Softlogic June quarter net up 22%; VAT hurts healthcare biz
Softlogic Holdings PLC, which has interests into retail, information technology, financial services, healthcare, leisure and automobile, increased its June quarter (1Q17) net profit by 22 percent to Rs.101.8 million or 13 cents a share from a year ago, the interim results showed. However, Softlogic Chairman Ashok Pathirage said the healthcare segment was adversely impacted by the increase in value-added tax (VAT) as it “resulted in such services being viewed by the public as too expensive to bear”.
The group’s bottom line was largely cushioned by the change in life insurance contract liabilities of the insurance subsidiary, Asian Alliance Insurance PLC, which recorded only Rs.30.8 million net profit in the June quarter, against Rs.459.2 million a year ago.
The operating profit narrowed by 11 percent year-on-year (YOY) to Rs.1.27 billion.
The group’s June performance was also weighed down by the net finance cost as the rising interest rates had a bearing on the group’s borrowings and the investments in government securities made by its insurance subsidiary.
The group had more than Rs.200 million adverse impact from the rising interest rates as the net interest cost for the quarter was Rs.716.7 million, up from Rs.504.8 million a year ago.
“Increasing interest rates was a systemic challenge faced by many corporate leaders in recent times,” Pathirage said in an earnings release.
The group top line rose by 13 percent to Rs.14.77 billion from a year earlier supported by all business segments but the largest contribution stemmed from retail and information technology units.
These two business units contributed 32.1 percent and 30.6 percent, respectively, to the group revenue during the quarter.
The gross profit of Rs.4.5 billion was little changed from a year ago, as the direct costs rose much faster than revenue.
Other operating income was up 54 percent YOY to Rs.298.4 million due to fees received for new loans at Softlogic Finance PLC – the group’s licensed finance company.
The group’s retail arm has now built a retail empire with 232 stores, 291,631 square feet of retail space.
The segmental results showed the company’s bottom line had risen by 18.7 percent to Rs.93.5 million supported by Softlogic brands and Odel PLC, which “witnessed significant financial improvement with further realization of synergies, optimization of the supply chain and inventory management”.
Meanwhile, the “Burger King operations reported strong earnings despite its expansion imperatives”, Pathirage added.
This segment’s operating profit margin has improved to 9 percent from 8.2 percent, the company said.
The segment revenue rose by 9.2 percent YOY to Rs.4.75 billion.
The group’s information technology business, despite expanding its revenue by 19.6 percent YOY to Rs.4.52 billion, saw its bottom line slipping by 2.8 percent YOY to Rs.127.6 million during the quarter.
Samsung operations have led the sector performance, followed by Microsoft and HTC.
The financial services sector has increased its profits by 325.8 percent YOY to Rs.280.6 million on revenue of Rs.2.53 billion, up 17.1 percent YOY.
This segment mainly consists of the insurance business and the licensed finance company.
Asian Alliance Insurance in June entered into an agreement to divest its general insurance business to Canadian insurer, Fairfax Financial Holdings Limited in a deal valued at Rs.1.27 billion and the sale is to be concluded by end-september.
Meanwhile, the Softlogic group, which runs Asiri and The Central Hospital chain, saw its bottom line declining by 14.2 percent YOY to Rs.296 million.
The company said its Asiri Hospital in Kandy, which is now under construction, would be completed by 2018.
The automobile business of the group narrowed losses from Rs.22.2 million to Rs.20 million in the June quarter. Softlogic holds the agency for Ford vehicles in Sri Lanka along with a couple of other Chinese brands.
The leisure sector too narrowed its losses to Rs.59.7 million from Rs.86.2 million a year ago. The performance is reflective of the two-year-old four-star, 166-room Ceysand Resorts located in Bentota, which is enjoying healthy occupancy levels.
Softlogic’s first city hotel with 219 rooms, Movenpick City Hotel, is set to open in January 2017.
The group’s three-year Rs.1. billion debenture issued in 2013 is maturing in September.
The group has a net asset value of Rs.11.82 as of June 30, 2016.
The group said despite the challenging times ahead, it remains hopeful that the negative business climate would be offset by robust consumer demand following the proposed policy changes.
Pathirage held a 41.82 percent stake in the company by end-june, while the state-controlled private sector pension fund, the Employees’ Provident Fund, held a 0.93 percent stake being the eighth largest shareholder.