Financial Year 2020/21 – Full Year Performance 

Chief Executive Officer’s Review

Hemas Holdings PLC (HHL) placed on record a resilient performance by delivering another strong quarter. Home and Personal Care (HPC) and Learning segment represented by Atlas along with Healthcare were the significant contributors to the robust performance.

HHL recorded a Group revenue of Rs.16.6 billion for the quarter ended March 31, 2021, an increase of 18.3 per cent over corresponding period last year. Group operating profit for the quarter under review at Rs.1.3 billion is a growth of 58.8 per cent over Rs.829.7 million recorded last year whilst the Group earnings of Rs.859.8 million is an increase of 79.2 per cent over last year.

Despite the challenges encountered in the macro economic environment and the intensity of the competitive landscape, the Group recorded a cumulative underlying revenue of Rs.64.5 billion for the FY 2020/21, a 11.3 per cent growth against FY 2019/20, after adjusting for the disposal of Serendib Hotels PLC, Travel and Aviation segment and N*able. Similarly, the cumulative underlying Group operating profit of Rs.6.0 billion for the year was a year-on-year increase of 56.2 per cent over Rs.3.8 billion recorded last year. As the Group rationalised its portfolio and focused on re-energising the core, the Group stepped up and delivered a cumulative underlying performance for the year surpassed results of FY 2018/19, the most recent year in which normalcy prevailed.

Our efforts on working capital management and cost rationalisation measures were proven effective in strengthening the Group’s liquidity position, which was also endorsed by Fitch ratings with the reaffirmation of “AAA (lka)- Outlook Stable” rating criteria for the Group.

Consumer Brands

The Consumer Brands sector revenue for the quarter was Rs.5.8 billion, an increase of 43.1 per cent over corresponding quarter last year. Full year revenue recorded an increase of 5.3 per cent compared to last year due to improved performance of the HPC sector including HPC Bangladesh. This was effectively driven by underlying volume growth leading to market share improvement across all major categories within the HPC segment. However, the prolonged closure of schools which resulted in a contraction of the market, had an impact on our Learning Segment, Atlas.

Continued focus on efficiency improvements resulted in the sector reporting an operating profit of Rs.741.0 million for the quarter compared to Rs.120.5 million recorded same period last year. The Consumer Brands business’s profitability margin for the quarter contracted as a result of steep exchange rate depreciation and rising inflation coupled with increase in commodity prices.

Our Learning segment, Atlas experienced a strong year-on-year growth during the quarter due to the gradual reopening of schools, especially in the Western Province. The company also grew its market share and profitability, positively impacting on the company’s contribution to the Sector. However, due to the prolonged closure of schools, the stationery market experienced a contraction in volume over last year, leading to an overall cumulative revenue decline in performance of Atlas over last year.

Value unlock through channel excellence, saw the distribution of over the counter (OTC) segment of Morison was moved to the pharmaceuticals distribution business. The OTC owned brands Lacto, Gripe and Valmelix saw higher revenue and profit contribution during the quarter due to increased demand on consumer health coupled with realisation of efficiencies through increased distribution reach. During the quarter, Morison launched Lacto Hydra Intense Cream, a specialised personal care solution to sensitive skin, a breakthrough innovation in the Lacto family, a trusted skin care partner for decades.

Healthcare

Healthcare sector recorded a revenue of Rs.10.0 billion during the quarter against Rs.8.9 billion over the corresponding period last year, an increase of 12.3 per cent. The growth in the sector was collectively driven by Pharmaceutical Distribution and Manufacturing businesses. Cumulative revenue and earnings for the year was Rs.37.2 billion and Rs.2.0 billion in comparison to  Rs.31.4 billion and Rs. 1.4 billion  reported in the preceding year.

Pharmaceutical Manufacturing business, Morison and Pharmaceutical Distribution business delivered a healthy financial performance during the quarter leading to a cumulative double-digit year-on-year earnings growth of 40.6 per cent. Morison continued to strengthen its private manufacturing product pipeline with developments such as Empamor, the first locally manufactured Sodium-Glucose co-Transporter-2 (SGLT2) inhibitor in Sri Lanka. Amidst increased exchange losses due to steep currency depreciation during the fourth quarter both entities experienced a contraction in Operating profit Margins, however reported improved earnings owing to reduced finance costs due to improved working capital management. During the quarter, Myanmar operation under Pharmaceutical Distribution, continued to face challenges due to political uncertainty and exchange losses, impacting the profitability for the segment.

