Natural Food International Holding Limited to Raise a Maximum of Approximately HK$884.1million by Way of Global Offering

*Adjusted net profit represents profit for the year or period before
loss on fair value changes of convertible and redeemable preferred shares and
the expenses incurred in connection with the Global Offering.

 

HONG KONG, CHINA - Media OutReach - 28 November 2018 – Natural Food International Holding Limited (“Natural Food
International”, together with its subsidiaries, the “Group”; stock code: 1837), a natural health food
company in China, announces the details of its plan to list on the Main Board
of The Stock Exchange for Hong Kong Limited (“SEHK”) today. [1]

 

A
total of 421,000,000
shares will be offered under the Global Offering, of which 378,900,000 Shares, or 90%,
subject to re-allocation, will be offered by way of
the International
Offering; while
the remaining 10%, or 42,100,000 Shares, subject to
re-allocation, will be offered under the Hong Kong
Public Offering.
The Offer Price per Offer Share is expected to be not
less than HK$1.62 and not more than HK$2.10. The Public Offer will
commence at 09:00 am on 29 November 2018 (Thursday) and close at
12:00 noon on 4
December 2018 (Tuesday). The allotment result is
expected to be announced on 11 December 2018 (Tuesday). Dealings in Natural Food
International‘s shares
on the Main Board of the SEHK are expected to commence on 12 December 2018 (Wednesday).

 

Assuming an Offer Price of HK$1.86 per Offer Share (being the mid–point of the Offer Price
range), the aggregated net proceeds from the Share Offer, after deducting
related expenses, will be approximately HK$710.1 million. Natural Food
International intends
to use these net proceeds for the following purposes: 1) approximately 35%
to enhance its integrated distribution platform and optimize its channel mix;
2) approximately 60% for the construction of its new Nansha Manufacturing Facility
in Guangzhou, Guangdong Province and the procurement of machinery and equipment
for this planned processing facility; 3) approximately 5% for its working
capital and general corporate purposes.

 

China International Capital Corporation
Hong Kong Securities
Limited and CMBC International Capital Limited are the Joint Sponsors. China
International Capital Corporation Hong Kong Securities Limited and CMBC
Securities Company Limited are the Joint Global Coordinators. China
International Capital Corporation Hong Kong Securities Limited, CMBC Securities
Company Limited, Haitong International Securities Company Limited and Bluestone
Securities (HK) Co., Limited are the Joint Bookrunners and Joint Lead Managers.

 

Business
Overview

According to
Frost & Sullivan, the Group is the second largest natural health food
company in China in terms of retail sales value in 2017, with a market share of
1.7%. According
to Frost & Sullivan
Survey, the Group’s “Wugu Mofang” (????) brand is the most
widely-recognized natural health food brand in China. It ranked first in terms
of top-of-mind brand awareness and customer satisfaction among all the natural
health food brands in China and also ranked as the most frequently consumed
brand among all the natural health food products in China.

 

The retail sales value of China’s
natural health food industry
has grown from RMB68.0 billion in 2013 to RMB103.1 billion in 2017,
representing a CAGR of
11.0%, and is expected to reach RMB183.9 billion in 2022, representing a CAGR
of 12.3% from 2017, according to
Frost and Sullivan.

 

The Group
crafted its products from its roots of traditional Chinese dietetic culture and
its belief in “Dietary Nourishment” (????), infused with modern nutrition science and food
processing technologies. It offers a broad selection of natural health food
products that caters a wide spectrum of consumers of different age groups and
needs. The extensive diversified product portfolio includes approximately 90
types of products, including products made from naturally sourced ingredients
and processed with scientifically tested formula, as well as products appealing
to specific consumer groups, such as products appealing to females, teenagers
and the elderly.

 

The Group has
built a comprehensive and integrated distribution platform with “New Retail”
characteristics comprising both online and offline channels, which enhances the
visibility of the brand and makes its products more accessible to potential
consumers. As of June 30,
2018, the Group’s integrated
distribution platform consisted of (i) an offline network of 3,916
concessionary counters in supermarkets in 464 cities across China , and (ii)
online channels, including (a) e-commerce platforms, such as Tmall, JD.com and
Vipshop.com, and (b) social media platform, namely its WeChat member store.

 

The Group’s robust
technology infrastructure and stringent quality control measures drive its
operational excellence, ensure product quality and support the rapid and
successful expansion of its sales network across China. In addition, the Group
has adopted a set of stringent quality control practices throughout the supply
chain and across all of its sales channels to ensure the products it sell
adhere to national food safety standards. The Group’s stringent quality control
practices cover the sourcing of raw materials, production, packaging, inventory
storage as well as cleanliness of concessionary counters and employee conduct.

 

Competitive
Strengths

1.     Leader in the rapidly growing natural health food
industry in China with a highly recognizable brand

A highly recognizable brand allows the Group to enjoy strong consumer
loyalty, leading to a higher proportion of repeat purchases as well as lowering
its costs to attract new consumers. Its leading market position,
well-recognized brand image, and attractive product offerings, together with
the active use of online and offline distribution channels, best position it to
capitalize on the strong expected growth opportunities ahead in the natural
health food industry in China.

 

2.     Diversified product portfolio supported by
innovative product development capabilities

During the
Track Record Period, the Group had successfully launched a total of 68 new
products and improved 53 existing products. The Group stays true to its belief
in “Dietary Nourishment” (????)
and offers a broad selection of natural health food products that caters a
broad spectrum of demands from consumers of different age groups and health
concerns. The extensive diversified product portfolio includes approximately 90
types of products. As of the Latest Practicable Date, it had an in-house staff
of eight employees in its product research and development department dedicated
to product development and technology advancement. Half of its research and
development personnel holds master’s degrees or above.

