Yatsen Holding Ltd. — FY2020 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a quarterly filing; it does not provide clear standalone fourth-quarter financial results. Financial statements are prepared under U.S. GAAP. Amounts below are in RMB unless otherwise noted.
Business context
Yatsen operates a China-focused beauty business, selling cosmetics and skincare through a digitally driven, predominantly direct-to-consumer model. Its brands included Perfect Diary, Little Ondine, Abby’s Choice and Galénic. DTC channels generated 86.4% of 2020 net revenue. The company reported 32.3 million DTC customers and 241 experience stores at year-end. It completed the Galénic acquisition in 2020; the mainland China DR.WU and Eve Lom acquisitions occurred in 2021.
Financial and operating results
| Metric | FY2020 | FY2019 | Change or context |
|---|---|---|---|
| Net revenue | RMB5.23bn (US$802.0m) | RMB3.03bn | Up 72.6% |
| Gross profit / margin | RMB3.36bn / 64.3% | RMB1.93bn / 63.6% | Margin up 0.7 percentage points |
| Operating expenses | RMB6.05bn | RMB1.78bn | 115.5% of revenue, versus 58.9% |
| Operating loss | RMB2.68bn | Operating income RMB143.8m | Major reversal |
| Net loss / income | Net loss RMB2.69bn (US$412.0m) | Net income RMB75.4m | 2020 loss includes substantial IPO-related share compensation |
| Operating cash flow | Cash used RMB983.4m | Cash used RMB6.2m | Significantly more cash consumed |
| Cash, cash equivalents and restricted cash | RMB5.73bn | RMB676.6m | Increase primarily reflects equity financing and IPO |
| Current assets / current liabilities | RMB7.09bn / RMB1.13bn | RMB1.57bn / RMB763.3m | Year-end current assets substantially exceeded current liabilities |
Selling and marketing expense rose to RMB3.41bn, or 65.2% of revenue, from RMB1.25bn, or 41.3%. General and administrative expense rose to RMB2.14bn, or 40.9% of revenue, chiefly reflecting RMB1.84bn of share-based compensation. Total share-based compensation was RMB1.90bn, primarily triggered by the November 2020 IPO and accelerated vesting. Excluding these noncash charges would materially change the reported loss, but the filing does not provide an adjusted profit measure here.
Gross sales increased to RMB6.05bn from RMB3.51bn. Color cosmetics remained the largest category, though its share of gross sales declined to 82.2% from 89.4%; skincare’s share increased to 12.2% from 7.0%. Average net revenue per DTC customer rose to RMB139.9 from RMB114.1, subject to the company’s stated limitation that certain 2020 channel customers were not included in the calculation.
Liquidity, debt and cash flow
Net cash used in investing activities was RMB508.8m, including purchases of property and equipment and intangible assets, and acquisition-related payments. Net cash provided by financing activities was RMB6.68bn, including RMB8.25bn of equity proceeds, offset in part by repurchases of preferred and ordinary shares. The company reported net proceeds of approximately US$664.7m from its November 2020 IPO; US$41.0m had been used by year-end, with no material change to the stated intended use of the remaining proceeds.
The filing reports RMB10m of short-term borrowing proceeds and an equal amount of repayments in 2020; it does not identify material year-end borrowing. Lease liabilities were RMB527.2m at year-end, including RMB215.3m current. Contractual obligations totaled RMB1.24bn, comprising RMB596.7m of operating leases, RMB492.6m of product and service purchase commitments and RMB150.3m of capital commitments. Management stated that available cash was expected to cover anticipated working capital and capital expenditure needs for at least 12 months from the filing date.
Changes, outlook and material matters
- COVID-19 disrupted offline stores, suppliers and delivery services, especially early in 2020; management said revenue growth rebounded from the third quarter. The company recorded an inventory provision of RMB20.9m and reported lower marketing return on investment.
- Management attributed the sharp deterioration in profitability to increased brand promotion and store expansion costs, weaker marketing efficiency during the pandemic, and IPO-related share-based compensation. It expected G&A expense to fall from its 2020 level as IPO-triggered compensation subsided, while continuing to invest in marketing, R&D, distribution and stores.
- Management expected gross margin to remain relatively stable, with potential gradual improvement as higher-priced brands scale. It anticipated continued revenue growth, but gave no quantified financial guidance in the provided filing text.
- The company reported one material weakness in internal control over financial reporting: insufficient accounting and financial-reporting personnel with appropriate U.S. GAAP and SEC reporting experience. Management said remediation measures were underway. Disclosure controls and procedures were deemed ineffective at December 31, 2020; the annual report did not include management’s internal-control assessment or auditor attestation because of the applicable transition period.
- Key risks include reliance on third-party e-commerce platforms—Tmall accounted for a majority of gross sales in both 2019 and 2020—concentrated ODM/OEM suppliers, rapidly changing consumer preferences, marketing efficiency, product safety, inventory forecasting, COVID-19, and competition. The top three suppliers represented 55% of 2020 purchases.
- The company operates through a PRC variable interest entity for certain restricted online activities. It disclosed uncertainty around enforceability of VIE arrangements and identified licenses or filings that were not obtained or completed for certain activities, including an online audiovisual-program license and franchise filings.
- The auditor was located in China and, as described in the filing, was not then subject to PCAOB inspection. The report discussed potential U.S. trading restrictions under the Holding Foreign Companies Accountable Act.
- No material legal or administrative proceedings were reported. The company did not expect to pay dividends in the foreseeable future. It reported no material off-balance-sheet arrangements.
Most important facts for investors to verify
- Whether revenue growth can continue while marketing expense falls as a share of revenue and the business returns to sustainable operating profitability.
- How much of the 2020 loss reflects IPO-triggered and other share-based compensation, and the expected ongoing level of compensation expense.
- Whether operating cash burn, inventory growth and working-capital needs remain manageable, and how much reported cash is accessible for group operations given PRC restrictions.
- Progress in remediating the material weakness and whether controls are effective in subsequent reporting periods.
- Revenue and customer concentration on Tmall and other platforms, and resilience of the supplier base and fulfillment network.
- Regulatory status of the VIE arrangements, required licenses and franchise filings, and the consequences of any noncompliance.
- Integration costs, financing and performance of Galénic and the subsequent DR.WU and Eve Lom acquisitions, including the approximately RMB1.12bn combined stated consideration for the latter acquisitions.