Chronic tonic - Preventing lifestyle diseases now
Dr. Vendryes, Daily Gleaner
Ounce of Prevention
published: Monday | July 30, 2007
Many of our commonest illnesses are referred to as chronic degenerative diseases. Why? Because they develop slowly, over many years, from abuse and poor care and end up causing severe pain, suffering and even death. In effect, our bodies degenerate because of the way we treat them. Examples of these diseases are heart disease, cancer, osteoporosis, arthritis, diabetes and hypertension.
The undeniable medical evidence is that poor nutrition and bad lifestyle choices during childhood predispose us to these debilitating degenerative diseases later in life.
FOOD CAN PROTECT YOU
Medical research has established an indisputable link between nutrition and health. Literally hundreds of scientific studies have indicated a strong association between diet and the incidence of chronic degenerative disease.
We know, for example, that by eating a varied and balanced diet that is low in saturated fat and rich in fruits, vegetables, and complex carbohydrates (particularly fibre), we can reduce the risk of heart disease, cancer and type two diabetes.
Diets high in tomato products containing lycopene are known to reduce the incidence of prostate cancer in men. And diets rich in green leafy vegetables, particularly those containing lutein, are associated with reducing the risk of macular degeneration, a common cause of blindness.
DISEASE STARTS EARLY
Medical evidence further shows that chronic degenerative diseases are not necessarily diseases of old age. Their beginnings are often evident in children, adolescents, and young adults. Here are some examples of killer illness that could be prevented in childhood:
HEART DISEASE
We know, for example, that heart disease starts in childhood. A recent article published in the New England Journal of Medicine shows the beginnings of heart disease in children two to 15 years old. The study further reported that the prevalence of heart disease increases with age, affecting about 30 per cent of adolescents 16-20 years old, 50 per cent of young adults 21-25 years old, and 70 per cent of adults 26-39 years old.
Other research shows that:
30-40 per cent of heart disease deaths directly result from obesity.
Childhood obesity doubles the risk of adult obesity (Bad habits start early).
The most effective strategy for preventing heart disease in adulthood is to prevent obesity in childhood. Unfortunately, more Jamaican children are overweight today than ever before.
CANCER
Most cancers take decades to develop before they are diagnosed. Our cells have many safeguards against cancerous proliferation, and it generally takes decades for enough genetic damage to accumulate to override all the safeguards. And once a cell becomes cancerous, it can take decades more before a tumour is detected. Because we estimate that 30-35 per cent of all cancers are related to diet, we can logically assume that childhood diet plays a significant role in defining adult cancer risk and growing medical evidence supports this assumption
OSTEOPOROSIS
Osteoporosis is a degenerative disease tied to poor nutrition during early years. Studies show that maintaining good calcium nutrition, exercise and attaining high bone mineral density during adolescence lead both to stronger bones and to reduced risk of osteoporosis later in life. In fact, it is estimated that adolescent girls who increase bone mass by as little as five per cent during their teen years can reduce the risk of osteoporosis after menopause by 40 per cent.
USE SUPPLEMENTS
Further research has linked the intake of certain vitamins and minerals to long-term health. Supplementing with vitamin E (400-800 IU per day) is linked to a reduction of heart disease. Calcium and vitamin D are known to reduce bone loss and the risk of osteoporosis in post-menopausal women. Folicacid, vitamin B12 and vitamin B6 can lower blood homocysteine, a serious risk factor for heart disease.
In short, good nutrition - achieved through a balanced diet and supplementing with optimal levels of appropriate vitamins and minerals is critical for preventing these chronic illness.
THE BOTTOM LINE
The essential point is that good nutrition is a life-long imperative. To optimise our health over a lifetime, we must nourish ourselves properly during all stages of life. The time to eat well and practise good nutritional habits is now, whether you are four, 14, 34, or 64 years old. It is essential that we teach our children how to eat today to prevent the chronic degenerative diseases of tomorrow.
