Consumer products business

Sen is a retailer of TCM based consumer lifestyle products and services in the UK. Since inception in 2001, Chi-Med has focused on brand creation, consumer and geographical market research, product and packaging development, pilot store design implementation and modification, regulatory research and consultation and general development of the "Sen" brand.

The Sen London pilot store, which opened in South Molton Street, Mayfair in December 2002, sells TCM health supplements, a broad range of TCM-based products (such as teas, beverages, vegetarian snacks and foods, toiletries and body care and skin care products) and TCM-based healthcare therapies (such as acupressure, reflexology, Chinese massage and acupuncture). The store also offers personal consultations with qualified TCM practitioners, and houses a "Liquid Health Bar".

Until 2009 the core premise of Chi-Med's Consumer Products Division was to bring a range of high-end TCM related consumer products, under the Sen brand, to the global market place. It was our intention to use the extensive reach of A.S. Watson Group, HWL's global retailing network of over 8,600 shops in 34 countries, to help us expand Sen.

In 2009, partly because of the economic down-turn in Europe, and partly because of our increasing strength in the China, we have evolved our Consumer Products Division's strategy to now focus on developing the business in China. Secondly, we will position Sen product pricing to attract wider consumer demand and to be more compatible with A.S. Watsons mainstream mass-market retail position. We will also expand from just the Sen brand to multiple brands and products in order to gain efficiencies and leverage overheads. We will focus on Sen's external expansion through HWL and third party retail outlets compared with the labour intensive internally managed "own-shop" model that we have historically run in London.

In line with this strategy, we established HHOH to manage and market the Hain Celestial portfolio of over forty organic and natural products brands in China and Asia, as well as to enter the organic infant food market in China. We also reduced the prices of Sen's main body and skin care products by 30% in France to broaden their consumer appeal.

We believe that, as a result of this strategic shift and the moves we have made, the Consumer Products Division will now evolve rapidly and establish itself as a valuable third Division for Chi-Med.

During 2009, Sen represented 100% of the Consumer Products Division. Sales for the Division grew 4% to $4.2 million in 2009 (2008: $4.1m) with an operating loss of $2.5 million (2008: -$2.6m). These results reflected the very challenging retail conditions for our London shops offset by strong growth in our retail expansion in Marionnaud in France.

As a result of the economic downturn, sales of our nine central London shops/clinics fell 13% to $3.3 million (2008: $3.7m), with like-for-like sales down 10% as compared to like-for-like sales growth of 17% in 2008. Despite this, Sen UK narrowed its operating loss to $1.7 million (2008: -$1.8m) due primarily to tight cost control. Aggregate shop level operating losses remained flat at $0.5 million (2008: -$0.5m) and central overhead costs were slightly reduced to $1.2 million (2008: $1.3m).

In June 2008, we introduced Sen's top 34 body care, skin care, and tea products into France through Marionnaud, Europe's largest perfumery and cosmetics retail chain with over 1,200 shops in 13 markets. We initially launched in 50 shops, expanding to 125 shops in mid-November 2008. Marionnaud is part of HWL's A.S. Watson Group.

In 2009, Sen France's sales more than tripled to $1.0 million (2008: $0.3m), resulting from three main actions. In September, we reduced our retail prices by an average 30%, remaining premium priced, but broadening appeal to the average French consumer. Over the second half of 2009, we expanded our distribution by around 70 shops, bringing us to over 200 out of the about 560 Marionnaud shops in France. Thirdly, we were granted the position of Marionnaud 2009 Christmas gift-with-purchase, which meant that Marionnaud bought some 350,000 units of Sen Sandalwood Stress Relief shower gel and gave it away to all shoppers who spent over 60 euros in Marionnaud over Christmas. As well as being profitable, this has significantly increased awareness of the Sen brand, which should benefit sales in 2010.

Sen France's operating loss was flat at $0.8 million (2008: -$0.8m) as we continued to invest in organisation and marketing to establish the brand. We expect performance to improve over the next two years as we expand further into the Marionnaud network and achieve greater scale.

http://www.senhealth.com