Chairman's Review

“OUR VALUED SHAREHOLDERS HAVE EVERY REASON TO BE PLEASED ABOUT THEIR COMPANY’S PERFORMANCE IN THE PERIOD UNDER CONSIDERATION, WHICH WAS A HARD FOUGHT WIN, WRESTLED AGAINST A BACKDROP OF A SUBDUED ECONOMY…

It gives me great pleasure to place before you the Annual Report and Audited Financials of Singer Finance (Lanka) PLC for the financial year 2018/19. Our Valued shareholders have every reason to be pleased about their Company’s performance in the period under consideration, which was a hard fought win, wrestled against a backdrop of a subdued economy that created an uncertain atmosphere in the latter half of the year. Navigating the year was especially hard because we had to strike the right balance between lending and keeping any risks at bay. However, the adept team at Singer Finance was more than up to the task, successfully maintaining an optimal balance that led to Singer Finance PLC performing well above industry average. Unfortunately, the slower economic growth did not provide the required support to facilitate greater growth.

Economic Performance

Sri Lanka’s progress in terms of real economic performance has fallen below expectations in the year under review due to a number of reasons. Since the growth momentum of the economy was crippled, it had a trickle-down effect on many sectors. The country recorded GDP growth of 3.2 per cent in 2018 compared to the growth of 3.4 per cent in 2017. Although Agriculture recovered from the effect of extreme weather conditions experienced in the previous year to deliver 4.8% growth, industry activities moderated considerably during the year to 0.9 per cent from 4.1 per cent in the previous year due to contraction in construction and related areas. Financial services was the key contributor to growth in the Service sector, growing to 4.7 per cent in 2018, compared to the expansion of 3.6 per cent in the previous year. However, due to the economic slowdown, investor sentiment remained subdued and the Colombo Stock Exchange (CSE) recorded yet another year of poor performance due to adverse developments on domestic and global fronts.

 

Financial Sector Performance

Although overall the financial sector continued to expand in 2018, growth of the Licensed Finance Companies (LFCs) and Specialised Leasing Companies (SLCs) sector slowed in 2018, with the decline in credit growth and profitability during the year. Lending activities of the sector decelerated mainly due to recent fiscal and macroprudential policy measures, which were taken to curtail the imports of motor vehicles and credit facilities for purchasing vehicles. The profitability of the sector declined during the year mainly due to increased funding cost and higher loan loss provisions made against Non Performing Loans (NPLs). Signs of stress towards the sector’s profitability during the year were reflected by the decrease in Returns on Asset (ROA) and returns on Equity (ROE). Taking a much-needed step to boost confidence, The Central Bank of Sri Lanka continued to strengthen the supervisory and regulatory framework of LFCs and SLCs and took action to revive or close down weak LFCs to resolve the lingering concerns in the sector.

“AS A MEDIUM-SIZED, WELL-RUN FINANCE COMPANY, OPENING MORE BRANCHES WILL BE THE RIGHT GROWTH STRATEGY. DURING THE YEAR, 4 NEW BRANCHES WERE OPENED, AND 3 SERVICE CENTERS WERE RELOCATED.”

 

Company Performance

The Company demonstrated growth of 22% in its bottom line, which is an exceptional achievement considering the plight of many financial companies in the industry who struggled during the year under review. Overall, I am satisfied with the performance of the Company and credit the performance to the sage advice extended by the Board of Directors and the effective implementation of those strategies by the CEO, senior management and staff of the Company. Taking note of early signs that the year 2018/19 was going to be stressful for the economy and the financial services sector as a whole, staff was advised to be cautious in their lending. At the same time, leasing is our core business and it was essential that the Company achieved organic growth in its core area of expertise. Nevertheless, we chose the prudent path and put the brakes on promoting mortgage loans, consumables and credit cards amongst the customer base for the rest of the year. While being cognizant of the fact that this might hinder higher growth rates for the Company, it will definitely ensure sound fundamentals. During the year under review, the Company expanded its product portfolio to more branches. Gold Loans, which was started in the previous year, has been extended to 14 branches currently. In time, Gold Loans will be available at all Singer Finance branches. The Company’s expansion thus far had been a prudent one, with each branch encouraged to break even in order to optimize capital investments and HR costs. As a medium-sized, well-run finance company, opening more branches will be the right growth strategy. During the year, 4 new branches were opened, and 3 service centers were relocated to more prominent locations. In the past, some of Singer Finance outlets were located at Singer Sri Lanka retail outlets, which meant that they were often overlooked and accessed only by customers walking into the showroom. Now positioned as standalone branches, Singer Finance outlets enjoy a distinctive identity and fulfil customer needs with its visible presence. During the latter part of this year, a headoffice was set up at No. 498, R. A. De Mel Mawatha, Colombo 03 and gained greater visibility for the corporate brand. Going ahead, dynamic strategies are being finalized to strengthen Singer Finance positioning in terms of branding and locations. The investments made in launching Gold Loans and the capital investment in refurbishing branches reduced our profitability slightly during the year, however we expect to reap greater returns on these investments in the months ahead, with a view to achieve future growth. A decision was taken to scale down the credit card operation for the foreseeable future as it encountered some compliance issues.

 

Looking Ahead

The focus during the year was to optimize the Company’s resources. While we expect the two major sectors of tourism and construction, which experienced a slowdown during the year under review, to pick up pace in the year 2019, the first half of the next financial year is expected to remain challenging. While celebrating our strong performance in the year under review, the Company is aware of weak areas that need to be strengthened, such as deposit taking – where greater planning and a proactive stance are needed. Obstacles to future growth remain the same as the previous year, namely, restrictions of vehicle imports and duties and caps on exposure of finance companies in leasing. The Company plans to overcome this hurdle by focusing on acquiring larger ticket sizes in Leasing. I am pleased to note that our NPLs are much lower than the industry average or even that of industry peers. Overall, Singer Finance remained untouched by economic downturn due to prudent management and the Company’s focus on second-hand and small vehicle market.

