Earnings Call: H1 2021

Aug 25, 2021

Good morning, ladies and gentlemen. Welcome to the twenty twenty one Interim Results Presentation for Health and Happiness International Holdings Limited. Joining us today is Mr. Lor Fei, Chairman Ms. Leticia Gagne, Chief Executive Officer Mr. Jason Wang, Chief Financial Officer and Ms. Joy Tsai, Investor Relations Director. Kindly note that this webcast is audio only and there is no video. During today's presentation, Mr. Law will first give some opening remarks, after which Ms. Garney will present the group's business review and outlook. And following this, Mr. Wayne may submit a question by text by clicking the question mark symbol on the left hand corner of the webcast panel. Kindly submit all questions in English. Once again, you may submit a question at any time in English only by clicking the question mark symbol on the left hand corner of the webcast panel. I will now pass it over to Mr. Lor Fei for his opening remarks. Mr. Lor, please. Good morning, investor and friends. The 2021 was short of uncertainty and turbulence much more than we expected when we set up our business plan for this year. Yet despite this, the performance of our A and C and P and C segments overall met our expectations, but there's a wide gap between our expectation and the performance of our BNC segment. There was two main reasons for this. First, a decline in overall demand across the entire BNC sector in China and second, increasingly intensifying competitions. Our strategy of transforming our distributor system, which was we launched in the second half of last year to increase our distribution rate in lower tier cities is the right path to take. But it would take more time than we expect for this transformation, which covers both our internal organization and external distribution to be achieved. In terms of our performance by region, our A and C business achieved double digit growth in Mainland China in the first half twenty twenty one. But due to the challenges that impact our B and C business that I just mentioned, overall sales in China expected negative growth. However, after two years of significant business decline in Australia and New Zealand market, negative growth was greater than narrow, which is in line with our plan. As well, our new investment in the P and C segment is allowing us to quickly catch development opportunities in this very active industry, with P and C becoming a new driving force for our overall growth. While it remains very important for us to maintain a healthy capital structure, after considering our capital needs, I'm happy to announce our decision to issue an interim dividend of 30% of our adjusted net profit to thank our shareholder for their support. If we have learned anything in the first half of this year, it is that the more challenging the business environment is, the more we must carry on our sustainable growth strategy and our mission to provide premium nutrition and care to families around the world. We believe this approach will continue to create long term value for our shareholders. Now I would like to invite Patricia to present to you for the detail. Thank you. Thank you, Fei, and good morning, good afternoon, good evening to all of you, and thank you for joining today's call. I'm now referring to the presentation, and I am on Page three of the presentation that I hope you have in front of you. First of all, to set a little bit the scene on who we are as H and H today, Our mission and our vision that we have set in 2017 when we following the Swiss acquisition and integration of our group and we set up the name for H and H has still is still unchanged today. Our mission is still to make people around the world healthier and happier, and our vision is still to aspire to be a global leader in premium nutrition and wellness while contributing positively to the society. Why I want to reinforce that is that all the efforts that we are making, despite the challenges that we've been facing during the COVID situation around the world, including in China and rest of the world, our strategy isn't changed. And everything we are making, every step we are making is towards fulfilling this strategy and this positioning that we have set for ourselves. The reason the Stipoz acquisition that we just announced twenty four hours ago is obviously in line with that strategy, and I will come back to this acquisition. Today, we have eight brands in our group, three business pillars: B and C, Baby Nutrition and Care A and C, Adult Nutrition and Care and P and C, Pet Nutrition and Care, which we also intend to grow as a business as we go forward. And that's again the rationale for this recent acquisition. Coming back to the results of our group during the first half of this year, I'm now referring to Page five of the presentation. We have reported a plus 5% revenue group revenue in the first half of this year, the newly acquired P and C business of SOLIDGOLD of last year. And of course, excluding the recent acquisition we just made, we've been able to achieve a five percent revenue, which means that this P and C pillar is positively contributing to our revenue. And for the minus 2% like for like, obviously, the main challenge and still witnessing through our business model of light assets and strong cash generation, we're happy to be able to strengthen once more our cash position. And of course, because of