Byhealth Chairman’s Letter to Shareholders

Dear Byhealth shareholders:

Byhealth achieved a sales revenue of 7.431 billion yuan in 2021, with a year-on-year increase of 21.93%, and a comparable growth rate of 15.38% after excluding the consolidations of I-MYBEST, which is lower than the budget at the beginning of the year. It achieved a net profit attributable to the parent of 1.754 billion yuan, a year-on-year increase of 15.07%, slightly higher than the budget at the beginning of the year.

Euromonitor data shows that the total retail scale of China's vitamins & dietary supplements (VDS) industry in 2021 was 189.2 billion yuan, with a growth rate of about 6.6%. Byhealth has a share of 10.3%, ranking first. The second and the third runners have a market share of 6.0% and 5.0% respectively. Byhealth's leading advantage has expanded compared with the previous year.

China's per capita consumption of VDS was 20 USD in 2021, an increase of 6.3%, slightly higher than the global average and about 20% of that in the US. Changes in the channel structure of the entire industry have slowed down. In 2021, the market shares of e-commerce and pharmacy channels were relatively stable compared with the previous year, while the market share of direct sales channel continued to decline.

The Scientific Research Report on Dietary Guidelines for Chinese Residents (2021) issued by the Chinese Nutrition Society (CNS) pointed out that the nutrition & physique of Chinese residents have improved significantly, but the physical activity has decreased significantly. Overweight & obesity as well as diet-related chronic diseases have worsened. Chronic diseases such as diabetes, high blood pressure, cardiovascular and cerebrovascular diseases are on the rise. An imbalanced diet becomes a major risk for chronic diseases, and diets high in oil, salt and sugar are common. In addition, the breastfeeding rate of infants within 6 months of age is still far from the target. Despite some improvements, the anemia rate in pregnant women is still as high as 13.6%. Some elderly people have insufficient energy or protein intake, and the percentage of insufficient intake of vitamin B1, B2, folic acid, and calcium is over 80%.

The policy and regulatory system of China's VDS industry continues to improve, but the current regulatory standards for cross-border and domestic as well as health foods and general foods are still inconsistent. The rapid rise of new trends in the industry such as live streaming e-commerce has also put forward higher requirements for self-discipline and supervision in the industry. We must stay alert at all times not to cross the red line or the bottom line and jointly care for the young VDS industry in China. And we must always remember the essential positioning of VDS, that is, its ingredients are vitamins, minerals or animal/plant extracts, etc., and it helps specific groups with balanced nutritional intake and physical functions improvements, and it cannot replace a balanced diet or medications. One has no future without health. 

Integrity over intelligence!

From the beginning of 2021, I began to think about the "quality" and "quantity" issues in the Chinese consumer goods market. I also visited some consumer goods enterprises with my team, including quite a few emerging consumer brands. Each enterprise inspired and taught me in different ways.

From “many are the same” to “everyone is different” to “one can be different in many ways”, consumer goods brands are going through the transition from variety brands to category brands to corporate brands, that is, from commodity brands to a characteristic brand set by an enterprise. In a sense, a brand is the "character" of an enterprise, and the character of a management team should match that of its consumer product brand. The consumer goods industry is also undergoing a transition from brand owners to channel distributors to consumers.

We can see or hear from time to time big celebrations of "quantity" or numbers on the surface from various channels, while the "quality" on the inside is often willfully ignored by all. What we see may be the facts, not necessarily the truth. One sees different facts from different angles. We must see with our eyes, listen with our ears, and more importantly think with our brain and heart.

China’s consumer internet dividend period is over. Low-price was one of the keywords, and it was regarded as the most successful keyword by many. The mainstream business logic was to achieve fast user acquisition with the help of capital in the hope to "harvest" them later and become a unicorn in the industry. Behind every “easy & lucky winner" is the big lessons of many who have given up or failed. Just like blooming flowers are only possible with plenty of fertilizer. Every participant must consider one question: How to ensure we become one of the few blooming flowers, not the fertilizer?

The rat race in the internet traffic for many brands has emerged from “reaching the affordability ceiling” to “breaching the affordability ceiling”. Is traffic a stimulant or poison? Capturing the traffic dividend can indeed make one’s business bigger, but only accumulated brand/user compound interest can make one’s business stronger. Only those who can stand the test of dividend cycles or even economic cycles can be regarded as a great consumer goods enterprise. Their core competitiveness must come from within, not from some external factors.

On 4^th Nov. 2021, freestyle skiing champion Eileen Gu became the Brand Ambassador for Yep of Byhealth.

On 28^th Dec. 2021,  BYHEALTH became the Sports Foods and Nutrition Supplier of TEAM CHINA providing sports food, nutritional products and professional nutritional plans for over 70 national teams.

On 1^st Jan. 2022, Byhealth’s Keylid became the official bone health nutritional product supplier for the 19^th Asian Games, Hangzhou 2022.

