NEW YORK CITY - NOVEMBER 16, 2004 - · PDF fileNEW YORK CITY - NOVEMBER 16, 2004. 1 2 ......

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Nu Skin Enterprises 2004 Investor DayNEW YORK CITY - NOVEMBER 16, 2004

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Please note: This presentation contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 that represent the company's current expectations and beliefs, including, among other things, financial projections, strategic initiatives, and operational issues. The company wishes to caution and advise readers that these statements are based on assumptions that may not materialize. The forward-looking statements and related assumptions involve risks and uncertainties that could cause actual results and outcomes to differ materially from any forward-looking statements or views expressed herein. These risks and uncertainties include, but are not limited to: (a) continued regulatory scrutiny in China which has from time to time, and could in the future, negatively impact our business, including the suspension of sales activities in stores and the imposition of fines; (b) any inability of the company to effectively manage rapid growth in China, including training and management of a large employed sales force, (c) risk that the Chinese government fails to adapt or further delays adoption of favorable direct selling regulations, or adopts regulations that negatively impacts the company’s current business model there, or that the company fails to obtain a direct selling license under these regulations; (d) regulatory risks associated with the Pharmanex® BioPhotonic Scanner, which could delay or inhibit our use of the scanner if it is determined to be a medical device in any market; (e) any inability to obtain necessary product registrations for its Pharmanex products in a timely manner; (f) risks that could adversely impact the company’s operations or financial results in its markets, including our largest market, Japan, including any increase in the impact of negative market conditions on the company's business, material decreases in executive level and active distributors, adverse changes in exchange rates, or the company's failure to execute effective initiatives in these markets; (g) any failure of planned initiatives including the introduction of the BioPhotonic Scanner in Japan and other markets, to generate interest among distributors and generate sponsoring and selling activities on a sustained basis; (h) adverse publicity related to the company's business, products or industry; and (i) continued competitive pressures in the company's markets. The company's financial performance and the forward-looking statements contained herein are further qualified by a detailed discussion of associated risks set forth in the documents filed by the company with the Securities and Exchange Commission, including the company's most recent amendment to registration statement on form S-3.

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Blake RoneyChairman


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Truman HuntPresident and Chief Executive Officer


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Investor Day Agenda

Blake Roney, ChairmanTruman Hunt, President & CEOCorey Lindley, President - Greater ChinaRobert Conlee, President - North AsiaJoe Chang, President - PharmanexRitch Wood, Chief Financial Officer

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Classic Direct Selling Question:

Is Nu Skin Enterprises a

product or opportunity company?

We’re Both!!

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Corporate OverviewProduct Divisions

• 2% of H1 04 revenue• e-Tools• Broad product platform

Nu Skin Personal Care

The Beauty of Innovation

• 50% of H1 04 revenue• Skincare = 67%• Nu Skin 180º = $30 million

Pharmanex Nutrition

The Measurable Difference

• 48% of H1 04 revenue• Health and wellness = 80%• LifePak = $250 million

Big Planet Home & BusinessTechnology for Everyone

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Nu Skin Enterprises’ Vision Statement

To become the world’s leading

direct selling company

by paying out more annually in distributor commissions than any other company.

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How do we distinguish ourselves from other direct selling companies?

• Multiple branded business opportunities

• Global compensation plan

• Higher level of commission payout

• Higher quality sales force

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Direct Sales OverviewSelected Top Direct Selling Companies

Revenue Percent Payout

Avon $6,800M 11%

Amway $6,200M 33%

Mary Kay $1,800M 15%

Tupperware $1,200M 10%

Herbalife $1,200M 33%

Nu Skin Enterprises $1,100M 43%

Pampered Chef $ 700M 10%

Source: Company estimates

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Nu Skin EnterprisesDirect Sales Model – Distributor Leader Profile

• Seeking high-levels of long-term residual income

• Ability to recruit, train, motivate large sales organization

• Attract a college educated, financially successful demographic

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Is the Direct Selling Industry healthy?

Absolutely.

