With new political equation, economy would be galvanized – Softlogic Chairman

Softlogic Holdings PLC Chairman Ashok Pathirage noted that, with the new political equation, the economy would be galvanized with tourism occupying a major thrust in the government’s agenda for ensuring that the country becomes a regional shopping destination. ‘Notwithstanding this, the unforeseen Coronavirus would no doubt impact global tourism,”Pathirage said in his review accompanying interim results. Meanwhile, Commenting on the Group Outlook he said: “Heavy investments in retail, healthcare and QSR have been made during the year despite the challenges of poor market sentiments, waning consumer demand and the shock of the Easter attacks.” Adding to that he noted that the psychological pandemic, nonetheless, would have to be controlled with a sense of urgency, Softlogic would be an immediate beneficiary of a resurgence in tourism which has in recent times proved encouraging for their leisure and retail sector. “On the other hand, any pandemic of significance would result in the healthcare sector becoming indispensable for the country,” he noted. Despite the difficult operating climate common to most businesses, consolidated Softlogic Holdings PLC, group turnover significantly increased 11% to Rs. 59.4 Bn during the first nine months of this financial year while quarterly revenue improved 14% to Rs. 22.2 Bn. Group’s efforts to restore consumer and business confidence during the period was augmented by expanding the international branded retail portfolio and upmarket stores at One Galle Face by Shangri La along with Odel Flagship department store, standing shoulder-to-shoulder with reputed marques thereby enhancing customer shopping experience manifold “In the same way, the healthcare sector, with the addition of Asiri’s 190-bed ultra-modern hospital in Kandy, will have an important role to play in the country’s healthcare serving the healthcare needs of the Central Province given its reach to the untapped regions of Northern and Eastern Provinces,” said Chairman Ashok Pathirage. “Despite the new investments, we are still recovering from the shock of the April incidents and will have to bear the consequence of the uncertainty of the Coronavirus and its implications together with the General Election in the offing. Nonetheless, the new Government’s pro-business decision to reduce the tax burden for corporates while also reducing interest rates will give a significant filip to future earnings,” he added. The following are excerpts from Chairman Ashok Pathirage’s review in the statement containing interim results. Retail Sector revenue for the cumulative period grew 11% to Rs. 30.2 billion while the quarter reported a top-line growth of 20% to Rs. 11.5 billion. The quarter saw a turnaround in volumes following the slowdown of tourist and local shopping in the aftermath of Easter attacks. The Black Friday sale, which covered our Branded Apparel, Consumer Electronics, Furniture, Supermarket and Restaurant businesses, reported a single day sale in excess of Rs. 550 million, which is more than double to that of 2018 Black Friday sale. This signifies the powerful position of consumer disposition to Softlogic’s retail proposition. Odel Flagship store is a prime shopping location for tourists, particularly, the Chinese customers with a penchant and purchasing power for branded and luxury goods. However, with the outbreak of the novel coronavirus, Chinese tourists would decline sharply and this could affect our business in the forthcoming quarter while the ongoing construction of the mall with restricted parking has affected our footfall. The Malls’ footfall also saw a sharp decline following this pandemic outbreak in China which has now spread to 25 countries. The island-wide footprint of our Consumer Electronics stood at 214 stores, after regional rationalisation, with the latest store being opened in Kochchikade in December. We have a total retail space of 338,000 sq.ft. Performance of our Quick Service Restaurants (QSR) business has produced encouraging results with Crystal Jade, Burger King, Delifrance, and Baskin-Robbins at One Galle Face leading the progress chart. Softlogic Restaurants signed the master franchise with Popeyes, an American multinational chain of fried chicken fast food restaurants. Their unique New Orleans style menu featuring spicy chicken, chicken tenders, fried shrimp, and other regional items has allowed Popeyes to become one of the world’s largest chicken quick service restaurant chain. We will be opening our first Popeyes restaurant in June in Mount Lavinia, and this would be a combined location for the QSR, Odel and Glomark, sharing a retail space of 40,000 sq.ft. ‘Softlogic Glomark’ opened its seventh outlet in Nawala in January. We will be opening five additional outlets in Colombo and its suburbs during 2020. We will be opening in Mount Lavinia, Malalasekera Mawatha, Colombo 7, Negombo, Malabe and Rajagiriya. The sector’s operating profit for the nine-month period rose 9% to Rs. 2.4 billion while the quarter witnessed an 84% increase to Rs. 1.1 billion. Cumulative sector EBITDA was Rs. 3.8 billion (up 38%) while quarterly EBITDA more than doubled to Rs. 1.7 billion (Rs. 836 million in 3Q FY19). With the retail sector exploring long term and equity funding sources, the finance cost is expected to decline in the upcoming period while improved economic activity and turnover growth ought to shoulder the burden. Healthcare services Asiri Health reported a strong financial performance with positive reception of Asiri’s hospital in Kandy. This 190-bed facility, which possesses one of the highest standards of the state-of-the-art medical solutions, has performed well against the budgeted number of treatments and surgeries. Sector revenues steadily improved 18% to Rs. 11.7 billion during 1-3Q FY20 with the