“We remain focus on addressing short-term challenges from economic pressures while urgently formulating strategic plans to counter the challenges ahead, backed by our solid financial position and capacity to transform and to redevelop”.
This MD&A contains a general background information and summary of the business and financial information of Beshom Holdings Berhad (“BESHOM” or “Company”) and its group of subsidiaries (“BESHOM Group” or “Group”) for the financial year ended 30 April 2024 (“FY2024”). The information provided is in a summary form and does not purport to be complete as of the date of this Annual Report. It is not intended to be and should not be relied upon as advice to shareholders or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered with or without professional advice, when deciding if an investment is appropriate. The MD&A may contain forward-looking statements or opinions including statements regarding our intent, belief or current expectations with respect to BESHOM Group’s business operations, market conditions, and results of operations and financial conditions. Those statements are usually predictive in character; or may be affected by assumptions made or unknown risks and uncertainties; or may differ materially from results ultimately achieved. Given such uncertainties, readers are cautioned and advised not to place undue reliance on forward-looking statements.
The consolidated BESHOM Group operates an integrated business model that includes Multi-Level Marketing (“MLM”), Wholesale, Retail business and complemented by other businesses including manufacturing and, investment and property holding. Our “Hai-O” branding is a household name and continues to act as our key brand ambassador as a trusted traditional health food supplier.
The FY2024 has been challenging for the Group as we continued to rebuild business after the world has navigated through an intense period of change over the past few years. The business environment remained volatile with economic and geopolitical headwinds. We remain focused on addressing short-term challenges from economic pressures while urgently formulating strategic plans to counter the challenges ahead, backed by our solid financial position and capacity to transform and to redevelop.
The resillence of the economy was confronted by continuing threat of inflationary pressures, geopolitical tensions and global trade disruptions. As the core business of the Group is consumer centric, we are directly affected by these inflationary pressures. High inflation affected our business on multiple fronts, which eroded consumer purchasing power, leading to reduced demand and lower sales, while also increasing our operating and production costs.
Against this economy backdrop, the Group recorded revenue of RM151.1 million (FY2023: RM174.2 million) for FY2024, which represents a decline of approximately 13.3%. We experienced a contraction in revenue for all our business segments, with the MLM segment being affected the most. The general economic conditions put pressure on household purchasing power, causing MLM members to moderate their spending, particularly on discreationary products. The Retail segment’s revenue reduced by approximately 11.0% while the sales for the Wholesale segment experienced a marginal reduction in revenue of approximately 2.3%.
The profit before taxation (“PBT”) for FY2024 reduced by RM9.8 million or approximately 40.3% to RM14.5 million (FY2023: RM24.3 million). This decline was influenced by various unfavourable factors, including the drop in revenue, the weakening of Ringgit against other currencies, escalation in product costs, high logistic costs, and the increase in advertising and promotional activities aimed at boosting sales as consumers have increasingly sought greater value in their buying decision. Even though on-going cost optimisation measures were put in place focusing on enhancing operational efficiency, the overall impact was however marginal due to high fixed overheads as compared to the drop in revenue, resulting in cost savings of RM2.0 million.
Our approach to financial and capital management is to maintain a long-term focus to improve our earnings, assets and return on equity through different phases of economic cycles, while balancing with opportunity and sustainability.
Although the operating financial performance of the Group for FY2024 was less encouraging, the financial position of the Group remained strong as of 30 April 2024 with total equity attributable to the owners of the Company amounted to RM310.1 million (FY2023: RM309.7 million), and the net assets (“NA”) per share remained consistent at RM1.03 (FY2023: RM1.03).
Overall, the Group’s financial position is healthy, with the flexibility and capacity to consider new business opportunities.