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U.S. Direct Selling Retail Sales1993-2003 – In Billions of US$

$15.0$16.6

$17.9$20.8 $22.2 $23.2 $24.5 $25.6 $26.7

$29.6$28.7

$0

$5

$10

$15

$20

$25

$30

$35

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Amounts in Billions Source: DSA 2003 Growth & Outlook Survey

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Direct Sales OverviewTop Direct Selling Markets

Market SizeU.S. $ 28.7 BJapan $ 24.5 BKorea $ 4.6 B Mexico $ 2.9 BFrance $ 2.9 B Germany $ 2.5 B UK $ 2.0 B Italy $ 1.9 BBrazil $ 1.9 B

Europe7%

.U.S35%

Japan30%

Asia-other11%

LatinAmerica

11%

Source: WFDSA

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Country 3 Year % IncreaseRussia 277% China 175%Indonesia 100% India 58% Poland 50%United States 17%Mexico 11%

Direct Sales OverviewRapidly Developing Markets

Source: WFDSA and company estimates

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Sales by Major Product Group, 1997-2003

19974.70%

17.70% 31.9%

18.7%

27.0%

Home/Family Care Personal CareServices/Other WellnessLeisure/Educational

2003

33%

29%

15%

15%

8%

Source: DSA 2003 Growth & Outlook Survey

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Direct Selling Salesforce Demographics

Male/Female 20% / 80%Part-time/Full-time 85.1% / 14.9%Age over 65 8%Physical Disability 7%African American 13%Hispanic American 13%Asian American 6%

Source: DSA 2004 Growth & Outlook Survey & DSA 2002 Salesforce Survey

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What are the keys to our success?

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Nu Skin Enterprises’ Strategy Map

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How do we plan to double the size of our business?

• Introduce innovative and unique products

• Provide tools to enhance distributor productivity

• Expand to new geographies & develop existing markets

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Innovative Products

Tru Face™ Essence ($31M est. ‘04 revenue - introduced 2003) Galvanic Spa™ System IINu Skin Tri-Phasic White

ReishiMax GLp® ($26M est. ‘04 revenue - introduced 2002) Estera™ product line

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Distributor Productivity Retention ToolsPharmanex BioPhotonic Scanner

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Distributor Productivity ToolsVisia Camera—Advanced Skin Analysis

• Analysis on 6 areas of concern• Individualized plan addressing specific skin challenges • Positive consumer experience in walk-in centers

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Future Key MarketsLatin America & Eastern Europe

Indonesia• Market to open Q2 2005

Russia• Israel opened Nov. 2004• Russia to open H2 2005

Latin America redevelopment• 35% Q3:04 revenue growth• 55% YOY increase in new

distributors during Q3:04

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Mainland China OverviewEstablished - Q1 2003

• $38 million 2003 revenue

• $105 million - est. 2004 revenue

• Operating in 27 cities in 11 provinces

$0

$20

$40

$60

$80

$100

$120

2003 2004

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Nu Skin Enterprises in ChinaWhy we are excited about this market

• Huge market potential

• Success of competitors to date

• Proven success in other Chinese marketsTaiwan - 6% of D.S. market

Hong Kong - 14% of D.S. market

• Demonstrated success to date

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Executive SummaryFuture Geographic Profile

2003 Rev. Future

No. Asia $613 M $ 870 MGreater China $135 M $ 550 M No. America $127 M $ 300 MSEA/Pacific $ 76 M $ 125 MEurope $ 32 M $ 75 M Latin America $ 3 M $ 40 MNew Markets $ 100 M

$986M $2,060M

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Corey LindleyExecutive Vice President and

President of Greater China Region


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Mainland China – Direct SellingIndustry & Company History

1990

Direct sales begins in China

1996

$100 Million Est. revenue

1998

Direct sales ban imposed

2001

Accepted intothe WTO

2003

$2 BillionEst. revenue

2004 2005

New direct sales regulations

2000

$500 Million Est. revenue

$5 BillionEst. revenue

Market Research

Business PlanDevelopment

100 Retail Outlets Opened

$105 MillionRevenue

Industry

CompanySource of industry revenue: company estimates

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Mainland China OverviewEstablished - Q1 2003

