Hengan International Group Company Limited

(25 March 2025 - 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 2024.

Despite the overall stable growth of the domestic consumer market in 2024, there is still room for improvement in residents' consumption capacity and willingness. The competition in the domestic daily necessities market has intensified, with many domestic and foreign brands adopting low-price promotions strategy to capture market share, leading to a decline in average selling price in the industry and a negative growth in overall market sales. However, Hengan seized the opportunity presented by the increasing demand for high-quality personal care products and the fragmentation of consumption channels. Through price stabilisation strategies and product line continuous upgrades and premiumisation, Hengan greatly expanded into e-commerce platforms and new retail channels, and also promoted sales and created new growth points in traditional channels. The Group's omni-channel sales strategy continued to progress, with its market share consistently leading the industry. As of 31 December 2024, the Group's revenue decreased by 4.6% to approximately RMB22,669,215,000 (2023: RMB23,767,936,000) as compared to last year. In 2025, the Group will continue to adopt omni-channel strategy, comprehensive brand optimisation and stable pricing strategies, the Group's revenue is expected to remain stable.

Leveraging opportunities presented by the integration of online and offline consumption models, the Group continued to step up its efforts in developing its e-commerce business and new retail market. In addition to promoting brands on traditional large-scale e-commerce platforms, it also strengthened penetration into other emerging e-commerce channels. During the year, the proportion of the Group's e-commerce and new retail sales (including Retail Integrated ("零售通") and New Channel ("新通路")) further increased to approximately 34.1% (2023: 30.1%), with revenue increasing by approximately 8.0% year-on-year. In addition, the Group continued to promote sales and create new growth points in traditional channels during the year, steadily advancing its omni-channel sales strategy. Meanwhile, by actively identifying of consumer demand for high-quality hygiene products and personalised experiences, the Group developed new technologies for product upgrades, accelerating the development of premium products and optimisation of product mix. This strategy enhanced the brand image and injected new impetus into its long-term development. These products, which include the premium disposable diapers series "Q • MO", and the sanitary napkins series "Sweet Dream Pants" (萌睡褲) and premium brand "Tianshan Cotton" (天山絨棉), continued to be well-received by consumers and maintained strong sales momentum throughout the year. The sales of various key products also achieved a year-on-year growth of more than 10.0% and continued to increase its proportion over the sales, while also improving their brand image and reputation.

Despite the steady increase in the sales proportion of premium, high-margin products and savings on petrochemical raw material costs for sanitary napkins during the year, the lagging effect of rising wood pulp prices for tissue paper in the second quarter led to an increase in inventory costs in the third quarter. In addition, promotional expenses increased substantially by over 10.0% during the year, exerting pressure on the Group's gross profit. In 2024, the Group's overall gross profit decreased by approximately 8.6% to approximately RMB7,324,940,000 (2023: RMB8,010,688,000). The gross profit margin decreased to approximately 32.3% (2023: 33.7%) It is expected that in 2025, the Group will prudently allocate promotional resources, while premium, high-margin products are expected to sustain significant growth. With raw material prices expected to stay consistent, the Group's gross profit is anticipated to remain stable.

During the year, the Group's operating profit decreased by 15.7% to approximately RMB3,354,591,000 (2023: RMB3,977,931,000), mainly due to the decline in overall gross profit. Profit attributable to shareholders of the Company dropped by 17.9% to approximately RMB2,298,535,000 (2023: RMB2,800,533,000). In 2024, the Group's basic earnings per share was approximately RMB2.015 (2023: RMB2.415).

The Board of Directors declared a final dividend of RMB0.70 per share (2023: RMB0.70 per share) for the year ended 31 December 2024, together with the interim dividend of RMB0.70 per share (2023 first half: RMB0.70 per share) already paid, total dividend for the year amounted to RMB1.40 per share (2023: RMB1.40 per share) or RMB1,626,970,000 (2023: RMB1,626,970,000), maintaining a stable dividend amount.

Commenting on the Group's annual results, Mr. Sze Man Bok, Chairman of Hengan International, said, "During the year under review, the international landscape remained complex and volatile, with escalating geopolitical conflicts and a sluggish global economic recovery. Supported by the nation's comprehensive macroeconomic policies, the Chinese economy achieved steady progress. Competition within the domestic daily necessities market intensified, with numerous domestic and international brands engaging in aggressive promotional strategies, often at the expense of profitability, to vie for market share. Faced with this challenging and complex operating environment, Hengan International prioritised profitability and adhered to a rational promotional policy. Despite the inevitable impact of heightened market competition on operating performance, the Group exhibited robust resilience, maintaining relatively stable gross profit margins. Capitalizing on the growing consumer demand for high-quality goods, the Group continued to advance product upgrades and premiumisation, resulting in strong sales performance for premium products. Furthermore, Hengan International actively expanded and optimised its e-commerce platforms and new retail channels, enhancing its market share and further solidifying its leading market position, thereby laying a solid foundation for sustained high-quality development."

