H&H half-year results: Offline expansion in China and shift from daigou in ANZ yielding growth

By Tingmin Koe contact

- Last updated on GMT

Health and Happiness Group is expanding its offline retail presence in China.
Health and Happiness Group is expanding its offline retail presence in China.

Related tags: H&H Group, China, Infant formula

Health and Happiness (H&H) Group said offline expansion in China, including introducing its infant formulas to more mother-and-baby stores, as well as the launch of more blue-hat certified health foods in offline trade, has pushed up its revenue for the first half of this year.

The parent company of Swisse and Biostime also said that its sales performance in Australia and New Zealand had improved, as it shifted from conducting daigou sales to China to focusing on the needs of the local ANZ markets.

In its financial results for January to June 2021, the Hong Kong Exchange (HKEX) listed company reported five per cent revenue growth to RMB$5.4bn (US$837m).

However, net profit was down 30.2 per cent to RMB$501m (US$77m).

Baby nutrition and care is the company’s largest revenue contributor, but revenue from this segment was down 6.5 per cent to RMB$3.2bn (US$509m). 

Of which, infant formulas brought in the bulk of the revenue at RMB$2.5 bn (US$392m) – a yoy increase of 8.7 per cent.

Most of the revenue came from Mainland China, driven by the sales of its Biostime cow’s milk and goat’s milk.

Revenue from its adult nutrition and care portfolio also grew 16.2 per cent to RMB$1.9bn (US$294m).

In contrast, revenue from its probiotic supplements and other paediatric products decreased by 45.8 per cent and 11.7 per cent to RMB$464m (US$71m) and RMB$293m (US$45m) respectively.

The company attributed the revenue slowdown to an extraordinary huge demand for immunity related probiotics last year. 

Revenue from its pet nutrition and care products, represented by the brand Solid Gold, was RMB$218m (US$33m).

Baby nutrition – offline focus in China

The company has been growing its offline retail presence in China for both its baby and adult nutrition products.

For example, its store network in the first half of this year had grown by more than 10,000 sales points yoy – mainly into baby specialty stores and other offline channels in lower-tier cities.

As a result, revenue from its cow’s milk infant formula was up 4.1 per cent and market share at 6.1 per cent.

Revenue from goat milk infant formula also went up, due to the demand for premium products.

“Continued premiumisation saw demand for goat milk – one of the most dynamic parts of mainland China’s overall infant milk formula market – further accelerate with sales of our goat milk infant formula, recording impressive growth of 71.8 per cent during the period under review,”​ the company said.

The goat milk infant formula category now accounts for 9.4 per cent of the firm’s total infant formula revenue.

Nonetheless, the company acknowledged that there has been intensifying competition in the infant formula market in mainland China.

"Overall, the resilience of our categories and consumer-led approach to marketing and innovation within our product portfolios are delivering positive outcomes.  

"However, we cannot overlook the impact of lower demand and intensifying competition in mainland China in the infant milk formula (IMF) and probiotics categories. These industry-wide headwinds - which resulted in our 6.5 per cent baby nutrition and care sales decline for the first half - make our new channel expansion strategy even more important," ​said CEO and executive director, Laetitia Garnier.  

Adult nutrition – blue-hat focus

With the launch of new blue-hat certified and localised health foods, the company reported a double-digit growth of 18.4 per cent for its adult nutrition and care segment in China.

Blue-hat certified products can only be sold in China’s offline retail via the health foods registration route.

These products are important as normal trade channel is where most vitamin, herbal, mineral supplements are sold in mainland China, the company said.

With its blue-hat products, revenue from normal trade was up 47 per cent yoy and accounted for 14.5 per cent of adult nutrition and care revenue in mainland China.

“Despite a high base in the same period last year and a much-diminished daigou business, our Adult Nutrition & Care (“ANC”) segment returned to growth in the first half of the year, with mainland China being the main growth contributor,”​ the company said.

Swisse also continued to deliver strong results via e-commerce.

“Swisse’s strong performance during the 618 shopping festival once again proved the brand’s growth potential in the mainland China market, particularly in the normal trade e-commerce channel.

“In the twelve months ended 30 June 2021, Swisse continued to maintain its No. 1 position in mainland China’s online VHMS market with a market share of 5.7 per cent,” ​the company said.

Overall, mainland China alone accounted for 62.2 per cent of the company’s total adult nutrition and care revenue, higher than 56.5 per cent from last year.

“In the ANC segment, we will continue to capture more of the fast-growing normal trade e-commerce market channel in mainland China by introducing more new blue hat SKUs and localised products.”

Probiotics

On the other hand, probiotics for baby nutrition and care was “heavily challenged” ​– due to a high base from last year. 

Revenue from probiotic supplements in mainland China was down 46.1 per cent to RMB$460.1m (US$71m).

“The performance of the probiotics products segment was doubly impacted: firstly by a high base due to unprecedented demand for immunity support products in the first quarter of 2020 following the outbreak of COVID-19.

“Secondly, [it was down] by a substantial sell-in of our Biostime branded probiotics product range in the second quarter of 2020, during which sales grew by more than 50 per cent year-on-year, ahead of a scheduled price increase in July 2020.

“Intensifying competition also placed extra pressure on probiotics sales across all channels,” ​the company said.

It believes that its probiotics category will continue to face pressure in the second half of the year due to intensifying competition across the market.

Nonetheless, it believes that the overall probiotics market in mainland China still demonstrates “great”​ growth potential over the long term.

"We also plan to grow the number of stores stocking our Biostime supplement products, to more closely match the distribution network of our infant milk formula products. We will continue to focus on better controlling promotional activity to reduce discounting and improve margins for our other baby nutrition and care brands in mainland China, such as Dodie, to improve future profitability," ​said Garnier. 

ANZ – focus on domestic needs

Due to COVID-19 and the dwindling daigou activity in Australia and New Zealand, the company focused on capturing local consumer demand for wellness and immunity support products.

For example, its pharmacy-exclusive nutraceutical range – Swisse Nutra+ – is now available in over 1,000 pharmacies, which it said has helped the brand to gain further market share in the ANZ market.

The company said that the strategy has yielded results, with sales returning to growth. However, near-term uncertainties remain as population lockdowns of major cities in Australia continue.

Overall, revenue from ANZ was up 1.8 per cent to AUD$597m (US$433m).

Elsewhere, growth in the France and United Kingdom markets was said to be “particularly strong”,​ as Biostime retains its number one position in the organic infant milk formula category within the French pharmacy channel.

Pet nutrition

The company reported a revenue of RMB$​218m (US$33m) for its pet nutrition category, represented by the brand Solid Gold.

“Solid Gold recorded double-digit growth of 18.1 per cent in its home market the US, in the first half of 2021, performing strongly both online and offline thanks to tailwinds from high rates of pet adoption and growing consumer spending on premium pet nutrition.

The company also officially launched Solid Gold online and offline in the mainland China market this year.

Optimistic about the pet nutrition category, the company also acquired US-based Zesty Paws – an online premium pet supplement brand – this month.

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