Nu Skin Enterprises Inc. Covering Analyst: Cecilia Xia ceciliaxia89@gmail.com

Company Overview

Company Overview Multi-level direct seller of Anti- aging personal care and nutritional supplements Found by Blake Roney, Sandra Tilltson and Steven Lund in 1984 Headquartered in Provo, UT

The Evolution of Nu Skin

The Evolution of Nu Skin – Phase One: Start-up (1984-1991) U.S. business Skin care focus Product positioning: “All of the good, none of the bad” Effectively resolved regulatory inquiries

The Evolution of Nu Skin – Phase Two: International Expansion (1991-1996) Rapid international expansion Seamless compensation plan Additional product category Robust growth rates

The Evolution of Nu Skin – Phase Three: Coming of Age (1996-2003) IPO – Morgan Stanley Pharmanex acquisition Consolidation of global operations Additional international expansion

The Evolution of Nu Skin – Phase Four: Transformation (2003-2008) Business transformation Transfer of control from founders to public Significant G&A restructuring China entry

The Evolution of Nu Skin – Phase Five: Nu Skin 2.0 (2008-present) Accelerating revenue growth ageLOC Refined product launch process Performance-based management incentives

Business Segments

Business Segments Revenue Segment 2011 Revenue (in Million) 2012 First Three Quarters Revenue (In Million) Types of Products Nu Skin $964 (55.3%) $816 (51.6%) Core Systems, Targeted Treatments, Total Care, Cosmetic, and Epoch. Pharmanex $770 (44.2%) $759 (48.0%) Nutritional, Anti-aging, Solutions, Weight Management, and VitaMeal Others $10 (0.5%) $6 (0.3%) Household product and Digital content storage

Industry Analysis

Industry Overviews - Cosmetic & Beauty Products Manufacturing Growth phase Industry players number remain constant Revenue is expected to grow 2.2% to $54.9 B

Industry Overviews - Direct Selling Industry Gloomy in the five years Strong competition with department stores and big-box stores Short seller David Einhorn’s bearish suggestions Short seller Citron Research China’s direct selling rules

Comparable Analysis

Comparable Companies Comparables chosen for Beta, Product Offering, Geographic sales, FCF 3 year growth, Market Cap, EBITDA 3 year growth.

Herbalife Ltd. (NYSE: HLF) 55% Similar product line Similar distribution method Similar FCF 3 year growth Similar EBITDA 3 year growth Similar Sales growth Similar Net Income growth

Energizer Holdings Inc. (NYSE: ENR) 20% Skin care section Direct selling method, distributors, wholesalers Similar FCF 3 year growth

The Estee Lauder Companies Inc. (NYSE:EL) 20% Large Market Cap (22 B) Similar EBITDA 3 year growth Similar Net Income 3 year growth Similar Sales 3 year growth

Avon Products Inc. (NYSE: AVP) 5% Similar Beta Similar product Similar business approach Similar geographic focus Different at EBITA growth, sales growth, net income growth

Metrics LTM Comps(30%)

Metrics Forward Comp (70%)

DCF Analysis

Revenue Model Based on Geographic Five areas: North Asia, Greater China, Americans, South Asia/Pacific and Europe

Revenue Model -North Asia Japan: (1% growth) Projecting 1-3% revenue growth in 2013 Increase in sales leader activity New product launch Reason: unsuccessful product launch before

Revenue Model -North Asia South Korea: (5% growth) Projecting 10-12% revenue growth in 2013 New product launch Reason: Special government regulation

Revenue Model -Greater China Projecting 15-18% growth rate Mainland China (25%) Fastest growing direct selling market 3rd largest direct selling market Taiwan (5%) and Hong Kong (5%) Mature market with stable growth rate

Revenue Model -Americas( 5%) Projecting 12-15% growth rate in 2013 Latin America projected 60% revenue growth rate New product launch Reason: questioned by short sellers, investors confidences

Revenue Model -South Asia/Pacific (25%) Expansion into Vietnam in 2012 Projecting 5-10% revenue in 2013 Reason: Great experience with new product launching; New market entry

Revenue Model -EMEA (5%) Projecting 12-15% revenue New project launch in 2012 Reason: management team projected way too high last year

Working Capital Model & DCF Model Percent of revenue Growth margin remain at 83.5% Constant COGS SG&A increase due to upper level sales leaders increase Capital expenditures increase due to build facilities in Provo and China 5% intermediate growth rate was used to smooth cash flow growth heading into perpetuity

Final Valuation

Portfolio History Currently holding 50 shares in Tall Firs portfolio Cost basis of $2883.7 Market value of $2211.0 Unrealized loss of 23.33% Currently holding 52 shares in Svigals’ portfolio Cost basis of $2968.5 Market value of $2299.4 Unrealized loss of 22.54%

Recommendation Due to Nu Skin’s strong potential of growing, I recommend a hold in all portfolios

Questions

Appendix A – Issues about China Market

China Management team average tenure about 20 years Understand local regulatory framework Works cooperatively with local regulators Has a track record of regulatory compliance and successful operations

China Solid Infrastructure in China: 4 Manufacturing Plants 2 R&D Labs 40 Stores 15 Provincial & Municipality Licenses

Significant Market Potential For Nu Skin

Five Year Business Plan in China Increase number of direct selling licenses Expand number of direct sellers Triple number of retail stores Extend distribution channel by adding independent markets

Appendix B – Sustaining Growth Method ageLOC: a compelling product platform Strong product pipeline Product launch process deliver strong results Growth in every geographic region Investing in Channel Innovation Strong balance sheet and cash flow Experienced management and sales leaders

Appendix C - EPS

Appendix D – Stock Repurchase Activity

Appendix E – Increasing dividend history

Appendix E – 2007-2013 Cash from Operation

Appendix F- Sales Leaders