Yatsen Holding Ltd.

Company Overview

Business Model: Yatsen Holding Limited is a Cayman Islands holding company that operates as a China-based beauty group, primarily through its PRC subsidiaries and a Variable Interest Entity (VIE). The company focuses on developing and marketing a diverse portfolio of beauty brands, including Perfect Diary, Little Ondine, Pink Bear (Color Cosmetics Brands), and Galénic, DR.WU (mainland China business), Eve Lom, EANTiM (Skincare Brands). Yatsen employs a "direct-to-KOL" social marketing model and an omni-channel distribution strategy, leveraging both online platforms and offline experience stores. A five-year strategic transformation plan, initiated in early 2022, emphasizes growth in Skincare Brands, repositioning of Color Cosmetics, increased R&D investment, and cost optimization.

Market Position: Yatsen Holding Limited holds a significant market position in China's beauty industry. Perfect Diary is recognized as a leading color cosmetics brand in China by retail sales value. DR.WU (mainland China business) was honored as Asia’s Leading Mandelic Acid Skincare Brand by Euromonitor in 2023. Galénic's N°1 Poudre Vitamin C Pure Eclaircissante won the Essence of the Year Award at the Bazaar Beauty Awards 2024, and Pink Bear received the Beauty Reputation List by Sina Beauty in 2024.

Recent Strategic Developments:

• Strategic Transformation: Launched a five-year plan in early 2022 to pivot towards Skincare Brands, reshape Color Cosmetics, boost R&D, and cut costs. This led to Skincare Brands' revenue contribution increasing to 41.1% in 2024.
• Brand Portfolio Management: Phased out the Abby's Choice brand in 2023 and repositioned Perfect Diary with the launch of the Biolip Essence Lipstick, which became a top-selling lipstick on e-commerce platforms in 2024.
• R&D and Manufacturing Expansion: Commenced operations of a 66,462-square-meter manufacturing and R&D hub in Guangzhou in partnership with Cosmax in August 2023. Inaugurated a global innovation R&D center in Shanghai in May 2024 and a 683-square-meter facility for Galénic in France in February 2023.
• Share Repurchase Program: The board authorized a share repurchase program, initially for up to US$100.0 million, which was subsequently increased to US$200.0 million and extended to November 19, 2025. As of February 28, 2025, 39,781,505 ADSs had been repurchased for US$199.9 million.

Geographic Footprint: Yatsen Holding Limited conducts substantially all its operations in mainland China through its PRC subsidiaries and the VIE. Its principal executive offices are located in Guangzhou, PRC. The company maintains R&D centers in Guangzhou and Shanghai, China, and a facility for its Galénic brand in France. Distribution is supported by 13 warehouses across three cities in China and one city overseas. As of December 31, 2024, Yatsen operated 88 experience stores in 28 cities in mainland China.

Cross-Border Operations: Yatsen Holding Limited is a Cayman Islands-incorporated holding company with Yatsen (HK) Limited in Hong Kong and various PRC subsidiaries. Its operations in China are partly conducted through Huizhi Weimei (Guangzhou) Trading Co., Ltd., a VIE, which holds critical assets like Weixin public accounts and mini-programs. The company's brand portfolio includes internationally acquired brands such as Galénic (France-founded), DR.WU (mainland China business acquired), and Eve Lom. Galénic products are sold in Asia and Europe. The company is subject to PRC legal and regulatory frameworks, including those governing foreign ownership, cybersecurity, data privacy, and overseas listings, as well as potential risks related to PCAOB inspection access.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Gross Margin: 77.1% (2024) compared to 73.6% (2023) and 68.0% (2022).
• Operating Margin: -24.3% (2024) compared to -26.7% (2023) and -25.0% (2022).
• Net Margin: -20.9% (2024) compared to -22.0% (2023) and -22.2% (2022).

Investment in Growth:

• R&D Expenditure: RMB109,287 (US$15,000) in 2024, representing 3.2% of net revenues (compared to RMB111,698 or 3.3% in 2023).
• Capital Expenditures: RMB57,000 (US$7,800) in 2024 (compared to RMB44,000 in 2023).
• Strategic Investments: Purchases of short-term investments amounted to RMB1,320,000 (US$180,300) in 2024, and equity investments were RMB42,000 (US$5,800) in 2024.

