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Singer Sri Lanka PLC Exchange: Colombo Stock Exchange [CSE]

Equity Research Report Industry: Consumer Durables
Sector: Trading

Current Price (LKR): 106.70

BUY on 26th September
Target Price(LKR): 120.36 Upside: 12.8%

Key Market Statistics

Singer – Trusted Excellence
Company Ticker SINS.N000
Share Price (LKR) 106.70
We issue a BUY recommendation on Singer Sri Lanka (SINS) with a
one-year target price of LKR 120.36 using the Sum Of The Parts
No. Of issued shares (m) 125.2
(SOTP) valuation method. This offers a 12.8% upside from its closing
Enterprise value (LKRm) 4,337.1
price of LKR 106.70 on September 26th 2014. SINS is able to capitalize
Free Float (%) 14 on their wide retail presence which translates to a highly defensible
52 –week range (H/L) 250.00/19.2 business model using both branches and mobile stores along with a
Average daily volume of shares (one year) 10,086.2 dedicated in-house financing arm which is perfectly positioned to
SINS EPS Forecast exploit the expansion in private credit. This would position SINS to
further strengthen their operating cash flows and maximize firm
15 value.
Wide retail presence translates to a highly defensible business
10 model; Singer Sri Lanka operates as the only consumer durables retailer
to establish its presence across all provinces of the country. With a
5 network of 406 stores across all 9 provinces, SINS enjoys an undisputed
market reach with over 500,000 online and mobile users and over 4.5m
0 household users. We firmly believe that SINS wide retail presence would
be a highly defensible business model for three reasons (1) A long
Source: Team computations standing history of 137 years in operation, makes SINS a well-known
EV ND VPS
household brand; (2) Multi-brand, multi-channel business model well
Target Price Breakdown
positioned to exploit the spurt in per-capita income [Appendix 8]; (3)
Singer Sri Lanka PLC 30,013 14,942 120.36 Retail reach creates a virtual monopoly for SINS compared to its
Singer Holdings 22,759 13,663 72.65 competitors.
Singer Finance 7,253 1,280 47.71
Source: Team computations Dedicated In-house financing arm to be an underlying driver of sales;
Share Price Movement Chart With an asset base of LKR 8.1bn as at FY2013, Singer Finance serves as the
niche for SINS through its hire purchase financing scheme which yielded a
13% YoY increase in its revenue to LKR 1.7bn in FY2013 which
simultaneously recorded an increase in its lending portfolio of 27% YoY
for the period. The financing arm would be an underlying driver of sales
for SINS over the medium – long run mainly due to (1) credit expansion
policies in place by the central bank of Sri Lanka; (2) increased per-capita
income to translate in to higher final consumption expenditure incurred
for consumer durables.

Source: Bloomberg
Key Financial Ratios Table

Ratio 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E

EBIT margin (%) 10.9% 8.0% 9.9% 11.2% 11.8% 10.7% 11.3% 11.4% 11.3%

Current ratio (x) 1.1 1.2 1.1 1.1 1.2 1.4 1.5 1.6 1.7

Quick ratio (x) 0.7 0.8 0.7 0.8 0.9 1.1 1.1 1.2 1.3

Cash operating cycle (days) 90.0 123.4 131.8 133.8 134.4 134.4 134.4 134.4 134.4

Net interest cover (x) 2.6 1.5 2.2 2.5 2.3 2.1 1.9 1.8 1.7

Net debt/equity (incl MI) 170.7% 212.3% 219.8% 221.7% 226.2% 234.4% 239.9% 244.1% 247.8%

EPS 9.26 3.69 7.69 9.87 10.69 9.45 9.84 9.95 9.91

Important disclosures appear at the back of this report 1

Business Description
Singer Sri Lanka is a household brand name which has been present in the country since 1877 and today it is
the largest company in the consumer durables sector operating in Sri Lanka owning more than 35% of the
home consumer durable market where Singer PLC operates a multi brand, multi-channel business model
serving millions of customers in Sri Lanka. By the end of 2013, singer operated 406 branches around the
country serving over 4.5 million household users and over 500000 mobile and online users. (Appendix 7)
Singer reaches their customer base using a chain of retail outlets, a channel of individual intermediary traders
and a B2B channel using group sales promotions.
Singer sells consumer durable goods under nine product categories including white goods, consumer
electronics, furniture and digital communication products. The white goods sector has been the largest
revenue contributor of Singer Sri Lanka followed by consumer electronics and furniture for past few years of
operation. By the end of year 2013, approximately Singer owns significant market share in the product
categories of refrigerators (44%), television (37%), washing machines (26%) and sewing machines (75%)
under brand names such as Sony, Samsung, Huawei, HP, Lenovo, Kenwood, etc. (Appendix 8)
Shareholder Structure
Singer Sri Lanka (BV) is the major shareholder of Singer Si Lanka PLC owning 86.11% of common shares and
the public owns a share of 13.89%. The second largest shareholder of Singer Sri Lanka is Bank of Ceylon Unit
Trust owning 3.38% of listed shares.
Subsidiaries and Associates
Singer Sri Lanka PLC owns an 80.4% of Singer Finance PLC which operates as a subsidiary of the company and
has an ownership of 40% in Reality Lanka Limited which operates as an Associate company. (Appendix 17)

Corporate Governance and CSR

Corporate Governance
Singer Sri Lanka PLC ensures to comply with the best practices of corporate governance and also ensures
highest ethical standards of business operations. The governance framework of the company addresses both
corporate governance and business governance requirements. The company has established a strong set of
values concentrating on their shareholders, customers, suppliers and other stakeholders to further enhance
their governance framework. The governance framework of Singer can be analyzed in the following areas;
Directors – Separation of CEO and Chairman; establishes Audit, nomination, remuneration and risk
management committees; Non- Executive Directors.
Relations with Shareholders – One share one vote policy; minority shareholder protection; participation in
decision making through AGMs’ and EGMs’
Accountability and Audit – responsibility for statutory and regulatory reporting; internal controls; disclosure
requirements; direct supervision of Audit committee
Directors’ Remuneration – Disclosed compensation policies and beneficial party transactions

CSR
Being in line with the established company values, Singer is a good corporate citizen who conducts many
projects to up bring the living standards of their valued stakeholders. Singer Sri Lanka has been awarded
many prestigious awards for the CSR activities carried out by them. In year 2013, singer was ranked among
the 10 best corporate citizens of the country by Ceylon Chamber of Commerce (Appendix 9)
Industry Analysis and Competitive Positioning
Sri Lankan Economic Performance

Figure 3. GDP per Capita Almost five years after the end of the three-decade civil conflict, Sri Lanka is now focusing on long-term
strategic and structural development challenges as it strives to transition to an upper middle income
country.
Robust annual growth at 6.4% over the course of 2003 to 2012, well above its regional peers
Following the end of the civil conflict in May 2009, growth rose initially to 8%; largely reflecting a “peace
dividend”, and underpinned by strong private consumption and investment. While growth was mostly
private sector driven, public investment contributed through large infrastructure investment, including
reconstruction efforts in the North and Eastern provinces. Growth was around 7% in 2013, driven by the
rebound in the service sector which accounts for approximately 60% of GDP. With nearly 2 million Sri
Lankans living abroad, overseas employment has contributed with foreign exchange and remittances in the
order of 10% GDP in 2013.
Figure 4. Poverty Headcount according to District Sri Lanka has met the Millennium Development Goal (MDG) target of halving extreme poverty,
outperforming other South Asian countries
According to the Department of Census and Statistics (DCS), in 2009/10 approximately 8.9% of the
population in Sri Lanka, or 1.8 million individuals, were poor. This is a significant improvement compared
to 2000, when approximately 22.7 % of the population was identified as poor, and shows that Sri Lanka has
already achieved the Millennium Development Goal of halving poverty by 2015.
Per capita income to reach upper middle income threshold of US$ 4000

The Gross Domestic Product per capita in Sri Lanka was last recorded at 2004.26 US dollars in 2013. The
GDP per Capita in Sri Lanka is equivalent to 16 percent of the world's average. Overall per capita income
has shown a steady growth of 6% YOY reaching the midpoint of the lower middle income threshold. The
Central bank of Sri Lanka (CBSL) which has incorporated a strict agenda continues to develop policies to
promote private credit growth and consumer spending which in turn would spur economic performance.

Sri Lankan Consumer Durables Industry

Sri Lanka’s consumer durables industry has great potential given the current market penetration levels
with regards to white goods and consumer electronics. The macro environment proves to be challenging
during the recent past due to huge spikes in the electricity tariffs and value added taxes (VAT) being
Figure 5. GDP per Capita Forecast imposed along the retail chain, which in turn exerted pressure on the consumer durables segment. The
Industry has three main players in which Singer Sri Lanka controls close to 38% of the consumer durables
market share.
Intense Competition
The rivalry among existing players in the industry of consumer durable are considerably high as the market
is filled with large and known players such as Abans, Softlogic and Sinhagiri who has the ability of
competing in the market intensely. Also companies in the consumer durables sector compete in a market
where margins are very low and this further increase the completion as the organizations compete to
attract more customers. Customers in this industry experience low switching cost in the market as there are
many offering the same product in the market and this further intensify the level of competition.
Higher Customer Bargaining Power
Customers who make the purchasing decision of buying white goods and other consumer durables have
considerable power as they face low switching cost in the market. The products offered by competitors are
undifferentiated and customers have more access to information with the internet era. Customers are also
price sensitive and demand for high quality goods in the market. Consumer durable sellers must ensure
customer satisfaction at all times to survive in the industry. Nevertheless, the customers would have to stick
with the product bought as they cannot just dump the product, as it is a relatively high value item. Also they
will have to come back to the seller for after sales services and spare parts making their bargaining power
less.
Power of upstream suppliers
The retail consumer durables industry would not be in existence if there were no suppliers who would
cater the industry with different brands of products. The suppliers of the consumer durables industry are
most times well known global brands and some of these brands possess the ability of integrating forward in
the industry.

