The Group is one of the leading branded skincare products and colour cosmetics enterprises in the PRC where the Group market under the "Marjorie Bertagne" (MB) brand name. The Group is principally engaged in the research, development, manufacture and sale of skincare products and colour cosmetics. The Group sell the Group's "Marjorie Bertagne" (MB) products to the Group's distributors who are responsible for distributing the Group's products in the PRC, Hong Kong and Macau through a sales network of approximately 1,252 points of sales. The Group has developed and promoted the Group's "Marjorie Bertagne" (MB) brand name through a variety of marketing and promotional strategies, such as the promotion of celebrities as the Group's spokespersons, sponsorship of television programmes and advertising campaigns including product launches, press conferences, television commercials, billboard posters, newspapers and magazines.
The Group is one of the few producers in the PRC who can produce hEGF and employ it in the Group's own skincare products. hEGF has proven effective in encouraging human skin growth. The Group's Directors believe that there are three producers currently in the PRC market other than the Group which produce skincare products that contain hEGF. Based on a number of scientific studies such as a report published in Biotechnology & Genetic Engineering Reviews entitled "Applications, and Efficient Large-Scale Production, of Recombinant Human Epidermal Growth Factor" published in July 2001, it was noted that skincare products with hEGF ingredients have the effect of improving human skin cell growth and retarding the skin aging process.
The "Marjorie Bertagne" (MB) brand has two separate lines of skincare products which are targeted at retail and professional markets. The retail line includes the Group's skincare products and targets customers who buy the Group's products in retail outlets such as dedicated counters at department stores, cosmetics shops and specialty stores. This line of products is not used under the direction of professional skincare consultants. The Group launched the Group's professional line of skincare products to the health and beauty salons in March 2005. The professional line also includes the Group's skincare products but targets customers who seek customised skincare treatment services in health and beauty salons. This line of products is normally used under the direction of professional skincare consultants in health and beauty salons which provide customised skincare treatments, such as facial and body treatments. The professional line of products is specifically designed to be used in the health and beauty salons. As advised by the Group's PRC legal advisers, Guangdong Harbour Law Firm, the Group's Directors confirm that the professional skincare consultants are generally not required to obtain any licences and permits in order to provide customised skincare treatments to customers. As advised by the Group's legal advisers as to Hong Kong laws, the professional skincare consultants who provide customised skincare treatments to customers at the health and beauty sales are generally not required to obtain any licenses and permits under the laws of Hong Kong. As the professional skincare consultants are employees of the distributors who run the health and beauty salons, any liability arising out of the skincare treatments undertaken by the professional skincare consultants will be borne by such distributors.
The Group do not sell the Group's "Marjorie Bertagne" (MB) products directly to consumers but rely on the Group's distributors to distribute the Group's products in the PRC, Hong Kong and Macau through a sales network of approximately 1,252 points of sales. These points of sales are segmented into five channels: (i) brand image stores, (ii) dedicated counters in department stores, (iii) cosmetics shops, (iv) specialty stores, and (v) health and beauty salons. As at 30 September 2007, the Group's "Marjorie Bertagne" (MB) products were sold at 208 dedicated counters, five brand image stores, 369 cosmetics shops, 69 specialty shops and 601 health and beauty salons. The Group sold the Group's "Marjorie Bertagne" (MB) products through five distributors in 2004 and 2005, and 16 distributors in 2006. For the Group's "Marjorie Bertagne" (MB) products, all the Group's sales are made directly to the Group's distributors and the Group do not have any wholesale operations. The Group's retail operations are run by the Group's distributors under the Group's supervision. The Group has an understanding on the inventory management of the Group's distributors and points of sales (namely dedicated counters in department stores, brand image stores, cosmetics shops, specialty stores and health and beauty salons) through frequent communication with the Group's distributors and visits some of the points of sales by the Group's sales and marketing team.
The Group has invested in dedicated counters in the department stores and brand image stores which sell the Group's "Marjorie Bertagne" (MB) products and provide health and beauty services using the Group's "Marjorie Bertagne" (MB) products by paying for the design and set up costs. Such dedicated counters and brand image stores are not operated by the Group. Under the distribution agreements with the Group's distributors, the Group retain a degree of control over the dedicated counters and brand image stores and the Group manage the Group's distributors and the dedicated counters and brand image stores operated by these distributors through various measures, including:
(a) Retail pricing. The Group adopt a unified retail pricing policy in the PRC, Hong Kong and Macau with discounts offered to the Group's distributors based on the retail prices set by the Group. No profit sharing arrangements have been made between the Group and the Group's distributors.