I am pleased with the way the Company is evolving and growing, with its fixed deposits, gold loans and business poised to grow stridently. The wealth of talent and experience that Singer Finance holds has ensured that we have charted out a dynamic future growth strategy to carve out a larger share of the market. A new set of staff was recruited to lead the gold loan product and they have made a significant contribution to the Company’s performance during the year under review. The Company is committed to investing in training and development of staff to enhance operational excellence. Singer Finance now has two parents, Singer (Sri Lanka) and Hayleys PLC, both iconic Groups which are positioned at the apex of the corporate sector in Sri Lanka. Naturally, we will continue to leverage on the joint synergies to take advantage of emerging opportunities. While leveraging on group synergies, Singer Finance will simultaneously explore opportunities independently to expand and create a distinct identity for itself. The Company aspires to strengthen its positioning as a responsible financial solutions provider that nurtures its customers and depositors and provides adequate returns to equity holders. Singer Finance maintains the highest corporate governance standards as a result of the stringent good governance guidelines laid down by the two parent companies.

 

Acknowledgements

After detailing the company’s performance in my review, what is left to be expressed, is appreciation of the support and cooperation by my colleagues on the Board. I take this opportunity to convey my deep appreciation to Mr. R. S. Wijeweera former Chief Executive Officer who retired from Singer Finance having served for 14 years since the inception of the Company. I wish him success in all his future endeavours. I wish to extend my appreciation to the former Group Chief Executive Officer Mr. Asoka Pieris for his contribution to Singer Finance as the Group Chief Executive Officer. The CEO, senior management and staff in turn have demonstrated their passion for achieving success for the Company, by driving growth in challenging circumstances. I would like to express my thanks to the Company’s shareholders for their unstinted support, while thanking regulators and other stakeholders for their confidence in our ability to deliver on our promises to keep creating, evolving and growing.

 

Aravinda Perera
Chairman -Singer Finance (Lanka) PLC

Group CEO's Review

“SINGER FINANCE REPORTED EXCELLENT PERFORMANCE LEVELS RECORDING YEAR ON YEAR (YOY) GROWTH BOTH IN TERMS OF FINANCIAL AND OPERATIONAL PERFORMANCE AMIDST A CHALLENGING ECONOMIC BACKDROP.

I am delighted to mention that your Company has performed well and recorded an excellent growth, both in gross revenue and net profit in the year under review. 26% growth in gross revenue and a near corresponding 22% growth in Net profits are above average growth numbers in a challenging and highly competitive market where the industry experienced a contraction in credit growth mainly due to the industry experience measured taken to control vehicle imports.

Strategy & Performance

Singer Finance reported excellent performance levels recording Year on Year (YoY) growth both in terms of financial and operational performance amidst a challenging economic backdrop. Gross revenue grew by 26% to reach Rs. 3.8 billion and net profit grew by 22% to reach Rs. 540 million.

It is pertinent to mention that the Company increased profitability after accounting for an additional Rs. 48 million for newly introduced Debt Repayment Levy and Rs. 35 million for Impairment in loans under SFLRS-9. During the year under review, loans and advances increased by 24% to Rs. 17.8 billion, deposits grew by 13.8% to Rs. 6 billion and net interest margin increased by26% to Rs. 2.1 billion. Reflecting our stability, Singer Finance maintained a capital adequacy ratio of 14.08%.

The Company during the year pursued an aggressive geographical expansion strategy by opening 4 new branches, 3 window locations and a relocation of an existing branch to a spacious and convenient location for customers. We have already witnessed renewed growth numbers being reported from all of the aforementioned 8 locations which were opened within the year. During the year the Head Office of Singer Finance which was originally housed within the Singer Sri Lanka premises moved to its own Head Office, which created a stronger brand identity and visibility as an independent finance company.

It is also noteworthy to mention that within a very short period 14 locations of Singer Finance were enabled to offer Gold Loans and a majority of these locations are performing to expectation. Setting up of a Gold Loan operation requires specific investment in infrastructure and people. Some of the growth numbers visible in Operational and Administrative cost is attributable to investments in Gold Loan operations, we are confident that the dividends of these investments will be reaped in the ensuing financial year.

Singer Finance has consistently over the last 4 years demonstrated a Non – Performing Advances (NPA) below the industry standard. This demonstrates the Company’s strength in recoveries management and the effectiveness of its credit processes and due diligence when extending credit. During the year under review the NPA stood at 3.10% which is below the industry average. This is after maintaining stringent bad debt provisioning measures and also conservative write off numbers.

The Board of Directors approved a dividend of Rs. 1.10 per share which is a 41% pay-out ratio and a growth of 13.4% per share over the dividend paid in the prior year.

 

Singer Group Collaborations

Singer Finance has evolved to be a major player in leasing business with more than 80% of its income earning receivables consisting leasing, gold loans and other loan categories. However, Singer Finance does collaborate on certain synergic financing opportunities such as financing of Singer Mega, financing large group sales canvassed by branch management of Singer Sri Lanka and financing invoice factoring of suppliers of the group. These business opportunities offer high yield, low risk financing opportunities for Singer Finance and creates value to the organisation and its shareholders.

With the Singer Group being a part of the Hayleys PLC, our strategic direction has hitherto created a stronger corporate positioning as an independent and strong finance company. This will enable us to pursue our objective of driving business to reach its true potential. Singer Sri Lanka and the group are committed towards achieving this strategy and will provide the necessary guidance and support towards the same. The Group will continue to be a source of strength in the years ahead. During the year under review Singer Finance made steadfast progress in raising debt capital independently and mobilising fixed deposits aggressively.

 

Our People Proposition

As a service organisation we place considerable emphasis on developing our people – our most valued asset. We strongly believe that the service quality that we extend is truly representative of the quality of staff. During the year we focussed on building capacity, developing capabilities and promoting wellbeing to create a cohesive and engaged team culture within the Company.

 

Customer Relationship Management

Singer Sri Lanka won the peoples brand of the year award for the 13th consecutive year which is a reflection of its commitment towards customer centric service standards. As a part of the Group’s new strategic directives, the Group has resolved to reach for even higher KPI’s in customer care and customer relationship Management. Singer Finance being a key subsidiary of the Group, the same emphasis is placed on customer-centricity thus ensuring the group-wide awareness of our collective responsibility to our customers and the community.

