Hemas 1Q revenues up, bottom line slips

Diversified Hemas Holdings has had a mixed start in the 2012 Financial Year with revenues up in the first quarter but bottom line slipping in comparison to the corresponding period of last year.

The Group achieved a revenue growth of 19% to close at Rs. 4.97 billion whilst gross profit grew by 12% to Rs. 1.5 billion. However pre-tax profit had declined by 13% to Rs. 333.4 million and after tax by 11% to Rs. 282.5 million with net profit attributable to equity holders down 10% to Rs. 262 million.

Hemas core FMCG sector saw a decline in profit as well as the transportation business whilst healthcare had seen its bottom line more than doubled. Leisure sector had a net loss and power sector showed marginal increase in profit.

Despite mixed performance Hemas Holdings CEO Husein Esufally sounded optimistic and confident.

“We share the optimistic outlook surrounding the business environment and have an active investment agenda with new projects in our hospital, hotel and power sectors.

At the same time we are focused on investing into and growing our existing business lines, and are confident that after a relatively slow start, the growth momentum would be restored in the months to come,” Esufally said in a review accompanying interim accounts released yesterday.

Hemas Pharmaceuticals Distribution and Hospitals businesses were the main contributors to the growth in revenue recording a year on year growth of 14% and 26% respectively, while FMCG business achieved a revenue growth of 9% for the period under review. Group earnings however declined by 10% over last year to Rs. 262 mn, mainly due to the decrease in profits experienced by FMCG and transportation businesses. Healthcare sector, however, enjoyed a good first quarter to record a healthy profit growth of 132% over the previous year.

The FMCG business recorded a turnover of Rs. 1.6 bn, an increase of 9% during the quarter with our brands Fems, Goya, Kumarika and Velvet performing well following recent brand initiatives. The sector profitability showed a decrease of 29% to post Rs. 118 mn, cascading from gross profits negatively impacted by escalating input costs.

“In spite of this, with the commencement of local manufacture of Diva and easing of palm oil prices, we expect the sector margins to recover in the months to come,” Esufally said. This quarter, Clogard, launched a new ‘Multi Vitamin’ variant, whilst Kumarika introduced a new range of shampoos and face washes inspired around a ‘Naturals’ platform. Our production facility in Dankotuwa continued on its path towards production excellence by winning the National Quality Award, in the manufacturing category, organised annually by the Sri Lanka Standards Institution (SLSI).

Hemas CEO said the healthcare sector enjoyed a healthy growth of 16% to record Rs.1.8 bn, whilst profitability grew by 132% to achieve Rs. 111 mn. The sector performance was mainly attributable to the growth in the pharmaceutical distribution business which enjoyed a topline growth of 14%.

The business growth was largely fuelled by the growth in the private pharmaceutical industry and amidst challenging market conditions the business was able to maintain its market leadership position with a market share of 16.3% (Source: IMS Data MAT Q1, 2011).

“Our hospitals, which obtained ACHSI accreditation, enjoyed a good first quarter with growing in-patient numbers and increasing number of operations which contributed to the 26% growth in the hospital topline,” Esufally revealed.

Hemas flagship hospital in Wattala reached a significant milestone by achieving a profit breakeven position in June 2011. Hemas also initiated a programme to train nurses at the Open University and Aquinas University College which would add approximately 250 nurses a year to the industry, whilst a new collection lab was established at Ja-ela.

“An expansion plan to add two more hospitals to the chain is well underway and we have been successful in securing a land at Battaramulla to construct our third hospital,” Esufally added.

The leisure sector completed the first quarter with a 44% growth in turnover to close at Rs. 208 mn, mainly due to a 106% growth in revenue enjoyed by Hotel Dolphin. With Hotel Serendib closed for refurbishment during the quarter, profitability for the sector took a dip to record a loss of Rs. 22 mn. “Despite the off-peak season all our hotels have enjoyed occupancy rates in excess of 70% and we expect refurbishment of Hotel Serendib to be completed in time for the upcoming winter season. The hotel would be repositioned as a ‘Design hotel’ creating a unique ‘on the beach’ experience for our visitors,” Hemas CEO said.

The transportation sector dominated by aviation businesses achieved a revenue growth of 4% to record Rs.181 mn, but, experienced a drop in profitability by 37% to record Rs. 42 mn. The decline in air cargo volume market in comparison to the previous year, coupled with a curtailment of the feeder operations at the Colombo port contributed largely to the drop in profitability for the sector.

The revenue of the power sector grew by 38% to record Rs. 987 mn, mainly due to the upward revision of fuel prices which came into effect from September last year and the increased generation of thermal power plant.

“However, the hydro power segment endured a difficult quarter due to poor rainfall conditions experienced during the period. Lower finance costs attributable to the refinancing of Rupee borrowings of Heladhanavi, contributed to the sector profitability increase of 9% to record Rs. 87 mn. Magal Ganga, our third hydro power plant is expected to be completed in the next quarter to add a further 2.4MWs to the sector hydro power portfolio,” Esufally added.