Currency Impact Analysis:

• Foreign exchange (loss) gain: The company reported a foreign currency exchange loss of RMB20,399 (US$2,795) in 2024, compared to a gain of RMB7,218 in 2023 and a loss of RMB35,357 in 2022.
• Hedging strategies and effectiveness: Yatsen Holding Limited states it does not believe it currently has significant direct foreign exchange risk and has not used derivative financial instruments to hedge this risk.
• Functional currency considerations: Substantially all revenues and expenses are denominated in Renminbi. The value of investments in American Depositary Shares will be affected by the exchange rate between the U.S. dollar and Renminbi.

Business Segment Analysis

Color Cosmetics Brands

Financial Performance:

• Revenue: RMB1,968,350 (US$269,663) in 2024, a decrease of 0.3% year-over-year from RMB1,973,726 in 2023. This segment contributed 58.0% of total net revenues in 2024.
• Operating Margin: The segment reported a loss from operations of (RMB185,419) in 2024.
• Key Growth Drivers: The repositioning of the Perfect Diary brand and the launch of products like the Biolip Essence Lipstick, which became a top-selling lipstick on e-commerce platforms in 2024, are key drivers.

Product Portfolio:

• Major product lines and services within segment: Perfect Diary (mass to mid-end, targets Gen-Z and millennials), Little Ondine (targets women aged 20-29 in Tier 1 and Tier 2 cities), and Pink Bear (targets teens and young adults, lower mass-market).
• New product launches or major updates: The 2nd-generation Perfect Diary Biolip Essence Lipstick launched in September 2024.
• Popular products include Perfect Diary Biolip Essence Lipstick, Little Ondine Sculptor Liquid Contour and Highlighter, and Pink Bear Sugar Glossy Lipstick.

Market Dynamics:

• Competitive positioning within segment: Perfect Diary is a leading color cosmetics brand in China by retail sales value. Pink Bear won the Beauty Reputation List by Sina Beauty in 2024.
• Key customer types and regional market trends: Focus on younger demographics (Gen-Z, millennials, teens) in China.
• Regulatory environment by jurisdiction: Subject to PRC regulations for cosmetic products.

Geographic Revenue Distribution:

• Mainland China: This segment primarily generates revenue from mainland China. No specific regional breakdown is provided.

Skincare Brands

Financial Performance:

• Revenue: RMB1,393,259 (US$190,876) in 2024, an increase of 0.7% year-over-year from RMB1,383,578 in 2023. This segment's contribution to total net revenues increased to 41.1% in 2024, up from 40.5% in 2023 and 33.5% in 2022, reflecting the company's strategic shift.
• Operating Margin: The segment reported a loss from operations of (RMB448,719) in 2024.
• Key Growth Drivers: The company's strategic transformation plan, which prioritizes the growth of Skincare Brands, is the primary factor driving segment performance.

Product Portfolio:

• Major product lines and services within segment: Galénic (founded in France, sold in Asia and Europe), DR.WU (mainland China business, acquired January 2021), Eve Lom (acquired March 2021), and EANTiM (acquired October 2021).
• New product launches or major updates: Galénic N°1 Poudre Vitamin C Pure Eclaircissante serum.
• Popular products include Galénic N°1 Poudre Vitamine C Pure Eclaircissante serum, DR.WU Intensive Renewal Serum with Mandelic Acid, and Eve Lom Cleanser.

Market Dynamics:

• Competitive positioning within segment: DR.WU was honored as Asia’s Leading Mandelic Acid Skincare Brand by Euromonitor in 2023. Galénic N°1 Poudre Vitamin C Pure Eclaircissante won the Essence of the Year Award at Bazaar Beauty Awards 2024.
• Key customer types and regional market trends: Not specifically detailed, but Galénic has a presence in both Asian and European markets.
• Regulatory environment by jurisdiction: Subject to PRC regulations for cosmetics and medical devices, including Record Filing Certificate for Operation of Class II Medical Devices and Record Filing for Online Sales of Medical Devices.

Geographic Revenue Distribution:

• Mainland China: The primary market for DR.WU (mainland China business) and EANTiM.
• Asia and Europe: Galénic products are sold in these regions.

Others

Financial Performance:

• Revenue: RMB31,805 (US$4,357) in 2024, a decrease of 44.7% year-over-year from RMB57,470 in 2023. This segment contributed 0.9% of total net revenues in 2024.
• Operating Margin: The segment reported an income from operations of RMB6,806 in 2024.
• Key Growth Drivers: Not specified.