Sanitary Napkin
China has the world's leading feminine care products market. With the growing awareness of feminine care and increasing spending power, consumers are paying increasing attention to product quality, safety and added value, driving premiumisation, upgrades and continuous expansion of the market. However, the market competition has intensified, many domestic and foreign brands adopted aggressive sales strategies to tap into the mid-to-high-end market and young consumers. Hengan has full confidence in its product quality and longstanding reputation among customers and adheres to a rational and stable pricing strategy. In order to enhance the brand image and consolidate its leading position in the mid-to-high-end market and traditional sales channels, Hengan continued to promote product upgrades and premiumisation to meet consumers' demand for high-quality feminine care products, so as to reinforce its leading position amid fierce market competition. The Group's premium "Tianshan Cotton" series launched in the second half of 2023 remained a hot seller throughout the year due to its excellent quality and brand image.

The continuous rapid increase in the penetration of new consumption patterns has exacerbated the fragmentation of channels. E-commerce platforms and other emerging retail channels (including community group-buying) are thriving. The Group actively seized the opportunities of emerging consumption trends, vigorously expanded emerging sales channels, and reinforced its advantages in traditional channels. However, the competition in the domestic sanitary napkin market became increasingly fierce during the year, both domestic and foreign brands adopted aggressive price reduction and promotion strategies to expand their market share, resulting in an impact on sales. In 2024, the revenue of the Group's sanitary napkin business decreased by approximately 8.1% to approximately RMB5,677,965,000 (2023: RMB6,178,438,000), accounting for approximately 25.0% (2023: 26.0%) of the Group's overall revenue. The sanitary napkin market is expected to remain challenging in 2025. However, driven by the growing proportion of upgraded and premium products, along with the stable development and expansion of traditional and new retail sales channels, the Group's sanitary napkin business is anticipated to recover and achieve stable revenue growth.

The Group adheres to a stable pricing strategy and prudent allocation of promotional expenses. Benefitting from the increase in the proportion of upgraded and premium products, as well as cost savings from petrochemical raw materials, the main raw material for sanitary napkins during the year, the gross profit margin of the sanitary napkin business remained stable at around 63.7% in 2024 (2023: 63.8%). While seizing the opportunities in the domestic market, and driven by product upgrades and premiumisation, the Group expects the gross profit margin to continue to improve in 2025.

The Group's sanitary napkin brand 七度空間 continues to launch upgraded and premium products and strives to enhance its brand image. In recent years, the Group launched upgraded products such as "Ultra-thin" (特薄) and "Pants-style" (褲型) series, which received an overwhelming response from the market. The "Tianshan Cotton" series that the Group promoted during the year, uses rare and pure long staple cotton from snowy mountains to meet the demand of today's customers for high-quality products. Although the series was only launched in the second half of 2023, its sales already exceeded RMB400 million during the year, and are expected to gradually increase. The Group signed Zhao Jinmai, a female artist with a bright and positive image, as the brand ambassador of 七度空間, injecting youthful vitality into the brand. With the theme of "Freedom Without Limits", the Group launched a variety of promotional activities, such as brand ambassador live streaming, meetings and limited-edition gift sets, based on the preferences of young female customers and white-collar women to further enhance the brand image and attract young and white-collar customers.

Tissue Paper
Tissue paper has become a staple for both home use and travel. Consumers are increasingly prioritising quality, functionality, and environmental sustainability, driving the premiumisation and eco-friendly upgrades in the tissue market. During the year, intense price wars among domestic brands led to a decline in industry sales. In response to the accelerated consolidation in the industry, the Group focused on enhancing profitability and product premiumisation. Through stable pricing, omni-channel sales, brand optimisation, product diversification, and cost control, the Group successfully bucked the trend, achieved growth in tissue paper sales volume and further expanded its market share. During the year, benefitting from the Group's effective "value competition" strategy, the sales proportion of premium tissue paper continued to rise, resulting in a low single-digit growth in overall tissue paper sales volume. However, due to promotional expenses increasing by over 10.0% and a significant decline of more than 26.0% in raw paper sales, the Group's tissue paper business saw a year-on-year revenue decrease of approximately 2.4%, amounting to approximately RMB13,422,445,000 (2023: RMB13,748,172,000). This decline was narrower than the 3.1% drop recorded in the first half of 2024, mainly due to a recovery in tissue paper sales in the fourth quarter of 2024. Its revenue accounted for approximately 59.2% of the Group's total revenue (2023: 57.8%). Looking ahead to 2025, despite ongoing price reductions and promotions in the industry, the demand for premium, high-quality tissue paper is expected to grow continuously. The Group will continue to upgrade its products and increase the penetration rate of premium products to mitigate the impact of industry price competition on tissue paper sales, ensuring stable performance in the tissue paper business.

