OSIM International

[CityFarmer]

Osim it took a $77.31 mil write-off on its investment in Brookstone in FY2008. Their investment in Brookstone in 2005 was $145.3 mil. How come they didn't write-off the whole $145.3 mil but only $77.3 mil? Where did the remaining money go to?

Also, Osim has 55% of Brookstone and it has been ring-fenced. How come Osim is reporting the investment as an equity stake instead of a consolidation since more than 50% of Brookstone is owned by Osim?

The holding % alone will not cause a consolidation in accounting. It is the structure of the management control will determine. Refer to Note 14 of AR08, it has stated

"By virtue of a partnership agreement, the Company only has joint control, together with the rest of the joint-venture partners,
over the financial and operating policies of OBH (OSIM Brookstone Holding)"

OSIM does not has the board control over OBH, so no consolidation in accounting seems appropriate

As for write-off, i did not go into detail of AR, i assume it is the remaining book value of the investment.

[wcpk90]

Hi FFNow,

There was an article in the Business Times some years back.

'Under a number of accounting standards such as the US Generally Accepted Accounting Principles (GAAP), a company, say Firm A, which owns a stake and exercises control over Firm B, is required to consolidate the latter's financial statements with its books. Often, a shareholding of over 50 per cent is taken as evidence of board control.

OSIM's case, however, is unique. This is because the Brookstone investment was structured as a joint venture with Temasek Holdings and JW Childs, and OSIM said that it does not have board control, despite holding four out of eight seats on Brookstone's board. This came as all major decisions require unanimous board approval, said OSIM.

Plus, the other shareholders had pumped in more money (US$150 million) compared with OSIM's US$90 million, and Brookstone's borrowings 'have no recourse to OSIM', clarified CFO Peter Lee.

Therefore, its choice of reporting the investment as an equity stake instead of a consolidation is appropriate, given the circumstances.'

Hence, it is treated under FRS as an investment in an associate instead of consolidating under acquisition method.

Osim it took a $77.31 mil write-off on its investment in Brookstone in FY2008. Their investment in Brookstone in 2005 was $145.3 mil. How come they didn't write-off the whole $145.3 mil but only $77.3 mil? Where did the remaining money go to?

Also, Osim has 55% of Brookstone and it has been ring-fenced. How come Osim is reporting the investment as an equity stake instead of a consolidation since more than 50% of Brookstone is owned by Osim?

Firstly, by the end of 2007, they are only left with $127m after translational losses. In 2008, they suffered from losses of $130m from brookstone which results in a write-off of Brookstone. Hence, even after 77m write-off, the company still have to recognised the remaining losses from its investment in associate. Under accounting rule, profit and losses from associate are added to the equity and investment in associate in the balance sheet. Dividend received from associates are deducted from investment in associate and added to cash.

Secondly, they recognise it as a JV as from what I understand it is because they do not have the controlling right. This is one of the lessons that Ron Sim learnt though I forget why is it that they do not have controlling right despite the 55%. Something to do with the agreement. another lesson he had learnt was the difference in accounting standard where bond payment to prefeence shareholder is recognised as expense in Singapore FRS. (They did a leveraged buyout)

For associate and JV accounting, once the losses exceed the original investment, further losses are no longer recognised. Neither should one expect Brookstone to turnaround and deliver profit for OSIM given that OSIm still have $57m unrecognised losses from its brookstone investment in which future profits need to exceed $57m before it can be recognised in the income statement.

Does this make sense? It does given that OSIM is free from any burden even if Brookstone declares bankruptcy and have to pay off its debt. So all that the company have lost is the orginal $145 million investment made. Positive surprise will only come from dividend payment from Brookstone to Osim

(not vested)

[FFNow]

Thanks guys for your crafting your replies! I went for OSIM's company visit yesterday and the CFO was talking about Brookstone but didn't elaborate much as he was talking about the business in general and their latest quarter results. So after coming back home I was intrigued about the Brookstone saga (obviously I have not been keeping track of this company). Upon research, more questions came up and thus my posting here. It's a learning point for me as it's the first time I'm coming across such a thing where there's no board control even with more than 50% holdings. The CFO said what shanrui mentioned. There won't be anymore losses from Brookstone but if Brookstone is profitable, it's a plus point and OSIM can add that to their books. They might even IPO Brookstone in the future.