Hospitals business witnessed a positive quarter on quarter momentum in patient footfall. Additional revenue streams such as mobile lab services, home care services and Kaya Intermediary care centre supported revenues for the quarter. Similarly, lean initiatives and resultant cost savings partially negated the rise in costs witnessed on account of the stringent adoption of COVID-19 related health and safety protocols. Hemas Hospitals also opened their own laboratory to test PCR samples during the latter part of the quarter. Despite challenges experienced during the first half of the Financial Year, annual performance caught up with an overall occupancy of 47.0 per cent during the second half.

Mobility

Mobility sector reported a revenue for the quarter of Rs.734.1 million, a growth of 27.1% per cent over the corresponding quarter last year, and the operating profit for the quarter of Rs.255.1 million was an increase of 12.0 per cent against the previous year. Full year revenue for the sector Rs.2.2 billion was a decline of  20.6 per cent over last year. Focused cost rationalisation along with the recovery of the logistics business resulted in the cumulative operating profits being recorded at Rs.654.0 million, a year-on-year growth of 24.2 per cent.

During the year under review, the Port of Colombo handled 6.8 million Twenty-foot Equivalent Units (TEUs) with a year-on-year decline of 6.1 per cent. Similarly, transhipment volumes also witnessed a year-on-year decline of 4.8 per cent. In this backdrop, the Maritime Business continued to face challenges in the quarter,  with  global ports being congested and vessels opting to bypass the port of Colombo to recover the schedules, resulting in a drop-in throughput.

Group’s logistics business Spectra witnessed an year-on-year improvement in terms of profits. Increased occupancy and handling volumes of both the verticals, Container Depot and Distribution Centre drove the growth in sector profitability.

In spite of the drop-in passenger revenue due to restrictions in air travel, Aviation business, remained profitable on account of an increase in air cargo volumes.

Sustainability Initiatives 

The Group continued its focus on its environmental goals which mandates the reduction of energy, water usage and to ensure zero waste to landfill by 2025. Protecting the environment and increasing the forest cover in Sri Lanka has been a key component in the Group’s sustainability agenda.  During the quarter, the Group reforested two acres in the river bank of Hulunganga in Knuckles range, and joined forces with the Rainforest Protectors Sri Lanka to reforest 15 acres of lands and the Wildlife and Nature Protection Society (WNPS) to restore the mangrove ecosystem at the Anawilundawa wetlands.

Living Our Purpose through Community Initiatives

Our journey to build a more inclusive world, where no child is left behind continued with the launch of ‘Eka Se Salakamu’  a social movement aimed at empowering children and families with Down Syndrome by the Hemas Outreach Foundation and AYATI, Sri Lanka’s first national center for children with disabilities. In addition, the Group’s flagship project Piyawara which focuses on Early Childhood Care and Development opened its 58th Piyawara pre-school in Ampara.

As we work towards making a positive impact in our communities HPC Sri Lanka launched Fems AYA, which focuses on providing low cost, high-quality sanitary napkins and educating women on menstrual health and hygiene, and it’s long-held myths and misconceptions. The Group continued to extend its support to the nations’ efforts in battling the COVID-19 pandemic by assisting in donating to the Lady Ridgeway Hospital its first PCR machine to ensure timely intervention in caring for children.

Outlook

The third wave of the COVID-19 pandemic is expected to further disrupt the day-to-day business operations and create uncertainty and volatility in the economic environment.  Inflation and currency devaluation are expected to add pressure on Group’s profitability. However, the Group will continue to focus on its strategic priorities and pursue a balanced top-line and bottom-line growth while contributing to support the Government in its efforts to rebuild the nation.

The Group will remain a purpose led organization which anchors its strategies around enriching lives of our communities. I am extremely proud of our team, in particular our frontline workers, for bringing out the best in themselves. During challenging times, they pushed forward, while ensuring that we do our part in keeping ourselves and our communities safe. I thank our consumers and the communities in which we operate in for their support, and our shareholders, for the confidence placed in us.

We begin the year in good shape amidst the third wave of COVID-19. Our different businesses are well positioned to deliver more from our core and are confident of our ability to adapt to a rapidly changing and challenging environment, perform above market benchmarks and remain relevant and strong despite the global crisis being faced.

Kasturi C. Wilson

Group Chief Executive Officer

May 21, 2021

Colombo