International Operations & Geographic Analysis

Revenue by Geography:

International Business Structure:

• Subsidiaries: Yatsen Holding Limited, a Cayman Islands holding company, operates through Yatsen (HK) Limited in Hong Kong and various PRC subsidiaries, including Guangzhou Yatsen Cosmetics Co., Ltd. and Guangzhou Yiyan Cosmetics Co., Ltd.
• Joint Ventures: The company has a joint venture with Cosmax for a manufacturing and R&D hub in Guangzhou. As of December 31, 2024, Yatsen Holding Limited provided financial guarantees of RMB96.6 million (US$13.2 million) to this joint venture for bank loans.
• Licensing Agreements: The acquisition of the mainland China business of DR.WU implies a regional licensing or operational agreement.
• VIE Structure: Huizhi Weimei (Guangzhou) Trading Co., Ltd. (the VIE) is a critical component of the company's operational structure in China, holding assets such as Weixin public accounts and mini-programs. Revenues contributed by the VIE were 4.9% in 2024.

Cross-Border Trade:

• Export Markets: Galénic products are sold in Asia and Europe, indicating international export activities. No other specific export destinations or products are detailed.
• Import Dependencies: While not explicitly detailed, the company's global supply chain architecture with partners like Intercos, HCP, Axilone, and Qiaxing suggests reliance on international sourcing for materials and components.
• Transfer Pricing: Inter-company transactions between the VIE and Guangzhou Yatsen Global Co., Ltd. (WFOE) for inventories, logistics, and promotion are conducted using a cost-plus method for cosmetic products and referencing market prices for services.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: Yatsen Holding Limited repurchased 39,781,505 ADSs for US$199.9 million as of February 28, 2025, under its authorized program. In 2024, RMB405,800 (US$55,600) was used for share repurchases.
• Dividend Payments: The company has not paid dividends. PRC subsidiaries are subject to statutory reserve fund requirements (10% of after-tax profits until 50% of registered capital is reached), which restrict their ability to pay dividends to the holding company.
• Dividend Yield: Not applicable as no dividends are paid.
• Future Capital Return Commitments: The share repurchase program is authorized up to US$200.0 million and extended to November 19, 2025. Approximately US$0.1 million of ADSs remained available for repurchase as of December 31, 2024.

Balance Sheet Position:

• Cash and Equivalents: RMB817,395 (US$111,983) as of December 31, 2024.
• Total Debt: Not explicitly disclosed as a consolidated figure.
• Net Cash Position: The company held RMB817,395 (US$111,983) in cash, cash equivalents, and restricted cash, along with RMB539,100 (US$73,900) in short-term investments as of December 31, 2024.
• Credit Rating: Not disclosed.
• Debt Maturity Profile: Not disclosed.

Cash Flow Generation:

• Operating Cash Flow: The company reported negative operating cash flow of (RMB243,666) (US$33,382) in 2024, following negative operating cash flow of (RMB107,442) in 2023, and positive RMB136,208 in 2022.
• Free Cash Flow: Not explicitly calculated, but the negative operating cash flow indicates a reliance on investing or financing activities for liquidity.
• Cash Conversion Metrics: Not explicitly detailed.

Currency Management:

• Cash holdings by major currencies: As of December 31, 2024, 34.4% of cash, cash equivalents, and restricted cash were denominated in Renminbi.
• Natural hedging through operational diversification: Not explicitly mentioned.
• Financial hedging instruments and strategies: The company has not used derivative financial instruments to manage foreign currency exchange risk.

Operational Excellence

Production & Service Model: Yatsen Holding Limited primarily operates an asset-light model, leveraging partnerships for manufacturing and logistics. Its production strategy involves collaborations with leading manufacturers like Cosmax and Intercos. The company's service delivery model is omni-channel, combining extensive online presence with a network of offline experience stores in mainland China. Customer service centers operate daily with both in-house employees and third-party providers. The operational philosophy is guided by a strategic transformation plan focused on R&D investment and cost optimization.

Global Supply Chain Architecture: Key Suppliers & Partners:

• Manufacturing Partners: Cosmax (for the Guangzhou manufacturing and R&D hub), Intercos, and Shanghai Zhenchen.
• Packaging Suppliers: HCP, Axilone, and Qiaxing.
• Logistics Partners: SF Express and other third-party logistics providers.

