Hemas Holdings quarterly revenue up 21.3%, profits after tax down 20% year-on-year

August, 20, 2018

One of the leading conglomerates in to Faster Moving Consumer Goods (FMCG) in Sri Lanka, Hemas Holdings PLC (HHL) had recorded a consolidated revenue of Rs.13.5 billion for the first quarter ended June 30, 2018, a year-on-year (YoY) growth of 21.3%, led by higher contributions in consumer and healthcare sectors.

However reviewing the company’s performance Chief Executive Officer (CEO) Steven Enderby notes that the profit attributable to equity holders of the parent at Rs. 554.3 million is a decrease of 20.2% in the corresponding period of the previous financial year.

“This is due to reduced interest income post utilization of cash reserves to acquire Atlas in January 2018 and increased interest costs relating to higher working capital due to strong growth in Pharmaceutical Distribution and the loan financing for our new logistics park” he notes.

“All three of these investments should contribute to earnings from Q3. Excluding the first quarter performance of Atlas, HHL recorded a revenue and an operating profit growth of 10.9% and 1.5% correspondingly” Enderby notes.

The Group operating profit at Rs. 895.7 million in the first quarter of the financial year is an increase of 3.5% over the previous financial year. Operating profit growth has been impacted by losses at N*Able, group’s IT technology solutions business, coupled with a weaker macroeconomic environment with sluggish consumer demand as disposable incomes have been dampened by rising costs from Rupee depreciation and increased taxes. Group’s consumer business revenue is at Rs.5.4 billion for the three months ending June 30, 2018, indicating a YoY growth of 36.2%. Growth in the consumer sector excluding Atlas stands at 6.8%. Operating profit of Rs.569.3 million increased by 8.1% during the quarter. Market conditions domestically remain depressed with most market commentaries indicating low or negative growth in most major FMCG categories. Against this backdrop, business has performed well. Bangladesh business experienced revenue growth of 6.1% following the Kumarika relaunch last December. However, profitability still remains a challenge due to heavy marketing spend post launch according to Enderby. Atlas performance has been on track in Q1 with revenues up by 8.8% over last year and break even in operating profits in line with its normal seasonal performance trend.

Consolidated healthcare sector revenue for the first three months under review is at Rs.6.4 billion, a YoY increase of 24.7% whilst operating profit and earnings indicated a decline of 2.0% and 6.0%. Hemas Pharmaceutical distribution operation registered strong revenue growth.

However, according to Enderby managing the impact of price regulation and devaluations in the wake of depreciation of the rupee was a key operational challenge. Hemas Hospitals had achieved an overall occupancy of 60%, recording a satisfactory performance. Revenues and profitability were flat compared to Q1 last year when occupancy levels were higher due to the dengue epidemic. Morison posted a revenue of Rs.844.3 million and operating profit of Rs.83.0 million for the three months ended June 30, 2018. Morison’s underlying revenue, excluding Alcon distribution business, which the Group exited during the latter part of FY2017/18, was 4.2% whilst the earnings recorded a decline of 31.5% primarily due to increased operating costs.

Meanwhile, Hemas Leisure, Travel and Aviation business had recorded a total revenue of Rs.792.4 million, reflecting a growth of 16.2% for the three months under consideration. Overall, the country experienced an upward trend in tourist arrivals during the quarter according to Enderby’s review. Serendib Hotels had reported a 11.0% growth in revenue due to rise in average room rates and occupancies across the group. Anantara Peace Haven Tangalle too had a satisfactory performance during the year. Furthermore, Travel and Aviation segment indicated a growth in revenue of 17.1%. Overall the sector reduced operating losses by 30.0%, reporting a loss of Rs. 140.2 million despite the exchange losses incurred at Anantara Peace Haven Tangalle. The improvement is mainly attributable to the rebound in the travel and aviation segment.

Hemas Logistics and Maritime had recorded revenue growth of 15.4% over last year with revenues of Rs.718.3 million.

“During this period, the Port of Colombo witnessed a YoY growth of 15%. Increased contributions from 3PL operations improved the profitability of the segment” Enderby notes in his review adding construction of the new logistics park facility is now almost finalized with  first customer moving into  new 3PL warehouse in early August. Group’s technology business, N*Able got the year off to a slower start with revenue decline of 68.5% due to delays in project completion during the quarter in contrast to its strong start in FY2017/18.

Overall the group have had a satisfactory start to the year in a difficult macro environment. Solid performance in core Sri Lanka Consumer businesses supported by improvements in Leisure and Travel sector performance and the seasonality effect of Atlas, position us well to improve operating profit growth in the coming quarters of the financial year.

 

- Reporting by Devendra Francis