• $38 million 2003 revenue

• $27 million Q3 04 revenue

• Operating in 27 cities in 11 provinces

• 5,400 sales reps & 200,000 preferred customers

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Mainland ChinaNu Skin Enterprises 2003 Market Penetration

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Mainland China – Current OperationsQingdao Retail Outlet Opening

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Mainland China – Current OperationsProduct Offering

Nu Skin Products

• 80% of revenue• 50% of unit volume• 68 SKUs• $12 - $60 price range

Scion Products

• 20% of revenue• 50% of unit volume• 17 SKUs• $4 - $11 price range

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Mainland China – Current OperationsManufacturing Facilities

• 6.5 million unit capacity• 4.0 million units in 2003• Locally sourced materials• 20% cost savings• Exports begin in 2005• Open Pharmanex facility in

Q4:04

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Mainland China – Current OperationsSales Organization Structure - China vs. Global

Preferred CustomerRetail Discount - $60 minimum purchase

Sales RepresentativeSalary + Bonuses$300/month average

Sales ManagerPerformance-based salaryTop 10 make $10K-$20K/month

Active DistributorWholesale purchaser

Executive DistributorSales volume-based commission$300/month average US Executive

Senior Distributor LeaderLeadership-based commissionsNew Blue Diamonds: $10-$15K/month

China Structure Global Structure

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Mainland China – Direct SellingLeading Companies – U.S. Based

Revenue ’04 Growth StoresAmway $2,000+ million 100% 130Avon $ 200+ million 40% 7,000+Mary Kay $ 150 million 30% 20+Nu Skin $ 105 million 170% 114

Source: company estimates

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Mainland China – Direct SellingRegulatory Agencies

State CouncilNational governing council – national direct selling regulations

Ministry of Commerce (MofCom)Foreign investment – draft of direct selling regulations

State Administration of Industry and Commerce (SAIC)Regulatory enforcement agency – Anti-pyramiding laws

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Mainland China – Direct SellingGovernment Relations – Vice Minister of MofCom, Madame Ma

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Mainland China – Direct Selling New Regulations – Company Perspective

1. Independent sales force

2. Retail store requirement

3. Commissions capped

4. Consumable product offering

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Mainland China – Direct SellingRegulatory Timeline

RegulationsPublished

CompanyApplication

Local MofComApproval

6 to 7 monthTransition

12/31/04 1/31/05 3/1/05

National MofCApproval

6/1/05

Application:1. Financial requirements2. Location requirements3. Structural requirements

12/31/05

Transition:1. Certification test2. Sales force training3. Geographic expansion

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Nu Skin Enterprises – China2005 Business Plan – 2005/2006

Q1:05File direct selling license application

Pharmanex launch w/scanners in walk-in locations

20 new stores, including Beijing and Tainjin

Q2:0520 company stores

25 franchise stores

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Nu Skin Enterprises – ChinaFranchise Store Business Model

• Partner with qualified sales leaders

• Sales leaders “earn” the right to a store

• Leaders manage store and all employees

• Potential geographic exclusivity

• Minimum sales volume requirements

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Nu Skin Enterprises – China2005 Business Plan – 2005/2006

Q3:0510 new stores

25 franchise stores

Q4:0510 company stores

25 franchise stores

200610 to 20 new company stores

100 more franchise stores

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60 new stores + 75 franchise stores


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Mainland China – Pharmanex LaunchMarket Potential

Historical impact of Pharmanex launchJapan launch in 1995 - significant revenue impactPharmanex represents 52% or revenuePharmanex 58% of Hong Kong and 50% of Taiwan revenue

Competitive environmentSignificant nutrition market in China Nutrition an important part of Amway China revenue

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Mainland China Overview2003 – 2006 6 Month Revenue – In Millions of US$

$0

$20

$40

$60

$80

$100

H1:03 H2:03 H1:04 H2:04 H1:05 H2:05 H1:06 H2:06

Projected

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Mainland China Overview2003 – 2008 Projected Annual Revenue – In Millions of US$

