The Straits Times / The Business Times News on OSIM

Financing costs hit OSIM Q1 net profit

OSIM International Ltd, a maker of healthy lifestyle products, saw net profit fall 94 per cent in the first quarter of 2006 because of financing costs and lower revenue from recently acquired Brookstone Inc in the US.

OSIM, however, said its core operations performed well, and is keeping its guidance for revenue and earnings growth of 20-30 per cent for the whole of this year.

While group revenue rose 79 per cent to a record $155.2 million, net profit for the first three months of 2006 was $0.5 million, compared with $8.1 million a year ago. Earnings per share fell to 0.1 cent from 1.81 cents.

A combination of finance costs in the acquisition of Brookstone, and lower revenue from the US retail chain, resulted in a net loss from associates and joint ventures of $13.9 million, OSIM said. Excluding this, the group's net earnings were actually up 100 per cent at $14.4 million.

'We are delighted with the strong operating performance of the OSIM core operations in the first quarter,' said Ron Sim, founder and chief executive officer of OSIM. 'Our focus on product innovation continues to drive operating performance and there is a strong pipeline of products in the coming quarters.'

OSIM will focus on improving Brookstone's performance, Mr Sim said. Traditionally, Brookstone incurs losses in the first three quarters of the year but makes a sufficiently large profit in the fourth quarter from the Christmas season to achieve full-year profitability.

'We're pushing for quarterly profitability,' he said. The target is to try to make Brookstone profitable from the second quarter of this year. Efforts are being made to improve the product mix, improve store productivity and introduce a more aggressive sales culture.

A major step was taken last week with the appointment of a new CEO at Brookstone. 'We are not satisfied by the progress at the business. Fundamentally the business is strong, but we felt the leadership was not strong enough,' Mr Sim said. He pointed out that new CEO Lou Mancini is a seasoned manager with over 25 years of experience in managing specialty retailing companies, including a highly successful stint at GNC. 'The group continues to believe that Brookstone has a lot more earnings potential,' he said.

As for the core business, the number of new OSIM outlets in the first quarter registered a net increase of 48 over the corresponding period last year. This enlarges the OSIM point-of-sales network to 608 outlets in 26 countries. The consolidation of Global Active Ltd, which holds the GNC franchise in Singapore and parts of the region, also contributed to group revenue.