Hemas Group reports operating profit of 1.1Bn delivers strong Q1 performance

Hemas Holdings PLC (HHL) delivered yet another strong quarter amidst challenging operating environment conditions with key businesses gaining momentum in all areas.

The Group’s continued focus on growing the Consumer and Healthcare businesses along with operational excellence, contributed to the resilient performance.

However, the resurgence of COVID-19 positive cases, and inter provincial and localised limitations on movement resulted in the growth momentum slowing down towards the latter part of the quarter. In addition, the market witnessed inflationary headwinds impacting the profitability growth.

All sectors witnessed a steady growth in comparison to the lower operating results in the base quarter, which was impacted by the island wide lockdown in 2020.

All key entities reached pre-COVID performance levels this quarter. The Group recorded a consolidated revenue of Rs.16.4 billion for the quarter ended June 30, 2021, an increase of 26.7 per cent over last year.

HHL achieved a Group operating profit of 1.1 billion, a growth of 77.5 percent over the last year same quarter, whilst the Group earnings of Rs.637.3 million is an increase of Rs.367.9 million over the previous year.

Group earnings excluding the remaining leisure assets stood at Rs.720.4 million, a growth of 63.6 per cent over last year. Prudent liquidity management measures have further strengthened the cash position of the Group, validating its current Fitch rating of “AAA (lka)- Outlook Stable”.

Consumer Brands

The Consumer Brands sector recorded a revenue of Rs.5.4 billion and earnings of Rs.230.1 million as a result of its continued focus in increasing distribution reach and brand excellence.  The impact of the third wave COVID-19 had on distribution channels was lower than the previous year, with Industry, Government and Trade channel’s preparedness resulting in the sector seeing a double-digit year-on-year volume growth across the channels.

Efficiency improvement initiatives across the businesses and cost rationalisation complemented by revenue growth helped in translating operating losses recorded last year into operating profits this quarter. However, margins were under pressure due to the surge in commodity prices globally.

During the quarter, HPC Sri Lanka delivered a robust volume-led growth although the pandemic continues to influence consumer behaviors and channel dynamics in our market. Consumption of certain discretionary categories were adversely impacted whilst key categories within personal care, personal wash and laundry continued to gain momentum and improved market share. Whilst the new products that were launched last year continued to gain traction in the market, Baby Cheremy herbal range was further expanded by introducing the new Cologne into the portfolio during the quarter.

HPC International showed a resilient performance on the back of an improved recovery in Bangladesh during the first two months of the quarter following the relaunch of Kumarika in the last quarter of FY 21. Although the value-added hair oil segment has seen improvements, the resurgence of COVID-19 cases in Bangladesh slowed down demand towards the end of the quarter.

Further, OTC brands, Lacto, Gripe and Valmelix continued to perform strongly with increased revenue and profit contribution to the segment.

Atlas witnessed a year-on-year growth with improved sales across all key categories including books and pens. While closure of schools resulted in a contraction of the stationery market, a favourable consumer shift was seen within modern trade channels and e-commerce platforms. The Atlas e-shop managed to successfully capitalize from the growth in online trade. Atlas, in leveraging its key design and technology capability, introduced a first in a series of themed based notebooks under its “Atlas” and “Innovate” ranges, targeted at specific market segments. Atlas continues to focus on improving the reach of the brand through multiple channels and has engaged with students/schools through its ‘Sip Savi’ and ‘Sip Udana’ programmes. The business has witnessed an increase in demand for craft related school and colour products as activity-based learning at home continues to gain traction.

Healthcare

Hemas Healthcare Sector posted a revenue of Rs.10.5 billion whilst first quarter operating profits and earnings stood at Rs.835.1 million and Rs.621.3 million respectively. Performance was broad based with all sectors growing competitively whilst hospitals experienced a strong recovery surpassing pre-COVID performance levels.

Pharmaceutical businesses delivered a stable revenue growth during the quarter. However, steep exchange rate depreciation continues to impose pressure on profit margins across both segments impacting the overall sector profitability. Our new oral solid dosage manufacturing plant in Sri Lanka, is expected to commence commercial production towards the end of the second quarter, barring any unforeseen events arising due to the prevailing environment. Myanmar distribution operations continued to face challenges due to political uncertainty and exchange losses adding to the margin pressure. In demonstrating our commitment to providing quality service to stakeholders, Hemas Pharmaceuticals received the ISO-9001 accreditation this quarter.