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Figure 7 SINS Retail Presence
High entry barriers and exit barriers
The consumer durable sector becomes an attractive industry with the entry barriers. The industry has built
a loyal group of customers and a new entrant will not find it easy to take these customers away from the
existing players and also the players have established strong distribution channels in the industry
enhancing the relationship with customers.
Competitive Positioning
Strong Brand Name and Customer Network
The Singer brand name has been part of the Sri Lankan household for nearly 137 years catering to over 4.5
million household customers’ island wide. The many accolades won by Singer Sri Lanka are a testament of
its commitment to offering products and services of the highest quality. Singer has received many awards
including the award for the most respected entity in Sri Lanka continuously, reaffirming the dominance of
the Singer brand in the local consumer durables segment. The Singer brand has been valued at SLR 7.4
billion in 2013 and we believe this indicates a favourable competitive position above its competitors.
Island Wide and Online Retail Presence
Figure 8: Interest rate forecast
Singer’s retail network of 406 stores reaches every corner of the island and the multiple impressions of
distribution are unique in that it serves every strata of society by the manner of its structure, exemplifying
the reach needed to sustain leadership over time. Singer’s main competitor Abans Ltd controls a retail chain
of 260 outlets throughout the country. Considering the consumer durables industry, Singer’s wide retail
presence allows it to occupy the high ground within the competitive landscape.
In House Financing Option for Singer Products
The main function of Singer Finance is to accept hire purchase and leasing from all 406 of their showrooms.
This facility is especially useful to outstation customers who have limited access to banks and operates as a
short-midterm lending provider for consumers under the “easy payment scheme”

Investment Summary
Investment Summary
We issue a BUY recommendation on Singer Sri Lanka [SINS] with a one-year target price of LKR 120.36
using the SOTP valuation method supported by a Discounted Free Cash Flow [DCF]. This offers a 12.8%
upside from its closing price of LKR 106.7 on September 29th 2014. SINS is able to capitalize on their wide
retail presence which translates to a highly defensible business model using both; branches and mobile
stores along with a dedicated in-house financing arm which is perfectly positioned to exploit the future
credit expansion. This would position SINS to further strengthen their operating cash flows and maximize
firm value.
SINS’ wide retail presence is a highly defensible business model for three reasons; (1) A long standing
history of 137 years in operation, makes SINS a well-known household brand; (2) Multi-brand, multi-
channel business model well positioned to exploit the spurt in per-capita income; (3) GDP growth coupled
with c. 100% electrification rate in the country would drive stable demand for consumer durables.
Rise in per capita GDP and changing consumer preferences to open up retail-market opportunities:
SINS’ wide retail presence well positioned to capture this trend:
Figure 10: GDP per capita cf.
peers A significant trend is the rapid rise in GDP per capita in Sri Lanka; ahead of its South Asian peers’ like India
and Bangladesh (Figure 10). GDP per capita is expected to increase to c.USD 4,000 by 2016. This trend
should feed through to structurally higher consumer spending and changing consumer preferences. The
organised sector is estimated to represent 3% of the USD 25-30bn retail market at present; this is likely to
change over time as consumers demand more branded goods and services. Consumption of consumer
durables is also likely to increase – for instance, the share of households with washing machines, personal
computers, and motor cars is still relatively low (Figure 11).
In our analysis, we expect SINS to be well positioned to capture this increase in demand with its 406 retail
outlets spreading across all nine provinces of the country. SINS operate under a virtual monopoly where its
closest competitor Abans Pvt. Ltd. offers a retail presence which is only equivalent to half of SINS’ retail
footprint. This translates to the strongest asset SINS has; which is its widespread distribution and retail
channel. This would be a key value creation enabling SINS to exploit future demand growth without any
bottlenecks due its diversification from a traditional consumer durables store to a more consumer
experience store with a variety of 17 Singer Mega, 209 Singer Plus, 15 Singer Homes, 106 Satellite Shops
and 59 SISIL World outlets throughout the country [Figure 7].

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SINS’ in-house financing arm well poised to cater to the rise in demand; as increased consumer
Figure 11: Ownership of Consumer
Durables in Sri Lanka spending expectation driven by CBSL’s private credit stimulation:
SINS in-house financing arms provides hire purchase and easy payment methods for its customers which
amounts to c. 60% of its total turnover being financed. Singer Finance’s auxiliary service provided to the
group continues to add value as private credit growth expansion due to lowering CBSL policy rates [Figure
8] along with rising per-capita income would boost consumer durables demand [Figure 11].
Private credit growth in Sri Lanka has declined substantially to 2.2% YoY, it is well below the central bank’s
16% target for year-end 2014E. Of the 28ppts YoY decline in private credit growth since the start of 2012,
40% can be attributed to slower consumer loan growth. This is largely due to weakness in the pawning
loans segment, which has been affected by lower gold prices owing to the US quantitative easing measures.
We noted that historically, there has been a one lag between the first change in the policy rate and a
turnaround in private credit growth. We took a conservative stance in launching our valuation growth
drivers as the pick-up in credit growth may be delayed up to two years this time around due to a sense of
caution among banks since the credit explosion in 2011-12 [Figure 12].

Figure 12: SL Private Sector Credit

Growth Valuation
SOTP/ DCF Valuation
We used the Sum Of The Parts [SOTP] valuation method driven by a Discounted Free Cash Flows in arriving
at a value per common share of LKR 120.36 This method involves estimating the firm’s enterprise value for
each operating segment and adjusting it for net debt along with deficits in retirement benefit obligations
and other off balance sheet debt items such as operating leases to arrive at the equity value. (Appendix
11,12)

In applying the SOTP analysis, the company was broken down into two components: Holding company and
Finance. We forecasted both segments using a two-stage growth model. The explicit phase includes a
detailed year-to-year forecast up to 2020, the end of the sixth reporting forecast period, while we assumed
a constant growth rate for the terminal phase (1% YoY).

Based on this approach, SINS’s value per common share of LKR 120.36 can be decomposed into the value of
Figure 13: Gold Prices vs. Pawning the Singer Holding Company at LKR 72.65 [60.4%], the value of Singer Finance at LKR 47.71 [39.6%]
in Sri Lanka

Singer Holding Company

Singer Holding company primarily operates as a consumer durables retailer that offer products under;
Sewing related, consumer electronics, white goods, kitchen related, digital media, furniture, transportation
and agro segments. For our forecasting purposes we prioritized the product segment according to revenue
contribution [Figure 1].

Consumer Electronics, White Goods and Digital Media: Key drivers of SINS value

Revenue driver: ideally we considered the alternatives of driving singer holdings on a Price x Volume basis
along with a same-store-sales ratio in order to forecast future top line. Since the lack of company disclosure
regarding future store plans, average selling price and quantity sold data sets, we derived a more macro
perspective in forecasting and driving revenue.

Figure 13: Gold Price Consensus Our revenue projections were a function of three main macro variables; [1] GDP per capita income trend;
Estimates [2] private credit growth trend; [3] household consumption expenditure on consumer durables and its
trends;

GDP per capita trend remains bullish for the future: The Sri Lankan economy is on course to achieve a GDP
per capita of USD 4000 2016E; this translates to higher disposable income which is a major factor in our
opinion that would boost consumer discretionary spending at an exponential rate [Figure 10].

Private Credit Growth remains bullish in tandem with GDP expectations: we estimate private credit
expansion to take place in Sri Lanka via two main contexts; [1] Rise in gold prices to influence higher
collateralized lending [Figure 13]; [2] Formal banking sector lending to kick in with a 1-2 year time lag as
CBSL policy rates drop:

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Table 1: Consolidated DCF Summary –
Singer Holding Company – DCF Valuation
Secondary Valuation

Description LKR Million FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY21E FY22E FY23E FY24E FY25E
Description
Enterprise value 28,480 Explicit forecast Fade period

Net debt 10,245 Cash flow

from 1,302 1,598 1,862 1,968 2,193 2,436 2,672 2,795 2,956 3,126 3,306 3,496
operations
Operating leases
2,618
outstanding Capital
(81) (86) (91) (95) (100) (106) (112) (119) (125) (133) (140) (148)
expenditure
Retirement Benefit
337.749
Obligations FCFF 1,221 1,512 1,771 1,873 2,093 2,330 2,560 2,677 2,831 2,994 3,166 3,348

Minorities 408.521 Terminal

32,143
value
Associate and other
53.576 WACC 11.50% 11.50% 11.50% 11.50% 11.50% 11.50% 11.5% 11.50% 11.50% 11.50% 11.50% 11.50%
investment

Equity Value 14,924 PV of FCFF 1,125 1,250 1,312 1,244 1,247 1,245 1,266 1,150 1,090 1,034 980 9,856

No of diluted ordinary
Operating Expenses – Operating expenses were driven as percentage of revenue, historically SINS has been
125 incurring an operating expense of c. 89% of total revenue which we expect to remain throughout our
shares
valuation tenure.
DCF value per share 119.19

Current market price 106.70 Weighted Average Cost of Capital (WACC)

Upside/downside 11.7%
The cost of equity was calculated using the CAPM. The risk free rate of 8.9% was based on the current yield
of 5-year government bonds; Equity Beta of 0.8 was computed by adding a premium to the CSE beta value of
0.57 since we perceived it had exposure to economic cycles although its own financing arm’s hire purchase
mature market [US market] return adjusted for inflation rate differential between the countries. Applying
CAPM to the components above resulted in a cost of equity of 17.4%. The weighted average after tax cost of
debt of 10.9% is based on relevant interest bearing liabilities. Based on the market value-weighted target
capital structure, the WACC is 11.5%. (Appendix 13)

Singer Finance
Figure 14: Sri Lanka – Broad Money
Supply [M2]
Singer Finance’s main business operation is to accept hire purchase and leasing from SINS’ 406 showrooms
which a key facility for showrooms and customers beyond the city limits who has lesser access to banking
services.

