Softlogic March in red; top line growth remains modest

Softlogic Holdings PLC, the diversified retailer turned a net loss of Rs.234.5 million for its January-march quarter (4Q17), compared to a net profit of Rs.146.2 million year-on-year (YOY) due to heavy finance costs, increase in overheads and modest growth in top line, the interim results released by the company showed.

For the financial year ended March 31, 2017, the net profit fell to Rs.112.5 million or 15 cents a share from Rs.572 million in the previous year with some key business segments losing momentum amid tougher macroeconomic conditions hurting. The performance for the final quarter as well as the full year demonstrates that the group’s bottom line being squeezed by heavy borrowings made during the last couple of years to fund its expansion. Rising interest rates and slow growth in the top line are also posing a challenge to the group in making headway.

Particularly during the final quarter, the increased value added tax (VAT) may have hurt the bottom line but the hefty finance cost due to heavy borrowings and higher interest rates appeared to have had a larger bearing on the group performance.

The net finance cost rose by as much as 87 percent Yoyto Rs.1.17 billion during the final quarter while the full year net finance cost was as high as Rs.3.9 billion, up 68 percentyoy.

The group long-term borrowings rose by as much as Rs.9.0 billion during the year. The overheads also rose faster than the top line, which weighed on the operating profit.

Administration expenses rose by 18 percent YOY to Rs.3.6 billion, which the group attributed to “the commercial opening of the city hotel and management’s conservative decision to increase provisioning of ageing debtors and inventory in the retail sector”.

The group opened its city hotel, Movenpick, early this year ,which is yet to contribute positively and as a result the group’s leisure sector turned a net loss of Rs.152 million for the quarter from Rs.117.3 million YOY.

For the full year, this business segment incurred a net loss of Rs.294.8 million, expanding from the loss of Rs.92.6 million incurred last year.

The group could have off-set some of the overhead pressure if they could increase its top line significantly, but the growth in revenue was only 5.4 percent Yoyfor the quarter to Rs.14.3 billion and 8.2 percentyoy for the full year to Rs.59.1 billion.

This resulted in operating profits declining by 28 percent YOY to little over a billion rupees for the quarter and 14 percentyoy to Rs.5.3 billion for the full year. The group’s key retail business turned a net loss of Rs.189.5 million during the March quarter from a net profit of Rs.6.3 million YOY. The revenue also fell slightly to Rs.4.73 billion. The full year net profit was also down to Rs.386.2 million from Rs.472 million last year with revenues edging up to Rs.20.5 billion.

Group’s information technology business saw its bottom line narrowing during the financial year while the automobile business expanded losses.

Meanwhile, the healthcare segment, which runs the Asiri Hospitals chain, also saw its net profits narrowing to Rs.1.28 billion from Rs.1.41 billion YOY but the revenues were slightly up to Rs.10.8 billion.

The group financial services, which comprises of a licensed finance company, a life insurance company and a stockbrokerage managed to increase its net profit to Rs.1.16 billion from Rs.981 million YOY with the final quarter making wide gains in the bottom line. By March 31, 2017, Softlogic Gorup Chiarman Ashok Pathirage held 42.14 percent stake in the company while the Employees’ Provident Fund held 0.93 percent stake, being the 8th largest shareholder.