Brand and Deliver

Faced with globalization and growing competition, CFOs in Asia are turning to brand management as a way to thrive.

That said, a handful of techniques do exist. For example, companies can try to calculate a valuation by adding up the costs of re-creating an equivalent asset, or else by combing through stockmarket data to find the value of comparable brands. Alternatively, CFOs can look to valuations based on “royalty relief”, a method based on the idea that if the brand had to be licensed from a third party the company would have to pay a royalty charge to use it. The trouble is that royalty charges are rarely disclosed, nor are the terms of royalty contracts, so the information needed to do such valuations is frequently lacking.

Perhaps the most widely used method of valuing brands is to apply a discounted cash flow model. Such techniques add up the future earnings that can be attributed specifically to the brand in question and then discount them back to the present. That means, for example, stripping out any earnings that would flow through to the company no matter what brand it owned. As for the discount rate, this is determined by assessing the riskiness of the brand’s earnings by looking at things such as the strength of the relationship with customers and how competitive the market is.

Andy Milligan, managing director in Singapore for consultancy Interbrand, acknowledges that valuing brands can be tricky and subjective, but still sees merit in the exercise — and not just in acquisitions. He believes that finance chiefs should value their brands regularly, as often as every year or two. After all, he points out, “the growing gap between the market value and the book value of many companies shows that brands are becoming more and more important assets.”

What’s in a Name?

Peter Lee couldn’t agree more. As CFO of Osim International, a Singapore-based healthy lifestyle brand most famous for its range of massage chairs, Lee hired Interbrand to conduct a valuation of Osim in March 2003. “We commissioned the study to help us get a better understanding of our brand,” explains Lee. “It’s our most important asset.” He’s not kidding, for along with a growing pile of patents and trademarks, the Osim brand is one of the few assets the S$287 million-a-year (US$171 million) firm does own.

The company is based around a rapidly expanding chain of shops across Asia, each dedicated to one of Osim’s four product areas: health, which includes the massage chairs; hygiene, concentrating on items such as water purifiers; nutrition, selling vitamins and diet supplements; and fitness, which includes a range of gym equipment for the home. The shops only sell Osim products, and all are identical, no matter whether in Kuala Lumpur or Shanghai.

However, despite selling a vast range of own-brand products, Osim doesn’t own, nor operate, a single factory — all its manufacturing is outsourced. Nor does Osim own any of its shops; all are leased. In fact, in 2003 Osim even sold off its headquarters building in a sale and leaseback deal for 12 years. The company is truly asset-light, apart that is, from its brand, and hence the desire to know how much it’s worth.


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