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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F

(Mark One)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

For the transition period from                 to

Commission file number: 001-39703

Yatsen Holding Limited

 

(Exact name of Registrant as specified in its charter)

N/A

 

(Translation of Registrant’s name into English)

Cayman Islands

 

(Jurisdiction of incorporation or organization)

Building No. 35, Art Port International Creation Center,

No. 2519 Xingang East Road, Haizhu District

Guangzhou 510330

People’s Republic of China

(Address of principal executive offices)

Donghao Yang, Chief Financial Officer
Building No. 35, Art Port International Creation Center,

No. 2519 Xingang East Road, Haizhu District

Guangzhou 510330

People’s Republic of China

Telephone: +86 20-3837 3543

 

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

American Depositary Shares, each representing four Class A ordinary shares, par value US$$0.00001 per share

 

YSG

 

New York Stock Exchange

Class A ordinary shares, par value US$0.00001 per share*

 

 

 

New York Stock Exchange

 

*Not for trading, but only in connection with the listing on the New York Stock Exchange of our American depositary shares, each American depositary shares representing four Class A ordinary shares.

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

 

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

As of December 31, 2021, there were 2,697,173,763 ordinary shares outstanding, being the sum of 1,938,303,919 Class A ordinary shares and 758,869,844 Class B ordinary shares.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes No

Note Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “accelerated filer and large accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Emerging growth company

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Indicate by check mark which basis of accounting the registrant has been to prepare the financial statements included in this filing:

U.S. GAAP

International Financial Reporting Standards as issued by the International Accounting Standards Board

Other

If “other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No

 

 

 


 

 

TABLE OF CONTENTS

 

 

INTRODUCTION

 

1

 

 

 

FORWARD-LOOKING INFORMATION

 

2

 

 

 

PART I

 

3

 

 

 

 

 

 

 

ITEM 1.

 

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

3

 

ITEM 2.

 

OFFER STATISTICS AND EXPECTED TIMETABLE

 

3

 

ITEM 3.

 

KEY INFORMATION

 

3

 

ITEM 4.

 

INFORMATION ON THE COMPANY

 

66

 

ITEM 4.A.

 

UNRESOLVED STAFF COMMENTS

 

98

 

ITEM 5.

 

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

98

 

ITEM 6.

 

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

114

 

ITEM 7.

 

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

121

 

ITEM 8.

 

FINANCIAL INFORMATION

 

123

 

ITEM 9.

 

THE OFFER AND LISTING

 

124

 

ITEM 10.

 

ADDITIONAL INFORMATION

 

124

 

ITEM 11.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

134

 

ITEM 12.

 

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

134

 

 

 

PART II

 

137

 

 

 

 

 

 

 

ITEM 13.

 

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

 

137

 

ITEM 14.

 

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

 

137

 

ITEM 15.

 

CONTROLS AND PROCEDURES

 

137

 

ITEM 16.A.

 

AUDIT COMMITTEE FINANCIAL EXPERT

 

140

 

ITEM 16.B.

 

CODE OF ETHICS

 

140

 

ITEM 16.C.

 

PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

140

 

ITEM 16.D.

 

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

 

140

 

ITEM 16.E.

 

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

 

140

 

ITEM 16.F.

 

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

 

141

 

ITEM 16.G.

 

CORPORATE GOVERNANCE

 

141

 

ITEM 16.H.

 

MINE SAFETY DISCLOSURE

 

141

 

 

 

PART III

 

142

 

 

 

 

 

 

 

ITEM 17.

 

FINANCIAL STATEMENTS

 

142

 

ITEM 18.

 

FINANCIAL STATEMENTS

 

142

 

ITEM 19.

 

EXHIBITS

 

142

 

 

 

i


 

 

INTRODUCTION

Unless otherwise indicated or the context otherwise requires, references in this annual report on Form 20-F to:

 

“ADRs” refer to the American depositary receipts that may evidence the ADSs;

 

“ADSs” refer to the American depositary shares, each of which represents four Class A ordinary shares;

 

“China” or the “PRC” refers to the People’s Republic of China, excluding, for the purposes of this annual report only, Hong Kong, Macau and Taiwan;

 

“Class A ordinary shares” refer to our Class A ordinary shares, par value US$0.00001 per share;

 

“Class B ordinary shares” refer to our Class B ordinary shares, par value US$0.00001 per share;

 

“DTC” refers to direct-to-consumer business model;

