people. The second step is to reactivate China's VDS business. The Company must switch from ‘squeezing growth' to ‘leading the VDS industry to achieve restorative growth'. The third step is to reactivate Life-Space’s M&A business. ‘You cannot get antibodies without suffering’. We need to start over again at the lowest point. The fourth step is to continuously activate brand power and increase investment in brand assets, which is to increase investment in the future.”

In 2020, the Company will launch a full portfolio of products consisting of "four hero products two image products one star product", adopt an aggressive core-market-orientated strategy to activate the entire VDS business, and expand the market share. Based on the existing three hero products, the Company will launch reserve hero products to liver supplements market. Relying on hard-to-get approvals and compound formulas as its unique advantages, the Company will develop the blue ocean market for liver supplements in five key provinces.

At the same time, a One-To-N dealer plan will be launched this year to establish three independent dealer systems for the VDS business, namely the main businesses, KEYLID, and Life-Space dealer systems, in order to cooperate with the market strategy targeting multiple products and support the operations of multiple hero products and the long-term development of new brands and categories. In addition, the Company officially launched the OTC project, focusing on the development of core categories concerning gastrointestinal drugs, and expanding into the new field of consumer health.

How to reactivate the Life-Space businesses was also highlighted in the report. It is proposed that in the Chinese market, the Company will spare no effort to create domestic products of "Life-Space" set to the same level as KEYLID and continue to increase investment in market; and with the registration approvals for health-care food "life.space® probiotic powder" obtained in January this year, the Company will enrich its product matrix and accelerate channel penetration and outlet coverage. In the Australian market, the Company will accelerate the integration of purchasing agent channels and the optimization of Australian export distributors in response to market changes. Furthermore, By-health will continue to increase the resource input for cross-border e-commerce platforms, establish a dealer matrix for cross-border platforms in China, and take the initiative to manage Life-Space’s export to China.

"For the short term, we might only see volatilities and uncertainties, but we need to look through to the general trend in the long run," said Chairman of By-health in the letter. China’s VDS industry still has huge room for growth whether from the perspective of national strategy Healthy China 2030 or industry penetration and per capita consumption. Moreover, he also said frankly that "this is an ever-changing world", but "in a time of turmoil, the most terrible thing is not turmoil itself, but to think in the old-fashioned ways. In the brand new 2020s, the Company will respond to changes in a rapid manner."

At present, the Company is further capturing superior markets and taking comprehensive measures to gradually solve the challenges, with promising prospects in the future.