Hengan International Group Company Limited

(22 March 2022- Hong Kong) – Hengan International Group Company Limited (“Hengan International” or the “Company”, SEHK stock code: 1044, together with its subsidiaries, the “Group”) announces today its annual results for the year ended 31 December 2021.

The pandemic has accelerated the development of new consumption patterns, market penetration of domestic e-commerce and new retail channels has continued to increase. However, the fragmentation of sales channels has dealt a huge blow to sales through traditional channels. Coupled with the intensified competition in the industry during the year, different brands and new retail channels operators in the industry actively seized market share through sales promotion. Therefore, for the year ended 31 December 2021, the Group’s revenue fell 7.1% to approximately RMB20,790,144,000 (2020: RMB22,374,001,000) as compared to last year.

The Group actively seized development opportunities arising from the new consumption patterns, vigorously developed its e-commerce business and expanded into the new retail markets. During the year, the Group further increased its proportion in e-commerce sales (including Retail Integrated (“零售通”) and New Channel (“新通路”)) to approximately 23.1% (2020: 19.1%), and made good progress in the development of new retail sales channels (including online-tooffline (O2O) platform, community group-buying etc.) with sales accounted for more than 10% of the overall sales. In addition, the Group the grasped the domestic consumer demand for consumption upgrade, and continued to develop premium products and optimize product mix. Among them, the premium sanitary napkin series “Space 7” was well-received by the market, and the premium tissue paper series “Cloudy Soft Skin” (雲感柔膚) achieved strong sales momentum during the year, resulting in a significant increase in its sales contribution, and the sales of premium disposable diapers “Q • MO” also achieved robust growth.

During the year under review, tissue paper companies increased promotional efforts, which further intensified industry competition. Despite the negative impact of the wood pulp price surge was evident in the second half of the year, in order to stay competitive in the market, the Group has not passed on the cost pressure to consumers, which hampered the profit of the Group’s tissue paper business. In 2021, the Group’s overall gross profit fell about 17.8% to approximately RMB7,772,318,000 (2020: RMB9,455,855,000), while the overall gross profit margin dropped to 37.4% (2020: 42.3%). Given that the price of wood pulp is still at a high level, together with the Group’s relatively low cost of wood pulp in the first half of 2021, it is expected that the gross profit margin will remain under pressure in 2022.

During the year, operating profit fell 28.9% to RMB4,543,591,000 (2020: RMB6,392,388,000) as the high cost of wood pulp weighed on the profitability of tissue paper business. In addition, the pressure on the Group’s profits led to a reduction in the Group’s government grants calculated by tax paid (nearly RMB128 million) during the year, coupled with the relatively stable exchange rate of Renminbi against the US dollar during the year resulted in a significant decrease in foreign exchange gains compared to last year. Profit attributable to shareholders of the Company was approximately RMB3,273,601,000 (2020: RMB4,594,815,000), representing a year-on-year decrease of approximately 28.8%. Basic earnings per share was approximately RMB2.786 (2020: RMB3.864).

The Board of Directors declared a final dividend of RMB0.70 per share for the year ended 31 December 2021 (2020: RMB1.30), together with the interim dividend of RMB1.00 per share (2020 first half: RMB1.20) already paid, total dividend for the year amounted to RMB1.70 per share (2020: RMB2.50 per share), amounted to RMB1,988,606,000 (2020: RMB2,958,424,000). Together with the Group’s repurchase of a total of 24.22 million shares (2020: 3.4 million shares) at a total consideration of approximately RMB937.0 million (2020: RMB154.0 million) during the year, the Group returned a total of approximately RMB2.93 billion to shareholders during the year, accounting for the Company’s profit attributable to shareholders of approximately 89.4% (2020: 67.7%), which was calculated on the basis of the total amounts of proposed dividends and repurchase of shares as a percentage of profit attributable to shareholders of the Company.

