Sri Lanka consumer durables firm pinched by consumer crunch
ECONOMYNEXT – Singer Sri Lanka Plc, said higher sales taxes, a drought had hit demand for consumer durables forcing it to absorb costs, and profits fell 65 percent to 184 million rupees in the December 2018 quarter from a year earlier.
The group reported earnings of 49 cents per share. For the year to December, Singer group reported earnings of 2.21 rupees per share on total profits of 807 million rupees down from 2.3 billion rupees a year earlier.
The stock last closed at 41 rupees.
The December 2016 quarter included 250 million rupees in one-off gains.
"The continuous drought in the dry zone resulted in a sharp drop in harvest. Since almost 30 percent of households are dependent on Agriculture, the drop in harvest eroded the purchasing power of a large market segment," Group Chief Executive Asoka Pieris said.
"This is in addition to customer purchasing power been affected by increased value added tax (VAT), higher interest rates and floods in wet zone.
"It should be noted that the Consumer Durables Industry, where Singer is present is more susceptible to market conditions than other industries.
"When customer income decreases, the demand for consumer durables is well below that of the general market demand.
"At the same time when customer income increases the demand for consumer durables is way above that of general market demand. We have seen this oscillation over many years."
After printing money in 2015 and 2016 to generate a balance of payments crisis, the central bank is now re-building foreign reserves by sterilizing (mopping up) liquidity generated from dollar purchases, which has a contractionary effect on the banking system and credit.
In the December quarter revenues rose 5 percent to 14.4 billion rupees, costs rose at a faster 6 percent to 10.4 billion rupees and gross profit (after charging 291 million rupees of direct interest) fell 1 percent to 3.78 billion rupees.
Profit before one-off items after tax was down 63 percent to 218 million rupees.
Pieris said growth came from smart phones, where margins were thin. IT products sales rose to 1.9 billion rupees from 1.5 billion, but home appliances fel to 39 billion rupees from 4.2 billion rupees.
Consumer electronics fell to 1.9 billion rupees from 2.1 billion.
Pieris said December sales rose 11 percent and November sales were up 6 percent compared to a 5 percent fall in October, pointing to a recovery. (Colombo/Feb06/2018)