 

“DTC customers” refer to the customers that have placed one or more orders purchasing our products through our DTC channels, including our online stores on third-party e-commerce platforms, our company channels on Weixin and our experience stores, during the relevant periods, if such products were shipped, but regardless of whether or not the customer returned the products. This number does not include the number of customers placing orders through our third-party e-commerce platform distributors including JD.com and Vipshop;

 

“Gen-Z” refers to the group of people born between 1996 and 2005 (aged between 16 and 25 in 2021);

 

“Gross sales” refers to the total value of all orders for products and services placed and shipped, regardless of whether the goods are returned. Our calculation of gross sales includes value-added tax and shipping charges paid by customers to us;

 

“KOL” refers to key opinion leader;

 

“Millennials” refer to the group of people born between 1986 and 1995 (aged between 25 and 34 in 2020);

 

“ODM” refers to Original Design Manufacturer;

 

“OEM” refers to Original Equipment Manufacturer;

 

“our WFOE” refers to Guangzhou Yatsen Global Co., Ltd.;

 

“Retail sales value” refers to the total value of products and services purchased by consumers through multiple retail sales points, measured at retail selling price, including the impact of distributor and retailer incremental markups and value-added tax on the overall pricing;

 

“RMB” and “Renminbi” refer to the legal currency of China;

 

“SKU” refers to stock keeping unit;

 

“US$,” “U.S. dollars,” “$,” and “dollars” refer to the legal currency of the United States;

 

“VIE” refers to variable interest entity, and “the VIE” mainly refers to Huizhi Weimei (Guangzhou) Trading Co., Ltd.; and

 

“Yatsen,” “we,” “us,” “our company,” “our” and “Group” are to Yatsen Holding Limited, our Cayman Islands holding company and its subsidiaries, and, in the context of describing our operations and consolidated financial information, the VIE and the subsidiaries of the VIE.

Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this annual report are made at a rate of RMB6.3726 to US$1.00, the exchange rate in effect as of December 30, 2021 as set forth in the H.10 statistical release of The Board of Governors of the Federal Reserve System. We make no representation that any Renminbi or U.S. dollar amounts referred to in this annual report could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange.

1


 

FORWARD-LOOKING INFORMATION

This annual report on Form 20-F contains forward-looking statements that reflect our current expectations and views of future events. The forward looking statements are contained principally in the sections entitled “Item 3. Key Information — D. Risk Factors,” “Item 4. Information on the Company — B. Business Overview,” and “Item 5. Operating and Financial Review and Prospects.” Known and unknown risks, uncertainties and other factors, including those listed under “Item 3. Key Information — D. Risk Factors,” may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements relating to:

 

our goals and strategies;

 

our future business development, financial condition and results of operations;

 

the trends in, expected growth and the market size of the beauty industry, both in the PRC and globally;

 

our expectation regarding the prospects of our business model, and demand for and market acceptance of our products;

 

our ability to develop and launch beauty products and introduce new brands that appeal to the preferences of customers;

 

our expectations regarding the effectiveness of our marketing initiatives and the relationship with our third-party business partners;

 

competition in our industry;

 

relevant government policies and regulations relating to us, and their future development;

 

general economic and business conditions globally and in China; and

 

assumptions underlying or related to any of the foregoing.

These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in “Item 3. Key Information — D. Risk Factors,” “Item 4. Information on the Company — B. Business Overview,” “Item 5. Operating and Financial Review and Prospects,” and other sections in this annual report. You should read thoroughly this annual report and the documents that we refer to with the understanding that our actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements.

This annual report contains certain data and information that we obtained from various government and private publications. Statistical data in these publications also include projections based on a number of assumptions. Our industry may not grow at the rate projected by market data, or at all.

Failure of this market to grow at the projected rate may have a material and adverse effect on our business and the market price of the ADSs. In addition, the rapidly evolving nature of this industry results in significant uncertainties for any projections or estimates relating to the growth prospects or future condition of our market. Furthermore, if any one or more of the assumptions underlying the market data are later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.

The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this annual report and the documents that we refer to in this annual report and have filed as exhibits to this annual report completely and with the understanding that our actual future results may be materially different from what we expect.

