Mixed fortunes for Softlogic Holdings

Softlogic Holdings Plc had experienced a mixed second quarter and a first half with growth in group revenue and gross profit whilst experiencing a dip in the bottom line.

The Group Revenue for the quarter was Rs. 6.3 b, a YoY growth of 14% while the group revenue for the six months grew by 24% over the corresponding period in 2011 to Rs. 12.3 b on the back of a strong expansion drive within the group.

The gross profit of the group for the second quarter, improved by 11% to Rs. 1.9 b with a cumulative growth for the six months surging 20%, surpassing Rs. 3.9 b.

Softlogic Chairman Ashok Pathirage said the increase in interest rates, depreciation of the currency and the adverse macroeconomic conditions are the major challenges for the economy. This has negatively affected the disposable income of consumers.

Amidst the challenging environment, the group achieved a PBT of Rs. 312 m for the second quarter (down from Rs. 627 million a year earlier) and Rs. 567 million for the six months (down from Rs. 1.09 billion a year earlier).

The profit attributable to equity holders stood at Rs. 134 m and Rs. 205 m for the second quarter and for the six months respectively. In FY12 the respective figures were Rs. 224 million and Rs. 500 million.

The revenue from Softlogic’s Information Technology sector which consists of IT equipment, Nokia mobile phones and Dialog services declined during the second quarter recording a PBT of Rs. 4 m. The rise in cost amidst the depreciation of currency affected volumes of the IT segment and the mobile phone segment with consumers adopting a conservative behaviour. The sector was also affected by the foreign exchange losses incurred during the first six months.

In the Softlogic’s Leisure sector, the redevelopment and renovation of Centara Ceysands Resort and Spa are well under way, changing the resort from an 84-room hotel to a 166 room 4-star-plus resort, managed by the Thailand based Centara Resort and Spa management Group.

The hotel redevelopment project has already secured funding of US$ 10 m from International Finance Corporation (IFC) and is expected to open by 2013 winter season. The Movenpick City Hotel in Colombo, which is currently under construction, is progressing on schedule and anticipated to complete by 2014.

The Retail sector remained profitable with a PBT of Rs. 74 m despite the negative impact from the currency depreciation and increase in finance cost. The sector which is heavily dependent on imports suffered from a dip in volumes amidst the rise in prices hampering affordability. This is expected to be a short term effect until consumers get used to the new pricing structure.

With the per-capita GDP of the country expected to reach the US$ 4,000 mark, focus remains on the Retail sector as the planned expansion strategy remains intact. With the drive to widen its consumer base, the group opened its 156th consumer electronics showroom during the second quarter. In addition to the introduction of its own laptop brand ‘Maxmo’ earlier in the financial year which has had a successful launch; Softlogic plans to introduce ‘Apple’ brand via its showroom network during the upcoming season.

The third quarter would also experience the introduction of the world-renowned ‘Mothercare’ brand launching its flagship store in Duplication Road, Colombo 4.

Softlogic’s Automobile sector incurred a loss before tax of Rs. 21 m during the period under review compared to a PBT of Rs. 12 m during the corresponding quarter of previous year. The steep escalation of duty for vehicles and the depreciation of the currency was a double blow resulting in an 80% drop in Sri Lanka’s new vehicle registrations for 2012. “A similar effect was witnessed in the Automobile sector of our group,” Pathirage said.

The Financial Services sector of Softlogic reported a PBT of Rs. 53 m, a decline from the corresponding quarter. The sector revenue for the six months grew by 150% to Rs. 2.6 b with the consolidation of full six months of Asian Alliance and the expansion drives in Asian Alliance, Softlogic Finance and Softlogic Stockbrokers. The heavy finance cost burden associated with the acquisition of Asian Alliance remains the primary concern for the sector. The group emphasis is to reduce the finance cost burden of the sector during the second half of the financial year.

The Healthcare Services sector performance was impressive with a PBT of Rs. 204 m. Resulting from the one-off foreign exchange loss, sector PBT dipped by 15% compared to corresponding quarter while the sector revenue increased by 17%. The premier healthcare provider continued to expand into new services with its new Fractional Flow Rate and Rotablator Rotational Atherectomy System which are the first in the country.

In addition the group installed a state of the art Urodynamics Laboratory adding on to its super specialisation in urology and thereby providing the most complete urologic services in the country.

The group is progressing with its restructuring plan for the sector with its new foreign partner Actis Investment Holdings SL Ltd. Asiri Hospital Holdings PLC is expected to be the sector holding company for all hospitals within the group.

The elimination of cross holdings, increased stakes in subsidiary hospitals and reduction of debt is likely to boost the profitability from this sector. “The business environment in Sri Lanka posed significant challenges, but has witnessed a steady improvement. Despite the challenges in the short term, your company drives ahead with investments in key growth sectors of the economy and its continuous efforts to reduce the finance cost burden which would invariably lead towards an improved performance in the coming quarters,” Softlogic Chairman Pathirage said with regard to the future outlook.