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EDITED TRANSCRIPT
HLF – HERBALIFE LTD at Bank of America Merrill Lynch Consumer &
Retail Conference

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EVENT DATE/TIME: MARCH 08, 2012 / 8:00PM GMT

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MARCH 08, 2012 / 8:00PM, HLF – HERBALIFE LTD at Bank of America Merrill Lynch Consumer & Retail
Conference

CORPORATE PARTICIPANTS
John DeSimone Herbalife Ltd. – CFO
Amy Greene Herbalife Ltd. – VP, IR

CONFERENCE CALL PARTICIPANTS
Chris Ferrara Bank of America/Merrill Lynch – Analyst

PRESENTATION
Chris Ferrara – Bank of America/Merrill Lynch – Analyst
Welcome back to the conference, we’re thrilled to have Herbalife here back at the Merrill Lynch Consumer
Conference. It’s our Bank of America Merrill Lunch Consumer Conference. This has clearly been an unrivaled
growth story. Since the Company came back public in ’04, volume points have put up a 13% CAGR, and EPS
a 35% CAGR. Fueling that growth has certainly been the adoption of the nutritional club concept more recently.

Shares are up 30% year-to-date, over 70% over the last year. And here to present for Herbalife is Chief Financial
Officer, John DeSimone John joined Herbalife in 2007 and was elevated to the CO role at the start of 2010; has
been instrumental in driving growth in both new and existing markets, as well as in the Company’s drive to bring
manufacturing back in-house. I’ll turn it over to you, John. Thanks.
————————————————————————————————————————————————-
John DeSimone – Herbalife Ltd. – CFO

Thanks, Chris. I see a lot of familiar faces in the crowd, so I think maybe the best approach is get through the
presentation somewhat quickly and go to Q&A right. I mean the presentation is designed to be more foundation to talk about what’s driving our growth, it’s a story that’s—the same story we’ve been telling now for a couple
of years, just backed by a couple years of strong financial growth to validate the model. So I’ll try and get through
this quickly and then we’ll go deep wherever you all want to go deep.

Safe Harbor statement, this is on our website. Tend to tell the story in buckets. And the first—this first page really
lists five buckets, the first critical, the products, the products are very relevant, they adjust a real need that’s out
in the marketplace and they are a product line that really fits this new daily consumption model that I’ll talk about
in a minute.

So first takeaway, the products are relevant, fits three mega trends that we’ll talk about in a slide or two. Secondly, and
probably most important is that our growth is being driven by a new distribution model that’s been tested and
proven in a number of our countries that is now being globalized. So it’s just the expansion of that method fits well
with the product, but it’s expansion of the method this is the key driver of growth for the Company.

Third, all direct sales, it’s important for sustainability to have a strong brand. We have a strong brand and it’s
continuing to strengthen. Fourth, of course, strong financial performance there. Chris can give that presentation,
he already did a better job than I could. And then, lastly, the model generates a lot of free cash, right. Free cash and net income are about equal to each other in this model, and we return about all of our net income to our shareholders
through a buyback or a dividend. We do overweight at the buyback because we are a growth Company. I have
a slide or two on that too little bit later.

So back to the first point, three global mega trends that our products address, obesity and it’s more than just obesity
right. Obesity is a subset of what our products address. Our products address weight management, the need to
control somebody’s weight and you don’t have to be obese to need the product, right and one of the examples we use
is in China, 5% of the adult population in China is obese, but 22% is overweight and it’s the second fastest rate of
obesity growth in the world as Western diets spread east. So there is still a need for the product, even though in
investors’ minds, China isn’t an obese nation, but it’s getting there.

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MARCH 08. 2012 / 8:00PM, HLF – HERBALIFE LTD at Bank of America Merrill Lynch Consumer & Retail
Conference

Anti-aging, I mean aging population, that fits in our sweet spot too and underemployment, right. So our products and business model combine to offer people a business opportunity. Generally it’s for people who are underemployed, looking for a supplemental income, it can lead to a full-time income if a distributor chooses to do so.

