PCG Nutritional Supplement Industry Newsletter 2Q13


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Partnership Capital Growth, in collaboration with SPINS and Nutrition Business Journal / NewHope360, is pleased to present our second quarter 2013 newsletter, which focuses on the U.S. Vitamin, Mineral, Herb, & Supplement (VMHS) industry. Key highlights include:

• The VMHS industry continues to exhibit robust growth as an aging and increasingly ill – yet also increasingly health-conscious – American population focuses on health, wellness, and the benefits of preventive/proactive care. The industry grew 7.5% to an estimated $32.4 billion in 2012 and has not had a single year of decline in the last decade.

• Retail sales data supports these trends and shows strong growth across channels and product categories. We remain impressed by the significant growth rates across major channels and product categories given their already-massive scale, and we are equally excited by new products, ingredients, and channels that have surfaced over the last couple years.

• Industry consolidation continues, with a broader range of buyers showing interest in the space than ever before. Numerous landmark acquisitions by major pharmaceutical, CPG and food companies are changing the landscape of the industry, presenting both benefits and new challenges to industry players.

• In the public markets, our PCG supplement index has significantly outperformed the overall market since Jan. 2011, growing ~55% vs. the overall market which has grown ~30% in the same period, driven by the positive performance of the vast majority of the underlying VMHS companies.

• Overall, PCG’s outlook on the VMHS sector remains very positive with industry challenges – NDI stalemate, rising commodity costs, product adulteration – more than offset by opportunities – personalization, rise of integrative medicine, innovation, etc.

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PCG Nutritional Supplement Industry Newsletter 2Q13

  1. 1. Partnership capital growthSupplement Industry Perspectives Industry Newsletter2Q:13InPartnership With: SPINS & Nutrition business journal
  2. 2. 1Brent Knudsen Janica LaneBrian SmithBrittany LarsenManaging Partner & Founder(415) 705-8001brent@pcg-advisors.comPartnerVitamins/Supplements(415) 705-8011janica@pcg-advisors.comPartnerSports Nutrition/Weight Loss(415) 705-8002brian@pcg-advisors.comAnalyst(415) 705-5270brittany@pcg-advisors.comChris SpahrPartnerRetail(415) 705-5276chris@pcg-advisors.comEric SchillerPrincipal(415) 705-8010eric@pcg-advisors.comMary Elisabeth PlowdenPrincipal(415) 705-7879maryelisabeth@pcg-advisors.comJason MetzlerVP of Business Development(415) 705-8016jmetzler@pcg-advisors.comOURKEYCONTACTS
  3. 3. 2Key ThemesThe Vitamin, Mineral, Herb, and Supplement (VMHS) Market is thriving; industry challenges are more than offsetby opportunities.Market-SpecificTrends Product/Channel TrendsIndustry Trends• Industry growth: 10+ years ofoutperformance, led by internet• Usage: Growing usage rates amongAmerican public, though significantopportunities remain• Industry risk/reward: challenges – NDIstalemate, rising commodity costs, productadulteration – more than offset byopportunities – personalization, rise ofintegrative medicine, innovation, etc.• M&A: Continued industry consolidation atrobust valuations• Channels: VMHS in natural channel grew13.5% to $1B; $10B+ conventional channelgrew 7.5%• Products: Vitamins/supplements stilldominant in mass (90% of VMHS sales),while they account for 78% in natural;significant growth continues despite scale• Specific products/ingredients demonstratingstrong growth: Plant proteins, ancient grains,probiotics, herbs and whole foodsupplements, sports nutritionSee NBJ supplement industry overviewin section 1, plus PCG commentary insections 3-5See SPINS retail sales updatein section 2
  4. 4. SupplementIndustry Overview2012 SPINS Retail Sales UpdateTransaction News and ReviewImplications for GrowthUpdateon Top CompaniesAppendix134256
  5. 5. 4The U.S. supplement industry has demonstrated strong and consistent growth throughout the years andvarying economic climates, with no declines in over a decade.Supplement Industry Overview Key Facts & Figures051015202530$35B2001$18.0B2002$18.7B2003$19.8B2004$20.4B2005$21.3B2006$22.5B2007$23.8B2008$25.4B2009$26.9B2010$28.7B2011$30.2B2012E$32.4B2013E$34.9B6.8% 5.1% 7.5% 7.5%3.8% 5.8% 3.0% 4.6% 5.4% 5.9% 6.4% 6.0%% Growth• The U.S. supplement industry has seen a compound annual growth rate of 5.2% over the last decade (vs. ~1.7% real U.S.GDP growth from 2003-2012)• In 2013, NBJ anticipates a continuation of the strong growth rate seen in 2012E as VMHS continue to move into themainstreamSources: Nutrition Business Journal (NBJ)NOTE: Forward estimates including 2012 were created in May and do not reflect NBJs current best estimates. NBJ will update its estimates in itsJune/July 2013 Industry Overview issue, which will be available at www.newhope360.com/nbjU.S. Supplement industry retail salesNutritionbusinessjournal
  6. 6. 5SportsNutrition13%Herbs &Botanicals17%Specialty19%Vitamins33%Minerals7%MealReplacements11%Looking at sales by product category, Meal Replacements showed the greatest growth in 2012E, followed bySports Nutrition. Vitamins, which remain the largest category, have also sustained strong growth rates.Supplement Industry Overview Key Facts & FiguresSource: NBJSupplementSales & Growth by ProductNutritionbusinessjournal051015%14.8%11.6%Specialty8.2%Herbs &Botanicals5.6%Vitamins5.2%Minerals3.7%MealReplacementsSportsNutrition2012Esupplementsalesgrowthbyproducttype2012ESupplementsalesbyproducttypeNOTE: Forward estimates including 2012 were created in May and do not reflect NBJs current best estimates. NBJ will update its estimates in itsJune/July 2013 Industry Overview issue, which will be available at www.newhope360.com/nbj
  7. 7. 60481216%Internet15.3%Practitioner9.5%MLM9.5%Retail -Natural&Specialty7.3%Retail -MassMarket5.4%Mail Order4.2%The majority of supplement sales take place through retail outlets, but the fastest growing channel is theinternet.Supplement Industry Overview Key Facts & FiguresSources: NBJ,U.S. Department of Commerce E-Commerce dataSupplementSales by ChannelNutritionbusinessjournal2012Esupplementsalesgrowthbychannel2012ESupplementsalesbychannel0102030$40B2012E SupplementSales by ChannelMLMRetail - Mass MarketRetail - Natural & SpecialtyMail OrderInternetPractitioner$32.4B28.5%16.2%8.3%5.2%5.4%36.3%% of Total010203040%200230.7%21.2%200328.7%37.2%200427.4%16.8%2005 200623.8%19.0%2007 20083.0%25.5%200916.4%201016.3%201111.2%201225.3%24.8%20.0%24.2%2.1%18.2%15.2% 15.8%15.3%VMHS Internet Sales GrowthTotal U.S. E-Commerce GrowthInternetsupplementsalesgrowthNOTE: Forward estimates including 2012 were created in May and do not reflect NBJs current best estimates. NBJ will update its estimates in itsJune/July 2013 Industry Overview issue, which will be available at www.newhope360.com/nbj
  8. 8. 7Supplement Industry Overview Key Facts & Figures020406080%1971-197423%1976-198035%1988-199442%1999-200052%200666%200768%200864%200965%201066%201169%201268%Close to 70% of U.S. adults use supplements, with reasons for use varying depending on demographics andother factors.Consumer Trends and InsightsNutritionbusinessjournalSupplementusemotivationsU.S.supplementusage1Supplement usage has remained fairly steady inrecent years with a sizeable portion of theAmerican population placing value on theirhealth benefits• A recent national study2 found that the most commonlyreported reasons Americans cite for using supplementsinclude “improving overall health” (45%) and“maintaining overall health” (33%)• Another recent survey3 showed that the top 5 reasonspeople choose to take supplements include:1. “To feel better” – 41%2. “To improve overall energy” – 41%3. “To boost their immune system” – 36%4. “For digestive issues” – 28%5. “To lower cholesterol” – 21%• Adults 60 years of age and older are more likely thanyounger people to report motivations related tocondition-specific reasons like heart, bone and joint,and eye heath. Older adults are also more likely to takesupplements with 67% of those over 50 usingsupplements vs. 45% of those 50 and under1• Supplement usage based on the advice orrecommendation of a healthcare provider only accountsfor 23% of supplement use• Use of supplements has been shown to correlate withfavorable health and lifestyle choices including non-smoking, exercising, and health insurance coverageSources: (1) Council for Responsible Nutrition 2012 Consumer Survey on Dietary Supplements, NHANES I,NHANES II, NHANESIII, and NHANES 1999-2000 (2) JAMA Internal Medicine – Feb 2013 – “Why U.S. Adults UseDietary Supplements” (3) JAMA Internal Medicine – 2012 – “Users’ Views of Dietary Supplements”020406080100%2012OccasionalUsersRegularUsersSeasonal Users76%18%6%2012
  9. 9. 80100200300M2012E253M2017P264M2022PAge 35-44Age 25-34Age 15-24Age 45-54Age 75+Age 65-74Age 55-64274MU.S. Population-2.9%10.3%7.2%-9.4%9.2%43.8%30.9%% Growth2012E-2022P0. 9%45-6433% 35%65 & overMen Women63% 62%01,0002,000$3,000B0100200300400M1960$27B1970$75B1980$256B1990$724B2000$1,377B2010$2,600BU.S. Population(right axis)The supplement industry will likely benefit from the aging U.S. population and an increasing focus onpreventative health and alternatives to prescription medicines.Supplement Industry Overview Key Facts & FiguresDemographics & Population TrendsNutritionbusinessjournalIncidenceof chronichealthissuesbyage2Nationalhealthexpenditures1U.s.populationtrends3National health expenditures have outpaced overall population growthnearly tenfold over the last 5 decades. Since 1960, the U.S. populationhas grown about 1% each year, while health expenditures haveincreased at a compound annual growth rate of 9.5%, largely due to theaging population and the rise in obesity and other epidemics.Healthexp.(leftaxis)Sources: (1) Centers for Medicare & Medicaid Services (2) Centers for Disease Control andPrevention (3) United States Bureau of the Census
