The Straits Times / The Business Times News on OSIM

OSIM sinks into the red in Q3 with $9.8m loss

OSIM International has swung to a net loss of S$9.8 million for the third quarter ended Sept 30 from a profit of S$10.4 million a year ago, dragged down not just by its US operations but also by the impact of imitation products in China.

Revenue grew just 4 per cent to S$138.7 million in Q3 2006, with a loss per share of 1.82 cents, compared with earnings per share of 1.94 cents previously.

OSIM's Q3 2006 results include its share of net losses from associated companies and joint venture of S$14.7 million, accounted mainly by its US subsidiary Brookstone. Since October 2005, the group has been equity accounting its share of Brookstone's results.

Historically, Brookstone incurs losses in the first three quarters but makes a significant profit in the fourth quarter to result in full-year profitability.

For the first nine months of 2006, OSIM's revenue rose 35 per cent to a record S$477.3 million, while net profit fell 87 per cent to S$3.9 million. Excluding the share of losses from associated companies and joint venture, group nine-month net profit would have increased by 60 per cent to S$43.9 million.

Brookstone yesterday reported a net loss of US$10.29 million for its 13 weeks ended Sept 30, on the back of US$87.77 million in sales. For the 39 weeks to Sept 30, the company saw a net loss of US$32.5 million, with net sales of US$255.8 million.

Acknowledging that OSIM's latest quarterly results could disappoint many investors, founder and chief executive Ron Sim assured analysts and media at a results briefing yesterday that OSIM's core operations remain strong.

'The record performance of our core OSIM business over the nine months of FY2006 continues to reflect the strength of our OSIM core operations and our focus on creating long-term value for shareholders,' Mr Sim said. 'We will continue to look beyond the next quarter and manage the business on a sustainable growth basis.'

He added quarterly volatility can be expected as the group builds new pillars of growth. 'Brookstone's 3Q results masked a strong underlying improvement in its same store sales growth... The positive same store growth trend is expected to continue in 4Q FY06.'

OSIM was also a victim of its own success. In Q3 2006, OSIM was hit by imitations of its best-selling uZap body trimmer in China, and their inferior quality and unsubstantiated performance claims caused adverse media publicity and hit sales of OSIM products.

The Chinese authorities have since intervened in August to ban the television advertisements of the imitation products.

OSIM will respond to the threat of copies by continuously developing new products, Mr Sim said.

The group is maintaining its guidance and expects revenue and net profit for full year 2006 to exceed that achieved in 2005. Mr Sim added that he remains confident OSIM can sustain 20-30 per cent growth in both revenue and profit.

OSIM has requested a half-day suspension of its shares today to allow investors to digest its results.