Hayleys Sri Lanka in moves to cut debt burden

ECONOMYNEXT – Sri Lanka’s Hayleys conglomerate has said its high indebtedness could be risky and plans to reduce the debt burden, built up as it borrowed to fund acquisitions, like the Singer group, sharply increasing finance costs.

“We are aware of the potential risks stemming from increased exposure to borrowings and have put in place a plan to rationalise the group’s portfolio through divesting idle assets and restructuring certain operations,” the firm told shareholders  in its annual report.

This was put into operation during the 2018-19 financial year with the partial divestment of Hayeys Global Beverages, disposal of Hunas Falls Hotels and restructuring its other and
consumer and retail businesses.

“The group remains committed to reducing its gearing level to around 0.50 over the medium term,” the report said. Current gearing is 1.8 times. 

The increase in interest burden during the year resulted in the group’s cash outflow from financing activities amounted to almost eight billion rupees last year compared to 1.13 billion rupees the previous year.

Hayleys group operating level performance strengthened during the year with earnings before interest and tax up by 40 percent to 16 billion rupees and broad-based growth from all key sectors.
 
Despite the strong growth at operating profit level, the group‘s pre-tax profit fell five percent to 5.48 billion rupees during the year, mainly due to the increase in interest costs.

Net finance cost shot up by 77 percent to 10.5 billion rupees reflecting a 22 percent increase in borrowings and prevalent high interest rates, the report said.

Borrowings increased in view of capacity expansions and working capital requirements given the strong operating profit performance.

“The group was able to absorb the increased finance costs during the year. The group’s strong business positions and excellent payment rack record enables it to borrow from banks at relatively favourable rates,” the report said.

Hayleys group’s average weighted cost of debt rose to 10.6 percent last year from 9.4 percent the year before.
 
The report said the debt funded growth strategy adopted in the last few years has resulted in increased exposure to borrowings and a significant shift in the group’s capital structure.

During the year, 49 percent of the group’s assets were funded through borrowings compared to 44 percent the year before.

Total borrowings increased by 22 percent to 113.3 billion rupees during the year as the group funded increased working capital requirements in key sectors such as purification, hand protection and Fentons group through borrowings.

Capacity expansions in transportation and logistics, construction materials and eco-solutions were also funded by debt.

Debt at Hayleys plc level increased by 19 percent to 23.7 billion rupees partly to fund a balance sheet restructuring at Hayleys Global Beverages and the acquisition of a further 95 percent in Singer (Sri Lanka) Plc.

The group issued three billion rupees in unsecured debentures during the year and its  oversubscription attested to investor confidence, the annual report said.
(COLOMBO, 10 June 2019)