  10. 10. 9Consumers are seeking products that are closer to their natural, whole state. NBJ estimates thatthe U.S. whole-food supplement market grew 12% in 2012 to reach $1.2 billion – almost doublethe growth rate of the overall dietary supplement industry. Major players have taken notice, asevidenced by Procter & Gamble’s recent acquisition of New Chapter, a market leader in thecategory.Other Industry Trends (1 of 2)We expect several other key trends – both positive and negative – to influence the industry over the long term.Sources: NBJ, PCGUncertainty around the FDA’s New Dietary Ingredient (NDI) guidelines has continued for nearly 2years, since the FDA released a draft in June 2011. In April 2013, industry groups asked the FDAto clarify what information it requires to identify an ingredient that is the subject of an NDInotification. Other issues also remain outstanding: “grandfathered” ingredients, parameters forchemical alterations of old ingredients, etc.NDIStalemate?While one-size-fits-all and mass customization approaches to providing consumers withsupplements make up the majority of the industry, some companies are providing customers withtruly personalized solutions based on genetic tests (e.g., geneME) and blood tests (e.g.,WellnessFX).PersonalizationSupplements have been a frequent subject of the Dr. Oz show; products/brands and retailers haveexperienced sales spikes of particular ingredients profiled by Dr. Oz. On April 9, 2013,Consumerlab.com appeared on the show, stating that 40% of multivitamins it tested for nutrientcontent quality failed. This has been a common theme in the industry, with high-integrity producerscontinuing to encourage the weeding out of “bad apples,” though the industry had hoped for achance to comment in this case.The oz effectIntegrative medicine, which brings together modern and “alternative” medicine, has grown inpopularity at mainstream establishments, from university hospitals to private clinics. A greaterfocus on nutrition and supplementation by these institutions is paving the way for significantgrowth in the VMHS industry and redefining the “target customer” (e.g., traditional medicaldoctors) for brands focused on the healthcare practitioner segment.IntegrativemedicineSupplement Industry Overview Key Facts & FiguresNutritionbusinessjournalTrusted source
  11. 11. 10The supplement industry has seen two new mega-markets emerge recently – gut health, thanks tomicrobiome research on the effects of microorganisms inhabiting the human body; and brainhealth, thanks to age-related cognitive decline in Baby Boomers and depression in millennials.These markets have seen active involvement from supplement manufacturers, as well as foodcompanies interested in solutions that satisfy the large and growing demand.Other Industry Trends (2 of 2)Sources: NBJ, PCGAs with food, supplements have been at the center of the GMO debate. Despite the failure of Prop37 in California, state legislation on the GMO issue is likely to continue, presenting clear problemsdue to the prevalence of GMOs in the U.S. and the lack of a single regulatory standard. The Non-GMO Project, a nonprofit verification and labeling organization, has verified a handful of VMHSbrands’ products (e.g., New Chapter, Nordic Naturals, Barlean’s, Flora, Garden of Life, etc.) but alllarge brands are noticeably absent.GMOSSupplement innovation continues, with the introduction of new flavors and textures, cutting-edgedelivery systems, unique sourcing options, and customization. This innovation has allowed forexpansion into bordering industries like beauty and food with the introduction of multivitamins forthe skin and vitamin-infused food.innovationAlthough the adulteration of dietary supplement products is not new, the recall of the prescriptionform of sibutramine and the growth in the black market trade of this weight-loss ingredient, as wellas adulteration problems associated with muscle-building and male sexual enhancementsupplements, have fueled increased regulatory action on the part of the FDA recently. The issue ofproduct adulteration and its potential fallout could impact every part of the dietary supplementssector.adulterationWith the growth in sports nutrition and greater awareness of the benefits of protein – for sports/fitness and more generally – whey protein prices have continued to present challenges for industryplayers. Similarly, the cost of sourcing crude fish oils has reached an all-time high, causing manysupplement companies to increase prices on popular fish-based omega-3 products. These are justtwo of many examples of ongoing commodity cost challenges.CommodityCostsSupplement Industry Overview Key Facts & FiguresNutritionbusinessjournalMegaMarkets
  12. 12. SupplementIndustry Overview2012 SPINS Retail Sales UpdateTransaction News and ReviewImplications for GrowthUpdateon Top CompaniesAppendix134256
  13. 13. 12Consistent with the NBJ data, SPINS reports 8% growth in retail sales of VMHS in 2012, with the naturalchannel outperforming.SPINS VMHS Product and Channel Trends2012SPINSProducttrends2012spinschanneltrends035810$13B2010$10.1B2011$10.8B2012EHerbs &HomeopathicVitamins andSupplements$11.7B035810$13B2010$10.1B2011$10.8B2012EConventionalChannelNatural Channel$11.7BSpecialty Gourmet% Growth 5.1% 7.6% 8.0%$1.3B+8.0%+$94.9M$10.4B+8.0%+770.2M2012 Totals$1.0B+13.5%+$123.8M$10.6B+7.5%+$737.5MConventionalas % of Total 91.2% 91.1% 90.7%2012 Totals$0.05B+9.0%+$3.8M– In 2012, Vitamins & Supplements accounted for 89% of total VMHSsales tracked by SPINS. Leading categories within this segmentinclude ready-to-drink meal replacements, food supplement oils, andmulti-vitamins. See page 15 for growth drivers.– Herbs & Homeopathic accounts for 11% of total 2012 VMHS salestracked by SPINS, with this share remaining steady over the last 3years. Leading product categories within this segment include coldand flu/immune system formulas, herbal singles, and homeopathicchildren’s and allergy & respiratory medicines. Please see page 16.– Conventional• With FDM outlets and major players like Walmart* included, theconventional channel dominates, accounting for 91% of SPINS-tracked sales in 2012.– Natural• Given strong growth in the natural channel over the last 3 years,the channel has increased as a percentage of total VMHS retailsales.• Whole Foods, which is excluded from these figures, is estimatedto be as large as the natural channel ex-Whole Foods.– Specialty Gourmet*• While a small percentage of total sales (less than 0.5%), growthis strong and Specialty Gourmet is becoming a more recognizedchannel for supplement sales.Source: SPINS retail sales data (stores w/ >$2M revenue), Whole Foods excluded from all SPINS data.* = New data not included in our last (2011) VMHS report.2012 SPINS retail sales update trends
  14. 14.$0.1B2011$0.04B2012Vitamins &Supplements$0.05BSpecialty Gourmet SalesHerbs &HomeopathicAll three SPINS-tracked channels enjoyed robust growth in VMHS sales in 2012.Channel TrendsSpecialtygourmetchannel2012spinschanneltrends0.$1.3BNatural Channel Sales2011$0.92B2012Vitamins &SupplementsHerbs &Homeopathic$1.04B0.$12.5B2011$9.86B2012$10.60BConventional Channel SalesVitamins &SupplementsHerbs &Homeopathic– Herbs & Homeopathic• Strongest in the Natural channel, accounting for 22% of totalVMHS sales; Herbs & Homeopathic also grew most rapidly innatural (up 12.5%).• Smallest share in the Conventional channel, only accounting for10% of total sales.– Vitamins & Supplements• Strongest in the Conventional channel, accounting for 90% oftotal sales.• Smallest share in Natural (78% of total sales), although thestrongest growth of all channels at 13.8%.Totals & Growth$1,040.4M+7.1%+$68.9M$231.2M+12.5%+$25.7M$809.4M+13.8%+$98.0M$9,557.6M+7.5%+$668.6MTotals & GrowthNaturalchannelconventionalchannel$7.0M+4.8%+$0.3M$39.0M+9.8%+$3.5MTotals & GrowthSource: SPINS retail sales data (stores w/ >$2M revenue), Whole Foods excluded from all SPINS data.Note: See page 21 which describes and defines SPINS channels.2012 SPINS retail sales update trends
  15. 15. 14-2000200400600800$1,000MDollarsTotalUp$878.6MTotalDown-$108.4MNetIncrease$770.2M-100102030Units (# of Subcategories)TotalUp25TotalDown-8NetIncrease17-100102030Units (# of Subcategories)TotalUp22TotalDown-6NetIncrease16Sales grew in nearly all product subcategories* across VMHS in 2012.Departmentgains and lossesHerbs&HomeopathicDept.-250255075100$125MTotalUp$104.3MTotalDown-$9.4MNetIncrease$94.9MDollars-200204060Units (# of Subcategories)TotalUp47TotalDown-14NetIncrease33-2500250500750$1,000MDollarsTotalUp$982.9MTotalDown-$117.8MNetIncrease$865.1MVitamins&SupplementsDept. totals2012 SPINS retail sales update trendsSource: SPINS retail sales data (stores w/ >$2M revenue); Whole Foods excluded from all SPINS data.*See page 20 for SPINS category/subcategory breakdown.
  16. 16. 152012 SPINS retail sales update leaders & laggardsVitamin & Supplement 2012 Leadersand Laggards$4.3MSoy is an allergen for many people. Concerns over GMO content andestrogens in soy may also be contributing factors.Nutritional yeast and brewer’s yeast are often used as a saltalternative for taste, while also providing additional nutritional value.Use of creatine supplements by weightlifters, bodybuilders, andincreasingly mainstream consumers is driving growth in this category.The hormone melatonin is a leader in natural sleep products and hasalso been shown in studies to be beneficial to nerve health.We may see a turnaround in vitamin E sales in 2013, as several recentstudies have shown benefits for heart, brain, and liver health.Consumers are becoming aware that high levels of calcium may not bethe most effective way to promote bone health.Yeast ProductsCreatineDHEA, Pregnenolone & HormonesSoy SupplementsVitamin ECalcium & Calcium Formulas$164.4M$4.2M$93.5M$442.8M$27.5M32.7%26.5%-16.8%-13.5%31.0%-7.3%$602.4MInfluenced by the powerful vegan movement, plant-based proteins leadsales growth in powdered meal replacements.Powdered Meal Replacements 21.6%$37.6M The demographics of the typical sports supplement user has expandedto include women and youth, as well as new fitness categories.Other Sports Supplements 21.3%$436.5M Shelf-stable technology and other innovations promise to keep thiscategory on the fast track for the next several years.Prebiotics and Probiotics 21.1%Overfishing of many endangered species and high mercury levels foundin shark combined with non-beneficial scientific findings in regards tocancer have steered consumers away.Cartilage Products $0.5M -14.3%Press on laxatives has not been very positive. Now more focus onmaintaining digestive tract health with ingredients like chia & probiotics.Fiber Products & Laxatives $416.5M -8.5%Aloe Products $31.8M -4.0 %The decline in aloe products can be attributed to the decline of laxative-based cleanse products.subcategory 2012sales comments2012growthGrowthLeaders(by%)*GrowthLaggardsSource: SPINS retail sales data (stores w/ >$2M revenue); Whole Foods excluded from all SPINS data.Does not include all subcategories, only those showing greatest PERCENTAGE increases and declines.*Leaders by 2012 dollar sales growth include: 1) Ready-to-Drink MealReplacements, 2) Powdered Meal Replacements, 3) Other Misc.Supplements, 4) Prebiotics and Probiotics and 5) Supplement Oils.