 

2


 

 

PART I

ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.KEY INFORMATION

Our Holding Company Structure and Contractual Arrangements with the VIE

Yatsen Holding Limited is not an operating company in China but a Cayman Islands holding company with no equity ownership in the VIE. Our Cayman Islands holding company does not conduct business operations directly. We conduct our operations in China through (i) our PRC subsidiaries and (ii) the VIE with which we have maintained contractual arrangements. PRC laws and regulations impose certain restrictions or prohibitions on foreign ownership of companies that engage in certain value-added telecommunication services, internet audio-video program services and certain other businesses. Accordingly, we operate these businesses in China through the VIE and its subsidiaries, and rely on contractual arrangements among one of our PRC subsidiaries, the VIE and its nominee shareholders to control the business operations of the VIE, although our wholly foreign-owned subsidiaries still generate a significant majority of our revenues and hold a significant majority of our operational assets. Main assets held by the VIE include the majority of the social platforms and content offering platforms we operate such as Weixin public accounts and mini-programs, which are registered and held by the VIE and its subsidiaries, and the ICP License and the Permit to Produce and Distribute Radio and Television Programs, which are critical to the online operation of our business. Revenues contributed by the VIE accounted for 8.2%, 17.1% and 8.9% of our total revenues for the years ended December 31, 2019, 2020 and 2021, respectively. As used in this annual report, “we,” “us,” “our company” and “our” refers to Yatsen Holding Limited, its subsidiaries, and, in the context of describing our operations and consolidated financial information, the VIE in China, which mainly refers to Huizhi Weimei (Guangzhou) Trading Co., Ltd., or Huizhi Weimei. Holders of our ADSs hold equity interest in Yatsen Holding Limited, our Cayman Islands holding company, and do not have direct or indirect equity interest in the VIE.


3


 

 

The following diagram illustrates our corporate structure as of the date of this annual report, including our principal subsidiaries and other entities that are material to our business, as of the date of this annual report:

 

Note:

(1)

Mr. Jinfeng Huang holds 75.0% of equity interests in Huizhi Weimei. The remaining 25.0% of the equity interests in Huizhi Weimei are held by Huiyue (Guangzhou) Trading Limited Partnership, a limited partnership organized under the laws of the PRC whose general partner is Yuemei (Guangzhou) Trading Co., Ltd., a PRC company controlled by Mr. Jinfeng Huang.

A series of contractual agreements, including proxy agreement and power of attorney, equity pledge agreement, exclusive business cooperation agreement and exclusive call option agreement, have been entered into by and among our subsidiary, the VIE and its shareholders. Despite the lack of legal majority ownership, our Cayman Islands holding company is considered the primary beneficiary of the VIE and consolidates the VIE and its subsidiaries as required by Accounting Standards Codification (“ASC”) topic 810, Consolidation. Accordingly, we treat the VIE as our consolidated entity under U.S. GAAP and we consolidate the financial results of the VIE in our consolidated financial statements in accordance with U.S. GAAP. For more details of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements with the VIE and Its Shareholders.”

However, the contractual arrangements may not be as effective as direct ownership in providing us with control over the VIE and we may incur substantial costs to enforce the terms of the arrangements. Uncertainties in the PRC legal system may limit our ability, as a Cayman Islands holding company, to enforce these contractual arrangements. It is uncertain whether any new PRC laws or regulations relating to VIE structures will be adopted or if adopted, what they would provide. If we or the VIE is found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures. There are very few precedents as to whether contractual arrangements would be judged to form effective control over the relevant VIE through the contractual arrangements, or how contractual arrangements in the context of a VIE should be interested or enforced by the PRC courts. Should legal actions become necessary, we cannot guarantee that the court will rule in favor of the enforceability of the VIE contractual arrangements. In the event we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing those contractual arrangements, we may not be able to exert effective control over the VIE, and our ability to conduct our business and the financial performance of the VIE and our company as a whole may be materially adversely affected. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Corporate Structure.”

4


 

PRC government’s significant authority in regulating our operations and its oversight and control over offerings conducted overseas by, and foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors. Implementation of industry-wide regulations in this nature may cause the value of such securities to significantly decline. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—The PRC government’s significant oversight and discretion over our business operation could result in a material adverse change in our operations and the value of our ADSs.”

Risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws and quickly evolving rules and regulations in China, could result in a material adverse change in our operations and the value of our ADSs. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—Uncertainties with respect to the PRC legal system could adversely affect us” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China——We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related business and companies, including limitations on our ability to own key assets.”

