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EXECUTIVE Q&A
ShareInvestor
Singer Thailand is a distributor of sewing machines under the ''Singer'' trademark, electrical appliances under the Singer and other brand names such as DVD players, television and home-theatre sets, air-conditioners, wine chillers, gas stoves, microwave ovens, refrigerators, electric irons, water pumps, computers and multi-purpose oil. Daniel Michel Philiponet was the managing director of Singer (Thailand) PLC from 1995-97 and in 1999 before his retirement. He was recently appointed as the managing director in February 2007 to the present.
Business
1. Please explain Singer's business model.
Singer is a company selling electrical home appliances mostly in the rural areas of Thailand (North, Central, and Southern Thailand). We use direct hire-purchase hard selling and when I say that allow me to elaborate a little. Direct hard selling means we go to villages in a pickup full of products and we knock on doors, one after the other, we'll spend one full day in the villages and at the end of the day all the doors have been knocked on, so we leave no stone unturned. Today we have a large sales force of 5,000 and a collection force behind them. So that is how we are operating now in Thailand. It has proven to be successful for the company and a good business model for Singer. Currently we have developed a strong base to expand, so the question is, how can we expand? With more shops, more sales, more training, and obviously more collectors in place to ensure collections.
2. As the majority of Singer's business is from the rural areas of Thailand, how does Singer ensure the credit quality of its customers?
To ensure we have good credit controls we have a good system of credit granting, evaluation and control, and have extensive training. I will use this word three times, training, training and training. All of our hire-purchase contracts have two guarantors, so we have the customer and two guarantors. The salesman receives commission on sales and also on collections because we want to give the salesman commission on collection to ensure two things: one, to make sure that he is following his account and when the account is close to being closed then to sell the customer another product. Second we have CCOs, credit control officers, in each Area where we have offices, and now we have 10 areas and we have three or four CCOs in each. They have a credit scoring method, a Singer internal blacklist, and they have the national credit bureau. Furthermore they assume some responsibility too in saying yes or no to the credit and we monitor their accounts closely. After these two steps, all the accounts are 100% checked by account checkers, thus after the product is delivered within the first 60 days, the account checker goes to the customers home to ensure the customer is there, to reconfirm information provided and also to take the opportunity to collect. Lastly the branch manager has to approve the sales and he is also involved with some responsibility, each salesman has security deposits, and if the customer does not pay then we withdraw from the security deposit.
The whole package is working well and we have a good tool for the entire credit control and approval process.
3. What is the revenue breakdown per product type and per brand type?
Refrigerators and washing machines represent close to 60% of our total sales and if you look at the ownership ratio of washing machine it is 53% only for total Thailand, but if you look at the breakdown for rural areas it is far lower at 42%. The market is not saturated which is why we believe that the there is market potential. We also sell TVs but the problem with TV is that you have a rapid change of technology, thus it is a competitive market but there is a market for it and perhaps we shall revamp our product line and focus on LCD and plasma but not abandon CRT. Another product is computers and it is a product we would also like to push as we have the relationship with SVOA.
4. What interest rate does Singer charge on its products?
Today we charge on a monthly basis 2.8% and my view on this is that we are doing a very risky business and risky by the nature of the hire-purchase business and risky by the way we do it. Thus our risk needs to be rewarded, and my target is to have a net return on bottom line of 10% after tax particularly as we have the tax-loss carry forward for five years.
5. Singer has also started a trade-in business, could you explain the dynamics of this.
Today trade-in represents more than 40% of our business and is a good selling point for our customers. Because with trade-in we can enter into a saturated market such as TVs and we offer trade-in, and it has proved to be very successful. Initially we were offering to trade-in refrigerator for refrigerator, washing machine for washing machine and so forth, and only for Singer-branded products, however, when I saw the huge market potential constituted by the replacement market I asked myself, why should we limit ourselves to only Singer products, if we can offer multi-product, multi-brand, then potentially everyone can be our customers, as there are millions of refrigerators, TVs and, in general, electrical home appliances to replace in this market.
Industry
1. There are numerous companies in the installment sales financing industry, how does Singer differentiate itself?
The question you have to ask is how many companies in Thailand sell the way Singer does? None. This is what I call it our company's ''Blue Ocean''. We have analysed the market and seen that there is a huge replacement market and we are pleased that our competition has missed this. Singer will take advantage of this situation to expand rapidly and dominate the market by 2009-10 making the entry costs for anybody extremely expensive.