$0

$50

$100

$150

$200

$250

$300

2003 2004 2005 2006 2007 2008Projected

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Robert ConleePresident of North Asia


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Nu Skin Enterprises – JapanMarket Overview

Opened Japan in April 1993Combination of products, compensation & management1995 launch of nutrition products – doubled business in 2 years

Direct selling industry in Japan$188/capita direct sales vs. $100/capita direct sales in US*Mature industry, but widely accepted distribution model

Direct selling leader

* Source: World Almanac & WFDSA data

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Top Japan Direct Selling CompaniesIn Billions of Yen

¥0

¥25

¥50

¥75

¥100

¥125

Amway MikiShoji

Nu Skin Charle Summit Noevir FLP Diana Herbalife Avon

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Nu Skin Enterprises – JapanHealthy Business with Solid Foundation

Consistent revenue generation¥60 to ¥66 billion annual revenue range over the past 5 years

Strong customer base280,000 active purchasers per quarter100,000 subscription orders processed each month – up 25% yoy

Solid distributor leadership base14,000 executive-level distributors

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Nu Skin Enterprises – JapanPrimary Initiatives to Drive Revenue Growth

1. Launch of the Scanner

2. Compensation plan enhancements

3. New products and other marketing initiatives

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Nu Skin Enterprises – JapanTaiwan Revenue Growth – Impact of Key Initiatives

NT$500

NT$550

NT$600

NT$650

NT$700

NT$750

Q4:02 Q1:03 Q2:03 Q3:03 Q4:03 Q1:04 Q2:04 Q3:04

Compensation Plan Changes

ScannerInitiatives

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Nu Skin Enterprises – JapanTaiwan Subscription Order Growth

0

10,000

20,000

30,000

40,000

Q1:02 Q2:02 Q3:02 Q4:02 Q1:03 Q2:03 Q3:03 Q4:03 Q1:04 Q2:04 Q3:04

Compensation Plan Changes

ScannerInitiatives

Subscriptions are 46% of Total Orders

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Nu Skin Enterprises – JapanScanner Rollout Plan

Walk-in centers18 scanners in walk-in centers since September 2004Over 40,000 individuals scanned

Convention announcement100 scanners delivered to distributor leaders in December

2005 scanner rollout1,000+ scanners in the field by May 2005

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Nu Skin Enterprises – JapanJapan Subscription Order Growth

40,000

60,000

80,000

100,000

120,000

Q1:02 Q2:02 Q3:02 Q4:02 Q1:03 Q2:03 Q3:03 Q4:03 Q1:04 Q2:04 Q3:04

Subscriptions are 29% of Total Orders

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Nu Skin Enterprises – JapanCompensation Plan Enhancements

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

Current Plan

LeadershipBonus

ExecutiveBonus

FrontEnd

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

Enhanced Plan

New Leadership

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Market Retention Rates6 Month Distributor Retention

Sept 2003 Sept 2004Hong Kong 34% 60%Taiwan 28% 55%Singapore 26% 44%Japan 43% 43%

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Nu Skin Enterprises – JapanConvention Initiatives

New product introductionsNu Skin - Tri-Phasic WhitePharmanex - Prime Care: nutritional package for age 40 and abovePharmanex - Targeted nutritional package for womenPharmanex - LifePak reformulation late 2005

Other initiativesPreferred customer programNew simple sign-up processesWeb based sign-up and business tools.

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Nu Skin Enterprises – JapanModest 2005 Revenue Growth and 3 - 5% Long-Term Growth

1. Launch of the scanner

2. Compensation plan enhancements

3. New products and other marketing initiatives

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Dr. Joe ChangPresident of Pharmanex


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Product Development Strategy Unique & Differentiated Products

• Research-based proprietary formulas

• Pharmaceutical grade

• Standardized active ingredients

• Clinical studies

• Unique and proprietary ingredients

• Exclusive relationship with the top 2 ethnobotanists, Drs. Paul Cox and Michael Balick

• “All of the good and none of the bad”

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Holistic approach to beauty and health • Nutricentials product philosophy

• Science of Youth marketing initiative

• Tegreen and Tru-Face Essence (based on Stanford Medical School research)

• Skin assessment devices that provide a clinical experience without the clinic

Cross-divisional synergyNu Skin & Pharmanex Products

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Health Trends: Nutrition Dilemma

nutritional demands

nutritional deficitsnutritional supply

In a survey of 21,500 people over 70% of people did not even meet 2/3rds of RDA for one or more nutrients.*

* USDA National Food Consumption Survey 1987-88.