“Think big to go big” has always been the direction for Byhealth. From globally-sourced ingredients, the Transparent Factory to the Science-based Nutrition strategy today, the core of "think big" lies in innovation and differentiation. Good product quality and user experience are essential for long-term development. "Think big" aims to trigger sufficient innovation and differentiation to create more value and competition, so that users can get better product quality and user experience. At Byhealth, we use this “think big" philosophy to support our business and ensure its sustainable and healthy development.

Only when you reach the peak can you see the most beautiful view!

In December 2021, Byhealth worked with teams from many global institutions such as the Shanghai Institute of Nutrition and Health of the Chinese Academy of Sciences, Mayo Clinic, etc., and extracted the anti-aging substance PCC1 from specific grape seeds, which can precisely, efficiently and safely clear senescent cells. The world-renowned journal Nature Metabolism published this breakthrough research.

On New Year's Day in 2022, I started a new year resolution for Byhealth to transform into an enterprise with strong technology.

The strategic transformation of independent innovation and R&D started in 2014 has resulted in the phased achievements of innovative new functional products and the PCC1 fundamental research over 8 years. I hope we will be able to transform Byhealth into an enterprise with strong technology in another 8 years. 

What is the best pathway to achieve this transformation?

It is to launch an original high-tech product with significant efficacy to the market every 2 or 3 years, bringing incremental value to consumers' health. It is to keep publishing cutting-edge research results like the PCC1 one in anti-aging and precision nutrition in the world, bringing incremental value to the VDS industry. 

What should Byhealth do to achieve this transformation?

1. Implement the Science-based Nutrition strategy and continue to build unique Byhealth product power and competitive advantage based on strong technology, empower the VDS industry with more technology, and bring incremental value to the industry. The Science-based Nutrition strategy will focus on building the technology-based core competitiveness. Its implementation will focus on three aspects: 1) R&D of proprietary ingredients and formulations. 2) R&D and registration of products with new functions and products with significant efficacy; 3) publishing of fundamental & pioneering research results such as in anti-aging or precision nutrition.

1. Continue to strengthen the technology aspect of health products with significant efficacy that demonstrate Byhealth’s competitive advantages and amplify the unique advantages of Byhealth.

1. A new branch of Byhealth Institute of Nutrition & Health (BINH) as well as the AI Center, both based in Shanghai, will be established in 2022.

In February 2022, the company developed the 2030 core goals and action plan for its transformation into an enterprise with strong technology.

What we do now determines what Byhealth will be in the future. Byhealth needs to learn from the global benchmark pharmaceutical companies and committed to becoming one of the VDS enterprises with the strongest technology and innovation in the world. 

At the beginning of each year, there are always predictions like "this year is going to be a particularly difficult one". Social media is full of comments like “laying low”, "ducking down", or even “kneeling down" this year. In my opinion, there is not a particularly difficult year. Every year is difficult. Every year is key. The only differences are the level of difficulty and the key focus. It’s as simple as that. Some contingency practices during the pandemic have become normalized, and normalized difficulties should not be regarded as difficulties, but the normal. And we should seek opportunities for breakthroughs in the existing normal. If we focus on the huge potentials of the silver economy for the VDS industry induced by an aging population and Byhealth’s advantages as an industry leader, we will be able to find opportunities and make breakthroughs one after another. When risk and opportunity are both presented before you and your competitors, it depends on which you choose.

In the era of change, we need people who ask questions and solve problems. We do not need, nor do we care about, people who always argue who’s right and who’s wrong.

After the consideration and choice between quality and quantity in 2021, we have made 2022 the year of operational quality for Byhealth.

The word “business” can be interpreted as “endless values” in Chinese, firstly for consumers, and then for all stakeholders in the value chain, including brands, channels, supply chain and the community we live in. Only a business that creates endless values for all can last. We need to go back to the fundamentals of business. 

The word “business” can also be interpreted as “endless creativity” in Chinese. An old map will never lead us to a new continent. In the context of great changes in both online and offline markets, Byhealth, underpinned by the courage, innovation & thirst for change in its blood, drives the upgrade of the sales model offline and the traditional e-commerce online, to bring incremental values to the industry and all stakeholders in the value chain, and break the predicaments to blaze a trail.

More people and industries will be forced to choose between quality and quantity in 2022. The “emperor's new clothes” will eventually be exposed, and an ostrich will eventually pull its head out of the sand. If we take the initiative and start early, we will have more opportunities than others during a crisis, and prevent a bigger crisis before a bigger opportunity comes. 

In 2022, we need "quantity" with more quality, health and sustainability. Without 1 (the health), the 0 after it, no matter how many there are, is meaningless. If Byhealth cannot create ongoing incremental value for consumers' health and its stakeholders in the ecosystem, it will cease to exist.

It's harder to conquer oneself than one’s opponents. The more applause, the more risks lurk. The harsher criticism is, the greater the chance to reflect on oneself. Enduring the pain now will bring a better and healthier future.

For Byhealth and many other enterprises and industries, 2022 may be a good year for us to stay calm & undisturbed to improve our “quality”.

Shoot for the moon. Even if you miss, you’ll land on a cloud.

May 2022 be a safe, healthy and peaceful year. 

Liang Yunchao

Chairman of Byhealth

4^th March 2022