Permissions or Filings Required from the PRC Authorities for Our Operations and Offshore Offerings

We conduct our business primarily through our subsidiaries and the VIE in China. Our operations in China are governed by PRC laws and regulations. As of the date of this annual report, our PRC subsidiaries and the VIE have obtained the requisite licenses and permits from the PRC government authorities that are material for the business operations of our holding company and the VIE in China, including, among others, the ICP License and the Permit to Produce and Distribute Radio and Television Programs. Given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities, we may be required to obtain additional licenses, permits, filings or approvals for the functions and services of our business in the future, and may not be able to maintain or renew our current licenses, permits, filings or approvals. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—If the content we produce and distribute through online social and content platforms, or content available on our website, is deemed to violate PRC laws or regulations, our business and results of operations may be materially and adversely affected.”

Furthermore, under current PRC laws, regulations and regulatory rules, we, our PRC subsidiaries and the VIE may be required to obtain permissions from the China Securities Regulatory Commission, or the CSRC, and may be required to go through cybersecurity review by the Cyberspace Administration of China, or the CAC, in connection with any future offering and listing in an overseas market. In connection with our previous issuance of securities to foreign investors, under current PRC laws, regulations and regulatory rules, as of the date of this annual report, we, our PRC subsidiaries and the VIE, (i) are not required to obtain permissions from the CSRC, (ii) have not received any requirement from competent PRC governmental authorities to go through cybersecurity review by the CAC, and (iii) have not received or were denied such requisite permissions by any PRC authority. If we fail to obtain the relevant approval or complete other review or filing procedures for any future offshore offering or listing, we may face sanctions by the CSRC or other PRC regulatory authorities, which may include fines and penalties on our operations in China, limitations on our operating privileges in China, restrictions on or prohibition of the payments or remittance of dividends by our subsidiaries in China, restrictions on or delays to our future financing transactions offshore, or other actions that could have a material and adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—The approval of and filing with the CSRC or other PRC government authorities may be required in connection with our offshore offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval or complete such filing” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry— We collect, store, process and use a variety of customer data and information for analysis of the changing consumer preferences and fashion trends, which subjects us to laws and regulations related to privacy, information security and data protection. Any failure to comply with these law and regulations could materially and adversely harm our business, financial condition and results of operations.”

The Holding Foreign Companies Accountable Act

The Holding Foreign Companies Accountable Act, or the HFCAA, was enacted on December 18, 2020. The HFCAA states if the Securities and Exchange Commission, or the SEC, determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the Public Company Accounting Oversight Board (United States), or the PCAOB, for three consecutive years, or two consecutive years if the proposed changes to the law are enacted, beginning in 2021, the SEC shall prohibit our shares or ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States. Since our auditor is located in China, a jurisdiction where the PCAOB has been unable to

5


 

conduct inspections without the approval of the Chinese authorities, our auditor is not currently inspected by the PCAOB, which may impact our ability to remain listed on a United States or other foreign exchange. The related risks and uncertainties could cause the value of our ADSs to significantly decline. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—The PCAOB is currently unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections over our auditor deprives our investors with the benefits of such inspections” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—Our ADSs will be prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, or the HFCAA, in 2024 if the PCAOB is unable to inspect or fully investigate auditors located in China, or in 2023 if proposed changes to the law are enacted. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.”

Cash and Asset Flows through Our Organization

Yatsen Holding Limited is a holding company with no operations of its own. We conduct our operations in China primarily through our subsidiaries and the VIE in China. As a result, although other means are available for us to obtain financing at the holding company level, Yatsen Holding Limited’s ability to pay dividends to the shareholders and to service any debt it may incur may depend upon dividends paid by our PRC subsidiaries and license and service fees paid by the VIE in China. If any of our subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends to Yatsen Holding Limited. In addition, our PRC subsidiaries are permitted to pay dividends to Yatsen Holding Limited only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Further, our PRC subsidiaries and the VIE are required to make appropriations to certain statutory reserve funds or may make appropriations to certain discretionary funds, which are not distributable as cash dividends except in the event of a solvent liquidation of the companies. For more details, see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Holding Company Structure.” Our subsidiaries’ ability to distribute dividends is based upon their distributable earnings.