this business model and this strong cash position, to be able, even with the acquisition that we just made, to announce and decide a 30% dividend payout to our shareholders, 30% of net profit for the first half of this year. I'm now on Page six of the presentation and just a few key highlights on how we look at the performance of the first half. Of course, on a like for like basis, if we exclude the business and mainly due to the pressure faced with the probiotics. In Mainland China, revenue has dropped 2.5% on a like for like basis, but has grown 1.5% on a reported basis. And China is, of course, still our largest market and will continue to be. We're happy that the performance of our IMS business is in line with our expectations. As anticipated, the probiotic revenue has dropped in the first half due to the high base of last year and obviously the drop in demand in the markets, and therefore, reporting a minus 46.1% drop in the first half. Our other pediatric products segment has also dropped 31.1%, while our A and C, Swiss China business has performed quite strong. I will come back to this performance, which is also in line with our expectation and what we committed to the markets when we met last time and supports with the strategy that we have carried forward for the ANZ business and the focus on the domestic market. Other territories have performed quite strong, plus 10.7%. And actually, on a reported basis, high double digit growth, plus 58.6%. We'll come back to this performance, which is also nice. So if we look at our three business pillars, obviously, the challenge is clearly identified in the Baby Nutrition and Care segment, particularly in China, with the drop of the birth rate and the intensified competition. But the progress we're making with our new channel expansion is here, and we are happy about this development. As Fei mentioned, this development takes time. It takes time to transform our channel, our distribution, our organization, but we are carrying forward these efforts through the year while the pressure is mostly Australia. And the newly added P and C pillar, we've seen minimal disruption from our solid gold. The business is now integrated both in The U. S. And China. We've been very diligently putting the right teams in place, activating the brand in China, making sure we continue to grow the business in The U. S. Market. And of course, we'll come back to that. Our recent acquisition is obviously intending to strengthen this pillar and its contribution to our group. We still believe we have resilient product portfolios. We are planning on using our brands and our product portfolio to be able to capture those trends. Of course, everything we're doing, we still have in the back of our mind that we need to make sure we return and contribute to our stakeholders and to the society, and we still have the intention to be a best in class ESG organization. And we and we are still making all the right progress in this direction in parallel of all of our business efforts. On page eight, you can see the performance of our different markets by region, and I will come back to that. I quickly mentioned that, of course, we're facing pressure in the Chinese markets in the B and C segments. Have you considered the gap narrowing for A and Z on the trend to come back to positive growth and with other territories performing quite strongly? Obviously, China remains, from far, our largest and core markets, and we're very dedicated to achieve growth in China. In the future, of course, we need to continue our efforts with our three business pillars, but quite happy to see also the performance of our other markets that are supporting the growth of our group. On the next page, nine, we have a contribution a growth contribution bridge. We're doing this for the first time, to give our investors more clarity on where is the growth coming from. So obviously, on a reported base, both Australia and China are actually contributing positively to the growth, but not on a like for like base. The rest of the growth is coming more from our new markets, including Asia, EU, but also The U. S, and we'll come back, of course, to that market when we talk about the Stipoz acquisition. I will now switch to the performance by region and try to give everyone a little bit more color on the performance of our business first on Page 14 in Mainland China, which is, again, our core markets. Segment by segment, I will come back, of course, to the performance in B and C, where we have mixed performance with growth in IMF, double digit growth in probiotic and also other pediatric products. But just quickly, first, on A and C and P and C. As you remember, in the first quarter, we had a negative growth in the A and C segment in China. We explained to the market that, that was due to a high base on the first quarter in twenty twenty during COVID in China with a peak in demand and then a normalization of the demand. But we were also confident that we can still continue to deliver double digit growth for the total first half of the year in Swiss, and that's what we have delivered, plus 18.4%, which still shows the growth and the strength of the brand and its ability to continue to scale both in cross border e commerce as well as in normal trade, both online and offline. On the next page 15, you can also see some, I would say, preliminary results of our activation of the Soligold