 

Way Forward

One of the Group’s strategic focus points for the ensuing year is to work on removing inefficient costs where it is significant. This we believe, will enable us to invest these savings on operations and activities that would generate better returns.

We are cognisant of the rapid developments in our operating landscape which spurs us to change proactively adapt our value proposition to these market developments. We believe that technology will be a key enabler to keep up with these rapid developments. We hope to introduce online credit appraisals, digitalising operations to enhance our service parameters. We have during the year under review improved our presence in social media thereby engaging actively with the captive digitally savvy customer segments.

The Board of Directors have identified the need for Singer Finance to expand its geographical footprint to selected key towns and cities by strategic expansion of our branch network through which will enable to expand our Gold Loan portfolio.

 

Appreciation

I wish to place on record my sincere appreciation to the team of Singer Finance lead by the Chief Executive Officer and the management for their contribution and commitment, which has enabled us to report an excellent financial and operational performance.

A special thank you is extended to the Chairman, Mr. Aravinda Perera and the Board of Directors for their strategic contributions and untiring efforts. I also wish to thank the Group Chairman Mr. Mohan Pandithage and Group Co-Chairman Mr. Dhammika Perera for their guidance and commitment towards a long term strategy for the Company.

As the Company marks a significant milestone of 15 years I wish to recognise the founder CEO Mr. R.S Wijeweera former Chief Executive Officer who retired from Singer Finance for his services and for leading the Company for 14 long years since its inception and also former Group Chief Executive Officer, Mr. Asoka Pieris for his contribution to Singer Finance as a Director / Group Chief Executive Officer.

I place on record the support and cooperation extended to us by all stakeholders including our customers, suppliers and business partners. We also place on record our sincere thanks for the guidance and support extended to us by the, Governor of the Central Bank, Director Non- Bank Supervision of the Central Bank of Sri Lanka and his officials, Controller of Exchange and the General Manager and the staff of Credit information Bureau.

 

Mahesh Wijewardene
Group Chief Executive Officer

Singer Finance CEO Review

“IT IS INDEED WITH MUCH GRATIFICATION THAT I ANNOUNCE THAT THE NET PROFIT AFTER TAX OF THE COMPANY GREW BY 22% YEAR ON YEAR TO RS. 542MN.”

It is with much pleasure and privilege that I express my sentiments on the performance and future outlook of your Company in my first year as the Chief Executive Officer. 2019 is a landmark year as the Company celebrates 15 successful years of providing financial solutions in the market place. Singer Finance has grown steadily and formidably and is today a recognised player in the industry with a total asset base of almost Rs. 20Bn. Through its uncompromising dedication towards upholding ethical business values and Corporate Governance practices, we have obtained the trust and confidence in our industry as a much-respected Finance Company.

Economic and Industry Overview

The Sri Lankan economy recorded slower than predicted growth of 3.2 per cent for 2018. While a recovery was seen in agricultural activities, a contraction in the industrial sector stemming primarily from a decline in construction activities led to the slowdown in growth.

The fact that the regulator-imposed credit contraction measures by way of strict guidelines on loan to value ratios (LTV) was not helpful for business growth, these guidelines from a broader perspective, were beneficial in terms of sustaining credit quality. Overall the CBSL focused on tightening regulatory controls in the industry and I welcome these steps taken in the right direction, which would certainly lead to a more stable outlook for the financial services industry.

There is no denying that the year 2018/19 was a difficult year for most, if not all industries, amidst this situation , agriculture was blessed with adequate rainfall in key parts of the island and indeed was a “ silver lining “amidst many challenges that was witnessed. However, the entire dividend from a rich harvest could not be enjoyed as it was after some time that the agro sector was able to rejoice, as there were back to back droughts or floods in the preceding years, this resulted in part of the earnings being utilised to settle old debts.

 

Performance of the Company

It is indeed with much gratification that I announce that the net profit after tax of the Company grew by 22% Year on Year (YoY) to Rs. 542Mn. This is a milestone, as it was the first time that we surpassed the half a billion rupees in the bottom line performance. Outstanding growth in interest income which grew by 26.7% YoY to Rs. 3.8 billion and fee and commission income which grew by 34% to Rs. 237Mn were significant contributing factors to the Company’s overall performance. The year under review cannot be termed as a stellar year in terms of external support vis a vis the economy. Factors such as rising interest and imposition of debt recovery levy were direct variables that inhibited growth. The increase in Allowances for Impairment charges by 58.7% to Rs. 282Mn was mainly attributable to the external operating environment as liquidity positions of customers began to recede amidst tough economic conditions. Increase in interest expense YoY by 27.8% to Rs. 1.6Bn was attributable to both increase in rates and quantum borrowed. The growth in latter was entirely for lending in the core business, barring expenditure on branch expansion and software development. The visible growth in personnel costs 31% to Rs. 480 Mn is mainly due to the increase in staff by 129 to 518. 80% of the new additions were recruited for direct revenue generating operations and to support the branch expansion. Administration and Selling Expenses grew by 29% to Rs. 698Mn and this increase was attributable to the expansion of business activity and setting up of gold loan operations. The Management ensured that total costs were below budgeted levels and followed strict controls over budgetary allocations which were a major contributory factor for achieving good financial results.

Singer Finance opened new branches in Horana, Gampola and Kegalle a second branch in Kurunegala and relocated our Matara branch to a more visible and spacious location in the heart of the Southern hub. In keeping with the aggressive growth plans, the Company relocated service windows situated within the Parent Companies consumer durable outlets by shifting Panadura, Wellawattte and Vavuniya windows to spacious, visible and convenient locations to customers. We have applied for branch status for these three windows to the Central Bank of Sri Lanka. In fact, the aforementioned eight new locations will expand the business growth in volumes, with enhanced operational capabilities and vibrant and visible branding backed by enhanced service standards. We have expanded our Gold Loans business to 14 locations, and I am happy to note that there was dedicated concentration in progressing the Gold Loans business in the year under review and I am delighted with the speed at which the new product was rolled out and of the growth achieved .Gold Loans will soon become the second biggest portfolio next to Leasing. Non-Performing Assets Ratio of Singer Finance as of the financial year end was 3.10% and was way below the industry level of 7.7% as of end December 2018.

