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07-02-2012, 06:16 PM
Business Times - 07 Feb 2012
Healthzone write-off hits Eu Yan Sang
TCM retailer group posts net loss of $2.78m for second quarter
By KENNETH LIM
EU Yan Sang International fell into a second-quarter loss as it wrote off its equity investment in failed Australian retailer Healthzone and took a sobering relook at expansion plans in China.
But the traditional Chinese medicine retailer is hoping that its soured Healthzone investment turns into a successful leap into the world of franchising and western-style nutraceuticals.
'We think that it's an opportunity for us to learn about running a franchise business and also a distribution business,' Eu Yan Sang chief executive Richard Eu told BT, adding that the group could eventually explore the possibility of franchising Eu Yan Sang.
Singapore-based Eu Yan Sang yesterday reported a net loss attributable to shareholders of $2.78 million for the three months ended December 2011 - against a net profit of $4.08 million for the year-ago period - after taking $8.8 million in impairment charges from its investment and related derivatives in Healthzone.
Sales over the same period grew 9 per cent year on year to $69.8 million.
For the fiscal half-year, net profit attributable to shareholders stood at $1.72 million, down 79 per cent year on year. Analysts had been expecting full-year net profit of $25 million to $28 million, according to a Bloomberg poll of four analysts.
The strong Singapore dollar continued to hit Eu Yan Sang's bottomline, with about 72 per cent of sales coming from overseas. Sales in Hong Kong, Macau and China grew 10 per cent year on year to $31.1 million in the latest quarter. Turnover in Singapore was up 4 per cent, while in Malaysia it was up 13 per cent.
Eu Yan Sang added 16 outlets over the quarter, bringing its retail presence to 205 stores. The group opened five outlets in China in the quarter, and another six so far in 2012, bringing its current China store count to 16.
Mr Eu, who had hoped to have 50 China stores in 2012, said the aggressive store openings have 'caused a bit of erosion in the net profit'.
He is now paring those plans.
'We're telling them to slow down a bit,' he said. '(Now) we're looking, by this financial year, at about 20 stores in China.'
Looking ahead, Eu Yan Sang said it was 'cautiously optimistic' and expects to remain profitable for the rest of fiscal 2012.
Mr Eu added that the fiscal third quarter is historically the strongest period for Eu Yan Sang, and this year's Chinese New Year sales went as expected.
Eu Yan Sang could soon have another market and a different business to think about if its A$5 million (S$6.7 million) bid for certain businesses of Healthzone goes through.
The crown jewel to that acquisition is Healthzone's franchising business - the deal will go through only if enough franchisees agree to transfer their contracts to Eu Yan Sang - and its Australian distribution network.
Mr Eu clarified that Healthzone's China distribution business is not on the deal table at the moment, although a decision could be announced in the next few days.
'We've also started our own network in China, so it's nice to have but not essential. We need to have some understanding about how to operate the China business ... because a lot of it is a personal relationship,' Mr Eu said.
Eu Yan Sang has never been in the franchising business, and its presence in Australia is still small.
Mr Eu said he planned to maintain the franchise's Healthy Life retail brand. Cross selling between Eu Yan Sang and Healthy Life would be 'low hanging fruit', although synergies in terms of product development could also be possible.
'It's not just about expanding the brand of Eu Yan Sang,' Mr Eu said. 'We'll also look at other brands to help us in this expansion. If we want to go into a western type market, if we have a ready-made network already - to try and build 100 Eu Yan Sang stores in Australia, that's going to be a lot of time and money involved, and it may never succeed.'
Healthzone write-off hits Eu Yan Sang
TCM retailer group posts net loss of $2.78m for second quarter
By KENNETH LIM
EU Yan Sang International fell into a second-quarter loss as it wrote off its equity investment in failed Australian retailer Healthzone and took a sobering relook at expansion plans in China.
But the traditional Chinese medicine retailer is hoping that its soured Healthzone investment turns into a successful leap into the world of franchising and western-style nutraceuticals.
'We think that it's an opportunity for us to learn about running a franchise business and also a distribution business,' Eu Yan Sang chief executive Richard Eu told BT, adding that the group could eventually explore the possibility of franchising Eu Yan Sang.
Singapore-based Eu Yan Sang yesterday reported a net loss attributable to shareholders of $2.78 million for the three months ended December 2011 - against a net profit of $4.08 million for the year-ago period - after taking $8.8 million in impairment charges from its investment and related derivatives in Healthzone.
Sales over the same period grew 9 per cent year on year to $69.8 million.
For the fiscal half-year, net profit attributable to shareholders stood at $1.72 million, down 79 per cent year on year. Analysts had been expecting full-year net profit of $25 million to $28 million, according to a Bloomberg poll of four analysts.
The strong Singapore dollar continued to hit Eu Yan Sang's bottomline, with about 72 per cent of sales coming from overseas. Sales in Hong Kong, Macau and China grew 10 per cent year on year to $31.1 million in the latest quarter. Turnover in Singapore was up 4 per cent, while in Malaysia it was up 13 per cent.
Eu Yan Sang added 16 outlets over the quarter, bringing its retail presence to 205 stores. The group opened five outlets in China in the quarter, and another six so far in 2012, bringing its current China store count to 16.
Mr Eu, who had hoped to have 50 China stores in 2012, said the aggressive store openings have 'caused a bit of erosion in the net profit'.
He is now paring those plans.
'We're telling them to slow down a bit,' he said. '(Now) we're looking, by this financial year, at about 20 stores in China.'
Looking ahead, Eu Yan Sang said it was 'cautiously optimistic' and expects to remain profitable for the rest of fiscal 2012.
Mr Eu added that the fiscal third quarter is historically the strongest period for Eu Yan Sang, and this year's Chinese New Year sales went as expected.
Eu Yan Sang could soon have another market and a different business to think about if its A$5 million (S$6.7 million) bid for certain businesses of Healthzone goes through.
The crown jewel to that acquisition is Healthzone's franchising business - the deal will go through only if enough franchisees agree to transfer their contracts to Eu Yan Sang - and its Australian distribution network.
Mr Eu clarified that Healthzone's China distribution business is not on the deal table at the moment, although a decision could be announced in the next few days.
'We've also started our own network in China, so it's nice to have but not essential. We need to have some understanding about how to operate the China business ... because a lot of it is a personal relationship,' Mr Eu said.
Eu Yan Sang has never been in the franchising business, and its presence in Australia is still small.
Mr Eu said he planned to maintain the franchise's Healthy Life retail brand. Cross selling between Eu Yan Sang and Healthy Life would be 'low hanging fruit', although synergies in terms of product development could also be possible.
'It's not just about expanding the brand of Eu Yan Sang,' Mr Eu said. 'We'll also look at other brands to help us in this expansion. If we want to go into a western type market, if we have a ready-made network already - to try and build 100 Eu Yan Sang stores in Australia, that's going to be a lot of time and money involved, and it may never succeed.'
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