Both Thalawathugoda and Wattala hospitals witnessed an average year-on-year occupancy growth of 10 per cent reporting 58 per cent and 44 per cent occupancy respectively. This along with improved in-patient footfall and surgical revenue, drove the performance of the sector, whilst lean initiatives and resultant cost savings further supported the robust profitability improvement. Responding to the increased need for healthcare with the surge in COVID-19 positive cases, the business introduced four new intermediary care centers along with a dedicated ICU for COVID patients in western province. With its improved focus for clinical and operational excellence, Hemas Hospitals became the first hospital to receive the COVDI-19 Safety Certification accredited by Sri Lanka Standards Institute (SLSI).

Mobility

During the quarter, Mobility Sector reported a revenue of Rs.586.6 million whilst operating profits and earnings stood at Rs.241.7 million and Rs.130.3 million respectively.

Despite a 24.0 per cent increase in the volume of TEUs handled by the Port of Colombo over last year’s first quarter, Maritime Business continued to face challenges with vessels opting to bypass the port of Colombo to recover the schedules. However, changes in freight rates positively impacted the performance of the segment.

The logistics business of the Group, Spectra, onboarded new clients to its Distribution Center enabling high utilisation throughout the quarter, and leased a new facility to cater to clients with bulk storage requirements. The depot business mix changed positively with increase in laden volumes and witnessed a growth in the transportation vertical, resulting in significant improvements in its operating profits and earnings.

Aviation business witnessed a year-on-year improvement due to improved conditions of the operating environment compared to last year. Despite the challenges brought by the third wave of the pandemic, with factories not being able to operate in full capacity, cargo segment managed to sustain its operations. Passenger segments continued to face challenges during the quarter under review with travel restrictions imposed by many European countries and United Arab Emirates (UAE) on passengers originating from Sri Lanka and Government restrictions on inbound passengers.

Sustainability

The Group has in place a sustainability management framework based on identified material topics and continued to monitor its key sustainability and risk indicators in adherence to internal sustainability SOP’s.

The Group companies continued working towards reducing the impact its operations have on the environment and society at large by striving to achieve the established Group Environmental Goals which mandates a reduction in its energy and water consumption and zero waste to landfill by 2025. As a part of this strategy, businesses with significant operations have started the process of moving towards greater utilisation of renewable sources of energy. Further augmenting the sustainability drive, the Group has aligned two of its key impact areas of plastic and environmental footprint to the national agenda and has embarked on a journey of responsible plastic consumption and increasing and protecting the forest cover of Sri Lanka. HPC Sri Lanka introduced Dandex and Kumarika buddy packs to provide an affordable and sustainable alternative to single use sachet packets and Baby Cheramy introduced bamboo cotton buds, offering a more environmentally friendly option to consumers.

Enriching the lives of the communities we serve remains a key priority in our sustainability agenda.  The Fems AYA initiative focusing on improving menstrual health of Sri Lankan women introduced a high-quality sanitary napkin at an attractive price point of below hundred rupees to the market. In addition, it completed Train the Trainer programme as a first step towards educating women on menstrual health and hygiene, and it’s long-held myths and misconceptions. Hemas Hospitals launched ‘Deewara Diri Sevana’ to support and empower the fishing community whose livelihood were impacted by the marine destruction caused by the X-Press Pearl ship disaster. As a part of the programme, Hemas Hospitals Wattala offered free OPD consultation services to these families to ensure their wellbeing by providing access to healthcare services. Our Learning Segment Atlas under its ‘Sip Udana’ umbrella launched an activity-based programme focused on providing opportunities for primary school children and teachers to be exposed to new styles of learning during the pandemic. The first national center for children with disabilities AYATI a public and private partnership initiated by Hemas provided its tele-health service to families who were in lockdown.

Outlook

While the Group had a steady start to the year, outlook reflects a more challenging near-term environment. We are taking appropriate actions and remain confident in our strategies along with our fundamental brand performance to create long-term shareholder value. Despite the uncertainty related to the extent and length of the third wave, Hemas will continue to actively participate in helping the nation fight the pandemic. We are optimistic about the Government’s vaccination programme and anticipate a path to economic recovery in the medium term.

I take this opportunity to thank team Hemas, especially our multiple sales forces, and hospitals frontline workers who continued to be agile, innovative and work tirelessly to ensure the needs of the nation are met. I am extremely proud of the excellent support system and the collaborative culture that is instilled within us which prompts all sectors to act as one team in living the Group’s purpose. The past few months have been challenging, but I am confident that this team of passionate individuals will continue to push the Group forward as we continue to live our purpose “healthful living” by serving the communities of our nation.