Rising business costs push Walton, Singer to gloomy financial results

Infographics: TBS

Leading consumer electronics brands Walton and Singer are reeling from gloomy financial results for the July-December period, as soaring business costs and economic challenges continue to weigh heavily on their profitability.

The two companies, major players in Bangladesh's appliance market, reported significant challenges due to raw material price hikes, taka devaluation, rising interest rates, and higher inflation, which have collectively eroded their margins.

Market analysts warn that unless macroeconomic conditions improve or policy adjustments are made, the sector may face prolonged profitability challenges.

Walton's mixed performance

Walton, in its price sensitive statement published on Tuesday (28 January) on the Dhaka Stock Exchange, has reported mixed financial results for the first half of the current fiscal year. 

While the company's revenue rose by 7.51% year-on-year to Tk2,546 crore, its operating profit declined by 8% to Tk483 crore. Its net profit also dropped by 11% to Tk304 crore compared to the same period last year.

The October-December quarter showed a more pronounced impact. Despite recording a 14% growth in revenue to Tk1,331 crore, Walton's operating profit fell by 12% to Tk224 crore. 

In spite of these challenges, the company managed to post a 12% increase in net profit to Tk155 crore during the quarter, signaling some resilience in its operations.

According to Walton, its decision to adjust product prices was a necessary step to offset the impact of rising raw material costs, taka devaluation, and other inflationary pressures. 

Moreover, the company benefited from increased interest income from its bank deposits, which provided a supplementary revenue stream during the quarter. 

Walton stated that these measures, combined with efforts to optimise operations, helped the company navigate the challenging economic environment and maintain profitability in the three-month period.

Singer's struggles

Singer Bangladesh faced even steeper challenges, reporting a Tk73 crore loss for the July-December period, with Tk54 crore of the losses occurring in the October-December quarter alone. This is a significant downturn compared to its previous performance.

In response to the financial strain, Singer has decided to slash its dividend payout for 2024 to 10% cash, down from 35% in 2023. 

The company's shares also took a hit, dropping 4.58% to close at Tk 102 on Tuesday, reflecting investor concerns over its financial health.

In a detailed price sensitive statement published on the DSE on Tuesday, the company attributed its financial losses to a combination of rising costs and unfavourable market conditions. 

The primary driver was a staggering 137% surge in financing costs, which climbed to Tk143 crore in 2024 from Tk60 crore in 2023, driven by rising interest rates. Exchange losses amounting to Tk25 crore further deepened its financial woes. 

The company also highlighted that operating expenses and sales costs grew at a faster pace than revenue, creating a significant imbalance that weighed heavily on its profitability. 

Additionally, a net operating cash flow crisis emerged as collections from sales failed to keep up with rising costs. 

To make matters worse, the decision to maintain high inventory levels in anticipation of sales that did not materialise severely impacted cash flow, leaving the company in a tight liquidity position, the company said.

Behind the declines

Both the two companies, in their respective statements, pointed to a series of external and internal factors that heavily impacted their business operations and led to declining profit margins. 

Rising raw material costs were identified as a major contributor, significantly driving up production expenses. Additionally, the depreciation of the Bangladeshi taka against foreign currencies increased the cost of importing essential components, further straining their financials.

Higher borrowing costs also played a critical role, squeezing margins and adding to the companies' financial burdens. 

Adding to these challenges, the government's decision to increase VAT on refrigerators from 5% to 7.5% and impose a 7.5% VAT on air conditioner products delivered a fresh blow to their profitability. 

According to market analysts, all these factors combined created an unfavorable operating environment which significantly impacted the bottom lines of these companies, forcing them to reassess strategies to sustain operations.