Interest Income Drivers: Net interest income for Singer Finance was driven by projecting the underlying
asset base and effective rate of return of each service category; Finance Lease; Hire Purchase; Loans and
Advances. The primary driver of the underlying asset base and effective rate of return was team estimates
regarding how credit expansion measure would trickle down to the asset base expansion and put pressure
on the effective rate of return yielded from each of these asset bases.

We considered a lag effect of c. 1 – 2 years when projecting growth rates to each of the category’s asset bases.
CBSL policies to expand private credit would fully be measured in our DCF analysis from FY2017E onwards.
Under such circumstances we also reduced our expectation for effective rate of returns taking in to account
the increased pressure from other sources of credit along with increased competition.
Table 2: Sensitivity Analysis

Possible Investment Risks

Variable Base Hold Sell
case Key risk factors that could change our recommendation to a hold or sell has been listed [Table 2] using a
Ke 18.4 13% 19% sensitivity analysis. Here the key risk variables identified was the cost of equity [Ke] which currently remains
at 18.4% given a target long term capital structure of 60:40. Equity beta of 0.8 has been taken using a mature
Beta 0.8 9% 15% market plus risk premium method to reflect an emerging market’s inflation differential along with high
Kd(Pretax) 10.9 12% 18% systematic risk.

Tax 31.6 29% 42% In our DCF analysis, we kept the value derived through the terminal growth period below 66% [2/3] of the
total enterprise value of the company, this recommendation could shift to a hold if the terminal growth rate
Terminal 1 -20% -
growth rate 30% falls 20% below the current 1% YoY and further shift to a sell if the terminal growth falls 30% as of current
rate.
WACC 12 15% 24%

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Financial Analysis
Figure 14: Revenue Breakdown Revenue CAGR of 5.9% FY14E-20E driven, by volume growth in new product introductions and heavy
investment in advertising:
We expect digital media, a segment that accounts to 12% of Singer PLC’s total revenue, to bring forth the
highest contribution to revenue from amongst the newly introduced segments. The company expects to
invest in advertising campaigns that target school children via programs carried out at schools; mainly at
sports events with a long term view of creating engagement with Singer brand from childhood itself. The
revenue from core retailing products; white goods and consumer electronics (58% share of total revenue in
FY2012) declined by 11% due to decrease of sales of refrigerators and washing machines in FY2013 driven
by high electricity tariffs coupled with increase of import taxes that were partly passed down to the
customer. We expect the decline in revenue during FY2013 to be offset during FY2015E driven by customer
sentiment adjusting to the higher tariffs and lagged improvements in private credit taking effect.
EBITDA CAGR of 7.4% FY14E-20E, as a result of maintaining relatively higher margins from the core
products of Singer:
White goods and consumer electronics segments have generated the highest margins from the product
portfolio of Singer during the period of FY2000-13. Digital media, the fastest growth segment (16% revenue
CAGR FY2014E-16E) will generate lower margins (<5%) as a result of high competitive rivalry. Furniture
segment has not yet stepped into rapid growth phase though this segment is promising considering the
customer demand generated so far driven by increase in apartments and house remodeling frequency. We
expect the traditional core segments of white goods and consumer electronics to continue to generate higher
margins over FY2014E-20E. Central Bank of Sri Lanka states that washing machine and air-conditioning
penetration rates of Sri Lanka is c. 45% and c.12%. Singer generates highest margins from white goods
(15.5% in FY2014E) indicating that higher penetration rates in these segments will be advantageous to
Figure 15: EBIT Margin
Singer. Currently Singer holds c. 62% share of white goods market in Sri Lanka.
Net debt/Equity ratio of 219.8% in FY2013 with c. 40% of the short term debt due prior to and during
FY2015 leads to high leverage for Singer Plc:
Total debt and other facilities utilized is 71.6% of available facilities in FY2013. Out of the total debt portfolio
of Singer Plc. utilized long term debt facilities accounted for 34.1% in FY2013 consisting of term loans and
debentures. Debentures accounted for 30.6%. Short term loans of LKR5.2bn poses a risk for Singer in the
event interest rates revise upwards over FY2014E-15E. IMF expects interest rates in Sri Lanka to increase
over FY2015E. Singer’s over reliance on short term debts will have a negative impact on Singer’s operations
if Singer is unable to secure further debt at lower cost over the next year in replacement of the maturing
short term debt. Further increase in leverage could lead to credit downgrades. Credit downgrades will have a
significant impact on Singer’s ability to finance its operations with low cost debt leading to a rise in interest
costs.
Consistent payment of dividends:
Singer is one of the few companies in Sri Lanka that have consistently paid dividends to shareholders. Singer
Figure 16: Quick Ratio
paid a final dividend of LKR6.00 per share in FY2012 and LKR2.50 in FY2013. We expect dividend payout
ratios in the range of 34-47% over FY2014E-20E. The ability to pay dividends is supported by EBT growth of
6.2CAGR from FY2014E-20E and FCF yield of 4.6% in FY2016E.
Efficient inventory management and higher cash conversion cycle cf. peers:
Singer Plc.’s inventory days during FY2014E-16E is at a range of 115-120 days cf. peer average of 140 days.
This is driven by ability to understand the sentiments to the Sri Lankan consumer and clearance sales when
inventory is recognized as outdated. Singer has regular clearance sales to avoid the accumulation of obsolete
inventory. Singer’s proactive measures regarding inventory management cf. with local peers enables Singer
Plc. to reduce inventory days especially with regard to televisions and mobile phones since they are facing a
high rate of obsolescence. Singer’s cash operating cycle is 10 days higher than peer average in FY2014E.
However Singer is able to manage to have a higher cash operating cycle owing to the backing of its finance
arm Singer Finance Plc. The higher purchase agreements under the Del-Credere system supports higher cash
operating cycle.

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Investment Risks
Risks
Table 3: Risk Analysis

Operational Risk: Significant decrease in profit margins (OR1)

Risk Mitigating Factor

Operational Risk Net profit margins are 1.8% and 3.0% in year 2013 and 2014(E). During the year 2013, while the cost of
Renovation and
sales rose significantly the demand decreased in the consumer durables sector of Sri Lanka. A weak
transformation plan to domestic economy coupled with increases in energy prices and upward revisions in VAT where Singer Plc.
improve showrooms,
Significant decrease in profit reduce cost structure was unable to pass the entire burden of the VAT revisions to the customers were the main causes of this
margins across all channels, and
develop partnership situation. Company has undertaken aggressive cost management activities such as looking for new sources of
with strong
international brands.
supplies and improving production efficiencies. We believe that further declines in profit margins can have a
significant impact on the company and our recommendation.
Diversified produce
portfolio targeting
Cyclical demand for Singer
different consumer
products
groups, customer loyalty
programme
Operational Risk: Cyclical demand for Singer products (OR2)
Stock clearance
activities on a regular
basis (Quarterly),
The consumer durables industry in Sri Lanka has a cyclical demand peaking during March-April and again
Rapidly changing consumer
demand leading to obsolete
monthly operational
meeting for inventory
during December. Singer is subjected to the cyclical demand conditions as well as having to face significant
inventory management, provisions volatility in demand for non-essential consumer durables through economic cycles. Although a rise in GDP
for obsolete inventory,
and warranty cost is and a marginal increase in private consumer spending are expected, the private credit cycle is expected to
insured
take longer to rebound. We believe that this will pose a significant threat to Singer’s operations given the
Credit risk heavy dependence on credit sales via the del credere system. We believe that the linkage between Singer
Branch managers act as Finance Plc. and Singer Plc. will increase the magnitude of the cyclicality risk.
del credere agents,
Risk of customers reneging on a
database for customer
hire-purchase agreement
creditworthiness, risk-
adjusted pricing Operational Risk: Rapidly changing consumer demand leading to obsolete inventory (OR3)
Strong relationships and
Further downgrade in credit
facilities with many
ratings
banks With rapid changes in technology, Singer faces an increasing risk of obsolete inventory. Especially the items
Liquidity Risk under the television category face high risk of obsolescence. (Ex: LCD TVs being replaced by LED TVs). To
Increase in contractual cash Strong supplier
clear the obsolete inventory Singer has to have several clearance sales per year. We believe that Singer’s
outflows relationships proactive measures in identifying industry trends and regular clearance sales have reduced this risk.
Market Risk

