Herbalife Ltd. · NYSE:HLF
Herbalife — Investor Presentation (May 2017)
15 slides from Herbalife's investor presentation, May 11, 2017
Slide 1: Herbalife Exhibit
Herbalife Exhibit May 11, 2017 Pershing Square Capital Management, L.P.
Slide 2: Disclaimer
Disclaimer Pershing Square is an investment adviser to funds that are in the business of actively buying and selling securities and other financial instruments. Pershing Square currently maintains a substantial short position in various securities related to Herbalife Ltd. (“Herbalife”). For example
Slide 3: Historical Performance
Historical Performance ► Since announcing our short position in late 2012, Herbalife’s financial performance has decelerated Revenue ($bn) Adjusted EPS PSCM $5.93 $6.0 40% $6.00 Shorts HLF $5.37 $5.0 30% $4.95 $4.85 $5.0 $4.8 $5.00 $4.1 $4.5 $4.5 $4.25 20% $3.94 $4.00 $4.0 $3.5 10% $3.32 Revenue ($b
Slide 4: Q1'2017 Constant Currency Growth
Q1’2017 Constant Currency Growth ► Reported results include volume pull-forward in China. Excluding the pull- forward, Herbalife would have reported ~(4.5%) constant-currency sales decline Q1’2017 Top-Line Growth Constant-Currency Growth Trends Components of Year-Over-Year Growth (%) 12% Price & Con
Slide 5: "Pop-and-Drop"
“Pop-and-Drop” ► While constant-currency sales growth in certain markets (Mexico, EMEA and China) was offset by declines in others (South & Central America, North America, and Asia Pacific), Herbalife’s segment-level reporting obfuscates continued “pop-and-drop” dynamics in individual countries Sout
Slide 6: "Pop-and-Drop"
“Pop-and-Drop” United Kingdom Malaysia $25 $40 $35 $20 $30 $15 $25 $20 $10 $15 $10 $5 NA $5 No Disclosure $0 $0 United Kingdom Malaysia The dramatic “pop” and “drop” reflected in Herbalife’s individual markets are highly characteristic of pyramid schemes, which achieve accelerated growth until a mar
Slide 7: "Pop-and-Drop:" Country-Level Disclosure
“Pop-and-Drop:” Country-Level Disclosure ► When individual markets experience structural deterioration, Herbalife will often point to temporary factors to explain the decline. Once a market inevitably falls below a certain sales threshold, Herbalife eliminates all disclosure regarding the market. Ev
Slide 8: "Pop-and-Drop:" Country-Level Disclosure
“Pop-and-Drop:” Country-Level Disclosure Evolution of South Korea Disclosure “During the first quarter [2010], local currency sales were up 69% in Korea, due to their expansion of daily consumption in the market. Average active sales leaders in Korea increased 72% in the first 2010 quarter, compared
Slide 9: China Reported Results Include Significant Volume Pull-Forward
China Reported Results Include Significant Volume Pull-Forward ► Excluding the volume pull-forward, we estimate reported net sales would have declined 23% to 25%, or 17% to 20% on a constant-currency basis "Moving on to China, first quarter volume points increased 17% compared to the previous year.
Slide 10: Adjusted Results Represent a Sequential Worsening in China Growth Trends
Adjusted Results Represent a Sequential Worsening in China Growth Trends "China is 1.3 billion people, you can recruit for a long time there before we had what was called the classic ‘pop-and-drop’ in that marketplace. So we're trying to build in right away a retailing base into that marketplace. I
Slide 11: Revised 10-Q Disclosure Regarding China Raises New Red Flags
Revised 10-Q Disclosure Regarding China Raises New Red Flags 2016 Form 10-K Q1’2017 Form 10-Q “[U]ncertainties relating to interpretation and enforcement “[U]ncertainties relating to interpretation and enforcement of legislation in China governing direct selling and anti- of legislation in China gov
Slide 12: Revised 10-Q Disclosure Regarding China Raises New Red Flags (cont'd)
Revised 10-Q Disclosure Regarding China Raises New Red Flags (cont’d) 2016 Form 10-K Q1’2017 Form 10-Q “We also engage independent service providers who meet “We also engage independent service providers who meet both the requirements to operate their own business under both the requirements to oper
Slide 13: Revised 10-Q Disclosure Regarding China Raises New Red Flags (cont'd)
Revised 10-Q Disclosure Regarding China Raises New Red Flags (cont’d) 2016 Form 10-K Q1’2017 Form 10-Q “The regulatory environment in China is evolving, and officials in the Chinese government, including at the local and central level, exercise broad discretion in deciding “The regulatory environmen
Slide 14: Recurring Use of Questionable Add-Backs
Recurring Use of Questionable Add-Backs ► Herbalife continues to add-back certain costs which should be considered recurring to the business. Some costs have been added back consistently for the past 4 years HERBALIFE ADJUSTED EPS '17E Mid 2012A 2013A 2014A 2015A 2016A Guidance Reported Diluted EPS
Slide 15: Long-Term Trading Multiples
Long-Term Trading Multiples ► Public MLMs have historically traded at a significant discount to CPG companies reflecting their inferior business quality Forward P/E Multiples for MLMs(1) and CPG(2) Companies 25.0x 20.0x 15.0x 10.0x SUMMARY 5.0x MLM CPG Average 13.1x 18.3x Delta (x) 5.1x Delta (%) 39