One other note that’s not really on here. But in 2011, the World Health Organization said, it was the first time that more people died being overweight than being malnutritioned in the world. So again, it’s just another fact that supports the need for weight management products.

A little bit of a product profile for the Company. You can see that the big piece of this pie is weight management. I think it’s important for those new to the story to understand that weight management for us means healthy nutrition, more than it means, it’s not a magic pill, we don’t chase that supplements fad that, take a pill, don’t eat for 30 days, it’s all about healthy nutrition, healthy weight loss. About half of that product, the weight management category, which represents 62% of our sales, half of that comes from Formula 1 which is a meal replacement product, it’s our core
product, it was the founding products of the Company, it represents 30% of sales. You will see some market share information on the next slide. And second in that category which represents 12% of market share—12% of our sales are herbal teas, so caffeinated teas. And then aloe, which is our third biggest product, which is in the targeted nutrition category, represents 10% of our sales.

So those three products combined represent 50% of our Company sales in one form or another, there is many flavors,
but in the broad sense, those SKUs represent 50% of our sales and the reason they represent such a high percentage
of our sales are they are the driver of the new distribution model that I’ll talk about in a moment.

Market share on meal replacements, in 2005, this is worldwide market share, comes from Euromonitor. In 2005, we had 22.6% of the category; in 2010, we had 33% of the category. The second largest market share player is Unilever with Slim-Fast. To talk about the model for a moment, the distribution model, there is traditional direct selling and then what we now call daily consumption and we actually think it’s a reinvention of direct selling and I’ll dig a little deeper on the next slide, but one of the key takeaways if not the key takeaway, is that daily consumption allows for frequent interaction between the customer and their distributor.

In direct selling, most direct selling models, if not all of the direct selling models, it’s a very infrequent contact point between distributor and customer, and daily consumption is a very frequent contact point. And I will talk about the benefits of that. It also means you’re seeing your customer more frequently, but you’re asking for smaller purchases instead of larger purchases. And it’s very efficient for distributors, because as you learn the model, you’ll see customers are now coming to distributors, instead of the other way around. So you find your customer through a push model, but once you find him, it’s now pull, they come to you.

How does it work? Why is frequent interaction so important? As a weight management company, product compliance is critical to having a product success Product compliance is enhanced by frequent interaction. A lot of consumers don’t have the discipline to stick on a program, but we have a frequent interaction with the distributor who helps you create that compliance, that discipline to use the product properly.

That leads to a product result which is a very objective product result. I mean you either lose weight or you didn’t, if you lost weight, you know, everybody else knows, it’s very objective. That leads to both to long-term customers.
You have an objective result, an objective benefit, the product did what it was promised to do, that creates credibility in a long-term customer; that also leads to more customers coming into the franchise and I’ll cover this in a couple of slides, but we have these—the clubs, the daily consumption models, 60% of the consumers in the US clubs, have gotten into the US club through a reference from another consumer who had a weight loss experience, they had a product result. So word of mouth, when you have a product result, it’s significant.

Talk a little bit about the – to put some numbers around the opportunity, we look at volume points for capital as a penetration metric. Volume points for capital, think of US retail sales, absent currency or price increase. So in volume points in a comparison is a pure measurement and so it looks at volume change. In Mexico in 2003, volume points were 1.2 volume points per capita; last year, it was 6.2; that growth was driven from daily consumption. So it shows that daily consumption drives a lot of opportunity, 4X growth or 5X growth.

In the US Latino market, it grew 5X, it launched clubs in 2006. Taiwan has gone a little more than twice it launched clubs in 2007, Korea in 2008 and so forth. So there is a lot of opportunity left because most of our countries now are just starting clubs or just starting daily consumption. The benefit

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MARCH 08, 2012 / 8:00PM, HLF – HERBALIFE LTD at Bank of America Merrill Lynch Consumer & Retail
Conference

–I’ll go a little bit into daily consumption. Daily consumption is effectively, or clubs anyway, which is the predominant model within daily consumption, allows a consumer to come to a fixed location and buy just (technical difficulty)
they need for that day in single-serving format, right.