 

A Great Place to Work – Our Employee Proposition

It is with great pleasure that I wish to inform that during the year under review your Company was awarded and certified as a ‘Great Place to Work in Sri Lanka’ and is now among a select group of best 25 Companies. This accreditation reflects the Company’s excellent and inclusive culture of treating staff fairly and ensuring that all of us have a happy working environment. We are thankful to the solid cultural reflections that keep dawning on us from the rich heritage of two inspiring parent organizations i.e. Singer (Sri Lanka) PLC and Hayleys PLC , the positive sentiments stemming from this strong relationship, no doubt were contributory factors for achieving this accreditation.

To be recognised as a ‘Great Place to Work’, takes some effort as the best organisations are selected based on a very scientific direct research conducted. The entire staff of the Company are given a detailed questionnaire covering aspects such as credibility, respect, fairness, pride, and camaraderie towards and amongst staff.

 

Brand Identity

During the year a brand enhancement programme for Singer Finance was carried out. With subtle, but modern changes, a more vibrant and colourful brand identity was introduced to the brand name with all facades and monlifts of new branch locations upgraded with our fresh corporate identity. This new identity would be introduced to the Company’s existing locations in phases.

During the year the Company relocated to a dedicated Head Office located in a strategic and central area in Colombo 3. This would create greater visibility for the Singer Finance brand – further establishing our presence in the financial services industry.

The Company also increased its brand presence in print, social media, radio and below the line advertising mediums and will continue to develop a strong and independent branch identity for Singer Finance. The Management tirelessly emphasised and impressed upon staff the need to continuously focus on providing an excellent customer service, which we believe is one variable that could differentiate us from the competition. The Company is also aware of the Groups emphasis on improving customer care and customer relationship management.

The Future Outlook

The Company will focus on aggressive growth plans in the branch network and marketing activities in the core business of Leasing and Gold Loans, with the objective of reaching its true potential. In reaching out for this growth with a ‘sense of urgency’, Management will be mindful of external risk factors and will be aware of the need to realign with the same ‘sense of urgency’ in the event economic factors do not move as envisaged. We will concentrate on increasing in reasonable proportions, the average loan size of secured Lease facilities, in addition to entering new markets and generating new business facilities through branch and marketing staff expansion. This approach, I believe is the risk appetite that the Company should stretch to, in an external environment which does not reflect much positiveness.

There are many opportunities in the market place that Singer Finance could grab through the skills and capabilities of our talented staff by offering a superior service. I have the utmost confidence in the capabilities of our staff and we are geared to meet any challenge that will come our way ‘Head on ‘.

In the past the Company was hesitant to offer competitive rates in Fixed Deposits and instead was keener to raise debt through other sources. I am happy to note that in line with the new strategies of the Company, Singer Finance have now become a competitive player in the Fixed Deposits business and have elaborate plans to grow this segment. I believe that broad basing fixed deposit mobilisation, as a key and important funding strategy for a Finance Company.

 

Building on our Strong Foundation

Singer Finance operates with a very strong foundation in ethics and Corporate Governance. The Company makes a lot of effort to reflect this in our choice of recruitment as we believe that it’s the staff that will ultimately carry forward the legacy of maintaining these values and principals. We demand nothing but the best conduct from all our staff members.

Our foundations have been secured, our capital and liquidity positions are strong, our risk appetite is well monitored by a very keen and experienced board subcommittee in the form of the Integrated Risk Management Committee and the Credit Committee. Despite this, we will not remain complacent and will continuously focus on enhancing our risk framework in line with the external and internal business environment.

 

Sustainability and CSR

The Company and the staff are committed towards building a sustainable business environment. As an employment creator we strive to establish jobs that are fulfilling and sustainable. When an employee joins us we ensure that he or she is mentored and developed until he reaches up to the fullness of his potential. The mentoring process includes guidelines on the importance of interacting with customers and wider stakeholders with the highest ethical standards. We also strive to educate our customers on the financial propositions most suitable for them which we believe is one of the first acts of building a sustainable entity. Whilst we look after our customers, employees and shareholders, there is a world beyond that which needs our assistance. We as an organisation have always been committed and cognisant of the need to assist society to the best of our ability and a detailed description of activities conducted in the year is reflected in pages 80 to 89 under Social and Relationship Capital.

 

Appreciation

It has been a privilege to provide leadership to this great organization in my first year as Chief Executive; it requires the combined talent and dedication of many to achieve what we achieved during the year. I thank the Chairman, Mr. Aravinda Perera and the Board of Directors for their strategic vision and oversight. I also wish to thank the Group Chairman Mr. Mohan Pandithage, Group Co-Chairman Mr. Dhammika Perera and Group CEO Mr. Mahesh Wijewardene for their guidance, support and encouragement.

An inspired and skilled team worked hard and with a sense of urgency to deliver on many fronts, they accepted the change expected, by delivering on accelerated growth and I am indeed grateful and appreciative of the unfailing camaraderie of the Senior Management team and each & every staff member of the Organization.

During the year under review the Company’s first Chief Executive Officer, Mr. R.S Wijeweera retired after a long and illustrious career. I wish to place on record my sincere appreciation for the guidance and support extended by him, and for his long service to the Company. During his tenure the Company grew steadily and achieved many a landmark. We wish Mr. Wijeweera a wonderful retirement. Our sincere appreciation also goes to Mr. Asoka Peiris, the former Group Chief Executive Officer who served in the Singer Finance Board for a period of nine years for his commitment and contribution to the Company.

I also take this opportunity to place on record our appreciation for the guidance and support extended to us by the, Governor of the Central Bank, Director Non- Bank Supervision of the Central Bank of Sri Lanka and his officials, Controller of Exchange and the General Manager and the staff of Credit Information Bureau. Let me also take this opportunity to recognise our shareholders, customers, suppliers and business partners for their valued support and contribution and trust that they would continue to be partners in the journey of Singer Finance in the years to come.

