Hemas remains resilient amidst global pandemic

By Kasturi C. Wilson

Hemas Holdings PLC (HHL) posted a Group revenue of Rs.17.4 billion for the quarter ended 30 September 2020, an increase of 11 per cent over corresponding period last year. Group operating profit for the quarter under review at Rs.2.0 billion is a growth of 188 per cent over Rs.0.7 billion recorded last year. Year on year increase in earnings amounted to Rs.1.1 billion to reach Rs.1.3 billion for the quarter.

Cumulative revenue of Rs.30.4 billion recorded during the first half of financial year 2020/21 is a growth of 5 per cent against the same period last year. Similarly, the Group operating profit of Rs.2.4 billion for the first six-month period is a notable year on year increase over Rs.0.7 billion recorded last year.

Growth in profitability during the quarter and first six months under review against the corresponding periods last year is reflective of the strong rebound in key sectors, Consumer and Healthcare which were impacted in the aftermath of Easter Sunday attacks. Robust year on year performance was also driven by the realization of margin improvements, and cost savings resulting from lean and efficiency initiatives across the Group.

Quarter under review also witnessed a strong recovery from the subdued performance of the preceding quarter with a revenue growth of 34 per cent and an operating profit growth of Rs.1.6 billion, indicating the resumption of business activities to near normal levels for most of the businesses in the Group which were affected by the first wave of COVID-19 pandemic.

During the period under review, Group managed to surpass the performance of the corresponding period of financial year 2018/19 where no anomalies were experienced, reassuring our resilience and faster than anticipated recovery from Easter Sunday attacks and the first wave of COVID-19. I would like to extend my sincere gratitude to all teams across Hemas Group for this noteworthy achievement under trying circumstances.

We achieved an important milestone in our journey as a Group, with the launch of our Group purpose, ‘Make Healthful Living Happen’, in the month of September 2020. Going forward, this will be the ‘North Star’ in what we do and all core sectors of the Group would anchor growth around our purpose, and ensure the goods and services we supply foster wellbeing of individuals and families we serve.

Consumer

The Consumer sector reported a revenue of Rs.7.5 billion during the quarter, a growth of 11 per cent over corresponding quarter last year. The cumulative revenue for first six months remained flat at Rs.11.3 billion compared to last year, with the prolonged closure of schools having an impact on the sales of our school and office stationery business, Atlas.

Operating profit for the quarter at Rs.1.1 billion with a year on year increase of 85 per cent was driven by the aforementioned increase in revenues, and more importantly through rigorous cost containment initiatives supported by realization of supply chain and process efficiencies.

During the period under review Home and Personal Care (HPC) industry landscape experienced a growth in volumes across both general and modern trade channels, driven by the shift in consumer preference towards personal hygiene and home care products. Performance of Hemas HPC segment also witnessed same growth trajectory across major categories. Our personal wash brand ‘Shield’ which was launched to meet the growing demand for products with anti-bacterial and germ-killing properties continued to be well received in the market, expanded into hand sanitizer and hand wash spaces. Baby Cheramy became the first brand in Sri Lanka in the baby category to obtain the coveted SLSI (Sri Lankan Standards) quality accreditation reiterating our commitment to offer superior products. The innovation pipeline continued to expand the product offering of HPC segment with the introduction of a new variant under our flagship brand ‘Clogard’, leveraging on the new natural ingredient ‘salt’.

HPC international segment continued to focus on strengthening its business model and gained traction in Bangladesh with the launch of hand sanitizers and a new brand of soap.

School and Office Stationery business, Atlas experienced an increase in demand during the quarter under review with the re-opening of schools despite the overall drop in revenue during the first half. It was encouraging to note the capability to build on lean manufacturing practices and realizing substantial cost savings to offset the negative impact on profitability stemming from the drop in revenue. Atlas launched the first ever anti-bacterial stationery range at Colombo International Book Fair, re-emphasizing its ability to keep up to emerging market needs. Re-opening of schools remains the single most decisive factor for Atlas in influencing the performance of ensuing quarters of the financial year.

Over the Counter (OTC) segment of Morison experienced a growth in demand for its own brands against the corresponding period last year, as consumers invested more in preventative healthcare, contributing positively towards the performance of the sector.

Healthcare 

Healthcare sector recorded a revenue for the quarter amounting to Rs.9.3 billion against Rs.7.7 billion, which is an increase of 22 per cent. Operating profits for the quarter recorded a year on year increase of 60 per cent to deliver Rs.936 million. Cumulative revenue for first six months of the financial year under review at Rs.18.0 billion and an operating profit of Rs.1.6 billion registered a growth of 24 per cent and 64 per cent respectively over the corresponding period last year.

