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China Nepstar Chain Drugstore Ltd.
                                       NYSE:NPD

           Presentation to Investors
           March 2013




HK000NM6_Eng
Safe Harbor


           This presentation contains forward-looking statements. These statements
constitute “forward-looking” statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private
Securities Litigation Reform Act of 1995. These forward-looking statements can be
identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,”
“plans,” “believes,” “estimates” and similar statements. Among other things, the
quotations from management in this press release and the Company’s strategic
operational plans, contain forward-looking statements. Such statements involve
certain risks and uncertainties that could cause actual results to differ materially from
those i th f
th     in the forward-looking statements. F th i f
                    d l ki     t t     t Further information regarding th
                                                         ti        di these and other
                                                                                  d th
risks is included in the Company’s filings with the U.S. Securities and Exchange
Commission, including its annual report on Form 20-F. The Company does not
undertake any obligation to update any forward looking statement as a result of new
                                          forward-looking
information, future events or otherwise, except as required under applicable law.




                                                                                            1
Company Overview
   p y

                 We are China’s largest drugstore chain by the number of
                          China s
                 directly operated stores
 Who We Are
                 Awarded "Best Drugstore Chain of 2007 in China" by China
                 Drugstore magazine

  Our Retail     Nepstar has a total of 2,132 stores in operation
                 National presence in 73 cities
  Network*
  N t    k                                                     (*As of December 31, 2012)



                 Neighborhood drugstore of 80-120sqm in size
                                             80 120sqm
Our Business
                 Directly operated stores to ensure consistent service standard
   Model         Optimized product offerings including private label products


                 Broaden product offerings and bring convenience to customers
     Our
                 Grow store productivity to drive customer spending per visit
Propositioning
   p         g   Improve operation efficiency and service quality

                                                                                            2
Leading Brand with National Footprint
        g                         p

                                                                                           Qingdao
                                                                                                                         #1
                                         Tianijn                                                   104                          Dalian

                                              78                                                                                    197
                                                                         Beijing                                                                     #1
                                                                                                                                     Suzhou
                                                                                                                                     S h
                                                                              11
                               Nanjing                                                                                                    78
                                                                                                           Dalian
                                    68                                                 Tianjin
                                                                                                 Beijing
                                                                                                                                    Shanghai
                                                                                                     Qingdao
                          #1        Ningbo                                                  Nanjing
                                                                                                       Suzhou                             59
                                                                                                            Shanghai
                                         141                                                                 Ningbo                                     #1
                                                       Sichuan Nepstar
                                                             Chengdu        Changsha
                                                                                          a g ou
                                                                                         Hangzhou                                   Hangzhou
                                                                                                           Fuzhou

                    Chengdu                                                                  Dongguan
                                                                                                                                          158
                                                                             Guangzhou

                           77                                                                         HQ: Shenzhen
                                                                                                                                       gg
                                                                                                                                    Dongguan
                                                   Guangzhou
                                                   G     h                                  #1
                                                                                                      Shenzhen                            81                            City Name
                                                           132                                                                                                       No. of Stores
                                                                                                             344
      Province of below 99 stores             Province of between 100 and 199 stores                 Province of above 200 Stores         Regional Nepstar Company         Key Cities




Note: No. of stores as of December 31, 2012
                                                                                                                                                                                        3
2012 Income Statement Highlights
                        g g

                                                          Twelve-Month Period Ended

        (in Millions of RMB, except % analysis)    December 31, 2012             December 31, 2011


                    Revenue                                          2,550                           2,491


                Gross Margin                                        46.3%                           47.7%


        Income from Operations
        I      f    O    ti                                           46.9
                                                                      46 9                            38.6
                                                                                                      38 6


               Interest Income                                        16.4                            23.2


                  Net Income                                          90.1                            35.9
  Income from disposal of an equity method investee was RMB68.4 million(US$11.0million) from the gain of disposal
    of the Company’s 40%equity interests in Yunnan Jianzhijia Chain Drugstore Ltd(“JZJ”).
                                                                                                                    4
Strong Balance Sheet and Cash Position
     g


Cash, cash equivalents, restricted cash and short-term and long-term bank time
deposits: RMB664.4MN (US$106.6MN);

Total shareholder’s equity: RMB1.03 billion (US$164.7MN);

                                                (*Balance Sheet, as of December 31, 2012)



Weighted average number of ordinary shares: 197.4 MN shares for the fiscal year
2012.

Operating cash flow of RMB52.6MN (US$8.4MN) for the fiscal year 2012;
 p      g                        ( $      )                y        ;

No Debt.