brand in China, which I think also shows the strength and the ability of our organization to take on another brand, which had some awareness in China, but not so much. And we now have a team in place who's been activating the brand, starting working directly with Tmall and JD, starting also onboarding some distributors for the development of our brands offline in China. So we have been able to deliver 12,400,000.0 of active sales in China, US dollars active sales in China in the 2021. We obviously think that it's just the beginning. We can and that we'll be able to scale the P and C pillar in China, which is putting the fundamentals and the base to, of course, sustain a longer term growth of this new pillar into the Chinese market. Coming back to the performance of B and C, I'm now on Page 16. Obviously, the market has been quite challenged, but we have been able to maintain our market share in the market, which, of course, showed our commitment to continue to invest along with the channels. Also, we've made some good development online with our market share in e commerce channel. And so overall, I think in this environment, we are satisfied with this performance that we are able to keep and maintain our market share in the cow IMF despite the strong competition and the intensify intensification of the competition both in the channel and with our peers. I think it's important to highlight also that our goat IMS has performed quite well. It now accounts for 9.2% of our total IMS and has achieved strong and high double digit growth in the first half of this year. I will now move on to Page 19, talking about our Australia and New Zealand business. Obviously, we are quite happy, and I think everyone can appreciate that the turnaround of the Australian business. We've delivered on our guidance towards the lower drop of revenue and trying to bridge that drop. Obviously, it's still a minus 5.5% drop, But the gap is narrowing, and again, we are confident that we will go back to positive growth in the Australian market. The reason for that is that we have heavily focused and reshifted our strategy in the last two years towards the domestic market, trying to gain market share in the local market, making sure that our offering is fulfilling the needs of the local consumer, launching new formats, launching into new channel, and expanding the brand in the local and domestic market, and this strategy is now paying off. So we should continue to see progress and this trend strengthening during the second part of the year and beyond. Page 20, in other territories. Of course, we are still in a pandemic situation globally. But despite this, we're very proud of all of our team's achievements and all the milestones that we have put in those different markets. To name some of them, of course, the success of Buyer's Time in France, still number one organic brand with increasing market share every month. We are now above 40% of market share in French pharmacies, a very strong brand awareness now and brand position in the French market. On Page 21, obviously, also in the A and C and P and C segments, we are happy about the development of the brand, the Swiss brand in different Asian territories, which we're starting to scale up. Also, development of our D2C and Aurelia skincare markets in The UK market. And of course, for P and C, we should not forget The US market because Soli Gold is a U. S. Brand, and it is still the number one market for the brand. And the brand has performed, I would say, above our expectations post acquisition in The U. S. Market with very strong market dynamics, good product launches, innovation that has supported double digit growth in The U. S. Market for SOLIDGOLD, which I think is quite encouraging both from an acquisition and post acquisition integration perspective, but also supporting our choice to further strengthen that pillar in The U. S. With the Dastipov acquisition. On Page 22, you have a mapping of where the growth is coming from in terms of contribution from these new markets. It's also the first time for us to provide this level of detail of information, and I think it gives everyone a better view of, you know, when we talk about new markets or other markets, which markets are actually contributing the most. So you can see, of course, that Asia is still nascent and native. Of course, it will scale up and become more and more significant. But for the time being, our other markets revenue and growth is mostly coming from Italy, France, and The US. This, of course, is integrating the solid gold and the pet nutrition and care pillar. I think that's a nice and natural transition to page 23 and following pages about the Zestipol's acquisition. And I'm sure a lot of you have been perhaps surprised when we announced this deal, both because of its size, it's definitely a sizable transaction. And also maybe wondering why we're doing a new Pet Nutrition and Care acquisition less than a year after the Solid Gold acquisition. I think it comes back to our strategy and what we said at the beginning that as a group, we are obviously trying to position ourselves as a full family nutrition and care provider. And we have a conviction that the pet nutrition segment is full of growth opportunities. It is already the case and that this will continue as we have around the world, people are adopting more pets. It's not just a COVID effect. It's a long term