Majority of debentures
are fixed rated ,
Credit risk: Risk of customers reneging on a hire-purchase agreement (CR1)
balancing short-and-
Risk of interest rates increasing long term borrowing,
reputed brand name
commands a favorable
At present Singer’s risk in this aspect is not significant. However with the trend of deterioration in personal
rate credit elsewhere for the Sri Lankan consumer credit risk for Singer could increase with customers backing
Importing of 60% of total
Short period between out of hire-purchase agreements. Trade and other receivables exposure of Singer Plc. at the end of year 2013
the date of the purchase
products leading to high currency
and the settlement of for retail and wholesale customers respectively were LKR4.73bn and LKR1.48bn respectively. The debtor
risk exposure
the related liability.
receivables that were due past 120 days stood at LKR788m. We believe that though this risk is low at
Product Risk present, the short term tightening of personal credit supply could affect negatively for Singer Plc.
Stringent quality control
Risk of defective or inappropriate
activities, product
for the market in terms of
price or functionality
testing via sampling on Credit Risk: Further downgrade in credit ratings (CR2)
all product lines

IT Risk
During the year 2014, Singer Plc.’s debt rating was downgraded by Fitch ratings from A(lka) to A-(lka). We
Significant failure in the IT
Regular backups of all
databases and off-site believe that if Singer’s net leverage positions further decrease due to continuation of lower profits, there can
processes disaster-recovery
system
be a possibility of further downgrading in credit ratings. Other reasons that could contribute to further
downgrading of credit ratings are a significant weakening of Singer’s liquidity profile and weakening of
Singer’s 80% held subsidiary, Singer Finance’s credit rating (During 2014 downgraded by Fitch from
BBB+(lka) to BBB(lka)) which has a strong linkage with Singer Plc. We believe that Credit ratings downgrade
in either Singer Plc. or Singer Finance Plc. has the potential of significantly affecting the operations of Singer
Plc. since at present the company is 226% leveraged. This risk is magnified since c. 50% of long term debt is
maturing in 2014 and the company expects to issue new debentures.

Liquidity Risk: Increase in contractual cash outflows (LR1)

At the end of the year 2013, Singer Plc. has a total of LKR19.6bn due as contractual cash out flows. Out of
which 65% (LKR12.8bn) is due within the year 2014. This poses liquidity risk for Singer if credit ratings
deteriorate further, since cash and cash equivalents at the end of year 2013 amounted to only LKR0.7bn. We
believe that liquidity risk coupled with the risk of credit rating downgrade has the potential of significantly
affecting our recommendation.

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Market Risk: Risk of interest rates increasing (MR1)

The mid-term outlook for Sri Lanka shows stable and low interest rates. Singer Plc.’s debt ratios for 2012 and
2013 were 74% and 144% respectively. If the current interest rate environment were to revert, the leverage
position of Singer Plc. could take a drastic negative turn. (Gearing ratio for 2013 stands at 212%) Singer Plc.
hopes to issue debentures during the next fiscal year to replace the large portion of long term debt maturing

during FY2014. We believe that in contrast to market forecasts, if the government’s current policy of low
interest rates were to revert, Singer Plc. will be subjected to high interest rate risk.

Market Risk: Importing of 60% of total products leading to high currency risk exposure (MR2)

Approximately 60% of Singer’s products are imported and sold while 40% are manufactured in 2 factories
located in Sri Lanka. The imported products expose Singer Plc. to currency risk in terms of the USD. Although,
currency risks exposure of Singer is short term in nature, significant volatility of USD: LKR exchange rate has
the potential of affecting short term cash reserves of Singer Plc.

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Appendices
Appendix 1. Statement of Comprehensive Income (Consolidated)

In LKR Millions 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Revenue 25,441 25,486 27,373 29,078 30,880 32,619 34,472 36,404 38,493

COGS (16,120) (16,065) (16,052) (16,561) (17,346) (19,299) (20,231) (21,353) (22,619)

Direct Interest Cost (547) (656) (612) (651) (764) (212) (219) (229) (239)

Gross Profit 8,774 8,765 10,709 11,866 12,771 13,109 14,022 14,822 15,635

Other Income 122 131 168 178 189 200 211 223 236

Selling and
Administrative (5,892) (6,654) (7,200) (7,648) (8,122) (8,580) (9,067) (9,575) (10,125)
Expenses

Other Expenses (228) (209) (270) (286) (304) (321) (339) (358) (379)

EBITDAR 3,487 2,819 3,407 4,110 4,534 4,408 4,827 5,111 5,367

Operating Lease
(460) (554) (449) (633) (672) (710) (750) (792) (837)
Rentals

EBITDA 3,027 2,264 2,958 3,477 3,862 3,698 4,077 4,319 4,530

Depreciation (251) (232) (221) (231) (212) (201) (189) (179) (170)

EBIT 2,776 2,032 2,719 3,256 3,650 3,497 3,888 4,140 4,360

Net Finance Cost (1,054) (1,352) (1,214) (1,325) (1,553) (1,701) (2,024) (2,259) (2,493)

Share of Profits of
Equity Accounted 6 1 5 9 9 2 2 2 2
Investees
Value Added Tax on
(49) (46) (59) (63) (71) (20) (16) (19) (19)
Financial Services
Other non operating
99 92 92 105 112 118 125 132 139
income/expenses

EBT 1,777 728 1,545 1,982 2,147 1,897 1,975 1,997 1,989

Taxation (561) (206) (488) (626) (678) (599) (624) (630) (628)

Net Profit for the

1,216 522 1,057 1,356 1,469 1,298 1,352 1,366 1,361
Period
Non-Controlling
(56) (60) (94) (120) (130) (115) (120) (121) (121)
interest
Profit Attributable
1,160 462 963 1,236 1,339 1,183 1,232 1,245 1,241
for Owners

EPS 9.26 3.69 7.69 9.87 10.69 9.45 9.84 9.95 9.91

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Appendix 2. Statement of Financial Position (Consolidated)

In LKR Millions 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E
Assets
Non-Current Assets
Property, Plant & Equipment 2,151 2,505 2,597 2,544 2,429 2,312 2,207 2,114 2,033
Intangible Assets 189 198 173 142 114 89 65 44 24
Investments in Equity
53 53 85 90 95 93 92 90 88
Accounted Investees
Trade receivables 1,295 1,514 1,617 1,617 1,617 1,617 1,617 1,617 1,617
Non-Trade and Other
3,749 4,155 6,666 8,338 10,090 8,245 10,913 11,281 11,666
Receivables
Other assets 167 136 136 136 136 136 136 136 136
Total non-current assets 7,604 8,561 11,273 12,867 14,481 12,491 15,029 15,282 15,564

Current Assets
Cash and Cash Equivalents 615 692 1,033 2,910 5,094 9,942 10,188 12,712 15,164
Inventories 4,226 5,156 5,106 5,382 5,672 6,311 6,616 6,983 7,397
Trade receivables 5,329 6,400 6,924 7,395 7,873 8,064 8,522 9,000 9,516
Non-trade and receivables 3,027 3,118 3,113 3,113 3,113 3,113 3,113 3,113 3,113
Deposits with Bank 51 114 116 116 116 116 116 116 116
Other assets 547 556 564 564 564 564 564 564 564
Total current assets 13,795 16,036 16,857 19,481 22,433 28,110 29,120 32,488 35,870
Total assets 21,399 24,597 28,131 32,348 36,913 40,601 44,149 47,769 51,434

Non-Current Liabilities
Interest Bearing Loans &
1,634 4,337 4,637 6,365 8,529 10,692 12,855 15,018 17,181
Borrowings
Retirement Benefit Obligations 271 320 338 338 338 338 338 338 338
Deposits from Customers 343 756 829 829 829 829 829 829 829
Security Deposits 577 652 670 670 670 670 670 670 670
Other liabilities 114 110 108 108 108 108 108 108 108
Total non-current liabilities 2,939 6,175 6,583 8,311 10,474 12,637 14,800 16,963 19,126

Current Liabilities
Interest Bearing Loans &
7,340 6,203 6,879 6,879 6,879 6,879 6,879 6,879 6,879
Borrowings
Trade and Other Payables 2,521 3,387 3,216 3,390 3,572 3,974 4,166 4,397 4,658
Income Tax Payable 67 16 33 122 122 122 122 122 122
Dividends Payable 11 15 274 274 274 274 274 274 274
Deposits from Customers 2,650 3,012 4,952 6,019 7,316 7,682 8,066 8,469 8,892
Other Financial Liabilities 261 431 495 495 495 495 495 495 495

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Total current liabilities 12,850 13,064 15,848 17,178 18,657 19,425 20,001 20,636 21,320
Total Liabilities 15,789 19,239 22,431 25,489 29,132 32,063 34,802 37,599 40,446
Net Assets 5,610 5,358 5,700 6,859 7,782 8,539 9,347 10,170 10,988

Equity
Stated Capital 626 626 626 626 626 626 626 626 626
Statutory Reserve 78 128 128 128 128 128 128 128 128
Capital reserves 773 762 759 759 759 759 759 759 759
Revenue Reserves 3,778 3,448 3,725 4,460 5,298 5,981 6,712 7,456 8,196
Total Equity Attributable to
5,255 4,964 5,239 5,974 6,812 7,494 8,226 8,970 9,710
Equity Holders
Non-Controlling Interest 357 396 461 539 623 698 776 854 932
Total Equity 5,612 5,360 5,700 6,513 7,436 8,192 9,001 9,824 10,642

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36
Appendix 3. Statement of Cash Flow (Consolidated)

Description 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E
Reported profit 1,777 728 1,042 1,236 1,339 1,183 1,232 1,245 1,241
Adjustment
Tax - - 347 626 678 599 624 630 628
Depreciation and
252 231 239 221 212 201 189 179 170
amortization
Share of Profit from Equity
(6) (1) (5) (9) (9) (2) (2) (2) (2)
Accounted Investees
Interest income (99) (99) (18)
Interest cost 1,054 1,352 367 120 130 115 120 121 121
Other non cash items 321 1,401 685 - - - - - -
Changes in working capital (3,271) (2,035) (1,808) (1,178) (1,040) 1,783 (2,855) (579) (631)
Cash flow from operations 28 1,577 850 1,016 1,310 3,878 (693) 1,595 1,526
Income tax paid (684) (281) (382) (626) (678) (599) (624) (630) (628)
Other items (10) (6) (1) - - - - - -
Net cash flow from operating
(666) 1,290 467 390 632 3,280 (1,317) 964 898
activities