We have established stringent controls and procedures for cash flows within our organization. Each transfer of cash between our Cayman Islands holding company and a subsidiary, the VIE or its subsidiaries is subject to internal approval. The cash inflows of the Cayman Islands holding company were primarily generated from the proceeds we received from our initial public offering of ADSs and other financing activities. For the years ended December 31, 2019, 2020 and 2021, the Cayman Islands holding company provided capital contributions of RMB469.2 million, RMB625.0 million and RMB25.9 million (US$4.1 million), respectively, to our subsidiaries. For the years ended December 31, 2019, 2020 and 2021, the VIE received net debt financing of nil, nil and RMB93.0 million (US$14.6 million) from our WFOE, respectively. For the years ended December 31, 2019, 2020 and 2021, our WFOE received RMB190.4 million, RMB313.7 million and RMB236.4 million (US$37.1 million), respectively, from the VIE, which represented purchase of inventories, logistics services and promotion services. For the years ended December 31, 2019, 2020 and 2021, no assets other than cash were transferred between the Cayman Islands holding company and a subsidiary, the VIE or its subsidiaries, no subsidiaries paid dividends or made other distributions to the holding company, and no dividends or distributions were paid or made to U.S. investors. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividend Policy.” However, If our PRC subsidiaries declare and distribute profits to us, such payments will be subject to withholding tax, which will increase our tax liability and reduce the amount of cash available to our company. For more information on related risks, please see “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.” For PRC and United States federal income tax considerations of an investment in our ADSs, see “Item 10. Additional Information—E. Taxation.”

The VIE may transfer cash to our WFOE by paying service fees according to the contractual arrangements. For the years ended December 31, 2019, 2020 and 2021, no service fees were paid by the VIE to our WFOE. For details of the financial position, cash flows and results of operations of the VIE, see “Item 3. Key Information—Permissions or Filings Required from the PRC Authorities for Our Operation and Offshore Offerings—Financial Information Related to the VIE.” We plan to determine the amount of service fee with the VIE and its shareholders through bona fide negotiation, and settle fees under the contractual arrangements accordingly in the future.

6


 

Under the current laws of the Cayman Islands, Yatsen Holding Limited is not subject to tax on income or capital gains. Upon payments of dividends to our shareholders, no Cayman Islands withholding tax will be imposed. For purposes of illustration, the following discussion reflects the hypothetical taxes that might be required to be paid in mainland China and Hong Kong, assuming that: (i) we have taxable earnings in the VIE, and (ii) we determine to pay a dividend in the future:

 

Tax Calculation(1)

Hypothetical pre-tax earnings in the VIE(1)

100.00

Tax on earnings at statutory rate of 25% at Guangzhou Yatsen Global Co., Ltd. level

(25.00)

Amount to be distributed as dividend from Guangzhou Yatsen Global Co., Ltd.  to Yatsen HK Limited(2)

75.00

Withholding tax at tax treaty rate of 5%

(3.75)

Amount to be distributed as dividend at the Yatsen HK Limited level and net distribution to Yatsen Holding Limited(3)

71.25

 

Notes:

*The table above has been prepared under the assumption that all profits of the VIE will be distributed as fees to our WFOE under tax neutral contractual arrangements. If, in the future, the accumulated earnings of the VIE exceed the service fees paid to our WFOE (or if the current and contemplated fee structure between the intercompany entities is determined to be non-substantive and disallowed by Chinese tax authorities), the VIE could make a non-deductible transfer to our WFOE for the amounts of the stranded cash in the VIE. This would result in such transfer being non-deductible expenses for the VIE but still taxable income for our WFOE. Our management believes that there is only a remote possibility that this scenario would happen.

Should all tax planning strategies fail, the VIE could, as a matter of last resort, make a non-deductible transfer to our WFOE for amounts of stranded cash in the VIE. This would result in the double taxation of earnings: once at the VIE level (non-deductible expense) and again at the WFOE level (for presumptive earnings on the transfer). This has the impact of reducing the amount available above from 71.25% to approximately 53% of pre-tax income, respectively. Our management believes that such scenario is unlikely to occur.

(1)

For purposes of this example, the tax calculation has been simplified. The hypothetical book pre-tax earnings amount, not considering timing differences, is assumed to equal taxable income in China.

(2)

PRC Enterprise Income Tax Law imposes a withholding income tax of 10% on dividends distributed by a Foreign Invested Enterprise to its immediate holding company outside of mainland China. A lower withholding income tax rate of 5% is applied if the Foreign Invested Enterprise’s immediate holding company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with mainland China, subject to a qualification review at the time of the distribution. There is no incremental tax at the Yatsen HK Limited level for any dividend distribution to Yatsen Holding Limited.