trend of the humanization and premiumization of the way people take care of their pets. And we believe that this trend will continue to carry on. And therefore, we want to strengthen our positioning in this P and C pillar. In this respect, SOLIGO was a very strategic acquisition, and we've quickly also scaled up the brand in China. But we want to make sure this pillar grows faster and that we have also a full product portfolio that helps us to fulfill all the needs of the pet nutrition segment. And therefore, SOLIDGOLD is a pet food brand with dry and wet foods. It does have supplement, but it represents less than 1% of the revenue. And Zesty Pause is The US leading online pet supplement brand. And I think I can say it's actually we don't have global data, but it is the number one global leading online pet supplement brand because The US is leading in that field. So it does have a pioneer and first movers advantage into a fast growing category, and the supplement category is is actually growing very fast. But beyond that, what this company has done, and I'm now on page 24, is really disrupting the supplement category. Because the way we look at the traditional supplement category is more through the vet recommendation when pets starting having conditions. But as we see the same trend in adult nutrition with people taking more preventive approach to their health, when we see, for example, the gummy trends in the adult supplements, this is exactly dependent of this into the pet supplements with a disruption in terms of format and the consumer led approach of supplements where parents are auto prescribing supplements for their pets in a preventive way. So the way the brand has launched and communicated to consumer is a very disruptive, very digital led, and digital native approach. With more than 200,005 star comments on Amazon, the brand is definitely the leading brand in the segment. So we've been very impressed about the performance of the brand, its edge cutting approach and very well consumer led. And we think this is definitely a scalable brand, not only in The U. S, but also with global opportunities, especially online. I'm now on Page 26. We have tried to provide to our investors some market data about the size of the market. So you can definitely see if we look at market that the pet supplement market is actually dominated by online, which is the fastest growing channel. So vet is no longer the number one recommendation factor. And the reason for that is that consumers are now proactively looking for these products through word-of-mouth and really in a proactive and preventive way. The industry is growing also quite nicely, almost plus 50% between 2015 and 2020 with strong dynamics as, again, the market is changing and consumers are coming more to this category. We, of course, are anticipating the business to continue to grow in The U. S, and we will be very, very focused on continuing to deliver the strong growth that the business has delivered. I also want to mention highlight that this business is profitable and has a track record of profitability because of its first mover's advantage. And of course, we will be looking at how we can scale the business into other markets, including, of course, the Chinese markets. We can come back to that during the question session if you have any questions. On Page 27, coming back to H and H. As a group, I still have to mention that we are making a lot of progress in sustainability. We are still on track with our commitments to become a big organization, and we're making every step towards the certification at our entity levels. We've put in place a task force for packaging, recyclability and in different areas of sustainability, such as governance, diversity and inclusion, we are making a lot of progress. So I would say that everything is on track and the team is having more and more focus on these areas along with the business. Lastly, me, on Page 29, to give to everyone full year outlook. Of course, we are still committed as an organization to deliver growth, and we think we can strive to maintain overall revenue growth for 2021. With improved margins in the A and C segment, while we will continue to face pressure in terms of margin in the B and C segment, especially due to the unfavorable mix with the probiotics. As a group, we will, of course, continue to strengthen our unique positioning as a global family nutrition provider while continuing to focus on remaining a best in class organization from ESG perspective. In Mainland China, we expect to deliver sustained revenue growth for 2021 and with pressure in IMF and probiotics. In ANZ, we'll continue to reclaim our swift leadership in the domestic ANZ. And in other territories, we'll continue to leverage on synergies that we've created with the rest of the business to continue to drive growth. Of course, we will also be focused in the second half of this year on the integration of our newly acquired Justypoz as well as the refinancing of the acquisition. I guess that's also a nice transition to the next section. I would like to invite Jason, our CFO, to present on financial performance and additional information. Thank you very much. Thanks, Leticia. Good morning, everyone. So now let's go to Page 31, the P and L summary. As you can see, Luchita already mentioned very clearly the development of our revenue and adjusted EBITDA in the first half of this