Revenue
REG Revenue growing YoY and contributed through strong demand and volume growth. The white goods selling companies enjoys a conducive economic environment with increasing disposable income, Lower interest rate and increasing Purchasing Power, After war ending in 2009 the North & East people PP increased with inflows from Diaspora
…..Total refrigerators sold by Regnis (Lanka) PLC had a great demand in the market and volume increased by 22%. In case of sales of No Frost refrigerator units, the volumes increased by 35%. The washing machine units manufactured by the Regnis Group increased by 53%...Annual Report 2015.
When we see the Quarterly revenue patterns, we could see that the June Quarter is always low. So the contraction in Sales for June is within this pattern
Jun’14 -724.8Mn
Jun’15 -919.7Mn
Jun’16 -1135.5Mn
Gross Profit
……Gross profits…. Increased mainly due to reduced raw material prices on account of decline in global steel and plastic prices and production and cost efficiency initiatives introduced during the year. Given the large fixed overheads involved, increased productivity also contributed to increased cost efficiencies …..
…The company continued to modernize the factory. A major process change was done during the year, where prepainted sheets are now used, instead of the painting being done in the factory.. Annual Report 2015.
These changes have contributed towards improving GP margins, where in 2014 it was averaging around 6-8% and in 2015 improving to 11-14%. Last two quarters the GP margins are stuck around 11%
Lets believe that the management will think of strategies to improve GP margins further using the solid platform now they stand on
Selling & Distribution cost has increased tremendously. It shows that the Company is following an aggressive marketing strategy, and enjoys a strong market share in rural areas for their products. Hope these cost will reap higher revenues for future.
Finance Cost: March’14 Quarter REG reported finance cost of Rs.9,767Mn and it has continuously brought down Q2Q and stands at Rs.1374 in June 16. The net finance cost position is in a positive side contributing towards the bottom line. This is a result of the improving cash balances and cash flows
PBT: Only area that disappointed me was the PBT was around 11-12% during Jun’15 to Dec’15, which started dropping to 9% for last two quarters. This is as a result of increasing Selling and Distribution cost at a much higher rate. Lets hope these investment will reap results for future
Tax charged for Jun-16 was low compared to other quarters, therefore keeping the bottom line ahead with previous quarters, otherwise Jun-16 would have ended a bad one for REG.
Positive factors in the Business environment for white good manufacturers in 2015
• Lower interest rates contributing to the increased purchasing power of consumers
• Decline in prices of imported raw materials, particularly metal & plastic components
• Exchange rate effects on competitor products
• Taxes on imported competitor products
• Sri Lanka reaching 98% electrification and targets on 100% which can in further increase the penetration rates of refrigerator and washing machine thereby helping these industries to grow
• End of war and inflows from Diaspora increasing the purchasing power of North and East
• Increasing disposable income
Changing Environment
• Tightening of monitory policy to deal with Balance of Payment issues will deter the Purchasing Power
We don’t know what are the negative sides the next Budget may bring. But for me still REG has space to perform better
How Regnis Sustains its position in the market :
….Regnis proposes to invest in enhancing its production capacity and is committed to supporting the changing lifestyles of the Sri Lankan consumers with products which incorporate advanced technology and more environmentally sustainable features ……
All above improvements in turn reflects a healthy balance sheet and cash flow position. The BS ratios are improving mainly ROCE.
HE
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