In 2024, although the Group made significant strides in product premiumisation, the gross profit margin of the tissue paper business was under pressure due to fluctuations in raw material prices and increased promotional expenses. Wood pulp prices rose in the second quarter and then dropped in the third quarter. However, the three-month lag in wood pulp prices, coupled with rising promotional costs, led to an increase in the Group's wood pulp inventory costs in the third quarter, with a slight improvement seen in the fourth quarter. The gross profit margin for the Group's tissue paper business declined in the second half of the year compared to the first half, resulting in a decrease to approximately 18.9% for 2024 (2023: 21.7%). Looking ahead to 2025, the Group plans to control promotional expenses and continue increasing the sales proportion of premium products. In addition, with wood pulp prices expected to remain stable, this should help sustain stable gross profit margin for the tissue paper business.

Driven by the improvement of national health awareness and the growing demand for consumption upgrades, the Group's upgraded and premium tissue paper products achieved remarkable sales. In March 2024, the Group's brand "Hearttex" (心相印) joined hands with the industry to release the "100% Virgin Wood Pulp" logo, aiming to establish quality standards for tissue paper and drive the quality upgrade of the household paper industry. At the same time, the Group introduced the "Fluffy Cube" series of tissue paper products (including facial tissue and kitchen roll). "Fluffy Cube" is a new tissue paper series of the Group, produced by the first TAD tissue machine in China. It is also the first tissue paper series in China to adopt the TAD technology. TAD is an internationally recognised high-quality household paper production technology, providing a disruptive upgrade in comfort and practicality. The "Fluffy Cube" series facial tissue is soft and gentle on the skin, while the kitchen roll can absorb oil and trap water effectively.

In terms of wet wipes business, domestic consumers are increasingly prioritising the functionality and convenience of hygiene products, making wet wipes a daily necessity. Consumer demand and penetration rate of domestic wet wipe products have increased continuously. The diversification of wet wipe products is expanding its applications to meet consumers' personalised needs, driving the rapid development of the wet wipes market. Leveraging its excellent product quality and thoughtful packaging design, the Group's wet wipes business maintained strong growth momentum. By launching a diversified wet wipes product mix, the Group accelerated penetration into toilet wet wipes, cooling towels, baby wipes, adult wipes, and household cleaning wipes and other market segments, meeting various preferences and demands of consumers, and establishing itself as a market leader. Moreover, the gross profit margin of wet wipes is the highest among tissue paper products, with distinguished profitability. During the year, the gross profit margin of wet wipes was 50.7%. The Group's Hearttex wet wipes are made of high-quality spunlace nonwoven fabric with moisturising liquid, soft to touch yet strong, and are renowned as the "No. 1 brand in the domestic wet wipes industry". With the Group's continuous deep cultivation of the wet wipes market, its wet wipes business experienced breakthrough growth this year, with revenue exceeding RMB1.0 billion for the first time. Its revenue surged 30.7% to approximately RMB1,216,677,000 (2023: RMB931,060,000), accounting for approximately 9.1% of the overall sales of the tissue paper business (2023: 6.8%). Driven by the increasing demand for premium and personalised hygiene products, the wet wipes business is expected to maintain robust growth. The Group will continue to seize the opportunities brought by the strong growth momentum of the wet wipes market, expand its market share in the domestic wet wipes market and consolidate its market leadership.

In addition, the Group is also committed to enhancing the brand image of "Hearttex" and demonstrating its care for society. During the year, the Group launched the "Rosy Life" (玫瑰人生) co-branded facial tissue of "Hearttex" and Majid. Majid is a former senior Arabic teacher who tramped the streets of Syria due to the unfortunate of war and illness. He could only stay afloat by selling tissue paper. "Hearttex" sent roses and handwritten letters to Majid and his wife to express the brand's respect. "Hearttex" also added an illustration of Majid and the quote, "We must live life to the fullest" on the tissue packaging. In addition, the Group invited Majid to participate in a live broadcast, which won high praise from all walks of life. "Hearttex" leveraged its brand influence to raise social awareness of Majid and other socially vulnerable and displaced individuals, thoroughly implementing the brand slogan of "Love in Hearttex" and deepening the warm and caring brand image of "Hearttex".

The Group actively responded to the fragmentation of channels and the efforts and resources invested in strategic deployment in the early years have entered the harvest period. The tissue paper business performed remarkably in e-commerce and new retail channels (including Retail Integrated, community group-buying, etc.), with a sales growth of approximately 13.0%, accounting for nearly 40.0% of the overall sales of tissue paper. In the future, the Group will continue its endeavours in expanding different sales channels, striving for the largest market share.

In the face of fierce market competition, the Group will develop more high-quality products to meet the diverse and personalised needs of consumers, improve the cost-effectiveness of tissue paper production, and increase the production capacity of each production base, to fully grasp opportunities in the domestic tissue paper market and maintain its leadership in the tissue paper market. During the year, the Group's annual production capacity increased to approximately 1,630,000 tonnes. The Hubei Xiaogan phase I project and the Guangdong Yunfu phase I project were also put into production. It is expected that in 2025, the remaining production capacity of the Guangdong Yunfu project will be gradually completed to meet market conditions and support sales growth.

For more information, please visit https://doc.irasia.com/listco/hk/hengan/annual/2024/respress.pdf.

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