Softlogic top line improves but losses up in difficult 2Q

Diversified blue chip Softlogic Holdings Plc has posted gain in its top line though losses have increased in the second quarter midst difficult conditions though the Group is upbeat of prospects following the conclusion of the Presidential Election and ensuing period.

Group revenue increased 9% to Rs. 37.2 billion during the 1HFY20 while quarterly revenue increased 10% to Rs. 20 billion.

Primary contributors to Group turnover were Retail (50%), Financial Services (20%) and Healthcare Services (19%). The non-core vertical, comprising Automobile and Leisure, made up 3% of Group turnover while the IT sector contributed 6% of Group topline.

Gross profit had improved 10% to Rs. 13.5 billion during the 1HFY20 maintaining Group GP margins at 36% levels. Quarterly Gross Profit grew 11% to Rs. 7.2 billion.

Distribution expenses increased 9% to Rs. 1.7 billion during the first half. Administrative expenses increased 20% to Rs. 8.6 billion during 1HFY20 resulting from the Group’s increasing activity levels from its expansion in Healthcare and Retail. This led total operational expenses to rise 18% to Rs. 10.2 billion during 1HFY20. Quarterly operating costs increased 19% to Rs. 5.4 billion.

Stringent cost discipline measures and quicker cash-conversion initiatives such as expedited debtor clearance measures in addition to other standard cost and waste management systems helped the Group to mitigate margin erosion with benefits of economies of scale while also somewhat negating the adverse impact of the April attacks.

Group EBITDA for the first half improved 10% to Rs. 5.8 billion while EBITDA for the quarter grew 11% to Rs. 3 billion.

Cumulative operating profit amounted to Rs. 3.6 billion, down from Rs. 3.88 billion a year earlier with the quarter reporting Rs. 1.9 billion as operating profit, marginally lower compared with Rs. 2 billion a year earlier.

Net finance cost in the 2Q rose by 36% to Rs. 1.7 billion and for the first half it was up 42.5% to Rs. 3.17 billion. The Group also saw Rs. 768.5 million change in insurance contract liabilities for the first half with the 2Q figure being Rs. 362.4 million, as against Rs. 810.5 million and Rs. 546 million respectively a year earlier. 

Pre-tax loss was Rs. 346 million in the first half as against a profit of Rs. 855 million a year earlier and the loss in 2Q was Rs. 197 million in comparison to a profit of same value.

After tax loss in first half was Rs. 911.7 million as against a profit of Rs. 2.4 billion and the loss for the quarter was Rs. 435.7 million in comparison to a profit of Rs. 2 billion. 

Net loss attributable to equity holders was Rs. 1.5 billion in first half and Rs. 762 million in 2Q as against profit of Rs. 421.4 million and Rs. 371.7 million a year earlier.

Softlogic Holdings Plc Chairman Ashok Pathirage said the macro-economic slowdown in the aftermath of April attacks was further compounded by the contraction of business and trading activity, declining investor confidence, and falling consumer purchasing power. 

“Deficiency in implementing policy decisions to restore investor sentiments and rejuvenate tourism and other key sectors affected by the Easter attacks impacted consumer demand,” he added.

As Softlogic is a consumer-driven business model, it experienced the immediate impact of these economic shocks. Retail was affected by the dismal growth and financial costs, while Healthcare’s robust performance was offset by losses of Kandy hospital, which is expected to breakeven by end of the financial year, while Leisure was mostly affected by the lack of tourist traffic.

Nonetheless, Pathirage said Softlogic was a forward-looking conglomerate and had overcome some of the systemic hurdles due to economies of scale and cost disciplined measures and had been boldly continuing with its capital expansion projects, especially in One Galle Face by Shangri-La, which is now opened to the public occupying the largest shopping mall space. 

The Odel departmental store which is now on par with any other international departmental store takes up 54,000 sq.ft. on three conjoined floors where it offers a much larger space for home and beauty centres for its shoppers. COCO by Cotton Collection along with 20 other branded apparel stores of international standard have also opened at One Galle Face (with four more branded stores to be added soon). “We expect the finance expenses to reduce in the upcoming months with the further stabilisation of interest rates at relatively low levels,” said Pathirage, adding, “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.”

Pathirage said Softlogic was optimistic that economic consolidation would take place in conjunction with the newly-elected President as it would inspire confidence in the body politic, leaving no room for any milestone in the economy to be unturned. 

“With this optimism, we believe the security situation in the country will improve dramatically, thereby facilitating the resurgence of tourism and related industries, which in turn would result in a recovery, benefitting our performance,” he added.