year. But we are very happy to see also regarding the we have maintained healthy adjusted EBITDA margin and healthy adjusted net profit margin as well. So this also remained quite stable in the past year. Next page. Regarding the gross margin by category, the gross margin pressure from that product mix change in the B and C and also the increased stock provision in A and C caused the margin to be 3.3% lower than the last year. But if we look at the respective gross margin levels of IMF probiotics and other pediatric products, all remain at a quite stable level. But just due to the lower contribution of high margin probiotics segment in the overall business BNC segment, then the weighted average gross margin of BNC is 1.6 percentage points below the last year. Then for AMC, the 3.8% below last year due to case of the increased stock provision since we built up the safety stock in first half of last year, given the increasing consumer demand for immunity related products amid the peak time of COVID outbreak. But the demand came down quite quickly after the COVID peak time. So therefore, we increased the provision for those immunity related products in the first half of this year. If we exclude this one special effect, the gross margin of ANC would have stayed at level of 68%, which will be quite stable from last year. And meanwhile, the team is working very hard to deplete those stocks in many markets so as to minimize the impact going forward. And also, are quite happy to see the P and C's gross margin now stands about 40% versus 30% last year. Next page. We can look at the selling and distribution expense ratio of the sales. It has stood at a quite healthy level of 38.7%. And in between, we can see for B and C has recorded a three percentage points increase, but mainly due to the low base of last year during which the consumer education activities and channel activities were either postponed or paused in the first half of last year amid the peak time of COVID outbreak. And meanwhile, for ANC, we are very happy there is a five percentage point improvement in terms of the S and D ratio. Thanks to the effective spending control in China, in ANZ and almost all the markets of ANC where it is operating. Next page regarding the admin expense. So we can see we have managed to achieve a slightly improved admin expense ratio versus last year owing to also effective spending control. There is just a onetime accounting treatment change as we highlighted in orange in this page due to just a reclassification of the business tax and the surcharge in China from sales discount to admin expenses. And if we exclude this one time accounting treatment change and the admin expense ratio was even lower than that of first half last year. The next page regarding the working capital development. As you can see on the total basis, we have managed to maintain the stable working capital in terms of both the balance and the turnover dates. If we look at the breakdown of the working capital, the trade payables, trade receivables has enjoyed a good reduction of seven days. Thanks to the strict credit control in many markets where we are operating in the first half of this year. And then for the inventory turnover days, we have achieved improvement of five days and the balance of the inventory also stands at the similar level of last year. In between, we can see for the BNC turnover days increased from one hundred and thirty two days one year ago to one hundred and ninety one days. But this is mainly due to the preparation for the launch of the new IMF packaged products life level of one hundred and thirty to one hundred and forty days. And for ANC, we have seen a significant improvement from last year from two ninety eight days one year ago to now one hundred and seventy eight days. And this is thanks to the improved planning and management capability for the overall supply chain management. And we expect to continue this improvement trend cut off base and also a payable balance reduction along with our supply chain agility improvement exercise as I just mentioned for the inventory as well. So overall, if we put all three items together, we have been able to maintain a very stable working capital. Cash position in the first half of this year with the cash balance close to RMB 2,000,000,000. For the investors who are new to gold acquisition in December. So therefore here, we also listed the cash balance as of 2020, which is a better base for us to compare. So in comparison with the ending balance of 2020, we have also managed to achieve 7.6% increase of the cash balance. So therefore overall it is a very healthy liquidity position we have maintained. Then on the leverage side, we have maintained the stable capital structure and also with the healthy net leverage status as well. Our net leverage is 1.92 times by end of H1 in comparison with our financial covenant of 4.5 times, there's a sufficient headroom. And also if we take out the special effect made for the solid gold payment, the actual net leverage ratio would have stood at 1.4 times, which is at a similar level of one year ago. Here, I want to just add one point as quite some of you have the questions about then what will be the outlook for our net leverage after the ZFP acquisition? So we have made very detailed calculation and projection. So after the ZFP acquisition, our net leverage ratio was increased to the level of