quarter reporting a top-line growth of 36% to Rs. 4.5 billion. Asiri Hospital Holdings Ltd. made up 36% of the hospital chain revenue while Central Hospital and Asiri Surgical Hospital contributed 32% and 23%, respectively. Asiri Matara and Asiri Hospital Galle together contributed 9% to the hospital group‘s turnover. Asiri Surgical Hospital initiated an Allergy and Immunology Clinic and a Sports Fitness Assessment Clinic at the Wellness Centre. Asiri Surgical Hospital also developed a Back Pain and Spine Clinic with specialist doctors. We are in collaboration with the largest fertility care provider in India to develop a state-of-the-art IVF centre at Asiri Hospital Holdings, which will be opened in the near future. Central Hospital has completed 10,000 neurosurgeries to date. Being a responsible healthcare provider, the hospital also initiated a free heart clinic on a monthly basis as CSR activity. Asiri Hospital Galle is completing the installation of the 1.5T MRI Scanner, which is the first private MRI in the Southern Province. Asiri Hospital Galle, which was acquired last year, is witnessing a renovation which is expected to be completed by March 2020. Sector’s operating profit improved marginally despite the initial costs of the Kandy hospital to Rs. 2.4 billion during the cumulative period while the quarterly operating earnings increased 27% to Rs. 1 billion. Sector EBITDA improved 11% Rs. 3.4 billion during the cumulative period under review with the quarter reported an EBITDA of Rs. 1.4 billion (up 36%). Asiri’s PAT for the period was Rs. 827 million while the quarter registered a PAT growth of 16% to Rs. 514 million. Information technology The Solutions Integration team at our B2B IT segment continued to consolidate its position as one of the leading ICT companies in Sri Lanka. Taking a unique position as a ‘mouse-to-cloud’ player, the B2B IT business is now focusing on providing a range of industries 4.0 technologies to accelerate the digital transformation of businesses. Block chain, IoT, AI and data analytic solutions are new additions to the portfolio of solutions that will provide unique benefits to the Banking, Financial Services and Insurance, Manufacturing, Healthcare, Retail and Government sectors of the country. Sector revenue witnessed a growth of 17% to Rs. 3.4 billion during 1-3Q FY20 while the quarter registered a growth of 8% to Rs. 1.2 billion. Quarterly operating earnings increased 14% to Rs. 102 million taking cumulative operating earnings to Rs. 297 million (up 42%). EBITDA of the sector moved up 8% to Rs. 117 million for the quarter while cumulative EBITDA reported a 35% growth to Rs. 360 million. Sector PBT recorded more than a three-fold growth to Rs. 247 million for the cumulative period (Rs. 54 million in 1-3Q FY19) while the quarterly PBT was Rs. 89 million (Rs. 18 million in 3Q FY19). The sector concluded the nine-months with a PAT of Rs. 190 million (Rs. 41 million in 1-3Q FY19) with 3Q FY20 recording a PAT of Rs. 65 million as opposed to a PAT of Rs. 12 million in the comparative quarter. Financial services A top-line growth of 18% was achieved in the Financial Services sector to Rs. 12 billion during 1-3Q FY20 with quarterly revenue improving 17% to Rs. 4.2 billion. Operating profit for the cumulative period was Rs. 1.7 billion (up 29%) while the quarterly operating profit was Rs. 635 million (up 22%). Cumulative Finance Income of financial services sector improved 75% to Rs. 1.3 billion while the quarter saw a 23% increase to Rs. 450 million primarily driven by the Life Insurance portfolio gains. This led the sector PBT for the quarter to reach Rs. 226 million (up 53%) while cumulative PBT reported more than two-fold growth to Rs. 1.2 billion (Rs. 387 million in 1-3Q FY19). PAT of the sector was Rs. 1.2 billion during 1-3Q FY20 while the quarter reported a profitability of Rs. 501 million (Rs. 171 million in 3Q FY19). Softlogic Life Insurance PLC achieved a GWP of Rs. 12.5 billion (up 25%) for its financial year 2019 continuing its growth momentum whilst significantly outperforming industry growth. Customer Deposits rose 8% to Rs. 17.3 billion at Softlogic Finance while total assets were Rs. 22.4 billion as at 31 December 2019. Softlogic Capital PLC raised Rs. 1.5 billion by way of a listed, rated, senior, unsecured, redeemable debenture issue in December 2019. The objective of this issue is to fund the rights issue of Softlogic Finance PLC (Rs. 500 million), settle short-term debt (Rs. 400 million) and for strategic investments (Rs.  600 million). Softlogic Finance PLC’s right issue of 12 shares for every 23 held at Rs. 17 in December was utilised to address the company’s capital adequacy ratio ahead of some significant strategy changes that will include differentiation through digitalisation and focus on Leasing and Gold Loans. Automobile Automobile sector reported a turnover of Rs. 672 million during the nine months of financial year end 2020. Suzuki Motors has captured significant market share during a short period of time growing from 1% since its acquisition in 2017 to 5%. The 125cc Scooter range reported strong sales volumes during the quarter, capturing 25% market share in that segment. Suzuki will continue to focus in enhancing its product offering customised to serve the affordable travel segment. Leisure and real estate Turnover generated from the Leisure sector was Rs. 1.6 billion during 1-3QFY20. Quarterly revenue was Rs. 666 million. The hotel business, which was badly hurt after the Easter attacks, showed encouraging signs of recovery with much to be desired for a turnaround. Since the outbreak of Coronavirus, the number of visitors from China plummeted, hitting the already struggling tourism industry. Chinese tourists comprise the second largest tourist market in the country.            

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