  17. 17. 16Herbs & Homeopathic 2012 Leadersand Laggardssubcategory 2012sales comments2012growthGrowthLaggards The trend appears to have shifted from whole-body cleansing to generaldigestive health (probiotics and prebiotics).Probiotics, digestive enzymes and fiber are the leaders in digestivehealth currently. DA medicines, which include only homeopathic, do notresonate well with consumers looking for options in digestive health.Homeopathic cold & flu support and mood support products are thekey drivers of sales in this subcategory.Herbal formulas for pain and inflammation continue to drive sales.This subcategory has a small number of products overall, and has beenlacking in new product introductions.Prostate and libido products drive sales here, as well as supportiveingredients like saw palmetto, tribulus, and pumpkin seed.Stress and anxiety formulas are the most popular in the natural channel;sleep remedies are best sellers in the conventional channel.Nettles & quercetin formulas that target allergy relief continue to be thefoundation in this subcategory.Children’s cold/flu products and baby colic products are examples ofmore popular children’s supplements in this subcategory.The recent press that’s been surrounding homeopathics in general hasbeen mostly negative, resulting in the decline in this category.Homeopathic remedies for sinus and allergy relief, as well as herbalremedies for lung support drive sales in this health focus.Cortisol and adrenal support supplements have been increasing inpopularity, pushing St. John’s Wort out of the limelight.$65.1M$16.8M$1.0M$0.3M$67.8M$42.8M40.8%30.8%-40.8%-13.3%32.1%-5.4%$78.3M 27.9%$2.3M 26.9%$37.8M 24.2%$0.7M -32.7%$35.8M -6.3%$39.1M -5.0%Children’s MedicinesOther Herbal FormulasAllergy/Respiratory MedicinesCalmative Herbal FormulasAllergy Herbal FormulasChildren’s Herbal FormulasDigestive Aid MedicinesFlower Essence TopicalsMen’s Herbal FormulasSt. John’s Wort FormulasCleansing/Organ Herbal FormulasOther Homeopathic Medicines2012 SPINS retail sales update leaders & laggardsGrowthLeaders(by%)**Leaders by 2012 dollar sales growth include: 1) Children’s Medicines,2) Calmative Herbal Formulas, 3) Cold & Flu/Immune SystemFormulas, 4) Other Herbal Formulas and 5) Other Herbal Singles.Source: SPINS retail sales data (stores w/ >$2M revenue); Whole Foods excluded from all SPINS data.Does not include all subcategories, only those showing greatest PERCENTAGE increases and declines.
  18. 18. 172012 SPINS retail sales update ingredientsIngredient Trendssubcategory 2012sales comments2012growthHeavyhittersUp&comersMulti-source proteins, popular with body builders, are purported to beabsorbed more effectively by the body because the different proteinsources digest at different rates.Studies show milk proteins promote weight maintenance, musclesynthesis, and blood glucose control. Many food manufacturers areadding milk protein to their products to enhance their nutritional value.Strong links to digestive health have driven robust growth over thelast few years, although growth is now slowing, similar to fish oil.12.4%/26.0%20.4%19.9%$724M/$236M$440M$579MMulti-Source Proteinwith/without SoyMilk ProteinProbiotic SupplementAcross the supplement industry, several stand-out ingredients drove growth.Referred to as “Golden Root” or “Arctic Root”, Rhodiola is known as anatural anti-depressant.Among the highest antioxidant capacities of all fruits and vegetables, aswell as memory benefits, according to recent studies.Shown to aid in weight loss and lean muscle building without typical sideeffects.Recent studies have lent credence to the touted benefits of Carnosineincluding anti-aging effects, and life-span extension.396.6%282.7%699.9%351.4%$9M$3M$2M$1MRhodiolaBlueberry7-KetoCarnosine & Metabolites228% 2-yrgrowth66%2-yrgrowth44%2-yrgrowth-9% 2-yrgrowthChia seed, oil DHA products Vitamin K ResveratrolHowdidourpreviousup& comersfare?(2011newsletter)Source: SPINS retail sales data (stores w/ >$2M revenue); Whole Foods excluded from all SPINS data.
  19. 19. 182012 SPINS retail sales update trendsThe Oz Effect – Key Ingredient MentionsIngredient Dateof ozmention commentsGrowthDr. Oz has also played a role in ingredient popularity. Recommendations have driven consumers towardsupplements with specific ingredients, causing immediate and immense impacts on product sales.SaffronDr. Oz called Saffron Extract with Satiereal a “Miracleappetite suppressant” to curb emotional eating andcontrol hunger. Satiereal Saffron is said to increasesatiety while decreasing stress hormones andimproving emotional health.Feb 20, 2012Green Coffee ExtractSept 10, 2012Green Coffee Bean Extract was touted by Dr. Oz as“The fat burner that works!” Dr. Oz conducted a studywith 100 women, half of whom took the extract and losttwice as much weight as those taking a placebo. Theextract is lauded as being natural, effective, and freefrom side-effects.Market Size: $1.0M2012 Growth: 8,416%2011 Growth: 211%Market Size: $29.7M2012 Growth: 139,807%2011 Growth: -35%KetonesFeb 6, 2012On a show about fat busters, Dr. Oz touted RaspberryKetones as “the #1 miracle in a vial.” Their regulation ofthe adiponectin protein, which is used by the body tocontrol metabolism, is purported to help the body burn fatfaster.Market Size: $26.6M2012 Growth: 263,572%2011 Growth: NADr. Oz presents a unique opportunity as well as a challenge to both manufacturers and retailers,who can struggle to meet increased short-term demand resulting from a Dr. Oz mentionSource: SPINS retail sales data (stores w/ >$2M revenue); Whole Foods excluded from all SPINS data.
  20. 20. 19Organic and non-GMO supplements are leading indicators of industry trends.Organic and non-gmo trends2012Non-gmovmhs sales2012Organicvmhs sales0100200300$400MAnyOrganic Content$358M$305M70%+Organic Content$156M$125MUSDA(95%+ Organic Content)20122011$91M$70MGrowth of organic products significantly outpaced theoverall industry growth rate of 8% in 2012, with growthrates increasing with the level of organic content% Growth 17.2% 24.3% 29.8%2012 SPINS retail sales update trends020406080$100MNon-GMO Herbs &Homeopathic$21M$17MNon-GMO Vitamins &Supplements20122011$77M$69M% Growth 12.1% 20.8%Non-GMO products (as verified by the Non-GMO Project)saw much greater growth in 2012 than the overallVMHS market, albeit from a small baseOverall growth:20.7%Overall growth:13.8%Source: SPINS retail sales data (stores w/ >$2M revenue); Whole Foods excluded from all SPINS data.
  21. 21. 20In addition to ingredients, SPINS tracks sales for distinct product departments, categories and subcategories.2012 SPINS retail sales update spinsSPINS Product categoriesHomeopathicMedicinesHerbs& HomeopathicVitamins& SupplementsHerbalSinglesHerbalFormulasFlowerEssencesAminoAcidsDietFormulasMealReplacements& SupplementPowdersFoodSupplementsDigestiveAids &EnzymesVitamins &MineralsMisc.Supplements• Remedies• Topicals• Allergy• Brain/Circulation• Calmative• Children’s• Cleansing / OrganSupport• Brain/Circulation• Calmative• Cold & Flu &Immune System• Allergy/Respiratory• Children’s• Cold/Flu• Digestive Aid• Homeopathic• Amino Acids • Diet Formulas • MealReplacements &Supplements• Ready To DrinkMealReplacement• Aloe Products• Bee Products• CartilageProducts• Green Food• Misc Fruit &Vegetable &Grain• Soy• Supplement Oils• Yeast Products• Fiber Products &Laxatives• Misc EnzymeProducts andDigest Formulas• Prebiotics &Probiotics• Calcium &Calcium Formulas• Carotenoids &AntioxidantFormulas• Children’s• Multi-Vitamins• Other• Vitamin B• Vitamin C• Vitamin E• Vitamins A, D & K• Women’s• ChromiumPicolinate• Coenzyme Q-10• DHEA &Pregnenolone &Hormones• Glucosamine &ChondroitinSupplements• Other Misc.Supplements• PolyphenolsSportsNutrition• Creatine• Other SportsSupplementsKey (SPINS Terminology):• Yellow and Green boxes = Departments• Grey boxes = Categories• Bulleted items = Subcategories• Other• Pain Relief• Stress & Sleep• Women’s• Men’s• Other• Women’s• Cold & Flu/Immune• Herbal Energy• Men’s• Other• St. John’s Wort• Women’s’Source: SPINS
  22. 22. 213 Channels Covered by SPINS:• Defined as any full-format supermarket with more than $2 million in annual sales, at least 50% ofsales generated from natural and organic products, and less than 50% of sales fromsupplements.• More than 900 natural retailers throughout the U.S. fit this criteria to make up the Natural Channeland range from independent retailers to larger regional chains and associations including theNational Cooperative Grocers Association (NCGA) and the Independent Natural Food RetailersAssociation (INFRA).• Defined as full-format supermarkets with more than $2 million in annual sales, with SPINS-definedspecialty items comprising at least 25% of their overall volume.• These experiential retail stores bring high-quality products to the variety-seeking consumer,provide full-service gourmet departments, and have a strong focus on specialty, imported, ethnic,natural, and organic items.• The Specialty Gourmet Channel is represented by more than 800 specialty supermarket storesthat have traditionally been undistinguished within broader retail measurement services.• Also known as All Outlet Combined (AOC). AOC includes Conventional Food, Drug, and Massstores, along with Military, Club, Dollar, and Walmart.• SPINS provides a comprehensive source of information on UPC-coded Natural, Organic,Specialty Gourmet, and Health & Wellness positioned products selling through these conventionalchannels.• SPINSscan Conventional is powered by Nielsen Scantrack. SPINS analyzes products with theNielsen Scantrack™ library to identify and code nearly 400,000 UPCs that align with our coreservices based on their positioning, ingredients, and attributes.SPINS data covers the natural, specialty gourmet, and conventional channels.SpecialtyGourmetNaturalConventional2012 SPINS retail sales update spinsSource: SPINS
  23. 23. SupplementIndustry Overview2012 SPINS Retail Sales UpdateTransaction News and ReviewImplications for GrowthUpdateon Top CompaniesAppendix134256
  24. 24. 232011-2013 M&A/Investment TransactionsVMHS Industry consolidation continues, with robust M&A activity in every segment of the supply chain.Transaction News and Review TrendsDec-12May-12Dec-12May-12Jan-13Feb-13PendingApr-12Nov-12Dec-12Mar-12Aug-12Jun-12ingredientsmanufacturingFinishedproductsDistribution& retailIndividual InvestorsFeb-13 Oct-12Aug-11Aug-11
  25. 25. 24Corporate VentureVenture Capital Private EquityMLM/DTCCrowdfunding Food CompaniesExemplaryVMHS BuyersSupplement company buyers span a broader range than ever before.VMHS Companies & Manufacturers cPG CompaniesRetailers Angel GroupsPharma/OTCIngredient CompaniesTransaction News and Review Trends
  26. 26. 25Large strategics like Reckitt Benckiser, a previously unlikely VMHS acquirer, now see investment in VMHS andhealthy living as a core component of their growth strategies.Transaction News and Review Reckitt benckiser case study2012RB acquires SchiffNutrition.2012RB announces newcorporate strategy,vision and purposefocused on health andbetter living.RB acquires Boots HealthcareInternational for £1,926M, gaininga new platform for growth inattractive OTC healthcare market.2006RB acquires Adams RespiratoryTherapeutics, Inc., allowing it toenter the U.S. OTC market withMucinex, the #1 U.S. cough remedy.2008RB completes acquisition ofSSL International and addsDurex and Scholl to its list ofpower brands.2010Reckitt & Colman andBenckiser merge to becomeReckitt Benckiser, theworld’s No.1 householdcleaning company.1999HistoricalRB has a long historydating back to1823and involvingnumerous corebrands/products.Reckitt Benckiser announced a refreshed corporate strategy in 2012, which includes a focus on the fastergrowth and higher margin consumer health and hygiene categories. The acquisition of Schiff Nutrition in2012 was the first actualization of this new strategy and continued on the heels of various successfulconsumer health acquisitions.RB disposesof 2 non-corebusinesses.20002001RB acquires Tiga Roda, anIndonesian pest control business;and Oxy, a leading Koreanhousehold products company.