around 3.5 to 3.6 times. This in comparison with the our finance covenant of 4.5 times, still there is headroom remaining. And also based on the EBITDA generation from both the existing business of HNH and ZP going forward, we expect in the coming next three years, we will be able to deleverage our balance sheet gradually and then in three years, we expect the net leverage to go down to the level of around two times, I. E. To be back to the level prior to the acquisition. So therefore, it is a very clear deleveraging path we are aiming for. Overall, then we will continue to maintain this profitable growth path with healthy liquidity and leverage status to be maintained. So this is a quick summary of our overall financial status. Thank you. Thank you, Jason. We are now ready to take some questions from the audience. As a reminder, you may submit a question by text by clicking the question mark symbol on the left hand corner of the webcast panel. Finally submit all questions in English. I will now pass it over to Ms. Joy Tsai, Investor Relations Director to commence the Q and A. Hi, everyone. We have the first question from Anna Zhang from Peel Price. Her question is, what's the impact on China's recent policy to regulate infant formula industry? Thank you. Thank you, Joy. Thanks, Anna, for your question. Sorry. I guess you're referring to the recent policy changes in China in education sector and whether there'll be similar restrictions such as price controls for IMF, right, because obviously there have been quite a few rumors in the market. From our company's perspective, first of all, we haven't heard about anything formal in terms of policy change in this respect, and we do not think there will be any price control in the IMF sector for different reasons. We're still talking about consumer products in the food segment, so different from medicine, different from education, which are more regulated industries. Here, we're talking about a fast moving consumer good category. Currently, the price of IMS is widely ranging, you know, the range of from 100 to 400. So there's a variety of choices for consumers to decide depending on their purchasing powers and what type of product and formula they want to buy. And thirdly, because we think it's difficult to differentiate and difficult to control the prices in the channel. So for all of these reasons, we do not believe that there will be a price control in the IMF sector, and we haven't heard about any formal policy which has been put in place. So that's, I guess, what we can say from our end at this time. Okay. Now we have the second question from Tao Bing Chao, Tinghai Capital. He has two questions. The first is, given the company's slower than expected margin and revenue performance over the past two years, we are keen to know about the strategy and execution to cope with current situation such as low birth rate. And second question is about the acquisition. Is the plan to buy growth if we look at the most recent P and C acquisitions for Zesty Pulse, 50 times historical PE and buying the business sounds a bold move to us. How can you justify the risk valuation and how the multiples was decided? Thank you. Thanks, Joy, and thanks, Bingchow, for the question. I guess I will address both questions together because I understand where you're coming from in terms of why are we making this acquisition. Is that a passive move to buy growth while we're facing challenges in our core business? So I will want to answer this question coming back to our strategy. And then on the valuation, I think, Jaelyn, I would like to invite you to comment on how we've been looking at valuing this company, which we think is actually a very strategic asset and the right company for us. So obviously, we are not making this move as a passive move to buy growth because we're facing pressure in our core markets and core business. I just want to recall when we did the Swiss acquisition in 2015, also a lot of investors questioned us on why you're doing this. Is it because you're being challenged in your core IMF business? Why moving from B sorry, from B and to A and C? That was obviously a surprise to the market. But I think through the years, we've also proved that, first of all, this was matching our strategy, both from a revenue and market diversification. And that diversification in this current environment is definitely healthy to have different revenue sources and to expand our business because it comes back to a growth strategy. And I think we've delivered through the years on this expansion into our A and C pillar. We've decided last year to also move into P and C pillar, which is part of the Family Nutrition. It's a fast growing category. We believe in its growth outlook, and we believe we're well positioned to capture and be part of that industry as H and H, and therefore, 12% of our revenue. And if we look at three years' we're looking at this number to go up to 20%. And that's not just we are not it's not because we are anticipating negative growth in the other pillars, it's because we are anticipating fast growth in this P and C pillar. So it's a strategic move. We think it's back to our strategy. And I think we have consistently the performance of our peers. Of course, we have very strong domestic competitors, but we also have international competitors who are struggling and losing market share. So in this environment, we