BUSINESS REVIEW

Distribution channels

For revenue by sales channel, the Group achieved HK$315.8 million sales from franchised/self-owned spas, medical cosmetology centers and counters in 2024 which increased by HK$21.3 million as compared to the figure in 2023 (2023: HK$294.5 million), representing 89.3% of the Group’s total revenue (2023: 87.7%). For sales from E-commerce, TV shopping and telemarketing channels, the Group achieved HK$37.8 million sales which decreased by HK$3.7 million compared to 2023 (2023: HK$41.5 million), representing 10.7% of the Group’s total revenue (2023: 12.3%).

The Group derives its income principally from its network of distribution channels, including spas and concessionary counters in department stores. As at 31 December 2024, there were 1,773 spas or point of sales and 7 concessionary counters. Of these, 1,768 were franchised spas or point of sales, while 5 spas and 7 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 324 (2023: 213) new stores were opened and 106 (2023: 68) stores were closed during the year ended 31 December 2024.

Products

In 2024, Natural Beauty successfully held grand new product launches in Shanghai and Xiamen, sparking a revolutionary wave in skincare and health food industry. During these events, the Company unveiled 12 skincare products, 2 meticulously designed skincare gift sets, and 9 innovative health supplements products. With exceptional product quality and forward-looking market insights, the Company achieved HK$43.0 million in sales, injecting strong momentum into its continued growth. In response to the national health strategy, starting in May 2024, Natural Beauty collaborated with Taiwanese home shopping experts to launch a series of unique health food roadshows nationwide. These roadshows, totaling over 100 sessions, were further bolstered by the Company’s health food subsidy policy, significantly enhancing consumer enthusiasm. By the end of 2024, the health food series achieved HK$33.7 million in sales, amounting to a remarkable 86.2% growth compared to HK$18.1 million in 2023. This remarkable performance highlights Natural Beauty ‘s solid foundation and vast potential in the health and wellness sector.

On the brand expansion front, Natural Beauty demonstrated relentless efforts in 2024. The B.U.T. ESSE brand celebrated a dazzling opening at Shanghai New World, offering urban elites a novel skincare experience. Subsequently, the Company opened counters in high-end shopping centers such as Shanghai K11 and Huaihai Parkson, further cementing its position in the fashion scene. Additionally, the Company opened self-owned spas in shopping centers like Shanghai Century Link and BFC, introducing futuristic AI-driven premium skincare concepts to the city, providing more options for consumers pursuing a high-quality lifestyle. Despite being a newly established market force, the brand has swiftly garnered unparalleled acclaim from elite shopping destinations and discerning consumers, driven by its exceptional quality and visionary innovation. As we look toward 2025, the brand will continue to meticulously advance its strategic initiatives, further deepen its market penetration, and elevate its influence and brand equity within the high-end consumer segment, solidifying its leadership position on a global scale.

Research and Development

In 2024, Natural Beauty is dedicated to maintaining its market leadership and continuously delivering value to shareholders through cutting-edge technology and product upgrades. We have completely overhauled our existing Natural Beauty Resveratrol Series by introducing Vitis Vinifera Extract, derived from French Bordeaux grapevines, and combining it with NMN and Chicken Embryo Stem Cell Technology, setting a new benchmark in the field of anti-aging. These breakthroughs not only highlight our leadership in utilizing state-of-the-art technologies but also enhance the brand’s market competitiveness. In addition, we have launched a new generation of the NMN Warm Sensation Hydra Device equipped with AirSonic Technology, taking product innovation to an entirely new level. This device delivers significant advancements in air pressure jet speed, thermal sensation technology, and NLS bio-light application, providing deep improvements in skin health and delivering exceptional skincare results, making it a star product in the premium skincare market.

Our research on Exosome Technology has also made remarkable progress. We have deeply explored its anti-aging potential and plan to introduce this technology into the Taiwan market through diverse channels to meet growing consumer demand. At the same time, we have taken a major step forward in the application of AI technology by successfully developing an AI Massage Robot integrated with a visual recognition system. This technology not only enhances the precision and customization of services but also effectively addresses the challenge of labor shortages in the increasingly demanding professional beauty industry. Furthermore, the introduction of advanced skin analysis instruments has significantly improved the consumer experience, further solidifying our technological leadership in the beauty and skincare industry.