Thushan Amarasuriya
Chief Executive Officer

Chairman's Review

Chairman's Review

“OUR VALUED SHAREHOLDERS HAVE EVERY REASON TO BE PLEASED ABOUT THEIR COMPANY’S PERFORMANCE IN THE PERIOD UNDER CONSIDERATION, WHICH WAS A HARD FOUGHT WIN, WRESTLED AGAINST A BACKDROP OF A SUBDUED ECONOMY…

It gives me great pleasure to place before you the Annual Report and Audited Financials of Singer Finance (Lanka) PLC for the financial year 2018/19. Our Valued shareholders have every reason to be pleased about their Company’s performance in the period under consideration, which was a hard fought win, wrestled against a backdrop of a subdued economy that created an uncertain atmosphere in the latter half of the year. Navigating the year was especially hard because we had to strike the right balance between lending and keeping any risks at bay. However, the adept team at Singer Finance was more than up to the task, successfully maintaining an optimal balance that led to Singer Finance PLC performing well above industry average. Unfortunately, the slower economic growth did not provide the required support to facilitate greater growth.

Economic Performance

Sri Lanka’s progress in terms of real economic performance has fallen below expectations in the year under review due to a number of reasons. Since the growth momentum of the economy was crippled, it had a trickle-down effect on many sectors. The country recorded GDP growth of 3.2 per cent in 2018 compared to the growth of 3.4 per cent in 2017. Although Agriculture recovered from the effect of extreme weather conditions experienced in the previous year to deliver 4.8% growth, industry activities moderated considerably during the year to 0.9 per cent from 4.1 per cent in the previous year due to contraction in construction and related areas. Financial services was the key contributor to growth in the Service sector, growing to 4.7 per cent in 2018, compared to the expansion of 3.6 per cent in the previous year. However, due to the economic slowdown, investor sentiment remained subdued and the Colombo Stock Exchange (CSE) recorded yet another year of poor performance due to adverse developments on domestic and global fronts.

 

Financial Sector Performance

Although overall the financial sector continued to expand in 2018, growth of the Licensed Finance Companies (LFCs) and Specialised Leasing Companies (SLCs) sector slowed in 2018, with the decline in credit growth and profitability during the year. Lending activities of the sector decelerated mainly due to recent fiscal and macroprudential policy measures, which were taken to curtail the imports of motor vehicles and credit facilities for purchasing vehicles. The profitability of the sector declined during the year mainly due to increased funding cost and higher loan loss provisions made against Non Performing Loans (NPLs). Signs of stress towards the sector’s profitability during the year were reflected by the decrease in Returns on Asset (ROA) and returns on Equity (ROE). Taking a much-needed step to boost confidence, The Central Bank of Sri Lanka continued to strengthen the supervisory and regulatory framework of LFCs and SLCs and took action to revive or close down weak LFCs to resolve the lingering concerns in the sector.

“AS A MEDIUM-SIZED, WELL-RUN FINANCE COMPANY, OPENING MORE BRANCHES WILL BE THE RIGHT GROWTH STRATEGY. DURING THE YEAR, 4 NEW BRANCHES WERE OPENED, AND 3 SERVICE CENTERS WERE RELOCATED.”

 

Company Performance

The Company demonstrated growth of 22% in its bottom line, which is an exceptional achievement considering the plight of many financial companies in the industry who struggled during the year under review. Overall, I am satisfied with the performance of the Company and credit the performance to the sage advice extended by the Board of Directors and the effective implementation of those strategies by the CEO, senior management and staff of the Company. Taking note of early signs that the year 2018/19 was going to be stressful for the economy and the financial services sector as a whole, staff was advised to be cautious in their lending. At the same time, leasing is our core business and it was essential that the Company achieved organic growth in its core area of expertise. Nevertheless, we chose the prudent path and put the brakes on promoting mortgage loans, consumables and credit cards amongst the customer base for the rest of the year. While being cognizant of the fact that this might hinder higher growth rates for the Company, it will definitely ensure sound fundamentals. During the year under review, the Company expanded its product portfolio to more branches. Gold Loans, which was started in the previous year, has been extended to 14 branches currently. In time, Gold Loans will be available at all Singer Finance branches. The Company’s expansion thus far had been a prudent one, with each branch encouraged to break even in order to optimize capital investments and HR costs. As a medium-sized, well-run finance company, opening more branches will be the right growth strategy. During the year, 4 new branches were opened, and 3 service centers were relocated to more prominent locations. In the past, some of Singer Finance outlets were located at Singer Sri Lanka retail outlets, which meant that they were often overlooked and accessed only by customers walking into the showroom. Now positioned as standalone branches, Singer Finance outlets enjoy a distinctive identity and fulfil customer needs with its visible presence. During the latter part of this year, a headoffice was set up at No. 498, R. A. De Mel Mawatha, Colombo 03 and gained greater visibility for the corporate brand. Going ahead, dynamic strategies are being finalized to strengthen Singer Finance positioning in terms of branding and locations. The investments made in launching Gold Loans and the capital investment in refurbishing branches reduced our profitability slightly during the year, however we expect to reap greater returns on these investments in the months ahead, with a view to achieve future growth. A decision was taken to scale down the credit card operation for the foreseeable future as it encountered some compliance issues.

 

Looking Ahead

The focus during the year was to optimize the Company’s resources. While we expect the two major sectors of tourism and construction, which experienced a slowdown during the year under review, to pick up pace in the year 2019, the first half of the next financial year is expected to remain challenging. While celebrating our strong performance in the year under review, the Company is aware of weak areas that need to be strengthened, such as deposit taking – where greater planning and a proactive stance are needed. Obstacles to future growth remain the same as the previous year, namely, restrictions of vehicle imports and duties and caps on exposure of finance companies in leasing. The Company plans to overcome this hurdle by focusing on acquiring larger ticket sizes in Leasing. I am pleased to note that our NPLs are much lower than the industry average or even that of industry peers. Overall, Singer Finance remained untouched by economic downturn due to prudent management and the Company’s focus on second-hand and small vehicle market.