Email Dr. Tony Vendryes at vendryes@mac.com, log on to www.anounceofprevention.org, or listen to 'An Ounce of Prevention' on Power 106FM on Fridays and Saturdays at 8:00 p.m.
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Herbalife MarketWatch Info
10-Q: HERBALIFE LTD.
Last Update: 5:31 PM ET May 1, 2007
(EDGAR Online via COMTEX) -- Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations
[Graphs not shown below. See link at end of article.]
Overview
We are a global network marketing company that sells weight management, nutritional supplement and personal care products. We pursue our mission of "changing people's lives" by providing a financially rewarding business opportunity to distributors and quality products to distributors and their customers who seek a healthy lifestyle. We are one of the largest network marketing companies in the world with net sales of approximately $1.9 billion for the year ended December 31, 2006. We sell our products in 64 countries through a network of over 1.5 million independent distributors except in China, where we sell our products through retail stores and an employed sales force. We believe the quality of our products and the effectiveness of our distribution network, coupled with geographic expansion, have been the primary reasons for our success throughout our 27-year operating history.
We offer products in three principal categories: weight management products, nutritional supplements which we refer to as "Targeted Nutrition" and personal care products which we refer to as "Outer Nutrition(R)". Our products are often sold in programs, which are comprised of a series of related products designed to simplify weight management and nutrition for consumers and maximize our distributors' cross-selling opportunities.
Industry-wide factors that affect us and our competitors include the increasing prevalence of obesity and the aging of the worldwide population, which are driving demand for nutrition and wellness-related products and the recruitment and retention of distributors.
The opportunities and challenges upon which we are most focused are: retailing of our products, recruitment and retention of distributors and improving distributor productivity, new markets, further penetrating existing markets including China, globalizing successful distributor methods of operation (such as Nutrition Clubs), introducing new products, developing niche market segments and further investing in our infrastructure.
In July 2006, we changed our geographic units from four to seven units as part of our on-going realignment for growth efforts. These changes are intended to create growth opportunities for our distributors, support faster decision making across the organization by reducing layers of management, improve the sharing of ideas and tools and accelerate growth in our high potential markets. Under the new geographic units we report revenue from:
North America, which consists of the U.S., Canada, Jamaica and the Dominican Republic;
Mexico and Central America, which consists of Mexico, Costa Rica and Panama;
Brazil;
South America and Southeast Asia, which includes New Zealand and Australia and excludes Brazil;
EMEA, which consists of Europe, the Middle East and Africa;
Greater China, which consists of China, Taiwan and Hong Kong; and
North Asia, which consists of Japan and Korea.
Historical information presented related to our geographic units has been reclassified to conform to our current geographic presentation.
A key non-financial measure we focus on is Volume Points on a Royalty Basis, or Volume Points, which is essentially our weighted unit measure of product sales volume. It is a useful measure for us, as it excludes the impact of foreign currency fluctuations and ignores the differences generated by varying retail pricing across geographic markets. In general, an increase in Volume Points in a particular group or country directionally indicates an increase in local currency net sales.
Volume Points by Geographic Unit
For the Three Months Ended March 31,
2006 2007 % Change
(Volume points in millions)
North America 130.7 162.3 24.2 %
Mexico & Central America 136.4 154.7 13.4 %
Brazil 44.7 40.3 (9.8 )%
South America & Southeast Asia 56.7 75.5 33.2 %
EMEA 148.9 140.4 (5.7 )%
Greater China 31.9 44.7 40.1 %
North Asia 30.7 32.8 6.8 %
Worldwide 580.0 650.7 12.2 %
Number of New Supervisors by Geographic Unit as of Reporting Period
Another key non-financial measure on which we focus is the number of distributors qualified as new supervisors under our compensation system. Distributors qualify for supervisor status based on their Volume Points. The growth in the number of new supervisors is a general indicator of the level of distributor recruitment, which generally drives net sales in a particular country or group.