The Group maintains strong commercial discipline in capital investment decision and working capital management, with an emphasis on investments that will create value for shareholders over time. Recognising the Company’s commitment to provide sustainable returns to the shareholders, the Board of Directors (“Board”) distributed more than 80% of the profits earned for FY2024 in the form of cash dividends, which resulted in the NA per share maintained stable at RM1.03 for FY2024. With sufficient cash reserves and being debt free, the Group is strategically poised to capitalise on any potential opportunities and leverage on any improvements in the trading landscape. The Group operates sustainably, with a net cash position of RM103.7 million as at 30 April 2024 (FY2023: RM95.6 million), comprising financial assets, cash and cash equivalents. The Group endeavours to maintain balance sheet strength and flexibility to take advantage of opportunities that may arise.
Multi-Level Marketing Segment
The Group’s MLM segment operates under Sahajidah Hai-O Marketing Sdn. Bhd. (“SHOM”). SHOM is principally operating in multi-level direct marketing of nutritional food & beverage, wellness, skincare, beauty & cosmetic, personal care and household products. The MLM segment operates through 29 physical locations, including MLM branches, stockists and sales points across Peninsular and East Malaysia, as well as 1 branch in Brunei, complemented by our SHOM digital platform.
Recovery in the MLM segment post COVID-19 has been more challenging than expected. Spending by MLM members continues to adjust due toa volatile monetary regime and inflationary pressures. While MLM members are cutting back spending on discretionary products, they are increasingly looking for products that offer value to mitigate the impact on the shrinkage in purchasing power. In addition, the volatility in foreign exchange rates and rising production, packaging and logistic costs, further compressed the operating margins of the MLM segment.
As a result, the revenue of MLM segment declined by approximately 26.4%, from RM70.7 million in FY2023 to RM52.0 million in FY2024, and recorded a PBT of RM1.5 million (FY2023: RM7.4 million), which represents a drop of approximately 79.7%. The MLM segment’s performance was largely attributed to poor response to the overseas incentive trip by distributors, lower sales margins due to aggressive promotions to clear slow-moving stocks and higher rebates were offered members to promote sales.
For FY2024, despite facing a challenging operating environment, the MLM segment continued to focus on its 3 business pillars, i.e. People, Promotion and Products and at the same time continued with its cost discipline and resource optimisation measures.
Amplifying Strategies for Businesses
In FY2024, retaining members and promoting purchases to members were especially challenging due to rising competitions in the MLM industry, where some market players were offering more attractive incentives and recruitment promotions. While we recognise that increasing incentives might boost member retention in the short term, such a strategy would ultimately compromise business margins and may not be sustainable in the long run. Instead of relying solely on incentives and promotions, the MLM segment focused on equipping our members with training and selling channels to strengthen the sales force.
For FY2024, we introduced a new collaborative program aimed at fostering engagement and idea exchange among distributors. Some of these programs were linked to specific products, such as the Thera series and Nurich Puri-C, to facilitate knowledge and experience sharing among distributors. Additionally, we also include soft skill elements in the collaborative program, such as leadership and motivational topics, to support the personal development of young distributors.
During FY2024, we maintained the tradition of recognising outstanding members at our mega events, such as the Diamond Convention Mega Event and 31st Anniversary Program. In addition, incentive trip was offered to members who qualified with achievement of sales targets to Guang Zhou, China.
In the past, we used to carry out leisure and holiday incentive trips for members and distributors. However, for the financial year under review, we focused on educational / business incentive trip. The trip was not only to reward members for their hard work but also provided opportunities to distributors to enhance their product knowledge. The Thera Business Trip to Guangzhou provided distributors an exclusive experience to visit the factory that manufactures the Thera series of products and the Thera Aesthetic Gallery. During the educational incentive trip campaign, we also took the opportunity to launch a new line of functional and seamless body shaping lingerie which caters for everyday wear, i.e., the Thera Seamless Short Bra, Thera Effy Luxefit Short Bra, Thera Seamless Panty and Thera Wonder Short Girdle, leveraging the established Thera brand name.
