OSIM Q4 profit slides, gross margins in '15 maintained

Singapore

AMID a slower retail environment, lifestyle products group OSIM International reported a net profit of just S$9 million for its seasonally strong fourth quarter ended Dec 31, 2015, down 66 per cent from S$27 million a year ago.

However, lower profits were also due to a one-off S$5.6 million loss from the closing down of underperforming nutrition subsidiary ONI Australia, and legal fees of S$3.4 million related to luxury tea segment TWG Tea.

OSIM founder Ron Sim said at an analyst briefing on Thursday evening that gross profit margins have been maintained in 2015. He expects 2016 to bring better results.

"Obviously we do not know this quarter or next quarter how bad the market will be. I care less about what the market is. I care about what I should create," he said.

The year ahead will bring a new massage chair, a revised edition of OSIM's uGallop horseback exercise simulator ("it's popular in Korea because of Gangnam Style"), new weight loss bars and drinks at GNC, and Valentine's Day macaroons at TWG Tea, Mr Sim said.

He said consumer spending in China, though softer now, is only going to increase over time. "The Chinese are more competitive, more creative, far more courageous. You'd be surprised. They buy," he said.

For the fourth quarter, revenue fell 5 per cent to S$169 million from S$178 million a year ago. However, revenue increased slightly in the company's key North Asia market. This was due to the opening of more TWG Tea stores, better performance for the core massage product business in Hong Kong, as well as the GNC nutritional business in Taiwan, said chief financial officer Peter Lee.

Mr Lee added that plans are in place to open 15 new TWG Tea stores, with each store requiring capital expenditure of S$0.5 million to S$1 million.

For the entire year of 2015, revenue fell 10 per cent year-on-year to S$620 million, while net profit halved to S$51 million.

Looking ahead, expenses are not expected to rise. Advertising and promotional expenses are likely to be maintained at 6-7 per cent of sales. Rental costs, which are 15-20 per cent of sales, could also be maintained.

"Last time, each time you negotiated (a rental contract) there was a 15-30 per cent increase. At least now, there's a chance to say, no increase, how about some reduction," Mr Sim said.

Legal expenses for TWG Tea are expected to be lower for 2016 than the S$10 million incurred in 2015, Mr Lee said.

A final dividend of two cents a share was proposed, unchanged from a year ago. This brought full-year dividends to six cents a share, unchanged from a year ago. Earnings per share for 2015 was 6.8 cents, down from 13.4 cents in 2014.

OSIM closed at S$0.94, up two cents.