  27. 27. 26Private Equity19%Public13%Private/Other42%Pharma21%CPG5%Significant consolidation in the VMHS industry is expected to continue.Transaction News and Review consolidationVmhs industry consolidationCPG8%Private Equity18%Public16%Private/Other18%Pharma40%Nutrition Business Journal founder and editorial advisory board chairman, Tom Aarts, forecasted that industry consolidationdue to acquisitions by pharmaceutical and CPG companies could lead to these two groups owning ~50% of VMHS assetswithin five years. We have already seen significant movement in that direction, with recent large-scale deals by Pfizer(acquisition of Alacer), Reckitt Benckiser (acquisition of Schiff Nutrition), Procter & Gamble (acquisition of New Chapter), andChurch and Dwight (acquisition of Avid Health).• VMHS industry may be influenced by greater sophisticationin consumer research, marketing, and branding brought bybig pharma, CPG, and other parent companies.• Increased competition/barriers to entry as VMHS companiesreceive strong backing from parent companies.PotentialImplications:• Potential for blurring lines between the nutrition,pharmaceutical, and food industries as brands come undercommon ownership. Will this impede innovation?• Pharmaceutical companies with supplement holdings maybecome more involved in DSHEA and associated VMHS-related FDA interactions.2011 2015E
  28. 28. valuations in 2011-13 are a tribute to strength and attractiveness of the industry and competition forquality assets.Transaction News and Review m&a activityTransaction Multiples – Aggregatesfor 2011-13 vmhs TransactionsSource: CapitalIQ, PitchbookSee transaction details on p. 28-33Sales multiplesebitda multiplesYear # Deals EVSalesmultipleEBITDAmultiple2011 63 $22M 2.3x 10.2x2012 48 $116M 2.0x 12.3xYTD2013 14 $107M 2.6x 6.0xValuation chronology - mediansValuation chronology - AveragesYear # Deals EVSalesmultipleEBITDAmultiple2011 63 $475M 2.4x 27.9x2012 48 $843M 2.4x 15.7xYTD2013 14 $246M 2.6x 6.0x
  29. 29. 28Transaction News and Review M&A activityKey 2011 - YTD2013 Transactions (1 of 6)Transaction Details EV / LTMDate Target Investor / Buyer Sales EBITDAMay-13PendingSteigerwald Arzneimittelwerk Gmbh Bayer AG (DB:BAYN) - - -Apr-13 UAS Laboratories, Inc. Lakeview Equity Partners - - -Feb-13PendingPamlab, L.L.C. Nestlé Health Science S.A. - - -Feb-13PendingWisconsin Specialty Protein, LLC Omega Protein Corp. (NYSE:OME) $26.5 2.3x -Feb-13 Pharco SA, Arterin Business Omega Pharma Belgium N.V. $13.1 - -Feb-13Bayer AG, Customer and Standard VitaminPremix BusinessDSM Nutritional Products (UK) Ltd - - -Feb-13 Super Supplements, Inc. Vitamin Shoppe, Inc. (NYSE:VSI) $50.0 - -Feb-13 Natur Produkt International, JSCValeant Pharmaceuticals International, Inc.(TSX:VRX)$163.0 - -Jan-13 Botanical Laboratories, Inc. Schwabe North America, Inc. - - -Jan-13 Scitec NutritionEnterprise Investors, Morgan Stanley AlternativeInvestment Partners- - -Jan-13 Bariatrix Nutrition Corporation Caisse de Depot et Placement du Quebec - - -Jan-13 Arizona Nutritional Supplements, Inc. Endeavour Capital, Inc. - - -Jan-13 Pronova BioPharma ASA (OB:PRON) BASF AS $926.6 2.9x 6.0xJan-13 Proventiv Therapeutics, LLC Opko Health, Inc. (NYSE:OPK) $299.0 - -Dec-12 Triarco Industries, LLC Innophos, Inc. $45.8 1.8x -Dec-12 Dalblads Nutrition AB Midsona AB (publ) (OM:MSON B) $5.3 0.7x -Dec-12 KeyView Labs, Inc. Ballast Point Ventures - - -Dec-12 Fortitech, Inc. Koninklijke DSM N.V. (ENXTAM:DSM) $634.0 - -Dec-12 Schiff Nutrition International Inc. (NYSE:SHF) Reckitt Benckiser LLC $1,433.0 5.0x 33.4xDec-12 AeroDesigns, Inc. Polaris Partners - - -Dec-12 Laboratorio Franco Colombiano Lafrancol S.A. CFR International SPA $562.0 2.8x -EnterpriseValue ($M)
  30. 30. 29Transaction News and Review M&A activityKey 2011 - YTD2013 Transactions (2 of 6)Transaction Details EV / LTMDate Target Investor / Buyer Sales EBITDADec-12Cargill, Incorporated, Cultures and EnzymesBusinessDSM Food Specialties B.V. $110.0 1.9x -Nov-12 McNeil Nutritionals, Viactiv Business Sands Brothers Asset Management - - -Nov-12 Fluxome Sciences A/S, Certain Assets Evolva Holding SA. (SWX:EVE) $1.5 - -Nov-12 Pfizer Nutrition Inc. Nestlé S.A. (SWX:NESN) $11,850.0 5.6x 23.7xNov-12 Veracus GmbH B.& C.Tönnies Fleischwerk GmbH & Co. KG - - -Oct-12PendingTournay Biotechnologies Nexira SAS - - -Oct-12 Goerlich Pharma International GmbH BayBG - - -Oct-12 Le Naturiste Mélanie Kau and Stephen Rosenhek - - -Sep-12 To Go Brands, Inc. MedPodium Health Products, Inc. $2.0 - -Sep-12ATF Fitness Products, Inc., Sci-Fit and NaturesScience BrandsCreative Edge Nutrition, Inc. (OTCPK:FITX) - - -Sep-12 Decas Botanical Synergies Inc. Naturex, Inc. - - -Aug-12 SCD Enterprises, LLC Creative Edge Nutrition, Inc. (OTCPK:FITX) - - -Aug-12 Avid Health, Inc. Church & Dwight Co. Inc. (NYSE:CHD) $650.0 2.8x 11.2xAug-12 CNS Wellness, LLC Wellness Center USA, Inc. (OTCPK:WCUI) $14.2 - -Jul-12 Walmark, a.s. Mid Europa Partners LLP - - -Jul-12 Mycell Technologies LLC Undisclosed Institutional Investor - - -Jul-12 AMT Labs, Inc. Innophos, Inc. $20.0 - -Jul-12 FIT-Bioceuticals Limited Blackmores Limited (ASX:BKL) $40.9 1.1x 8.8xJun-12 Pacific Pure-Aid Company DIANA Group SA - - -Jun-12 Improve USA, Inc. Pharmachem Laboratories, Inc. - - -Jun-12 Purity Life Health Products Limited Banyan Capital Partners $14.3 0.2x -May-12 Accera, Inc. Nestlé Health Science S.A. - - -EnterpriseValue ($M)
  31. 31. 30Transaction News and Review M&A activityKey 2011 - YTD2013 Transactions (3 of 6)Transaction Details EV / LTMDate Target Investor / Buyer Sales EBITDAMay-12 Pharmline Inc. Stauber Performance Ingredients, Inc. - - -May-12 NuMe Health LLC BVM Capital, LLC - - -May-12 Manuka Health New Zealand Ltd Waterman Capital - - -May-12 Equateq Limited BASF SE (DB:BAS) - - -May-12 CNP Professional Limited First Milk Limited - - -May-12 Ocean Nutrition Canada Ltd. Koninklijke DSM N.V. (ENXTAM:DSM) $529.9 2.8x -May-12 Supreme Protein Inc. Dymatize Enterprises, Inc. - - -May-12 Asantae Holdings International Inc. (TSXV:JVA) Two Kings LLC - - -Apr-12 CornerStone Research & Development Sun Capital Partners, Inc. - - 5.0xMar-12 Airborne Health, Inc. Schiff Nutrition Group, Inc. $150.0 2.1x 13.3xMar-12 New Chapter, Inc. Procter & Gamble Co. (NYSE:PG) $122.0 1.5x 10.0xFeb-12 Sequel Naturals (Vega) VMG Partners - - -Feb-12 Pharma Vinci A/S Axellus A/S - - -Feb-12 Alacer Corp. Pfizer Inc. (NYSE:PFE) $360.0 3.6x 20.0xFeb-12 Probiótica Laboratórios Ltda.Valeant Pharmaceuticals International, Inc.(TSX:VRX)$86.3 1.9x -Feb-12 GreatLife International LLC Jeunesse Global, LLC - - -Feb-12 Euticals SpAPrivate Equity Partners SpA; Clessidra SGRS.p.A.; IDeA Capital Funds SGR SPA$218.7 - -Jan-12 Neways, Inc.Z Capital, American Capital, Silver Point Capitaland SAC Capital- - -Jan-12 Soluble Products Co. Associated Brands, LP - - -Dec-11 Indevex Biotech AB (publ) Bropelaren Invest AB, Centrecourt AB - - -Dec-11 Alcresta, Inc.Bessemer Venture Partners, Frazier HealthcareVentures, Third Rock Ventures, LLC- - -Dec-11 BioSan Laboratories, Inc. 2x Consumer Products Growth Partners - - -EnterpriseValue ($M)