On the digital front, we have supported members and distributors in various ways, including providing marketing and content tools such as short videos on YouTube, Reels and TikTok. During the year under review, the MLM segment created a total of 74 short video contents to promote selected products. These videos were uploaded on YouTube, Facebook and Telegram that attracted more than 240,000 views. In addition, we integrated e-SHOM, our exclusive digital marketplace for MLM segment, with TikTok to run limited-time promotions for selected products to create demand tension. Signature product such as the Thera series, we enhanced the landing page to increase visibility and with the objective to convert buying potentials into sales or sale leads. Apart from digital content, our conventional advertising and promotional activities included collaborations with media outfits for brand awareness of Min Kaffe and MinCha at the Jom Heboh Carnival and on Suria FM. The newly launched Min Kaffe Mocha also participated in a movie event where members were offered “Musang King” movie tickets with the purchase of a certain quantity of Min Kaffe Mocha.
In addition, 29 sessions of the Min Kaffe and MinCha On-the-Go Tasting Tours were conducted Nationwide from September to December 2023.
To ensure promotions are more targeted, we have reduced the number of flash sales and focused on promotions for seasonal, thematic and limited-edition products. This approach proved to be more effective given the cautious spending pattern of consumers at large. Additionally, our suppliers supported us with in-kind sponsorship of products, which were used as samples and free gifts distributed to members during events.
The rent-to-own business model was officially rolled out in January 2024, and we are currently working on creating awareness of this program. We shall assess the effectiveness of the rent-to-own model in the coming financial year.
Members Recruitment and Retention
Acknowledging that our membership force is the backbone of the business, we continued to invest resources in member recruitment. For FY2024, we implemented new member recruitment campaigns with special offers to drive both membership growth and retention. New members could join our sales force with a low administrative fee of RM10, which included a purchase entitlement for product with pricing as low as RM1, along with free samples with purchases. This attractive new member program enabled us to recruit approximately 10,000 new members during the year and maintained the total distributor force at approximately 43,000 members as of end of FY2024.
Meanwhile, we offered more consignment stock to stockists that operate e-commerce as part of our retention efforts, which would ease the financial burden of them carrying the stocks themselves. Our member recruitment and retention programs were comprehensive and geographically inclusive, featuring a series of events organised nationwide for branches and outlets, such as Majlis Hari Raya, Make Up & Facial classes, and Min Kaffe MinCha tasting tours.
Products
Members remained cautious with their spending, particularly on non-essential goods in general. To sustain buying interest, we focused on rolling out fast consumable products at competitive pricing which are primarily essential goods. Accordingly, we introduced three (3) new stock-keeping units under the food and beverage category, i.e. Min Kaffe Mocha, Min Kaffe Cappuccino and MinCha Enhanced. Under the Thera series, we launched daily essential products which comprise of the functional and seamless body lingerie for everyday wear. For supplements, we introduced a new nutritional supplement, the Nurich Nutra-I. Additionally, under the lifestyle product category, we launched the Marine Essence Hair Conditioner with an enhanced formula featuring and new packaging.
Cost Management and Resource Optimisation
In addition to various initiatives to drive revenue, the MLM segment has also taken the lead in cost management. We have implemented several cost savings disciplines, including enhancement on inventory control, to promote maintaining an efficient stock level while keeping warehousing costs at an optimal level. On the administrative front, we reviewed and optimised resources to eliminate non-essential administrative and personnel expenses.
WHOLESALE SEGMENT
The Wholesale segment focuses on wholesaling and trading in Chinese medicated tonic and cooking wine, healthcare and nutrition products, general and value herbs, tea and others. The Wholesale segment had a strong performance in FY2023, and continued to be the Group’s best performing business segment in FY2024. The revenue for the Wholesale segment decreased marginally by approximately 2.3% to RM58.3 million (FY2023: RM59.7 million), while PBT for FY2024 is RM8.5 million (FY2023: RM10.7 million) a reduction of RM2.2 million from the last financial year. The revenue achieved by the Wholesale segment for FY2024 was largely impacted by the sales of Chinese medicated tonic and vintage tea. While the sales of vintage tea has improved in FY2024, its contribution was offset by a decrease in sales of Chinese medicated tonic in FY2024. Sales of Chinese medicated tonic was relatively better in FY2023 as consumers purchased more before the price adjustment in the previous financial year. Despite the marginal decrease in revenue, the PBT of the Wholesale segment suffered a higher impact from unfavourable import and logistics costs, as well as the depreciation of Ringgit against other currencies.
