Earnings Call: H2 2020

Mar 24, 2021

will now pass it over to Mr. Lofei for his opening remarks. Thank you. Good morning, and good evening, investors and friends. Welcome to today's webcast for HGNX Group 2020 Annual Results. 2020 marks the beginning of the third decade of twenty third century as well as the beginning of the third decade of the H and H Group. So at the beginning of the year, we had a very clear strategy to rapidly push forward our development. But after the sudden outbreak of the COVID-nineteen, we had to quickly adjust it, reallocate the resource and fine tune our strategy to ensure stable development of business, particularly in Mainland China, our largest market. 2019. In Australia and New Zealand, I think the largest market, both governments closed their borders at the beginning of the pandemic, which had a huge impact on the sales and profitability of our Daigo export business. Our A and D team briefly faced this challenge, changing their strategy and redirecting resources to focus on domestic consumer market, in particular, the growing demand for immunity boosting products. We quickly made headway growing our local market share in the AMZ market in 2020. Thanks to the strong efforts of our team, In the face of a global pandemic, we see our mission of making people healthy and happy as being more important than ever. The health of the pet is an important part of this. With pet nutrition being a very fast growing category. Through our early acquisition of Show You Go, we immediately entered two important pet nutrition markets in The United States and China. Our pet nutrition and care category, what we call P and C, will be the fastest growing segment in the future. Ensuring a healthy cash position and net debt leverage is also very important to our operations, and I'm delighted to announce that we continue to pay a dividend of 50% of net profit. I thank you, our shareholders, for your continuous support. When faced with any challenges, we always position H and H Group as a mission driven, sustainable, and faster growing company. Our main growth contributors will remain organic growth in our existing markets, expanding into new market and into the new product category and through strategic mergers and acquisitions. We also strong believe that sustainable development is a necessity and not a choice. We have developed a robust development plan for the next three years. It outlines how we must return to our original faster growing path of achieving sustainable project growth and growing our market share in all main categories in all our main markets. I now invite our CEO, Mr. Ghania, to present to you all. Thank you. Good morning, everyone. Thank you, Fei, for your opening remarks. Thank you for being with us today. We are pleased to announce another year, our consecutive year of increased revenue and net profit as a H and H Group, continuing our track record of profitable growth. As Page just mentioned, in this very unprecedented environment, we have made as a group improvements in our core markets. We have improved our net profitability and our return on invested capital and we have continued to focus on driving share value for the broader society and the planet, driving value for our stakeholders. The results that we had announced yesterday night reflect our team's ability to shift and to respond to huge changes in our environment while maintaining focus on our strategy. So despite the pandemic, we have retained our consumer led approach, which is at the core of our purpose, and we have combined this with a strong innovation capability to accelerate some of our plans. At the same time, our financial principles and our prudent capital management also meant that we have been able to continue to invest in our brands in core and new markets with financial discipline, but also invest for the long term such as the acquisition of SOLICOMS while maintaining healthy cash flows and leverage levels. And now I'm going to our presentation. And before going into the numbers themselves, I hope that you will appreciate the design of our cover page, which we have done with all of our heart and which is a a mix of pictures of our own team members with their smiling faces. So despite the environment we're living in, despite the business challenges we have faced, we are seeing today a huge, very high team engagement because our employees are proud to be working for a purpose set organization, which is growing, which is creating value, and which mission is to make people healthier and happier. Going to thank you. Not sure why yes. So you've got on this slide our 2020 performance overview. As just mentioned, we have despite all the challenges, the pressure we have faced in is that we have as a total group been able to achieve another year of profitable growth. We have achieved a 2.5% revenue growth, supported particularly by the double digit growth in our Mainland China business, as Thay just mentioned. We have reported a minus 3.2% in our adjusted EBITDA linked to the pressure we have faced from the operating deleverage in ANZ, while we have been, as you can see, proactively able to adjust our spending, our OpEx and refocus our investments in the right parts of the business to minimize the impact on our EBITDA. As a result, we have still reported a double digit net profit growth of 10.1%, which shows our ability to adjust to invest smartly to have an efficient capital management and also to lower the cost of our debt. As a result, we have also reported a continuous earning growth of 12.7% and also an operating cash flow as a percentage of EBITDA of 100.7%. I think that is also an important metric because it shows the high cash flow conversion that we have from our business and sales to EBITDA, the light asset business model and a very high cash generative business. As a result of this healthy leverage, high cash conversion, we have been able as we mentioned to achieve and to reward our shareholders with 50% dividend payout, which is the second consecutive year of paying this dividend to reward our shareholders. Key business key financial highlights of this year 2020. This the stage actually. I guess the main driver that we want to call out for our growth during the pandemic in this 2020 and present year are two things. The first one is the strong demand for immunity products across categories both in B and C and A and C and also the acceleration of digital sales and online. So we have been talking about that before 2020, but we have accelerated that during the year to capture those trends and make sure we enter consumer demands in those two kind of growing trends. The revenue from Mainland China has grown 10% year on year, which is a strong performance and accounted for 82.8% of our total group revenue. Within that Mainland China business, IMF is obviously our largest category and it has grown 2.7% year on year. Probiotics has grown 12.7%. Other pediatric products, mainly Doty diapers has increased 21.9%. And our Swiss business in China has achieved a strong growth of 25.4%, now accounting for 61.2% of our total Swiss revenue and of course now our largest market for total Swiss business. Our revenue in ANZ has been obviously more challenging, minus 32%, and the pressure has been obviously focused on the Daigo Channel, where we've been experiencing pressure as a result of the border closure, the lack of tourists coming into the country. But we have, at the same time, seen strong momentum from domestic demand. And our third geographical pillar, which we call Other Markets outside from Mainland China and A and Z has been able to achieve 2.2% growth year on year and double digit growth if we exclude the Hong Kong SAR. Beyond financial numbers, just four things that I would like to highlight for 2020 in terms of the way we have managed our business. The first of all is the supply chain management because you're seeing and covering a lot of companies, and I'm sure you're seeing a lot of disruption in business and eventually translating into results from supply chain disruptions because of the pandemic, whether these are quality issues, supply shortages or cost increase. I think we can say as a business that we have been managing this part pretty well very proactively and so kept our product quality intact. Supply chain continuity has been ensured. We haven't seen any major disruption to our business and we have managed our costs pretty well. The second part is new product launches. We are a product organization driven by innovation. And so our ability to put new products to the market is very, very key to answer the consumer demand. As a result, we have not been affected by the pandemic in terms of launching our new products on time. This has been on track. And I think that I want to highlight that as a great performance from the team to keep innovation on track and insert consumer led trends despite the pandemic. The third part is that whether that's ANC, BNC or now P and C, our product categories are resilient to crisis and last year has demonstrated that. We have actually seen an upside of demand from immunity related products. And beyond the pandemic, we think that we are in resilient and growth categories, which is definitely an asset for us to grow in the future. The fourth one is beyond business itself. 