I am pleased with the way the Company is evolving and growing, with its fixed deposits, gold loans and business poised to grow stridently. The wealth of talent and experience that Singer Finance holds has ensured that we have charted out a dynamic future growth strategy to carve out a larger share of the market. A new set of staff was recruited to lead the gold loan product and they have made a significant contribution to the Company’s performance during the year under review. The Company is committed to investing in training and development of staff to enhance operational excellence. Singer Finance now has two parents, Singer (Sri Lanka) and Hayleys PLC, both iconic Groups which are positioned at the apex of the corporate sector in Sri Lanka. Naturally, we will continue to leverage on the joint synergies to take advantage of emerging opportunities. While leveraging on group synergies, Singer Finance will simultaneously explore opportunities independently to expand and create a distinct identity for itself. The Company aspires to strengthen its positioning as a responsible financial solutions provider that nurtures its customers and depositors and provides adequate returns to equity holders. Singer Finance maintains the highest corporate governance standards as a result of the stringent good governance guidelines laid down by the two parent companies.

 

Acknowledgements

After detailing the company’s performance in my review, what is left to be expressed, is appreciation of the support and cooperation by my colleagues on the Board. I take this opportunity to convey my deep appreciation to Mr. R. S. Wijeweera former Chief Executive Officer who retired from Singer Finance having served for 14 years since the inception of the Company. I wish him success in all his future endeavours. I wish to extend my appreciation to the former Group Chief Executive Officer Mr. Asoka Pieris for his contribution to Singer Finance as the Group Chief Executive Officer. The CEO, senior management and staff in turn have demonstrated their passion for achieving success for the Company, by driving growth in challenging circumstances. I would like to express my thanks to the Company’s shareholders for their unstinted support, while thanking regulators and other stakeholders for their confidence in our ability to deliver on our promises to keep creating, evolving and growing.

 

Aravinda Perera
Chairman -Singer Finance (Lanka) PLC

Group CEO's Review

Group CEO's Review

“SINGER FINANCE REPORTED EXCELLENT PERFORMANCE LEVELS RECORDING YEAR ON YEAR (YOY) GROWTH BOTH IN TERMS OF FINANCIAL AND OPERATIONAL PERFORMANCE AMIDST A CHALLENGING ECONOMIC BACKDROP.

I am delighted to mention that your Company has performed well and recorded an excellent growth, both in gross revenue and net profit in the year under review. 26% growth in gross revenue and a near corresponding 22% growth in Net profits are above average growth numbers in a challenging and highly competitive market where the industry experienced a contraction in credit growth mainly due to the industry experience measured taken to control vehicle imports.

Strategy & Performance

Singer Finance reported excellent performance levels recording Year on Year (YoY) growth both in terms of financial and operational performance amidst a challenging economic backdrop. Gross revenue grew by 26% to reach Rs. 3.8 billion and net profit grew by 22% to reach Rs. 540 million.

It is pertinent to mention that the Company increased profitability after accounting for an additional Rs. 48 million for newly introduced Debt Repayment Levy and Rs. 35 million for Impairment in loans under SFLRS-9. During the year under review, loans and advances increased by 24% to Rs. 17.8 billion, deposits grew by 13.8% to Rs. 6 billion and net interest margin increased by26% to Rs. 2.1 billion. Reflecting our stability, Singer Finance maintained a capital adequacy ratio of 14.08%.

The Company during the year pursued an aggressive geographical expansion strategy by opening 4 new branches, 3 window locations and a relocation of an existing branch to a spacious and convenient location for customers. We have already witnessed renewed growth numbers being reported from all of the aforementioned 8 locations which were opened within the year. During the year the Head Office of Singer Finance which was originally housed within the Singer Sri Lanka premises moved to its own Head Office, which created a stronger brand identity and visibility as an independent finance company.

It is also noteworthy to mention that within a very short period 14 locations of Singer Finance were enabled to offer Gold Loans and a majority of these locations are performing to expectation. Setting up of a Gold Loan operation requires specific investment in infrastructure and people. Some of the growth numbers visible in Operational and Administrative cost is attributable to investments in Gold Loan operations, we are confident that the dividends of these investments will be reaped in the ensuing financial year.

Singer Finance has consistently over the last 4 years demonstrated a Non – Performing Advances (NPA) below the industry standard. This demonstrates the Company’s strength in recoveries management and the effectiveness of its credit processes and due diligence when extending credit. During the year under review the NPA stood at 3.10% which is below the industry average. This is after maintaining stringent bad debt provisioning measures and also conservative write off numbers.

The Board of Directors approved a dividend of Rs. 1.10 per share which is a 41% pay-out ratio and a growth of 13.4% per share over the dividend paid in the prior year.

 

Singer Group Collaborations

Singer Finance has evolved to be a major player in leasing business with more than 80% of its income earning receivables consisting leasing, gold loans and other loan categories. However, Singer Finance does collaborate on certain synergic financing opportunities such as financing of Singer Mega, financing large group sales canvassed by branch management of Singer Sri Lanka and financing invoice factoring of suppliers of the group. These business opportunities offer high yield, low risk financing opportunities for Singer Finance and creates value to the organisation and its shareholders.

With the Singer Group being a part of the Hayleys PLC, our strategic direction has hitherto created a stronger corporate positioning as an independent and strong finance company. This will enable us to pursue our objective of driving business to reach its true potential. Singer Sri Lanka and the group are committed towards achieving this strategy and will provide the necessary guidance and support towards the same. The Group will continue to be a source of strength in the years ahead. During the year under review Singer Finance made steadfast progress in raising debt capital independently and mobilising fixed deposits aggressively.

 

Our People Proposition

As a service organisation we place considerable emphasis on developing our people – our most valued asset. We strongly believe that the service quality that we extend is truly representative of the quality of staff. During the year we focussed on building capacity, developing capabilities and promoting wellbeing to create a cohesive and engaged team culture within the Company.

 

Customer Relationship Management

Singer Sri Lanka won the peoples brand of the year award for the 13th consecutive year which is a reflection of its commitment towards customer centric service standards. As a part of the Group’s new strategic directives, the Group has resolved to reach for even higher KPI’s in customer care and customer relationship Management. Singer Finance being a key subsidiary of the Group, the same emphasis is placed on customer-centricity thus ensuring the group-wide awareness of our collective responsibility to our customers and the community.