[dydx]

From OSIM's FY11 AR [Note. 12 (a) and (e), p108 and p111/112].....
http://info.sgx.com/listprosp.nsf/07aed3...100178dda/$FILE/OSIM%20International%20Ltd%20-%20Annual%20Report%202011.pdf
the U.S. based retail operation held under 55.56%-owned subsidiary (but treated as a joint-venture accounting-wise) OSIM-Brookstone Holdings Inc (OBH) - historical cost of investment: $145.298m, of which $77.314m already impaired - continued to incur losses, and OSIM's 55.56% share alone of OBH's FY11's losses amounted to $8.7m. But accounting wise, OSIM has not recognized its 55.56% share OBH's recurrent losses - which amounted a cummulative total of $57.064m as at 31Dec11 - by having taken a position for some years now that the Group has no obligation in respect of these losses, by virtue of the following accounting policy:

"When the Group’s share of losses in a joint venture equals or exceeds its interest in the joint venture, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint venture." [as described in Note. 2.10, p76]

There is no doubt in my mind that OSIM remains primarily responsible to OBH's business operation, as I don't expect the other 2 partners - Temasek Holdings and JW Childs, both financial investors and original backers to Rom Sim and OSIM - when push comes to shove, can run it, and will let OSIM off the hook on the responsibility of running it. So there is a critical relevant question : Whether OSIM and its 2 partners, Temasek Holdings and JW Childs, can really get away from the responsibility of OBH's total liabilities - OSIM's 55.56% share as at 31Dec11: $346.809m, of which $286.807m comprised non-current liabilities, presumably core senior external debts. We should note that OSIM has already provided additional funding to OBH by way of having invested in its senior preferred notes to the tune of $12.498m. [Note. 14, p116]

Frankly, I am disturbed by OSIM's accounting treatment of its investment in OBH and its seemingly irresponsible stance taken on this difficult business operation held under a majority-owned U.S. subsidiary. IMHO, there remains a real risk that OSIM and its 2 partners, Temasek Holdings and JW Childs, would have little choice but to bail out OBH's lenders and notes/bonds investors, when the existing underlying debts are due for settlement and some of the creditors are not prepared to roll-over their loans which fail to get refinanced. Perhaps this is the reason why Rom Sim and OSIM have chosen not to talk much about OBH's business and financial affairs in the AR's and result announcements. Perhaps this could be an underlying reason for OSIM's $120.0m CB issue in FY11. [Note. 21, p121]
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More info on Brookstone.....
http://www.brookstone.com/
http://www.ir.brookstone.com/common/down...elease.pdf [latest 3Q-FY12 results announcement]

[CityFarmer]

Thanks guys for your crafting your replies! I went for OSIM's company visit yesterday and the CFO was talking about Brookstone but didn't elaborate much as he was talking about the business in general and their latest quarter results. So after coming back home I was intrigued about the Brookstone saga (obviously I have not been keeping track of this company). Upon research, more questions came up and thus my posting here. It's a learning point for me as it's the first time I'm coming across such a thing where there's no board control even with more than 50% holdings. The CFO said what shanrui mentioned. There won't be anymore losses from Brookstone but if Brookstone is profitable, it's a plus point and OSIM can add that to their books. They might even IPO Brookstone in the future.

The last company i encountered in similar situation was NetLink Trust, 100% owned by SingTel, but included as associate in SingTel's FR. The NetLink Trust is managed by a trustee-manager, CityNet Infrastructure Management. The arrangement is part of an agreement with IDA.

