Real Nutriceutical : Nutri Announces 2016 Annual Results - Actively Expand O2O Business and Strongly Develop New Products to Lead Health Industry

[For Immediate Release] Real Nutri Announces 2016 Annual Results ***** Actively Expand O2O Business and Strongly Develop New Products to Lead Health Industry Business Highlights: Despite the slowdown in China's economy and consumer market, sales performance of pharmaceutical products remained stable

• Sales of the core health and nutritional supplement products decreased by 47.6% to RMB718.5 million.

• Sales of health drinks decreased by 61.0% to RMB167.9 million.

• Sales of pharmaceutical products grew by 1.6% to RMB254.5 million.

  Strong financial strength for long-term development and business expansion in future

• Cash on hand and bank balance was RMB2,550 million, as at 31 December 2016

• Net asset value per share of RMB3.5, as at 31 December 2016

• Net gearing remained at low level of 11.5%

  Continued to strategically expand sales and distribution network

• Health and nutritional supplement products were sold through approximately 80,000 third-party retail outlets in China.

• Pharmaceutical products were sold to about 850 hospitals nationwide.

• Number of Real Nutri Health Stores was over 200, contributing revenue of about RMB68.2 million, which accounted for 6.0% of the total revenue.

• The registered members of Real Nutri Health Club increased to about 420,000.

  Seize the opportunity in E-commerce to further develop O2O business model

• Internet direct sales business contributed revenue of RMB16.6million, which accounted for about 1.5% of the total revenue.

• Developed the sales channel in WeChat Mall, selected popular nutritional health products and health drinks to be distributed in WeChat platform

• Launched the "Health Butler App" and the "Quick Consultation & Drug App", and built the mega data system to enhance the development of customer relations management, online marketing and online-to-offline ("O2O") services.

  Topotecan Hydrochloride Capsules are included in the latest catalogue of pharmaceuticals eligible for claims made on the national basic medical insurance policies in early 2017

• Topotecan Hydrochloride Capsules' popularity and market share will gradually grow after its inclusion in the catalogue

• This will help to largely improve the sales performance of the Group's pharmaceutical business in the future.

(30 March 2017 - Hong Kong) Real Nutriceutical Group Limited ("Real Nutri"; stock code: 2010) today announced the annual results of Real Nutri and its subsidiaries (the ''Group'') for the year ended 31 December 2016.

Due to the slowdown in China's economy and consumer market, the Group's revenue decreased by 44.4% to RMB1,140.9 million. The loss attributable to the shareholder of the Company was RMB65.4 million for 2016. The Group's overall gross profit margin decreased to 56.1% from 65.4% in 2015, due to the change in sales mix and higher production costs in 2016. Loss for the year was attributable to the reduction in sales revenue by RMB910.4 million, selling and distribution costs as a percentage of sales revenue in 2016 increased to 42.3% from 26.4% in 2015.

Business Review

During the year, the Group adopted a prudent approach for the development of its sales network. In addition to continuously consolidating its footholds in its major markets in eastern and southern China, the Group also enhanced its cooperation with distributors in tapping the potential of the new sales network. As at 31 December 2016, the Group's health and nutritional supplement products were sold through approximately 80,000 third-party retail outlets in China. The Group also actively developed the sales network in convenience store chain as well as increased the number of new retail outlets for health drinks. The Group's pharmaceutical products were sold to about 850 hospitals nationwide. Moreover, the Group continued to expand the network of Real Nutri Health Stores steadily. The number of Real Nutri Health Stores was over 200 and these stores together contributed revenue of about RMB68.2 million, which accounted for 6.0% of the total revenue. The registered members of Real Nutri Health Club increased to about 420,000.

Apart from developing the traditional market, the Group actively developed its Internet direct sales business through famous online portals. During the year, the Group enhanced the management of its sales operations and the promotion of its products in major e-commerce platforms. The Group's Internet direct sales business contributed revenue of RMB16.6 million, which accounted for 1.5% of the total revenue. The Group also developed the sales channel in WeChat Mall so as to tap the huge demand brought by online sales channel's rapid growth. During the year, the Group launched the mobile phone applications ("App") of "Health Butler" and "Quick Consultation & Drug" and built the mega data system to enhance the development of customer relations management, online marketing and online-to-offline ("O2O") services.