ISSUE VALIDATION

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Obesity Inflammation Chronic Stress

Health Trends of the New Millennium

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Lester Packer Ph.D., USC professor and “Father” of antioxidant research gave the keynote address on “The Antioxidant Network” at the Council for Responsible Nutrition. Speaker at Japan Convention.

Carl Djerassi, Ph.D., Stanford professor and awarded the 2004 American Institute of Chemists Gold Medal on June 17, 2004. Speaker at Singapore “Scan Singapore” event.

Koji Nakanishi, Ph.D., Centennial Professor of Chemistry at Columbia. Discoverer of active ingredient in Bioginkgo.

James Rippe, M.D., Assoc. Prof. of Medicine at Tufts. Completed study on relationship between obesity and skin antioxidant score using the BioPhotonic scanner.

Product Innovation NetworkPharmanex Scientific Advisory Board

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• Over a dozen papers published in peer-reviewed journals in 2003

• 7 patent applications submitted• Presented at 11 scientific conferences

• Developed 139 new quality testing methods• In 2003, Pharmanex conducted 9 human clinical studies, 36

experimental pre-clinical studies, 13 toxicology studies and developed 9 new efficacy testing methods

• Cost effective R&D centers in China

Product Innovation NetworkPharmanex Scientific Staff

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The basis of science is measurement

Sustaining Product InnovationThe Measurable Difference

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East and West nutritional knowledge

Scientific excellence

Pharmaceutical-grade manufacturing (6S Quality Guarantee)


Product Development PhilosophyThe Measurable Difference

+

+

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Pharmanex Product StrategyThe Measurable Difference - LifePak

• Double-blind clinical study• First multivitamin product to undergo

trial• Proven bio-availability of ingredients

• Proprietary formulation• Lifepak Challenge, money back

guarantee• Based upon National Research

Council recommendations• Premium source of antioxidants and

other micro-nutrients

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• Third-party validation of product quality relative to 10 other commercially available Reishiproducts

• Proprietary “Cracked Spore”technology• Bio-available active ingredient• Cost effective manufacturing

• Leveraging off Pharmanex China R&D capability

Pharmanex Product StrategyThe Measurable Difference - ReishiMax

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How do you know whether your nutritional supplements work?

Pharmanex Biophotonic Scanner

Pharmanex Product StrategyThe Measurable Difference

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“… there is a correlation of the concentration of a number of different antioxidants in serum with increasing lifespan of mammalian species. In this case humans had the highest concentration of antioxidants ..."

Dr. Richard Cutler, National Institute of Health

Pharmanex BioPhotonic ScannerThe Importance of Anitoxidants

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0

500

1,000

1,500

2,000

0

BioPhotonic Scanner

Mean = 25,40632,948 Subjects

Skin Carotenoid Score

Freq

uenc

y

LifePak

5-9 Fruits & Vegetables

Average 2-3 Fruits & Vegetables

Obesity/Smoker

LifePak + 5-9 Fruits & Vegetables

20,000 40,000 60,000 80,000

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The Pharmanex BioPhotonic ScannerInternational Scanner Rollout

Scanner availability in 2004U.S, Taiwan, Hong Kong, Europe

Scanner Availability in 2005Japan, China, South Korea

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Ritch WoodChief Financial Officer


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Revenue(In Millions)

$886

$964$987

$1,115 - $1.120

$850

$950

$1,050

$1,150

2001 2002 2003 2004

Earnings Per share

$0.60

$0.78$0.85

$1.03 - $1.05

$0.45

$0.60

$0.75

$0.90

$1.05

2001 2002 2003 2004

Financial Overview2004 Revenue & EPS Guidance

13% Growth 21 - 24% Growth

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Revenue(In Millions) $1,165 -