2020 has really witnessed a focus or reinforced focus on sustainability and the importance of having a sustainable business. And so we have reinforced all of our efforts despite the pandemic and kept our focus to become a best in class sustainable organization. We will come back to that. Our strategy is still the same and we have carried it forward through the pandemic. We had two very strong business pillars of B and C and A and C, Baby Nutrition and Care and Adult Nutrition and Care. And we have created in 2020 a new pillar of growth for the business P and C, which now enables us to cover the whole family nutrition and wellness needs with our different premium proven and aspirational and engaging brands. So I think that puts us in a unique position with these three pillars to continue to grow in the future. I've been talking about product innovation. We are a product organization. So our ability to innovate, to follow consumer trends, but also in our DNA, have science backed products in our genes. And so everything we put to the market has to have efficacy, but also has to follow consumer trends. So we have highlighted here four trends that have been accelerated last year and where we have been able to innovate and put new products. Plant based is obviously one of these trends. Immunity, we spoke about that. Pre and probiotics, HMOs, moving into more new formats such as kids gummies. So our ability to launch new products in that immunity supplement range has been very important. Beyond physical wellness, mental wellness, sleep, mood, CVD, management of stress, we have been one of the only organizations who's been able to launch very quickly and very efficacious CVD related products and mental wellness proposition in general has been increased and improved for HNH as a group in 2020, which I think is a great performance. Swiss is very strong in beauty in general, beauty from within. So beyond skincare, taking care of your skin and of your beauty from within has been in our jeans and Swiss's jeans, and we have continued to innovate and launch new products, including collagen products, very efficacious and also consumer led throughout the course of 2020. Consumer trends, we have spoken about them, everyone is aware, but it's important still to reinforce three things. The first is that broader health cautiousness beyond just physical health, it's body and mind, which fits very well with our three pillars of wellness at H and H that we have been talking about for a long time, nutrition, movement and mindfulness. Our ability to answer that beyond just immunity and this broader wellness proposition is becoming more and more relevant for the consumer. Digitalization, of course, of everything of consumer communication, digital sales, and we will see how we have embraced that in 2020. And of course, this notion of sustainability, not just as a corporate organization, but from a consumer perspective, this notion of build back better, the notion of transparency, of traceability, of buying products that are making less negative impact on the planet. And we are seeing consumers being willing to now pay a premium for products that are more sustainable, more traceable, more transparent. So what that means for H and H, obviously we are science led and innovation led organization. We need to be able to talk to consumers about why and how our products are improving their lives and their health. And so we have continued those efforts in 2020 in our consumer communication by strengthening our innovation. We have also accelerated digitization with a more data driven approach and also increased the total contribution of our digital sales to the total business. So I think the key number that highlights that is the total digital sales of our at a group level was 23% in 2019. It's gone up to 33% in 2020. So a clear acceleration of our e commerce sales. If we have a look at our performance by territory, as mentioned at the beginning, it's a mixed performance, but we have seen a very strong performance in Mainland China, is definitely our core business, accounting for 82.8% of our total sales. And 10% growth is a good performance in light of the challenges we have faced last year. We'll come back to the detail of that performance. Obviously, a much more challenging performance in A and Z identified in the Daigo channel, but also Rest of the World, which now accounts for 6.1% of our total sales and is expected to continue to grow as a contribution of our group sales with 2.2% in 2020. But as I said, actually a double digit growth if we exclude the Hong Kong SAR region. I will go quickly through the next slide to directly go to our performance in terms of EBITDA. Obviously, again, a mixed performance as we mentioned is a deleverage of the ANZ region, our EBITDA margin at the A and C level has been impacted, while we have on the other end seen an improvement of our B and C EBITDA margin. Jason will comment more on our EBITDA margin and EBITDA performance in general. I just want to highlight that despite the pressure we have faced from ANZ, we have done a lot of proactive measures to maintain our profitability. And actually, our EBITDA in China, our core market, has been improved in 2020 both in A and C and B and C. I think that's a very important information. Going into the performance by geography. In 2020, in our core Chinese markets, again 10% revenue, 5.5% in B and C and 25.4% up in A and C with Swiss China as being still a key core growth driver of our growth as a total group. In B and C segment, which still accounts for three quarters of our sales in China and A and C about one quarter of our sales in China, B and C China is still obviously our biggest business unit and IMF infant formula within that is the largest contributor. So we have been able to come back to growth in the IMF revenue with a reported 2.7% growth for the total year. If you remember, in the first half of last year, we have seen pressure as a result of the epidemic in China and the lack of offline traffic. And so we have recovered that in the second half, both by expanding our distribution network, but also, I want to highlight, a strong online performance. So really a mix of growing faster and continue to penetrate into more stores in the offline market, but also growing online as well as an increasing sales contribution from the GOLD IMF. I already mentioned that our probiotic revenue has also seen double digit growth on the back of very strong first half of last year And also other pediatric products such as Dodi growing over 21%, which is a good performance. We will come back to A and C and Swiss in China, but obviously very happy with the performance of our Swiss brand in China, which is getting more awareness and beyond cross border e commerce is moving into the normal trade channel. On this page, you've got a snapshot of our performance in terms of infant formula, cow infant formula in China. So we are we have maintained a stable market share at 6.1%. I think what is important is to see that we are growing in the super premium segment. We are number four. We've grown 0.4% market share, and this is a clear focus of the business to position BioStim as a super premium player, also by combining our probiotic and our infant formula top series, reinforcing this immunity message and making sure that we win in this super premium segment. We see here that the goat infant nutrition contribution is growing 6.3% on the back of a strong performance from our goat IMF and also on the back of a strong demand from Chinese consumers for goat infant formula as an alternative to cow infant formula. If we look at our performance per channel, we can actually go to the next slide and see that we have although in