As of March 31,
2006 2007 % Change
North America 7,616 9,013 18.3 %
Mexico & Central America 8,299 7,176 (13.5 )%
Brazil 5,087 4,108 (19.2 )%
South America & Southeast Asia 6,366 8,858 39.1 %
EMEA 9,132 7,642 (16.3 )%
Greater China 2,833 5,314 87.6 %
North Asia 2,284 2,115 (7.4 )%
Worldwide 41,617 44,226 6.3 %
Number of Supervisors and Retention Rates by Geographic Unit as of Requalification Period
Our compensation system requires each supervisor to re-qualify for such status each year, prior to February. In February of each year, we delete from the rank of supervisor those distributors who did not satisfy the supervisor qualification requirements during the preceding twelve months. Distributors who meet the supervisor requirements at any time during the year are promoted to supervisor status at that time, including any supervisors who were deleted, but who subsequently requalified.
Number of Supervisors Supervisors Retention Rate
2006 2007 2006 2007
North America 45,778 54,375 41.2 % 43.1 %
Mexico & Central America 38,344 62,622 57.4 % 55.2 %
Brazil 27,318 28,974 29.0 % 28.8 %
South America & Southeast Asia 30,846 46,393 31.6 % 33.9 %
EMEA 66,103 64,862 45.0 % 46.2 %
Greater China 19,447 25,868 34.7 % 34.7 %
North Asia 15,736 15,697 48.6 % 43.0 %
Worldwide 243,572 298,791 41.5 % 42.5 %
Supervisors must re-qualify annually. The requalification period covers the twelve months starting in February and ending the following January. The number of supervisors by geographic unit as of the reporting dates will normally be higher than the number of supervisors by geographic unit as of the requalification period because supervisors who do not re-qualify during the relevant twelve-month period will be dropped from the rank of supervisor the following February. For the latest twelve month re-qualification period ending January 2007, approximately 42.5 percent of our supervisors re-qualified. Since supervisors purchase most of our products for resale to other distributors and consumers, comparisons of supervisor totals on a year-to-year, same period basis are good indicators of our recruitment and retention efforts in different geographic units.
The value of the average monthly purchase of Herbalife products by our supervisors has remained relatively constant over time. Consequently, increases in our sales are driven primarily by our retention of supervisors and by our recruitment and retention of distributors, rather than through increases in the productivity of our overall supervisor base.
We provide distributors with products, support material, training, special events and a competitive compensation program. If a distributor wants to pursue the Herbalife business opportunity, the distributor is responsible for growing his or her business and personally pays for the sales activities related to attracting new customers and recruiting distributors by hosting events such as Herbalife Opportunity Meetings or Success Training Seminars; by advertising Herbalife's products, by purchasing and using promotional materials such as t-shirts, buttons and caps; by utilizing and paying for direct mail and print material such as brochures, flyers, catalogs, business cards, posters and banners and telephone book listings; by purchasing inventory for sale or use as samples; and by training, mentoring and following up (in person or via the phone or internet) with customers and recruits on how to use Herbalife products and/or pursue the Herbalife business opportunity.
Presentation
"Retail Sales" represent the gross sales amounts on our invoices to distributors before distributor allowances (as defined below), and "Net Sales", which reflects distribution allowances and handling and freight income, represent what we collect and recognize as net sales in its financial statements. We discuss Retail Sales because of its fundamental role in our compensation systems, internal controls and operations, including its role as the basis upon which distributor discounts, royalties and bonuses are awarded. In addition, it is used as the basis for certain information included in daily and monthly reports reviewed by our management. However, such a measure is not in accordance with Generally Accepted Accounting Principles in the U.S., or GAAP. You should not consider Retail Sales in isolation from, nor as a substitute for, net sales and other consolidated income or cash flow statement data prepared in accordance with GAAP, or as a measure of profitability or liquidity. A reconciliation of Net Sales to Retail Sales is presented below under "Results of Operations. "Product Sales" represent the actual product purchase price paid to us by our distributors, after giving effect to distributor discounts referred to as "distributor allowances," which approximate 50% of retail sales prices. Distributor allowances as a percentage of sales may vary by country depending upon regulatory restrictions that limit or otherwise restrict distributor allowances.