are maintaining our share. And I think we're well positioned to be one of the brands who are going to enjoy the consolidation. We'll continue to invest in the channel. We now have the right product portfolio. We are making progress online and strategy, and we are we will deliver on that. Of course, the current environment and the fact that the demand and the low birth rates is putting pressure on the overall business for B and C is a factor. But I do think we are continuing to make progress towards delivering on our strategy, and our strategy is, of course, including B and C, ANC and this newly added P and C pillar. Jason, would you like to comment on how we looked at valuation? And obviously, the multiple high valuation is the fact that we are forecasting high growth for the business, both in terms of revenue and profitability. This is a fast growing segment. This company has a leading advantage in that segment and show this company and the growth that it can deliver in the future and it's in line with our strategy. Jason? Yes, indeed. Actually, we have conducted a very comprehensive valuation exercise and it is based on the various valuation approach including the DCF based on our projection, but factoring the inputs from our commercial DD and financial DD advisors. And also it's based on the approach factoring the transaction multiples of comparable deals in the pet nutrition segment. The consideration we are paying for the September, then this represents about 25 times of the value EBITDA level. And this is pretty much in line with the multiple of the comparable transactions in the pet nutrition area. So therefore, indeed, we need to look at the growth outlook as the as just explained by Leticia and therefore we came down this we see is a fair and reasonable valuation. Okay. Now we have the next question from Lin Wu from Bank of America. Her questions are the first is infant formula. Our GOAT infant formula achieved 72% growth year on year in the first half. Wonder how much of the growth came from the network expansion versus sales growth per store. How should we think about growth potential for second half in the medium term? Your second question is on the AMC China active sales. The growth was particularly strong in the second quarter with a very encouraging 06/18 performance. With some of the third quarter demand already be realized in the second quarter sales? And what's the quarter to date trends and our growth expectation for the third quarter and the second half? Her third question is on ZESPIOS. What's the expected time line for the deal completion? And what approvals do we need to obtain for it to proceed? The implied valuation multiple of ZESPA seems quite elevated. How do we arrive at this purchase price and what are our assumptions for its growth outlook? And I think for the for her third question, we have already answered that. Thank you. Thank you, Joy, and thank you, Lynn. Perhaps on the vertical, maybe deal completion and the approvals, Jason, if you would like to answer that and if you have anything to add on the valuation again, but I think you've already indeed covered this question. I will cover questions one and two. So go to IMF, yes, 7072% growth in the first half. So as mentioned earlier, we're quite happy about this performance. Obviously, it's a mix of leveraging our BioTime distribution channel that we have built through the years in the cow IMF segment, but it's also in line with the trends of consumers in China, more and more consumers willing to purchase goat IMF as an alternative to cow IMF. So these are the drivers of our success in this segment, along with, of course, the BioStein brand that we have leveraged. Today, we have covered over, I think, fourteen percent fourteen thousand, sorry, stores are selling our goat IMF in the Chinese market. So we've made progress on distribution. But most of the growth in the first half has come from same store growth rather than an additional expansion into the channel. That being said, we do still have room to grow in terms of penetration and distribution. And as we continue to carry our further distribution expansion, especially including to lower tier cities, we are we do carry forward our GOAT IMF within the mix of our products. And so these are joint effort between the cow and the GOAT IMF to extend distribution. So we still have room to play. And I guess as a conclusion to the rest of your question, we we should expect to continue seeing a strong double digit growth for this growth IMS during the rest of the year. On A and P China, I understand your question also because of the first quarter being negative growth and the second quarter being very strong growth. I think there was obviously, as we mentioned in May, an element of not so much shift from Q2 to Q3, but more some sales not realized in the first quarter that were moved to Q2. So there is a bit of an element of, I guess, normalization when you look at the full first half. But that being said, yes, we had a very strong performance in June 2018. And now we are our team is already preparing for $11.1 So I think overall, the guidance is that we will continue to maintain a double digit growth. And for the full year for SWIT in China, obviously, that will depend on the performance of the brand during Double eleven, but we are quite confident that we can achieve the same success in Double eleven that we have had in