The macro-economic slowdown in the aftermath of April attacks was further compounded by the contraction of business and trading activity, declining investor confidence, and falling consumer purchasing power. Deficiency in implementing policy decisions to restore investor sentiments and rejuvenate tourism and other key sectors affected by the Easter attacks impacted consumer demand.

As Softlogic Holdings PLC is a consumer-driven business model, it experienced the immediate impact of these economic shocks. Retail was affected by the dismal growth and financial costs, while Healthcare’s robust performance was offset by losses of Kandy hospital, which is expected to breakeven by end of the financial year, while Leisure was mostly affected by lack of tourist traffic.

Nonetheless, Softlogic is a forward-looking conglomerate and has overcome some of the systemic hurdles due to economies of scale and cost disciplined measures and has been boldly continuing with its capital expansion projects especially in One Galle Face by Shangri La, which is now opened to the public occupying the largest shopping mall space.

The Odel departmental store which is now on par with any other international departmental store takes up 54,000 s.ft on three conjoined floors where it offers a much larger space for Home and Beauty centres for its shoppers.

COCO by Cotton Collection along with 20 other branded apparel stores of international standard have also opened in One Galle Face (4 more branded stores to be added soon).

“We expect the finance expenses to reduce in the upcoming months with the further stabilization of interest rates at relatively low levels. Softlogic’s capital raising measures in the retail sector is progressing well; we expect to raise such funds by way of hiving off equity before the close of this financial year,” Chairman of Softlogic Holdings PLC, Ashok Pathirage said in the SHL’s interim financial account released to the Colombo stock exchange.

Group revenue increased 9% to Rs.37.2 billion during the 1HFY20 while quarterly revenue increased 10% to Rs.20 billion. Primary contributors to Group turnover were Retail (50%), Financial Services (20%) and Healthcare Services (19%). The non-core vertical, comprising Automobile and Leisure, made up 3% of Group turnover while the IT sector contributed 6% of Group topline.

Gross Profit improved 10% to Rs.13.5 Billion during the 1HFY20 maintaining Group GP margins at 36% levels. Quarterly Gross Profit grew 11% to Rs.7.2 billion. Distribution expenses increased 9% to Rs.1.7 billion during the period under review. Administrative expenses increased 20% to Rs.8.6 billion during 1HFY20 resulting from Group’s increasing activity levels from its expansion in Healthcare and Retail.

This led total operational expenses to rise 18% to Rs.10.2 billion during the 1HFY20. Quarterly operating costs increased 19% to Rs.5.4 Billion during the quarter. Stringent cost discipline measures and quicker cash conversion initiatives such as expedited debtor clearance measures in addition to other standard cost & waste management systems helped the Group to mitigate margin erosion with benefits of economies of scale while also somewhat negating the adverse impact of the April attacks. Other operating income rose 16% to Rs.327 million during 1HFY20 while quarterly other operating income reported a 55% increase to Rs. 134 million. This composes of fee income from Softlogic Finance and other Sundry income. Group EBITDA for the period under review improved 10% to Rs. 5.8 billion while EBITDA for the quarter grew 11% to Rs.3 billion (up 11%). Cumulative operating profit reached Rs 3.6 billion with the quarter reporting Rs. 1.9 billion as operating profit. Quarterly net finance cost was Rs. 1.7 billion resulting the cumulative net finance cost to report Rs. 3.2 billion.

The change in insurance contract liabilities, which is the transfer from the life insurance business to the policy holders’ account, indicated a transfer of Rs.769 million during 1HFY20 in comparison to Rs.811 million in 1HFY19. The transfer for the quarter was Rs.362 million (Rs. 546 Mn in 2QFY19). PBT for the first half of the financial year 2020 was a loss of Rs.346 million.

Retail

Slow growth in tourism in the aftermath of the Easter Sunday attacks, a high interest rate and tax regime has affected performance coinciding with retail spending contracting at the same time.

One of the prime target markets of the retail sector for Softlogic is the tourist segment. Odel Flagship store is a primary shopping point for tourists in Sri Lanka. Tourist arrivals have fallen sharply since April with 1HFY20 reporting 635,712 arrivals as against arrivals of 1,023,998 in 1HFY19.

However, Retail sector reported a growth of 6% to Rs.18.7 billion during the first half of the financial year while the quarterly revenue improved 8% to Rs.10.3 billion. Being a future-focused conglomerate, Softlogic continued with its capital projects during the period under review.

Softlogic is the only company in Sri Lanka retailing over 100 internationally renowned retail brands.

“We have become the anchor tenant for malls in Colombo. ODEL Group occupies 89,427 sq.ft. in One Galle Face by Shangri La where 20 exclusive branded apparel stores and one ODEL departmental store was opened. We have launched three new international brands to our existing portfolio including ‘Furla’, a range of Italian-designed handbags and accessories, ‘Hallmark’, the oldest and largest manufacturer of greeting cards in the United States, and ‘The Toy Store’, a Middle-eastern based toy franchise. We also opened a ‘Tissot’, ‘Longines’ and a ‘Yamamay’ store in the mall. We will soon be opening ‘Diesel’, ‘Guess’, ‘Calvin Klein’, ‘Carpisa’ and ‘Vero Moda’. Softlogic Restaurants, which occupies around 8,000 sq.ft in One Galle Face, opened a Burger King, Baskin-Robbins and Delifrance. ‘Crystal Jade’, a Michelin star rated Hong Kong-based culinary brand, was also launched in Colombo’s biggest mall,” Pathirage said.