terms of e commerce, are still lower than the industry average, but the contribution of e commerce to our total sales is growing. And on the right side of this slide, you can see that our market share online has actually grown significantly during the course of 2020 from 2.2% to 3.4%. I want to highlight that because we have been talking about growing on e commerce for some time. And last year, it was a massive competition online as every brand where we're focusing their efforts into growing in the fastest growing segment of the market. So we have been able to demonstrate that we are able to grow online, while at the same time keeping an overall healthy business, but our ability to continue to grow in this channel is obviously important. Swiss and China, we continue to grow the business. Since the Swiss acquisition in 2015, we have been talking about how to maximize the potential of that Chinese demand for supplement product and continue to grow the brand in that core market. So Swiss China already is the largest market for Swiss accounting for 61.3% and we expect this contribution to continue to grow in this very large VHMS market. Swiss is still the number one brand online with very strong awareness on feedback. Now the next challenge and opportunity for us is to continue to grow in the normal trade channel by launching more products, more blue hats and more in China products that fits with the needs of the local consumers. So we have seen actually a very strong growth of the normal trade e commerce sales of Swiss in China during the course of 2020, while we have seen more challenges on the offline channel as a result of the low traffic in pharmacies. But overall, strong progress made in the normal trade channel and we will continue these efforts. Performance of the business in the ANZ region has obviously been challenged, but it's very clearly identified in the Daigo channel. And so we have spoken about that already, border restrictions, lack of tourist traffic and students buying from the shelves. So obviously, the China related demand within the Australian market is being challenged. And obviously, we don't see this dynamic changing as we speak. But on the other end, the domestic demand has been strong and Swiss has been able to actually grow share and grow faster than the total category from a domestic perspective. So our team is very clear that they need to refocus their efforts on this domestic demand, and they have made a lot of progress to grow in also more domestic and local consumer related channels such as grocery, such as online. We have launched a new range. You can see on the right side, Swift Nutra Plus, which is a very premium pharmacy recommended range beyond the counter, which has also helped us to move into more local pharmacies over 1,000 new pharmacies opened with the new Swiss Neutra Plus range, which is also driving more domestic recognition from the brand and awareness from the brand from domestic consumers. So we will continue to grow Swiss as the brand of choice for Australian consumers. In the Rest of the World, we are very proud of this performance because again the pandemic last year was obviously stronger in the Rest of the World and particularly in Asian countries, in Europe, in The U. S. Where we have grown some presence with our brands in the past few years as you know. So I would like just to call out three particular, I think, achievements. The first one is in France. And you know that the pandemic in France has been also pretty severe and is still going on as we speak now. But despite that, we have been able to achieve a number one organic infant formula brand position in French pharmacies from zero brand awareness four years ago to now being the leader in organic in French pharmacies is a pride for our team. We have now 37% market share and we are one of the most digitally aware brands from French moms in the French market, which I think is a great performance and we'll continue to strengthen that position in the French market. The second thing I'd like to highlight is Swiss in Singapore and Italy. Singapore is not a very large market, but it's an important and a strategic market, very mature premium. And Swiss is now ranking in the top five VHMS brands in this market. When we bought the business from PGT several years ago, I think we were only in the top 10, we are now in the top five and seeing market share increase very significant. So we are very proud of this performance. The second one is Italy. Also on the back of a very strong pandemic in Italy last year, we have still been able to grow both offline but also online with a strengthened position in the Beauty From Within segment. As we grow these markets, of course, Faye mentioned that at the beginning, it's not just about top line growth, it's also about starting to build profitability. And so we are happy to report that some of these markets are already profitable and we'll continue that path as we speak throughout 2020 and the future. So we'll continue to grow the business and in profitability. P and C, our move into Pet Nutrition and Care at the end of last year. You're all aware of this move. I think the capital market really understood what we were trying to achieve. Our teams and all of our stakeholders understand that it makes strategic sense for us to include pets as a key part of the family because of this humanization trend of pets and that they are actually from a marketing perspective, from an ingredient perspective, actually synergies between B and C, ANC and P and C. So we are very happy about the performance of the solid gold brand in 2020, although we've only consolidated about twenty days of results because we acquired the brand in December. But the company has achieved €64,200,000 of sales in 2020, which was both what we expected and a significant growth of 49%. Going forward, of course, for us for Soleil Gold, very clear priorities will be to continue to grow The U. S. Markets and to expand and scale up in China where we have a lot of market knowledge and a lot of potential to leverage across these two key markets. Sustainability, for the first time, we as HNH are reporting our ESG efforts along with our results and we are going to publish our ESG report at the same time as we report and we publish our annual reports, is great efforts for our team and really shows for us the willingness to align our business performance with our ESG efforts because for us they are one thing together. I think the results speak for themselves. We have seen an increase in our ESG ratings on the bottom of this page from major index in 2020, which we have set as a KPI as a target. And this is the reflection of efforts that we have kept throughout 2020. We have clearly identified where we want to make an impact in sustainability in four major areas: Good Health, the story of Good Health which is about how we can make an impact in improving people's lives and health our impact on the environment and how we protect the planet our impact on social and human fairness as a third pillar and of course how we improve our sustainability governance as an organization. So I would not list out all of the achievements, but you can clearly see that we have made very significant progress and we are now as a business coming back to our sustainability strategy really aligned in terms of mindset of how we should run our business and that sustainability is not just a must or a requirement that we're putting to ourselves, but it's actually becoming a force for the business to do business in a better way and eventually bringing sustainable business outcomes by putting people's priority and also the broader society and planets and our stakeholders at the core of what we do, eventually we create shared value, which will definitely have a positive impact on our business performance going forward. So I feel our teams and our stakeholders are very much aligned on what we're trying to achieve, and we'll carry on these efforts throughout 2020 and beyond. Of course, we have still set, as you know, a 2025 targets to become B Corp certified at a group level. We had our first entity certified last year, first brand, and we will continue to have several regions certified in the coming one and two years to go step by step towards this certification. We have made some very concrete commitments for 2021 in terms of environmental impact, reduction in water, in waste to landfill, in using more renewable energies, etcetera. But beyond just again environmental impact, it's