Monday, 17 November 2014 00:02
Softlogic Holdings Plc on Friday reported strong performance in the second quarter of FY15 with healthy growth in top line and bottom line. Consolidated Revenue for the quarter increased by 20.7% to Rs. 8.7 b taking the cumulative revenue to near Rs.17 b, (up 17.7%). Retail cluster outperformed with a 25.6% contribution to the Group’s cumulative turnover for 1H of FY15 followed by Healthcare Services with a 25.1%, Financial Services and ICT each contributing 24.4% and 22.4% respectively. “We expect 2H of FY2014/15 to report much stronger numbers with most of our business segments skewed towards the seasonal peak; viz, Retail, Insurance, Healthcare and Leisure,” Softlogic Holdings Plc Chairman Ashok Pathirage said in his review accompanying interim results. Consolidated Gross Profit increased by 18.7% to reach Rs. 3.1 b during the second quarter of the financial year with cumulative first half Gross Profit increasing 19.3% to Rs. 6.1 b. Following are excerpts from Pathirage’s review:
Operational expenses increased 46.7% to Rs. 2.6 b during the quarter whilst accumulated operating expenses for 1H of FY2014/15 grew 40.2% to Rs. 4.7 b. With the Group’s ongoing expansions, an increase in operating cost margins were noted during the cumulative period to 28.5% from 23.9% last year.
Finance Income, which registered an exceptional three-fold growth to Rs. 1.2 b (Rs. 800.3 m during the quarter), was primarily led by investment portfolio gains at Asian Alliance Insurance PLC which registered Rs. 1.1 b gain in its fixed and equity investments for the cumulative period under review. Finance expenses declined to Rs. 684.3 m as opposed to Rs. 733.1 m in the comparative quarter. Cumulative finance expenses also reduced to Rs. 1.3 b with declining interest rates in the wider economy which has assisted the Group’s rapid growth momentum. At this juncture, debt is a much cheaper source of funds in comparison to equity. However, necessary steps are being taken to address Group’s gearing position to bring to acceptable levels.
Group PBT registered over a two-fold growth to Rs. 427.0 m during the quarter taking cumulative PBT to 721.8 m (Rs. 343.0 m in 1H of FY2013/14). Profit for the six-month period amounted to Rs. 579.1 m (up by a strong 91%) with the 2Q of FY2013/14 reporting Rs. 353.8 m (up 198.8%).
During the quarter, your Company executed a groundbreaking acquisition of Odel PLC. This was cheered by all sections of the business community. We believe that with the acquisition of Odel which could be combined with the existing Group synergies in retailing this could become one of the most significant accomplishments for your Company.
The market value of investments where we hold controlling interest in quoted subsidiaries (Asiri Hospital Holdings PLC and Softlogic Capital PLC) reflects a veritable surplus of Rs. 10 b from the time of acquisition. It is noteworthy that LRA has highlighted this in its rating report. Should this be factored in a pro-forma balance sheet, overall leverage would be considerably lower.
Information & Communication Technology
Information & Communication Technology continued to improve its contribution to Group Revenue with the quarter recording 23% (Versus 21.4% of Consolidated Revenue in 2Q of FY2013/14). Cumulative sector contribution stood at 22.4% opposed to 21.1% in 1H of FY14. The sector recorded a strong improvement in its topline by 29.4% to Rs. 2 b during the quarter and 25% growth for the cumulative period to Rs. 3.7 b.
This growth was propelled by the Communications Division led by the strengthening of its distribution network. Promotional activities and improving demand in Smart phone range added to the sector’s volume driven growth. Group’s IT segment also strongly progressed, providing services for many new IT infrastructure projects.
This segment’s Operating Profit improved contribution to the Group accounting for 24.8% during the first half of FY2014/15 to Rs. 417.8 m (Rs. 378 m which is a 20.2% contribution during the comparative period). Sector PBT improved by 98.4% to Rs. 264.5 m during the cumulative period (Rs.126.9 m during 2Q of FY2013/14, up 96.5%). ICT sector PAT increased 51.1% to Rs.218.0 m with 37.6% of that amount going directly to Group PAT during 1H of FY2014/15.
Retail sector contributed 25.6% to Group turnover registering a 18.3% growth to Rs. 4.3 b during the cumulative period whilst the quarter saw an improvement of 26.4% to Rs. 2.2 b making up 25.4% to the quarterly Consolidated Revenue. This was led by improving footfall rates at our existing showrooms coupled with new brands and store sales.
