HLF-2009-Canaccord Equity Conference

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HLF – Herbalife Ltd. at CanaccordAdams Global Growth Conference

Event Date/Time: Aug. 11. 2009 / 5:00PM GMT

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Aug. 11. 2009 / 5:00PM, HLF – Herbalife Ltd. at CanaccordAdams Global Growth Conference

CORPORATE PARTICIPANTS

Scott Van Winkle

Canaccord Adams – Analyst

Amy Green

Herbalife, Ltd. – Director of IR

Rich Goudis

Herbalife, Ltd. – CFO

PRESENTATION

Scott Van Winkle- Canaccord Adams – Analyst

Good afternoon, everyone. I’m Scott Van Winkle with Canaccord Adams. Thanks for being here. This is the Herbalife presentation, and Herbalife a couple-billion-dollar direct seller of nutritional products and weight loss. And if you haven’t noticed, the stock is up 100% year-to-date, I believe. So it’s been good performance and, I think, a good play in this economic environment.

So I won’t steal all of Rich’s thunder. But from the Company, Amy Green, who joined the Company recently as Director of Investor Relations, with some great [self-led] experience, is here; as well as Rich Goudis:, Chief Financial Officer.

Rich Goudis- Herbalife, Ltd. – CFO

Thank you, Scott.

The first slide — I just want to make sure that everybody takes a look, if you’re watching online or here. Just note the forward-looking statements that will cover our engagement this afternoon. As Scott said, welcome. I think this is a group that likes cash flow, I hope, and likes deeply discounted value stock, to get you in here after a filling lunch.

A couple points we want to reinforce to you is — if you like stories that have balanced financial strength, don’t need access to the public markets from a standpoint of capital, generate strong free cash flow, have global exposure in their business, are taking advantage of the global obesity epidemic going around the world, has a very (inaudible) management team that is disciplined to capital allocation and ROIC, then you’ve had a good stock with Herbalife.

As Scott said, our stock hit a bottom earlier in the year of about $12 or $13, and it’s up to $31 and change or so. Unlike a lot of other companies you probably hear, we don’t — our credit facility — we’re a little bit less than one times debt-to-EBITDA. Our credit facility is not due till 2012 and 2013 respectively.

Our earnings this year, affected by FX, like a lot of other international, multi-national companies. This will most likely be our second most profitable year in the Company’s history. So keep that in mind as we go through these slides — that this is a very resilient company.

Taking a look at the last 11 years or so on the top line, to give you a perspective of trends, potentially — you look at the growth rate from 2004, when the new management team came onboard. This was a private company from 2002 to 2004; we went public in ’04. See the growth rate accelerate. And then, on the very far right, the green bar and the red bar is the guidance, both

in constant currency from a year ago and as reported. And then you see the free cash flow yield down below — again, a very strong cash flow yield, with a CAGR of 8% over the last five years.

So why Herbalife? Why now? The intersection of health and wealth. Scott is very big on the thesis and the theme of obesity and

healthy living. If that’s also part of your thesis, 63% of our business is targeted at solving for, and helping the world solve for, the growing obesity epidemic. And whether it’s an old-time article or even a recent one, with the whole healthcare, we hope

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Aug. 11. 2009 / 5:00PM, HLF – Herbalife Ltd. at CanaccordAdams Global Growth Conference

that soon we’re going to start hearing language about preventative, and getting in front of — forget the cost of going to a doctor and thereafter, but more preventing you from ever having to have to go to the doctor, and have to take some corrective course, but to control your weight. Because we believe and subscribe that a proper weight will be probably the best factor in controlling

healthcare costs here and abroad.

Also, why now? The intersection of health and wealth is the business opportunity that starts to become available when there’s periods of high unemployment or, more importantly, high under-employment. These are people who might be making money but not making enough to achieve all of their financial goals.

Up in the top right-hand box is our compensation system. It’s both a direct level, down in the green, and also a multilevel compensation, in the top three levels. We’re making some very critical changes in the fourth quarter. We probably don’t have enough time to go through them here; we’ll try to do it in the breakout session. But spend some time, talk to Scott after the Conference, or Deidrick, and get to understand the changes we’re making, because we think that that’s going to potentially provide a catalyst as we move into 2010.

