Softlogic 4Q stymied by higher finance costs

Softlogic Holdings PLC’s revenues rose and operating profits soared although the gains were erased by hefty interest expenses as the group has begun a de-leveraging exercise to rid the conglomerate of the clutches of heavy debt, which has been weighing on them for far too long.

The diversified group mostly known for its namesake retail chain and life insurance business and the sprawling hospital chain under Asiri group, reported revenues of Rs.21.6 billion for the January-March quarter (4Q19), up 30 percent year-on-year (YoY).

Retail and telecommunications business accounted for half of the revenues while financial services cluster dominated by the life insurance business and the Asiri hospital chain contributed with 18 percent each to the group top line.

During the last two years, the Softlogic raised equity to pay down its debt as the group went on a huge shopping spree, which was mostly funded by debt.

During the financial year ended on March 31, 2018, Softlogic raised Rs.3.1 billion via a private placement and another Rs.3.9 billion in the following year via a rights issue to settle debt.

Still the group borrowings are weighing on the performance as the borrowing cost erased much of the gains it made in the top line and at the operating level.

The borrowing cost rose by almost a billion rupees in the March quarter from the year earlier period mainly due to the higher interest rates prevailed.

In a cautious note, Softlogic stated that given the uncertainty and unsettling political climate, any new expansion in retail, financial services and healthcare would be undertaken only on a case-by-case basis.

The group reported Rs.2.6 billion in operating profits for the three months to March, up 87 percent YoY.

However, it reported only earnings of 2 cents a share or Rs.26.7 million for the period compared to 16 cents a share or Rs.124.7 million reported for the same period, last year.
The total finance cost for the three months was Rs.2.5 billion while the finance cost net of any finance income was Rs.2 billion, up from Rs.1.4 billion a year ago.

Softlogic share ended 70 cents or 4.43 percent weaker at Rs.15.10 at yesterday’s close.

The group’s retail and communication segment reported an operating profit of Rs.1 billion for the quarter, up from Rs.340.7 million a year ago on a revenue of Rs.10.4 billion, up from Rs.8.6 billion.

The healthcare business segment also reported higher operating profit of Rs.801.3 million on a revenue of Rs.3.7 billion.
The group’s automobile business saw both revenue and operating profits soaring most likely due to the government contract secured by the group to supply Ford ambulances. Softlogic holds the Ford dealership in Sri Lanka.

The leisure segment of the group also saw a turnaround recording an operating profit of Rs.114.2 million against an operating loss of Rs.116 million on a revenue of Rs.1.2 billion.
The information technology business segment however recorded lower operating profit of Rs.117.7 million on a higher revenue of Rs.1.4 billion.

Meanwhile, for the year ended March 31, 2019 (FY19), the Softlogic group reported earnings of 9 cents a share or Rs.101.5 million compared to 26 cents a share or Rs.204.2 million reported for FY18.

The revenue for the year under review rose 14 percent YoY to Rs.75.1 billion.

The finance expenses for the period stood at Rs.7.1 billion, up 19.5 percent YoY while the net finance cost was Rs.5.7 billion, up 18.4 percent.

As at March 31, 2019, Softlogic Chairman and Managing Director Ashok Pathirage held 40.07 percent stake in Softlogic while Samena Ceylon Holdings Limited held 20.75 percent.
The state-managed private sector pension fund, the Employees’ Provident Fund held 0.61 percent stake being the company’s 10th largest shareholder.