the broader sustainability that we are looking at and making improvement in all the different areas including the story of good health, including governance, including diversity etcetera. If we move towards our 2021 strategy and outlook, obviously, we are still committed to continue to drive profitable and sustainable growth. So going into 2021, we are committed to profitable growth to continue our revenue growth and to improve our margins in 2021. We are obviously still seeing pressure in the A And Z region, but we are better equipped to anticipate them and to mitigate this impact. So we'll be in a better position to proactively react and that as a result will help us to improve our margins. Mainland China remains our largest market. So obviously, are committed to continue to deliver growth both in B and C and in AMC, while we also start to establish P and C as the third business unit in our China business. And as we speak now, our team has really started to activate the marketing and the sales in the China region. From B and C perspective, definitely there is competitive and macro pressure with declining birth rate and intensifying competition in IMS, but we are confident that BioScan can continue to grow market share in the IMS segment on the back of an extended distribution network and a very clear product portfolio strategy. For A and C, we'll continue to grow Swiss brand awareness. Again, beyond CBEC, we're seeing big potential for our brand also in the normal trade, not on offline, but also e commerce and we'll continue to grow the Swiss business in China in this direction. We will continue to I spoke just briefly about ANZ, definitely have a clear focus on domestic consumers. We are expecting the ANZ market to gradually stabilize. We continue to foresee pressure in the Daigo segments, but we'll manage that as we said proactively and very clearly focus on driving domestic market share. In other parts of the world, we'll continue to expand BioScan and Swiss in some key international markets. We will be selective. We'll do that with discipline and also with a very consumer centric and product innovation mindset in mind. And of course, we will continue to strive for being the best in class sustainable organization. Again, we have set very clear targets and KPIs for 2021 to continue to make progress in the field of sustainability and on our journey to become a B Corp certified organization. And last word on our strategy beyond 2021, we definitely have the vision to become a global leader in premium nutrition and wellness through superior products and aspirational brands. As I said at the beginning, we are clear and confident that we now have three pillars of growth with very strong brands in markets where we can drive growth going forward. Of course, for us, we will have the focus that is needed to win in our core China market. It is our top priority, growing continue to grow BioStan in China and SWIFT in China continue to invest in our brand, product innovation and channel expansion and also gain that domestic leadership for SWIFT in the AMZ region. Beyond winning in core, obviously, we still believe as an organization that diversification is strategic and is healthy. So we will continue to diversify again from a geographical perspective, continue to expand into selected international markets including the ones that I mentioned earlier where we think we have a chance to win with a strong brand and product proposition and expanding to the P and C pillar which we believe will be a growth driver for the business. We will also continue to invest for the future to digitalize the business to try new business model, including B2C and also continue through our leveraging the investment we made through our new H2 fund into kind of mega trends such as personalization, plan based, CBD, etcetera, to strengthen the innovation for the total business. We will do that again with the right discipline, with a profitable and accelerated growth mindset in mind, very consumer centric approach and eventually by really effectively managing our capital to invest where we think there is the highest and the best return for the business. Thank you for your attention and I would now invite our CFO, Jason, to share with you our financial details. Thank you. Thanks, Leticia. Good morning, everyone. So now I would like to share with you more financial details from our results announcement. As you can see from the P and L summary page, so we maintained the positive revenue growth of the overall business in 2020 with the healthy profitability and cash flow. In particular, we have improved our net profit margin and net profit itself achieved double digit growth. If we look at the breakdown of financial items by P and L, cash flow and balance sheet. As you can see in the next page, we show here the gross margin by category. Overall, the group's gross margin was 1.9 percentage points below last year. This is mainly due to the pressure from the product mix and the market mix change, which we have highlighted during our interim report and quarterly report announcements. If we look at the the breakdown here for the infant formula, this is mainly due to the higher revenue portion from the slightly lower margin infant formula products of the goat milk and domestic series. But overall, the IMF gross margin still stayed at a healthy level of close to 64%. The probiotics has enjoyed the slight improvement of the margin, thanks to the COGS improvement last year. Then the other pediatric products also see a slight decline of gross margin, mainly due to the higher portion of revenue contribution from our DOLDI branded diaper range. Then for ANC side, we have also seen a slight decline of 2.4 percentage points, mainly driven by three factors. The first is the lower revenue portion from the Daigou business. Second is due to the provision made for the supply chain model change in Australia and U. S. And the third is due to the provision and also the discount made for the stock clearing during our China normal trade channel optimization. And for 2021, we will continue to see on the P and C side the continued product mix impact. But with the further improved lending ratio, then we shall see a stable EBITDA margin for the overall BNC business. While for A and C side, in 2021, then we shall see a stable gross margin going forward. If we look at the next page on the selling and distribution expenses, we are happy to maintain a stable selling and distribution expenses throughout the whole year of 2020. We made a very clear indication one year ago that we will keep the whole overall selling distribution expense within this 40% cap. So in 2020, despite the ANC ANZ sales decline, which resulted in the slightly higher ANC spending ratio, we managed to neutralize this impact with the strong efforts made in the expense improvement on the BNC side. So therefore, on a total basis, we've maintained this very stable selling distribution expense ratio. And definitely, spending efficiency efforts will continue in the 2021. Then in the next page, 34, we also show here the breakdown of F and D expense by existing markets and the new markets and new categories. Again, we fulfilled our indication made one year ago that the investment in the new categories, new markets should not exceed 10% of the total group's S and D expenses. As you can see, the final result is 9.5%, so well within this 10% cap. And this is really thanks to the the efforts also made in those new markets, new categories to improve the efficiency of spending as well. And going forward, we will continue this good approach so as to strike a right balance between the adequate level of resource invested in those new markets and new categories and the ambition to still keep efficient spending level and healthy profitability. Next page, we look at our admin expense development site. So the same spending efficiency improvement efforts also being implemented and made in the admin areas as well. So therefore, despite the challenges we faced last year in many markets and areas due to the COVID, we have managed to maintain a stable admin expense ratio on a group total basis. And again, this kind of efficiency improvement efforts just continue in this year. On next page, we move from P and L to the balance sheet. You can see on the working capital side, on a total basis, we maintained a stable working capital turnover for 2020. On the receivables side, we have improved slightly, thanks to the efforts to main manage our credit