China Nepstar Chain Drugstore Ltd.

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1 China Nepstar Chain Drugstore Ltd. NYSE:NPD Presentation to Investors November 2012 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 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 in the forward-looking statements. t t Further information regarding these and other 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 information, future events or otherwise, except as required under applicable law. 1

3 Company Overview Who We Are Our Retail Network* Our Business Model We are China s largest drugstore chain by the number of directly operated stores Awarded "Best Drugstore Chain of 2007 in China" by China Drugstore magazine Nepstar had a total of 2,191 stores in operation National presence in 73 cities (*As of September 30, 2012) Neighborhood drugstore of sqm in size Directly operated stores to ensure consistent service standard 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 Improve operation efficiency and service quality 2

Chengdu Guangzhou 136 Beijing 11 Qingdao 106 Beijing

Suzhou Nanjing Shanghai Dongguan #1 Ningbo Fuzhou HQ:

61 Hangzhou 163 Dongguan 83 #1 #1 City Name No.

between 100 and 199 stores Province of above 200

4 Leading Brand with National Footprint #1 Nanjing 69 Chengdu 81 Tianijn 86 Ningbo 151 Sichuan Nepstar Chengdu Guangzhou 136 Beijing 11 Qingdao 106 Beijing Tianjin Hangzhou Changsha Guangzhou Qingdao Dalian Suzhou Nanjing Shanghai Dongguan #1 Ningbo Fuzhou HQ: Shenzhen Shenzhen 353 #1 Dalian 195 Suzhou 84 Shanghai 61 Hangzhou 163 Dongguan 83 #1 #1 City Name No. of Stores 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 September 30,

5 2012 3Q Income Statement Highlights g Nine-Month Period Ended (in Millions of RMB, except % analysis) September 30, 2012 September 30, 2011 Revenue 1,878 1,833 Gross Margin 46.4% 47.7% Income from Operations Interest Income Net Income

6 Strong Balance Sheet and Cash Position Cash, cash equivalents, and short-term and long-term bank time deposits: RMB570.4MN (US$90.8MN); Total shareholder s equity: RMB947.7MN(US$150.8MN); (*Balance Sheet, as of September 30, 2012) Weighted average number of ordinary shares: 197.6MN shares for the first three quarters in Operating cash flow of RMB31.15MN (US$4.96MN) for the of first three quarters of 2012; No Debt. 5

7 Unique Operation Environment 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 Stage One-reengineer procurement Higher margin and wider product offerings Expand store network and consolidate the market Explore customer need Maximize customer value From pharmacy to drugstore of one stop convenience for day to day needs Higher store productivity and customer loyalty Stage Two-Improve store productivity 7

9 Reengineer Procurement Stage One Reengineer Procurement Optimizing supply chain management to realize high margin through central procurement and private labeling 8

10 Reengineer Procurement 2012 First 9 Months Private Label Contribution Revenue 100.0% Contribution 90.0% 72.4% 27.6% 80.0% 70.0% 60.0% Current product mix 21.4% 20.9% 4.0% 3.8% 18.1% 16.5% 50.0% Privatelabels non private labels 40.0% 30.0% 36.6% 38.8% Gross Profit 20.0% Contribution 10.0% 60.6% Private labels 39.4% non private labels 0.0% Prescription drugs 19.9% 19.9% First 9 Months Over the counter drugs Nutritional i supplements Herbal products Other product sales 9

11 Improve Store Productivity Stage Two Improve Store Productivity it Expand offerings in nutritional supplements, household medical devices, personal care and household consumables to address broader needs of consumers 10

Address a Broader Needs of Customers Nepstar, with

developed logistics network, is well positioned to deliver

Community Customers Needs Hospital Super Traditional Beauty

of pharmaceutical products Professional healthcare assistance

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. 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 and re-planogram 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 Challenging operational environment Increasing pressure on operation expenses driven by inflation and drastic minimum wage increase mandated; Increasing revenue and gross margin erosion for pharmaceutical products due to the disruption from the healthcare reform policies. Grow single store productivity through optimization of product offerings and daily operation management Closing underperforming stores with no sign of turnaround Adopt stringent cost control measures to defend d the inflation 13

Long-term Business Outlook Adapt to the evolving operational

strengthen leading position in China Expand store network

procurement scale to maintain high gross margin Address

15 Long-term Business Outlook 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. 15

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