Natural Food International Holding Limited to Raise a Maximum of Approximately HK$884.1million by Way of Global Offering

*Adjusted net profit represents profit for the year or period before loss on fair value changes of convertible and redeemable preferred shares and the expenses incurred in connection with the Global Offering.

HONG KONG, CHINA - Media OutReach - 28 November 2018 - Natural Food International Holding Limited ("Natural Food International", together with its subsidiaries, the "Group"; stock code: 1837), a natural health food company in China, announces the details of its plan to list on the Main Board of The Stock Exchange for Hong Kong Limited ("SEHK") today. [1]

A total of 421,000,000 shares will be offered under the Global Offering, of which 378,900,000 Shares, or 90%, subject to re-allocation, will be offered by way of the International Offering; while the remaining 10%, or 42,100,000 Shares, subject to re-allocation, will be offered under the Hong Kong Public Offering. The Offer Price per Offer Share is expected to be not less than HK$1.62 and not more than HK$2.10. The Public Offer will commence at 09:00 am on 29 November 2018 (Thursday) and close at 12:00 noon on 4 December 2018 (Tuesday). The allotment result is expected to be announced on 11 December 2018 (Tuesday). Dealings in Natural Food International's shares on the Main Board of the SEHK are expected to commence on 12 December 2018 (Wednesday).

Assuming an Offer Price of HK$1.86 per Offer Share (being the mid-point of the Offer Price range), the aggregated net proceeds from the Share Offer, after deducting related expenses, will be approximately HK$710.1 million. Natural Food International intends to use these net proceeds for the following purposes: 1) approximately 35% to enhance its integrated distribution platform and optimize its channel mix; 2) approximately 60% for the construction of its new Nansha Manufacturing Facility in Guangzhou, Guangdong Province and the procurement of machinery and equipment for this planned processing facility; 3) approximately 5% for its working capital and general corporate purposes.

China International Capital Corporation Hong Kong Securities Limited and CMBC International Capital Limited are the Joint Sponsors. China International Capital Corporation Hong Kong Securities Limited and CMBC Securities Company Limited are the Joint Global Coordinators. China International Capital Corporation Hong Kong Securities Limited, CMBC Securities Company Limited, Haitong International Securities Company Limited and Bluestone Securities (HK) Co., Limited are the Joint Bookrunners and Joint Lead Managers.

Business Overview

According to Frost & Sullivan, the Group is the second largest natural health food company in China in terms of retail sales value in 2017, with a market share of 1.7%. According to Frost & Sullivan Survey, the Group's "Wugu Mofang" (五谷磨房) brand is the most widely-recognized natural health food brand in China. It ranked first in terms of top-of-mind brand awareness and customer satisfaction among all the natural health food brands in China and also ranked as the most frequently consumed brand among all the natural health food products in China.

The retail sales value of China's natural health food industry has grown from RMB68.0 billion in 2013 to RMB103.1 billion in 2017, representing a CAGR of 11.0%, and is expected to reach RMB183.9 billion in 2022, representing a CAGR of 12.3% from 2017, according to Frost and Sullivan.

The Group crafted its products from its roots of traditional Chinese dietetic culture and its belief in "Dietary Nourishment" (藥食同源), infused with modern nutrition science and food processing technologies. It offers a broad selection of natural health food products that caters a wide spectrum of consumers of different age groups and needs. The extensive diversified product portfolio includes approximately 90 types of products, including products made from naturally sourced ingredients and processed with scientifically tested formula, as well as products appealing to specific consumer groups, such as products appealing to females, teenagers and the elderly.

The Group has built a comprehensive and integrated distribution platform with "New Retail" characteristics comprising both online and offline channels, which enhances the visibility of the brand and makes its products more accessible to potential consumers. As of June 30, 2018, the Group's integrated distribution platform consisted of (i) an offline network of 3,916 concessionary counters in supermarkets in 464 cities across China , and (ii) online channels, including (a) e-commerce platforms, such as Tmall, JD.com and Vipshop.com, and (b) social media platform, namely its WeChat member store.

The Group's robust technology infrastructure and stringent quality control measures drive its operational excellence, ensure product quality and support the rapid and successful expansion of its sales network across China. In addition, the Group has adopted a set of stringent quality control practices throughout the supply chain and across all of its sales channels to ensure the products it sell adhere to national food safety standards. The Group's stringent quality control practices cover the sourcing of raw materials, production, packaging, inventory storage as well as cleanliness of concessionary counters and employee conduct.

Competitive Strengths

1.     Leader in the rapidly growing natural health food industry in China with a highly recognizable brand

A highly recognizable brand allows the Group to enjoy strong consumer loyalty, leading to a higher proportion of repeat purchases as well as lowering its costs to attract new consumers. Its leading market position, well-recognized brand image, and attractive product offerings, together with the active use of online and offline distribution channels, best position it to capitalize on the strong expected growth opportunities ahead in the natural health food industry in China.

2.     Diversified product portfolio supported by innovative product development capabilities

During the Track Record Period, the Group had successfully launched a total of 68 new products and improved 53 existing products. The Group stays true to its belief in "Dietary Nourishment" (藥食同源) and offers a broad selection of natural health food products that caters a broad spectrum of demands from consumers of different age groups and health concerns. The extensive diversified product portfolio includes approximately 90 types of products. As of the Latest Practicable Date, it had an in-house staff of eight employees in its product research and development department dedicated to product development and technology advancement. Half of its research and development personnel holds master's degrees or above.