(3)

If a 10% withholding income tax rate is imposed, the withholding tax will be 7.5 and the amount to be distributed as dividend at the Yatsen HK Limited level and net distribution to Yatsen Holding Limited will be 67.5.

In addition, our PRC subsidiaries, the VIE and its subsidiaries generate their revenue primarily in Renminbi, which is not freely convertible into other currencies. As a result, any restriction on currency exchange may limit the ability of our PRC subsidiaries to pay dividends to us. For more details, see Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry— We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business, and “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China— PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds from our securities offering to make loans or additional capital contributions to our PRC subsidiaries and the VIE in China, which could materially and adversely affect our liquidity and our ability to fund and expand our business.”

 

Financial Information Related to the VIE

The following tables present the condensed consolidating schedule of financial position for Yatsen Holding Limited, its subsidiaries, the VIE and other entities as of the dates presented.

7


 

Selected Condensed Consolidated Statements of Income Information

 

 

 

For the Year Ended December 31, 2021

 

 

 

Yatsen

Holding

Limited

 

 

Other

Subsidiaries

 

 

Primary

Beneficiary of VIE

 

 

VIE and

VIE’s

Subsidiaries

 

 

Eliminating

adjustments

 

 

Consolidated

Totals

 

 

 

 

 

 

 

RMB

 

 

 

 

 

 

 

(In thousands)

 

Third-party revenues

 

-

 

 

 

951,001

 

 

 

4,367,137

 

 

 

521,835

 

 

-

 

 

 

5,839,973

 

Inter-company revenues(1)

 

-

 

 

 

11,972

 

 

 

413,617

 

 

-

 

 

 

(425,589

)

 

-

 

Third-party costs and expense

 

 

(28,484

)

 

 

(1,040,549

)

 

 

(6,091,570

)

 

 

(303,614

)

 

-

 

 

 

(7,464,217

)

Inter-company costs and expense

 

-

 

 

 

(176,817

)

 

-

 

 

 

(248,772

)

 

 

425,589

 

 

-

 

Income (loss) from subsidiaries and VIE

 

 

(1,527,645

)

 

 

(1,336,728

)

 

 

(27,886

)

 

-

 

 

 

2,892,259

 

 

-

 

Income (loss) from non-operations

 

 

15,395

 

 

 

54,538

 

 

 

3,611

 

 

 

2,741

 

 

-

 

 

 

76,285

 

Income (loss) before income tax expenses

 

 

(1,540,734

)

 

 

(1,536,583

)

 

 

(1,335,091

)

 

 

(27,810

)

 

 

2,892,259

 

 

 

(1,547,959

)

Income tax (expenses) benefit

 

-

 

 

 

2,634

 

 

 

(1,637

)

 

 

(76

)

 

-

 

 

 

921

 

Net income (loss)

 

 

(1,540,734

)

 

 

(1,533,949

)

 

 

(1,336,728

)

 

 

(27,886

)

 

 

2,892,259

 

 

 

(1,547,038

)

Less: net income (loss) attributable to non-controlling interests and redeemable non-controlling interests

 

-

 

 

 

(6,304

)

 

-

 

 

-

 

 

-

 

 

 

(6,304

)

Net income (loss) attributable to Yatsen Holding Limited’s shareholders

 

 

(1,540,734

)

 

 

(1,527,645

)

 

 

(1,336,728

)

 

 

(27,886

)

 

 

2,892,259

 

 

 

(1,540,734

)

Net income (loss) attributable to ordinary shareholders of Yatsen Holding Limited

 

 

(1,540,734

)

 

 

(1,527,645

)

 

 

(1,336,728

)

 

 

(27,886

)

 

 

2,892,259

 

 

 

(1,540,734

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Year Ended December 31, 2020

 

 

 

Yatsen

Holding

Limited

 

 

Other

Subsidiaries

 

 

Primary

Beneficiary of VIE

 

 

VIE and

VIE’s

Subsidiaries

 

 

Eliminating

adjustments

 

 

Consolidated

Totals

 

 

 

 

 

 

 

RMB

 

 

 

 

 

 

 

(In thousands)

 

Third-party revenues

 

-

 

 

 

427,553

 

 

 

3,909,547

 

 

 

896,070

 

 

-

 

 

 

5,233,170

 

Inter-company revenues(1)

 

-

 

 

 

1,347

 

 

 

415,052

 

 

 

11,665

 

 