If you look in the very bottom right of this, this is the new distributor growth in the Business. In the last quarter, the number of distributors in the Business was up 3.9% year-over-year. And you can see a nice trend starting to emerge coming out of the fourth quarter.

One of the stereotypes of the Business often is well, you’re a very expensive alternative. And if you look here, we believe that with Herbalife, you trade up in nutrition value, and you trade down in price value. So the example here — probably a lot of you had the breakfast next door. Most of you probably had over 1,000 calories for breakfast this morning, believe it or not. So for

most of you, unless you’re working out, you just had 50% of your caloric intake for the day.

So the whole idea with Herbalife is to trade down in that calorie intake, have a healthy meal in the form of a shake, and have somewhere between 200 and 300 calories, depending on what you might put in that shake. From a price comparison, whether it’s Starbucks, McDonald’s or Denny’s, it’s multiples of 3x to 6x the savings. So from a value standpoint, we think that offers a

significant, attractive opportunity for the consumer.

Some very important distributor metrics — these are very consistent metrics that we disclose every quarter. Kind of starting clockwise from the top left and going around — we talk about having 1.9 million distributors in our business. We really bifurcate that into the blue, which is, I’ll say, just distributors; and the green, which are our sales leaders.

If you look at the very right-hand, top — often people ask well, what does a distributor look like? How do they behave? Last year, when distributors ordered from the Company, 51% of the time, their average order was $100, and they received about a 25% discount. So most of the distributors tend to be discount buyers, similar to joining Costco or some club like that, where you pay

$49, and you get a 25% discount at Herbalife — just like you would buying a club card at Costco and enjoying the discount on a product.

Some of those distributors start to grow their businesses organically, and they become sales leaders. That’s the graph on the very bottom right.

I think up through the first quarter, you can see the trend was actually slowing down from the second quarter through the first quarter of this year. And that was a concern about three or four months ago to investors. I think with the growth rate this quarter, sequentially from Q1 to Q2, while still down overall in the number of new supervisors coming in the business, the growth rate was 28.5% sequentially, which was our strongest sequential growth rate in over two years in the Company. So we think we’re– the worst is behind us, so to speak. We’re starting to see good momentum building in our business, and we think that’s one

of the early indicative signs.

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Aug. 11. 2009 / 5:00PM, HLF – Herbalife Ltd. at CanaccordAdams Global Growth Conference

And then on the very far left, this is an annual requalification of our supervisors, sales leaders. These are the business builders in our business. And you can see, when we came in, the Business in ’03 was about 28% retention. And today, it’s a little bit over 40%. That’s a number we’ll continue to work on and try to improve.

Some of the key numbers that came out of this last, second quarter earnings start on the top left. The green bars indicate 2008 volume points by quarter. We said last week on our earnings call that the second quarter represented our most difficult comparison for the year, primarily driven by a worldwide promotion that we had in April last year. We had a promotion in China over the course of the three months in the second quarter last year, and it was also the last quarter before we passed along a 15% VAT in Mexico.

You can see the sequential decline a year ago in the green bars. But more importantly, you look at that red line going across, and that’s kind of where we’ve been in actuals in Q1 and Q2. And essentially what the guidance would indicate for Q3 and Q4 is that we’re not expecting any macro change in our business. If that were to occur, that’s a good thing.

If you look down at the bottom graph, you can see that in some of our larger markets we did see sequential growth from Q1 to Q2. The US business was up 7.7% sequentially. As most of you know and have come close to our US business, US is comprised 68% Spanish-speaking, 32% non-Spanish. If you bifurcate that 7.7%, you’ll find that the Latino population was actually up almost

16% in the quarter. So again, very healthy sequential growth.

Mexico, which is our number-two market — 3.2% growth. So hopefully, we’re heading into a period where now this month, in August, we [anniversary] the VAT. Hopefully, we start to demonstrate some real growth as we head into the fourth quarter.

