The continuous drought in the dry zone resulted in a sharp drop in the harvest eroding the purchasing power of a large segment dependent on agriculture. Customer purchasing power was further affected by increased Value Added Tax (VAT), higher interest rates compounded by floods in the wet zone. The Consumer Durables industry, is normally affected much more than other sectors when consumer incomes decline.
The entire industry was not in a position to pass on the increase in VAT and other costs to customers. As a result of this and the product mix gross margin reduced in 2017. The group was able to successfully lower selling and administration expenses. While the previous year recorded one-time gain of Rs. 563 Million there was no one-time gain in 2017.
Net Finance Cost for 2017 increased 32% to Rs. 1950 Million largely due to increase in interest rates and borrowings. The lower margins and high interest rates impacted the group’s profitability. Group net profit was Rs. 1008 million, a reduction of 43% compared to the previous year excluding the one-time gain during 2016.
While anticipating improvement in the business conditions during 2018, the Company has launched strategies to improve revenue and margins and lower costs. Noteworthy key business initiatives are:
To grow e-commerce business and to supplement the retail business
To grow the furniture business exponentially with a wider range available in a larger range of showrooms
To accelerate the renovation and expansion of existing shops to increase the retail space to cater to additional products and brands, specifically
furniture. - Singer