Facility Network:

• Manufacturing: A 66,462-square-meter manufacturing and R&D hub with Cosmax in Guangzhou, which commenced operations in August 2023.
• Research & Development: A 1,977-square-meter R&D center in Guangzhou, a 3,819-square-meter office/R&D center and a 324-square-meter joint laboratory with Ruijin Hospital in Shanghai, and a 683-square-meter facility for Galénic in France that commenced operations in February 2023.
• Distribution: The company utilizes 2,768 square meters of leased warehouses in Guangzhou and operates through 13 warehouses across three cities in China and one city overseas.

Operational Metrics:

• Fulfilment expenses as a percentage of net revenues decreased from 6.7% in 2023 to 6.4% in 2024, indicating improved logistics efficiency.
• The Guangzhou R&D Center was certified by the China National Accreditation Service for Conformity Assessment in June 2022.
• Efficacy of Perfect Diary Biolip Essence Lipstick was validated by Ruijin Hospital and SGS.

Market Access & Customer Relationships

Go-to-Market Strategy: Yatsen Holding Limited employs a comprehensive omni-channel strategy to reach its customers. Distribution Channels:

• Direct Sales: The company maintains direct customer relationships through its online platforms and a network of offline experience stores.
• Channel Partners: Extensive online presence through major e-commerce platforms including JD.com, Tmall, RedNote, Vipshop, Weixin, Pinduoduo, Douyin, Kuaishou, and Dewu. Sales to distributor customers accounted for 16.9% of total net revenues in 2024.
• Digital Platforms: The VIE holds critical assets such as Weixin public accounts and mini-programs, which are integral to the company's digital sales and marketing efforts.

Customer Portfolio: Enterprise Customers: Sales to distributor customers represent a significant portion of revenue, indicating business-to-business relationships. Strategic Partnerships: Yatsen Holding Limited engages in IP-based marketing partnerships with global entities such as the Metropolitan Museum of Art, The British Museum, Disney, and Sanrio. The company also leverages celebrity brand ambassadors like Xun Zhou, Lusi Zhao, and Liying Zhao. Customer Concentration: Not disclosed.

Regional Market Penetration:

• Mainland China: As of December 31, 2024, the company operated 88 experience stores across 28 cities in mainland China, demonstrating significant physical retail presence, though this number decreased from 114 stores in 2023.
• Growth Markets: While not explicitly detailed, the international sales of Galénic in Asia and Europe indicate efforts to penetrate markets beyond mainland China.

Competitive Intelligence

Global Market Structure & Dynamics

Industry Characteristics: Yatsen Holding Limited operates within the dynamic beauty industry, characterized by strong seasonality with substantial net revenues typically generated in the second and fourth quarters due to major shopping festivals like "618," "Double 11," and "Double 12." The industry is influenced by evolving consumer preferences, particularly among Gen-Z and millennials, and a strong emphasis on social marketing and digital engagement.

Competitive Positioning Matrix:

Risk Assessment Framework

Strategic & Market Risks

Global Market Dynamics:

• Technology Disruption: The beauty industry is susceptible to rapid technological advancements and changing consumer trends, posing innovation risks across markets. The company mitigates this through continuous R&D investment and strategic partnerships.
• Customer Concentration: While not explicitly quantified, the company's primary focus on the China market implies a concentration risk within that geographic region.
• Seasonality: The business experiences significant seasonality, with substantial net revenues concentrated in the second and fourth quarters, making it vulnerable to market shifts during these peak periods.

Operational & Execution Risks

Global Supply Chain Vulnerabilities:

• Supplier Dependency: Reliance on key manufacturing partners (e.g., Cosmax, Intercos) and packaging suppliers (e.g., HCP, Axilone) introduces dependency risks.
• Regional Disruptions: Operations are primarily in China, exposing the company to potential disruptions from regional political, economic, or natural disaster events.
• Trade Restrictions: The company's cross-border trade activities, including imports and exports, are subject to potential impacts from trade restrictions, tariffs, and export controls.