3.     Well-established integrated distribution platform comprised of online and offline channels

The Group operates a comprehensive and integrated distribution platform comprised of online and offline channels with "New Retail" characteristics, which could enhance the visibility of the brand and make its products more accessible to potential consumers. A high degree of integration helps to maximize the performance of its business. Accordingly, the Group has made extensive efforts to ensure the mutually reinforcing nature of the various sales networks within its integrated sales platform to create synergies and increase incremental sales.

4.     Excellent operational efficiency supported by its strong proprietary technology infrastructure

With 48 technology professionals, the Group is dedicated to strengthening its technology capabilities, including big data analytics and mobile technologies. Its best-in-class technology and big data analytics capabilities drive operational excellence and enhance value creation across its supply chain. The Group utilizes its proprietary ERP system to retrieve and analyze its operational data to aid faster decision-making and boost productivity and profitability. Also, the Group employs its propriety BI system to support its wide range of business decisions and increase its responsiveness to the latest market dynamics.

5.     Strong ability to control food safety and ingredients supply

The Group takes a holistic approach to quality control and implement stringent standards in all aspects of the business, from sourcing of raw materials, production, packaging and inventory storage to cleanliness of concessionary counters and employee conduct, to ensure the quality and safety of its products and to be aligned with industry best practices. Also, the Group's long-term suppliers have on average six years of relationship with it. Such cooperation in turn promotes economies of scale and enables the Group to secure sufficient and reliable supply of ingredients. To ensure freshness of the ingredients, the Group source key ingredients around the world from their places of origin.

6.     Visionary and experienced management team with a focus on human capital

Members of the senior management team on average have ten years of experience in the food industry, and the research and development head possesses extensive managerial experience derived from his previous role at a multi-national corporation in the consumer retail sector, Fortune 500 food and beverage company.

DEVELOPMENT STRATEGIES

1.     Further enhance its integrated distribution platform and optimize its channel mix

The Group will further expand its online presence to strengthen its current market-leading position, including working with a broad range of large-scale e-commerce platforms such as Tmall and JD.com, and further increase the resources devoted to its self-operated WeChat member store.

The Group plans to upgrade approximately 3,000 existing concessionary counters to a new type of integrated health food stores and add approximately 2,200 new concessionary counters in the next three years. Also, to explore the "on-the-go" consumption channels, such as small grocery stores and/or convenience stores, in prime locations in first tier cities with high visibility and customer traffic. The Group expects a national coverage in or around 2021 with approximately 25,000 "on-the-go" consumption sales points.

2.     Continue to expand and diversify its product portfolio while upholding its core values of "Naturally Made, No Additives Needed"

The Group expects to continuously develop new products that cater to different consumption scenarios and are of higher consumption frequencies, such as meal replacements and casual food. Leveraging its big data analytics and technology infrastructure, the Group also intends to continue to develop products that cater to a broad spectrum of dietary and health demands from consumers of different age groups, in particular, the young consumers group.

3.     Further strengthen its brand equity to increase market share

The Group intends to further promote its brand through a combination of traditional media advertising initiatives as well as promotional campaigns through new media channels and platforms, to increase the profile and value of its brand. Utilize online and social media outlets such as Weibo and WeChat to launch a variety of initiatives and Engage educational campaigns and celebrity endorsements to promote the Group's natural, healthy lifestyle and its commitment to food safety and quality. In addition, the Group would further expand its offline distribution network and engage interactive themed marketing promotion campaigns that appeal to its target customers.

4.     Further enhance operational efficiency and optimize technology infrastructure

The Group intends to devote substantial resources to developing and integrating the latest technologies throughout its technology platform and internal practices to improve raw material procurement, centralized production, consumer interaction and general operational efficiency. It also intends to leverage its big data analytics capability to understand consumers from different age groups and consumption perspectives, assess their particular needs and behaviors, and offer them targeted and customized products.

5.     Recruit, train and incentivize talent

Natural Food International plans to continue to provide its employees with structured training that is designed to provide them with a clear career advancement track. The Group also intends to adopt an equity incentive scheme linked to its performance in order to further motivate its employees. Management believes such scheme supplements the existing employee compensation plans and bonuses, as it helps to attract skilled and experienced personnel and motivates employees to strive for the growth of the Company.

6.     Pursue appropriate strategic acquisitions and business opportunities

The Group intends to expand upstream and acquire suppliers of key raw materials to further strengthen its value chain, and ensure an adequate, stable supply of the key raw materials. The Group also believes suitable acquisitions will allow it to gain experience and expertise in developing new products, gather market intelligence on the latest consumer trends and provide it with the appropriate platform to expand into different product categories in the future.

About the Group

Natural Food International Holding Limited is the second largest natural health food company in China as measured by retail sales value in 2017, according to Frost & Sullivan. Its brand "Wugu Mofang"(五谷磨房) brand is the most widely-recognized natural health food brand in China and ranked first in terms of top-of-mind brand awareness and customer satisfaction among all the natural health food brands in China and as the most frequently consumed brand among all the natural health food products in China, according to Frost & Sullivan Survey. Infused with modern nutrition science and food processing technologies, the extensive diversified product portfolio includes approximately 90 types of products.

As of June 30, 2018, the Group has an offline network of 3,916 concessionary counters, and distributes its products through major e-commerce platforms, such as Tmall, JD.com and Vipshop.com, as well as WeChat member store.