risk, especially amid the volatility of COVID. Then on the payable side, even though on the reported basis, the turnover days came down slightly, but this is mainly due to the cutoff differences. There is no material change to our overall payment terms and conditions with our suppliers. Then on the inventory turnover side, which was a focus throughout the whole year last year, we are happy that the overall inventory turnover days maintain at a stable level with just a slight increase of sixty days, but this is mainly due to the stock buildup at the end of last year for BNC for the coming Chinese New Year holiday season. For 2019, one year ago, this stock buildup was already consumed at the year end because as you may recall, the Chinese New Year in 2020 was in January. So therefore, this season was higher low earlier than this year. Also, what I want to highlight here is that, as you may recall, in our interim report result announcement for first half of last year, our inventory turnover days went up to over a hundred eighty days, mainly due to the need to build up the safety stock for both BNC and ANC in the first half of last year amidst the COVID. Then in the second half of last year, we managed to further improve our overall inventory position along with the gradual relaxation of improvement of the overall COVID situation, especially in China. So we managed to improve the both the inventory balance and the turnover, especially in the second half of last year to go down to this overall stable level on a full year basis. So we are happy with this positive development. And definitely, again, the efforts will continue this year. Let's move to the next page, 37, to look at our overall liquidity status. So as Nipijay just mentioned, we have maintained this high cash generation business model. The cash flow generated from operation versus our EBITDA stayed at a very high level. As you may recall, the pretax operating cash flow accounted for 97% of our EBITDA one year ago. And then for 2020, this conversion ratio even went up slightly to over 100%. So this is a really shows a very healthy liquidity status. Then on the cash balance side, we see the same picture with also the prudent investment in the capital expenditure, which stayed at billion, well in line with our indication. We maintained a strong cash balance of RMB 1,800,000,000.0 at the 2020 on a reported basis. But as you know, we made a payment of million in December for the Solid Gold acquisition. So if we add this amount back on the pro form a base, our ending cash balance was billion. So this really shows a very healthy liquidity and cash position for the whole group throughout the whole year. Now let's move to the next page, 38, to look at our leverage status. Also, throughout the whole 2020, we maintained a stable cash a debt position for the group. Even though on a reported basis, you may notice that on the left hand side of this slide, our debt balance increased by USD 75,000,000. But this is mainly because we completed our refinancing of term loan and bond at the 2019. And for that new term loan of 66,205 million dollars within that, the last tranche of 5,000,000 was only drawn down in January 2020 according to the schedule. So therefore, the actual debt remain the same from the beginning to the end of the year at $925,000,000. Also, thanks to the successful refinancing of overall debt portfolio at the 2019. And in 2020, we enjoyed the full year benefit of this finance cost saving with saving of over RMB 130,000,000 achieved. This saving was slightly higher than our original expectation, thanks to the appreciation of RMB against the U. S. Dollars last year. Also on the leverage side, we maintained a healthy leverage ratio as well. On the net leverage ratio point of view, which is the net debt divided by the EBITDA, we saw a slight increase from 1.64x to 1.94x. But this increase is mainly because of the cash made for the Solid Gold acquisition in December. If we look at on the gross leverage side without the this special effect of cash movement, there you can see our gross leverage remains at also stable level, around 2.8 times. So overall, it is a very healthy level and we have a very sufficient headwind financial covenant wise. So in summary, we are happy to achieve this positive growth of the revenue for the 2020 with the healthy profitability and cash flow status. Also, the stable cash capital structure we show here can provide us sufficient financial resources to support the continuous profitable growth of our overall business going forward. Now, Victoria, Faye and I, we will be happy to answer any questions you may have. Thanks. 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. Kindly submit all questions in English. I will now pass it over to Ms. Joy Tsai, Investor Relations Director to commence the Q and A. Thank you. Hi, everyone. We've got three questions from Lin Wu from Bank of America. So the first question is about infant formula. However, our sales per store growing for existing point of sales in 2020 and how do we plan to further stimulate growth in sales per store going forward, especially as major competitors are also enhancing their product portfolio and investing in offline? And the second question is still about the infraforma. For the new distributors we are onboarding, are they exclusive distributors to us? And how are we intensifying our distributors to switch to us from our competitors and how are we supporting our distributors and resellers to boost sell through. So is there any implication to cost and profitability? And the second question is about our new Pet and Nutrition and Care business. So on a full year basis, P and C already contributed 3% to 4% of our total sales. Is this fair to assume a similar place for growth in 2021 versus last year, I. E, is close to around 50% year on year? And what's the EBITDA margin outlook for P and C? Joy. It's Leticia here. I will try to partially answer the three questions and then invite Jason to give some complement information from a financial perspective. And of course, Faith, feel free to jump in at any time. So your first question around the performance per store versus the expansion of our distribution network, of course, we are aiming at both, which means we are aiming at increasing our distribution network, which we have done definitely materially in the second half of last year. You have seen the number of baby stores that we have covered has grown up to 65,000, which is a dramatic increase. And we've done that through opening new stores and also onboarding more distributors. So that has been definitely a focus in the second half of last year. But you're right, at the same time, we need to make sure that those stores are actually delivering and that they are active stores that do actually generate sell out. So for us, these two metrics go along together. So we are actually tracking that our stores and the stores that our teams are opening are not just putting on buy time products on the shelf, but that they are actually delivering to consumer sales. So the way we do so is obviously, to your second question, because they are linked together, working more closely with our distributors, the ones that we already have since many years for some of them and the new ones that we have onboarded in 2020 and we continue to onboard, that they need to be part of this effort. So when they help us to develop new stores, they are also here to put on resources along with us to make sure that we carry activities and consumer education activity and new consumer acquisition in the stores. So we have made some adjustments to our sales policies and our incentive to distributors during the course of 2020. And as we continue this effort now to make sure that we amplify the level of resources that they can deploy along with us for this consumer activity. How we support them financially and the financial implication from that from a H and H perspective, I would like to invite Jason to give more comment on this side. Yes. So definitely, as I just mentioned, we shall see this growth of the IMS going forward with the contribution from the existing and new distributors. And we have set very clear ambition for the overall team to achieve that. Plus, also on the profitability side, as I just mentioned, in this year, we shall continue to face the gross margin pressure due to this the product mix change. Just to share with you for goat milk IMF, the contribution of our total IMF portfolio in China was 6.4% last year and