Our "gross profit" consists of net sales less "cost of sales," which represents the prices we pay to our raw material suppliers and manufacturers of our products as well as costs related to product shipments, duties and tariffs, freight expenses relating to shipment of products to distributors and importers and similar expenses.
"Royalty Overrides" are our most significant expense and consist of: royalty overrides, and production bonuses which total approximately 15% and 7%, respectively, of the Retail Sales of Weight Management, Targeted Nutrition, Outer Nutrition(R) and promotional products; the Mark Hughes Bonus payable to some of our most senior distributors in the aggregate amount of up to 1% of retail sales of Weight Management, Targeted Nutrition, Outer Nutrition(R) and promotional products; and other discretionary incentive cash bonuses to qualifying distributors.
Royalty Overrides are generally earned based on retail sales, and approximate in the aggregate about 22% of retail sales or approximately 36% of our net sales. Royalty Overrides together with distributor allowances represent the potential earnings to distributors of up to approximately 73% of retail sales. The compensation to distributors is generally for the development, retention and improved productivity of their distributor sales organizations and is paid to several levels of distributors on each sale. Due to restrictions on direct selling in China, our full-time employed sales representatives in China are compensated with wages, bonuses and benefits instead of the distributors earnings, distributor allowances and royalty overrides. Because of local country regulatory constraints, we may be required to modify our typical distributor incentive plans as described above. Consequently, the total distributor discount percentage may vary over time. We also offer reduced distributor allowances and pay reduced royalty overrides with respect to certain products worldwide.
Our "operating margins" consist of net sales less cost of sales and royalty overrides.
"Selling, General and Administrative Expenses" represent our operating expenses, components of which include labor and benefits, sales events, professional fees, travel and entertainment, distributor marketing, occupancy costs, communication costs, bank fees, depreciation and amortization, foreign exchange gains and losses and other miscellaneous operating expenses.
Most of our sales to distributors outside the United States are made in the respective local currencies. In preparing our financial statements, we translate revenues into U.S. dollars using average exchange rates. Additionally, the majority of our purchases from our suppliers generally are made in U.S. dollars. Consequently, a strengthening of the U.S. dollar versus a foreign currency can have a negative impact on our reported sales and operating margins and can generate transaction losses on intercompany transactions. Throughout the last five years, foreign currency exchange rates have fluctuated significantly. From time to time, we enter into foreign exchange forward contracts and option contracts to mitigate our foreign currency exchange risk.
Summary Financial Results
For the three months ended March 31, 2007, net sales increased 11.5% to $508.1 million from $455.8 million for the three months ended March 31, 2006. The increase reflects the continued retailing success from distributors using the Nutrition Club operating method in Mexico and the U.S. The growth in the two markets accounted for 55.1% of the overall increase in net sales. Venezuela and certain other South American countries also experienced significant sales growth due in part to the opening of Peru during the first quarter of 2007, while net sales in Brazil declined. Net sales for the three months ended March 31, 2007 in EMEA and North Asia, were flat when compared to the same period in 2006.
Net income increased for the three months ended March 31, 2007 to $41.2 million, or $0.55 per diluted share, from $38.7 million, or $0.53 per diluted share for the same period in 2006. The net income increase was driven by revenue growth primarily in Mexico and the U.S. markets and lower interest expense following a debt refinancing in July 2006. Net income for the three months ended March 31, 2007 included a $1.0 million unfavorable after tax impact in connection with the Realignment for Growth plan and a $3.6 million charge for an increase in tax reserve. Net income for the three months ended March 31, 2006 included the impact of a $3.7 million tax benefit resulting from an international income tax settlement.