Financial & Regulatory Risks

Currency & Financial Risks:

• Foreign Exchange: Substantially all revenues and expenses are denominated in Renminbi, creating exposure to fluctuations between the Renminbi and other currencies, particularly the U.S. dollar, which can impact the value of American Depositary Shares. The company does not use derivative financial instruments for hedging.
• Interest Rate Risk: Primarily relates to interest income from cash and short-term investments. The company has not used derivative financial instruments to manage this risk.
• Credit & Liquidity: The company reported negative operating cash flow in 2023 and 2024, indicating a reliance on investing or financing activities for liquidity. While management believes current cash is sufficient for the next 12 months, sustained negative operating cash flow could pose liquidity challenges.
• VIE Structure: The company's VIE structure is subject to uncertainties in the PRC legal system and government oversight, including the risk of potential disallowance, which could materially affect its operations and financial condition.
• PCAOB Inspection: Despite the PCAOB vacating its determination regarding inspection access in China, future delisting risk remains if PCAOB access is lost for two consecutive years under the HFCAA.
• PRC Dividend Restrictions: PRC subsidiaries are required to appropriate 10% of after-tax profits to a statutory reserve fund until it reaches 50% of registered capital, restricting the ability to pay dividends to the holding company. Renminbi is not freely convertible, further complicating fund transfers.
• Amended PRC Company Law: New requirements for shareholders to fully pay registered capital within five years of establishment, effective July 1, 2024, may necessitate adjustments for existing PRC entities.

Regulatory & Compliance Risks:

• Multi-Jurisdictional Compliance: Operations in China are subject to complex and evolving PRC laws and regulations on cybersecurity and data privacy (e.g., Data Security Law, Personal Information Protection Law, Revised Measures for Cybersecurity Review, Regulations on the Network Data Security).
• Trade Regulations: Compliance with Consignor/Consignee Registration for Export and Import of Goods is required.
• New Overseas Listing Rules: The New Overseas Listing Rules, effective March 31, 2023, require CSRC filing for overseas offerings by domestic companies, with potential fines for non-compliance.
• Tax Regulations: International tax planning and transfer pricing policies are subject to scrutiny and changes in tax laws across jurisdictions.

Geopolitical & External Risks

Country-Specific Risks:

• Political Risk: The company's significant reliance on the PRC market exposes it to risks associated with government stability, policy changes, and geopolitical tensions.
• Economic Risk: Economic instability or currency devaluation in China could adversely affect the company's financial performance.
• Regulatory Changes: Changes in local laws and regulations in China, such as the Amended PRC Company Law, can impact operational requirements and costs.
• Legal Proceedings: The company is currently involved in a shareholder class action lawsuit related to its November 2020 IPO, which, despite initial dismissal, remains a potential legal and reputational risk as plaintiffs seek to amend their complaint.

Innovation & Technology Leadership

Research & Development Focus: Yatsen Holding Limited maintains a strong commitment to R&D, evidenced by its global network and strategic collaborations. Global R&D Network:

• Guangzhou R&D Center: A 1,977-square-meter facility, certified by the China National Accreditation Service for Conformity Assessment.
• Shanghai R&D Center: A 3,819-square-meter office/R&D center, including a 324-square-meter joint laboratory with Ruijin Hospital. A global innovation R&D center was inaugurated here in May 2024.
• France Facility for Galénic: A 683-square-meter facility that commenced operations in February 2023, supporting the Galénic brand.
• Innovation Pipeline: The company focuses on technology development and regional commercialization, guided by a "1-3-4-6-20" framework for global R&D partnerships.
• R&D Expenditure: RMB109,287 (US$15,000) in 2024, representing 3.2% of net revenues.

Intellectual Property Portfolio:

• Patent Strategy: As of December 31, 2024, Yatsen Holding Limited registered 245 patents worldwide (9 utility model, 137 design, 64 invention) and has 35 pending applications.
• Trademark Strategy: The company holds 2,111 registered trademarks in China and 2,223 trademarks outside China.
• Licensing Programs: Not explicitly detailed as a revenue-generating program.
• IP Litigation: Not mentioned.

Technology Partnerships:

• Strategic Alliances: Collaborations include Huazhong University of Science and Technology, Chinese Academy of Science (for SmartLOCKTM technology and a joint project), MingMed Biotechnology (minority stake), Ruijin Hospital, Sun Yat-sen University (unveiled an exclusive patent for active micro-ecological ingredients), and Lubrizol Corporation.
• Research Collaborations: The company engages in academic partnerships and joint development programs to enhance its innovation capabilities.

Leadership & Governance

Executive Leadership Team

International Management Structure: The majority of the company's employees, directors, and senior executive officers (excluding independent directors) reside in China and are PRC nationals. Regional leadership structures are not explicitly detailed in the filing.