                                                                                            5
Unique Operation Environment
   q    p


Hospital pharmacy still dominates the market; policies moving towards
separating drug prescribing from drug dispensing


Pharmaceutical retailing industry is highly fragmented as well as crowded


Long industry value chain with manufacturing and wholesaling both
fragmented

Pharmaceuticals are mostly paid out-of-pocket


Front-end sales gradually tie in with the growth of retail pharmacy


High entry barriers for foreign players
                                                                            6
Overall Business Strategy
                       gy

      Stage One-reengineer
           procurement


                                                 Expand store
                Higher margin and
                                                  network and
                   wider product
                                                  consolidate
                     offerings
                                                   the market


                             Explore customer need
                             Maximize customer value

                From pharmacy to                  Higher store
                  drugstore of one                 productivity
                                                              y
                 stop convenience                 and customer
                   for day to day                    loyalty
                       needs


                                                          Stage Two-Improve
                                                           store productivity
                                                                                7
Reengineer Procurement
    g




                  Stage One – Reengineer Procurement
                  Optimizing supply chain management
                  to realize high margin through central
                    procurement and private labeling




                                                           8
Reengineer Procurement
    g


        2012 Private Label Contribution                                Current product mix


 Revenue                                                 100.0%

Contribution                                             90.0%            21.4%                  20.9%
                                       26.8%
                                                         80.0%
                                                                          4.0%                   3.9%
                                                         70.0%
                                                                          18.1%
                                                                          18 1%                  15.7%
                       73.2%                             60.0%

                                                         50.0%

                                                         40.0%            36.6%                  39.1%
                  Private labels 
                  Pi t l b l        non‐private labels
                                          i t l b l
                                                         30.0%

Gross Profit                                             20.0%
Contribution                                             10.0%            19.9%                  20.4%

                                        38.0%              0.0%
                                                                          2011                   2012

                        62.0%
                                                             Prescription drugs        Over‐the‐counter drugs
                                                             Nutritional supplements   Herbal products
                                                             Other product sales
                   Private labels   non‐private labels
                                                                                                                9
Improve Store Productivity




                    Stage Two – Improve Store Productivity
                        Expand offerings in nutritional
                       supplements, household medical
                          pp         ,
                     devices, personal care and household
                    consumables to address broader needs
                                 of consumers




                                                         10
Address a Broader Needs of Customers
Nepstar, with established store footprint, proven central procurement, and developed
logistics network, is well positioned to deliver the value of broader healthcare shopping.
          network                                                                shopping


 Community Customers’ Needs      Hospital   Super     Traditional   Beauty
                                 pharmacy   markets   pharmacy      shops




 Quality assurance

 Wide range of pharmaceutical
 products

 Professional healthcare
 assistance
 Wide selection of healthcare
 related products and
 consumables

 Accessibility and convenience
                                                                                             11
Initiatives Implemented

 Continue to optimize and broaden the product offerings

 Improve display of the stores

 Adopt active marketing campaigns to communicate with consumers

 Upgrade the logistics systems to match the offering changes




                                                                  12
Meet the Challenges this Year
                g



                                   Grow single store productivity
  Challenging operational          through optimization of product
  environment                      offerings and daily operation
                                    ff i       d d il       ti
   ► Increasing pressure on        management
     operation expenses driven
     by inflation and drastic
       y
     minimum wage increase
     mandated;                     Closing underperforming
                                   stores with no sign of
                                   turnaround
  ►   Increasing revenue and
      gross margin erosion for
      pharmaceutical products      Adopt stringent cost control
      due to the disruption from   measures t d f d the
                                             to defend th
      the healthcare reform        inflation
      policies.


                                                                     13
Long-term Business Outlook
   g


    Adapt to the evolving operational environment, enhance store
    profitability, and further strengthen leading position in China


                                      Expand store network organically
                                      and through synergetic acquisition



                                       Leverage on procurement scale to
                                       maintain high gross margin


                                       Address broader needs of
                                       community customers to realize
                                       high store productivity


                                                                           14
China Nepstar Chain Drugstore Ltd
                              Ltd.




                                     15

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Presentation to investors_mar_2012_final

