LNP – Softlogic Holdings’ topline records 9 per cent growth for 2QFY21

Extracts from Softlogic Holdings plc’s interim financial statements for the six months ended September 30, 2020

For a consumer-driven conglomerate impacted by the systemic COVID-19 (C19) transmission, the Group’s topline recorded a commendable growth of 9% to Rs. 21.8 Bn for 2QFY21 which defied expectations with performance exceeding the two preceding negative quarters. Performance of the 1HFY21 was severely affected by the two-month lockdown in 1QFY21 with the six-month turnover at Rs. 36 Bn.

Despite the depressed market conditions, Softlogic engaged in vertical integration plans, particularly, in the financial services sector for synergy and industry consolidation purposes. Investments, primarily in retail and healthcare, will translate to greater performance in the upcoming periods when the fear of C19 abates, while consumers adapt themselves to new realities. With growing optimism of the Pfizer and Sputnik vaccines, economic confidence is progressively being normalized with pent-up consumer demand showing signs of rebounding.

There was a fundamental shift in how decisions were made during the lockdown. The management prioritized liquidity, rationalized employment and resources and focused on business recovery while pruning down on all non-essential expenditure and obtaining favourable terms from suppliers for fixed costs such as rent waivers from mall operators. The banks provided loan moratoria to support liquidity while providing working capital loans for the hotels under CBSL’s C19 Renaissance programme.

Primary contributors to Group topline for the cumulative period were Retail (52% contribution), Financial Services (22%), Healthcare Services (20%), IT (5%) followed by the non-core sectors — Automotive and Leisure & Property.

Gross Profit for the quarter was Rs. 7.2 Bn while 1HFY21 reached Rs.11 Bn. It should be noted that expectations of significant revenue growth following our recent investments, particularly in the retail sector, would have been achieved if businesses had operated under normal circumstances. The implications of all this, despite the increase in cost of sales, is that the gross profit margins would have further increased as consequence of an increase in aggregate turnover ensuring better bottom-line contribution.

Other Operating Income, which comprise recurrent and non-recurrent income such as investment income, fee and commission generated from retail and financial services, increased 58% to Rs. 213 Mn 2QFY21 while 1HFY21 recorded a 27% growth in other operating income to Rs. 416 Mn.

Stringent cost control measures executed during this phase resulted in distribution and administrative expenses declining 14% and 10% to Rs. 784 Mn and Rs. 4 Bn respectively during the quarter. Total operational expenses declined 11% to Rs. 4.8 Bn during the quarter. Cumulative distribution cost declined 20% to Rs. 1.4 Bn while a 5% deduction in administration costs to Rs. 8.1 Bn was noted during 1HFY21. Total operational cost for the cumulative period reduced 8% to Rs. 9.5 Bn.