And then China, our number-three market in terms of net sales, was up 57.5%. This is a market where we’re about three or four years into the market. We now just have, just a month ago, received another five provincial licenses for approval. This is a business that we continue to build and expand. But we think that, most importantly, the takeaway in China this quarter is – last year, it was our most difficult comp for China. This quarter, we came within about 1.5% of meeting that, without that same promotion, with a lot less new salespeople coming in the Business. So what that should tell you as an investor is this whole

transition to retailing is working.

So the Company went through a phase of building up its sales force, bringing people in to operate out of these 90 stores in 30 provinces. Now what you’re seeing is more productivity of those salespeople. As less salespeople are needed to come into the business and grow the business, they’re doing about the same volume with — I think it was about 10% less new salespeople coming in.

And then lastly, on the right here, when you strip out currency, and you look in terms of local currency — if you look at our top eight markets, we were up 11%. Mexico and Venezuela were going through retrenchment in those markets — Mexico primarily because of VAT; Venezuela, I’ll say, because of Chavez and his economic and restrictive policies as relates to cash.

One of the big drivers for us strategically is to talk about the ongoing conversion to what we call daily consumption. That’s a new, novel concept in the last three or four years in our business, where historically, when you were approached by an Herbalife distributor, they would try to sell you a month’s supply of product. And most people in this room can afford a month’s supply

of product. Unfortunately, in Thailand, in Mexico, some areas of the US, Eastern Europe, South America, not everybody can afford, let’s say, that equivalent of $100 monthly supply.

So a few years ago — and it’s an eyestrain, I understand — but if you look at the far right graph, up top, that’s Mexico. And Mexico, if you look in the year 2000, was doing somewhere around 70 million, 80 million volume points a year. And over the course of six or seven years, it grew six times that, from this simple, novel concept of what we call now nutrition clubs, which was basically

taking that $100 monthly access, if you would, to Herbalife, and breaking it down to a daily consumptive means, where effectively would charge you 20 pesos to come into their club, their home, what have you, and have access to three primary products that they serve.

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Aug. 11. 2009 / 5:00PM, HLF – Herbalife Ltd. at CanaccordAdams Global Growth Conference

That same concept was then — if you look at the graph to the left — was moved into the US in 2004. And you can see the acceleration again, primarily that Latino stat that I gave you earlier. In Taiwan, the next graph down on the right, you can see when we introduced that in 2004. 2005 and 2006, we opened up Malaysia, so we saw a little bit of a dip in Taiwan. They transitioned their business to these daily consumption clubs, and you can see the growth rate there.

Brazil really has just gone through that transition to daily consumption over the last couple years. You’re starting to see growth come out of that. And then Korea, down at the bottom, never really saw the slowdown, just an acceleration, given the clubs.

As we look forward, as we develop our plans for 2010 and beyond, we’ll leave this year, I think, with good momentum that I shared with you in the second quarter. We’re going to open up Vietnam, Paraguay, in the second — excuse me, in the fourth quarter. Vietnam is a country of 87 million people. Half the population is under the age of 30. This is almost twice the size of

Korea. So we believe that this is an opportunity for us to add another country that could be a top-10 country for us.

Those markets that we think are underpenetrated, and we look at penetration here — we use what we call an Herbalife currency, which is volume points. And we look at volume points per capita to give us an indication of where those opportunities lie. If you look at the Company average of 1.09 volume points per capita, the US business — next year, we’ll be in for 30 years — is 2x

Mexico, which — most of you would not believe that Mexico is so deeply penetrated, or is our number-two market. Because typically, it’s perceived as a very poor country. And typically, network marketers don’t do well in poor countries.

But again, that convergence to a daily consumptive model, those nutrition clubs that help drive deeper penetration. You see it in Taiwan, you’re starting to see it in Korea. And the hope is that now we’re starting to see the first birth of those clubs in China.

