Singer acquisition ups Hayleys top line, but leveraged buy-out weighs on group profits

The acquisition of Singer Sri Lanka PLC in a blockbuster deal last year boosted Hayleys PLC’s top line, but the leveraged buy-out is now weighing on the country’s most diversified conglomerate’s bottom line performance. 

The interim results filed with the Colombo Stock Exchange showed the Hayleys group reporting earnings of Rs.2.37 a share or Rs.178 million for the October-December quarter (3Q18) compared to Rs.7.10 a share or Rs.532.5 million profit in the corresponding period, last year. 

Although the two quarters are not comparable due to the Singer acquisition in September 2017, the heavy borrowings that went into funding the deal have led to shooting up in the finance cost from at least a billion rupees for the quarter. 

The net finance cost for the quarter was flirting with Rs.2.0 billion for the quarter under review, while the previous year’s corresponding quarter figure stood at Rs.960 million.  

The group’s very high leverage may not be a significant issue given Singer’s around the year cash generating capacity, analysts opine. 

Singer Sri Lanka, which now forms the part of the Hayleys group’s consumer products operations, is the second largest within the group by revenues and profits, after transport and logistics.

However, in recent times, Singer is also facing a tough time due to weak sales as a result of poor disposable incomes and bad weather conditions in the agricultural areas, which dampened the purchasing power of the country’s agri community that forms Singer’s key market segment. 

The Hayley’s group’s consumer durables segment recorded a significant improvement in turnover, which stood at Rs.19.9 billion compared with a previous Rs.3.86 billion, while the segment’s profit rose from Rs.90.18 million to Rs. 965.7 million for the 9 months ended December 31, 2017.  

For the quarter, Hayleys group reported a top line growth of 66 percent year-on-year (YoY) to Rs.49.9 billion while for the 9 months revenue rose by as much as 37 percent YoY to Rs.112. 4 billion. 
Meanwhile, for the 9 months, the group reported earnings of Rs.2.62 a share or Rs.196.6 million compared to Rs.19.53 a share or Rs.1.46 billion in earnings during the corresponding period, last year. 

“It has been a challenging nine months for the Hayleys group despite the remarkable growth and expansion displayed in the top line performances of all of our diverse business segments. 

Our continued growth drive, which we have strategically embarked upon, has reflected in an increase in the finance cost reported for the period”, Hayleys PLC Chairman and Chief Executive Mohan Pandithage said in an earnings release. 

“Although the higher finance costs have had a negative impact on group profits during the period, measures are already being implemented to realign the financial position in order to bolster profitability and recover momentum moving into the final quarter of the financial year, which is traditionally the strongest performing quarter for the group. Coupled with exponential gains from the investments entered into over the past year, we anticipate a strong growth outlook for the group moving forward,” he added. 

Hayleys has interests in transportation and logistics, power and energy, leisure, plantations, agriculture, textiles, hand protection, purification products, eco-solutions and a few other unclassified sectors.

Group’s transport and logistics segment—largest by revenue and profits— reported Rs.25.8 billion in revenues and Rs.1.93 billion in operating profits, up from Rs.17.9 billion and Rs.1.14 billion a year ago. 

By the end of December 2017, the billionaire businessman Dhammika Perera held little over 50 percent in the Hayleys group.