 

(428,064

)

 

-

 

Third-party costs and expense

 

 

(9,871

)

 

 

(527,874

)

 

 

(6,602,866

)

 

 

(775,230

)

 

-

 

 

 

(7,915,841

)

Inter-company costs and expense

 

-

 

 

 

(106,912

)

 

 

(11,943

)

 

 

(309,209

)

 

 

428,064

 

 

-

 

Income (loss) from subsidiaries and VIE

 

 

(2,683,245

)

 

 

(2,483,979

)

 

 

(176,187

)

 

-

 

 

 

5,343,411

 

 

-

 

Income (loss) from non-operations

 

 

5,309

 

 

 

6,091

 

 

 

(10,686

)

 

 

512

 

 

-

 

 

 

1,226

 

Income (loss) before income tax expenses

 

 

(2,687,807

)

 

 

(2,683,774

)

 

 

(2,477,083

)

 

 

(176,192

)

 

 

5,343,411

 

 

 

(2,681,445

)

Income tax (expenses) benefit

 

-

 

 

 

(79

)

 

 

(6,896

)

 

 

5

 

 

-

 

 

 

(6,970

)

Net income (loss)

 

 

(2,687,807

)

 

 

(2,683,853

)

 

 

(2,483,979

)

 

 

(176,187

)

 

 

5,343,411

 

 

 

(2,688,415

)

Less: net income (loss) attributable to non-controlling interests

 

-

 

 

 

(608

)

 

-

 

 

-

 

 

-

 

 

 

(608

)

Net income (loss) attributable to Yatsen Holding Limited’s shareholders

 

 

(2,687,807

)

 

 

(2,683,245

)

 

 

(2,483,979

)

 

 

(176,187

)

 

 

5,343,411

 

 

 

(2,687,807

)

Accretion to Preferred Shares

 

 

(242,209

)

 

-

 

 

-

 

 

-

 

 

-

 

 

 

(242,209

)

Deemed dividends due to modification of Preferred Shares

 

 

(1,054,220

)

 

-

 

 

-

 

 

-

 

 

-

 

 

 

(1,054,220

)

Net income (loss) attributable to ordinary shareholders of Yatsen Holding Limited

 

 

(3,984,236

)

 

 

(2,683,245

)

 

 

(2,483,979

)

 

 

(176,187

)

 

 

5,343,411

 

 

 

(3,984,236

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Year Ended December 31, 2019

 

 

 

Yatsen

Holding

Limited

 

 

Other

Subsidiaries

 

 

Primary

Beneficiary of VIE

 

 

VIE and

VIE’s

Subsidiaries

 

 

Eliminating

adjustments

 

 

Consolidated

Totals

 

 

 

 

 

 

 

RMB

 

 

 

 

 

 

 

(In thousands)

 

Third-party revenues

 

-

 

 

-

 

 

 

2,782,512

 

 

 

248,655

 

 

-

 

 

 

3,031,167

 

Inter-company revenues(1)

 

-

 

 

-

 

 

 

143,802

 

 

 

2,730

 

 

 

(146,532

)

 

-

 

Third-party costs and expenses

 

-

 

 

 

(1,137

)

 

 

(2,770,699

)

 

 

(115,570

)

 

-

 

 

 

(2,887,406

)

Inter-company costs and expense

 

-

 

 

-

 

 

 

(2,730

)

 

 

(143,802

)

 

 

146,532

 

 

-

 

Income (loss) from subsidiaries and VIE

 

 

72,340

 

 

 

72,413

 

 

 

(15,066

)

 

-

 

 

 

(129,687

)

 

-

 

Income (loss) from non-operations

 

 

3,019

 

 

 

1,064

 

 

 

(538

)

 

 

29

 

 

-

 

 

 

3,574

 

Income (loss) before income tax expenses

 

 

75,359

 

 

 

72,340

 

 

 

137,281

 

 

 

(7,958

)

 

 

(129,687

)

 

 

147,335

 

Income tax (expenses) benefit

 

-

 

 

-

 

 

 

(64,868

)

 

 

(7,108

)

 

-

 

 

 

(71,976

)

Net income (loss)

 

 

75,359

 

 

 

72,340

 

 

 

72,413

 

 

 

(15,066

)

 

 

(129,687

)

 

 

75,359

 

Net income (loss) attributable to Yatsen Holding Limited’s shareholders

 

 

75,359

 

 

 

72,340

 

 