 

Way Forward

One of the Group’s strategic focus points for the ensuing year is to work on removing inefficient costs where it is significant. This we believe, will enable us to invest these savings on operations and activities that would generate better returns.

We are cognisant of the rapid developments in our operating landscape which spurs us to change proactively adapt our value proposition to these market developments. We believe that technology will be a key enabler to keep up with these rapid developments. We hope to introduce online credit appraisals, digitalising operations to enhance our service parameters. We have during the year under review improved our presence in social media thereby engaging actively with the captive digitally savvy customer segments.

The Board of Directors have identified the need for Singer Finance to expand its geographical footprint to selected key towns and cities by strategic expansion of our branch network through which will enable to expand our Gold Loan portfolio.

 

Appreciation

I wish to place on record my sincere appreciation to the team of Singer Finance lead by the Chief Executive Officer and the management for their contribution and commitment, which has enabled us to report an excellent financial and operational performance.

A special thank you is extended to the Chairman, Mr. Aravinda Perera and the Board of Directors for their strategic contributions and untiring efforts. I also wish to thank the Group Chairman Mr. Mohan Pandithage and Group Co-Chairman Mr. Dhammika Perera for their guidance and commitment towards a long term strategy for the Company.

As the Company marks a significant milestone of 15 years I wish to recognise the founder CEO Mr. R.S Wijeweera former Chief Executive Officer who retired from Singer Finance for his services and for leading the Company for 14 long years since its inception and also former Group Chief Executive Officer, Mr. Asoka Pieris for his contribution to Singer Finance as a Director / Group Chief Executive Officer.

I place on record the support and cooperation extended to us by all stakeholders including our customers, suppliers and business partners. We also place on record our sincere thanks for the guidance and support extended to us by the, Governor of the Central Bank, Director Non- Bank Supervision of the Central Bank of Sri Lanka and his officials, Controller of Exchange and the General Manager and the staff of Credit information Bureau.

 

Mahesh Wijewardene
Group Chief Executive Officer

Singer Finance CEO Review

Singer Finance CEO Review

“IT IS INDEED WITH MUCH GRATIFICATION THAT I ANNOUNCE THAT THE NET PROFIT AFTER TAX OF THE COMPANY GREW BY 22% YEAR ON YEAR TO RS. 542MN.”

It is with much pleasure and privilege that I express my sentiments on the performance and future outlook of your Company in my first year as the Chief Executive Officer. 2019 is a landmark year as the Company celebrates 15 successful years of providing financial solutions in the market place. Singer Finance has grown steadily and formidably and is today a recognised player in the industry with a total asset base of almost Rs. 20Bn. Through its uncompromising dedication towards upholding ethical business values and Corporate Governance practices, we have obtained the trust and confidence in our industry as a much-respected Finance Company.

Economic and Industry Overview

The Sri Lankan economy recorded slower than predicted growth of 3.2 per cent for 2018. While a recovery was seen in agricultural activities, a contraction in the industrial sector stemming primarily from a decline in construction activities led to the slowdown in growth.

The fact that the regulator-imposed credit contraction measures by way of strict guidelines on loan to value ratios (LTV) was not helpful for business growth, these guidelines from a broader perspective, were beneficial in terms of sustaining credit quality. Overall the CBSL focused on tightening regulatory controls in the industry and I welcome these steps taken in the right direction, which would certainly lead to a more stable outlook for the financial services industry.

There is no denying that the year 2018/19 was a difficult year for most, if not all industries, amidst this situation , agriculture was blessed with adequate rainfall in key parts of the island and indeed was a “ silver lining “amidst many challenges that was witnessed. However, the entire dividend from a rich harvest could not be enjoyed as it was after some time that the agro sector was able to rejoice, as there were back to back droughts or floods in the preceding years, this resulted in part of the earnings being utilised to settle old debts.

 

Performance of the Company

It is indeed with much gratification that I announce that the net profit after tax of the Company grew by 22% Year on Year (YoY) to Rs. 542Mn. This is a milestone, as it was the first time that we surpassed the half a billion rupees in the bottom line performance. Outstanding growth in interest income which grew by 26.7% YoY to Rs. 3.8 billion and fee and commission income which grew by 34% to Rs. 237Mn were significant contributing factors to the Company’s overall performance. The year under review cannot be termed as a stellar year in terms of external support vis a vis the economy. Factors such as rising interest and imposition of debt recovery levy were direct variables that inhibited growth. The increase in Allowances for Impairment charges by 58.7% to Rs. 282Mn was mainly attributable to the external operating environment as liquidity positions of customers began to recede amidst tough economic conditions. Increase in interest expense YoY by 27.8% to Rs. 1.6Bn was attributable to both increase in rates and quantum borrowed. The growth in latter was entirely for lending in the core business, barring expenditure on branch expansion and software development. The visible growth in personnel costs 31% to Rs. 480 Mn is mainly due to the increase in staff by 129 to 518. 80% of the new additions were recruited for direct revenue generating operations and to support the branch expansion. Administration and Selling Expenses grew by 29% to Rs. 698Mn and this increase was attributable to the expansion of business activity and setting up of gold loan operations. The Management ensured that total costs were below budgeted levels and followed strict controls over budgetary allocations which were a major contributory factor for achieving good financial results.

Singer Finance opened new branches in Horana, Gampola and Kegalle a second branch in Kurunegala and relocated our Matara branch to a more visible and spacious location in the heart of the Southern hub. In keeping with the aggressive growth plans, the Company relocated service windows situated within the Parent Companies consumer durable outlets by shifting Panadura, Wellawattte and Vavuniya windows to spacious, visible and convenient locations to customers. We have applied for branch status for these three windows to the Central Bank of Sri Lanka. In fact, the aforementioned eight new locations will expand the business growth in volumes, with enhanced operational capabilities and vibrant and visible branding backed by enhanced service standards. We have expanded our Gold Loans business to 14 locations, and I am happy to note that there was dedicated concentration in progressing the Gold Loans business in the year under review and I am delighted with the speed at which the new product was rolled out and of the growth achieved .Gold Loans will soon become the second biggest portfolio next to Leasing. Non-Performing Assets Ratio of Singer Finance as of the financial year end was 3.10% and was way below the industry level of 7.7% as of end December 2018.