Think about coffee, when somebody buys a cup of coffee they go to Starbucks, they buy just what they need for that
day, it’s a $2 cup of coffee. Somebody just do it for me and it’s very convenient, at a very accessible price point.
What clubs have done for Herbalife is, it’s breaking down that monthly purchase which you may do once a month
and let’s say, for the three core products that we mentioned, the three that make up 50% of our business, that might
be $100 in the US.

Instead of asking a consumer for $100 or $120 or whatever it might be, you’re asking for $3 a day or $4 a day.
Same price in total, but a much more accessible price point because it’s broken down just what you need for that
day. So that’s the first benefit. The second benefit and equally as important is, the proposition is one of us of a meal.
It’s a replacement spend, not a discretionary spend. These three products combine for an Herbalife meal being sold one meal at a time. So what the distributors are asking consumers to do is, don’t spend the money at McDonalds, come
and spend it at Herbalife. It’s actually a trade down economically.

You can save money. It’s positioned as an economic savings with a nutritional benefit. Instead of a discretionary spend, as much – many products in the supplement category, generally considered. So that’s a second benefit. The third is the objective results drives compliance, drives credibility, drives brand strength, leads to the fourth, which is all the people coming into the brand and there is a huge socialization component in the club that keeps it sticky because so many people find clubs through other consumers. You’ll see if you go to visit a club and Amy is more than willing to arrange club visits, you’ll see that people tend to know each other because they found the club through somebody they know and they needed the club and that socialization keeps it sticky.

And then, the fifth benefit which is more of a silent benefit which is when a distributor has a fixed location for which to go to work, they tend to have more success, it creates a discipline that’s not always available in direct selling models. When a distributor comes into direct selling, they’re motivated that day, they tend to lose that motivation over time, many do, because they don’t know what to do. They don’t have the discipline to wake up in the morning and know how to be successful.

When you have a club, it’s the equivalent of having a job, it helps you know what to do to be successful. So those are five core benefits of daily consumption. They make it unique and sticky. A little bit about the demographic profile of consumers in the US. 50% of the consumers in the clubs in the US are under 35. This is from a study done in 2010. We will update it in 2012. 40% are between the age of 35 and 54; 60% female, 40% male. 40% of the consumers have full-time jobs, 20% part time, 30% are homemakers.

I think this slide is maybe even more telling. 50% of the consumers go to the club every day that it is open. Additionally, 50% of the consumers spend more than $75 per month on take-home product, that’s in addition to the three product they bought as a meal, right. That shows the strength or the credibility that’s being built with the brand through daily consumption, that people are willing to buy other products to take home. And then, 40% have attended more than one year. So there’s stickiness there and that creates a successful distributor and a very sticky distributor.
And our retention rate of distributors in 2011 was 52% which is a record for us. We think it a record in the industry. We’re not sure because most direct sales don’t disclose retention rates.

To put it in perspective, historically, in 2003, before club started in any market, the retention rate for our distributors was 28%–28.1%. Last year, it was 52% driven primarily by the introduction of daily consumption. The cycle maybe you think of for daily consumption, there is an inception period which is –this is by market and in some cases by city. When a group of distributors accept the concept, test the concept and try to find out a way to make it work in their community, that generally takes two years. Then there is a rapid expansion period.

Once they have success and they know which model works, that’s when there is a rapid duplication, that’s the experience period and then in Mexico, for example, we see them in category three which is the enhancement period
which is how you do become more productive, how do you get more share of wallet, average ticket to increase for the customers you have already coming to your club. Most of our markets are in that inception or even pre-inception periods that we’re just now beginning to consider clubs. We think through different kinds of analysis, about 35% to 40% of our business is coming from daily consumption. So there is still a big opportunity left for us, a lot of runway left.
j

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