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Dear shareholders:

In the first half of 2022, given the unexpected factors such as the rapid spread of Omicron variant in the country and the complex and volatile international situation, the downward pressure on the domestic economy increased. According to the national economic operation data released by the National Bureau of Statistics on 15 July 2022, the GDP of China increased by 2.5% compared with the same period last year, showing a slower growth for the first half of the year. In the consumer market, the total retail sales of consumer goods in China in the first half of 2022 decreased by 0.7% compared with the same period last year, indicating low consumer confidence and suppressed consumption willingness.

Scattered, widely spread and frequent outbreaks characterised the epidemic of China in the first half of the year. Beijing, Shanghai, Shandong, Shaanxi, Jilin and other places adopted strict measures to contain the situation, which affected the Group's production, distribution, and sales to a considerable extent. As for production, during the period between the end of April to mid-June 2022, the  Group's  Fangshan production base was suspended for a long period of 53 days in accordance with the local epidemic prevention and control requirements, which caused certain pressure on  the output of therapeutic teas, the key products of  Besunyen, and led to a decline in revenue from related products in the short term. Zhongshan Wanhan Pharmacy Co., Ltd., Zhongshan Wanyuan New Medicine Research and Development Co., Ltd. and Henan Xueyinghua Pharmaceutical Co., Ltd. under the Group were also affected to varying degrees. At present, the  production bases of the Group  above have resumed normal production and operation according to the local resumption policies. Regarding logistics, disruption to cross-regional transport caused interruption in logistics, resulting in the inability to deliver the products of the Group to terminals in a timely  manner and exposing the Group to the backlog of goods and other related risks. Interruption in courier services in some regions also had a certain impact on the Group's online business. To ensure delivery, the Group closely monitored the development of the pandemic, adjusted its logistics providers in a timely manner, and selected courier services with better timeliness, which led to a higher logistics cost while digesting the backlogs. As for marketing and sales, due to the travel restrictions imposed during outbreaks, the normal operation of the Group’s offline business was impacted to a certain extent. In this regard, the offline sales team of the Group actively linked up with O2O  platforms to try out the “online + offline” dual sales model and carried out live streaming and other activities on distributors' platforms.

Due to market changes and price competition, the overall sales scale of Orlistat products decreased, and the sales scale and income level of the Group's Orlistat-related products all fell significantly as  compared with the same period last year. As such, the Group optimised the cost of Orlistat and compressed marketing and promotion expenses on the one hand while adopting a sustainable pricing mechanism to maintain the market position of its key products on the other. However, the smaller sales scale and the offset policies of  platforms led to a decline in the profit level of Orlistat-related products.

Affected by the unfavourable factors above, in the first half of 2022,  revenue of the Group amounted to RMB460.1 million, representing a decrease of 31.4% compared with the same period last year, of which revenue from the “Three Teas” (Detox Tea, Slimming Tea and Fit Tea)  amounted to RMB161.0 million, representing a decrease of 21.6% compared with the same period last year, and revenue from weight-loss  medicines amounted to RMB134.4 million, representing a decrease of 52.9% compared with the same period last year. To this end, the Group adhered to a sound operating strategy, focused on improving corporate management, and reasonably compressed operating costs by optimising its organisational structure, adjusting the principal place of business, and reducing advertising expenses in the short term. Meanwhile, the Group continued to explore new business growth drivers and made attempts in New Retail, cross-border e-commerce, and sales of Xueyinghua products proactively. However, the projects are still in the initial stage of development and there is room for further deepening and expansion.



    The Group has a well-established offline sales network and maintains its advantage in terms of channels in the offline market by continuously strengthening the building of its sales team. In the first half of 2022, on the principle of “top-down, flat and efficient management approach”, the OTC Business Division  optimised  and  adjusted the organisational structure and market segmentation, whereby the nine major battlefields were reorganised into three working groups and  the development of end  market was enhanced. As a result, it was able to obtain the front-line information quickly. The OTC Business Division also adjusted the  sales strategy in real time, and completed the management of product batch numbers. For the channel expansion, while deepening the cooperative and symbiotic relationship with the NKA (National Key-Account) chain and the LKA (Local Key-Account) chain, the Group was attentive to regional small and medium-sized chains and single stores. Through the refined management, the Group strived to extend the offline market coverage to achieve sales goal.


    In the first half of 2022, the E-commerce Business Division continued to deepen its matrix organisational and management structure. Focusing on the three business lines, namely, the “Four Teas” (Detox Tea, Slimming Tea, Fit Tea and Relief Tea), medicines and new products, the E-commerce Business Division coordinated and  deployed the marketing strategies for each e-commerce platform, store and business unit, devised the layout of each product line and formulated a uniform pricing mechanism. The E-commerce Business Division carried out the refined management of marketing and sales expenses, and paid attention to operating results and avoiding internal competition. Good results had been achieved in the “3 • 18”, “6 • 18” and other e-commerce festival activities held in the first half year. At the same time, the E-commerce Business Division kept on strengthening the talent training and professional development of the four general platforms: live-streaming platform, member platform, content platform and promotion platform, providing multi-dimensional support for its business operations.