Cash flow from investing

activities
Acquisition of Property, Plant
& Equipment and Intangible (603) (601) (311) (145) (77) (65) (69) (73) (77)
Assets
Proceeds from Disposal of
20 7 15 20 20 20 20 20 20
Property, Plant & Equipment

Investments in Equity
- - (15) 20 20 20 20 20 20
Accounted Investees
Interest Income Received 99 99 18
Dividend Income Received 2 1 0 0 0 0 0 0 0
Other investing cash flows 1 (148) (46) (28) (28) (28) (28) (28) (28)
Net cash flow from investing
(481) (642) (339) (133) (65) (53) (57) (61) (65)
activities

Cash flow from finance

activities
Proceeds from Interest-
Bearing Loans and 8,511 10,166 541 2,163 2,163 2,163 2,163 2,163 2,163
Borrowings
Repayment of Interest-
Bearing Loans and (5,493) (8,776) - - - - - - -
Borrowings
Net Payment to Minority
(21) (21) (28) (42) (46) (40) (42) (42) (42)
Shareholders
Dividends Paid (746) (747) (429) (501) (501) (501) (501) (501) (501) 12 of
36
Interest cost (907) (1,370) (304)
Other cash flow from finance
58 - 434 - - - - - -
activities
Net cash flow from financing
1,401 (749) 214 1,620 1,617 1,622 1,620 1,620 1,620
activities

Changes in cash and cash

254 (100) 341 1,877 2,183 4,848 247 2,523 2,452
equivalents
Bank overdraft 664 841
Cash and cash equivalent at
(303) (48) 692 1,033 2,910 5,094 9,942 10,188 12,712
the beginning of the period
Cash and cash equivalent at
615 692 1,033 2,910 5,094 9,942 10,188 12,712 15,164
the end of the period

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Appendix 4. Common Size Statement of Comprehensive Income (Consolidated)

In LKR Millions 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Revenue 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

COGS -63.36% -63.03% -58.64% -56.95% -56.17% -59.16% -58.69% -58.66% -58.76%

Direct Interest Cost -2.15% -2.57% -2.24% -2.24% -2.47% -0.65% -0.63% -0.63% -0.62%

Gross Profit 34.49% 34.39% 39.12% 40.81% 41.36% 40.19% 40.68% 40.71% 40.62%

Other Income 0.48% 0.51% 0.61% 0.61% 0.61% 0.61% 0.61% 0.61% 0.61%

Selling and
Administrative -23.16% -26.11% -26.30% -26.30% -26.30% -26.30% -26.30% -26.30% -26.30%
Expenses

Other Expenses -0.90% -0.82% -0.99% -0.98% -0.98% -0.98% -0.98% -0.98% -0.98%

EBITDAR 13.71% 11.06% 12.45% 14.13% 14.68% 13.51% 14.00% 14.04% 13.94%

Operating Lease Rentals -1.81% -2.17% -1.64% -2.18% -2.18% -2.18% -2.18% -2.18% -2.18%

EBITDA 11.90% 8.88% 10.81% 11.96% 12.51% 11.34% 11.83% 11.86% 11.77%

Depreciation -0.99% -0.91% -0.81% -0.79% -0.69% -0.61% -0.55% -0.49% -0.44%

EBIT 10.91% 7.97% 9.93% 11.20% 11.82% 10.72% 11.28% 11.37% 11.33%

Net Finance Cost -4.14% -5.30% -4.44% -4.56% -5.03% -5.21% -5.87% -6.20% -6.48%

Share of Profits of
Equity Accounted 0.02% 0.00% 0.02% 0.03% 0.03% 0.01% 0.01% 0.01% 0.01%
Investees
Value Added Tax on
-0.19% -0.18% -0.22% -0.22% -0.23% -0.06% -0.05% -0.05% -0.05%
Financial Services
Other non operating
0.39% 0.36% 0.34% 0.36% 0.36% 0.36% 0.36% 0.36% 0.36%
income/expenses

EBT 6.98% 2.86% 5.64% 6.82% 6.95% 5.82% 5.73% 5.48% 5.17%

Taxation -2.21% -0.81% -1.78% -2.15% -2.19% -1.84% -1.81% -1.73% -1.63%

Net Profit for the Period 4.78% 2.05% 3.86% 4.66% 4.76% 3.98% 3.92% 3.75% 3.54%

Non-Controlling
-0.22% -0.24% -0.34% -0.41% -0.42% -0.35% -0.35% -0.33% -0.31%
interest
Profit Attributable for
4.56% 1.81% 3.52% 4.25% 4.34% 3.63% 3.57% 3.42% 3.22%
Owners

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Appendix 5. Common Size Statement of Financial Position (Consolidated)

In LKR Millions 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Assets

Non-Current Assets

Property, Plant &

10.05% 10.18% 9.23% 7.86% 6.58% 5.69% 5.00% 4.43% 3.95%
Equipment

Intangible Assets 0.88% 0.80% 0.61% 0.44% 0.31% 0.22% 0.15% 0.09% 0.05%

Investments in Equity
0.25% 0.22% 0.30% 0.28% 0.26% 0.23% 0.21% 0.19% 0.17%
Accounted Investees

Trade receivables 6.05% 6.16% 5.75% 5.00% 4.38% 3.98% 3.66% 3.38% 3.14%

Non-Trade and Other

17.52% 16.89% 23.70% 25.78% 27.33% 20.31% 24.72% 23.62% 22.68%
Receivables

Other assets 0.78% 0.55% 0.48% 0.42% 0.37% 0.34% 0.31% 0.28% 0.26%

Total non-current
35.53% 34.81% 40.07% 39.78% 39.23% 30.77% 34.04% 31.99% 30.26%
assets

Current Assets

Cash and Cash

2.87% 2.81% 3.67% 9.00% 13.80% 24.49% 23.08% 26.61% 29.48%
Equivalents

Inventories 19.75% 20.96% 18.15% 16.64% 15.37% 15.54% 14.99% 14.62% 14.38%

Trade receivables 24.90% 26.02% 24.62% 22.86% 21.33% 19.86% 19.30% 18.84% 18.50%

Non-trade and
14.15% 12.68% 11.07% 9.62% 8.43% 7.67% 7.05% 6.52% 6.05%
receivables

Deposits with Bank 0.24% 0.46% 0.41% 0.36% 0.31% 0.29% 0.26% 0.24% 0.23%

Other assets 2.56% 2.26% 2.01% 1.74% 1.53% 1.39% 1.28% 1.18% 1.10%

Total current assets 64.47% 65.19% 59.93% 60.22% 60.77% 69.23% 65.96% 68.01% 69.74%

Total assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Non-Current
Liabilities
Interest Bearing
7.64% 17.63% 16.48% 19.68% 23.10% 26.33% 29.12% 31.44% 33.40%
Loans & Borrowings
Retirement Benefit
1.27% 1.30% 1.20% 1.04% 0.91% 0.83% 0.77% 0.71% 0.66%
Obligations
Deposits from
1.60% 3.07% 2.95% 2.56% 2.25% 2.04% 1.88% 1.74% 1.61%
Customers

Security Deposits 2.70% 2.65% 2.38% 2.07% 1.82% 1.65% 1.52% 1.40% 1.30%

Other liabilities 0.53% 0.45% 0.39% 0.34% 0.29% 0.27% 0.25% 0.23% 0.21%

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Total non-current
13.73% 25.10% 23.40% 25.69% 28.38% 31.13% 33.52% 35.51% 37.19%
liabilities

Current Liabilities

Interest Bearing
34.30% 25.22% 24.45% 21.26% 18.63% 16.94% 15.58% 14.40% 13.37%
Loans & Borrowings
Trade and Other
11.78% 13.77% 11.43% 10.48% 9.68% 9.79% 9.44% 9.21% 9.06%
Payables

Income Tax Payable 0.31% 0.07% 0.12% 0.38% 0.33% 0.30% 0.28% 0.25% 0.24%

Dividends Payable 0.05% 0.06% 0.97% 0.85% 0.74% 0.68% 0.62% 0.57% 0.53%

Deposits from
12.38% 12.25% 17.60% 18.61% 19.82% 18.92% 18.27% 17.73% 17.29%
Customers
Other Financial
1.22% 1.75% 1.76% 1.53% 1.34% 1.22% 1.12% 1.04% 0.96%
Liabilities
Total current
60.05% 53.11% 56.34% 53.10% 50.54% 47.84% 45.30% 43.20% 41.45%
liabilities

Total Liabilities 73.78% 78.22% 79.74% 78.80% 78.92% 78.97% 78.83% 78.71% 78.64%

Net Assets 26.22% 21.78% 20.26% 21.20% 21.08% 21.03% 21.17% 21.29% 21.36%

Equity

Stated Capital 2.93% 2.55% 2.23% 1.94% 1.70% 1.54% 1.42% 1.31% 1.22%

Statutory Reserve 0.36% 0.52% 0.46% 0.40% 0.35% 0.32% 0.29% 0.27% 0.25%

Capital reserves 3.61% 3.10% 2.70% 2.35% 2.06% 1.87% 1.72% 1.59% 1.48%

Revenue Reserves 17.66% 14.02% 13.24% 13.79% 14.35% 14.73% 15.20% 15.61% 15.93%

Total Equity
Attributable to 24.56% 20.18% 18.62% 18.47% 18.45% 18.46% 18.63% 18.78% 18.88%
Equity Holders
Non-Controlling
1.67% 1.61% 1.64% 1.67% 1.69% 1.72% 1.76% 1.79% 1.81%
Interest