Board Composition: The Board of Directors includes three independent directors: Sidney Xuande Huang, Bonnie Yi Zhang, and Jiming Ha, all of whom satisfy NYSE independence requirements. Sidney Xuande Huang and Bonnie Yi Zhang are qualified as "audit committee financial experts." The board operates with an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee, all composed of independent directors. The company relies on home country practice for certain corporate governance matters, such as not having a majority of independent directors. Mr. Jinfeng Huang, the CEO and controlling shareholder, holds 91.0% of the aggregate voting power due to a dual-class voting structure.

Regulatory Environment & Compliance

Multi-Jurisdictional Regulatory Framework: Primary Regulatory Environments:

• PRC: Yatsen Holding Limited's operations in China are subject to extensive PRC laws and regulations. These include restrictions on foreign ownership in certain value-added telecommunication services and internet audio-video program services (addressed through the VIE structure). The company must comply with stringent cybersecurity and data privacy laws, including the Data Security Law, Personal Information Protection Law, Revised Measures for Cybersecurity Review, and Regulations on the Network Data Security (effective January 1, 2025). The New Overseas Listing Rules (effective March 31, 2023) require CSRC filing for overseas offerings by domestic companies. The Amended PRC Company Law, effective July 1, 2024, mandates shareholders to fully pay registered capital within five years of establishment.
• Cayman Islands: As a Cayman Islands holding company, Yatsen Holding Limited is subject to the corporate laws of this jurisdiction.
• NYSE: The company's American Depositary Shares are listed on the NYSE, requiring compliance with its listing standards, though the company relies on home country practice for certain corporate governance matters.
• PCAOB: The company is subject to PCAOB inspection requirements, with a risk of future delisting under the HFCAA if PCAOB access is lost for two consecutive years.

Cross-Border Compliance:

• Export Controls: The company holds Consignor/Consignee Registration for Export and Import of Goods.
• Sanctions Compliance: Not explicitly detailed.
• Anti-Corruption: Not explicitly detailed.

International Tax Strategy:

• Transfer Pricing: Inter-company transactions between the VIE and the WFOE are governed by transfer pricing policies, using a cost-plus method for cosmetic products and referencing market prices for services.
• Tax Treaties: Hypothetical tax calculations for dividends assume a 5% withholding tax for the Hong Kong holding company, implying consideration of tax treaties.
• BEPS Compliance: Not explicitly detailed.

Environmental & Social Impact

Global Sustainability Strategy: Yatsen Holding Limited's Corporate Social Responsibility (CSR) priorities, established in 2021, include natural environment preservation and women's empowerment. The company publishes annual ESG reports, with its ESG rating upgraded to 'A' by MSCI in December 2022 and retained in 2023.

Environmental Commitments:

• Climate Strategy: The company participates in initiatives like the SEE Foundation’s “Preserve China’s Beauty” campaign.
• Carbon Neutrality: Not explicitly detailed.
• Renewable Energy: Not explicitly detailed.
• Sustainable Sourcing: Logistics package cartons are Forest Stewardship Council certified.
• Awards: Galénic received the Environmental Leadership Award at the 2nd Sino-French GBA Business Summit in November 2023.

Regional Sustainability Initiatives:

• China: Local environmental programs include participation in the "Preserve China’s Beauty" campaign.
• Supply Chain: Global supplier ESG requirements are not explicitly detailed, but the company adheres to general sustainability standards.

Social Impact by Region:

• Community Investment: Yatsen Holding Limited has made cash donations to the China Women’s Development Foundation and established the "Sun Yat-sen University-Yatsen Holding Limited Research and Development Fund" in early 2023.
• Labor Standards: The company historically failed to make full housing fund contributions and exceeded the 10% limit for dispatched workers but has since cured these non-compliances.

Currency Management & Financial Strategy

Multi-Currency Operations: Currency Exposure:

Hedging Strategies:

• Transaction Hedging: Yatsen Holding Limited has not used derivative financial instruments to hedge short-term foreign exchange risk.
• Translation Hedging: The company has not used derivative financial instruments to manage balance sheet currency exposure.
• Economic Hedging: The company has not used derivative financial instruments to manage long-term competitive exposure to currency fluctuations.

The company states it does not believe it currently has significant direct foreign exchange risk. The value of investments in American Depositary Shares will be affected by the exchange rate between the U.S. dollar and Renminbi, which has fluctuated significantly and unpredictably. Interest rate risk is primarily related to interest income from excess cash held in interest-bearing bank deposits and short-term investments, and the company has not used derivative financial instruments to manage this risk.