[money]

From OSIM's FY11 AR [Note. 12 (a) and (e), p108 and p111/112].....
http://info.sgx.com/listprosp.nsf/07aed3...100178dda/$FILE/OSIM%20International%20Ltd%20-%20Annual%20Report%202011.pdf
the U.S. based retail operation held under 55.56%-owned subsidiary (but treated as a joint-venture accounting-wise) OSIM-Brookstone Holdings Inc (OBH) - historical cost of investment: $145.298m, of which $77.314m already impaired - continued to incur losses, and OSIM's 55.56% share alone of OBH's FY11's losses amounted to $8.7m. But accounting wise, OSIM has not recognized its 55.56% share OBH's recurrent losses - which amounted a cummulative total of $57.064m as at 31Dec11 - by having taken a position for some years now that the Group has no obligation in respect of these losses, by virtue of the following accounting policy:

"When the Group’s share of losses in a joint venture equals or exceeds its interest in the joint venture, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint venture." [as described in Note. 2.10, p76]

There is no doubt in my mind that OSIM remains primarily responsible to OBH's business operation, as I don't expect the other 2 partners - Temasek Holdings and JW Childs, both financial investors and original backers to Rom Sim and OSIM - when push comes to shove, can run it, and will let OSIM off the hook on the responsibility of running it. So there is a critical relevant question : Whether OSIM and its 2 partners, Temasek Holdings and JW Childs, can really get away from the responsibility of OBH's total liabilities - OSIM's 55.56% share as at 31Dec11: $346.809m, of which $286.807m comprised non-current liabilities, presumably core senior external debts. We should note that OSIM has already provided additional funding to OBH by way of having invested in its senior preferred notes to the tune of $12.498m. [Note. 14, p116]

Frankly, I am disturbed by OSIM's accounting treatment of its investment in OBH and its seemingly irresponsible stance taken on this difficult business operation held under a majority-owned U.S. subsidiary. IMHO, there remains a real risk that OSIM and its 2 partners, Temasek Holdings and JW Childs, would have little choice but to bail out OBH's lenders and notes/bonds investors, when the existing underlying debts are due for settlement and some of the creditors are not prepared to roll-over their loans which fail to get refinanced. Perhaps this is the reason why Rom Sim and OSIM have chosen not to talk much about OBH's business and financial affairs in the AR's and result announcements. Perhaps this could be an underlying reason for OSIM's $120.0m CB issue in FY11. [Note. 21, p121]
-------------------------------------------------------------------------
More info on Brookstone.....
http://www.brookstone.com/
http://www.ir.brookstone.com/common/down...elease.pdf [latest 3Q-FY12 results announcement]

if OBH incurs further losses, i would think that osim, temasek and JW childs can file bankkruptcy for brookstone to limit further losses... not wise to throw in good money after bad

[CityFarmer]

I am still not able to decipher the secret of Osim's success...

Osim records 13% rise in Q1 profit

SINGAPORE – Lifestyle products distributor Osim reported on Tuesday its 17th consecutive quarter of record profit after earnings in the first three months rose 13 per cent from a year earlier to S$25 million, mainly boosted by new products.

Revenue was flat at S$151 million

http://www.todayonline.com/business/osim...-q1-profit

[evolance]

Didnt really looked into its financial statements yet, but find that its moat is good amongst its peers. Could the profit increase due better margins as a result of recent products like uAngel even though revenue remains flat?

Sharebuy back @ $1.89
Assumption is the company continues to see value at this price

Thinking if its good entry point on Mon when it drops from $1.95 to $1.92??


http://info.sgx.com/webcorannc.nsf/Annou...endocument

[smalkmus]

One of the reason that i am interested in OSIM is it's ownership of the TWG tea business. I personally that find the moat of TWG tea is extremely strong, considering the possibility of a potentia acqusition. I guess I might need to do some homework on this portion before I make any more analysis. Just my 2 cents worth of opinion.

[felixleong]

may I ask a question, do u guys notice that OSIM retail stores often have little or no customers.

Do they usually sell their goods online or something... I just somehow can't understand their strong growth, please enlighten me thanks ^^