Total Equity 26.23% 21.79% 20.26% 20.13% 20.14% 20.18% 20.39% 20.57% 20.69%

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Appendix 6. Key Financial Ratios

Ratio 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Growth Ratios
Revenue growth (%) 15.5% 0.2% 7.4% 6.2% 6.2% 5.6% 5.7% 5.6% 5.7%
Gross profit growth
8.4% -0.1% 22.2% 10.8% 7.6% 2.6% 7.0% 5.7% 5.5%
(%)
EBITDAR growth (%) 9.5% -19.2% 20.9% 20.6% 10.3% 2.8% 9.5% 5.9% 5.0%
EBITDA growth (%) 9.4% -25.2% 30.6% 17.5% 11.1% 4.3% 10.3% 5.9% 4.9%
EBIT growth (%) 9.1% -26.8% 33.8% 19.7% 12.1% 4.2% 11.2% 6.5% 5.3%
Pre-tax growth (%) -10.7% -59.0% 112.0% 28.3% 8.3% 11.6% 4.1% 1.1% -0.4%
Net income growth (%) -7.1% -57.1% 102.4% 28.3% 8.3% 11.6% 4.1% 1.1% -0.4%
Margins
EBITDA margin (%) 11.9% 8.9% 10.8% 12.0% 12.5% 11.3% 11.8% 11.9% 11.8%
EBIT margin (%) 10.9% 8.0% 9.9% 11.2% 11.8% 10.7% 11.3% 11.4% 11.3%
Pre-tax margin (%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Net margin (%) 4.6% 1.8% 3.5% 4.3% 4.3% 3.6% 3.6% 3.4% 3.2%
Effective tax rate (%) 31.6% 28.3% 31.6% 31.6% 31.6% 31.6% 31.6% 31.6% 31.6%
Liquidity Ratios
Capex/depreciation (x) 2.6 2.7 1.4 0.7 0.4 0.3 0.4 0.4 0.5
Current ratio (x) 1.1 1.2 1.1 1.1 1.2 1.4 1.5 1.6 1.7
Quick ratio (x) 0.7 0.8 0.7 0.8 0.9 1.1 1.1 1.2 1.3
Working
27.6% 32.1% 32.2% 8.1% 32.3% 31.9% 31.8% 31.8% 8.0%
capital/revenue (%)
Receivable days 61.2 84.0 88.8 89.9 90.2 90.2 90.2 90.2 90.2
Inventory days 86.4 106.6 116.1 118.6 119.4 119.4 119.4 119.4 119.4
Payable days 57.7 67.1 73.1 74.7 75.2 75.2 75.2 75.2 75.2
Cash operating cycle
90.0 123.4 131.8 133.8 134.4 134.4 134.4 134.4 134.4
(days)
Risk measures
Payout ratio (%) 64.8% 67.7% 39.0% 40.5% 37.4% 42.3% 40.7% 40.2% 40.4%
Net interest cover (x) 2.6 1.5 2.2 2.5 2.3 2.1 1.9 1.8 1.7
Net debt/equity (incl
170.7% 212.3% 219.8% 221.7% 226.2% 234.4% 239.9% 244.1% 247.8%
MI) (%)
Interest expense to - -
104.8% 260.3% 339.8% 246.0% 51.9% 234.3% 277.8%
OCF (%) 158.3% 153.7%
Net debt to FCF (x) 724.3% 1501.7% 8137.2% 3978.0% 1798.8% 232.8% 686.5% 1003.8% 1054.4%
Net debt to EBITDA (x) 274.4% 429.9% 350.4% 293.9% 264.0% 203.2% 231.3% 210.0% 193.8%
Returns
Return on avg cap
14.2% 9.0% 11.1% 11.8% 11.5% 9.7% 9.6% 9.2% 8.9%
employed (%)
Return on avg equity
5.8% 2.3% 4.7% 5.5% 5.2% 4.1% 3.9% 3.6% 3.3%
(excl MI) (%)

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Appendix 7. Retail Presence of Singer Sri Lanka

Appendix 8. Brand Portfolio

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Appendix 9. Awards and Certifications

Award Description
 Singer won the 'People's Brand of the Year ' of the
People’s Brand, Durable Brand of the Year and Youth Brand year for the 9th consecutive year given by AC Neilsen
of the Year and Sri Lanka Institute of Marketing (SLIM)
 Won 'Durable Brand of the Year' for the most popular
refrigerator, Television and Household Appliances
 Most respected organization in the Consumer Goods
Most Respected Entities in Sri Lanka Category and Second within the Top 20 companies in
the country in the list conceptualised by LMD
 Ranked amongst the Ten Best Corporate Citizens by
Best Corporate Citizen Award Ceylon Chamber of Commerce
 Best organization in the 'Customer Relations Category'
 Gold award under Retail Categories by the Institute of
Annual Report Award Chartered Accountants of Sri Lanka
 Bronze Award at the Sri Lanka Institute of Training
Best People Managers and Development 'People Development Awards'

e-Waste Management Award  From the Central Environmental Authority

Appendix 10. Key Management Personnel of Singer Sri Lanka

Director Position Held Since Affiliates/Other work

 Directorates in Bata Shoe Company of Ceylon Ltd , Beta
Hemaka Exports (Pvt)Ltd, TNL Radio (Pvt)Ltd, ACL Cables PLC, C.W.
Chairman 1st July 2010 Mackie PLC, Micro Cars (Pvt)Ltd, Lanka Aluminium PLC,
Amarasuriya
ACME Printing and Packaging PLC
 Former Vice-President of Retail Holdings Ltd., USA and of
Singer Asia Ltd.
 Founder President of the Industrial Association of Sri Lanka
 Fellow of the Institute of Chartered Accountants of Sri Lanka
 Fellow of the Chartered Institute of Management
Accountants – UK
 Fellow of the Chartered Institute of Marketing
 Chairman of the Regional Industrial Services Committee
(RISC)

 Directorates in Singer Industries (Ceylon)PLC, Regnis

Asoka Pieris Group CEO 1st August 2004 (Lanka)PLC, Regnis Appliances (Pvt) Ltd, Equity
Investments Lanka Ltd.
 Vice President of Singer Asia Ltd and Retail Holdings N.V
 Associate Member of the Institute of Chartered Accountants
of Sri Lanka
 Fellow of the Chartered Institute of Management
Accountants – UK

 Directorates in Singer Industries (Ceylon)PLC, ACL Cables

PLC, C.W. Mackie PLC, Colombo Fort and Land Building
Deshabandu Ajit Company PLC, Colombo Fort Investment PLC, Colombo Fort
Director 1st June 2006 Investment Trust PLC, CM Holdings PLC, York Arcade
Jayaratne
Holdings PLC, Mireka Capital Land Ltd and Kotagala
Plantations PLC
 Former Chairman of Colombo Stock Exchange and Ceylon
Chamber of Commerce

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 Former High Commissioner of Sri Lanka to Singapore.
 Fellow of the Institute of Chartered Accountants of Sri Lanka
 Fellow of the Institute of Chartered Accountants of England
and Wales

1st October  Manging Director of UCL Asia Ltd., Director Singer Asia Ltd,
Peter O’Donnell Director Observer Singer Thailand Public Company Ltd.
2003
 Alumnus of both Harvard College and Harvard Business
School

John J. Hyun Director 10th June 2011  Manging Director of UCL Asia.
 Directorrates in Direct Asia Insurance (Holdings)Pte.Ltd,
KCS Ltd, Singer Finance Lanka PLC
 Alumnus of University of Chicago

Director 1st June 2006  Chairman/ Director of Singer Finance (Lanka)PLC

Dr. Saman
Kelegama
 Director of Regnis (Lanka) PLC, SCS Securities, Industrial
Development Board, National Enterprise Development
Authority
 Executive Director of Institute of Policy Studies of Sri Lanka,
National Acedamy of Science of Sri Lanka
 Former President of Sri Lanka Economic Association
 D.Phil. (Economics), Oxford University, UK

1st November  President and CEO of Singer Asia Ltd.

Gavin J. Walker Director
2005
Mahesh Alternate  Director Marketing and Commercial of Singer (Sri
1st June 2006 Lanka)PLC
Wijewardene Director
 Member of the Singer Asia Sourcing Committee
 Immediate Past Chairman of the Ceylon Chamber of
Commerce - Import Section
 Past Chairman of the Sri Lanka-China Business Council.
 Masters in Business Administration from the University of
Southern Queensland

Alternate  Finance Director of Singer (Sri Lanka)PLC and Director of

Priyath Salgado 15th May 2008 Singer Finance (Lanka)PLC
Director

Kumar Alternate 14th February  Director of Sales and Sewing Marketing of Singer (Sri
Samarasinghe Director 2011 Lanka)PLC
 Diploma in Business Administration and Diploma in
Marketing and an MBA from University of London
Alternate  Directorates in Regnis (Lanka)PLC, Singer Industries
V.G.K. Vidyaratne 1st August 2004 (Ceylon)PLC, Regnis Appliance (Pvt) Ltd, Reality Lanka Ltd
Director
 General Manager - Factories of Singer Group, Sri Lanka
 Bsc. (Hons)Degree in Production / Mechanical Engineering,
University of Peradeniya
 MBA from the University of Southern Queensland, Australia
 Chartered Engineer and a Member of Institute of Engineers,
Sri Lanka
 Member of the Industrial Association of Sri Lanka
 Member of the National Labour Advisory Committee.