 

A Great Place to Work – Our Employee Proposition

It is with great pleasure that I wish to inform that during the year under review your Company was awarded and certified as a ‘Great Place to Work in Sri Lanka’ and is now among a select group of best 25 Companies. This accreditation reflects the Company’s excellent and inclusive culture of treating staff fairly and ensuring that all of us have a happy working environment. We are thankful to the solid cultural reflections that keep dawning on us from the rich heritage of two inspiring parent organizations i.e. Singer (Sri Lanka) PLC and Hayleys PLC , the positive sentiments stemming from this strong relationship, no doubt were contributory factors for achieving this accreditation.

To be recognised as a ‘Great Place to Work’, takes some effort as the best organisations are selected based on a very scientific direct research conducted. The entire staff of the Company are given a detailed questionnaire covering aspects such as credibility, respect, fairness, pride, and camaraderie towards and amongst staff.

 

Brand Identity

During the year a brand enhancement programme for Singer Finance was carried out. With subtle, but modern changes, a more vibrant and colourful brand identity was introduced to the brand name with all facades and monlifts of new branch locations upgraded with our fresh corporate identity. This new identity would be introduced to the Company’s existing locations in phases.

During the year the Company relocated to a dedicated Head Office located in a strategic and central area in Colombo 3. This would create greater visibility for the Singer Finance brand – further establishing our presence in the financial services industry.

The Company also increased its brand presence in print, social media, radio and below the line advertising mediums and will continue to develop a strong and independent branch identity for Singer Finance. The Management tirelessly emphasised and impressed upon staff the need to continuously focus on providing an excellent customer service, which we believe is one variable that could differentiate us from the competition. The Company is also aware of the Groups emphasis on improving customer care and customer relationship management.

The Future Outlook

The Company will focus on aggressive growth plans in the branch network and marketing activities in the core business of Leasing and Gold Loans, with the objective of reaching its true potential. In reaching out for this growth with a ‘sense of urgency’, Management will be mindful of external risk factors and will be aware of the need to realign with the same ‘sense of urgency’ in the event economic factors do not move as envisaged. We will concentrate on increasing in reasonable proportions, the average loan size of secured Lease facilities, in addition to entering new markets and generating new business facilities through branch and marketing staff expansion. This approach, I believe is the risk appetite that the Company should stretch to, in an external environment which does not reflect much positiveness.

There are many opportunities in the market place that Singer Finance could grab through the skills and capabilities of our talented staff by offering a superior service. I have the utmost confidence in the capabilities of our staff and we are geared to meet any challenge that will come our way ‘Head on ‘.

In the past the Company was hesitant to offer competitive rates in Fixed Deposits and instead was keener to raise debt through other sources. I am happy to note that in line with the new strategies of the Company, Singer Finance have now become a competitive player in the Fixed Deposits business and have elaborate plans to grow this segment. I believe that broad basing fixed deposit mobilisation, as a key and important funding strategy for a Finance Company.

 

Building on our Strong Foundation

Singer Finance operates with a very strong foundation in ethics and Corporate Governance. The Company makes a lot of effort to reflect this in our choice of recruitment as we believe that it’s the staff that will ultimately carry forward the legacy of maintaining these values and principals. We demand nothing but the best conduct from all our staff members.

Our foundations have been secured, our capital and liquidity positions are strong, our risk appetite is well monitored by a very keen and experienced board subcommittee in the form of the Integrated Risk Management Committee and the Credit Committee. Despite this, we will not remain complacent and will continuously focus on enhancing our risk framework in line with the external and internal business environment.

 

Sustainability and CSR

The Company and the staff are committed towards building a sustainable business environment. As an employment creator we strive to establish jobs that are fulfilling and sustainable. When an employee joins us we ensure that he or she is mentored and developed until he reaches up to the fullness of his potential. The mentoring process includes guidelines on the importance of interacting with customers and wider stakeholders with the highest ethical standards. We also strive to educate our customers on the financial propositions most suitable for them which we believe is one of the first acts of building a sustainable entity. Whilst we look after our customers, employees and shareholders, there is a world beyond that which needs our assistance. We as an organisation have always been committed and cognisant of the need to assist society to the best of our ability and a detailed description of activities conducted in the year is reflected in pages 80 to 89 under Social and Relationship Capital.

 

Appreciation

It has been a privilege to provide leadership to this great organization in my first year as Chief Executive; it requires the combined talent and dedication of many to achieve what we achieved during the year. I thank the Chairman, Mr. Aravinda Perera and the Board of Directors for their strategic vision and oversight. I also wish to thank the Group Chairman Mr. Mohan Pandithage, Group Co-Chairman Mr. Dhammika Perera and Group CEO Mr. Mahesh Wijewardene for their guidance, support and encouragement.

An inspired and skilled team worked hard and with a sense of urgency to deliver on many fronts, they accepted the change expected, by delivering on accelerated growth and I am indeed grateful and appreciative of the unfailing camaraderie of the Senior Management team and each & every staff member of the Organization.

During the year under review the Company’s first Chief Executive Officer, Mr. R.S Wijeweera retired after a long and illustrious career. I wish to place on record my sincere appreciation for the guidance and support extended by him, and for his long service to the Company. During his tenure the Company grew steadily and achieved many a landmark. We wish Mr. Wijeweera a wonderful retirement. Our sincere appreciation also goes to Mr. Asoka Peiris, the former Group Chief Executive Officer who served in the Singer Finance Board for a period of nine years for his commitment and contribution to the Company.

I also take this opportunity to place on record our appreciation for the guidance and support extended to us by the, Governor of the Central Bank, Director Non- Bank Supervision of the Central Bank of Sri Lanka and his officials, Controller of Exchange and the General Manager and the staff of Credit Information Bureau. Let me also take this opportunity to recognise our shareholders, customers, suppliers and business partners for their valued support and contribution and trust that they would continue to be partners in the journey of Singer Finance in the years to come.

Thushan Amarasuriya
Chief Executive Officer