At the end of the first quarter, we ended with about 102 nutrition clubs in China. At the end of the second quarter, that was up to 278 clubs. Very much a test — some of those clubs will, for sure, fail. Some of those clubs will localize and acculturate properly, and they will be successful. And then those are the clubs — and those owners of the clubs will become the teachers of those

clubs. And hopefully, we’re going to have the same kind of a run that you saw in Mexico, that you’re seeing in Taiwan, that you’re seeing in the Latino population in the US., in countries like China.

India — India was a country — or is a country today that is not well-penetrated by network marketing companies or direct sellers. The club concept is getting the first sense of replication in that market. While still a very small base for us, the business was up 90% in the first quarter year-over-year, 102% in the second quarter. I think it’s — when I come back here a year from now, the

hope is that this is going to be a market that will start pushing towards that top 10.

Now on to the aspect of the Business, I think, that is often misunderstood and underappreciated, which is the financial characteristics of this business. This might be arguably the toughest economic period that many of us as professionals will deal with. And in that regard, if you look at our performance this year, we’re on track to have our second most profitable year in the Company’s history. I think that’s a testament to the power of this business model.

I think also — look at the effect that currency is having, not only on the top line but also on the margins of this business. So we continue to be a management team that’s very focused on the margins of this business, investing for what we believe will be future growth.

And then, the perfect side of this model is the free cash flow. This is a business that does not need access to the public markets to drive its business and growth. It’s not a highly capital-intensive business. It’s a business that — one of our challenges and struggles is — the good challenges — how do we efficiently return this free cash to shareholders?

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Aug. 11. 2009 / 5:00PM, HLF – Herbalife Ltd. at CanaccordAdams Global Growth Conference

We have a dividend today that was started two years ago. The yield is almost 3%. And also, over the last two years, we’ve repurchased over $500 million in the Company’s stock. The Board authorized a new repurchase program in April this year of another $300 million that we set our sights — and very serious on — to try to conclude over the next couple years.

And with that, you see a very conservatively leveraged business. You see a business that doesn’t need to go back to the markets

at a very turbulent time, to try to restructure its debt, like many of the companies you might be following. And again, very conservatively capitalized, at less than 0.9 times debt-to-trailing EBITDA.

So what have we done as far as guidance? We became public in ’04, and our initial guidance was $1.10 to $1.15. We were very conservative. We had some upside. In certain markets like Mexico, we over-delivered.

In 2006 — at the end of 2005, we did a secondary. The guidance was $1.80 to $1.85 at the time. And we again over-delivered to ’06.

2007, similarly — the initial guidance was $2.40 to $2.47. On January 4th of 2007, we lost 30% of our market cap that day, because we announced that we thought Mexico was going to be flat. The stock went from $40 to $28 in a day. People didn’t believe we were going to deliver the $2.40 to $2.47. We actually over-delivered, even with Mexico being down about 3% for the year.

2008 — we had initial guidance of $3.17 to $3.23. We delivered $3.53. Most of that on the upside was FX. And we kind of called that out, as you go back and listen to our call about a year ago, after the first quarter, as the dollar really started to weaken.

On the flipside, this year, we initially guided $3 to $3.20. After our fourth quarter results, we called down the year to $2.90 to $3.10. And we went from $24, $25 stock to $12 stock, because people didn’t believe we were going to earn even $3.

If you look at what we did in May, we kept that guidance after having a good first quarter. This last quarter, we — again, we beat the high side of the range, the guidance range, by $0.05. And we dialed the guidance into $2.97 to $3.03. So management’s feeling a lot more comfortable. I think the street’s coming up to our range of consensus. The stock being off the last couple

days, I think, is more indicative that [there’s] a lot of momentum coming into the stock. And we’re working hard to keep those players out of this stock, and try to get value plays — people who appreciate and respect cash flow, and the consistency of that cash flow, the global nature of this business, the focus on health and wealth, and healthy, active lifestyles and obesity.

Those are the key highlights for Herbalife.

So the takeaways here — our most difficult comp is behind us, which leaves, I think, some mathematically — especially in the fourth quarter, as you saw in that one slide, an easy comp in terms of volume. The dollar, if it continues to weaken from here, will leave the year maybe not with the headwinds we have, and maybe — in a few currencies — maybe even some tailwind.