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A.C.M. Irzan Secreatry 15th May 2008  Alternate Director, Singer Industries (Ceylon)PLC
 CFO of Regnis (Lanka)PLC and Regnis Appliances (Pvt)Ltd
 Company Secretary of Singer Industries (Ceylon)PLC and
Regnis (Lanka)PLC
 Fellow of the Chartered Institute of Management
Accountants – UK
 MBA in Marketing - University of Colombo

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Appendix 11. Some of the Parts Valuation (SOTP)

Enterprise Debt Equity No.of Per

Segment Contribution
Value adjustment Value Shares Share
Holding company 22,759 13,663 9,096 125.2096 64.8685 60.4%
Singer Finance (Lanka) PLC 7,253 1,280 5,974 125.2096 47.71153 39.6%
30,013 14,942 15,070 125 120.36 100%

Upside/downside 12.8%
Current share price 106.7

Appendix 12. DCF Analysis

A. Consolidated

FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY21E FY22E FY23E FY24E FY25E
Description
Explicit forecast Fade period
Cash flow
from 1,824 2,911 3,270 2,672 2,883 3,075 3,232 3,394 3,564 3,706 3,855 3,970
operations
Capital
(296) (125) (57) (45) (49) (53) (57) (60) (63) (65) (68) (70)
expenditure
FCFF 1,528 2,786 3,213 2,627 2,834 3,022 3,175 3,334 3,501 3,641 3,787 3,900
Terminal
36,420
value
WACC 11.80% 11.80% 11.80% 11.80% 11.80% 11.80% 11.8% 11.80% 11.80% 11.80% 11.80% 11.80%
PV of FCFF 1,405 2,291 2,364 1,728 1,667 1,590 1,494 1,403 1,318 1,225 1,140 10,854

Description LKR Million

Enterprise value 28,480
Net debt 10,245
Operating leases outstanding 2,618
Retirement Benefit
337.749
Obligations
Minorities 408.521
Associate and other
53.576
investment
Equity Value 14,924
No of diluted ordinary shares 125
DCF value per share 119.19
Current market price 106.70
Upside/downside 11.7%

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B. Holding Company

FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY21E FY22E FY23E FY24E FY25E
Description
Explicit forecast Fade period
Cash flow
from 1,302 1,598 1,862 1,968 2,193 2,436 2,672 2,795 2,956 3,126 3,306 3,496
operations
Capital
(81) (86) (91) (95) (100) (106) (112) (119) (125) (133) (140) (148)
expenditure
FCFF 1,221 1,512 1,771 1,873 2,093 2,330 2,560 2,677 2,831 2,994 3,166 3,348
Terminal
32,143
value
WACC 11.50% 11.50% 11.50% 11.50% 11.50% 11.50% 11.5% 11.50% 11.50% 11.50% 11.50% 11.50%
PV of FCFF 1,125 1,250 1,312 1,244 1,247 1,245 1,266 1,150 1,090 1,034 980 9,856

C. Singer Finance

FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY21E FY22E FY23E FY24E FY25E
Description
Explicit forecast Fade period
Cash flow
from 1,252 917 1,022 1,065 1,087 1,045 966 1,014 1,055 1,086 1,108 1,119
operations
Capital
(57) (65) (72) (79) (86) (91) (96) (101) (105) (109) (111) (112)
expenditure
FCFF 1,196 852 950 986 1,001 953 869 913 949 978 998 1,008
Terminal
7,646
Value
WACC 14.30% 14.30% 14.30% 14.30% 14.30% 14.30% 14.3% 14.30% 14.30% 14.30% 14.30% 14.30%
PV of FCFF 1,122 1,242 1,299 1,228 1,226 1,219 1,197 1,118 1,057 998 943 9,136

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Appendix 13. DCF Assumption – WACC

A. Consolidated

Variable Value Basis

Risk Free Rate 8.93% 5 year Government Bond rate (2014 - 2019)
US market return adjusted for inflation rate differential between SL
Market Risk Premium 12.3%
and USA
Beta 0.77 Bloomberg Information
Cost of Equity 18.4% Team Computation based on CAPM
Pre tax cost of debt 10.90% Team Computation
Marginal Tax Rate 31.6% Effective tax rate of Singer Sri Lanka PLC
Cost of debt, Post Tax 7.46% Team Computation
40% Equity, 60%
Capital structure Target capital structure
Debt
WACC 11.8% Team Computation

Risk Free Rate – The risk free rate was based on Sri Lankan 5 year government bond with a yield of 8.93% as at 30 th May 2014
Market Risk premium – Market Risk Premium was calculated considering the market return of USA equity market and the inflation rates
differential between Sri Lanka and USA. A premium was added to reflect the riskiness of the Sri Lankan equity market compared to the US
market.
Beta – Beta value is based on Retail Sector Beta values obtained from Bloomberg
Pre-Tax cost of debt – Pre tax cost of debt was calculated based on finance cost of the company as a percentage of Interest Bearing Liabilities
Marginal Tax Rate – The tax rate is based on the effective tax rate of Singer Sri Lanka PLC

B. Holding Company

Variable Value Basis

Risk Free Rate 8.93% 5 year Government Bond rate (2014 - 2019)
US market return adjusted for inflation rate differential
Market Risk Premium 11.0%
between SL and USA
Beta 0.8 Bloomberg Information

Cost of Equity 17.4% Team Computation based on CAPM

Pre tax cost of debt 10.90% Team Computation

Marginal Tax Rate 33.3% Effective tax rate of Singer Finance PLC

Cost of debt, Post Tax 7.27% Team Computation

40% Equity,
Capital structure Target capital structure
60% Debt

WACC 11.5% Team Computation

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C. Singer Finance

Variable Value Basis

Risk Free Rate 8.93% 5 year Government Bond rate (2014 - 2019)
US market return adjusted for inflation rate differential
Market Risk Premium 12.3%
between SL and USA
Beta 1.3 Bloomberg Information

Cost of Equity 24.9% Team Computation based on CAPM

Pre tax cost of debt 10.90% Team Computation

Marginal Tax Rate 33.3% Effective tax rate of Singer Finance PLC

Cost of debt, Post Tax 7.27% Team Computation

40% Equity,
Capital structure Target capital structure
60% Debt

WACC 14.3% Team Computation

Appendix 14. Relative Valuation

A relative valuation for Singer Sri Lanka PLC was not done due to the limitations in comparable information. We selected Abans Electricals
PLC and Softlogic PLC as our local peers. Though they were chosen as local peers there were limitations in aspects of business model when
compared to Singer Sri Lanka. Abans Electricals are into manufacturing of white goods and Softlogic is a diversified holding catering to
many business segments such as Hospitals, Hotels and Retail outlets. As international peers we chose Widetech BHD Malaysia and
Electronic City Indonesia for the relative valuation. But due to unavailability forward looking multiples for the chosen peers the relative
valuation could not be carried out.

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Appendix 15. Porter’s Five Forces Analysis

Highly Mildly Mildly Highly

Description Neutral
unattractive unattractive attractive attractive
0 1 2 3 4
Barriers to entry
Economies of scale
Product differentiation
Customer Loyalty
Relationships with customers
Customer switching cost
Protected intellectual property
Access to distribution channels
Capital requirements
Access to technology
Access to raw material
Government protection
Scarcity of important resources
Cost advantages due to experience effect
3 3 0 2 5
Highly
Attractive
Rivalry among competitors
Number of equally balanced competitors
Industry growth rate
Fixed or storage cost
Differentiation between product features
Capacity increases
Competitor strategies
0 4 0 2
Mildly
Unattractive
Power of buyers
Number of important buyers
Number and relative size of industry players
Industry players' fixed costs
Differentiation and availability of substitutes
Buyer switching cost
Buyer's threat of backward integration

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Total buyer's cost contributed by industry
Buyer awareness of product's manufacturing cost
Buyer's price sensitivity
Buyer's profitability in terms of margins
1 2 3 2
Nuetral
Power of suppliers
Number of important suppliers
Availability of substitutes for supplier's products
Switching cost of supplier's products
Supplier's threat of forward integration
Industry threat of backward integration
Supplier's contribution to quality of the industry
products
Profitability of buying industry vs. supplying industry
Total industry cost contributed by suppliers
Entry barriers to the buying industry
Importance of the industry to supplier group

1 4 3 1
Midly
Unattractive

Availability of substitutes
Availability of close substitutes
User's switching cost
Relationship with customers
Brand loyalty of customers
1 3
Highly
Attractive

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Appendix 16. SWOT Analysis

Strengths Weaknesses
 One of the leading consumer durables brands in  High gearing ratio of 226% FY2014E
Sri Lanka over the past decade  Liquidity risk owing to high net debt to FCF ratio
 86.1% ownership is with parent company, Singer of 70.1x FY2014E
Asia with strong financial support from Singer Asia  Reducing margins owing to high competition and
 Nation-wide distribution network (406 retail concentration on low margin earning product
outlets and 747 independent retailers at the end segments such as mobile
of FY2013)
 Stable outlook A(lka) from Fitch Ratings Lanka Ltd.
for senior unsecured debt of Singer Plc.
 Sale of multiple brands under one roof
 Despite slow economic growth Singer reported
revenue CAGR of 21% FY2009-13
 Singer Plc. Has c. 36% overall market share
 Exclusive distributor or co-distributor in Sri Lanka
for Beko, Godrej, Grundig, Hitachi, Huawei,
Philips, Samsung, Skyworth, TCL and Whirlpool
 Credit sales backed by Singer Finance Plc. via hire
purchase agreements