domestic series accounted for 2% of total IMF portfolio. And this year, the contribution portion of these two categories should even become higher, which then puts the pressure on offer gross margin. Plus, as you may already seen from the many capital market reports that also that there is a kind of increasing trend for certain raw material prices. Even though we are secured for the first half, thanks to the inventory we build up and also the contract we already in place, but there could be kind of further pressure to place in second half if the raw material price to further increase. But despite this pressure from the gross margin side, we will continue our efforts to further improve our spending efficiency for selling and distribution for BNC in China this year. So that on a total basis, we expect a stable EBITDA margin for our overall BNC business. Thank you, Jason. To finish on your question, I realized that I haven't answered your question around exclusivity of distributors. Most of our distributors are not exclusive. They carry several infant formula brands and that is, I would say, the role in the industry that including for our peers, distributors do not have to be exclusive, but they have to be, obviously, strategic partners. And beyond just being logistic partners, they have to be part of the efforts of, again, developing stores and helping for promotion activities, etcetera. And so it is their role as we have our team together to team up in these efforts. So we do not necessarily require exclusivity, but by expanding this distribution network, we're looking at partners who are here to really embrace this idea that we are here not just to expand channel, but also making sure we create sellout and new consumer acquisition. On your question around P and C, where is the growth going to come from going forward? Yes, definitely, we're looking at a strong growth in 2021. Jason, I'm not sure whether you want to give more color on the guidance itself, but we will be definitely focusing on U. S. And China as the two core markets. We are expecting The U. S. Market to continue to grow in 2021. We are seeing strong demand from particularly the online channel with Amazon and chewy.com, where Soleil Gold is well positioned as consumers are moving massively online in that part of the world too. And in China, obviously, as we activate the business, as we ramp up the business with our own team, which has already been set up, we are definitely looking at growing the business further in the Chinese market in 2021. Jason, on P and C guidance as well as indications on company's margins, do you want to comment more? Yes. Basically, SolidQuote, since for 2020, on a consolidated basis, we only consolidated for the twenty days of December in overall group results. So therefore, the contribution is only RMB26 million. But on a stand alone basis, SOLIDGO last year achieved US64 million dollars revenue, which represents an increase of 49%. So going forward, as Richard just mentioned, right, we shall expect the continued growth of SOLIGO business in U. S, China and also the other markets. But because the size of itself, right, still is relatively small in comparison with the overall group, We expect it will take some time for P and C to make a material tangible contribution to the overall group's revenue and profitability. Okay. We have the next question from Terence Liu from CSA. So Terence's first question is, could you let us know the store extension plan for 2021 and the year next in terms of store counts by channel, please? And do you expect a pharmacy channel to be a more important channel for Inferior sales over the long run? His second question is, what was the sales contribution of organic infant formula brands healthy times in 2021? And how do we differentiate this product with other organic brands in the market in terms of car positioning, branding and channel strategy? Thank you, Joy. Hi, Terence. Thank you for your questions. Store expansion plan for 2021 and beyond. So we have definitely made a big improvement in 2020 in terms of getting into more stores. We will continue this effort in 2021. So we are looking at extending into more baby stores. We have a target of increasing another 10,000 at least in 2021. But beyond that, again, we want to make sure that those stores are, to the previous question, are generating sell out. So it's not just about the number of stores we are present in, but it's also about how they perform and carry our brand. So we'll be looking at both metrics in 2021. But yes, to your question, we have a plan to further extend, not only for domestic series, also for our core IMF as well as GOAT. We also have a plan to expand beyond just baby stores into more pharmacies and more supermarkets as we have demonstrated in 2020. But to the second part of your question around pharmacy channel, will that going to is that going to be a driver of growth in 2021 and beyond? Not in IMF because of the restrictions of selling food products in some pharmacies. We do not really see that as growth channel going forward for IMF, but for probiotic it is different because for probiotic, BioTime probiotic pharmacy is definitely a destination. And so we will be looking at having more distribution into more pharmacies for our probiotic products in the course of 2021. To your second question around Healthy Times IMS, so our product is Healthy Times branded under the Byzheim brand. Byzheim branded Healthy Times is the name of our organic series. So it is part of our total Byzheim proposition and enjoys the same brand positioning around immunity and digestion along with obviously an organic message. We use the same brand ambassador, same overall branding, but it is definitely one of the SKUs that we promote in the super premium end, targeting consumers who are particularly interested into the organic proposition. So the performance of Healthy Time in 2020 has been, I would say, in line with the market performance. So we are seeing growth in the organic demand. And the pace of that growth has slowed down, but it is still a growing category. And we have upgraded our packaging in 2020 in the second half of the year with an over cap and again that Buzztime umbrella brand branding to continue to again make a link with our BioStat brand proposition. And so we are confident about the development of our organic IMF. We haven't disclosed the contribution of organic in our total IMF, but it is definitely one of the drivers of our IMF growth because of the super premium part of the market, which is growing. Okay. Now we have the next question from Tiffany from Citibank. Can you share with us the EBITDA margin outlook in 2021 and the for the next few years? Are we still keeping our previous EBITDA target? Sorry. Jason? Got it. So as I just indicated for the P and C, then we target for a stable EBITDA margin for 2021. And then for A and C, we expect the overall margin to to improve in 2021, mainly thanks to, first, the the improvement of the further improvement of the a n ANC China's EBITDA margin, plus also for ANZ EBITDA margin to improve as well, thanks to the full year benefit of the cost optimization efforts made for last year. So therefore, for ANC total, we expect the EBITDA margin to be back to the high teens level in 2021. Then if we put this together, we expect the overall group's EBITDA margin for 2021 to stay around a level of 20%. So this is our outlook for this year. And definitely down the road, then we will continue to further improve our efforts to drive for the profitability improvement. And also just now, question was related to the P and C EBITDA margin. As you can understand, we still need to invest in this new business to achieve the growth in those critical existing and new markets. But since P and C contribution in the total group was still relatively small, so therefore, the dilution effect from this newly included P and C EBITDA will be quite minor to the overall group's profitability. Okay. We have the next question from Larry Gensler from Credit Suisse. So some think that interferometer industry volume started to decline due to the declining birth rate. Does H and H also believe that interferometer market in China is likely to decline in volume over the next four to five years? Well, from a volume perspective, of course, if birth rates stay at the current level or further declines, then obviously that means volume wise, we might see a decline in the total market. But I think what is important to highlight is that there are