  32. 32. 31Transaction News and Review M&A activityKey 2011 - YTD2013 Transactions (4 of 6)Transaction Details EV / LTMDate Target Investor / Buyer Sales EBITDADec-11 Nutrialys Triballat Noyal S.A. - - -Dec-11 Ferrosan A/S (consumer health care business) Pfizer, Inc. (NYSE: PFE) - - -Dec-11 Milk Specialties Company HM Capital Partners LLC - - -Nov-11 KelatronInnophos Holdings (NASDAQ:IPHS), BainCapital$21.0 - -Nov-11 EPAX A.S. Trygg Pharma AS $142.9 2.6x 9.2xNov-11 Nutrition 21 Inc., Substantially All Assets Phillip and Michael Satow $7.5 - -Oct-11 Burgundy Extracts S.A.S. Naturex SA (ENXTPA:NRX) $22.2 1.2x -Oct-11 Prolacta Bioscience Inc. Health Evolution Partners - - -Oct-11 Natures Bioceuticals Mistral Ventures, Inc. - - -Oct-11Johnson & Johnson Consumer Nordic, ACOBranded Vitamin and Nutritional SupplementsRangeACO Hud AB $4.3 - -Oct-11BioCalth International Corp., Giantceutical, Inc.,and Herb Source Enterprise, Inc.LTS Nutraceuticals, Inc. (OTCPK:LTSN) $17.5 - -Oct-11 TRC Nutritional Laboratories, Inc. Nutra Inc. (Nutraceutical Intl. Corp) $4.6 - -Sep-11 Granco Minerals, Inc., Animate® Prince Agri Products, Inc. - - -Sep-11 A.M. Todd Ingredients WILD Flavors, Inc. - - -Sep-11 Premier Nutrition Joint Juice - - -Aug-11 The Healthy Bowels Company Ltd. Probiotics International Ltd. - - -Aug-11 LuckyVitamin.com GNC Holdings, Inc. - - -Aug-11 Botanical Science, Inc. IMD Companies, Inc. (OTCPK:ICBU) - - -Aug-11 Novogen Limited, Consumer Products Division PharmaCare Laboratories Pty Limited $11.0 - -Aug-11 Wockhardt Ltd., Nutritional Business Danone (ENXTPA:BN) $144.6 2.0x -Aug-11 Capsugel, Inc. Kohlberg Kravis Roberts & Co. (NYSE:KKR) $2,375.0 3.2x -Aug-11 Baby Care Ltd. (China)USANA Health Sciences Inc. (NasdaqGS:USNA)$62.2 4.1x -Jul-11 Vital Foods Nestle Health Science - - -EnterpriseValue ($M)
  33. 33. 32Transaction News and Review M&A activityKey 2011 - YTD2013 Transactions (5 of 6)Transaction Details EV / LTMDate Target Investor / Buyer Sales EBITDAJun-11Lipid Nutrition B.V, Clarinol®, Marinol® andPinnothin® Product LinesStepan Company (NYSE:SCL) - - -Jun-11 Velvet Energy UK Ltd.Warburg Pincus LLC; Trilantic CapitalManagement LLC; Zam Ventures LP- - -Jun-11 Sis (Science in Sport) Ltd. Provexis plc $13.0 1.7x -Jun-11 Myprotein, Inc. The Hut Group Ltd. $95.3 3.6x -Jun-11 Ganeden Biotech, Inc., Certain Assets Schiff Nutrition Group, Inc. $40.0 2.4x -Jun-11Lipid Nutrition B.V, Clarinol®, Marinol® andPinnothin® Product LinesStepan Company (NYSE:SCL) - - -May-11 Herb Pharm White Road Investments, Adventure Funds $19.9 1.9x 7.6xMay-11 Danisco A/S DuPont Denmark Holding ApS $7,277.4 2.4x 12.9xMay-11 Pharmetics Inc., Certain Assets Monitor Clipper Partners, LLC - - -May-11 Thorne Research, Inc. Helsinn Healthcare S.A. - - -May-11 Carbboom Nutrition Bullish Brands - - -May-11 HWSM Pharmaceuticals, L.L.C. Metrics, Inc. - - -May-11 Vitatene S.A.U. Koninklijke DSM N.V. (ENXTAM:DSM) - - -May-11 Mix1, Inc. Hershey Co. (NYSE:HSY) $11.8 - -May-11 Advanced Vision Research, Inc. Akorn, Inc. (NasdaqGS:AKRX) $28.8 1.4x 118.0xApr-11 Robert & Fils Inc. Atrium Innovations Inc. (TSX:ATB) - - -Apr-11 BioSan Laboratories, Inc. The Riverside Company - - -Apr-11 Dr Sears Family Essentials, Inc. Intuitive Venture Partners, LLC - - -Apr-11 NEXT Proteins (Designer Whey) Stockton Road, GarMark, Northwood - - -Mar-11 LTS Nutraceuticals, Inc. (OTCBB:LTSN) Stone Harbor Investments - - -Mar-11 Vitarich Laboratories, Inc. NBTY, Inc. $3.1 - -Mar-11 EPIC Nutrition Blue Gold Beverages, Inc. - - -Mar-11 Nutrilida Healthcare (Pty) Ltd Adcock Ingram Holdings Limited (JSE:AIP) - - -EnterpriseValue ($M)
  34. 34. 33Transaction News and Review M&A activityKey 2011 - YTD2013 Transactions (6 of 6)Transaction Details EV / LTMDate Target Investor / Buyer Sales EBITDAMar-11 Great HealthWorks The Florida Mezzanine Fund - - -Feb-11 CM&D Pharma Ltd. Nestlé S.A. (SWX: NESN) - - -Feb-11 Oy Bio-Vita AB Midsona AB (OM:MSON B) $5.4 0.6x -Feb-11 Genisoy Food Company, Inc. Johnvince Foods Limited - - -Feb-11 Ferrosan A/S Pfizer, Inc. (NYSE: PFE) - - -Feb-11 Martek Bioseciences Corp. Koninklijke DSM N.V. (ENXTAM:DSM) $1,024.1 2.3x 8.3xFeb-11 Maxinutrition Limited Glaxo Group Limited $258.7 4.5x -Jan-11 Jemo-pharm A/S Hwo Holding A/S - - -Jan-11 Bio-Engineered Supplements & Nutrition, Inc. Glanbia plc (ISE:GL9) $144.0 1.1x -Jan-11 Dymatize Enterprises, Inc. TA Associates, Inc. - - -Jan-11 Punch Power SA Institut Phytoceutic SAS - - -Jan-11 DC Brands International (OTCBB: DCBR) Roswell Capital Partners, LLC - - -Jan-11 Seroyal International, Inc. Atrium Biotech Investments $111.1 2.8x 11.1xJan-11 Bionor Pharma ASA (Nutrilett brand) Axellus $18.2 - -High 5.6x 118.0xMean 2.4x 19.9xMedian 2.3x 11.1xLow 0.2x 5.0xEnterpriseValue ($M)
  35. 35. SupplementIndustry Overview2012 SPINS Retail Sales UpdateTransaction News and ReviewImplications for GrowthUpdateon Top CompaniesAppendix134256
  36. 36. 35The industry tailwinds; product, channel, and ingredient trends; consolidation; and competitive dynamicsprofiled throughout this report provide several considerations for growth.Implications for growthIndustrydynamics• Changing demographics =changing product mix• Consumer interest in condition-specific products and preventative“medicine”• Concern re: quality, efficacy, andscience balanced against demandfor attractive price-value equation• Uncertainty around NDI guidelines• Pet supplements a growing, thoughnascent, market• FDM is dominant (butcrowded, competitive)channel• Natural and healthcarepractitioner channels arebellwethers of innovation,industry trends• Highest growth is online• Retailers sensitive tochannel conflict• Consumers seeking ways toidentify quality products• FTC scrutiny of claims• Large companies with strongconsumer researchcapabilities and propensity tospend on marketing haveentered industry inmeaningful ways• Continued attractivenessof U.S. market; highgrowth, strong demand,no end in sight• Interest in U.S. brandsoverseas; dearth ofproduct in some markets• Varying regulatoryenvironments, languagerequirements, etc.• Evaluate current SKUs – which arehero products and which areobsolete? Rationalize product lineaccordingly• New product categories: focus onhigh-growth areas supported bydemographics and take into accountrelative competition– Also provides opportunity toincrease SKUs at existing retailersand/or purchase size/frequency bycustomers• Decide where to spend on scienceand where to leverage others’– Identify opportunities forcompetitive advantage throughscience• Take potential for slow FDAresponse on products/ingredientssubject to NDI into account• Maximize sell-through atexisting accounts• Fill in gaps in current channelpresence• Experiment withcomplementary channels– Channel strategy must takeinto account potential forcannibalization and need tomaintain relationships withexisting channel partners• Define channel strategy andorient sales/marketing teamsaround it• Consider whether sub-brandcan reduce channel conflict• Get creative re: alternativechannels: gyms, DRTV, etc.• Fill in gaps in U.S. footprint• Consider whether/how topursue internationalbusiness, balancingopportunity against resourcerequirements; possiblealternatives:– Bring existing brandsoverseas or create newbrands in other countries– Distributor vs. direct vs.other• If preparing a company forsale, “headroom”internationally can begrowth opportunity for newowner, especially one withglobal distribution• Focus on making all channelpartners as successful aspossible, which may requirecustomized strategies• Assure that packaging, brandmessaging, etc. are appropriatefor customers; considerrebranding to avoid stalenessand/or clarify messaging• Track tactics with analytics toassess success and fine tune• Consider benefits ofdemos/sampling and otherinteractive programs• Promote science, quality,health benefits, uniqueness ofproducts (as appropriate from aregulatory perspective)• Assure all initiatives reviewedby regulatory expertsProducts/ingredientsPossiblesuggestions/ImplicationsFor growthchannels geographies Branding/marketing
