Formula slump: H&H Group reports “challenging” first six months with net profit down nearly 50%

The company listed on the stock exchange of Hong Kong is known for the Biostime-branded infant nutrition which ranges across infant formula to health supplements.

In its half-year results announced on August 27, H&H Group reported a 4.1 per cent decline in total revenue to RMB$6.69bn (US$939m).

Net profit fell 49.7 per cent to RMB$305.8m (US$42.9m).

Mainland China was the biggest revenue contributor to the company, with 67.9 per cent of the total revenue, or RMB$4.5bn (US$637.5m), coming from the market.

This was followed by Australia and New Zealand, North America, and other territories, which contributed 14.6 per cent, 12.2 per cent, and 5.4 per cent to the total revenue respectively.

A challenging infant nutrition market in mainland China was cited as the main factor for the decline in net profit.

Revenue from its infant formulas business dropped 18.8 per cent to RMB$1.8bn (US$252m).

Its paediatric probiotic and nutritional supplement sales also suffered from the high base performance seen last year, with revenue down 31.6 per cent to RMB$508.6m (US$71.4m).

As a result, its baby nutrition and care (BNC) business reported a 22 per cent decline in revenue to RMB$2.4bn (US$341.3m).

Mainland China made up most of H&H Group’s BNC business, contributing 92 per cent to the BNC business revenue in the first half of 2024.

The company explained that there have been difficulties clearing batches of infant formulas that were approved under China’s old national or guobiao (GB) standards.

This structural challenge, it said, was affecting the entire industry.

Steep discounts introduced to clear products made based on the old GB also impacted profitability.  

“Our BNC segment performed below expectations as our IMF (infant milk formula) business in mainland China faced stronger and more sustained headwinds than initially expected. ​

“While the long-term systemic issues facing all players in the IMF industry remain prevalent, the market has struggled to clear old ‘GB approved’ stock, resulting in longer-than-expected competitive intensity and discounting activity. ​

“This, in turn, impacted our sell-in rates and our profitability in the first half of the year despite the pace of decline significantly narrowing quarter by quarter,” ​said the company.

Still, H&H Group said it had managed to grow its market share in the super-premium segment, as market share went up from 11.7 per cent to 13 per cent, citing data from Nielsen.  

It added that its innovative paediatric nutrition products, such as calcium, DHA, and gummies, will help return its baby nutrition and care business to growth.

“Within our BNC business, the growth of our innovated nutritional supplements products and a weakening base effect will help our paediatric probiotic and nutritional supplements return to growth, helping to offset some of the ongoing weakness in our IMF business, which will now likely see a continued sales decline in the second half of the year amid market-wide high channel inventory levels and aggressive promotional activities amidst contracting market.”​

Competitor Danone, owner of the infant formula brand Aptamil, said it had maintained “competitive momentum”​​ in mainland China’s infant formula market for the first half of 2024 due to a “great volume mix” ​and new innovations.  

China introduced the new GB standards​ for infant formulas last February, requiring companies to reformulate their products’ calories, proteins, and micronutrients content.

In June, China’s State Administration of Market Regulation (SAMR) said ​it had approved 592 infant formulas formulated based on the new GB standards last year.

Adult nutrition sales growth driven by beauty, detox demands ​

The adult nutrition and care (ANC) segment was a stark contrast to its infant nutrition business – with double-digit growth seen despite a high base last year.

Revenue from the ANC segment was up 11.2 per cent to RMB$3.3bn (US$459.8m).  

In mainland China, Swisse grew by high-single digit with improved profitability and an expanded market share.

This was driven by robust consumer demand for beauty, multi-vitamins and detox products, as well as new product launches within innovative categories.

“We continued to capitalise on consumer segmentation and penetration, further extending Swisse’s product portfolio into Swisse Plus+, Swisse Me and Little Swisse as part of its mega-brand strategy to better capture demand for premium nutritional products from different consumer audiences.​

“Importantly, Swisse Plus+, with its higher profitability, made a double-digit contribution to total ANC revenue in mainland China, growing by 48.7 per cent,” ​said the company, adding that Swiss Plus+ had maintained its lead in the anti-ageing category.

Another product, Swisse Liver Cleanse also sustained its leading position in the high-end thistle segment in mainland China’s e-commerce market.

In Australia and New Zealand, it also saw growing demand for immune, beauty, and general wellness supporting products, while its North America business is focused on pet nutrition.