Pharmaceutical distribution business, being the leader in private market space witnessed a revenue growth with the onboarding of innovative drugs for better healthcare outcomes. Performance was also supported by the opening up of distribution channels during the quarter under review, whilst ensuring easy access and availability of medicine to patients. However, the businesses faced cost escalations as a result of exchange rate fluctuations coupled with restrictions in movement and global supply chain bottlenecks due to COVID-19.

Pharmaceutical manufacturing segment Morison experienced a strong rebound in the second quarter with the easing of country-wide lockdowns and also through the prioritization of medical supplies to the Government. Opening of the new manufacturing plant and the research facility in Homagama marked a significant milestone for Morison in positioning itself to grow in-line with Government’s policy of promoting domestic manufacturing. Being the first European Union-Good Manufacturing Practice (EU-GMP) compliant oral solid dosage manufacturing plant, Morison aims to begin commercial production by the second quarter of next financial year, barring any unforeseen events arising due to the prevailing environment. Morison completed its voluntary de-listing from the Colombo Stock Exchange during the quarter, increasing HHL’s majority stake to 95.5 per cent from previously held 90.6 per cent.

Hospital business experienced normalized level of activity during the quarter, with more patients opting for previously postponed elective surgeries. Accordingly, an increase in patient footfall and laboratory volumes of both inhouse and outside facilities was witnessed. Both Thalawathugoda and Wattala facilities reported an average occupancy of 57 per cent for the quarter, in line with last year. Hemas Hospitals was approved by the Ministry of Health for PCR sample extraction for which a growing demand for voluntary testing is anticipated.

Mobility 

Mobility sector revenue for the quarter under review at Rs. 503 million is a decline of 28 per cent over corresponding period last year, and the operating profit for the quarter at Rs.212 million is an increase of Rs. 150 million against the previous year. Cumulative revenue for the first half at Rs.959 million is a drop of 31 per cent year on year and the cumulative operating profits at Rs.256 million is a year on year growth of 37 per cent.

The Port of Colombo handled 3.4 million TEUs during the first six months of the financial year under review resulting in a year on year volume drop of 7 per cent due to slowdown in global trade due to the pandemic. Contrastingly, domestic logistics space witnessed an uptick in demand due to businesses and end consumers showing interest in non-conventional logistics and distribution solutions which I believe is a phenomenon which will hold true for the future.

Improved performance of the Mobility sector was primarily driven by the consolidation of the Maritime segment where a successful rightsizing exercise was concluded to drive profitability. Group’s logistics business, Spectra witnessed growth in storage and handling volumes at the container depot and the distribution center. Aviation business, despite the drop-in passenger revenue due to restrictions in air travel managed to remain profitable in the backdrop of continued demand for air cargo space.

Leisure

During the quarter under review Leisure segment contained its operating losses to Rs.144 million against an operating loss of Rs.212 million recorded in the corresponding period last year despite the drop in year on year revenue by 76 per cent to Rs.152.5 million, supported by rigorous cost control measures.

Notwithstanding the drop in tourist arrivals and closure of airports, sector’s Villa properties managed to achieve satisfactory level of occupancies, buoyed by local patrons, and the other properties were converted as paid quarantine centers under the supervision of Sri Lanka Army to bring in additional revenue streams.

Outlook

Outbreak of the second wave of COVID-19 pandemic and the likelihood of subsequent waves is expected to give rise to significant challenges in managing our day-to-day business operations. Whilst we extend our fullest corporation to the Government in its efforts towards curtailing the spread of the virus, we are mindful of the possible slowdown in the strong recovery momentum witnessed during the second quarter of the financial year and possible business interruptions which may lead to sub-optimization of our capacity. This reinforces the need to remain committed to cash conservation and resource optimization measures while harnessing the learnings from the first wave of the pandemic to operate effectively within the parameters of ‘the new normal’.

More importantly, as the pandemic evolves, we recognize the opportunities presented to us with the growing consumer sentiment towards being healthy, which is aligned with our purpose. Towards unleashing this potential, we are focused on de-risking our businesses from possible interruptions, building agile capacities and also leveraging on enabling capabilities of our mobility sector.

In conclusion, I would like to place on record my sincere appreciation to Steven, for his immense contribution towards building a sustainable portfolio of businesses and a competent pool of talent and more importantly for embarking on our Group’s purpose, as I take over this exciting leadership journey of guiding Hemas Group through to the next phase of growth.

Kasturi C. Wilson is the Group Chief Executive Officer at Hemas Holdings Group

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