Free strong cash flow year-to-date — $122 million. We typically spend somewhere around $50 million to $60 million in CapEx. Our current guidance is $55 million to $60 million this year.

Our increasing emphasis on those daily consumption, daily methods of operation of our distributors. We’re changing the marketing plan to drive more profitability down to the early-entry distributors, which is very important. And again, I suggest

you talk to Scott or Deidrick to understand that more completely, because I think it’s going to be a catalyst for growth as we head into next year.

We’ll expand our product lines and geography — Vietnam and Paraguay in the fourth quarter. In the first quarter next year, we hope to launch a very revolutionary satiety product, and also a high-antioxidant drink to complement our current product lines. And again, it will improve our brand image.

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Aug. 11. 2009 / 5:00PM, HLF – Herbalife Ltd. at CanaccordAdams Global Growth Conference

If those of you who went to the soccer match this past weekend — unfortunately, you lost to the Galaxy here in New England,

and you saw Beckham wearing the Galaxy jersey, with Herbalife on the front. We do that around the world with marketing alliances and allegiances, and in the form of more like co-op dollars that we’re now starting to work with our distributors, where we’ll collect 1% of the retail price and use that, direct that towards having a bigger spend in these markets.

And then, lastly is a proven track record for creating shareholder value. Again, we try to take that cash and find efficient ways to bring that back to you and reward you for your support.

So with that, I think I have a couple minutes. I’ll take some questions, and then we’ll go to a breakout room.

QUESTIONS AND ANSWERS

Rich Goudis- Herbalife, Ltd. – CFO

Yes?

Unidentified Audience Member

What are the categories of product in China that are most attractive [at this time] (inaudible)?

Rich Goudis- Herbalife, Ltd. – CFO

The question was — in China, what’s the mix of products for us –

Unidentified Audience Member

What are the categories (inaudible)?

Rich Goudis- Herbalife, Ltd. – CFO

For us, for our business entirely — you saw that number earlier — 63% of our business is weight-management. And that’s the core driver for us. So we have a meal-replacement shake. That’s our number-one product. We have Niteworks, which is a product developed by Nobel Laureate Lou Ignarro. It’s a vascular-dilating product. That’s our number-two product in China. If you look at one of our competitors in China — Amway does reportedly over $2 billion in net sales. Their protein drink does somewhere between $600 million and $700 million. So we look at that as an opportunity and say, why can’t we get our business to that level? We also do some unique things in China to keep repeat orders like toothpaste, skin whiteners, that we don’t have in other markets.

Don’t be shy. Scott?

Scott Van Winkle- Canaccord Adams – Analyst

(inaudible) was saying. If you’ve made a change, is the goal to increase the productivity of distributors that are really just discount buyers, maybe? Or is it more (inaudible) charge of the supervisors, who maybe are (inaudible)?

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Rich Goudis- Herbalife, Ltd. – CFO

Well, I think the net result is both. It fixes both. Today, for example, when you’re a distributor, there’s no incentive in the marketing plan to use a distributor to recruit another distributor. Because you don’t earn on them. If I’m a supervisor, and I recruit every single one of you direct to me, I earn on you. If you went out and, let’s say, recruited Scott, you don’t earn on Scott. So there’s

no incentive. That’s going to change, where now you’re going to be able to earn on Scott, when Scott purchases product.

So we think that that’s going to — one of the graphs I showed you in the blue graphs, I think on the early page, was the number of new distributors coming in the Business. I think you can continue to watch that — our expectation is that number is going to grow. And that’s a good thing.

The second thing is, what it’s going to do is it’s going to, I think, keep the engagement of those supervisors. Because now, Scott’s going to be in the Business. I never would have known Scott. If I recruited Deidrick, and Deidrick recruited Scott, Deidrick’s brought Scott to my business. And now I have someone else to work with and groom, and hopefully, potentially build.

And then lastly is we’re going to ease the qualification from going from a distributor to a supervisor. It’s a high hurdle right now. The hurdle in terms of net sales or cash is about $2,600 to become a supervisor. Now, you probably can all afford that. Not as many people in the US can afford it today as they could a couple years ago. And I can assure you that on a global basis, that’s a high hurdle.

