Hemas Holdings Plc’s operating profit up by 22.5%

Hemas Holdings CEO Steven Enderby

The Hemas Holdings Group said yesterday it had recorded consolidated revenue of Rs. 30 billion for the first six months ended 30 September 2018, a year-on-year (YoY) growth of 33% driven by the recent acquisition of Atlas and its healthcare sector. 

Group operating profit stood at Rs. 2.4 billion, a growth of 22.5% over the previous financial year. Operating profit growth resulted from stronger performance in the home and personal care segment in Sri Lanka and the contribution by Atlas. 

Despite aggressive growth in revenue, Hemas said it saw a lag in operating profit primarily due to a weaker performance at Morisons and N*able and margin compression at pharmaceutical distribution. 

The profit attributable to equity holders of the parent at Rs. 1.5 billion is a YoY growth of 4.3%. 

Hemas Holdings CEO Steven Enderby said the lower growth in earnings is due to increased net interest expense post utilisation of cash reserves to acquire Atlas in January 2018, higher working capital due to strong revenue growth in pharmaceutical distribution and the loan financing for the organisation’s new logistics park. Excluding the first six months performance of Atlas, HHL recorded a consolidated revenue and operating profit growth of 16.1% and 2.3% correspondingly, he added.

“While we have grown revenues strongly in the first six months we have had mixed performance in the profitability in our core sectors. The business environment remains challenging with significant and ongoing currency devaluation through September and October and political uncertainty impacting the domestic economy, the source of our major business activity,” Enderby said. 

During the period under review, Hemas consumer business recorded revenue of Rs. 12.2 billion, indicating a YoY growth of 57.7%. Revenue growth in the consumer sector excluding Atlas stood at 8.2%. Operating profit of Rs. 1.5 billion grew by 54.3% during the first six months compared to last year. 

“The Sri Lankan home and personal care market continues to be challenging, however, we experienced growth from brand relaunches in our core personal care categories. Further, we are also seeing the benefits of our profit improvement program initiated last year improving operating margins,” the CEO said. 

Hemas Bangladesh business still continues to experience challenges where intense competition in a weak market environment has resulted in revenue growth of only 1.4% during the first six months of the financial year 2018-2019. 

Profitability remains a challenge due to heavy marketing spend. Atlas’ performance has been on track in Q2 with revenues up by 12.4% over the same period last year.

Consolidated healthcare sector revenue for the first six months under review stood at Rs. 13.4 billion, a YoY increase of 27.3% while operating profit and earnings indicated a decline of 8.3% and 12.6%. Hemas pharmaceutical distribution operation registered strong revenue growth. However, the impact of price regulation and significant currency depreciation continues to compress margins.

Hemas Hospitals achieved an overall occupancy of 57%, with revenues and profitability improving significantly during Q2 compared to the first three months of the financial year and over last year. The key driver of growth is the continued enhancement in surgical capability. The pharmaceutical manufacturing business, Morison, posted revenue of Rs. 1.7 billion and operating profit of Rs. 162.7 million for the six months ended 30 September 2018. Morison’s underlying revenue, excluding Alcon distribution business, which the company exited during the latter part of FY2017/18, was 1.8%. Operating profit has been impacted by poor performance in our OTC Pharma segment which has resulted in earnings recording a decline of 37.5% excluding Alcon.

Hemas Leisure, Travel and Aviation (LTA) interests achieved revenue of Rs. 1.8 billion, reflecting a growth of 16.7% for the six months under consideration. Broader industry fundamentals remain favourable, with tourist arrivals up during the year. 

Serendib Hotels reported a 10.2% growth in revenue due to an increase in average room rates and average occupancies across the group reaching 69% against the 64% reported last year. During the period under review, Anantara Peace Haven Tangalle had a satisfactory performance in occupancy. 

The Travel and Aviation segment indicated a growth in revenue of 22.1% driven by newly secured agents under inbound travel. However, overall, profitability remained a challenge, declining by 12.5% owing to ongoing soft refurbishment at Avani Bentota and Hotel Sigiriya coupled with exchange losses attributed to forex loan financing at Anantara.

Hemas Logistics and Maritime recorded revenue growth of 10.9% over last year, with revenue of Rs. 1.4 billion. During the period under review, the Port of Colombo was ranked as the world’s fastest growing port with growth of 15.6% in container handling during the first half of 2018, fuelled by 20% growth in transshipment volumes. The profitability of the maritime sector increased as a result. 

Hemas’ logistics business saw 3PL and warehousing segments make a notable contribution to profitability. The new logistics park facility is now up and running with newly secured customers moving in August. However, with the hike in fuel prices there was pressure on operating margins.

Hemas technology business N*able witnessed a gradual improvement in the second quarter with increased revenues over last year by 31.7%. However, a significant drop in revenue due to delays in project completion during the first quarter continues to have an impact on year-to-date profitability.