1,200$1,115 - $1.120

$987$964

$886

$800

$900

$1,000

$1,100

$1,200

2001 2002 2003 2004 2005

Earnings Per share$1.13 -$1.20

$0.60

$0.78$0.85

$1.03 - $1.05

$0.40

$0.60

$0.80

$1.00

$1.20

2001 2002 2003 2004 2005

Financial Overview2005 Revenue & EPS Guidance

5 - 7% Growth 10 - 15% Growth

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Financial Overview2005 Revenue & EPS Guidance Assumptions

• Yen rate of ¥112 to the US$

• Gross margin of 82.3 - 82.5%

• Selling expenses of 42.5 - 42.7%

• $6 million convention expense in Q4

• Operating margin of 11.8 - 12.0%

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¥112 ¥105 ChangeRevenue $1,120M $1,157M 3.3%Gross margin 83.0% 83.4% 0.4%

Selling expense 43.0% 43.0% N/AG&A 29.2% 28.7% 0.5% Operating margin 10.8% 11.7% 0.9%

Excluding hedging and translation gains/(losses):6.25% strengthening of the Yen = 90 bps gain in operating margin

Yen Impact on Results6.25% Strengthen of the Yen/US$ Rate

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• Hedging gains/(losses) offset benefit or detriment to gross margin

• Hedging losses depend on percent of cash flow hedged

• Translation gains/(losses) from asset & liability balances recorded in other income

Yen Impact on ResultsHedging and Other Factors Impacting Results

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Individual UnitEquipment cost $ 7,500Royalty/allocated costs 3,000Total Cost $10,500

Amortization period 36 months

Cost per month $ 292

Lease revenue per month $ 299

Scanner RolloutFinancial Model

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Gross margin EstimatedScanners Revenue Impact Gross margin

Q4:04 1,500 $1.350M 83.0%

Q1:05 2,500 $2.250M 0.30% 82.70%

Q2:05 3,000 $2.700M 0.15% 82.55%

Q3:05 3,500 $3.150M 0.15% 82.40%

Q4:05 4,000 $3.600M 0.15% 82.25%

Scanner RolloutGross Margin Impact

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Maintenance/Other CapEx $11 millionScanners (2,000) $15 millionChina – stores/mfg. $13 millionRussia/Indonesia $ 4 millionTotal $43 million

Depreciation & amortization $30 millionCash flow from operations $115 – 120 million

2005 Cash Flow Model$40 to $45 Million in CapEx

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-$50,000

$0

$50,000

$100,000

$150,000

$200,000

$250,000

2001 2002 2003 Total

Uses of Cash72% of Cash Returned to Shareholders After CapEx & Debt

Stock Repurchases47%

Dividend25%

Cash Retained28%

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Global Subscription Orders

100,000

140,000

180,000

220,000

260,000

300,000

340,000

Dec-02

Mar-03

Jun-0

3

Sep-03

Dec-03

Mar-04

Jun-0

4

Sep-04

109% Growth

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90

Recurring Revenue Business ModelGrowing the Subscriber Base

$0

$200

$400

$600

$800

$1,000

$1,200

2000 2001 2002 2003 2004 2005

7.5% 16.4% 18.5% 23.8% 41.1% 50.0%

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Market Retention Rates6 Month Distributor Retention

Sept 2003 Sept 2004Hong Kong 34% 60%Taiwan 28% 55%Singapore 26% 44%

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Revenue by Geography5 Year Profile

Greater China/SE

Asia

North Asia

U.S., Europe, Latin

America

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2004 Results Future Goal

Gross Margin 83% 83%

Commissions 43% 42%

G&A 29% 26%

Op. Income 11% 15%

Improving ProfitabilityGoal: 15% Operating Margin

NEW YORK CITY - NOVEMBER 16, 2004 - · PDF fileNEW YORK CITY - NOVEMBER 16, 2004. 1 2 ......

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