June 2018. Of course, we need to continue to make progress in the normal trade channel, both online and off line, and our team is very focused on delivering that, launching more products, registering more products and expanding the brand beyond cross border e commerce. Jason, would you like to answer on this deposit? Sure. So regarding the time line for the deal closing, we expect to close the deal around September or October. And regarding the approval to be obtained, we do need to receive the foreign investment approval from The U. S. Regulator. Since this deal is in a non sensitive segment, we don't expect any kind of difficulty to update obtain the approval in time. Just like what we did for the SGDO last year. We also received approval at that time very smoothly. Then regarding the purchase price, as I just mentioned about the evaluation methodologies we used And also just to want to highlight regarding the assumptions made for our projection, definitely, we have included double digit growth assumption for the ZFP business going forward. Okay. So the next questions are from our fixed income investors. So there are some similar questions, so I'll combine them. So it's from George Huang from Pipebridge and Bill Xia from NewRoute Asset and Tianren from Deutsche Bank. So what are the plans to fund the acquisition of Zestipos? And will you look to call your U. S. Bank in October? And can the company share the amount of net debt Daseepos currently has? And I think we already answered the question how we are going to finance the acquisition. And would the company expect the impact on rating per the communication with the rating agencies? You. You. Susan, please go ahead. Thank you. Yes. Actually, we already been in discussion with the rating agencies and also provided the information about this deal to the agencies. The agencies are also assessing the implication to our overall leverage status. I think more important is to show normally to the agencies, but also to especially our debt holders and bank lenders that we will continue to aim for this deleveraging path down the road, just like what we did after the Swiss acquisition. If you may recall, after the Swiss acquisition in 2015, at that time, the company net leverage ratio went up to the level close to four times. But thanks to this cash generating business model, we managed to deleverage the balance sheet gradually in the following three years down to very healthy level below two times. So based on this proven track record, we already built up in the past, then we feel confident that down the road also to be boosted by the growth contribution from ZP side, then we will manage to deleverage the balance sheet again. Then in three years, we can bring down the net leverage back to the level of two times. Okay. The next question is from Manish and Ken of Southeastern. So it's about the Zasipov acquisition. So this acquisition seems very expensive at 34 times EBITDA versus where H and H is trading at seven times of EBITDA. Why does this acquisition make sense? And what would be the EBITDA multiple that the pause look like looking out three years? Thank you. So would you like to provide your perspective on Yeah. I think for the company's strategy, either your organic growth or, like, looking for the acquisition growth strategy, like, We did in 2015, we're P and C segment, at end segment. And now we we are very clear to go to the P and C. Why we we want to go to P and C? Because we see very big potential growth in the second one. And then combined together, ANC, PNC, and PNC to achieve our mission to become premium gene provider in the world. So I think this is a quite strategy fit acquisition. In terms of a pricing, yeah, you know, it's a good asset. You need to pay the reasonable price, where you can get the asset, right? So if you're looking forward for the future growth in terms of revenue, in terms of profitability for the company, I think we're quite happy to have this asset in the number one pet market in United States, especially online. And also, we can see the potential growth outside The U. S, like China and other markets. So that's why we think it's a terrible price for us. Ken has a follow-up question. So why not buy your own company back at 10x EBITDA? What how do you just sorry, buying back stock at less than 10x earnings or buying a new business at 25% EBITDA? So that's his follow-up question. I think it's a strategy thinking that what's our strategy to invest and to grow your business, right? And to yes, this question is quite I'm not sure that you need to how to use your capital to drive your business growth. This is a growth strategy. So I think we believe this is good move to P and C to make P and C become stronger in our product portfolio. And also P and C is a very active industry. That's why we need to go to production to invest for the new fast growing segment and also in the nutrition sector. It's not like you get to the other industry, just doing the family nutrition, that you can have a lot of synergy like supplement. You can have the know how to send know how for other nutrition and plant nutrition. So due to the time constraint, that was the last question for this webcast. So thank you everyone for joining us this morning. Please stay healthy and safe. I now announce the end of today's presentation and webcast. Thank you. Thank you, everyone. Thank you. Thank you, everyone.