Thailand operating results for the Second Quarter 09

H.T. SET 028/2009 Date : August 14th, 2009 To : Managing Director The Stock Exchange of Thailand Re : Singer Thailand operating results for the Second Quarter of Y 2009 The Company has generated for the quarter a profit of Baht 12.6 Million compared to a profit of Baht 12.9 Million for Q.2 Y2008. As a result, the Company's Earning Per Share (EPS) was Baht 0.05 as the same as EPS for Q.2 Y2008 even total sale for Q.2 Y2009 was lower than Q.2 Y2008 by 26%. It is a matter of commitment of the management to deliver profits under the business and economic conditions in Thailand affected not only by global recession but also by the unstable political situation, and while encouraging it is also a clear indication that the Company's strategies have been working. During the second quarter of Y2009, the major highlights were:- - The Company has generated a positive operating cash flow of Baht 80.6 Million. - A significant improvement of the gross margin resulting from lower purchase prices from the Suppliers, better conditions and additional volume rebate combined with lower Trade-in business. The Trade-in value is basically a discount and tends to put pressure on gross margin, in addition effective 1st January 2009, the Company had reduced its trade-in values. - In order to keep the liquidity under the present economic crisis, the Company has already negotiated with the existing financial institutions to extend their repayment schedule of the remaining loans outstanding as at 30 June 2009; thus, the Company has to cease the loans repayment due amounting Baht 32 Million. - Total short & long-term loans have been reduced from Baht 1,168.6 Million as of December 2008 to Baht 1,026.8 Million as of June 2009. - The balance of hire-purchase motorcycle accounts has been reduced from 20,093 accounts as of December 2008 to 11,739 accounts as of June 2009. - At the end of June 2009, the inventory of used motorcycles was reduced to 1,354 units. - At the end of June 2009, the percentage of paying accounts which is measuring how many accounts are paying from the total portfolio has been improving by 4.3% compared with the end of December 2008. - The Company could benefit from some gain amounting Baht 0.9 Million from exercising the purchase option for the vehicles on lease agreements, which were due from April to June 2009. - After having received the confirmation of the Social Security Department's position and stating that the Company's employee paid on commissions only should not be considered as employees and the Company and personnel concerned are entitled to a refund of all amounts paid from 1992, not entitled to the Baht 2,000 and not continue to contribute since April 28th, the Company stopped contributing to the Social Security for the personnel concerned from March 2009 onward, appointed on May 18th a Legal Counsel for advising and more importantly navigating through the"System", and submitted on June 3rd an application for refunding all the money paid based on an internal C.D. with listing of personnel concerned since 1992 attached to the letter and asking for a refund within two months. The future strategy of Singer Thailand is to continue to dominate the appliance hire purchase business in the rural areas of Thailand. The Company has been in this market for over 100 years. The Company keeps on a multi brands, multi products trade-in strategy however with lower trade-in values and the Company expects the momentum to continue and gaining in strength providing the opportunity of a huge replacement business for the Company. To keep on the implementation of the measures to prevent, detect and hasten recovery of defalcations under the global recession situation, the Company focused on the followings. - Revised Credit Scoring Criteria to included accounts with defalcations and design a credit scoring model. - Mapping the customer density by district on a regular basis and provide this information to Central Credit Officers (CCO) as an additional tool in making credit decisions. - Streamlining of legal Procedures in Filing Cases / Policies Reports to announce it to Area Management and all shops. - Tracking of collections from guarantors to recovery the past due accounts. - Recovery of "revert losses" at the field level. - Publication of Whistleblower Policy in the field. - To generate an aging report of unresolved exceptions and effectively follow these up with field personnel. - Announce and implement zero tolerance policies after having brainstorming session on prevention and reduction of defalcations. - Formulate a written disciplinary policies for defalcations committed by field personnel. - Reassess the Role of Account Checkers to report on the exceptions identified during account checking. The Company has successfully made a U-Turn by converting a core business based on motorcycles into a core business based on electrical home appliances as shown in total gross sales for the second quarter of Y2009, in which the motorcycle business represented only 2.4% of total gross sales. Comments to Key Financial Numbers: Income Statement The operating performance for Q.2 2009 is indicating that the Company has generated net profit of Baht 12.6 Million compared to the net profit of Baht 12.9 Million for Q.2 2008. Total revenue decreased from Baht 615.3 Million for Q.2 2008 down to Baht 476.2 Million or a decline of 22.6% mainly due to net product sales decreased by 26.0%, which was caused by the combination of two factors : Thai economic remained in the adjustment phase amidst the recession with overall activities in a slowdown as farm income and tourism revenue continued to weaken and the unemployment rate is increasing and the strengthening of Credit Evaluation and Control, interest from installment sales decreased by 10.8% or equal to Baht 14.0 Million due to a decrease of installment accounts number from 189,031 accounts at the end of December 2008 to 176,287 accounts at the end of June 2009, which was caused by the impact of a change from Sum of the Digit Method to Effective Rate and more accounts being closed and reverted than new accounts being opened, and other income decreased by Baht 2.7 Million mainly due to less gain from selling non performance shops. Inventory reserve as of June 2009 equaling Baht 51.0 Million was lower than the reserve at end of December 2008 at Baht 103.0 Million due to on going plan to clear slow-moving stock of home appliances and motorcycles. In summary, the Net Profit for this quarter was Baht 12.6 million compared to a Net Profit of Baht 12.9 million at the second quarter of last year. A slight difference of Baht 0.3 million can be analyzed as follows: Million Baht i. A decrease of products sale -122.5 ii. A decrease of interest from Installment -14.0 iii. A decrease of other income -2.7 iv. A decrease of cost of goods sold 109.3 v. A decrease of variable expenses 34.9 vi. An increase of semi-variable expenses -7.5 vii. A decrease of period expenses 1.7 viii. A decrease of interest expense 0.5 Total difference 0.3 Balance Sheet Net installment and other receivables decreased to Baht 1,256 million at end of June 2009 from Baht 1,395 million at the end of December 2008 or a reduction of 10%, which was caused by more accounts being closed by revert and discount. At 30 June 2009, the number of installment receivable accounts was 176,287 compared to 189,031 at the end of December 2008 or a reduction of 12,744 accounts. Net inventories at the end of June 2009 reduced to Baht 198 million from Baht 222 million at the end of December 2008. This was mainly due to a plan to clear slow-moving stock of home appliances to convert it into cash and strictly focus on adapting orders to lower sales forecast. Trade account payable at the end of June 2009 reduced to Baht 115 million from Baht 179 million was caused by a reduction of stock orders to match lower sales level. Interest bearing debt decreased by Baht 142 million over the quarter due to continued positive operating cash flows resulting from ongoing collections of receivable accounts. Kindly be informed, Yours truly, Boonyong Tansakul Director and Deputy Managing Director