  37. 37. 36Implications for growthanalytics customers Supply/facilities competition• Industry becoming increasinglysophisticated, especially withparticipation of multinationalCPG, pharma, other companies• Careful balance of qualitative/creative with quantitative• Strong focus on sell-throughdata, analyzing online data,customer research, ROI onpromotions, etc.• Handful of population is “hardcore” supplement users;significant white space stillexists• Changing demographicsimpacting consumption• Chronic disease increasing inprevalence and severity• Power of customer research inVMHS industry• Concern over adulteration,particularly in certaincategories (SNWL) or ifproducts made overseas• Industry players pursuecombination of verticalintegration and outsourced co-packing• Commodity price challenges• Don’t let quantification trumpinnovation!• Opportunity to better analyzedistributor, retailer and customerdata in “real time” and use tomake shifts in strategy• Focus on customer retention/longevity• Analyze SKU- and account-levelprofitability; use data to guideproduct and customer decisions• Assess pricing relative tocompetitors• For online business, significantopportunities to analyzeconsumer purchase behavior,provide highly customizedmarketing, and drive retentionthrough right level of interactions• Know your customer and target;a brand can’t be everything toeveryone• Consider how to engage withcustomer; importance ofeducation• Provide generous levels ofcustomer service/support; oftena key indicator of loyalty• Interact with customers in-storethrough sampling/demos/events; interact online throughsurveys, social media, etc.• Understand what customerswant and expect from yourbrand• Ensure adequate capacity andsupply to support growth• Budget adequate expense forR+D and quality control• Audit suppliers thoroughly;avoid unnecessary risk• Consider supply/demand andpricing dynamics of products,ingredients and manufacturingprocesses well in advance ofnew product commercialization• Competition varies byproduct/channel:– Some “commodity” products(e.g., vitamin C)– Some categories with highconcentration of marketshare (e.g., Schiff in krill oil)– Healthcare practitionerchannel has higher barriersto entry but representspotentially large opportunityas MDs become moreinvolved in VMHS• Pick and choose battles• Make strategic decisions incontext of competitive dynamicsand your company’s resourcesand expertise• Consider where being nimble,performing grassrootsmarketing, spending heavily onadvertising/marketing, providingeducation and other tactics canbe most effectiveIndustrydynamicsPossiblesuggestions/ImplicationsFor growth
  38. 38. 37Implications for growthWithin U.S. brick-and-mortar and online retail, a handful of key partners may be essential to a company’sgrowth strategy.Door counts for key retailersChain # of DoorsGroceryAhold USA 775Albertsons 874BI-LO 207Delhaize America 1,300H-E-B 315Harris Teeter 211Kroger 3,619Publix 1,093Raleys 128Safeway 1,641Savemart 243Supervalu 1,522Trader Joes 395Wakefern 68Wegmans 81Winn Dixie 485Natural GroceryEarth Fare 31Sprouts Farmers Market 157Vitamin Cottage 59Whole Foods 335Chain # of DoorsDrugBartell Drug Company 58CVS Pharmacy 7,300Drugstore Networks 12,600Duane Reade 257Fruth Pharmacy 26Kerr Drug 76Kinney Drugs 95Lewis Drug 32Navarro Discount Pharmacies 32Pharmaca 24Rite Aid 4,667Walgreens 8,385Chain # of DoorsMass99 Cents Only Stores 311Army Air Force Exch. Service 3,700BJs Wholesale Club 198Costco 576Dollar General 10,000+Dollar Tree 4,671Family Dollar 7,442Freds 700Harmon Stores 47Kmart 1,221Marcs 57Meijer 200Sears 1,320Shopko 332Sams Club 612Target 1,778Wal-Mart 10,773Chain # of DoorsSpecialty Retail ChainsGNC 5,967GNC LiveWell (within Rite Aid) 2,181Vitamin Shoppe 579Vitamin World 446Onlineamazon.com NAbodybuilding.com NAdrugstore.com NAHSN.com NAiHerb.com NAluckyvitamin.com NAmothernature.com NApuritan.com (NBTY) NAQVC.com NAsupersupplements.com NAswansonvitamins.com NAvitacost.com NAvitaminshoppe.com NAwalgreens.com NANote:• Mass, drug and grocery are all included in “Conventional” for SPINS and in Retail – “Mass Market” for NBJ• NBJ groups Natural & Specialty into one category, whereas SPINS separates them• Only NBJ reports on internet retailersSources: PCG estimates, TSG Consumer Partners, company websites and SEC filings. “Drugstore Networks” includesFamily Pharmacy (2,100), Good Neighbor Pharmacy (3,400), Leader Drug Stores (3,100), Valu-Rite (4,000).
  39. 39. 38• The online/mail order channel continues to be a major growth avenue and is made up of multi-channel companieslike NBTY, as well as direct-only companies like New Vitality and Healthy Directions.• The growth in e-commerce sales of vitamins is consistent with consumers’ increasing propensity to consult theinternet for health and wellness matters.• The practitioner channel has also remained very strong.Sources: Nutrition Business Journal (NBJ), PCG, WSJ, consumerlabs.com• Supercenters and mass merchandisers top the charts for supplement sales, due primarily to Wal-Mart’s massivefootprint in the sector.• Value channels and brands have been favored in this post-recessionary period. A Consumerlabs.com survey of topbrands named Costco’s private-label products as #1 in club.• Mass continues to be most competitive, most concentrated, and has the highest proportion of private-label sales.mass• #3 channel for supplement purchase after mass and natural/specialty.• RiteAid continues to roll out GNC store-within-a-store concept and is also converting 1,200 stores to a new“wellness center” format (with GNC presence, greater organic and gluten-free options, in-house wellnessambassador, etc.). Walgreen Co. has launched a similar concept called Well at Walgreen’s.• For pharma and OTC companies, VMHS presence is thought to be a way to capitalize on existing distribution andsupply chains, and gain leverage with the large drug chains that dominate the industry.drug• Traditional grocery is the #4 sales channel after mass, natural/specialty, and drug.• According to Vestcom, 80% of consumers have bought VMHS in the grocery or drug channels in the last 2 years.Trader Joe’s is the favored private-label brand.• Grocers have more proactively addressed the VMHS category in recent years. While “center store” grocery itemsgrew a total of 5.4% from 2008 to 1Q:12, VMHS grew 28.5% over the same period, according to Nielsen.Conventionalgrocery• Natural grocery and specialty stores together were the #2 channel after mass (incl. Wal-Mart).• Natural tends to be a breeding ground for industry innovation, second only to the practitioner channel. The channelemploys a more experiential customer service- and information-based model, and offers a greater variety ofproducts. This is necessary given their discerning, education-oriented shoppers.• Barlean’s is noted as a favorite brand by the natural channel shopper.• As FDM retailers continue to build out their vitamin sections, natural will need to continue to innovate.Naturalgrocery/specialtyOther:Direct,MLM, PractitionerImplications for growthTrends in key supplement sales channels
  40. 40. SupplementIndustry Overview2012 SPINS Retail Sales UpdateTransaction News and ReviewImplications for GrowthUpdateon Top CompaniesAppendix134256
  41. 41. 40Update on top companies supplement companiesTop Supplement Companies ($200M+ in Supplement Sales)companyAbbott Labs * • Ensure• EAS• Develops, manufactures, and sellspharmaceutical and nutritional products.~$560MSchwabe NA • Nature’s Way• Enzymatic Therapy• Develops and markets pharmaceutical andnutritional products.~$320MNBTY, Inc. • Nature’s Bounty• Sundown• Private Label• Owned by The Carlyle Group, the companymanufactures, markets and distributesbranded and private-label supplements.~$1,820MPharmavite (Otsuka) • Nature Made• Private Label• Part of Otsuka (Japan), the companymanufactures branded and private-labelsupplements.~$1,230MPerrigo* • Private Label • Private-label manufacturer of nutritionalsupplements.~$540M• One A Day• Flintstones• Develops, manufactures, and marketspharmaceutical and nutritional products.~$350MBayer*Pfizer * • Centrum• Caltrate• Emergen-C (Alacer)• Develops, manufactures, and marketspharmaceutical and nutritional products.~$440MGNC* • GNC• Third-party contractmanufacturing• Leading global specialty retailer of VMHSproducts with over 8,200 locations, as well asa contract manufacturer.~$440MGlanbia* • Optimum Nutrition• BSN~$380M• International nutritional solutions and cheesegroup, headquartered in Ireland.* Public CompaniesSource: NBJ; sales represent wholesale U.S. supplement sales onlybrands Businessdescription Est.2012salesTop players in the supplement market include pharmaceutical businesses, supplement-only companies,retailers with product offerings, and others.
