Sluggish demand, higher finance costs impact Softlogic 2Q

Diversified conglomerate Softlogic PLC reported depressed results for the period ended September 2019 (2Q20) amid sluggish consumer demand, fall in tourist arrivals and higher finance costs.

The group, which has a consumer-driven business model, reported a loss of 64 cents per share or a net loss or Rs.761.9 million for 2Q20 compared earnings of 35 cents or Rs.371.7 million reported for the same quarter last year.

The total revenue for the period rose 10.5 percent year-on-year (YoY) to Rs.20.04 billion while cost of sales also rose at a similar percentage to Rs.12.9 billion, resulting in a gross profit of Rs.7.1 billion, up 11 percent YoY.

However, increased administrative expenses, mainly due to healthcare and retail sector expansions of the group, hindered higher topline gains.

Administrative expenses for the quarter rose 22 percent YoY to Rs.4.5 billion resulting in an operating profit of Rs.1.9 billion, down 6 percent YoY.

 The net finance cost for the quarter rose 36 percent YoY to Rs.1.7 billion.

 Meanwhile, for the six months ended September 30, 2019, Softlogic group reported a net loss of Rs.1.5 billion against a net profit of Rs.421.4 million.

 The revenue for the six months rose 9 percent YoY to Rs.37.2 billion while cost of sales rose 8 percent YoY to Rs.23.6 billion, resulting in a gross profit of Rs.13.5 billion, up 10 percent YoY.

 The net finance cost for the six months rose 43 percent YoY to Rs.3.2 billion.

Softlogic group expects a reduction in finance expenses in the upcoming months with the further stabilization of interest rates at relatively low levels.

“Softlogic’s capital raising measures in the retail sector is progressing well; we expect to raise such funds by way of hiving off equity before the close of this financial year,” Softlogic Group Chairman Ashok Pathirage said.

The group’s retail and telecommunication business, the largest contributor to the group revenue made an operating profit of 1.2 billion for the six months against an operating profit of Rs.1.5 billion on revenue of Rs.18.7 billion from Rs.17.7 billion a year ago.

“Slow growth in tourism in the aftermath of the Easter Sunday attacks, a high interest rate and tax regime has affected performance coinciding with retail spending contracting at the same time,” Pathirage said. 

“Nonetheless, we expect a slow and steady recovery in the economic landscape of the country with strong political stability and leadership being restored after the Presidential Election,” he added. 

The six months had added three new international brands—Furla, Hallmark and The Toy Store to its impressive portfolio of brands.

Pathirage said the flagship Odel Mall project at Alexandra Place is progressing well and is scheduled to be opened in 2021.

Softlogic Supermarkets under Glomark brand will be opening its seventh outlet in Nawala by December this year.

“We will also open in Mount Lavinia, Negombo, Rajagiriya, Colombo 07 (Malalasekara Mawatha) and Malabe in 2020,” Pathirage said.

 Meanwhile, the group’s healthcare business under Asiri Hospitals saw operating profit declining to Rs.1.4 billion compared to Rs.1.6 billion despite higher revenue of Rs.7.2 billion for the six months ended September 30, 2019 compared to Rs.6.6 billion a year ago.

Pathirage said their latest 180-bed hospital in Kandy had reported encouraging results.

The financial services sector of the group, which houses an insurance company, a finance company and a stock broking firm, recorded revenue of Rs.7.6 billion for the six months under review up from Rs.6.4 billion a year ago. But the segment’s operating profit improved to Rs.1.1 billion from Rs.835.4 million a year ago. 

The group’s Information Technology business reported an operating profit of Rs.195.3 million for the six months compared to Rs.120 million a year ago on increased revenue of Rs.2.2 billion. 

The non-core automobile segment of the group reported higher revenue of Rs.584.8 million and a nominal operating profit for the six months compared to Rs.15.7 million operating loss a year ago. 

The group’s leisure operations, impacted by Easter attacks saw its operating profit widening to Rs.369 million from Rs.46.8 million a year ago with revenue also declining.  

As at September 30, 2019, Pathirage held little over 40.43 percent stake in Softlogic as the single largest shareholder followed by Samena Capital, a principal investment group focusing on the Subcontinent, Asia, Middle East and North Africa, with 20.75 percent.