Collaborative Marketing and Brand Building
Expected to face a challenging financial year, the Wholesale segment implemented several strategic plans to avert a material decline in revenue. Marketing and promotional activities were ongoing throughout FY2024, at the same time we targeted to manage cost in a more efficient way. Our strategy involved leveraging long-term relationships with business partners to conduct joint promotions and marketing activities. An example of such efforts was promoting product branding and visibility at the outlets and premises of Chinese medical halls, which are our long-term customers, using outdoor billboard display and indoor banners at highly visible spots. Other promotion activities included “gift with purchase” (GWP) offers for selected products in high footfall stores of our business partners, such as AEON in Mid Valley, Shah Alam, and One Utama, Sunshine Mall and at various locations. We also continued to participate in events, roadshows and exhibitions organised by business partners or product owners. Notable events included Jom Heboh in Shah Alam, Penang and Johor Bahru for Vinut line of products, the Malaysia Health & Wellness Fair at Mid Valley Exhibition Centre, Mid Valley Southkey, the 3rd Chinese and Malaysia Cooking Awards function and the 2nd Traditional Wear function dinner. We also participated in COEX Food Week in Incheon, Korea.
On top of the above, we organised several events to sustain branding awareness, such as the “2024 A Night with Golden Bell Wu Chia Pi” held at the Genting International Convention Centre. During the event, we awarded the Top 10 outstanding wholesalers for their commitment and contributions, recognising the year for achieving a total sales of approximately RM5.5 million for Wu Chia Pi Chiew. We also hosted various wine and dine events to promote our range of products, including Japanese Whisky Night for the Kurayoshi series, Wine Tasting Soiree under the Domaine Sauvete series and Japanese Whisky Night under the Mitsui series.
In addition, online marketing platforms were actively deployed to promote our products throughout the financial year, with regular postings on Facebook, Instagram, YouTube and our official website https://mall.hai-o.com.my. On average, we uploaded more than seven posts per week to increase brand and product awareness. Special promotions with festive themes were bundled with social media postings to increase customer engagement, e.g. Mother’s Day Giveaway, 11.11 Giveaway, Hai-O 49th Anniversary Celebration and Chinese New Year Lucky Draws and many other online promotions. To enhance interactive connection with customers, social media influencers or Key Opinion Leaders (KOLs) were engaged to promote our products. During the FY2024, the Vinut line of products which is an on-the-go ready-to-consume bird nest health beverage, was actively promoted through KOLs, targeting young consumers with an active and on-the-go lifestyle.
Product Strategy & Sustainability
In FY2024, there was no major progress in respect of product development due to unpredictable market conditions and the
pricing of the products continued to be affected by high shipping costs. We experienced an increase in shipping cost for some of the products imported from China. We expect the shipping costs will continue to escalate until geopolitical tension subside. As our margins for some of the products were severely affected arising from the increase in logistics costs, we have two price adjustments for the medicated tonic, cooking wine and some food products during FY2024. To mitigate cost escalation risk, we explored promoting substitute products or sub-line products to sustain the sales of similar products under the same category.
To complement the sustainability of buying interest, we continued to implement rebranding and repackaging strategy to refresh the product image. The rebranding campaigns carried out throughout the year for selected products include Lingzhi Chiew, Yang Seng Chiew, Wincarnis, Hua Diao and Osami Umeshu Plum Wine.
In terms of cost optimization initiatives, the Wholesale segment had also played its part and implemented an enhanced warehousing system that improved logistics management, which reduces processing time and minimise stock variances. Our SAP ordering portal was fully integrated and went live during the year. With increased technology adoption in our administrative functions, many processes have become paperless, including approval process, minutes keeping, and hardcopy bookkeeping for
invoices and sale orders.