  • 1. China Nepstar Chain Drugstore Ltd. NYSE:NPD Presentation to Investors March 2013 HK000NM6_Eng
  • 2. Safe Harbor This presentation contains forward-looking statements. These statements constitute “forward-looking” statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar statements. Among other things, the quotations from management in this press release and the Company’s strategic operational plans, contain forward-looking statements. Such statements involve certain risks and uncertainties that could cause actual results to differ materially from those i th f th in the forward-looking statements. F th i f d l ki t t t Further information regarding th ti di these and other d th risks is included in the Company’s filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F. The Company does not undertake any obligation to update any forward looking statement as a result of new forward-looking information, future events or otherwise, except as required under applicable law. 1
  • 3. Company Overview p y We are China’s largest drugstore chain by the number of China s directly operated stores Who We Are Awarded "Best Drugstore Chain of 2007 in China" by China Drugstore magazine Our Retail Nepstar has a total of 2,132 stores in operation National presence in 73 cities Network* N t k (*As of December 31, 2012) Neighborhood drugstore of 80-120sqm in size 80 120sqm Our Business Directly operated stores to ensure consistent service standard Model Optimized product offerings including private label products Broaden product offerings and bring convenience to customers Our Grow store productivity to drive customer spending per visit Propositioning p g Improve operation efficiency and service quality 2
  • 4. Leading Brand with National Footprint g p Qingdao #1 Tianijn 104 Dalian 78 197 Beijing #1 Suzhou S h 11 Nanjing 78 Dalian 68 Tianjin Beijing Shanghai Qingdao #1 Ningbo Nanjing Suzhou 59 Shanghai 141 Ningbo #1 Sichuan Nepstar Chengdu Changsha a g ou Hangzhou Hangzhou Fuzhou Chengdu Dongguan 158 Guangzhou 77 HQ: Shenzhen gg Dongguan Guangzhou G h #1 Shenzhen 81 City Name 132 No. of Stores 344 Province of below 99 stores Province of between 100 and 199 stores Province of above 200 Stores Regional Nepstar Company Key Cities Note: No. of stores as of December 31, 2012 3
  • 5. 2012 Income Statement Highlights g g Twelve-Month Period Ended (in Millions of RMB, except % analysis) December 31, 2012 December 31, 2011 Revenue 2,550 2,491 Gross Margin 46.3% 47.7% Income from Operations I f O ti 46.9 46 9 38.6 38 6 Interest Income 16.4 23.2 Net Income 90.1 35.9 Income from disposal of an equity method investee was RMB68.4 million(US$11.0million) from the gain of disposal of the Company’s 40%equity interests in Yunnan Jianzhijia Chain Drugstore Ltd(“JZJ”). 4
  • 6. Strong Balance Sheet and Cash Position g Cash, cash equivalents, restricted cash and short-term and long-term bank time deposits: RMB664.4MN (US$106.6MN); Total shareholder’s equity: RMB1.03 billion (US$164.7MN); (*Balance Sheet, as of December 31, 2012) Weighted average number of ordinary shares: 197.4 MN shares for the fiscal year 2012. Operating cash flow of RMB52.6MN (US$8.4MN) for the fiscal year 2012; p g ( $ ) y ; No Debt. 5
  • 7. Unique Operation Environment q p Hospital pharmacy still dominates the market; policies moving towards separating drug prescribing from drug dispensing Pharmaceutical retailing industry is highly fragmented as well as crowded Long industry value chain with manufacturing and wholesaling both fragmented Pharmaceuticals are mostly paid out-of-pocket Front-end sales gradually tie in with the growth of retail pharmacy High entry barriers for foreign players 6
  • 8. Overall Business Strategy gy Stage One-reengineer procurement Expand store Higher margin and network and wider product consolidate offerings the market Explore customer need Maximize customer value From pharmacy to Higher store drugstore of one productivity y stop convenience and customer for day to day loyalty needs Stage Two-Improve store productivity 7
  • 9. Reengineer Procurement g Stage One – Reengineer Procurement Optimizing supply chain management to realize high margin through central procurement and private labeling 8
  • 10. Reengineer Procurement g 2012 Private Label Contribution Current product mix Revenue 100.0% Contribution 90.0% 21.4% 20.9% 26.8% 80.0% 4.0% 3.9% 70.0% 18.1% 18 1% 15.7% 73.2% 60.0% 50.0% 40.0% 36.6% 39.1% Private labels  Pi t l b l non‐private labels i t l b l 30.0% Gross Profit 20.0% Contribution 10.0% 19.9% 20.4% 38.0% 0.0% 2011 2012 62.0% Prescription drugs Over‐the‐counter drugs Nutritional supplements Herbal products Other product sales Private labels non‐private labels 9
  • 11. Improve Store Productivity Stage Two – Improve Store Productivity Expand offerings in nutritional supplements, household medical pp , devices, personal care and household consumables to address broader needs of consumers 10
  • 12. Address a Broader Needs of Customers Nepstar, with established store footprint, proven central procurement, and developed logistics network, is well positioned to deliver the value of broader healthcare shopping. network shopping Community Customers’ Needs Hospital Super Traditional Beauty pharmacy markets pharmacy shops Quality assurance Wide range of pharmaceutical products Professional healthcare assistance Wide selection of healthcare related products and consumables Accessibility and convenience 11
  • 13. Initiatives Implemented Continue to optimize and broaden the product offerings Improve display of the stores Adopt active marketing campaigns to communicate with consumers Upgrade the logistics systems to match the offering changes 12
  • 14. Meet the Challenges this Year g Grow single store productivity Challenging operational through optimization of product environment offerings and daily operation ff i d d il ti ► Increasing pressure on management operation expenses driven by inflation and drastic y minimum wage increase mandated; Closing underperforming stores with no sign of turnaround ► Increasing revenue and gross margin erosion for pharmaceutical products Adopt stringent cost control due to the disruption from measures t d f d the to defend th the healthcare reform inflation policies. 13
  • 15. Long-term Business Outlook g Adapt to the evolving operational environment, enhance store profitability, and further strengthen leading position in China Expand store network organically and through synergetic acquisition Leverage on procurement scale to maintain high gross margin Address broader needs of community customers to realize high store productivity 14
  • 16. China Nepstar Chain Drugstore Ltd Ltd. 15