Quarterly Results
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Condensed Interim Consolidated Statement Of Profit Or Loss For The Year Ended 31 December 2023
Income Statement
Statement of Comprehensive Income for the year ended 31 December 2023:
Condensed Interim Statements Of Financial Position As At 31 December 2023
Review of Performance
Review
The statements of financial position as at 31 December 2023 and the related consolidated statement of profit or loss, consolidated statement of comprehensive income, statements of changes in equity and consolidated statement of cash flows for the year ended 31 December 2023 and the selected explanatory notes (the “Condensed Consolidated Interim Financial Statements”) have not been audited or reviewed by the Company’s auditors.
Consolidated Statement of Comprehensive Income
The Group recorded profits attributable to the owners of the parent company amounting to $40.4 million in 4Q2023 and $120.4 million in FY2023, representing a 15.2% and 11.7% decline as compared to the same period last year. Following are the contributing factors:
Revenue in 4Q2023 decreased 4.6% to $201.3 million, compared to $211.0 million in the corresponding period last year. This was primarily due to our franchise segment in China experiencing weak consumer sentiment and ongoing macroeconomic challenges for FY2023, offsetting higher revenue from the Direct Selling segment. As a result. total revenue in FY2023 decreased 7.7% to $514.5 million;
Cost of sales decreased 7.1% to $42.4 million in 4Q2023 mainly because of declined revenue and less freight charges incurred in 4Q2023, vis-à-vis the same period last year. For the year ended 31 December 2023, cost of sales decreased 4.7% to $109.1 million. Gross Profit Margin remained relatively stable at 78.9% for Q42023 and 78.8% for FY2023;
Interest income increased to $4.0 million in 4Q2023 from $1.9 million in 4Q2022, mainly due to higher interest derived from the Group’s cash placed in structured and fixed deposits with banks;
Other operating income decreased to $5.8 million in 4Q2023 from $7.0 million in 4Q2022 due to lower government grants from certain subsidiaries;
Distribution costs increased to $68.9 million in 4Q2023, as a result of higher expenses related to events, convention and exhibitions, as well as higher freelance commission of our direct selling segment. For FY2023, due to higher revenue contribution from our Direct Selling segment, distribution costs which comprised of freelance commissions for direct selling distributors and event expenses, increased 9.1% to $156.9 million, compared to the same period last year;
Administrative expenses for 4Q2023 decreased from $29.2 million to $26.8 million vis-àvis the same period last year, mainly due to lower management and staff costs and expenses related to the Site Acceptance Test for one of the lines in our Tuas manufacturing facility. For FY2023, the administrative expenses decreased 2.8% to $92.3 million compared to FY2022;
Finance costs was recorded at $0.6 million in 4Q2023, mainly due to the higher interest expenses from both bank borrowing and lease liabilities for certain offices of the Group;
Net other losses of $6.8 million in 4Q2023 was due to the impairment of the Group’s investment in an associate as a result of a delay in revenue generation along with the strengthening Singapore Dollar (SGD) that caused net foreign exchange losses on the revaluation of the Group’s cash and cash equivalents denominated in United States Dollar and Chinese Yuan as well as the settlement of Taiwan branch's payables denominated in SGD. As a result, the Group incurred net other losses of $7.0 million for the year ended 31 December 2023.
Share of results of Pedal Pulses Limited, our UK joint venture, declined to $39,000 in 4Q2023 when compared to $214,000 in 4Q2022, mainly due to lower share of profits for the period, offsetting amortisation expenses of intangible assets identified during the purchase price allocation exercise;
Share of losses of our associate, Celligenics marginally decreased from $36,000 in 4Q2022 to $33,000 in 4Q2023 mainly due to lower operating expenses during the period;
Despite a lower profit before tax, the Group reported higher income tax expense of $25.5 million in 4Q2023 as compared to 4Q2022, as 4Q2023 tax expenses included under provision of tax in respect of prior years. As such, the effective tax rate for FY2023 was 28.4% as compared to 27.8% in FY2022.
Consolidated Statement of Financial Position
Total assets (Group) increased by $124.8 million from $740.1 million as at 31 December 2022 to $864.9 million as at 31 December 2023, mainly due to:
- Increase in property, plant and equipment of $3.4 million mainly due to renovation costs related to the certain offices and manufacturing facility of the Group as well as equipment costs for our Tuas manufacturing facility;
- Increase in right-of-use assets of $1.9 million due to the relocation of the Group’s Supply Chain & Quality office from Taiseng to Ang Mo Kio and Malaysia Regional Centre (RC);
- Increase in inventories of $10.4 million due to stock replenishment from certain subsidiaries;
- Increase in cash and cash equivalents of $123.2 million (refer to Consolidated Statement of Cash Flows section below).
