Revenues grow but profits ease at Hemas

Revenues grew at Hemas Holdings PLC ( HHL) for the nine months to end December 2017 while profits faced “challenges” in consumer, healthcare and leisure sectors.

“Financial year 2018 has been a challenging year with the trend of good revenue growth in tough economic conditions but depressed earnings continuing throughout the nine months,” said Steven Enderby, Hemas CEO in the group review released to the Colombo Stock Exchange and shareholders,

Hemas and its subsidiaries reported a consolidated revenue of Rs. 35.6 billion, a yearon- year ( YoY) growth of 11.4 per cent and profit attributable to equity holders of Rs. 2.1 billion, down by 12.7 per cent the nine months ending December 31, 2017.

Cumulative operating profit for the first nine months of the FY18 stood at Rs. 2.9 billion, a YoY decline of 10.8 per cent. “Our double- digit growth in consolidated revenue is preliminary driven by healthcare and mobility sectors. Despite consolidated revenue growth, our Bangladesh consumer business, pharmaceutical distribution, leisure and travel segments are all facing margin challenges resulting in reduced group earnings. Domestic consumer demand, mainly in the rural sector, remains soft impacted by higher headline inflation, poor climatic conditions persisting in parts of the country, lower levels of inward remittances and the VAT increase,” the statement said.

While recognising the pressures this exerts on operating profits the company continued to invest in expanding the portfolio of consumer products both here and in Bangladesh, developing the digital footprint and driving profit improvement in the home and personal care business.

Last month, the company acquired 75.1 per cent of Atlas Axillia Co ( Pvt) Ltd, for Rs. 5.7 billion. Atlas holds a leading position in School and Office with over 40 per cent market share and has been voted the most loved brand in Sri Lanka on multiple occasions, including the most recent award in 2017.

With the acquisition of Atlas, Hemas is consolidating its leadership in Sri Lankan consumer brands and looks forward to bringing its brand building excellence to this new category. “Based on the historic performance of Atlas and HHL, we anticipate Atlas will add approximately 15 per cent to our revenues.”

The consumer sector saw year- to- date operating profits down by 18.6 per cent at Rs.1.4 billion. “We saw signs of recov- ery in the consumer segment during Q3 with a revenue growth of 8.6 per cent for the three months in consideration despite challenging domestic macro environment seen in the first six months. Our Sri Lanka business reported steady growth in key personal care categories with market shares being maintained across most major categories. However, overall profitability growth was below expectations on- account of our Bangladesh operations. We continue to work hard on improving profitability in Bangladesh. We have completed the restructure of our sales and distribution network and are now investing behind our market leading brand Kumarika. We re- launched Kumarika with an improved hair oil formulation in December.”

Consolidated healthcare sector revenue rose by 19.4 per cent to Rs. 16.6 billion. Hemas pharmaceutical distribution operation registered strong revenue growth increasing its market leadership position owing to new additions to our pharmaceutical portfolio but “profitability in the industry remains challenging due to price regulation and devaluations in the wake of depreciation of the rupee. As a result, pharmaceutical distribution profitability was negatively impacted”.

Hospitals reported higher occupancy levels while increased focus on surgeries contributed towards a revenue growth of 21.2 per cent.

Hemas Logistics and Maritime recorded revenue growth of 52.2 per cent to Rs. 2.1 billion while leisure, travel and aviation business saw a 11 per cent drop in revenue to Rs.2.6 billion.

“Our hotel portfolio performed negatively resulting from softening room rates and a rise in operating expenses. As a result, operating loss for the segment during the first nine months stood at Rs. 34.7 million, a 112 per cent decline in YoY operating profitability. During Q1, overall arrivals to Sri Lanka witnessed a moderation in growth due to the negative publicity and travel warnings due to flooding and landslides in May. After two quarters of decline in revenue growth, Serendib Hotels reported stabilised revenue resulting from increased occupancies across the hotel portfolio. Lantern, the latest addition to our hotel portfolio contributed positively towards revenue. Travel and Aviation segment indicated a decline in revenue of 4.2 per cent. Overall profitability of this segment continued to be below expectations stemming from poor performance in inbound travels and hotels. Anantara Peace Haven Tangalle performed comparatively better than last year on occupancy, however losses incurred year- to- date have impacted group profitability,” the statement said.