Commenting on the Group’s annual results, Mr. Sze Man Bok, Chairman of Hengan International, said, “During the year under review, the coronavirus epidemic situation was volatile, yet China’s economy was steadily improving, the rising level of national income became a growth driver in the consumer market, and the inelastic demand for personal and household hygiene products remained strong. However, the negative impact of rising wood pulp prices was fully reflected in the second half of the year, coupled with intensified market competition and fragmented sales channels, the Group’s operating performance was under pressure. In response to the challenging operating environment, the Group adhered to a rational pricing strategy, enhanced brand strength, promoted the premium products strategy, vigorously developed e-commerce business and expanded into the new retail markets, actively seized business opportunities brought about by the consolidation of the domestic tissue paper industry and new retail, and successfully increased its market share in the second half of the year, further consolidating its industry leadership.”

Sanitary Napkin
China’s feminine care products market is immense, ranking the first in the world. However, the market is highly saturated, and competition is fierce. During the year, many domestic and foreign brands adopted very aggressive promotion strategies in an attempt to seize the market share of mid-to-high-end cities and the youth consumption. In response to the intensifying competition, Hengan adhered to a rational stable pricing strategy to maintain its brand image and developed its sanitary napkin business with product upgrades and premium products to consolidate its market leadership in the mid to high end segment. Leveraged on the high-quality and vibrant image of the Group’s premium product “Space 7”, it has been well-received by consumers, thereby driving the sales of the overall sanitary napkin business.

The pandemic has spawned new consumption patterns and accelerated the fragmentation of sales channels. E-commerce platforms and other emerging retail channels (including O2O platform and community group-buying) are burgeoning. To align with new consumption trends, the Group actively expanded emerging channels to increase the sales and market share of the sanitary napkin business. While developing new retail channels during the year, the Group inevitably adopted concessionary measures, which exerted pressure on the sales of sanitary napkins in traditional channels in the short term. However, the Group believes that the overall revenue of the sanitary napkin business will be significantly improved in the long run due to the successful reform of sales channels, and the market share will be further increased.

During the year, as sales channels became more fragmented and competitors adopted aggressive pricing strategies to seize market share, sales of the Group’s sanitary napkin business recorded a decline of approximately 8.1% to approximately RMB6,116,531,000 (2020: RMB6,654,711,000) in 2021, accounting for nearly 29.4% (2020: 29.7%). Notwithstanding the market competition pressure, the Group stayed committed to a rational and stable pricing strategy, and the gross profit margin of the sanitary napkin business remained generally stable at approximately 70.5%.

The Group’s sanitary napkin brand, 七度空間 has always been a hot-selling product in Mainland China and has long been a market leader by means of sales volume and market share in the domestic market. Launched in 2020, the premium product “Space 7” which aimed at the mature white-collar market continued to achieve positive sales development during the year. The wellloved “Space 7” continued to help the Group to steadily develop the premium market and gradually increase the proportion of the premium products. The Group’s “Space 7” has signed young female artists with positive image as brand ambassadors, thereby injecting girlishness and vitality into the brand. With the brand new theme of “seven degrees of great power captured in a pure girlish heart” (大國七度，存淨少女心) , brand ambassador including actress Liu Haocun further rejuvenated the brand and attracted young consumers. The Group believes that the sales of “Space 7” will continue to grow steadily in the future and become a major business growth point, helping the Group expand its share in the sanitary napkin market and gradually increase the proportion of the premium products. In addition, the Group will continue to actively expand new retail channels and increase the sales proportion of new retail channels; the Group will also develop exclusive products for new retail channels and adopt a stable pricing strategy, so as to support the Group’s long-term development and consolidate the Group’s leading position in the market.

Regarding other feminine care products, the Group will continue to actively research and develop other feminine care products beyond sanitary napkins, steadily develop the feminine care industry, capture growth opportunities brought by consumption upgrade and actively explore opportunities to introduce the Group’s sanitary napkin products to overseas markets.

For more information, please visit https://doc.irasia.com/listco/hk/hengan/annual/2021/respress.pdf.

Source: Hengan International Group Company Limited

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