Results of Operations
Our results of operations for the periods described below are not necessarily indicative of results of operations for future periods, which depend upon numerous factors, including our ability to recruit and retain new distributors, open new markets and further penetrate existing markets and introduce new products and develop niche market segments.
The following table sets forth selected results of our operations expressed as a percentage of net sales for the periods indicated.
Three Months Ended
March 31, March 31,
2006 2007
Operations:
Net sales 100.0 % 100.0 %
Cost of sales 20.1 21.1
Gross profit 79.9 78.9
Royalty overrides 36.3 35.5
Selling, general & admin expenses 29.6 29.4
Operating income 14.0 14.0
Interest expense 1.3 0.4
Income before income taxes and minority interest 12.7 13.6
Income taxes 4.2 5.5
Net income 8.5 % 8.1 %
Three months ended March 31, 2007 compared to three months ended March 31, 2006
Net Sales
The following chart reconciles Retail Sales to net sales:
Sales by Geographic Region
Three Months Ended March 31,
2006 2007
Handling Handling Change
Retail Distributor Product & Freight Net Retail Distributor Product & Freight Net in Net
Sales Allowance Sales Income Sales Sales Allowance Sales
Income Sales Sales
(Dollars in millions)
EMEA $ 232.3 $ (111.3 ) $ 121.0 $ 20.5 $ 141.5 $ 234.1 $ (112.7 ) $ 121.4 $ 21.8 $ 143.2 1.2 %
Mexico & Central America 141.5 (68.7 ) 72.8 11.2 84.0 161.3 (78.4 ) 82.9 13.0 95.9 14.2 %
North America 140.9 (67.7 ) 73.2 13.9 87.1 168.5 (80.3 ) 88.2 16.3 104.5 20.0 %
SAMSEA 73.3 (34.6 ) 38.7 4.8 43.5 94.4 (45.5 ) 48.9 6.9 55.8 28.3 %
Brazil 59.0 (28.3 ) 30.7 4.8 35.5 54.2 (25.7 ) 28.5 4.8 33.3 (6.2 )%
Greater China 45.9 (20.2 ) 25.7 2.9 28.6 62.6 (25.4 ) 37.2 3.5 40.7 42.3 %
North Asia 58.2 (26.7 ) 31.5 4.1 35.6 56.1 (25.3 ) 30.8 3.9 34.7 (2.5 )%
Worldwide $ 751.1 $ (357.5 ) $ 393.6 $ 62.2 $ 455.8 $ 831.2 $ (393.3 ) $ 437.9 $ 70.2 $ 508.1 11.5 %
Changes in net sales are directly associated with the recruiting and retention of our distributor force, retailing of our products, the quality and completeness of the product offerings that the distributor force has to sell and the number of countries in which we operate. Management's role, both in-country and at the corporate level is to provide distributors with a competitive and broad product line, encourage strong teamwork and leadership among the Chairman's Club and President's Team distributors and offer leading edge business tools to make doing business with Herbalife simple.
Management uses the distributor marketing program coupled with educational and motivational tools and promotions to incentivize distributors to increase recruiting, retention and retailing, which in turn affect net sales. Such tools include company sponsored sales events such as Extravaganzas and World Team Schools where large groups of distributors gather, thus allowing them to network with other distributors, learn recruiting, retention and retailing techniques from our leading distributors and become more familiar with how to market and sell our products and business opportunities. Accordingly, management believes that these development and motivation programs can increase the productivity of the supervisor network. The expenses for such programs are included in Selling General & Administrative Expenses. Sales are driven by several factors, including the number and productivity of distributors and supervisors who continually build, educate and motivate their respective distribution and sales organizations. We also use event and non-event product promotions to motivate distributors to increase recruiting, retention and retailing activities. These promotions have prizes ranging from qualifying for events to product prizes and vacations. The costs of these promotions are included in Selling, General & Administrative Expenses.
