Best World says franchise sales-related expenses helped drive increase in 2018 payables

SALES-related expenses from its franchise segment, higher accruals for commissions and convention expenses drove Best World International's trade and other payables to more than double in 2018, the direct-selling company said late Monday.

In its latest results for the year ended Dec 31, 2018, Best World reported traded and other payables of S$95.1 million as at year-end, up from S$45.9 million as at end-2017. Responding to queries from its investor briefing, Best World noted that its franchise business only began in June 2018, and there were therefore no franchise sales-related expenses in 2017.

Sales related expenses incurred on marketing support and expansion-related services for its franchise business, such as providing training services, organising marketing events and customer support services of S$3.7 million payable to third-party vendors, were recorded as distribution costs in its income statement, the company explained.

In another part of its response explaining how distribution costs tripled to S$40.8 million, Best World said it incurred sales-related expenses to third-party vendors for those same services amounting to S$12.1 million.

Payables also included S$10.9 million of sales rebates and allowances on franchisees' sales that are payable to franchisees and workshops, but these were netted off against revenue, instead of being booked under distribution costs. This follows Best World's adoption of Singapore Financial Reporting Standards regarding the way it treats revenue from contracts with customers.

Best World said payables accrued as at Dec 31, 2018 will be paid in 2019.

In response to another query as to why cost of sales fell to S$59 million in FY2018 from S$68 million in FY2017 despite a 24 per cent increase in revenue, Best World said its export agent for China placed advance orders for three to six months in Q4 2017 in anticipation of the transition to the franchise model. Accordingly, the cost of sales recorded by the group in the first half of 2018 was significantly lower, resulting in a drop in cost of sales for FY2018.

Shares in Best World traded at S$2.37 at 9.35am on Tuesday, down 0.8 per cent or 2 Singapore cents, after Best World's statement. The FTSE ST All-Share Index was down 0.3 per cent to 787.27 at the same time.