  42. 42. 41035810$13B2012E DTC SupplementSales by ChannelMail, TV, RadioInternetPractitionerMLM$11.5B14.8%46.0%23.9%15.3%%of TotalA robust direct-to-consumer supplement industry has also emerged in recent years. Network marketingbusinesses dominated from a scale perspective, but internet and practitioner channels won on growth.Update on top companies direct-to-consumerDirect-to-consumersupplementsalesSource: NBJ; sales represent U.S. supplement sales in the Network Marketing channel only.2012Growth4%15%10%9%10%Topnetworkmarketingcompanies -2012sales0 200 400 600 800 $1,000MUSANA $110LifeVantage $130Natures Sun. $140XanGo $140Advocare $140Melaleuca $170Medifast $210Isotonix $220MonaVie $250Forever Lvg $260Juice Plus+ $290ViSalus Sciences $380Shaklee $390Herbalife $640Alticor $930
  43. 43. 42Update on top companies public market updatecompanyPubliccompany updates- supplements1Q 2013• Atrium saw high organic growth in 1Q 2013 with the North American Retail and Health Care Practitioners(HCP) businesses doing very well• 8.7% year-over-year growth with strong margins at 19.6%• A joint venture was announced with Fosun Pharma to distribute Atrium products in China• Vertical integration is important• Sports nutrition business is expanding with the Klean Athlete line of products• The Nutritionals segment grew 13.3% year-over-year with growth in all categories, plus $5M of new productsales• Closed a manufacturing facility in Lake Worth, Florida• Lower gross margins due to more VMHS sales and production inefficiencies in infant formula• Focused on other areas currently, including acquiring Sergeant’s pet food (categorized in consumerhealthcare)2Q of FY2013(qtr ended 3/31/13)• 5% growth from both acquisitions and organic growth• A focus on manufacturing efficiency and sourcing is expected to drive costs down• There is an emphasis on continued merger and acquisition activity after consolidating and integratingprevious acquisitions• There is also a focus on new product development and existing product repositioningperiod updatesSource: Company websites, 10Q filings1Q 2013
  44. 44. 43Update on top companies public market updatecompanyPubliccompany updates- ingredientsperiod updatesSource: Company websites, 10Q filings2Q of FY2013(qtr ended 2/28/13)• Revenue grew 5.8% year-over-year, although EBITDA was down slightly• The Health & Nutrition division showed the highest growth – up 17% mainly due to strong performance inhuman and animal health in North America• For the first half of fiscal 2013, Health & Nutrition sales accounted for 15% of total sales vs. 14% last year• GI study was not successful - 8M euro impairment charge• Chr Hansen brought on a new CEO on April 1, 2013• Net sales grew 4% year-over-year, driven by 10% growth in Nutrition, the company’s largest segment (988Meuros of 2,376M euros total in 1Q 2013)• The 1Q 2013 growth in Nutrition was due mainly to high growth acquisitions of Fortitech and Ocean Nutrition• Nutrition segment EBITDA grew 12% to 215M euros of 311M euros total in 1Q2013• Revenue grew 13.2% to 83.2M euros.• The Food & Beverage category was down 2.3% (46.7M euros vs. 47.8M euros) while the Nutrition & Healthcategory grew 32.7% (29.2M euros vs. 22.0M euros)– Strong growth in NATlife extracts (proven clinical benefits)• The Americas are 40.2% of total business with growth of 20% in 1Q. Europe was 48.4% of total business,with growth of 10.2% in 1Q 2013• Decas Botanical Synergies was acquired in September 2012.• In December 2012, Caravelle acquired a 15.4% stake in the company from Nutraceutical (Spain). Caravelleis a diversified French business operating in pharma, mechanics, hotels, etc.• Moved further into developing markets with the purchase of Valentine (India) in April 2012. Valentineproduces fruit and vegetable powders and natural food colors1Q 20131Q 2013
  45. 45. 44Update on top companies public market updatecompanyPubliccompany updates- retailperiod updatesSource: Company websites, 10Q filings1Q 2013• Fulfillment improvements have led to a 17% increase in shipments, including 271,000 new customers onvitacost.com• Vitacost is pulling back Amazon sales to focus on vitacost.com and operational efficiencies• Adding 1,000 new SKUs and expanding on food offering• Biggest growth has been in food, sports nutrition, beauty, pet, household, etc. VMHS sales are up 12%• The focus is on private label products, sports nutrition, and non-GMO line as of April 2013• International – added local China and Brazil websites• Upgraded mobile e-commerce site and smart phone apps with new functionality1Q 2013• Same-store sales grew 1.9% year-over-year for GNC company-owned stores. This was the 31st consecutivequarter of same-store sales growth for the company• Revenues grew 6.5% year-over-year. The leap year and the timing of Easter both had negative impacts on sales– Retail sales were up 5% - includes GNC.com and 14 new company stores since the end of 1Q 2012– Franchise revenue grew 6.3% with increased wholesale product sales and franchise income from the U.S.and abroad– Manufacturing and wholesale grew 19.6%• New Member Pricing program launched with regular discounts for Gold Card members rather than just the 1stweek of the month. This will cost $.05 - $.06 per share in Q2 2013, but should be offset by better revenues andmargins in the rest of the year• In the 1st quarter of 2013, GNC opened 32 new domestic co-owned stores, 31 new international franchise stores, 9new domestic franchise stores, and 9 new Rite Aid store-within-a-store units• There was a big stock buyback of $61.3M and dividend in the 1st quarter of 2013. $14.7M was paid out individends in 1Q 2013, with $.15 per share expected in Q2• Same-store sales grew 4.5% in the first quarter due to a combination of higher traffic and higher average ticketvalue ($9.6M contribution in 1Q2013). This was the 30th consecutive quarter of same-store sales growth• E-commerce sales grew 16.7%• Vitamin Shoppe added 13 new U.S. stores, and also acquired 31 stores in the Pacific Northwest as part of theacquisition of Super Supplements• Making “strategic investments” this year to position for growth• Took down the comp-store sales estimate after a soft April 2013• The first quarter saw strength in sports nutrition, specialty supplements and natural bath/beauty• The 2013 outlook for Vitamin Shoppe includes 50 new stores, capital expenditures of $45-$50M including theconstruction of a new distribution center in Ashland, VA (opening summer 2013), and slight dilution due to theacquisition of Super Supplements• Added a line of private label multivitamins and also doing well with sales of Mytrition multipacks (6 SKUs now andwill expand to 10 SKUs in 4Q)• Introducing natural sweeteners in stores• Increasing the availability of Health Enthusiasts for customer service online and over the phone• Continued website upgrades are driving strong growth1Q 2013
  46. 46. 45Update on top companies public market updatecompanyPubliccompany updates- mlmperiod updates1Q 2013• First quarter 2013 was great despite issues, with revenue increasing 13% year-over-year• 18% increase in independent distributors across all regions – Herbalife now in 88 countries• $9.5M of legal and advisory expenses were incurred in 1Q related to the KPMG insider trading case• Herbalife also discontinued their relationship with KPMG given their involvement in the insider tradingdebacle. They have hired PricewaterhouseCoopers as their new accounting firm and will have to re-audit thelast 3 years of financials• There was a $15.1M impact from the devaluation of the Venezuelan currency• Herbalife has had success with weight management and nutrition products:– Expanding meal replacements– Success with the Express meal bar in the U.S. – to roll-out in other countries– Developing meal replacement soups– Expanding Nutrition 24 line to outer countries• Investing in a Winston-Salem manufacturing facility, with construction to start in June 2013, as well as abotanical extract facility in China• Have 600 local access points globally, expanding to 700 this year• Strong focus on customer insights• Bill Ackman called Herbalife a pyramid scheme in February 2013 and divulged a large short position3Q of FY2013(qtr ended 3/31/13)• Sales grew 39% year-over-year to $50.4M• There are now 63,000 active LifeVantage distributors, up from 37,000 in March 2012• Recovering from a product recall that took place in December 2012 (a large-scale voluntary recall ofProtandim that took place due to metal bits being found in product)• The Protandim product recall caused an enhanced focus on quality control in manufacturing and sourcing• Engaged investment bank to secure a $30M-$40M credit facility, which is to be used for a share buyback• Built infrastructure in Japan in Q3, which added costs• LifeVantage has seen huge growth yet sees continued references to headwinds as a result of Protandimrecall in prior year• Focus going forward will be on gaining new distributors as opposed to preferred customers (who only buy forthemselves); new distributors accounted for 8 of 10 enrollments in Q3• Successful launch of canine health product in late January 2013Source: Company websites, 10Q filings1Q 2013• Net sales for the first quarter of 2013 were $41.7M, a decrease of 6.3% as compared to $44.5M in the firstquarter of 2012• Sales declined in North America by 8.9%; in Asia Pacific by 1.7%; and in Europe, the Middle East, and Africaby 12.8%• The decline in North American sales was primarily due to the reduction in the average revenue per order• International sales were effected by fluctuations in foreign currency exchange rates• New independent associates in 1Q increased 17% year-over-year with 23,900 new associates and membersin 1Q. Total associates and members is approximately 231,000 as of March 2013
  47. 47. 46Update on top companies public market updatecompanyPubliccompany updates- mlmperiod updatesSource: Company websites, 10Q filings1Q 2013 • Total revenue for 1Q 2013 was $96.5M, compared with $92.9M in 1Q 2012, an increase of 3.9%• Sales of Synergy WorldWide increased 16.5% during 1Q 2013 compared to the same period a year ago• As of March 31, 2013, there were 18,200 total active managers and 341,200 total active distributors andcustomers• The company incurred one-time expenses in the first quarter surrounding the resignation and severance ofthe former CEO in March, as well as $1.5M investment in sales, marketing, and product developmentpersonnel meant to drive sales and profitability• EBITDA declined 15.8% in the first quarter to $9.2M, while net income was down 32.7% to $4.9M• Total sales grew 19% year-over-year to reach $550.1M• Regional growth:– North Asia: 3.3% year-over-year growth to $188.2M sales– Greater China: 90% year-over-year growth to $175.7M sales– Americas: 15% year-over-year growth to 76.5M sales– South Asia Pacific: 13% year-over-year decline to $67.2M sales– EMEA: 3% year-over-year decline to $42.4M sales• International revenue growth was negatively impacted by foreign currency fluctuations• The company increased full-year 2013 revenue guidance by $190 million to the $2.51 to $2.54 billion range• Operating margins decreased slightly in Q1, mainly due to planned brand-building efforts in China and Japanas well as increased research and development costs• The ageLOC product platform is expected to be a primary growth driver for NuSkin for the near-term. Thisfall, NuSkin will be launching the ageLOC weight management system• NuSkin is currently training and preparing the sales force for ageLOC weight management product launch,which is expected to be the largest product launch in company history1Q 20131Q 2013 • 1Q 2013 net sales increased 9.7% year-over-year to $169.1M• Net earnings increased 29.3%, while earnings per share increased 42.2% to $1.28• Favorable exchange rates contributed to sales growth, as did strong results in both the Asia Pacific andNorth America/Europe regions:– Asia Pacific: 9.9% year-over-year growth to $104.9M in sales– North America/Europe: 9.4% year-over-year growth to $64.2M in sales