(b) Brand image at retail outlets. The Group aim to create a unique image for retail outlets, namely dedicated counters and brand image stores through the use of unified decoration and designs distinctive to the Group's products and brand portfolio.
(c) Dedicated counters and brand image stores location. The Group seek to ensure that there is no over-concentration of dedicated counters and brand image stores within any designated area which may cause material competition among these counters and stores. Any expansion plan such as new store openings and the location of dedicated counters or brand image stores operated by the Group's distributors must be approved by the Group prior to implementation. The Group is not aware of any saturation of the Group's products sold in a particular area or region. The Group also retain control over the closing of existing dedicated counters or brand image stores, even though the Group do not own such counters and stores.
Apart from dedicated counters and brand image stores, points of sales such as cosmetics shops, specialty shops and health and beauty salons are owned by distributors selling the Group's "Marjorie Bertagne" (MB) products and also skincare products and colour cosmetics of other brands. The Group has no control over such points of sales.
The Group's business model is common in the skincare products and colour cosmetics industry in the PRC and has enabled the Group to achieve growth in sales by leveraging economies of scale from the Group's distribution arrangements. The Group's sales are made on an outright and non-recourse basis. The Group pass the title of the Group's products to the Group's distributors when they are delivered to the points of sales.
The Group possess GMPC qualified production facilities which not only surpass the corresponding PRC standards but also meet with the standards of the European Union and the United States. The Group has accumulated significant experience in the production of skincare products and colour cosmetics for the medium to high-end market and mass markets since commencing the Group's skincare products and colour cosmetics business in 2002.
As at the Latest Practicable Date, the Group had developed over 120 skincare products and 10 colour cosmetics under the brand name of "Marjorie Bertagne" (MB). The brand name of "Marjorie Bertagne"(MB) was permanently assigned to Global Chemicals (China), a member of the Parent Group, by the Group's French OEM manufacturer, Cosme-Tech in May 2001, and subsequently transferred to the Group in 2007. For each of the three years ended 31 December 2006 and the six months ended 30 June 2007, the Group's sales of "Marjorie Bertagne"(MB) brand products accounted for approximately 100.0 per cent, 97.6 per cent, 87.6 per cent and 95.1 per cent, respectively, of the Group's total turnover.
As at the Latest Practicable Date, all of the Group's "Marjorie Bertagne" (MB) skincare products contained hEGF. Save for the Group's "Marjorie Bertagne" (MB) skincare products, the Group do not use hEGF in any of the Group's other products. The Group also develop and produce colour cosmetics and personal care products which do not contain hEGF through the Group's in-house product design and development team. These products include toiletries and colour cosmetics under the Group's own private brand names "Face" and "Envita" which are or will be distributed through international retail outlets. The Group commenced sales under the brand name of "Face" in September 2007 and the Group plan to commence sales under the brand name of "Envita" in the first half of 2008.
The Group also plan to sell toiletries, skincare products and colour cosmetics under the brand name of "MB2" which will be launched and sold in hypermarkets and cosmetics shops in the PRC in the second half of 2008. As at the Latest Practicable Date, none of the products developed and produced by the Group under the Group's own private brand names contain hEGF. The Group plan to seek qualified professionals to offer advice and audit the Group's products under the brand names of "Face" and "Envita" so as to ensure that the Group meet all applicable European laws and regulations in connection with the introduction of such skincare products and colour cosmetics. The Group will adopt the same approach when introducing the Group's products to the United Kingdom and U.S. markets.
In addition to manufacturing products under the Group's own brand, the Group is also engaged in the ODM and OEM businesses, under which the Group design and manufacture skincare products, colour cosmetics and toiletries for the Group's ODM and OEM customers in Europe and the United States. In 2005, the Group had spare production capacity and gained the ODM and OEM qualification of the Group's ODM and OEM customers. The Group commenced the Group's ODM and OEM business in June 2005. The products designed and produced by the Group under the Group's ODM and OEM business do not contain hEGF. As part of the Group's ODM and OEM businesses, the Group's customers are served by the Group's own research and development and sourcing teams of technical experts and experienced merchandisers to enable the Group's customers to enjoy the Group's "One-Stop Service" in terms of research, development and production for high quality products at competitive prices. The Group's ODM and OEM customers are mainly international chain stores and pharmacists such as Next. For the two years ended 31 December 2006 and the six months ended 30 June 2007, the Group's top five ODM and OEM customers accounted for approximately 99.6 per cent, 98.3 per cent and 99.3 per cent, respectively, of the Group's ODM and OEM turnover.
The Group's product design and development team is highly experienced in developing designs to meet customers' needs and preferences. The Group's product design team members have average working experience of approximately 5.3 years engaging in the design of colour cosmetics and toiletries gift items for overseas retail networks such as Next
