Softlogic tops Rs. 25 b revenue mark, profits down in FY13

• Says future outlook positive on the back of changing macro dynamics

Softlogic Holdings Plc (SHL) which saw bottom line dip despite healthy growth in revenue in FY13, is maintaining that the future outlook was positive on the back of changing macro dynamics.

SHL said it reached one of its most historic business milestones with revenue crossing the Rs. 25 billion mark, up by 15.6% year-on-year for FY13, despite the quarter recording a marginal growth of 4.6% year-on-year to Rs. 6.1 billion.

Group net profit slowed down to Rs. 878.7 million for FY13 with profit attributable to equity holders at Rs. 301.1 million. However, the quarter recorded over a ten-fold growth in bottom line to Rs. 224.6 million, primarily generated by upstream dividends and other operating income.

Softlogic Holdings is one of Sri Lanka’s fastest growing listed conglomerates with a notable presence in the ICT, retail, healthcare, automobile, leisure and financial services sectors.

Group revenue was driven by strong growth in the financial services segment (FY13 – up 81.6% year-on-year, 4Q FY13 – 15.4% year-on-year) with the consolidation of Asian Alliance Insurance PLC, whose turnover exceeded Rs. 3 billion for FY13.

Asian Alliance Insurance’s non-Life insurance business growth was led by its fast tracked island-wide expansion mode, now standing at 34 general branches (versus eight as at 31 March 2012) whilst equally strong performance was seen in its Life assurance segment on the back of focused sales efforts driving business in the mid to higher personal market segments.

The leasing and finance business of the group moved forward with Softlogic Capital’s top line also exceeding Rs. 2 billion during FY13. The financial services sector’s last quarter performance reaffirms the value in the business enterprise and the potential to beat forecast levels is now more promising than what was anticipated in the aftermath of FMO and DEG swapping bank debt for equity.

The Asiri Group of Hospitals’ growth momentum remained strong with top line up by 17% year-on-year to reach Rs. 7.1 billion in FY13, (Rs. 1.8 billion – up 20% 4Q FY13). Significant performance was noted in Asiri Surgical Hospital (32% of sector revenue), Asiri Hospital Holdings (30% of sector revenue) and by the most recent 264-bed hospital, The Central Hospitals, which reported improved occupancy levels.

The expanding retail sector (sector revenue up 33.6% year-on-year at Rs. 6.2 billion – FY13) proved to be yet another significant contributor, making 25% of the consolidated revenue for FY13.

The sector’s expansion strategy is underway with an island-wide showroom strength of 214 (with distributors, 150). The opening of the first mini-multi brand departmental store in the island, Galleria, and the acquisition of the global baby care brand, Mothercare, occurred during the period under review.

New acquisitions such as Charles & Keith and Splash will make their debut shortly in upmarket locations. With these new acquisitions coming in along with network expansion, the retail arm is set to capitalise on improving per capita income levels of the upper segment.

The information and communications technology sector recorded a 19.8% year-on-year dip in revenue during FY13 (Rs. 5.6 billion) owing to a number of macro-economic adversities such as currency devaluation, upward trend in interest rates and price wars among industry rivals.

The automobile sector contribution remained sluggish but was within expectations after the escalation of duties for vehicles, made worse by the currency depreciation.

The gross profit of the group for FY13 improved by 14.2% year-on-year, surpassing Rs. 8 billion. The gross profit margin held strong at 33%. Operating cost margins were under strict control during FY13 with the administrative cost margin only seeing a 200 bps rise, reflecting the expanding operations of the group.

Hence, EBITDA remained healthy at Rs. 4.9 billion (up 20% year-on-year), ensuring that the company’s operational performance is acceptable. Finance costs rose 57% year-on-year during the quarter, taking the total for FY13 to Rs. 2.7 billion (up 41.6% year-on-year). Interest bearing loans as at 31 March 2013 was Rs. 22.3 billion compared with the previous year’s exposure of Rs. 22.7 billion.

The rise in interest cost was primarily led by the increase in interest rates in the economy and the delay in the disbursal of the IFC facility of US$ 10 million for retail sector expansion. Interest costs are expected to reduce in the coming year with a balanced debt mix of local currency to foreign currency borrowing in light of the fact that the rupee’s stability is likely to hold, considering Central Bank’s prudent management of the exchange rate risk and the potential for higher FDI inflows expected this year.