The Straits Times / The Business Times News on OSIM

China operations still prove a drag for OSIM in Q1

HEALTHY lifestyle group OSIM seems to have caught a China bug it cannot shake.

Yesterday, it reported a first-quarter net loss of $17.3 million from a $430,000 profit previously. Although total sales fell 22 per cent to $121.3 million, a 36 per cent year-on-year fall in North Asia sales to $59.4 million was a focus of queries on its performance.

The company yesterday declined to say how much of its North Asia revenue comes from China. But it appears that the problem it had last year with copies of its products in China - and the associated bad publicity for the industry - is still affecting results.

'We now believe the disruption period is more or less over but it is still taking a bit more time than we originally thought,' OSIM CFO Peter Lee told BT at the results briefing. 'Basically, it is what we term an 'industry consolidation phase', where the followers will start to drop out and the shakeout begins.'

OSIM says it is seeing only about 10 per cent of the number of copycat producers at the trade fairs now compared with a year ago. It says it will strive to stay ahead of the game by continuing to invest in building up its brand equity and innovations like its recently launched uPapa and uPilot products.

The performance of its associates did not provide much joy either in the latest Q1. Losses from associates and joint ventures rose slightly from $14 million to $14.4 million. The controversial Brookstone acquisition continued to bleed, though at a slightly slower rate. Brookstone's loss for the quarter fell to US$11.7 million from US$14.6 million previously, a near 20 per cent improvement.

Brookstone's total net sales rose 8.4 per cent year-on-year to US$83.1 million and same-store sales increased 9.2 per cent. This was the fourth straight quarter of year-on-year same-store growth.

Back at OSIM group level, the improvement in results was offset by a change in accounting treatment for Brookstone's tax credits, which led to a US$2.8 million decrease in tax credits in Q1 and resulted in a higher share of losses from associates showing up in OSIM's results. OSIM says this situation will improve in subsequent quarters.

The company did not release Q1 results for its Global Active nutrition products subsidiary, although it previously announced full-year results for the unit. Mr Lee did say, however, that Global Active's Australian operations are still losing money and that more work needs to be done there.

OSIM stands by its projection that first-half 2007 will be weak and H2 will become progressively stronger, Mr Lee said.

OSIM shares closed 1.5 cents higher at 94.5 cents yesterday - a 55 per cent drop from their 2006 high of $2.10 in December.