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“The underlying business activity of the group, adjusted for these one-off factors, has seen a notable growth, with operating profits posting a growth of 32.6% on a normalised basis. The excellent first half enjoyed by our hydro power plants, increased margins enjoyed by our FMCG business and the improved performance of the transportation sector contributed positively to both the group operating profits and earnings for the period,” Hemas Chairman and Chief Executive Husein Esufally said in his review accompanying interim results.
FMCG
The FMCG sector reported an impressive first half, recording a revenue growth of 27% to reach Rs. 4.7 billion and an operating profit growth of 24.3% to Rs. 438 million. The encouraging performance of the sector was largely driven by the growth in oral care, home care and personal wash categories which grew at 25.3%, 24.9% and 18.5% respectively. Clogard, the oral care brand, and Diva the detergent powder showed notable performances in terms of contribution towards both the top line and bottom line during the first half, whilst adult beauty soap Velvet was the forerunner of the personal wash category growth.
The second quarter proved to be very eventful with many re-launches, beginning with Velvet being re-launched in July, refreshing the brand and making it more relevant to the consumer. The re-launch also included the introduction of two new variants, Kohomba and Aloe, with improved packaging. Since the re-launch the brand has performed well.
During the quarter, male fragrance brand Gold was re-launched with the intention of contemporising the brand to cater to dynamic consumer needs. Oral care brand Clogard was repositioned in mid-September as an anti-cavity toothpaste, strengthening its product position and improving competitiveness within its market space. Since its re-launch, Clogard has seen significant growth in both its contribution to the sector top line and bottom line.
Healthcare
The healthcare sector registered revenues of Rs. 5.8 billion, a growth of 28.9% over the same period last year. This was driven by the positive performance of the pharmaceutical distribution and was augmented by the recent addition to the hospital chain at Thalawathugoda. Operating profits of the sector increased marginally by 1.4% to reach Rs. 426 million, dampened by the start-up losses of the new hospital.
The pharmaceuticals business enjoyed a good first half, posting a 17.8% growth in revenue and 20.4% improvement in operating profits, backed by an increase in sales volumes during the quarter. The performance of the pharmaceutical business helped strengthen its market leadership position by increasing its market share to 18.6% (source: IMS). The hospital business experienced a slow year, with the hospitals in both Wattala and the South experiencing marginal improvements in both the top-line and bottom-line, while the new hospital at Thalawathugoda saw a steady pick-up in volumes since its commencement in June 2013.
The new addition to Hemas Group, J.L. Morison Sons and Jones (Ceylon) PLC performed well during the period under review. The business posted an operating profit growth of 14.2% to record Rs. 96 million and an earnings growth of 22.3% to post Rs. 80 million, for the period ending 30 September 2013. Post-acquisition, measures were taken to reassign the OTC portfolio of Hemas Pharmaceuticals under J.L. Morison, strengthening the product offering in line with the overall group OTC strategy. Going forward, the group expects to build on and strengthen the manufacturing capabilities of the business to cater to the expected consumer demand.
Leisure
The leisure sector recorded revenue of Rs. 452 million and an operating loss of Rs. 54 million for the first half, resulting in a 31.0% and a 144.5% decline, respectively, primarily due to the closure of Hotel Sigiriya and Club Hotel Dolphin during the period under review.
Hotel Sigiriya was reopened after renovations on 1 August 2013 and experienced satisfactory levels of occupancy. With the reopening of Club Hotel Dolphin on 1 November 2013, the sector is geared for a busy winter season. The growth in tourist arrivals during the quarter reached 20%, however, inconsistency in conversion to room nights at graded establishments persisted during the quarter.
Despite the shortage of the total room inventory, the hotels have recorded satisfactory occupancy levels in excess of 50% during what is considered an off-peak season. The group is looking forward to a positive third quarter with the reopening of Hotel Dolphin and the encouraging forward bookings for the upcoming winter season. Hemas has been successful in reaching new markets through constant improvements to its own web booking engine and will continuously work towards maintaining strong occupancy levels.
Transportation
The transportation sector posted a revenue of Rs. 685 million, a 47.5% growth, much of it driven by the new venture Hemas Logistics, while operating profit recorded a growth of 19.2% to reach Rs. 223 million during the first half of the year. The aviation segment enjoyed a strong performance with increased passenger and cargo markets while Hemas Travels increased its market share among top travel agencies.
The crew boat service business at the Hambantota Port successfully completed its first year of operation in September 2013. However, the maritime segment results were hindered by lower transshipment volumes with a lesser number of ships calling at the port. The logistics segment including the warehouse and haulage activities which performed well during the first half of the year and Hemas plans to commence operations of a fully-fledged integrated logistics facility in the months to come.
Power
The power sector recorded a drop in revenue growth of 15.8% to post Rs. 2.6 billion largely impacted by the drop in generation at the thermal power plant Heladhanavi, resulting from the curtailment imposed by the CEB. In spite of this, the sector posted a significant increase in operating profit to achieve Rs. 295 million for the first half, contributed by the hydro power plants which experienced a higher rainfall around the catchment areas.
The performance of hydro power assets under Pan Asian Power PLC, Rath Ganga and Manelwala also contributed to strengthen the sector’s profitability during the period under review.
As Hemas looks to the future, the group has also instituted a transformation plan designed to accelerate growth. Steven Enderby will be replace Husein Esufally as Group Chief Executive Officer from 1
April 2014, and will function as Deputy CEO with immediate effect. Both Enderby and the Group Chief Financial Officer Malinga Arsakularatane, have been appointed to the Board of Hemas Holdings PLC. Esufally will function as Chairman and CEO until 31 March 2014, after which he will assume the position of Non-Executive Chairman.
Along with these leadership changes, there are several other exciting initiatives that will be rolled out during the second half of the year, giving Hemas confidence that it can close out the year on a positive note.