“The flagship Odel Mall project at Alexandra Place is progressing well and is scheduled to be opened in 2021. Softlogic Retail operates a total of 213 stores and retail space to 330,000 sq. ft. Softlogic Supermarkets will be opening its seventh outlet in Nawala by December 2019. We will also open in Mount Lavinia, Negombo, Rajagiriya, Colomb0 07 (Malalasekara Mawatha) and Malabe in 2020. We have launched our own feature phone product range under the ‘Softlogic Maxmo’ brand in October and the response was encouraging. We have maintained market leadership in Sri Lanka’s mobile phone market during the period under review,” Pathirage added.

Healthcare Services

Asiri Health’s consolidated revenue reported a growth of 10% to Rs. 7.2 Bn as quarterly sector revenue improved 13% to Rs. 3.8 Bn.

Asiri Health’s consolidated topline was primarily driven by Asiri Hospital Holdings (35% contribution), followed by Central Hospital (32% contribution) and Asiri Surgical Hospital (24% contribution). Sector EBITDA was Rs. 2 Bn during the period under review while the quarter reported an EBITDA of Rs. 1.1 Bn (up 4%).

Healthcare Services generated operating earnings of Rs. 1.4 Bn during the first half of the financial year with the quarter reporting an operating profit of Rs. 741 Mn. Our 180-bed multi-specialty hospital in Kandy has reported encouraging results with Asiri Hospital Kandy being the preferred and trusted private hospital in the Central and NorthCentral Province having state-of-the-art facilities and expertise to treat complicated medical cases.

Asiri Kandy opened a Diabetes Centre on 14th of November marking the World Diabetes day. Medical tourism is one of our key target segment in Sri Lanka.

Asiri Health signed an agreement with Aasandha, the National Social Protection Agency (NSAP) of the Maldives, which is the national healthcare insurance scheme of the Maldives developed to provide free medical assistance to all Maldivian Citizens.

“We would be able to better serve the Maldivian patients in Sri Lanka at our six hospitals via this insurance scheme. Asiri Central installed a new 1.5T MRI and 128- Slice CT scanner with the newest functionalities and enhanced imaging facilities during the quarter. Asiri Galle’s renovation project is in progress to provide the people in the South a much needed and trusted state-of-the-art facility. This renovation is expected to be completed by March 2020,” Pathirage said.

Financial Services

Financial Services witnessed a growth of 19% in topline to Rs. 7.6 Bn during 1HFY20 as quarterly revenue improved 18% to Rs. 3.9 Bn.

Cumulative sector operating profit rose 33% to Rs. 1.1 Bn with the quarter registering a growth of 23% in operating profit to Rs. 547 Mn.

Sector PBT witnessed more than a three-fold growth to Rs. 996 Mn after reporting Rs. 415 Mn for the quarter. This growth was driven by finance income of the sector which reported Rs. 813 Mn (Rs. 357 Mn in 1HFY19) during the cumulative period with the quarter recording Rs. 294 Mn (Rs. 114 Mn).

Finance income primarily was made from investing activities of Softlogic Life Insurance. Sector PAT for the period was Rs. 678 Mn as opposed to Rs. 2.4 Bn in 1HFY19 which resulted from a deferred tax adjustment which led to tax reversal at Softlogic Life amounting to Rs. 1.5 Bn. Softlogic Life Insurance recorded a GWP of Rs. 6.1 Bn during 1HFY20, a growth of 25% compared to the previous year, while registering a GWP growth of 26% to Rs. 3.1 Bn during 2QFY20.

Softlogic Life continued its growth momentum with the multi-channel distribution strategy being a key success factor facilitating above industry growth.

Softlogic Life is the only company in Sri Lanka and one of the only two insurance companies in the Asian region to make it to the Forbes Asia’s Best under a Billion 2019 list.

Softlogic Life was shortlisted based on profitability, growth and indebtedness from a list of 1,400 finalists based on a universe of 19,000 candidates.

Softlogic Life was placed in the final 200. Softlogic Finance PLC’s assets was Rs. 22.3 Bn as at 30th September 2019 (Rs. 21.3 Bn in 30.09.2018) while Customer Deposits rose 11% to Rs. 17.3 Bn.

Information Technology

IT segment’s revenue rose 22% to Rs. 2.2 Bn during 1HFY20 while quarterly topline registered a similar growth rate to Rs. 1.4 Bn.

“Our software business is presently working on some IT infrastructure projects in the B2B segment. Sector’s cumulative operating profit grew 63% to Rs. 195 Mn while the quarter registered a growth of 59% to Rs. 114 Mn. An efficient working capital management at the IT companies led the finance costs to nearly halve to Rs. 37 Mn during the period under review. This improved the sector PBT by more than three-fold to Rs. 158 Mn during 1HFY20 while the quarter reported Rs. 98 Mn (Rs. 18 Mn in 2QFY19) as PBT. Sector’s PAT for the period was Rs. 125 Mn as opposed to Rs. 30 Mn in 1HFY19,” Pathirage said.

Automobile

Automobile sector revenue for the period improved 15% to Rs. 531 Mn. Ford launched the ‘Ford Ranger Raptor’ during the period under review.

“We see a growing demand for this model. Suzuki Motors reported strong revenue growth during the quarter primarily driven by the sales growth in the 125cc scooter range. The company now has 80 dealers.” Pathirage said.

Leisure & Real Estates

“Meanwhile, in the Leisure & Real Estates a slow recovery was witnessed in the occupancy levels at our two hotels during the quarter with resort revenue being primarily driven by local tourism,” Pathirage added.

Sector revenue declined 21% to Rs. 918 Mn during 1HFY20 while the quarter made a turnover of Rs. 455 Mn (down 32%). Sector reported losses of Rs. 788 Mn as opposed to losses of Rs. 502 Mn in 1HFY19.