Operating profit reduced by 24.9% to Rs. 335.3 m in comparison with Rs. 446.5 m in 1H of FY2013/14. The quarter also witnessed increasing operational expenses with the sector’s expansion to result in a marginal decline in operating profit to Rs. 180.6 m. Consequently, contribution to the Consolidated Cumulative Operating profit declined to 19.9% from 23.9% in the previous year. Sector’s finance cost dropped by 10% to Rs. 262.5 m during the six month period. Sector’s PBT dipped 17.8% to Rs.56.1 m for the quarter dragging down the cumulative PBT by 46.9% to Rs. 142.4 m. Sector’s PAT reduced by 15.7% to Rs. 57.5 m during 2Q of FY2014/15 with the aggregate PAT for 1H of FY2014/15 also registering a decline of 46.9% to Rs. 142.4 m. We believe that the retail cluster’s performance would improve with the consolidation of Odel PLC. No doubt, synergies are expected to be significant for
Retail in the upcoming periods with integration of the local and international marques to be retailed under one roof.
The Consumer Electronics opened its 191st showroom at Panadura taking its cumulative retail space to 250,000 sq. ft. Softlogic Brands has obtained distributorship rights for ‘Crocs’ and ‘Pepe’ during the period under review.
Healthcare Services continued its outstanding performance during the six-month period with strong marks across its three key hospitals; Central Hospital Ltd, Asiri Surgical Hospital PLC and Asiri Hospital Holdings PLC. The Sector added Rs. 4.2 b to Group topline (25.1% contribution), which is 11.1% growth during 1H of FY2014/15 with the quarter reporting 10.2% increase to Rs. 2.1 b (i.e., 24.1% contribution to the Group topline). Operating Profit of the sector was Rs. 461.2 m during the quarter with the cumulative number reading Rs. 1 b. Sector’s PBT stood at Rs. 332.7 m during the quarter with the 1H of FY2014/15 reporting a 13.9% to Rs. 722.8 m. Healthcare’s dominant contribution to Group’s performance continued as it reported Rs. 628.4 m for the six months ended September 2014.
We expect investments in some of our new facilities—Beauty Central—to augment performance in the upcoming quarters.
Financial Services Financial Services saw a 15.6% growth in topline to Rs. 2.1 b during 2Q of FY2014/15 with its contribution to the Group revenue being 24.2% while cumulative sector revenue registered a 14.8% to Rs. 4.1 b. The sector’s PBT achieved Rs. 299.7 m for 1H of FY2014/15 against a loss of Rs. 197.4 m during the comparative period. The strong result of the Sector was led by Asian Alliance Insurance PLC delivering an excellent performance that saw YTD total GWP at Rs. 3.4 b with Life premiums increasing by Rs. 374 m, which in absolute terms was amongst the highest in the industry. This reflected an increase of 20.8% that well surpassed industry growth of 7.6%. Company is also having an upswing with investment income far surpassing its peer group on the back of favourable conditions in Equity and Fixed Income markets.
Softlogic Finance PLC saw Loan Advances growth of 17.5% compared to the previous year while Customer Deposits increased by a strong 56% to Rs. 10.7 b, with Total Assets of the Company recording Rs. 19.3 b.
Softlogic Stockbrokers that embarked on a new strategy at the beginning of the financial year has seen a complete turnaround with Rs. 89.6 m turnover recorded for the first half elevating the Company to rank amongst Top 05 in the market.
Automobile sector recorded an improvement of 17.3% to Rs. 287.4 m in 1HFY15. The quarter, however, witnessed a marginal decline to Rs. 153 m. However, the sector closed the first half of FY 2014/15 with a loss of Rs. 15.7 m versus a loss Rs. 27.3 m compared with the previous year. Budget for 2015 has had a positive impact on the automotive industry with the integration of taxes and simplification of the vehicle import tax structure.
Our King Long range, China’s most reputed and leading national bus manufacturer has been progressing with the growing demand for luxury transport consequent to the tourist boom and ever increasing highway transportation needs.
Local tourists dominated our bookings during the off-peak season at our brand new resort, Centara Ceysands Resort & Spa. Reservations from tour operators for November-March peak has been impressive. Shell and core construction work of the 24 floors was completed as per envisaged time lines at Movenpick, Colombo. We expect the hotel to be operational towards the later end of 2015.
We are cognisant of the need to garner equity for sustained growth and expansion needs. With this, your Company, will continue to restructure its balance sheet with regard to debt and equity mix so that earning potential to equity holders will be optimal.