BUSINESS REVIEW

Distribution channels

For revenue by sales channel, the Group achieved HK$294.5 million sales from franchised/self-owned spas, medical cosmetology centers and counters in 2023 which increased by HK$4.1 million as compared to the figure in 2022 (2022: HK$290.4 million), representing 87.7% of the Group’s total revenue (2022: 86.5%). For sales from E-commerce, TV shopping and telemarketing channels, the Group achieved HK$41.5 million sales which decreased by HK$3.9 million compared to 2022 (2022: HK$45.4 million), representing 12.3% of the Group’s total revenue (2022: 13.5%). The Group derives its income principally from its network of distribution channels, including spas and concessionary counters in department stores. As at 31 December 2023, there were 1,554 spas or point of sales and 8 concessionary counters. Of these, 1,550 were franchised spas or point of sales, while 4 spas and 8 concessionary counters were directly operated and owned by the Group. No concessionary counters were entrusted to third-party operators. Franchised spas or point of sales are owned by the franchisees who are responsible for the capital investment in these spas. They are obliged to use only Natural Beauty or “NB” products in their spas. A wide array of services including hydrotherapy, facial treatment, body care and skin care analysis, are provided in all spas, while skin care analysis is widely available at the concessionary counters in department stores.

Group-wide, a total of 213 (2022: 140) new stores were opened and 68 (2022: 76) stores were closed during the year ended 31 December 2023.

Research and Development

Natural Beauty is dedicated to continuous research and development. Our R&D team consists of experienced researchers with diverse expertise across various fields, collaborating with leading beauty and biotechnology laboratories both domestically and globally. Recently, we have successfully introduced the bestselling Yam Collagen Firming Series from Shanghai to the Taiwanese market. Additionally, we have forged a partnership with Perfect Crop, a beauty and fashion technology company, to launch an online skin analysis tool that integrates AI and AR technologies. This latest development enables consumers to effortlessly understand their skin condition through cutting-edge technology. It has been implemented in our franchises in Taiwan, enabling them to offer customers AI-based analysis and 50x magnification skin monitoring. We are planning to comprehensively expand these advancements in the future.

Our R&D efforts are primarily focused on product upgrades and new technology research. The recent introduction of the Yam Collagen Firming Series from Shanghai represents a significant breakthrough, featuring a unique blend of triple collagen and collagen peptides, enriched with the Natural Beauty endorsed Mexican wild yam extract. This formula specifically designed for premature aging women, aiming to boost estrogen levels and stimulate collagen production. This has not only earned widespread praise from our franchisees in Taiwan but also highlighted our continuous efforts in research, development, and innovation.

Natural Beauty demonstrates formidable strength in intellectual property, holding several patents, including three stem cell patents and plant extraction patents. We actively engage in academia-industry cooperation, participate in peak academia-industry conferences, and continue to deepen our involvement in the intellectual property domain. Looking forward, we will further strengthen global collaborations, leveraging intellectual property to achieve greater breakthroughs and accomplishments. Natural Beauty is dedicated to enhancing global research collaboration and pursuing technological innovation. In the future, we will reinforce our cooperation with laboratories worldwide, continually innovate, and provide more high-quality beauty solutions. We aim to achieve more breakthroughs in technology application and product upgrades, maintain our competitive edge, and realize sustained growth.

Products

In 2023, the NB company was distributed in Zhangjiajie and Changsha, Hunan province, issued two large-scale product launch conferences. During this year, a total of 16skus new products and 14skus upgrade products were launched, enriching the selection of natural beauty stores, to enhance the image of natural beauty products. These products contributed a total of HK$31.9 million (RMB29.3 million). The performance of NB-1 series was HK$68.9 million (RMB63.3 million). NB-1 series is still the main force of natural beauty skincare products and has been upgraded from the end of 2022 to the 2023, NB-1 series once again consolidate the status of products. At the product launch event in Changsha, Hunan province, two new instruments, the Italian EGO and the Italian ICOONE, were introduced at the same time. They made a segmentation of the store-based SPA courses for the franchise stores, accurately capturing the needs of middle-and high-end consumers, in order to enhance the store hot and topic degree, and then enhance the store consumption opportunities. The two devices generated a total of HK$5.6 million (RMB5.2 million) and are expected to lead to even more impressive market performance in the coming year.