RETAIL SEGMENT
The Retail segment is one of the Group’s core businesses. The main subsidiary operating in the Retail business is Hai-O Raya Bhd. As at the date of this Annual Report, the Retail segment has 54 retail chain stores and franchises primarily located in the Klang Valley, with a foothold in all major states in Malaysia.
The Retail segment has faced persistent challenges due to evolving consumer buying behaviour over the past few years, and posted a revenue of RM34.7 million (FY2023: RM39.0 million) and a PBT of RM0.5 million (FY2023: RM2.8 million) for FY2024. Despite the removal of COVID-19 restrictions, footfall to retail outlets has not improved significantly, as the public is generally feeling the impact of high interest rate and is avoiding spending on premium health supplement products. Contributions from house brand products, including Honbo Green Propolis – Brazil and Hai-O Cordyceps Capsules, declined by approximately 15% as consumers reduced consumption of these products with the normalcy post COVID-19. While supplements are vital for general health, there has been a noticeable shift in consumer spending towards essential goods and services.
The Retail segment’s topline revenue was affected by weak consumer spending. However, profitability of the segment was nonetheless mainly affected by high operating cost, comprising rental for retail outlets, utilities and staff costs.
For FY2024, the Retail segment focused on creating more attractive promotions for customers to visit and spend time in our retail outlets. Recognising the financial pressures many Malaysians are experiencing, we have continued to introduce value-focused products to support our customers to save on everyday expenses without compromising their wellbeing. Hence, product promotions were implemented throughout the financial year to drive sales.
We continuously enhance our e-commerce platforms to meet the on-going needs of our customers. The prevalence of online purchasing has remained a key priority for the Retail segment, prompting ongoing investment in our digital infrastructure and social media presence. Various online promotions have positioned us in good stead to withstand current challenges affecting discretionary retail. For FY2024, sales from e-commerce platforms increased by approximately 17.6% to RM1.2 million. Apart from our Hai-O eStore, collaborations with online marketplaces such as Lazada and Shopee have also contributed to a steady increase in online sales.
OTHER OPERATING ACTIVITIES
Our Group’s other operating activities include investment in properties which derive revenue from rental income and the manufacturing of traditional Chinese medicines and food supplements. The Group registered higher PBT of RM4.0 million, an increase of approximately 17.6% mainly attributed to cost optimisation measures carried out which resulted in lower operating costs coupled with a gain in disposal of investment properties amounting to RM0.3 million, despite manufacturing division operated at a loss of RM1.1 million due to lower demand from MLM and Retail segments.
The global economy continues to expand amid resilient labour markets and continued recovery in global trade. Looking ahead, global growth is expected to be sustained, as headwinds from tight monetary policy and reduced fiscal support will be cushioned by positive labour market conditions and moderating inflation. Global trade continues to strengthen as the global tech upcycle gains momentum. Global headline and core inflation continued to edge downwards in recent months with some central banks commencing monetary policy easing. The growth outlook remains subject to downside risks, mainly from further escalation of geopolitical tensions, higher-than-anticipated inflation outturns, and volatility in global financial markets.
For the Malaysian economy, the latest indicators point towards
sustained strength in economic activity in the second quarter of 2024, driven by resilient domestic expenditure and better export
performance. Going forward, exports are expected to be further lifted by the global tech upcycle given Malaysia’s position in the
semiconductor supply chain, as well as continued strength in nonelectrical and electronics goods. Tourist arrivals and spending are also poised to rise further. Continued employment and wage growth, as well as policy measures, will continue to support household spending.
(Source: Monetary Policy Statement by BNM dated 11 July 2024)
The favourable economic conditions in 2024 provide a window for the implementation of structural reforms as announced by the Government. Pursuing these reforms, such as subsidy rationalisation, is necessary for strengthening the economy post-crisis, ultimately benefitting Malaysia in the long run. As the domestic policies related to subsidies and price controls undergo review and potential adjustments, they would affect the inflation path going forward.
Beyond domestic policies, there could also be global headwinds and emerging challenges that may pose risks to Malaysia’s economic outlook.
