The exit of a company’s founder, especially one who has spent many years building up its reputation while being actively involved in research and business development, inevitably raises questions, regardless of motives. The big question that arises from such a departure is, what is the future direction of the company? This is probably the scenario facing the investors of Esthetics International Group Bhd (EIG).

On Sept 3, EIG — which saw losses in the last two quarters — saw a boardroom reshuffle with the resignations of its founder and executive director for business development Melissa M Chen and fellow executive director Chan Mun Wah. It must be noted, however, that while Chen has left the company, Chan announced to Bursa Malaysia that he would remain as the group CFO.

With Chen’s departure, former chairman Eddy Chieng Ing Huong has emerged as the main figure behind the company. Chieng has been re-designated as executive chairman and group CEO.

EIG’s group managing director is Lim Yee Soon, who is also Chen’s spouse. Meanwhile, Felicia Lim Chang Ching is now a non-independent, non-executive director.

Chieng’s son, Roderick, was appointed executive director. The Chiengs are now EIG’s single largest shareholder with 31.97% equity interest held through Providence Capital Sdn Bhd.

Providence Capital, which previously held a 10.37% stake, is now just 1.03% away from triggering a mandatory general offer (MGO). The additional shares are believed to have been accumulated from Chen and Kan Kok Chee, who was previously the fourth largest shareholder in EIG.

Signs of an impending boardroom reshuffle had begun the week before, on Aug 27, when Chen sold 26.85 million shares or a 20.35% stake in an off-market trade.Chen had served on EIG’s board since 1996 and had been tasked to oversee the strategic expansion of the group’s educational profile while looking into the development of its educational programmes.

Kan has also disposed of his entire shareholding of 10.04%, or 13.26 million shares.

Meanwhile, Chieng acquired 28.5 million shares or a 21.6% stake through Providence Capital. Chieng, who was appointed to EIG’s board in 2004, is also the chairman of property player Selangor Dredging Bhd, besides sitting on the board of QL Resources Bhd as senior independent non-executive director.

The remaining 11.6 million shares in EIG were taken up by Felicia Lim through Gambir Capital Sdn Bhd, in which she has an interest.

Gambir Capital is now the third largest shareholder with a 13.67% stake, re-emerging as a substantial shareholder after disposing of its entire stake of two million shares at 50 sen each in August 2009.

The changes in shareholding have left Chen’s spouse Lim as the second largest shareholder with a 24.66% stake. The question now is, will Lim also leave the company at a later stage?

The wellness and beauty company manages and operates the Leonard Drake Skin Care & Health Spa and AsterSpring Origin of Beauty skincare centres. It is also involved in the distribution of skincare products and consumer goods. Some of its well-known product brands are Dermalogica, Averine, Bioxil and Clinelle.

Additionally, EIG is involved in multi-level marketing and has professional training centres through its wholly-owned subsidiary Esthetics Wellness International Sdn Bhd.

Commenting on Chen’s exit, an industry observer says that although she may have wanted to cash out of the group for investment reasons, the move did not inspire confidence among investors about EIG’s prospects.

“The group has seen losses over the last two quarters, so maybe [Chen] thought it would be a good opportunity to cut her losses,” the source says. “However, it doesn’t send out a good feeling to investors.”

Corporate Malaysia recently saw the exit of TMC Life Sciences Bhd founder and former managing director Datuk Dr Colin Lee Soon Soo. He had disposed of his 25% stake in the ailing healthcare company for RM77.76 million or 52 sen per share.

It is not known whether EIG’s new major shareholder will find new ways of adding value to the group. Chen was only recently re-elected, pending her retirement by rotation, at the group’s AGM on Aug 26.

In the week leading up to the changes in the company’s shareholders, the counter saw significantly higher volume at 28,900 shares done, compared with the previous week’s volume of 8,500. It hit a 52-week high of 70 sen on May 25, while its 52-week low was 45 sen on June 1.

After reasonably steady earnings over the last three years, the group recorded losses in the last two quarters. For 1QFY2011 ended June 30, EIG posted a net loss of RM3.17 million, compared with a net profit of RM1.03 million the previous year. However, revenue was up 5.4% to RM39.88 million from RM37.82 million in 1QFY2010.

In its results announcement to Bursa Malaysia, EIG said the lower earnings were due in part to higher advertising and promotion (A&P) costs for its Clinelle product line, as well as start-up costs for the Clinelle launch by EIG Global (China) Co Ltd in Shanghai and Guangzhou. It also saw a higher share of losses at its Thai associates due to the local political situation, and RM1.73 million in inventories were written off.

For 4QFY2010 ended March 31, its net loss was RM5.3 million from a net profit of RM2.09 million previously, while revenue was 7% lower to RM42.99 million from RM46.2 million.

EIG attributed the lower revenue to lower sales from its product distribution segment, and said lower earnings were from foreign exchange losses and higher A&P expenses for the rebranding of Clinelle and Airellis.

The group also saw losses from its multi-level marketing business, Lexwel International Sdn Bhd, which it said would cease to operate locally and only operate in Indonesia where operating costs are lower.

According to its 2010 annual report, EIG saw its product distribution business contribute about 48.7% of revenue, or RM170.70 million, while professional services and sales contributed 51.2% and its investments contributed 0.1%.

In FY2010, it had cash and cash equivalents of RM11.26 million and borrowings of RM58,000. In FY2009, its cash and cash equivalents stood at RM12.18 million, while its borrowings were RM58,000.

EIG was formerly covered by OSK Research, which discontinued coverage in January 2009. The research house had cited low stock liquidity and a lack of optimism on its earnings outlook as reasons for halting coverage despite EIG’s stable earnings track record, prudent management and strong cash pile.

Now, with some changes in shareholding, maybe EIG is not such a mundane stock after all.

This article appeared in Corporate page of The Edge Malaysia, Issue 823, Sep 13-19, 2010