Human Resources

As at 31 December 2023, the Group had a total of 479 employees, of whom 342 were based in the PRC, 119 in Taiwan and 18 in other countries and regions. Total remuneration (excluding directors’ emoluments) in 2023 was approximately HK$105.2 million (HK$124.7 million in 2022), including retirement benefit related costs of HK$9.0 million (HK$10.8 million in 2022). Competitive remuneration packages are maintained to attract, retain and motivate capable staff members and are reviewed on a regular basis.

Capital Expenditures

The Group’s capital expenditure of HK$69.3 million in 2023 was mainly related to the new plant construction in the PRC amounting to HK$48.8 million, opening of new stores, renovation and equipment amounting to HK$10.6 million.

Right-of-use Assets and Lease Liability

Hong Kong Financial Reporting Standards No. 16 – Lease (HKFRS 16) came into effect on 1 January 2019. At the commencement date, the Group should recognise a right-of-use asset and a lease liability. The related right-of-use assets and lease liabilities are mainly located in the PRC and Taiwan. As at 31 December 2023, the Group’s right-of-use assets were HK$30.7 million (HK$41.1 million as at 31 December 2022) and its lease liabilities were HK$14.5 million (HK$23.6 million as at 31 December 2022). In 2023, depreciation charges of right-of-use assets amounted to HK$5.7 million and interest charges of lease liabilities amounted to HK$1.1 million.

Future plans for material investments or capital assets

Save as otherwise disclosed this annual report, there were no material investments or additions of capital assets authorised by the Board at the date of this annual report.

OUTLOOK

The progress of our business growth was slow due to the sluggish economic recovery and the evident conservative consumption for the year of 2023. The economic development has shifted to the domestic market due to the slow recovery after the pandemic and global turbulence and complex international relations. We shall continue to leverage on the resources of Eastern International Co., Ltd. to develop the chain franchising, TV shopping, e-commerce, and telemarketing and others, maintain the multi-channel strategy and multi-brand strategy, thoroughly implement differentiated product distribution under different brands in different pipelines to enable the diversification of the sales of products layers and expand the incremental market. Meanwhile, the new combination of existing stores fission with the leading commission agents will turbo up the expansion of franchise stores, our core business.

Key Market Development Strategies

• Taiwan: Natural Beauty continues the multi-channel sale. With immunity concerns of health food becoming the focus of consumption in the post-pandemic era, we have focused on the marketing of health food to generate income for franchise stores. The short inventory days of health supplements can easily generate income. Taiwan market achieved results in 2023, becoming a new growth point for the franchise channel. At the same time, we introduce high-end daily necessities and cross-border e-commerce for franchise stores to achieve sales product diversification, piling up more revenue per store, innovative profit models, and a compound store model, which combined beauty, health and lifestyle products, to assist franchised stores in systematic management.
• PRC: In addition to the diversified product supply under the current multi-brand strategy supply of beauty, health care and high-end daily necessities, B2B team is also established to select and co-work with several leading commission agents to expand franchise stores, accelerating the expansion pace of franchise store. In 2024, with a multi-pronged approach, the incumbent on-line bidding team will continue the data management to gain more prospects, the existing franchised stores fission to grow the number of stores, and the additional leading agents to expand stores sharply together. Apart from the planned fast growing of franchise network, Taiwan and PRC markets will introduce the “compound store” model at the same time, forming a win-win situation of “diversified sales and diversified revenue” for the franchised stores.
• Looking ahead to the year of 2024, the innovative “compound store” model will be launched, and the new product map of beauty, health food, high-end daily necessities and a plug all franchise stores to cross-border e-commerce will generate more income, bring Natural Beauty business up to a new level against the slow economic recovery.