still ways to grow in a market that declines from a volume perspective because the market is very segmented and the premium and super premium market part of the market is still growing. So the super premium part of the market in 2020 has still increased 27% from a value perspective as consumers are trading up to more premium proposition. And as I mentioned, BioStorm is really focusing on that part of the market, which is the super premium market. And I haven't mentioned that during the presentation, but we do have an ambition by 2023 to be definitely in the top three player. We are now top four player in that super premium segment and a strong top three player and to continue to strengthen that position, especially with one of our core products, which is called PIE Star, which is a very innovative and very complete formulation product, which is gaining market share in the market. So even if the total market is definitely from a volume perspective not expected to go much in the future, there is this premiumization going on. The second factor is that there is a consumption that is being dragged beyond what we call the one to three years old in Stage four and above. So beyond just three years of age, beyond that age group, parents continue to give infant formula to their children. So Stage four and above is seeing strong growth as we speak, which we will also try to capture and we are capturing as a brand. So there are obviously still ways to grow. And then of course, the last one is market share gains. So we believe with our strong branding, now quite complete product portfolio and our channel footprint, we can continue with our car infant formula, imported our growth infant formula, organic proposition and our with our domestic IMF series and also one SKU that we have dedicated for online, Terroir, that we have launched last year. We have now a good portfolio to be able to address the different parts of the markets and the segmentation by price and by functionality to be able to gain market share in the future. The next question is from Robin UOB. So for the P and C segment, do you have any market share target for the next few years? As you have the industry data and what was the growth rate for the overall industry last year and in the premium segment respectively? And what is the complied CAGR growth for Bounceline to achieve that market share target? So the question on whether we have a market share target for the next few years, as mentioned, we have set this ambition to be a strong top three player in the super premium segment without exact market share guidance. But obviously, in order to do so, we need to grow market share. So we need to grow market share by the different drivers that I identified, again, brand awareness, product portfolio and channel expansion while continuing to grow our market share online. So we have clear targets and roadmap to continue to grow market share in the Chinese market. Industry data on the total market, so the IMF market in 2020 according to Nielsen has grown by 4.8% value wise, and that has been driven obviously by the premium and super premium segments that are the fastest growing ones, while mid to low tier actually in decline. So that's why we really want to focus our efforts in this premium proposition and continuing to this direction. The implied CAGR growth for BioSci, obviously, we are not giving a CAGR precise CAGR over year in terms of B and C. Obviously, if we're able to grow market share in a growing category of the market, that means that our IMF and broader BNC sales should be definitely growing in the future in the following years in China. The next question is from Tal Le from Maple Brown Abbott. So we'll see improvement in selling SG and A ratio driven more by BNC or our A and C business. And how would the ratio be expected to change in the next few years? And her second question is what would be the potential or target margin for P and C in the long term? Yeah. Jason, would you like to answer these questions? Yeah. Sure. For B and C, yes, you can see the efforts already been made to drive this improvement of the spending efficiency. And actually, for A and C, I want to also share with you is that for China market and also most of other markets, we also saw the same trend of spending efficiency for 2020. So with the improvement of the expense ratio. The main challenge we faced in 2020 was in the ANZ market. As you can appreciate, right, when the revenue base declined by 32%, then it really makes this ratio quite difficult to manage with this lower revenue base. But actually, the company already made very strong efforts in ANZ last year, especially with the three rounds of major cost optimization made, especially also in the second especially in the second half when the lockdown measures were extended by the government beyond the original expectation. So going forward, then especially for this year, we should enjoy the full year benefit of those cost optimization measures made, especially from the ANZ market. So for this year, we expect is for overall ANC business, for China market, for ANZ market and also other new markets, we shall see the improvement of the spending ratio across all those markets. So therefore, even though on the gross margin side, we expect for ANC this year to stay at a stable level. Then with this improvement of spending ratio, this is why just now we give this indication for EBITDA margin of ANC this year, it should go back to the high teens level for this year. Then for P and C, as we as you probably already can see from the acquisition announcement we made in November, you can see P and C business during the last three years also improved gradually. And by the time of the acquisition, the EBITDA margin was around mid teen low teen level. So going forward, if we look at the mid or long term, say, down the road, three, five years, definitely we shall see the further improvement from that level. But in the near term, as we are speeding up our growth in the existing markets of U. S. And China, plus also the other markets, then we may not see the immediate improvement of the EBITDA margin for P and C, given the investments required. But mid or long term, right, we shall see the further improvement. But again, since the absolute size of P and C business is still relatively small in comparison with the overall group, the dilution effect to offer group EBITDA margin is quite limited from P and C for this year. Jason, from a mid long term perspective, I think we can say that we are looking at a 15% to 20% EBITDA margin for that category once we scale up the business and have reached the right investment level, right? Yes. So definitely, it will be higher than the level of the doing the acquisition time. But this is the more mid to long term, frame in next two or three years. So, I have the next question from Johnny Yi from Fite Securities. So his first question is how should we understand the China expansion of our baby nutrition care business in the China market? I assume that probably is about our further penetration into the lower tier cities with local series. And second question is referring to the inventory, whether we are in a healthy status or not and how can we make sure that our channels are healthy? Sure. Thank you, Jiangyi. Yes, if your question is the first question is around domestic versus imported infant formula distribution expansion. Definitely during the course of last year when we had expanded it to more baby store and other channels. It's a mix of both domestic and imported series. So we should not understand that all of these expansions are linked to the fact that we have rolled out our domestic series. As Jason mentioned at the beginning, for our domestic series, the total contribution to the business is still relatively small, below 5%, and he actually mentioned 2%. So it is the beginning as we just launched two new SKUs in the second half of last year. But our distribution penetration expansion efforts are also, of course, aiming at expanding our core ranges, including the, what we call, the STAR series, imported series. And therefore and there is not much overlap between the distribution of our domestic and international lines. So it is important that we carry on these efforts. And so that channel expansion is really to make sure that our total portfolio is visible and accessible in different regions. So you're right, in Tier four, five and even lower cities, we're more looking at expanding our domestic range versus in higher