March quarter marred by virus disruptions hurts Softlogic FY20

The business disruptions caused by the coronavirus pandemic weighed on Softlogic Holdings PLC’s March 2020 quarter performance (4Q20) and the full financial year (FY20), the recent interim financial accounts released to the Colombo Stock Exchange showed.

Already saddled with heavy debt accumulated during the last three to four years, to fund its aggressive expansion drive in the retail and leisure sectors, Softlogic Holdings reported a net loss of Rs.4.72 billion for the year ended on March 31, 2020, compared to a profit of Rs.104.7 million in FY19.

The group revenue in FY20 edged up to Rs.76.7 billion, compared to Rs.75.1 billion in FY19, as the group lost nearly Rs.4.3 billion or 20 percent of the full-year revenue during the final quarter, due to the interruption to its multiple lines of businesses, caused by the coronavirus crisis.

The retail juggernaut lost a crucial peak sales season for its consumer discretionary line ahead of the April New Year, due to lockdowns, which began from the third week of March, while the complete cessation of tourist arrivals, nearly decimated its leisure business and curtailed the demand for its 
upmarket retail. 

For instance, Odel PLC, the group’s upmarket retailer, recorded nearly an 11 percent decline in its top line during its 4Q20 to Rs.1.7 billion, with an operating loss of Rs.361.7 million, compared to Rs.362.1 million profits in the comparable period in 2019. 

The company’s revenues further slumped to Rs.613.2 million in the April-June quarter (1Q21), from Rs.1.6 billion in the comparable period in 2019 and reported an operating loss of Rs.452.2 million, compared to a profit of Rs.3.7 million, last year.  The group’s entire retail operation recorded a revenue of Rs.7.8 billion for the January-March quarter, compared to Rs.10.4 billion in the similar period in 2019 and incurred a loss of Rs.968.3 million at operating level, compared to a little over a billion rupee profit in the same 
period last year. 

However, for the entire financial year, this segment managed a top line slightly better than the previous financial year with a revenue of Rs.37.9 billion but the operating profit slumped to Rs.1.4 billion, from 3.2 billion last year.  The heavy debt however weighed on the earnings of this segment, as it booked nearly Rs.4.6 billion in finance cost, out of a total finance cost of Rs.9.4 billion for the year. 

The other two segments, which had substantial debt service costs, were healthcare and leisure, with Rs.1.6 billion and Rs.1.2 billion in finance costs, respectively. 

By end-March 2020, Softlogic Holdings had short and long-term debt of Rs.53.2 billion, up from Rs.42.7 billion, last year. ICRA Lanka while affirming the company’s rating at BBB+ revised the outlook to Negative in May, this year, flagging the increasing debt levels during the last 18 months, after some moderation seen following a private placement and aright issue during 1Q19.

Softlogic is currently engaged in an exercise restructuring its financial services cluster with fresh funding through a rights issue and the acquisition of Abans Finance PLC.