2. Do hypermarkets compete within the same market as Singer?
Not really as, for example, there are employees of Tesco and Big C who are our customers, because if you purchase from the hypermarkets you will need to provide a lot of documents. You have to remember that there is a large population in Thailand willing to buy and having the money to do it but does not have the required paperwork, and I know this because I did canvass to fully understand the market, the majority of the population does not have the paperwork, but if you visit a potential customer and see a nice house, a good car, making money selling vegetables, this potential customer should not be rejected. Also hypermarkets are limited to a 20-30 km radius base including mailing of flyers and they are reliant on the customers coming to them while we go to our customers to sell and collect.
3. Motorcycle sales have improved in 2008, will Singer look to re-enter into this market?
In the past, Singer did venture into this segment, but look the motorcycle ownership ratio is 76% total Thailand. Honda has a lion share of the market of 69% and then Yamaha has 25% and the remaining 5% has to be shared among the other manufacturers. It should be noted that upcountry which is our main customer base, the ownership ratio is at 84%, thus it's not a good time to re-enter and furthermore this product changes so rapidly with price and technology. Our focus is now on electrical home appliances, with its enormous potential as a replacement market.
Financial Performance
1. In the first two quarters of 2008, Singer has recognised positive earnings for the first time in nearly two years, what is the difference compared to before?
Number one, a change in strategy, this company has been traditional strong in selling and collecting home appliances, we entered into the motorcycle market as it was a growing market and then we pushed the sales too far and got into trouble due to collection problems. Now when I returned we had to see if the company is ready and capable to U-turn back into electrical home appliances converting a core business in motorcycles into a core business based on electrical home appliances and thankfully this has proven to be successful. The second point is the company's culture of ''Out of the Box Thinking'' to look at the market with different ideas and from different angles we got into the replacement market with a multi-products, multi-brand marketing strategy and the market size potential exploded. Thirdly it is people and internal communication, what I found was an organisation completely demoralised after two years of big losses. Before employees were not informed of the company's strategy or business going forward, therefore not understanding the difficulties today we inform our employees on a monthly basis through a newsletter and even a webcam presentation, thus whatever we do everybody is informed explaining strategies and programmes, providing direction and objectives. You can imagine the strength of a company when all move united in the same direction, aiming at achieving the same goals.
2. How much more in provisions are to be written off in regard to motorcycles?
In terms of inventory not anymore, we have only 1,865 units left on the books. Last year, yes, it was an issue but we have managed this situation well and going forward it will be negligible on our performance. On the receivables side, the situation is controlled and managed and we do not foresee any difficulties.
Miscellaneous
1. Since the current CEO returned the performance of the company has improved, how long will he remain at the company?
Our mission from the board is to turn around the company and build a management team. We now have two quarters of profitability thus the turnaround has proven to be successful. When I returned to Singer we were able to attract our former management and executive teams, who remember, took a big risk by returning to Singer as the future of the company was at the time uncertain. Today after 18 months we have rebuilt an extremely strong management team that is professional and passionate, thus for the future I am very confident that Singer is in strong and capable hands.
2. What do you feel are the biggest risks facing your business today?
Our biggest issue is funding to fuel our expansion plan. We are working at it, and expect to obtain the appropriate funding within 2008.
3. Where do you see Singer in five years from now?
In the past Singer and its two closest competitors had a total of 700 shops and 30,000 salesmen, today in the same market only Singer exists with 200 shops and 5,000 salesmen so there is a huge market potential for geographical and density of distribution growth. In five years from now we aim to have 300 shops, 10,000 salesmen, a wider product line offering, and possibly longer hire-purchase conditions. We are confident that we can reach this target and once it has been achieved it will be very difficult for competitors to enter as Singer will be in a market-dominant position.
The Executive Q&A Series is presented by ShareInvestor, Asia's leading financial internet media and technology company, and the largest investor relations network in the region. The interview was conducted by Pon Van Compernolle, managing partner of GVC Capital, an investment advisory firm focused on small- and mid-caps in Thailand. For more information, e-mail pon@gvc-capital.com or howard@shareinvestor.com or visit http://www.ThaiListedCompany.com
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