Diversement of Lifebrandz at a Loss

Following my portfolio review on lifebranz on 26 Nov 2005, I sold off my 8 lots at a loss of S$920+. Despite downgrading my earning expectations after the Profit Warning fofr 1QFY06 results issued on 17 Nov 2005, the actual came way below my expectations.

The company only managed a mearge S$1.99M revenue compared with S$12.7M same period last year and S$5.98M for 4QFY05. The loss was a whopping S$5.7M! This was quite was shock to me... the turn of tide could be so rapid in a matter of months.

On Q1 results, the company cited the following:

Sales

Q1 FY06 sales are comprised entirely from the sale of products classified under its Beauty/Fashion/Wellness product category.

As mentioned above, the substantial reduction in sales was largely attributed to the slowdown in demand for the beauty and health supplement industry which the Group’s products occupy, the increased number of low price competitors, and the marketing delays as a result of changed regulations in the overseas markets.

There was no recognition of sales under the new LifeStyle product category for Q1 FY06 as the Group’s first lifestyle concept, The Balcony, was opened in November 2005, i.e., Q2 FY06, with the next offering, Ministry of Sound, scheduled to be launched in late Q2 FY06.

Prospects

With reference to the overall outlook statement for FY06 provided in conjunction with the announcement of the Group’s FY05 results, the underlying challenges and trends in the operating climate of the Group remains the same.

Unfavourable operating conditions for the Group’s Beauty/Wellness products are likely to prevail over the next two quarters in FY06.

In addition, the Group expects to incur additional expenditures for setting up premises and A&P costs to position its new Fashion and Lifestyle brands prior to launch. In light of the above, the Group expects its financial performance in FY06 to be negatively impacted.

The Group will continue to monitor closely the operating climate for each country and product while focusing on building selective brands with a longer term perspective, especially new brands under its Lifestyle product category. The Group is pleased to announce that it has launched on schedule the first Dashing Diva Nail Spa & Boutique at Suntec City Mall and The Balcony, a 24-hour bistro-cum-chill out lounge at the Heeren. The Group also remains on track to launch its first international entertainment brand Ministry of Sound at Clarke Quay in late Q2 FY06. Other LifeStyle concepts in the pipeline, e.g., Café del Mar, Fashion TV and Bice
Restaurant, are progressing according to plans and will be announced at the appropriate times.
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The company did not mention much about how to improve the existing business but rather, talk about its new plans... this shows that existing business may be dying off. The new investments are unlikely to ba paid-off in the short-term and due to new concepts involved and new business to the existing management, the execution risks could be rather high. The balance sheet also weakened considerably, negative cashflowm, AR increased despite much lower sales, borrowings increased from S$1.6M to $9.5M to fund the new business (although it still has cash of S$18M). The dividend is likely to be cut. Despite this negatives, the share price still manage to rebounce from a recent low of 5 cts to 8 cts before dropping to 7cts on this results. I sold at 7.5cts to close the chapter on this bad investment so that I can better focus on studying and following other companies.