    As short video and live-streaming marketing are becoming more and more popular, in order to cater to this new development trend, the Group established Kuaishou Business Division in the first half of 2022. With the historical origin and good reputation of Besunyen products, as well as the strategic partnership between the  Group and Kuaishou platform, Besunyen therapeutic teas quickly gained the attention of the KOLs of such platform. The cooperation with Kuaishou platform increased the product exposure effectively. Not only the number of supporters is rising continuously, new customers has also been flowed to the store.


    The Group is committed to the big health industry and the conveyance of health idea to the public. The Spring Festival coincided with the Beijing Winter Olympics in 2022. Through the video of new-year wishes by the Olympic champions, the Group conveyed the brand idea of “healthy living and green exercise”, which has  brought a high social communication flow to Besunyen. On brand rejuvenation, the “Youth Campus” remains to be the focus of the Group, and the Group establishes emotional links with the younger group, builds a good reputation and cultivates long-term potential customers by penetrating into the life scenarios of the younger generation. Till the first half of 2022, Besunyen has joined hands with the “Academy Award” for 14 years and continued to meet over a million students, unceasingly absorbing fresh and young creative vitality.


    With a view to consolidating the position of the Group’s products in the market, in the  first half of 2022, the Group continued to implement the “One Focus and Two Dimensions” product strategy in terms of research and development, focusing on the two major healthcare functional areas, namely “weight loss and weight management” and “laxative and gastrointestinal health”, and pushed forward the research and development of a variety of new products as planned. The research and development centre focused on the maintenance of the existing health food approvals. According to the latest regulations and policies, it further improved  product  safety and quality by strengthening experimental research, optimising process parameters, improving product technology, standardising product descriptions, etc. The Group has obtained approvals for a number of products during the first half year.


    Over the years, the Group has been actively fulfilling its social responsibilities and pursuing the concept of sustainable development. It partnered with Beijing Charity Association to establish the “Besunyen Special Charity Fund” for public welfare undertakings, including carrying out social assistance activities, providing support to the underprivileged and playing a supplementary role in social security. Meanwhile, it has made several donations to China Green Carbon Foundation and Beijing Green Sunshine Environmental Protection Public Welfare Foundation, contributing to the maintenance of ecological balance and ecological security. The Group has been awarded the “China Social Responsibility Public Welfare Charity Award” and “China Corporate Social Responsibility — Best Charity Demonstration Award” for many times.


    On 27 April 2022, the State Council issued the “14th Five-Year Plan for National Health”, the promulgation of which reflects the Chinese government’s emphasis on the safety and physical health of people, and also provides an important guidance for the future development of the big health industry.

    At present, both challenges and opportunities exist in the big health industry, and there is still ample room for the development of the market of “weight loss and weight management”. According to the Dietary Guidelines for Chinese Residents (2022), over half (50.7%) of Chinese adult residents are overweight or obese, and the resulting problems of cardiovascular, respiratory, endocrine and other multi-system diseases have become increasingly serious. To date, a large number of new medicines related to “weight loss and weight management” have not been approved in China, and Orlistat is still the dominant product with high safety and obvious efficacy in the weight-loss medicine market. According to the statistics of Alibaba “Business Consultant”, in the first half of 2022, the aggregate market share of Besunyen Orlistat and LARLLY Orlistat was 28.0%, retaining the number one spot in the market segment of Orlistat on Alibaba’s e-commerce platforms.

    In respect of therapeutic teas, the Group also maintained its leading market position. According to the latest report issued by National Medical Products Administration Southern Medicine Economic Research Institute (“SMERI”), in 2021, based on the retail prices of products with laxative function and weight-loss function in retail pharmacies across the country, the market share of the Group's Besunyen Slimming Tea and Besunyen Detox Tea were 22.7% and 12.7% respectively, staying at the forefront in the market.

    Looking forward to the second half of the year, in the face of various unfavourable factors such as the possible recurrence of the pandemic, the time required for consumption recovery and the increasingly fierce market competition, the Group will follow the general work principle of “making progress while maintaining stability”. While continuing to cultivate the sectors of “weight loss and weight management” as well as “laxative and gastrointestinal health”, the Group will focus on investment in research and development to grasp the market development trend and meet the consumption needs of the young generation, thereby enhancing the competitiveness of the products of Besunyen. Meanwhile, the Group will strive to create new growth momentum for the Group by expanding its multi-channel deployment, refining offline operation while innovating e-commerce business and exploring New Retail business. As a domestic brand focusing on the health industry for twenty-two years, the Group will also increase its efforts in brand building and enhance the brand awareness and social influence of Besunyen through scene-based marketing, social communication and rejuvenation. The Group will pay close attention to the ever-changing market and consumption needs, continue to carry out product development and brand building, and explore the big data resources accumulated in years of operation and customer service, in a bid to support performance growth and gradually create the big health ecosystem of Besunyen for meeting the ever-growing national needs for health.

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Chairman and CEO
Zhao Yihong

Hong Kong, 17 August 2022

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