2015 Annual Report

DEAR FELLOW SHAREHOLDERS,In 2015, we finished the year strongly, returning to worldwide volume point growth of 5% in the fourth quarter 2015, versus the same prior year period.For the full year, we achieved net sales of $4.5 billion, an increase of 4.7% on a constant currency basis compared with 2014, and our adjusted EPS was $5 per diluted share. Full year net income grew 9.8% to $339 million, or $3.97 per diluted share, compared to $309 million, or $3.40 per diluted share for full year 2014.Cash flow from operations was $628.7 million, and we invested $79.1 million in capital expenditures, including our Internet infrastructure and our increased product access points, all of which are designed to enable our members and customers to transact with us more easily and in the way they choose. We continue to invest in our Seed to Feed initiative, with 50% of all products manufactured in our own facilities in 2015, and our commitment to supporting growth in key markets is further evidenced in the new facility we began building in China in the fourth quarter of 2015.We continue to strengthen and drive innovation in our product portfolio to ensure that it meets the demands of today’s consumers. Offering quality, accessibility, affordability and choice is key. And while we believe we are already well-positioned for the future, we continue to look to expand the choices we offer consumers within each of our product categories as well as identify new trends and growth segments.In 2015, we launched 13 new product lines in over 45 markets appealing to local taste and preference. These new products included our first Formula 1 Meal Soup in Brazil, opening up new “consumption occasions” for our members and customers. Our new sports hydration drink, CR7 Drive, is now available in over 25 markets. In Mexico, we launched a powderedform of our calcium supplement Xtra-Cal, which further supports the daily consumption business models of our members by enabling the personalization of our shakes with such targeted nutrition boosters. This focus on products is particularly important as we continue to strengthen our unique proposition of personalized nutrition as a solution to the growing demands of consumers around the world. People are getting older and, as they actively search for answers on how to maintain their health through aging, our members are there with education and targeted nutrition products to meet their needs. As governments and corporations look for ways to reduce spiraling obesity-led healthcare costs, our members are there providing consumers with products, educationand support to help such consumers make healthier choices.Taking the initiative with their health can prove to be intimidating to consumers, and our unique distributed health model gives us the ability to personalize the experience and to provide one-on-one support through our members. This personalized experience is critical to customers and their long-term success as they seek healthier, more active lifestyles and creates a great opportunity for us to drive performance across the company and to be an even stronger leader in global health and wellness. By providing our members with the products and educational resources to develop meaningful and results-driven relationships with customers, we believe Herbalife offers a compelling economic opportunity. This opportunity is especially favorable to those seeking freedom to earn supplemental income on their own terms. Millennials tend to seek out lifestyle-driven opportunities that allow them the flexibility to work when and how they want.By 2020, this group could represent 50% of the global workforce, and Millennials are already the largest segment of the U.S. workforce. They lean towards starting their own businesses, working flexibly, and fulfilling a sense of purpose. These are characteristics that can make them remarkably successful in a person-to-person wellness business like ours.In 2015, we completed the rollout of bold and important changes to our Herbalife Sales and Marketing Plan that we and our member leaders were confident would enhance the long-term growth of our business. We are already seeing the positive impact of these changes. For the full year 2015, the number of sales leaders now qualifying under the new cumulative 3-12 month qualification process rose to 76% compared to 48% in 2014. The impact of this growth is demonstrated by the healthy pattern of member activity with the number of new orders per monthup to 2.2 million in 2015, versus 2.1 million in 2014. During this transitional year of change, our sales leader retention rate stood at 54.2% and remained level with 2014’s record rate, while the absolute number of retained leaders increased 5.4%, which is a record number.We remain focused on building a global brand that is synonymous with good nutrition and a healthy, active life. Our association with global soccer star, Cristiano Ronaldo, and the launch of CR7 Drive, has introduced our brand to a much wider audience, and we continue to strengthen our long-term relationship with the LA Galaxy. These relationships are among many that we have with top athletes and teams around the world, in addition to the very visible presence we had at sporting events around the world, such as triathlons across the U.S., Bali and Poland.In Asia Pacific, we held our fourth annual Wellness Tour. Throughout October, our nutrition experts spoke with scientific and health professionals, academics, governments, Herbalife members and consumers across 14 markets and 21 cities to increase understanding of what can be done to improve wellbeing worldwide. We also continue to forge relationships with organizations and groups that are aligned with our commitment to improving our communities through good nutrition, such as the American Red Cross and the Special Olympics World Games.As we move ahead in 2016, we will continue to place the customer at the center of all we do – with nutrition products that meet their daily needs and a unique member-led social network that provides community, support, education and, most importantly, results. We strive to make a positive impact in communities around the world. And we continue to focus on building Herbalife for sustained growth and to create long-term value for our shareholders, members, customers, and employees.Thank you for your support and confidence in our great company.MICHAEL O. JOHNSONHerbalifeChairman and Chief Executive Officer