Softlogic 3Q hit by weak retail sales, currency depreciation and import restrictions

Softlogic Holdings PLC recorded a net loss of Rs. 346.6 million for the quarter ended December 31, 2019 (3Q19) from a profit of Rs.77 million in the year earlier period, as the group’s top line slowed amid rupee weakness, import restrictions and slowdown in consumer discretionary expenditure. 

The group reported negative earnings of 29 cents a share compared to earnings of 10 cents a share in the same period in 2017. 

The group performance was also hit by some heavy foreign exchange losses in the group’s leisure sector pertaining to dollar borrowings. 

Meanwhile, the group, which has interests in healthcare, Information Technology, financial services and leisure and retail increased its revenue during the quarter under review by 7.5 percent year-on-year (YoY) to Rs. 19.7 billion. 

Retail accounts for 51 percent of the group’s top line and its growth for the nine months ended December 31, 2018 languished at 2.0 percent, the company said. 

“This import-oriented sector was impacted by the depreciation of the rupee.  

This sector was also clouded by various other macro-economic challenges including a 100 percent cash margin imposition on imports of selected durables and other import restrictions on footwear and apparel,” Softlogic Holdings Managing Director/Chairman Ashok Pathirage said in an earnings release. 

The operating profit of the group was Rs.1.94 billion for the quarter, down 32 percent YoY.

The net finance cost rose by 16 percent YoY to Rs.1.53 billion for the quarter. 

Meanwhile, for the nine months, Softlogic group reported earnings of 7 cents a share or Rs.74.8 million compared to 10 cents a share or Rs.79.5 million reported for the corresponding period in 2017. 

The group’s retail business cluster reported revenues of Rs.27.4 billion compared to Rs.26.8 billion a year ago, but the operating profit fell to Rs.2.2 billion from Rs.2.8 billion.
The group, which opened its first supermarket under the brand ‘Softlogic Glomark’ in Delkanda in September last year, is planning on an aggressive store expansion drive with locations earmarked for Kottawa, Mount Lavinia, Colombo 7, Negombo and Malambe. 

“An essential outlet concept of around 2,000-3,000 sq.ft. is being developed to be set up at Asiri Central, Asiri Kandy, Orion City and in Kurunegala,” Pathirage stated. 

Meanwhile, the group’s financial services business cluster consisting of a life insurance company, a finance company and a stock broking firm, reported an operating profit of Rs.1.36 billion for the nine months, barely changed from the year earlier period. 

Further, the group’s thriving healthcare cluster, which owns and manages four hospitals under Asiri brand, reported Rs.2.4 billion operating profit compared to Rs.2.8 billion a year ago.
In November, Softlogic acquired the 35-bed Hemas Southern Hospitals and the group’s 190-bed hospital in Kandy is scheduled to be opened shortly.  

The group’s leisure and property business saw its operating losses widening to Rs.48.5 million from Rs.25.9 million.

The bottom line losses widened substantially due to foreign exchange losses recognised from a dollar denominated loan taken by the group’s city hotel, Movenpick in Colombo. 
The group’s Information Technology business, which provides business-to-business IT solutions reported Rs.208.4 million operating profit compared to Rs.146.3 million in the year earlier period. 

The group’s automobile business, which is the exclusive authorised dealer for Ford vehicles and King Long buses in Sri Lanka reported an operating loss of Rs. 29.5 million compared to a loss of Rs.8.1 million a year ago. 

Softlogic also acquired distributorship for Japan’s Suzuki motorbikes couple of years ago.

As of December 31, 2018, Chairman and Managing Director Ashok Pathirage held little over 40 percent in Softlogic, while Samena Ceylon Holdings Limited held 20.75 percent stake. The Employees’ Provident Fund held a 0.61 percent stake being the fifteenth largest shareholder.