This was partially offset by a $3.0 million decrease in investment in associate due to impairment loss, decrease in other assets of $10.9 million from $28.9 million to $18.0 million as at 31 December 2023 due to the reclassification of remaining deposits in relation to HQ renovation costs to property, plant and equipment since the completion of renovation in 1Q2023 and decrease in advance payment made to suppliers when compared to 31 December 2022.
Total liabilities (Group) increased by $18.1 million from $256.4 million as at 31 December 2022 to $274.6 million as at 31 December 2023, mainly due to:
- Increase in income tax payables of $11.7 million due to increase in tax provisions during the year;
- Increase in total other financial liabilities of $16.2 million due to loan drawdown from HQ and fair value changes to the put options in relation to the acquisition of Pedal Pulses Limited; and
- Increase in total lease liabilities of $1.9 million mainly due to new leases from the relocation of the Group’s Supply Chain & Quality office from Taiseng to Ang Mo Kio and Malaysia RC during the year.
This was partially offset by the decrease in trade and other payables of $12.9 million, which mainly consist of accruals for management and staff incentives, convention and marketing events expenses, as well as service fees to third-party promotional companies for our Franchise segment, and freelance commissions for our Direct Selling segment. The decrease is largely due to lower accruals of sales-related expenses from the Franchise segment.
Consolidated Statement of Cash Flows
In 4Q2023, net cash flows from operating activities of $124.9 million was mainly attributable to the Group’s net profit before tax of $65.6 million and changes in working capital as a result of increase in trade and other payables, decrease in inventories and trade and other receivables, as well as income tax paid during the period.
Net cash flow from investing activities of $3.4 million in 4Q2023 was mainly due to dividend and interest received, offsetting additions of property, plant and equipment during the period.
Net cash flow used in financing activities of $7.6 million in 4Q2023 was mainly due to payment of lease liabilities and purchase of treasury shares of $4.6 million during the period.
As at 31 December 2023, the Group maintained approximately $574.0 million in cash and cash equivalents.
Commentary
Moving forward, management continues to expect growth headwinds for our China market as uncertainties such as stock market volatility and challenges in the property sector continue to weigh on consumer sentiments and cloud consumers' outlook, leading to heightened propensity for consumers to save rather than spend.
Economic volatility, supply chain disruptions, and changing consumer behavior are also factors that could impact consumer demand, production, and profitability for the Group’s direct selling segment. Barring any unforeseen circumstances, management maintains a cautious outlook for the next 12 months.
Factors that may affect the Group’s performance in the next reporting period and for the next 12 months include the following:
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The Group maintains cash balances in United States Dollars and conducts procurement in
that currency. As at 31 December 2023, the Group holds approximately US$67.6 million.
Any fluctuation of the United States Dollar relative to the Singapore Dollar will have an
effect on the Group’s profitability;
- Due to the sizeable contribution of the Chinese market to the Group, the profitability of the Group would be negatively impacted should the local government decide to reduce or remove certain incentives currently enjoyed by the Group’s China subsidiary;
- The Group periodically bears professional expenses related to services which include but are not limited to, evaluating M&A targets, managing corporate actions, handling registrations, enforcing intellectual property rights across different markets, and staying informed about various regulations applicable to the Group;
- The Group constantly invests in R&D of next generation skincare and wellness products, in order to be able to launch innovative products in the medium to long term;
- As the Group’s operations expand in terms of scale, complexity, and geographical reach, it will continue to recruit talent, which will lead to higher management and staff costs. Additionally, increased expenses and depreciation are anticipated due to the relocation or refurbishment of specific Regional Centers; and
- The Group’s exposure to fluctuating currency exchange rates in the key markets where it operates against the Singapore Dollar could have both positive and negative effects on the Group’s bottom-line. To address this, management will closely monitor the situation and take necessary measures to mitigate associated risks.
Other ongoing factors that may affect the Group’s performance include, but are not limited to, timeline for product license registration/renewal in key markets, natural or man-made disasters, unanticipated regulatory changes and disruptions from competitors and negative public opinion, whether real or unfounded, etc. Additionally, the evolving definitions of beauty, sustainability concerns, and changing shopping behaviors may influence consumer preferences and spending patterns, with potential impact to the Group’s business.