tier cities, we are more looking at expanding our domestic range. And we also have extension for our gluten and formula plants. So it's a total effort and we do have a very clear portfolio strategy where we don't want all of our products to go in the same stores and also giving different stores in different series to avoid competitions between the different retailers. That strategy is aligned and we'll carry on these efforts in 2021. For your question referring to inventory in the channel, we do as a business track that very carefully. So we have the monitoring system, which enables us to see how many days of inventory are there at a distribution distributors level. And obviously, we have a team on the ground who are doing store checks to understand how much stock we have in the channel. There is definitely pressure on the short run into the in the market, very high intensified competition and stock in the channel, but we are monitoring that very carefully and very closely in order to make sure that we keep a healthy market. So when we see that there is too much stock in the market, we would definitely try to pull out to pull back on sales to make sure we maintain a healthy level. So we are doing that and monitoring that very carefully. We have the next question from Luo Yixin from Huatai. Since we will put more focus on normal trade channel, what's the new products pipeline of ANC for regulation approvals in the following two years? Yes, thank you for this question. So definitely you're right. Our ability to expand in normal trade for Swiss, first of all, is very important because if you look at just the e commerce space, which is really big growing part of the market in 2020, normal trade e commerce accounts for about 65% of total e commerce and CVEK only accounts for the remaining 35%. So Swiss is extremely strong in cross border e commerce, but has been historically recurring in normal trade just because we didn't have the right products and also because we were really leveraging on the success of CVEC. And so definitely, we are now seeing that as a top priority, and we needed to make sure we have the portfolio that goes along with that to be able to be more present in the normal trade channel, both offline. And when we say offline, it's actually pharmacies is our number one priority, but also in normal trade online. So for pharmacies, it's very clear, we need more Blue Hat products because if you don't have Blue Hat, it's very challenging to be present in pharmacies. And so we have, through the course of 2020, been having more products approved by ACMR in terms of a Blue Hat approval. So to be able to make claims on our products, we've had our iron tablets, we've had our deep sea fish oil, new protein powder and probiotic capsules to name some of them. And so we have launched some of these issues in the normal trade channel during the second half of this year. So to your question, we do have a focus on normal trade. We have the right product pipeline to go with it and we now have 28 SKUs available in China normal trade. Some of them are being hedged, some of them are food grade products, but that portfolio is being extended every quarter and every year and to enable us to get a bigger footprint into the normal trade channel. So the team is really working against that to deploy a broader portfolio. So in the past, we were only focusing on having imported Blue Hat products. And then we have realized that obviously it is important for us to speed up these normal trade efforts that Chinese consumers were no longer so focused on just the important nature of our products, but making sure we have the right branding, the right product efficacy and the blue hats that are so important to be present in the channel and to claim. So we have decided from the beginning of last year to allow also some China made Blue Hat products because it's easier to get definitely approved and also because as long as we are able to provide brand consistency with our Swiss message, we think that consumer acceptance is there and it's actually proved to be like this. So the fact that we now have also some locally made products, of course, our same quality standards, we are now able to move faster into the normal trade channel. Due to time constraints, we are having the last two questions on board. So the first question is from Sun Hong Nang, willing investment. Can you share with us the gross margin level for Swiss China versus and does it have the same cost structure and that in terms of the selling and distribution expense ratio? Sure. Jason, that question is for you. Yes. The gross margin level of Swiss China versus the ANZEP, the margin for China, gross margin wise, is higher due to the different price point and product portfolio mix. And then if you look at the selling distribution expense ratio wise, also the profile is different. It's because the channel mix also are different. As you can know, in China, the close to 90% of the business still is cross border e commerce business, which is online and, then in Indian market, which is mainly kind of offline focused. Plus also in terms of the brand awareness status, as you can see in China, still the Swiss, despite its leading position in the online space, are still have great growth potential to grow offline. And also, the penetrable penetration is still relatively low. So therefore, it is required to maintain a strong investment in the AAN and also the second distribution in order to boost our overall brand awareness and the penetration in the overall China market, both online and offline. If we look at the number by itself, as we also indicated in our results announcement, even though, last year, the SMB ratio of the ANC, business increased by the 5.7 percentage points, but this increase was mainly driven by the, due to the operational deleveraging post of the sharp revenue base decline in the ANZ market. But if we look at the China business itself, actually, the spending ratio slightly improved last year. So therefore, going forward, then the same spending efficiency improvement efforts will continue for both the China and the ANZ business. Okay. Now we have the final question on four. It's from Chris Lange, Templeton. What kind of sales trends have you observed on the and local pharmacy channel ANZ so far this year? Okay. Hi, Chris. Thank you for the question. We have observed pretty much the same trends as the one we have left you with last time when we reported on our second half results. I think Daigo wise, the trend is still challenging. That's why we mentioned as an overall outlook for 2021 that the gradual recovery of ANZ as a total because if we look at last year, actually COVID impact in Australia and border closure only happened lockdowns only started to happen in March. So we have that first quarter of last year, which is not fully comparable with first quarter of this year. So Daigos are definitely not coming back for the Chinese Daigos that has not been able to return to Australia as well as the Chinese tourists. We're not seeing any traffic recovering. And I think we are taking the view that this will be pretty much the same for the rest of the year. So we are still working strategically with some corporate DIGOs that are still in the Australian markets and having those relationships with them. But in terms of trend, we haven't seen a reversing trend. From a local consumption perspective, local pharmacy channel, as you mentioned, but also grocery, also online, which are channels where local consumers are shopping, we are seeing a strong momentum from the Swiss brand and some market share gains in those channels. So the team is launching also quite a bit of innovation, new products to the market. Neutro Plus is being ramped up and as well as some new innovation under the core Swiss brand. So from a domestic perspective, we're seeing same positive momentum that we have started to witness in the second half of last year and we are pretty confident that this will continue throughout the rest of the year. TIM has also launched a new innovation, not just formula innovation, but also moving into gummies, into new formats that are more appealing to the younger generation and the local consumer. So we should definitely be seeing progress on the domestic side and with the clear goal to mix with the brand of choice and the leading brand in domestic market. Thank you for the good questions. Ms. Anne, speak to a session. 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 everyone. Thank you.