Softlogic’s 9 month revenue, post-tax profit up, bottom line down

Softlogic Holdings Plc yesterday announced its first nine months performance, reflecting strong growth in its top line but a dip in the bottom line.

Profit attributable to equity holders had declined by 10% to Rs. 567.7 million but after tax profit had swelled by 51% to Rs. 1 billion. Consolidated pre-tax profit was up 74% to Rs. 1.43 billion whilst turnover had grown by 138% to Rs. 16 billion in the first nine months ended on 31 December 2011.

Softlogic Holdings Chairman Ashok Pathirage put the results in the context of a growing economy that has been struggling with market complexities.

“I am happy that the Company and the Group posted positive results against this backdrop and the long term strategic investments made by the Group over the past few years are well positioned to contribute towards better results in the future,” he said.

He said high growth in Group revenue was driven primarily by the consolidation of the Asiri Group of Hospitals which became a subsidiary of the Softlogic Group in December 2010.

The comparative figure for the nine months when excluding Asiri Group is Rs. 11.50 b, which is a 70% increase, while Asian Alliance Insurance contributed four months of revenue.

“Whilst the results for the first nine months are on the positive trend, the third quarter results are below our expectations stemming from the finance cost of holding Asian Alliance Insurance PLC (AAI) and the one-time cost associated with the restructuring of the investment portfolio of AAI as explained later under the financial services sector review,” Pathirage said.

“However, since the acquisition, AAI has performed remarkably well operationally with both the life and the non-life segments having profits before investment income.

These are positive indications that the medium term synergies are already contributing to the growth of the Company. The rest of the sectors have performed above expectations contributing positively to the third quarter results of the Group,” he added.

The Group recorded a turnover of Rs. 6.12 b for the third quarter of 2011/12, a 110% increase when compared to Rs. 2.92 b for the corresponding period in 2010/11. However, the third quarter PBT was Rs. 345 m as compared to the Rs. 477 m recorded in the corresponding period of the previous year and the third quarter PAT was Rs. 133 m, when compared to the Rs. 385 m recorded in the corresponding period of the previous year.

The Information and Communication Technology sector of the Group recorded a PBT of Rs. 399 m for the first nine months, an increase of 95% when compared to the PBT of Rs. 204 m recorded in the corresponding period of the previous year. The PBT recorded for the third quarter of 2011/12 was Rs. 129 m when compared to the PBT of Rs. 59 m recorded in the third quarter of 2010/11 which is an increase of 119%. The IT sub sector contributed towards the positive performance with new tenders and projects while the telecommunications business maintained its market leadership position in Sri Lanka.

The Healthcare sector of the Group continued to perform exceptionally well with the Asiri Group recording a PBT of Rs. 640 m for the first nine months of 2011/12. The sector recorded PBT of Rs. 243 m for the third quarter of this financial year. Asiri Surgical had another “first” added to its services when it launched the country’s first PET/CT (Positron Emission Tomography/Computed Tomography) medical imaging scanner.

Asiri Group that gives its patients the best care available is now able to provide this advanced imaging tool that provides most accurate diagnosis for the treatment and management of cancers, neurological disorders, cardiac applications, etc.

Softlogic Group’s Retail sector continued to see steady growth with a total of 112 stores being opened by the end of the third quarter. This wider reach out to the consumers in many parts of the island has enabled the rural folk to access a world reputed range of Consumer Electronics and Home Appliances.

The Retail sector posted a PBT of Rs. 380 m in the first nine months of the year, being an increase of 68% when compared to the PBT of Rs. 226 m recorded in the corresponding period of 2010/11. The third quarter recorded a PBT of Rs. 160 m, an increase of 52% when compared to the PBT of Rs. 105 m recorded in the corresponding period of the previous year. The third quarter results are a reflection of the seasonal sales aided by the expansion of the retail stores combined with the expansion of the international brands during the financial year.

The Financial Services sector comprising of Leasing, Finance and Insurance recorded a PBT of Rs. 82 m for the first nine months of the year, an increase of 22% when compared to the Rs. 67 m recorded in the corresponding period of 2010/11. PBT recorded for the third quarter was a loss of Rs. 201 m when compared to the PBT of Rs. 41 m recorded in the third quarter of 2010/11.

The PBT of the sector was adversely affected by the acquisition of Asian Alliance Insurance PLC (AAI). The finance cost associated with the investment of AAI by Softlogic Capital overshadowed the positive performance of the Finance and Leasing arm of the sector. However, the negative impact is expected to be a concern only in the short term due to the proposed plan to raise new capital for Softlogic Capital.

AAI also was not able to consolidate the full profits from the life fund as the acquisition was in made in August. In a strategic move, AAI also restructured its investment portfolio by replacing the underperforming shares with predominantly blue chip investments, especially in regards to the general fund. The general fund has seen losses due to its investment income and corrective action taken by selling some of its underperforming investments in the bear market for a loss of Rs. 248 m should bode well for the insurance company in the future.

Pathirage said the acquisition of AAI complements the financial services strategy of the Group through a number of synergies and some services are already being offered with existing products and services of the Softlogic Group.

A medical insurance scheme named ‘Asiri Alliance Medical’ has already been launched in collaboration with the Asiri Group of Hospitals. The Company which is a composite insurer, has a strong proposition in the Life business and will aim to increase market share in a promising environment where strong insurance growth is keenly correlated to growth in the national economy.

The third quarter saw the Automobile sector of Softlogic introducing yet another brand of SUVs – the JONWAY A380 – to its already existing international product line. The automobile sector achieved a PBT of Rs. 98 m for the first nine months of 2011/12, being a growth 227% when compared to the PBT of Rs. 30 m recorded in the corresponding period of the previous year. The third quarter PBT was Rs. 48 m when compared to Rs. 8 m recorded in the corresponding period in 2010/11.

The Leisure sector, as expected is going through its construction and refurbishment programs of the Movenpick City Hotel in Colombo and the Ceysands Hotel in Bentota respectively. The Group has also entered into a shareholders’ agreement with the shareholders of Ominga International (Private) Limited for the construction of a luxury resort with 40 rooms and 20 luxury villas in Pasikudah. Softlogic shall own 66.66% of Ominga for which Softlogic will invest Rs. 200 m.

The Chairman in his review to Softlogic shareholders reiterated that third quarter results are below expectations and are not indicative of the potential of the Company and the Group.

“The full year effect of our expansion plans especially in the retail sector and the acquisition of AAI will be reflected in our results for next year. These combined with the long term strategic initiatives that are being considered or are being implemented will give you, our stakeholders better results in our journey in diversified businesses,” Pathirage added.