The factors described above have helped distributors increase their business, which in turn has driven growth in our business. The following net sales by geographic unit discussion further details some of the above factors and describes unique growth factors specific to certain major countries. We believe that the correct business foundation, coupled with ongoing training and promotional initiatives, is required to increase recruiting and retention of distributors and retailing of our products. The correct business foundation includes strong country management that works closely with the distributor leadership, unified distributor leadership, a broad product line that appeals to local consumer needs, a favorable regulatory environment, a scalable and stable technology platform and an attractive distributor marketing plan. Initiatives such as Success Training Seminars, World Team Schools, Promotional Events and regional Extravaganzas are integral components of developing a highly motivated and educated distributor sales organization that will work toward increasing the recruitment and retention of distributors.
Our strategy will continue to include creating and maintaining growth within existing markets while expanding into new markets. We expect to increase our spending in Selling, General & Administrative Expenses to maintain or stimulate sales growth, while making strategic investments in new initiatives and in new markets.
In addition, new ideas and distributor business methods, or DMO's, are being generated in our regional markets, either by distributors, country management or corporate management. Examples are the Nutrition Clubs in Mexico, the Total Plan in Brazil, The Wellness Coach in France, The Sampling Program in the U.S., and Generation Herbalife, or GenH, in many of our markets, as described under "Net Sales" below. Management's strategy is to review the applicability of expanding successful country initiatives throughout a region and where appropriate, financially support the globalization of these initiatives.
North America
Net sales in North America increased $17.4 million, or 20.0%, for the three months ended March 31, 2007, as compared to the same period of 2006. In local currency, net sales increased 20.2% for the three months ended March 31, 2007, as compared to the same period of 2006. The fluctuation of foreign currency rates had an unfavorable impact of $0.1 million on net sales for the three months ended March 31, 2007. The overall increase was a result of net sales growth in the U.S. of $18.3 million or 22.5% for the three months ended March 31, 2007, as compared to the same period of 2006. In the U.S., we expanded our branding efforts with AEG by entering into an exclusive sponsorship agreement with the LA Galaxy soccer team. We also agreed to a major sponsorship agreement with an AVP Volleyball tour athlete, Karch Kiraly.
The increase in net sales in the U.S. was a result of a number of factors, including supervisor growth, up 19.7% at March 31, 2007, as compared to the same period of 2006, the continued strong relationship between the U.S. country management team and the distributor leadership, continued branding efforts such as sponsorship of the 2007 Amgen Tour of California bicycle race and the growth of the Nutrition Club DMO amongst our Latino distributors. To further support the retailing and recruiting efforts of our distributors, we opened a new sales center in Phoenix, Arizona in April 2007 and introduced a new flavor, Pina Colada, into our top selling Formula 1 shake line in the U.S. In January 2007, our Kickoff Supervisor Trainings attracted over 6,700 Distributors across 16 cities.
We believe that 2007 net sales in North America should continue to show positive year over year growth primarily as a result of the expected continuation of strong momentum in the U.S., the continued success and expansion of the Nutrition Club concept and increased focus on the Lead Generation/ Sampling.
Mexico and Central America
Net sales in Mexico and Central America for the three months ended March 31, 2007 increased $11.9 million, or 14.2%, as compared to the same period of 2006. In local currency, net sales for the three months ended March 31, 2007 increased 18.6%, as compared to the same period of 2006. The fluctuation of foreign currency rates had an unfavorable impact of $3.8 million on net sales for the three months ended March 31, 2007. The overall increase was primarily a result of net sales growth in Mexico of $10.5 million or 12.6% for the three months ended March 31, 2007.
The increase in net sales in Mexico was primarily driven by very strong sales in the re-qualification month of January 2007 and strong supervisor growth, up 56.2% at March 31, 2007, as compared to March 31, 2006. The 2007 retention rate . . .
May 01, 2007 (c) 1995-2007 Cybernet Data Systems, Inc. All Rights Reserved
N.B. Graphs not shown above. Link to original article:
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