Other than launching traditional nutritional supplement products, the Group also developed and launched new products, including a new series of "Real Nutri Beauty 18" novel beauty health products, Rose Peptide Drink, Rose Essence Bird's Nest Drink, Amino Acids Rose Essence Tonic. To build a solid foundation for long-term development, the Group continued to upgrade the facilities and equipment at various production bases. During the year, the Group's capital expenditures totaled approximately RMB325.4 million. Investments were made in its health supplement production base and health drinks production base in Wuxi, pharmaceutical production base in Nanjing, the next-generation polypeptide production and research base in Suqian as well as a raw material plantation base in Suzhou. During the year, the Group introduced the world's advanced aluminum can production line designed by Mitsubishi Heavy Industries Group of Japan into the health drinks production base. The production line has started trial production and expects to launch full production in the first half of 2017. As such, the Group will be able to produce functional amino acids drink "U-Energy" by in-house in China and improve the product's gross profit margin.

As a leading amino acids health supplements enterprise, the Group has been committed to developing and promoting amino acids health supplements business over the years and has gained recognition from the official authorities. The Group and Chairman participated in drafting of "Guideline for amino acid products classification", the China national standards amino acids products. The guideline came into effect in January 2017. In addition, the Group's pharmaceutical manufacturing plant in Nanjing passed certification under the new standards of Good Manufacturing Practice of Drugs ("GMP") for production of tablets, sachets and eye drops.

Future Plans and Prospects

Dr. Wang Fucai, Chairman and Chief Executive Officer of the Group, said, "Leveraging on the improvement on living standards and increasing awareness of health, I feel fully confident about the prospect of the country's healthcare industry and the Group. Looking forward, the Group will insist on using a proactive and pragmatic approach to formulate appropriate strategies coping with the fast changing economic situations and market environments. We will continue to grasp development opportunities, carry out a solid expansion for our sales network, develop new sales models with good growth potential, and leverage Mega Data system and Internet to actively expand e-commerce, including Real Nutri WeChat Mall and healthcare Apps. These initiatives will enable the Group to develop itself into a leading healthcare company with its unique, innovative online-to-offline business model in the era of mobile internet network in China. The Group will endeavor to realize the enterprise intrinsic value and returns for the shareholders."

The Group will develop its core business of amino acids while diversifying into health industry by increasing its penetration of existing markets and make breakthroughs in emerging market. Meanwhile, the Group will continue to explore promising, innovative modes of sales, including membership marketing by applying one-on-one services for members. It will also use its mobile phone applications such as "Health Butler" and "Quick Consultation & Drug" to provide members with standardized professional health services and quality health products. All these measures will enable the Group to develop new distribution channels, thus adding new impetus to its future development.

In respect of brand promotion, the Group will formulate diverse, precise and efficient marketing strategies according to the market landscapes of different products, and will fully leverage the online sales resources such as e-commerce and WeChat mall. It will also adopt a multimedia marketing and promotional strategy in order to expand the markets for its product series and popularize knowledge about health regimen. In addition, the Group will further develop its online-to-offline business to develop the sales network in integrating and coordinating its various sales channels.

As for the products mix, the Group will accelerate the development and launches of new products to meet the demand for quality nutritional health products in the future. The Group will also launch new amino acids-based health supplements and devote to the development and sales for pharmaceutical products. The Group's Topotecan Hydrochloride Capsules are included in the latest catalogue of pharmaceuticals eligible for claims made on the national basic medical insurance policies, industrial casualty insurance policies and maternity insurance policies issued in 2017. The Group predicts that its popularity and market share will gradually grow after its inclusion in the catalogue. This will help to largely improve the sales performance of the Group's pharmaceutical business in the future.

The Group is actively seeking opportunities for investing in or acquiring quality assets to expand the scale of its businesses. It has commenced thorough legal and accounting due diligence, and drafting of the relevant legal documents for the proposed acquisition of Shenzhen City Ailire Investment Consulting Company Limited. The Group expects the proposed acquisition will bring in a number of synergies. It will expand its distribution network, boost sales of high-margin health supplements for extra income, and bring a wider membership base and logistic services foundation for the development of the Group's online-to-offline services for its pharmaceuticals and health supplements. The proposed acquisition can also quickly elevate Real Nutri's brand awareness among consumers in southern China.

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About Real Nutri

Real Nutri is the leading brand in the amino acids health supplement market in China. Our diversified product portfolio spans a health industry spectrum, including nutritional supplements and general health food, health drinks and pharmaceuticals. Our Amino Acids Tablets have been selected as the official gift to the PRC National Assemblies which comprises the annual general meetings of the PRC National People's Congress and the Chinese People's Political Consultative Conference. We sell our health supplements and general health food products to an extensive network of regional and local distributors in China. As at 31 December 2016, our health supplements and general health food products were sold through the third party's retail network at approximately 80,000 sales points, including supermarkets, hypermarkets and retail pharmacies. Pharmaceutical products were sold to about 850 hospitals nationwide.

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