Softlogic defies economic woes to record surging profits

• Consolidated turnover up 14% to Rs. 75.1 b in FY19
• 4Q Group revenue up 30% to Rs. 21.6 b
• FY19 PAT grows 30% to Rs. 3 b, quarter PAT up 32% to Rs. 855 m
• Wary about future outlook owing to economic uncertainty and unsettled political climate

Softlogic Holdings Plc has defied a difficult business environment with depressed business and consumer sentiment, caused largely by high interest rates and a depreciating rupee, to record Rs. 3 billion in post-tax profits for FY 2019, which is a 30% increase year-on-year, while showing a 32% post-tax growth of Rs. 855 million during the fourth quarter.

Softlogic Holdings Chairman Ashok Pathirage

Despite challenges, the resilience of the conglomerate’s business model demonstrated steady profitability, the company said.

“We faced numerous challenges stemming from the external environment during the financial year 2018/’19, which was worsened by political unrest during 3QFY19. A general slowdown of the economy and policy uncertainty diminished business sentiments, which was further exacerbated by the USD/LKR and interest rates reaching a higher range,” the company said in its Earnings Review. 

The 100% cash margin requirement affected the retail sector and the 200% cash margin requirement adversely affected the automobile sector. Furthermore, the most recent Easter Sunday terror attacks caused significant economic setbacks. The aftermath of this incident affected Softlogic businesses, with retail stores being closed during the period of unrest. 

The leisure sector has been devastated by lack of interest in Sri Lanka as a safe tourist destination, the Review said, encapsulating the conglomerate’s challenges.  

Nonetheless, consolidated turnover reported a 14% increase in revenue to Rs. 75.1 billion. The quarterly Group revenue witnessed a 30% growth to Rs. 21.6 billion.

Primary contributors to Group top-line for the financial year were Retail (50% contribution), Healthcare Services (18%), Financial Services (18%) and IT (5%) followed by the non-core sectors – Automotive and Leisure.

Gross profit for the year increased 17% to Rs. 27.7 billion to register a GP margin of 37% in FY19 from 36% in FY18. Quarterly gross profit also improved 33% to Rs. 8 b. Group’s size and diversity helped the company mitigate operational challenges arising from rupee depreciation and working capital challenges triggered by the cash margin requirement.

Other operating income for the year was Rs. 1 billion as opposed to Rs. 1.8 billion in FY18. This comprises recurrent and non-recurrent income source such as investment income, fee and commission income emanating from retail and financial services as well as one-off disposal gains across the Group.

Distribution and administrative expenses increased 14% and 19% to Rs. 3.5 billion and Rs. 16.7 billion respectively during FY19. Total operational expenses was Rs. 20.2 billion (up 18%) during FY19.  Distribution cost for the quarter increased 73% to Rs. 1.1 billion while administration costs increased 14% to Rs. 4.8 billion. Quarterly operational cost increased 21% to Rs. 5.9 billion primarily led by Group expansion and other inflationary pressures.

Group EBITDA improved 3% to Rs. 11.3 billion during the year while quarterly EBITDA grew 62% to Rs. 3.4 billion.

Operating profit for the year increased marginally to Rs. 8.4 billion (Rs. 8.3 billion in FY18). Operating profit for the quarter increased considerably to Rs. 2.6 billion to witness an operating profit margin improvement from 8% in FY18 to 12% in FY19.

Finance income, which principally comprises Softlogic Life Insurance PLC’s investment portfolio’s performance, increased 25% to Rs. 1.4 billion during FY19 while the quarterly finance income nearly doubled to Rs. 503 million (Rs. 224 million in 4QFY18).

Net finance cost increased 18% to Rs. 5.8 billion for the year while a 46% increase to Rs. 2 billion was noted during the year.

The change in insurance contract liabilities, which is the transfer from the life insurance business to the policyholders’ account, indicates a transfer of Rs. 1.2 billion during FY19 compared to Rs. 1.4 billion in FY18.

PBT for the year was Rs. 1.8 billion as quarterly PBT increased 18% to Rs. 1.2 billion. PAT recorded a 30% growth to reach Rs. 3 billion during the financial year under review while a 32% growth was reported during the quarter with a PAT of Rs. 855 million.

Commenting on future outlook, Softlogic Holdings Chairman Ashok Pathirage said: “Our investment in healthcare, with its new addition in Kandy, in particular, creates unprecedented value for the Group. However, Softlogic’s expansion proposition in various fields of economic activity beneficial to retail, financial services and healthcare would now be considered on a strictly case-by-case basis due to the uncertainty in the economy and the unsettling political climate.”