  48. 48. 47Update on top companies public market updatecompanyPubliccompany updates- diversified*period updatesSource: Company websites, 10Q filings1Q 20134 monthsending4/27/131Q 2013* Companies not included in PCG Supplement Index (pages 48-50)• 9% growth – 5% based on volume, 4% based on growth• U.S. Cheese & Global Nutritionals treated as one division – grew 14%– Performance Nutrition, which falls within Global Nutritionals, was high point: double-digit growth (nospecific figures cited). Performance Nutrition includes Optimum, BSN, ABB brands– Performance Nutrition is undergoing a $45M plant capacity expansion in the U.S., which should becompleted in 2Q:14– Outlook very positive for Performance Nutrition despite whey costs near all-time highs• Ingredient Technologies and Consumer Products groups are under pressure• Sales up 2.1% after negative FX, to 10.3B euros• Consumer health sales grew 2.3%, to 4.4B euros– Consumer health up 3% to 1.9B euros. Consumer health divided into 3 components:• Consumer Care – 955M euros, up 7.8%; top consumer products are Aspirin, Bepanthen, Aleve,Canesten, and Alka-Seltzer Plus. Consumer Care also includes Bayer’s vitamin/supplementbrands• Medical Care – 597M euros, down 3.6%• Animal Health – 327M euros, up 2.5%– Pharmaceuticals up 1.9% to 2.6B euros– North America and Asia Pacific drove growth in consumer health category1Q 2013• 40% of sales in the first quarter came from emerging markets; a key priority for the company• Sales were up 15% in emerging markets• 45% of Nutrition sales came from emerging markets with 1Q growth of 20% year-over-year• 19 new products were introduced in 1Q with 70 new products expected for the full year 2013• Adult nutrition grew 6% year-over-year led by Ensure and Glucerna• Nutrition sales of $1.699B in 1Q13– U.S. sales grew 2.1% to $718M– International sales grew 14.2% to $981M– Pediatric sales were $987M of total nutrition sales ($608M international), while adult sales were $712M($373M international)• Pediatric sales grew 13.2%, led by international• Adult sales grew 3.1%, led by international• Pfizer repurchased $6.3B of stock in 2013 (through 4/30/13)• IPO of 19.8% interest in Zoetis (animal health)• Total revenue was down 9% in 1Q 2013, but consumer healthcare grew 12% and Zoetis grew 5%• Consumer healthcare growth was mainly driven by the Alacer acquisition, plus growth in Advil and Robitussin
  49. 49. 480246XHigh5.6XMean1.6XMedian1.3XLow0.1XUpdate on top companies public market updateSalesmultiplePCGSupplement Index - Public Market PerformanceFavorable trends led to strong public market performance across the industry.05101520XHigh16.9XMean9.0XMedian8.9XLow2.8X01020304050XHigh40.4XMean20.6XMedian19.1XLow10.8X-200204060%16.7%11.8%-12.2%High108.3%Mean Median LowSource: CapitalIQ.Constituents of PCG Supplement Index and individual company performance shown on following page.ebitdamultiplep/eratios 1-yearrevenuegrowth
  50. 50. 49Update on top companies public market updatePCGSupplement Index Companies – Recent Market ResultsSource: CapitalIQ.Note: All companies listed here are included in the PCG Supplement Index on page 50.Valuation Multiples of Publicly-Traded Comparable Companies($ in millions, except per share data)Last Twelve Months EV / LTM Revenue GrowthSupplements Revenue EBITDA Revenue EBITDA 1-year 3-yearAtrium Innovations Inc. TSX:ATB $13.63 $427 $682 $447 $88 1.6x 7.9x 11.7x 7.2% 9.6%Nutraceutical International Corporation NasdaqGS:NUTR 19.50 189 219 206 37 1.1x 5.9x 11.5x 6.4% 5.9%Perrigo Company NasdaqGS:PRGO 117.03 11,005 12,097 3,404 818 3.6x 14.8x 25.7x 11.8% 16.4%High 3.6x 14.8x 25.7x 11.8% 16.4%Median 1.6x 7.9x 11.7x 7.2% 9.6%Low 1.1x 5.9x 11.5x 6.4% 5.9%IngredientsChr. Hansen Holding A/S CPSE:CHR $36.37 $4,657 $5,242 $941 $313 5.6x 16.9x 30.1x 8.3% 11.8%Koninklijke DSM N.V. ENXTAM:DSM 65.60 11,119 13,425 11,810 1,393 1.1x 9.5x 33.7x 1.2% 4.2%Naturex Société Anonyme ENXTPA:NRX 73.64 575 731 395 69 1.9x 10.8x 19.7x 18.2% 43.3%High 5.6x 16.9x 33.7x 18.2% 43.3%Median 1.9x 10.8x 30.1x 8.3% 11.8%Low 1.1x 9.5x 19.7x 1.2% 4.2%RetailGNC Holdings Inc. NYSE:GNC $44.75 $4,400 $5,321 $2,470 $491 2.2x 10.8x 18.5x 12.8% 0.0%Vitacost.com, Inc. NasdaqGS:VITC $8.20 $276 $246 $345 ($9) 0.7x NM NM 23.0% 19.3%Vitamin Shoppe, Inc. NYSE:VSI $44.44 $1,330 $1,299 $982 $130 1.3x 10.0x 21.2x 10.6% 12.3%High 2.2x 10.8x 21.2x 23.0% 19.3%Median 1.3x 10.4x 19.8x 12.8% 12.3%Low 0.7x 10.0x 18.5x 10.6% 0.0%MLMHerbalife Ltd. NYSE:HLF 46.59 4,797 5,051 4,232 753 1.2x 6.7x 10.9x 16.8% 20.5%Lifevantage Corporation NasdaqCM:LFVN 2.35 267 240 201 26 1.2x 9.2x 23.7x 108.3% 185.3%Mannatech, Incorporated NasdaqGS:MTEX 10.00 26 13 171 5 0.1x 2.8x 40.4x (12.2%) (15.2%)Natures Sunshine Products Inc. NasdaqCM:NATR 15.40 244 164 371 37 0.4x 4.4x 10.8x 0.9% 2.4%Nu Skin Enterprises Inc. NYSE:NUS 58.56 3,421 3,282 2,258 384 1.5x 8.5x 15.9x 24.7% 17.3%USANA Health Sciences Inc. NYSE:USNA 69.45 936 865 664 113 1.3x 7.7x 14.4x 12.0% 13.1%High 1.5x 9.2x 40.4x 108.3% 185.3%Mean 0.9x 6.6x 19.3x 25.1% 37.2%Median 1.2x 7.2x 15.1x 14.4% 15.2%Low 0.1x 2.8x 10.8x (12.2%) (15.2%)Ticker Enterprise Value PE RatioShare Price5/29/13Market Cap
  51. 51. 50-30.00%-10.00%10.00%30.00%50.00%70.00%PCG Supplement Index S&P 500 Index (^SPX) - Index Value NASDAQ Composite Index (^COMP) - Index ValueUpdate on top companies public market updateRelative Stock Price Performance: Supplement IndexThe PCG Supplement Index has increased ~55% since 2011, while the overall market increased by ~30%.% GrowthSource: CapitalIQ. Market cap-weighted index.Please see page 49 for companies included in the PCG Supplement Index.
  52. 52. SupplementIndustry Overview2012 SPINS Retail Sales UpdateTransaction News and ReviewImplications for GrowthUpdateon Top CompaniesAppendix134256
  53. 53. 52Appendix partnership capital growth overviewAboutusPartnership Capital Growth is a leading investment bank exclusively focused on consumer-orientedcompanies in the areas of healthy, active and sustainable living.Representativetransactions45 87.5% 60% $2.2BTransactionsSince 20062012 CloseRate% M&ADealsTotal TransactionEnterprise ValueAcquisition ofAcquired byRecapitalizationbyInvestment byAcquired byInvestment by• What We Do: We raise capital for and sellmiddle-market consumer businesses• Core Values: PCG’s foundation is built onguiding principles of integrity, trust, respect, excellenceand balance• Mission: Deliver superior returns for our clientsand their stakeholders through our value-addedapproach• Results: An industry-leading close rate of ~80%over the last 7 years at superior relative valuations.Former clients remain our best advocates and referralsources
  54. 54. 53Appendix partnership capital growth overviewPCGSportsNutrition&NutritionalSupplement(VMHS) ExperienceExcluding current clients, the PCG team has been involved in transactions with well over a dozen dietarysupplement and sports nutrition companies.Acquired byAcquired byAcquired byAcquired by Investment byUnannouncedWeightManagement Co.RecapitalizationbyPrivate EquityInvestorDecember 2012 April 2011 June 2010December 2011 August 2010May 2011Investment by Investment by Investment byInvestment byJuly 2006June 2007May 2009 January 2008Pre-PCG experience based on partners’ activities at North Castle Partners and William Blair.PCGexperience Pre-PCGexperience
  55. 55. 54Appendix nbj/new hope 360 overviewNewHope360 is the premiere digital marketplace that connects thehealthy lifestyle industry from supply to shelf.For Suppliers and Manufacturers: We connect you to your nextcustomer, and provide you with the sourcing, market research, standardsand legislative information you need to develop a trusted consumerproduct.For Retailers: We provide the trends, operation tactics, products, andconsumer concerns that give you the insight you need to grow your store.Marc BrushNutrition Business JournalEditor in Chiefmbrush@nutritionbusiness.comCarlotta MastNew Hope 360Editor in Chiefcarlotta.mast@penton.comNutrition Business Journal and NewHope360.com are brought to you by New Hope Natural Media, a division of Penton Media, Inc. For more than 25years, New Hope Natural Media has been the leading media resource and information provider for the natural, organic and healthy-lifestyle productsindustry. Our publications, events, e-business products and services deliver industry information and provide community-building forums that connectyou to your next customer. In print, we offer the best consumer and trade publications, respected for their high quality of content; in person, the largestnatural, organic and healthy-lifestyle products trade shows; and online, the leading-edge consumer and trade websites in the natural products industry.Nutrition Business Journal is a research, publishing and consultingcompany serving the nutrition, natural products and alternative healthcare industries. Nutrition and natural products include, but are not limitedto, dietary supplements, herbs/botanicals, vitamins/minerals,natural/organic foods and natural personal care. Alternative health careembraces services related to insurance, HMOs, investment andalternative therapies (e.g. chiropractic, acupuncture, naturopathy).NBJ is a monthly executive journal focusing primarily on the nutritionindustry. NBJ also addresses how this industry impacts the larger food,pharmaceutical and health care industries. Each issue discussesbusiness activities, market size/growth, trends, and opportunities in thenutrition industry, which NBJ defines as dietary supplements, herbs,natural foods, and natural personal care products
  56. 56. 55Appendix spins overviewMary Ellen LynchSPINSDirector of Consumer Insightsand Strategic Partnershipsmlynch@spins.comKerry WatsonSPINSManager, SPINS Product Librarykwatson@spins.comSince 1995, we have provided market measurement information and specialized insights into the trends that are top of mindfor health and wellness consumers. As a passionate advocate for the natural and specialty products industry, we support thesuccess of our retail and manufacturer partners and are invested in connecting them with their consumers and helping themto understand the dynamics and opportunities within the sector. Our comprehensive offerings include retail measurementservices, consumer information and advanced analytics for the natural, specialty and conventional retail channels.Our alliances and partnerships with key industry leaders and retail partners, as well as our extensive product content codingare at the core of our business and what make our services go unmatched.• Exclusive natural and specialty channel and retailer reporting• Unparalleled insights into trends thanks to our extensive product coding capturing the attributes underlying consumers’purchasing decisionsThe Natural and Specialty Product Industry’s Premier Information ProviderPubliccompany updates- spins
  57. 57. 56Partnership capital growthTHANK YOUBrent Knudsen Janica LaneBrian SmithManaging Partner & Founder(415) 705-8001brent@pcg-advisors.comPartnerVitamins/Supplements(415) 705-8011janica@pcg-advisors.comPartnerSports Nutrition/Weight Loss(415) 705-8002brian@pcg-advisors.comChris SpahrPartnerRetail(415) 705-5276chris@pcg-advisors.comEric SchillerPrincipal(415) 705-8010eric@pcg-advisors.comMary Elisabeth PlowdenPrincipal(415) 705-7879maryelisabeth@pcg-advisors.comTHIS PRESENTATION IS FOR INFORMATIONAL PURPOSES ONLY. THE INFORMATION CONTAINED IN THIS PRESENTATION IS CONFIDENTIAL.ANY REPRODUCTION OR DISTRIBUTION OF SUCH INFORMATION, IN WHOLE OR IN PART, OR THE DISCLOSURE THEREOF TO ANY OTHERPARTY WITHOUT PRIOR WRITTEN CONSENT IN EACH INSTANCE IS PROHIBITED.