One-off gains lifted the Softlogic Holdings PLC’s December quarter (3Q18), which is currently going through an exercise to reduce its group debt that weighs on profits as the borrowing costs continue to climb.
Softlogic group, which has interests in fashion retailing, healthcare, leisure, ICT, financial services, automobiles and property reported 39 cents a share or Rs.304.4 million for 3Q18 compared to 20 cents a share or Rs.151.5 million in earnings reported for the corresponding quarter of the previous year.
The December 2017 profits included other operating profit of Rs.1.0 billion—stemming from one-off gains from financial services and disposal of assets. For the corresponding period in 216, the other operating income stood at just Rs.200 million.
Amid tougher operating conditions, the group top line during the quarter under review rose by a healthy 18 percent year-on-year to Rs.18.3 billion, while the gross profit improved 25 percent YoY to Rs.5.2 billion.
The Softlogic Holdings share ended Rs.1.50 higher at Rs.24.00 at last week’s trading close.
The Softlogic group was on a borrowing binge to fund its ambitious growth plans. Although the group benefitted from the low interest rates prevailed initially, the borrowings started to weigh on the profits as the interest rates rose since the beginning of 2016.
Now the group plans a combination of a private placement and a rights issue to raise Rs.7.0 billion in new equity to settle part of the debt it piled up to build new hospitals, malls and make acquisitions.
During 2017, the company did not make new borrowings, instead settled part of its debt.
As of December 31, 2017, the group had total borrowings of close to Rs.37 billion against equity of Rs.18 billion.
The net finance cost for the December quarter rose by 26 percent YoY to Rs.1.32 billion. For the 9 months ended December 31, 2017, the net finance cost rose by 27 percent YoY to Rs.3.5 billion from Rs.2.7 billion reported for the corresponding period in 2016.
The earnings for the nine-month period stood at 40 cents a share or Rs.306.9 million compared to 45 cents or Rs.347.1 million reported in the same period, last year.
Meanwhile, the group’s key retail business, which houses Odel PLC, consumer electronics and franchises such as Burger King, reported Rs.493.4 million in earnings in comparison to Rs.550.6 million reported during the same period in the previous year.
The segment revenues rose to Rs.15.7 billion from Rs.15.2 billion.
“It is natural for the retail sector, which is presently the group’s most capital intensive segment in the wake of Odel’s expansion and also the expansion of consumer electronics and fast-food business”, said Ashok Pathirage, Group Chairman in an earnings review.
The group’s second largest business segment in terms of revenue generation, ICT, reported a healthy profit of Rs.334.2 million for the 9 month ended December 2017 compared to 259 million YoY on revenue of Rs.13 billion, down from Rs.13.6 billion YoY. Despite higher top line gains, both leisure and motor sectors of Softlogic group recorded losses for the 9 months ended December 31, 2017, although the motor sector was able to narrow its losses to Rs.96.8 million from Rs.155.3 million.
Both healthcare and financial services operations of the group reported strong top line and bottom line gains. The Softligic group is the parent of Asiri Hospital chain and also owns The Central hospital.
Softlogic Life Insurance PLC, Softlogic Finance PLC and Softlogic Stockbrokers consist of the group’s financial services operations. “We are awaiting the launch of Asiri Hospital Kandy, which would be the first state-of-theart 190-bed hospital to cater to the Central, North and Eastern provinces,” Pathirage said.
As at December 31, 2017, Pathirage held 48.73 percent of Softlogic Holdings while Employees’ Provident Fund held 0.93 percent stake being 8th largest shareholder.