Opportunities Threats
 High upper single digit growth of per capita GDP  Reversal of current low interest environment
expected over the next 5 years  Import tax rate hike
 93% of Sri Lanka’s population has access to  Slower-than-expected growth in private credit
electricity to their place of residence availability

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Appendix 17.Company Profiles of Subsidiaries, Associates and Equity Accounted Investees of Singer

Singer Finance (Subsidiary )- Singer Finance (Lanka) Ltd. operates as a finance leasing
company that engages in the financing of capital goods, agricultural equipment, and
products marketed by Singer (Sri Lanka) Ltd. Singer Finance (Lanka) Ltd. was incorporated
in 2004 and is based in Sri Lanka. Singer Finance (Lanka) Ltd. operates as a subsidiary of
Singer (Sri Lanka) Ltd.
Source: Singer Finance Website

Reality Lanka Ltd. (Associate Company) – A company which operates in the Real
Investments Sector. Reality Lanka makes investments on properties and mainly operates a
via a website
Source: Reality Lanka Website

Telshan Network (Pvt) Ltd. (Equity Accounted Investee) – One of Sri Lanka's premier
lifestyle and Entertainment TV channel and Radio channel
Source: Telshan Networ Website

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Appendix 18. Risk Matrix

IMPACT

Very High High Moderate Low Very Low

(5) (4) (3) (2) (1)

Very High Downgrade in

(5) Credit Ratings

Significant
Decrease on Profit
Margins
Cyclical
High
Demand for
(4) Increase in Products
Contractual
Cashflows
PROBABILITY

Customers
Reneging on
Hire Purchase
Moderate
Currency Risk
(3)
Interest Rate
Risk

Low Obsolete
(2) Inventory

Very Low
(1)

Appendix 19. Sensitivity Analysis

We performed a sensitivity analysis to determine how much change in the risk variable would change our investment recommendation of a
BUY to a Sell or Hold.
Cost of equity
The Ke for Singer Plc. is at 18.4% based on the assumptions in Appendix 13. Singer’s current equity to debt structure is at 20:80. However,
with a long term view we propose for 40:60 equity to debt structure for Singer. Our current buy recommendation is at risk if Ke increases by
13% (Hold) and 19% (Sell). Further increase in leverage is a risk to shareholders of Singer Plc. resulting in increase in Ke since Singer Plc. is
already highly leveraged.
Beta
The beta for Singer Plc. is at 0.8 based on the assumptions in Appendix 13. Our current buy recommendation is at risk if beta increases by
9%(Hold) and 15%(Sell).Risk of higher beta will arise if Singer Plc.’s hire purchase agreements through Singer Finance Plc. fail. The risk of
the failure of the Del Cadre system is less likely considering the success of the system thus far in all economic conditions and the future
private credit growth outlook for Sri Lanka.

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Cost of debt
The Kd for Singer Plc. is at 10.9% based on the assumptions in Appendix 13. Our current buy recommendation is at risk if Kd increases by
12% (Hold) and 18% (Sell). Further increase in leverage is the main factor that can contribute towards higher Kd. Fitch Ratings Lanka Ltd.
downgraded Singer Plc. and Singer Finance during mid 2014 by one notch to A- and BBB+ respectively. A further downgrade in credit rating
has the potential of increasing Kd for the company when Singer Plc. seeks new debt to replace the 40% of total debt that mature within
FY2014E-15E.
Tax
The effective tax rate for Singer Plc. is at 31.6%. In Sri Lanka companies are taxed at 28% on average. Our current buy recommendation is at
risk if tax increases by 29% (Hold) and 42% (Sell). Looking at past trends, the import taxes on white goods, electronic devices and
telecommunication devices have increased YoY since 2006.
Terminal growth
The terminal growth rate for Singer Plc. is at 1% based on the assumptions in Appendix 13. Our current buy recommendation is at risk if
terminal growth rate decreases by 20% (Hold) and 30% (Sell). Terminal value accounts for 36% of our DCF valuation of Singer. Considering
the long term outlook for Singer and the lower proportion of total valuation that is driven by terminal growth we are of the opinion that the
risk of terminal growth rate declining by over 15% is less likely.
WACC
The WACC for Singer Plc. is at 12% based on the assumptions in Appendix 13. Our current buy recommendation is at risk if WACC increases
by 15% (Hold) and 24% (Sell).

Appendix 20. Risk Management Process of SINS

Steps Activities
 The management information system (MIS) to pick up
Data Collection and Analysis relevant business-critical
information.
 Review and validation before it is submitted to senior
management.
 Agree and implement measurement and reporting standards
Assess and methodologies.
 Establish key control processes and practices, including limit
Control structures, impairment allowance criteria and reporting
requirements.
 Monitor the operation of the controls and adherence to risk
direction and limits.
 Provide early warning of control or appetite breaches.
 Ensure that risk management practices and conditions are
appropriate for the business environment.
 Interpret and report on risk exposures, concentrations and
Report risk-taking outcomes.
 Interpret and report on sensitivities and Key Risk Indicators.
 Communicate with relevant parties.

Manage  Review aspects of the Company’s risk profile.

 Assess new risk-return opportunities.
 Advise on optimizing the Company’s risk profile.
 Review and challenge risk management practices.

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Appendix 21. Risk Mitigating Factors

Risk Mitigating Factors

 A new renovation and transformation plan is underway to
Operational Risk: Significant decrease in profit improve showrooms, cost structure across all channels.
margins  Continue to develop relationships with strong international
brands.
 A diversified portfolio of products and brands with a wide
Operational Risk: Cyclical demand for Singer range of offers targeted at different consumer groups.
products  A loyalty programme that encourages customers to stay with
the Singer brand and its products.
 Emphasis on excellent quality, service, value for money and
up-to-date product offers
 Lunching of new technological products as they become
available to the market.
 Stock clearance activities on a regular basis (Quarterly)
Operational Risk: Rapidly changing consumer  Monthly operational meeting to review the forecast, level of
demand leading to obsolete inventory inventory, and procurement requirement
 Provisioning against obsolete inventory, warranty claims and
doubtful debtors.
 Warranty cost is comprehensively covered by a well-reputed
insurance company.
 Branch managers act as del credere agents.
 Regular updates and new introduction of relevant legal
policies and procedures.
 Periodical review of the internal controls by outsourced
consultants.
Credit risk: Risk of customers reneging on a hire-
purchase agreement  Undertaking a thorough appraisal of the client before credit is
extended.
 Details of customers and dealers who have defaulted on
payments are recorded in a database, accessible to those staff
whose duty is to undertake credit evaluations of customers
and dealers.
 Risk-adjusted pricing.
 Projected net borrowings are covered by committed facilities.
Credit Risk: Further downgrade in credit ratings  Strong relationships and facilities with many banks leads to
reliable access to funds.
 Financial planning takes into account expected peaks and
Liquidity Risk: Increase in contractual cash troughs during the year and the business is run accordingly.
outflows  Strong supplier relationships.
 Floating-rate debentures are sometimes issued to capitalize
on existing interest rates.
 Fluctuating interest rates are minimized by striking a balance
Market Risk: Risk of interest rates increasing between short- and long-term borrowings.
 The Company’s strong brand strength and financial
dependability help ensure ready access to funds at attractive
rates.
 The currency risk is limited by the short-term nature of the
Market Risk: Importing of 60% of total products period between the dates of the purchase and the settlements
leading to high currency risk exposure of the related liability.
 The Company’s plant and machinery are rigorously
maintained and upgraded whenever necessary.
Product Risk: Risk of defective or inappropriate  Established quality control measures as well as product
for the market in terms of testing through sampling are performed on all product lines.
price or functionality  The in-house Quality Surveillance Unit tests samples of new
products or components from external suppliers before order
placement.
 Regular backups of all databases and critical information.
IT Risk: Significant failure in the IT processes  Off-site disaster-recovery system.

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Appendix 22.Abbreviations

CAGR Compounded Annual Growth Rate

Capex Capital Expenditure

CAPM Capital Asset Pricing Model

COS Cost of Sales

DCF Discounted Cash Flow

DSC Department of Census and Statistics

EBIT Earnings Before Interest and Tax

EBITDA Earnings Before Interest Tax Depreciation and Amortization

EV Enterprise Value

FCF Free Cash Flow

FCFE Free Cash Flow the Equity

FCFF Free Cash Flow to Firm

GP Gross Profit

MDG Millennium Development Goals

PB Price to Book Value

PE Price Earnings Ratio

SOTP Some of the Parts

SINS Singer Sri Lanka PLC

VAT Value Added Tax

WACC Weighted Average Cost of Capital

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Disclosures:
Ownership and material conflicts of interest:
The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company.
The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias
the content or publication of this report.
Receipt of compensation:
Compensation of the author(s) of this report is not based on investment banking revenue.
Position as a officer or director:
The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject
company.
Market making:
The author(s) does not act as a market maker in the subject company’s securities.
Disclaimer:
The information set forth herein has been obtained or derived from sources generally available to the public and believed by the
author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or
completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This
information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report
should not be considered to be a recommendation by any individual affiliated with CFA Society of Sri Lanka CFA Institute or the CFA
Institute Research Challenge with regard to this company’s stock.

CFA Institute Research Challenge

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