Singer Sri Lanka March in red amid mounting borrowing costs

Singer Sri Lanka PLC plunged into loss during the quarter ended March 31, 2019 (4Q19), as the sales continued to languish amid mounting borrowing costs as the consumer durables retailer appears to be mired in a prolonged web of troubles from both insides and outside.   

The company recorded revenues of Rs.14 billion for the three months under review, up 3.0 percent year-on-year (YoY), but the sales were down from Rs.16 billion in the previous quarter to December 31, 2018. 

For over more than three years, Singer Sri Lanka’s growth had sputtered amid a bust-bust cycle in the economy instead of a typical boom-bust cycle as the company was caught between repeated cycles of economic and climatic catastrophes battering its performance.

Singer’s largest market is found in the suburban and farming communities whose financial well-being is mostly at the mercy of the weather gods. 

Consumer durables sales is a signal for consumer confidence in any economy as people invest in durable goods when they have more disposable income and feel they have hopes for a better economic future. 

Hence, the poor sales growth in the January-March period is a reflection of the absence of such positives sentiments although climatic conditions stayed benign.  

Meanwhile, Singer Sri Lanka has racked up a mammoth debt pile, which now runs into Rs.33 billion, virtually four times its equity and another Rs.7.5 billion in supplier credit. 

The amount of trade receivables has risen to a whopping Rs.21.4 billion, as bulk of Singer sales occurs under hire purchase. 

Singer reflects a case for a company entangled in a situation of overtrading where it has become a victim of its own growth and size. 

Overtrading is a situation where an entity enters into a cycle of increasing interest cost impacting its earnings, which leads to lesser working capital, which in turn leads to further borrowings and rising interest rates—a never ending vicious cycle.

In 2017, foreign owners of Singer Sri Lanka sold their interest in the company to the Hayleys group controlled by the billionaire businessman, Dhammika Perera.

A consortium of Hayleys entries along with Perera bought a 82.81 percent stake in Singer from its controlling shareholder, Retail Holdings (Sri Lanka) BV, in a blockbuster deal valued at Rs.15.0 billion, making it one of the very few M&A deals crossing the Rs.10 billion mark. 

As at March 31, 2019, Perera and Hayleys entities held over 92 percent of the issued shares of Singer Sri Lanka.

For the quarter under review, Singer reported a net loss of 2 cents a share or Rs.8.4 million compared to an earnings of 41 cents a share or Rs.153 million in the year earlier period. 

However, the losses narrowed from Rs.180.4 million in the December quarter. 

The operating profit for the period was Rs.754.3 million, compared to Rs.1.06 billion a year ago. 

Though little changed from a year ago, the net finance cost of Rs.607.5 million was sizeable enough to almost wipe off the operating profit in entirety. 

Meanwhile, for the year ended March 31, 2019, the company reported earnings of 67 cents a share or Rs.250.1 million, compared to Rs.2.78 a share or Rs.1.04 billion for the 15 months ended March 31, 2018. 

Since March 31, 2018, Singer Sri Lanka’s long-term borrowings shot up by Rs.6.0 billion to Rs.10.3 billion by March 31, 2019.