So what we’re going to do now is allow people the course of a year to accumulate those purchases cumulatively to be able to qualify for that deeper discount, 50%; but, more importantly now, to be able to earn on their down-line that they’re bringing into the business.

So I think it’s a win-win. That component was tested in Russia over the last couple years, and we were very impressed with the

results. The other component of being able to earn on that distributor — that’s really in response to what’s going on in the economy today — to push more of the economic value that Herbalife provides down to that entry level.

If you look at our P&L — above the net sales line, there’s a retail line. The difference between retail and net sales was about $1.4 billion last year. If you look below net sales, there’s a royalty line. That was about $750 million last year.

So just the ability for people to earn cash or earn discounts is almost 2x from that retail-to-wholesale. And we as a company haven’t really cleverly pushed the majority of those economics down to the distributor level. It’s really been earned at the supervisor level.

So the whole goal is to make that shift. And I think given this economy, given people’s inability to pay $2,600 and become a

supervisor, we think we’re going to make a lot of fixes here. And so we’re very, very excited.

Yes, David?

Unidentified Audience Member

(inaudible question – microphone inaccessible)

Rich Goudis- Herbalife, Ltd. – CFO

The question is — how’s our progress in China? Is it where we thought it was going to be at all?

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Aug. 11. 2009 / 5:00PM, HLF – Herbalife Ltd. at CanaccordAdams Global Growth Conference

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ug. 11. 2009 / 5:00PM, HLF – Herbalife Ltd. at CanaccordAdams Global Growth Conference

If we go back four or five years ago, when we laid our initial plans, we’re far in excess of that. We broke even in late 2007. We were profitable in 2008, which was ahead of our plan — so much so that last year — and I think we publicly disclosed — we were starting to force the transition from having that basically recruiting mindset of bringing people in the business, to starting to insert the tools, like the nutrition clubs and other tools, to drive more consumption-based.

And I think you’re starting to see that. I think the metrics I shared with you today — I can’t share all the metrics with you, for competitive reasons — but the ones that I can kind of cleanse for you, and feel bullish about — that sequential growth was really powerful to me. The fact that we didn’t have a big promotion in China the second quarter, and did essentially the volume we did a year ago — that’s really big news.

The amount of clubs — I was in China in early June. I visited a couple clubs. I’m sure the clubs I saw — they won’t replicate; they’re pretty high-end. But there’s now 278. Someone’s going to figure it out. And just like you saw with Taiwan, they’re going to localize it. The entrepreneurial spirit of the Chinese distributor is amazingly powerful. And that’s what I’m really encouraged with.

Peter?

Unidentified Audience Member

(inaudible question – microphone inaccessible) —

Rich Goudis- Herbalife, Ltd. – CFO

Yes, Peter’s question is —

Unidentified Audience Member

(inaudible)

Rich Goudis- Herbalife, Ltd. – CFO

Unidentified Audience Member

(inaudible)

Rich Goudis- Herbalife, Ltd. – CFO

Yes. The change in the marketing plan or commission structure — it doesn’t affect the Company’s P&L, just so we’re clear. It’s basically the pie that’s out there for distributors to earn; it’s just going to be cut a little differently, and really push more to the people coming into the Business initially to earn more money, with the feeling that — just like in your world — if you make money

early on, you’re going to stick with it. Right? So anyway —

Unidentified Audience Member

It was your idea.

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FINAL TRANSCRIPT

Aug. 11. 2009 / 5:00PM, HLF – Herbalife Ltd. at CanaccordAdams Global Growth Conference

Rich Goudis- Herbalife, Ltd. – CFO

It was the idea of the distributors. One part of it was the ideas of the Russian distributors, and we let them test that a year ago — or two years ago, excuse me. And that was the qualification to 5,000 cumulative volume points. The second one came out of our March summit, where it was in response to the economy, to try to push the economics down. And that all rolls out in the

fourth quarter.

Thank you. We’ll see you next door for Q&A.

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