OSIM run of record profits loses steam

Singapore

AFTER 22 consecutive quarters of record profits, the fine run of lifestyle products company OSIM International came to an end in the three months ended Sept 30, 2014.

Net profit fell 28 per cent to S$16.4 million, compared to S$22.7 million a year ago. Revenue edged up slightly to S$158.2 million, up 3 per cent compared to S$153 million the same period last year. A one-cent interim dividend was declared, unchanged from a year ago.

OSIM chief financial officer Peter Lee told a group of analysts and investors on Tuesday evening: "Our fundamentals are positive. We are the dominant brand in the market." The profit fall of about S$6 million can be attributed to "several millions" of legal costs as well as investment costs to open new TWG Tea outlets in Shanghai, Guangzhou, and Taiwan. OSIM subsidiary TWG Tea, a luxury tea company, is currently embroiled in two lawsuits: one involving its trademark logo in Hong Kong, and another involving TWG Tea's co-founder Manoj Murjani, who has since left. The first case involved a tea company called Tsit Wing. Mr Lee said the case was heard in October and the firm expects a judgement in the next few months. "We expect quite a good outcome from that," he added.

OSIM founder and chief executive Ron Sim said that a court hearing for the second case has not been fixed. OSIM became TWG Tea's majority shareholder by end-2013.

OSIM sales were also affected because the new owners of OSIM's former Brookstone outlets in the US decided not to buy as many massage chairs compared to the quarter a year ago. A Chinese consortium bought Brookstone a few months ago after the retailer went bust in March. Brookstone was 55 per cent owned by OSIM, and was written off in 2009. "The quarter-on-quarter change was quite significant. Obviously, when a new owner comes in, probably the goals are different," Mr Lee said.

But Mr Sim said that margins for the group's core massage chair business have remained the same in its key North Asia markets. Sales are off "a few per cent" due to weaker consumer sentiment. But China is still growing a lot, he pointed out. Latest statistics show its economy growing by 7.3 per cent in its third quarter. "In terms of consumption, vibrancy and energy of the market, go and see for yourself in Shanghai, Guangzhou, Beijing. The energy level is still very high," he noted.

Looking ahead, OSIM will target to have 45 TWG Tea outlets by the end of the year, from 37 now. The company needs to invest in central kitchens, offices, warehouses and the hiring of staff whenever it expands to another city, Mr Sim said. Three or four stores, supported by a central kitchen, are typically required before a location turns profitable, he added. "If you look at the history of OSIM, during weak times, we will expand, because we will have more opportunities," Mr Sim said. OSIM is also planning to launch two new products this coming holiday season.

Its shares, which have been under pressure, fell seven cents or three per cent to S$2.25 on Tuesday trading.