(Source: Bank Negara Malaysia Annual Report 2023)
Going forward, the upside risk to inflation would be dependent on the extent of spillover effects of further domestic policy measures on subsidies and price controls to broader price trends, as well as global commodity prices and financial market developments. For the year as a whole, headline and core inflation are expected to average within the earlier projected ranges of 2.0% - 3.5% and 2.0% - 3.0% respectively.
BNM will continue to manage risks arising from heightened financial market volatility. Over the medium term, domestic structural reforms will provide more enduring support to the ringgit.
(Source: Monetary Policy Statement by BNM dated 11 July 2024)
Uncertainties surrounding the inflation rate in the United States and China's growth will continue to linger, while geopolitical tensions and political transitions could result in another bumpy year globally. The operating landscape is characterised by a range of conflicting forces. Although economic activity and inflationary pressure have broadly moderated domestically in the immediate term, a range of economic outcomes remain possible with the implementation of structural reforms by the Malaysian Government.
For the coming financial year, the retail sector is expected to face challenges due to the increase in the sales and service tax (SST) to 8%, weak consumer spending, elevated inflation, and fuel subsidy rationalisation. However, these challenges may be partially offset by anticipated pay rise for civil servants and the return of international tourists. In the post- COVID-19 world, significant transformations in economic activity, demographics, and lifestyles are underway, alongside with other changes in reshaping the retail landscape, and impacting the demand and supply dynamics. With the rise of "longevity economy", driven by ageing populations and longer-life expectancies, we continue to believe there are opportunities in the space where we operate, given the increase in demand for health and wellness-related products. Nonetheless, competition in this sector remains intense and crowded.
We are learning from our past experiences and are committed to strengthening our organisational capacity for continuous improvement and to fundamentally realign our business strategies and operations to ensure long-term sustainability.
As we progress into the financial year ending 2025 (“FY2025”), transformational strategic measures are at the forefront of our priority. More immediately, in FY2025, management will focus on enhancing members recruitment and retention programs for the MLM segment to strengthen the distributors base and will continuously refine strategies and promotion campaigns from time to time to improve and drive business momentum. We began exploring international expansion initiatives in FY2024 and will continue to take effort to expand the Group's presence beyond the local market. To support members spending, we have put in place flexi-payment plan or “buy now pay later” system to cater for the needs and demand of the market. We have recently sealed an agreement with Atome for this initiative and will continue to explore more payment alternatives to provide payment flexibilities for consumers.
On the Retail front, subscription model as an alternative retailing channel is being introduced. Subscription models are increasingly prevalent across industries. To nurture recurring spending by consumers and harness products loyalty, we planto roll out subscription program for products which are regularly consumed by customers such as ready-to-drink bird nest, cordyceps capsules and Bai Feng Wan. This model benefit both our Company and customers, providing convenience for automatically repurchasing and ensuring recurring revenue for the business. Through subscription model, personalisation may enhance standard of engagement between the customers and us, as subscription plan may tailor to the customer’s individual needs.
Our conservative balance sheet underpins our business sustainability, which provides flexibility to navigate uncertainty and support our stakeholders while delivering sustainable returns. We will continue to invest in our business and execute on our strategy to generate returns to our stakeholders. To reinforce our capability to transform and redevelop, we plan to partner with dynamic startup companies that possess retail technology innovations and technical talent to enhance the Group’s market positioning and strengthen our digital support. Through the partnership collaborations, we expect to expand our markets, enhance our brand image, and maintain our competitive edge in a rapidly changing market environment.
In closing, on behalf of the Board, I would like to acknowledge all members of the BESHOM Group team for their commitment to serving our customers throughout FY2024 and their loyalty. I would also like to extend my gratitude to my fellow Board members for their wise counsel and insights over the course of FY2024 against a backdrop of significant uncertainty.
To our customers, suppliers and authorities, we humbly thank you for your continued trust and support. Lastly, we appreciate our shareholders for your confidence in the future direction of our business.
Tan Keng Kang
Group Managing Director