 

72,413

 

 

 

(15,066

)

 

 

(129,687

)

 

 

75,359

 

Accretion to Preferred Shares

 

 

(59,200

)

 

-

 

 

-

 

 

-

 

 

-

 

 

 

(59,200

)

Deemed dividends due to modification of Preferred Shares

 

 

(61,239

)

 

-

 

 

-

 

 

-

 

 

-

 

 

 

(61,239

)

Net income (loss) attributable to ordinary shareholders of Yatsen Holding Limited

 

 

(45,080

)

 

 

72,340

 

 

 

72,413

 

 

 

(15,066

)

 

 

(129,687

)

 

 

(45,080

)

8


 

 

Selected Condensed Consolidated Balance Sheets Information

 

 

 

As of December 31, 2021

 

 

 

Yatsen

Holding

Limited

 

 

Other

Subsidiaries

 

 

Primary

Beneficiary of VIE

 

 

VIE and

VIE’s

Subsidiaries

 

 

Eliminating

adjustments

 

 

Consolidated Totals

 

 

 

RMB

 

 

 

(In thousands)

 

Cash and cash equivalents

 

 

33,320

 

 

 

2,728,438

 

 

 

348,711

 

 

 

27,539

 

 

-

 

 

 

3,138,008

 

Accounts receivable

 

-

 

 

 

81,947

 

 

 

265,781

 

 

 

8,109

 

 

-

 

 

 

355,837

 

Inventories, net

 

-

 

 

 

212,391

 

 

 

482,364

 

 

 

1,006

 

 

-

 

 

 

695,761

 

Prepayments and other current assets

 

 

2,494

 

 

 

87,734

 

 

 

258,438

 

 

 

17,525

 

 

-

 

 

 

366,191

 

Amounts due from related parties

 

-

 

 

-

 

 

 

60

 

 

-

 

 

-

 

 

 

60

 

Amounts due from Group companies(2)

 

 

6,157,680

 

 

 

14,098

 

 

 

665,483

 

 

-

 

 

 

-6,837,261

 

 

-

 

Investments

 

-

 

 

 

106,081

 

 

 

125,437

 

 

 

118,862

 

 

-

 

 

 

350,380

 

Investments in subsidiaries and VIE(3)

 

-

 

 

 

1,937,743

 

 

-

 

 

-

 

 

 

-1,937,743

 

 

-

 

Property and equipment, net

 

-

 

 

 

5,700

 

 

 

228,508

 

 

 

11,106

 

 

-

 

 

 

245,314

 

Goodwill

 

-

 

 

 

866,163

 

 

 

3,258

 

 

-

 

 

-

 

 

 

869,421

 

Intangible assets, net

 

-

 

 

 

723,681

 

 

 

22,132

 

 

 

38

 

 

-

 

 

 

745,851

 

Deferred tax assets

 

-

 

 

 

2,000

 

 

-

 

 

-

 

 

-

 

 

 

2,000

 

Right-of-use assets, net

 

-

 

 

 

19,268

 

 

 

403,555

 

 

 

143

 

 

-

 

 

 

422,966

 

Other non-current assets

 

-

 

 

 

6,588

 

 

 

73,632

 

 

-

 

 

-

 

 

 

80,220

 

Total assets

 

 

6,193,494

 

 

 

6,791,832

 

 

 

2,877,359

 

 

 

184,328

 

 

 

-8,775,004

 

 

 

7,272,009

 

Accounts payable

 

-

 

 

 

43,998

 

 

 

185,052

 

 

 

11,765

 

 

-

 

 

 

240,815

 

Advances from customers

 

-

 

 

 

5,049

 

 

 

1,369

 

 

 

14,262

 

 

-

 

 

 

20,680

 

Accrued expenses and other liabilities

 

 

19,766

 

 

 

70,010

 

 

 

262,028

 

 

 

18,727

 

 

-

 

 

 

370,531

 

Amounts due to related parties

 

-

 

 

 

217

 

 

 

13,750

 

 

-

 

 

-

 

 

 

13,967

 

Income tax payables

 

-

 

 

 

1,614

 

 

 

14,128

 

 

 

1,005

 

 

-

 

 

 

16,747

 

Lease liabilities due within one year

 

-

 

 

 

5,423

 

 

 

209,346

 

 

 

74

 

 

-

 

 

 

214,843

 

Amounts due to Group companies(2)

 

-

 

 

 

6,637,728