 

3.     Well-established integrated distribution platform
comprised of online and offline channels

The Group
operates a comprehensive and integrated distribution platform comprised of
online and offline channels with “New Retail” characteristics, which could
enhance the visibility of the brand and make its products more accessible to
potential consumers. A high degree of integration helps to maximize the
performance of its business. Accordingly, the Group has made extensive efforts
to ensure the mutually reinforcing nature of the various sales networks within
its integrated sales platform to create synergies and increase incremental
sales.

 

4.     Excellent operational efficiency supported by its
strong proprietary technology infrastructure

With 48
technology professionals, the Group is dedicated to strengthening its
technology capabilities, including big data analytics and mobile technologies.
Its best-in-class technology and big data analytics capabilities drive
operational excellence and enhance value creation across its supply chain. The
Group utilizes its proprietary ERP system to retrieve and analyze its operational
data to aid faster decision-making and boost productivity and profitability.
Also, the Group employs its propriety BI system to support its wide range of
business decisions and increase its responsiveness to the latest market
dynamics.

 

5.     Strong ability to control food safety and
ingredients supply

The Group
takes a holistic approach to quality
control and implement stringent standards in all aspects of the business, from
sourcing of raw materials, production, packaging and inventory storage to cleanliness
of concessionary counters and employee conduct, to ensure the quality and
safety of its products and to be aligned with industry best practices. Also, the Group’s
long-term suppliers have on average six years of relationship with it. Such
cooperation in turn promotes economies of scale and enables the Group to secure
sufficient and reliable supply of ingredients. To ensure freshness of the
ingredients, the Group source key ingredients around the world from their
places of origin.

 

6.     Visionary and experienced management team with a
focus on human capital

Members of
the senior management team on average have ten years of experience in the food
industry, and the research and development head possesses extensive managerial
experience derived from his previous role at a multi-national corporation in
the consumer retail sector, Fortune 500 food and beverage company.

 

DEVELOPMENT
STRATEGIES

1.     Further enhance its integrated distribution
platform and optimize its channel mix

The Group will further
expand its online presence to strengthen its current market-leading position,
including working with a broad range of large-scale e-commerce platforms such
as Tmall and JD.com,
and further increase the resources devoted to its self-operated WeChat member
store.

 

The Group plans to upgrade approximately
3,000 existing concessionary counters to a new type of integrated health food
stores and add approximately 2,200 new concessionary counters in the next three
years. Also, to explore the “on-the-go” consumption channels, such as small
grocery stores and/or convenience stores, in prime locations in first tier
cities with high visibility and customer traffic. The Group expects a national
coverage in or around 2021 with approximately 25,000 “on-the-go” consumption
sales points.

 

2.    
Continue to expand and
diversify its product
portfolio while upholding its
core values of “Naturally Made, No Additives Needed”

The Group expects to continuously
develop new products that cater to different consumption scenarios and are of
higher consumption frequencies, such as meal replacements and casual food.
Leveraging its big data analytics and technology infrastructure,
the Group also
intends to
continue to develop products that cater to a broad spectrum of dietary and
health demands from consumers of different age groups, in particular, the young
consumers group.

 

3.    
Further strengthen its brand
equity to increase market share

The Group intends to further promote its brand through a combination
of traditional media advertising initiatives as well as promotional campaigns
through new media channels and platforms, to increase the profile and value of
its brand. Utilize online and social media outlets such as Weibo and WeChat to
launch a variety of initiatives and Engage educational campaigns and celebrity
endorsements to promote the Group’s natural, healthy lifestyle and its commitment to food safety
and quality. In addition, the Group would further expand its offline
distribution network and engage interactive themed marketing promotion
campaigns that appeal to its target customers.

4.    
Further enhance operational
efficiency and optimize technology infrastructure

The Group intends to devote substantial
resources to developing and integrating the latest technologies throughout its
technology platform and internal practices to improve raw material procurement,
centralized production, consumer interaction and general operational efficiency.
It also intends to leverage its big data analytics capability to understand
consumers from different age groups and consumption perspectives, assess their
particular needs and behaviors, and offer them targeted and customized
products.

 

5.    
Recruit, train and
incentivize talent

Natural Food International plans to continue to provide its employees with structured
training that is designed to provide them with a clear career advancement
track. The Group also intends to adopt an equity incentive scheme
linked to its
performance in order to further motivate its employees. Management believes such scheme supplements the existing employee
compensation plans and bonuses, as it helps to attract skilled and experienced
personnel and motivates employees to strive for the growth of the Company.

 

6.    
Pursue appropriate strategic
acquisitions and business opportunities

The Group intends to expand upstream and
acquire suppliers of key raw materials to further strengthen its value chain, and ensure an
adequate, stable supply of the
key raw materials. The Group also believes suitable acquisitions will allow it to gain experience and
expertise in developing new products, gather market intelligence on the latest
consumer trends and provide it
with the appropriate platform to expand into different product categories in
the future.

About the Group

Natural
Food International Holding Limited is the second largest natural health food company in China
as measured by retail sales value in 2017, according to Frost & Sullivan.
Its brand “Wugu Mofang”(????) brand
is the most widely-recognized
natural health food brand in China
and ranked first
in terms of top-of-mind brand awareness and customer satisfaction among all the
natural health food brands in China and as the most frequently consumed brand
among all the natural health food products in China, according to Frost &
Sullivan Survey. Infused with modern nutrition science and food processing
technologies, the extensive diversified product portfolio includes
approximately 90 types of products.

As of June 30, 2018, the
Group has an offline network of 3,916 concessionary counters, and distributes
its products through major e-commerce platforms, such as Tmall, JD.com and
Vipshop.com, as well as WeChat member store.