We are also actively deepening our collaboration with academic institutions and professional laboratories by integrating resources from industry and academia to drive research innovation and the development of sustainable technologies. These initiatives not only ensure the brand’s sustainable growth but also strengthen investor confidence in the Company’s long-term growth potential.

In 2024, Natural Beauty has further reinforced its brand value through solid technological advancements and outstanding market performance. Looking ahead, we will continue to focus on technological innovation and market expansion to deliver sustained returns and value for both investors and consumers.

Human Resources

As at 31 December 2024, the Group had a total of 542 employees, of whom 410 were based in the PRC, 110 in Taiwan and 22 in other countries and regions. Total remuneration (excluding directors’ emoluments) in 2024 was approximately HK$148.4 million (HK$105.2 million in 2023), including retirement benefit related costs of HK$11.0 million (HK$9.0 million in 2023). 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$41.2 million in 2024 was mainly related to the new plant construction in the PRC amounting to HK$22.3 million, opening of new stores, renovation and equipment amounting to HK$18.6 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 2024, the Group’s right-of-use assets were HK$34.9 million (HK$30.7 million as at 31 December 2023) and its lease liabilities were HK$19.9 million (HK$14.5 million as at 31 December 2023). In 2024, depreciation charges of right-of-use assets amounted to HK$5.4 million and interest charges of lease liabilities amounted to HK$0.6 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 year of 2024 was a fresh start full of new opportunities for Natural Beauty to make every effort to achieve its targets. The dual-core strategy has been put into practice in the PRC market, allowing the agents to establish stores and focusing on health food to promote sustained growth in performance. With a major breakthrough in the store exhibition, Natural Beauty have successfully attracted and contracted leading commission agents in the PRC market and established a core partnership in terms of local store expansion. The layout of the five major areas, including Central China, East China, West China, South China and North China, has been completed. Ten heavyweight agents that have been deeply involved in the beauty industry for more than 20 years have officially joined us as representatives and benchmarks of Natural Beauty in respect of store expansion in the market of PRC. The combined efforts from multiple forces have generated rapid development of store expansion and drive the Company’s performance to steadily rise. The sales of health food also attained a remarkable near-doubling of year-on-year revenue growth, injecting strong momentum into the Company’s overall business and laying a solid foundation for future development. In addition, Natural Beauty proactively deploys international high-end smart beauty equipment, driving industrial upgrading with cutting edge technological innovation, deepening the brand value system and comprehensively enhancing international market competitiveness.

Key Market Development Strategies

• Taiwan: Natural Beauty continues the multi-channel sale strategy. With the remaining focus of consumption of health food in the post pandemic era, we continue to regard health food sales as the core of our development, regularly organizing the meetings for the customers of Hydra project and health supplements project to help franchise stores improve their income generating ability. Meanwhile, we continue to optimize our guidance capability in live streaming to increase brand exposure through our online platform, enhancing the reach rate generated by customers. We will also improve our mechanism for management on and repurchase of online membership to further promote the overall growth of our business.
• PRC: Joint store expansion by agents: We initiated the cooperation with local agents across major regions in the PRC and set up operation centers in key provinces. With each region developed by the agents on a local basis, the brand and the agents jointly organized numerous business partnering event. At the same time, the original store expansion mechanism are combined with the distributor system of fission of the existing franchisees to strengthen the precise targeting and expand the team. In 2024, the number of newly opened franchise stores recorded a year-on-year growth of 50%. Increased promotion of health supplements: We have embarked on new practice and adopted the penetrating marketing strategy of intensive cultivation of offline business, and have combined the resources of the EHS Group to penetrate respective regions in depth and cover the nation through multi-frequency mini-training and promotional campaigns, driving significant growth of sales of health supplements in franchising channels.
• Looking ahead to the year of 2025, the Group will continue to enhance its brand building with the implement of the multi-channel and multi-brand strategy, and utilize AI technology in empowering its competitiveness to deepen the operation and management of its membership system and proactively expand the territory of its comprehensive healthcare business, accelerating the development of its core business in an all-round aspect.