Hela Apparel 3Q hit by slowing sales, rising interest rates

• Group remains cautiously optimistic over relative stability in key global markets

Hela Apparel Holdings PLC had to contend with the sluggish demand from its key clients in the US and Europe during its fiscal third quarter ended in December 2022, as the central banks there raised the interest rates at the fastest pace in four decades to quell inflation, which had a bearing on consumer spending. 

The local apparel group, which has a sizable portfolio of operations in Africa, also experienced the rising dollar interest rates weighing on its profits, while the higher local taxes also affected the earnings to a lesser degree. 

The group reported a revenue of Rs.21.75 billion for the three months to December 2022, up 44.8 percent from the same period a year ago, entirely on the weaker rupee while the higher direct costs weighed on the gross margins.  
For instance, the gross margin of the group slipped to 10.0 percent in December, from 13.7 percent a year ago, which its CEO Dilanka Jinadasa attributed to a decline in sales, which in turn caused a decline in the capacity utilisation levels across the group’s manufacturing facilities. In fact, in US dollar terms, the group’s top line declined by 19.7 percent to US $ 59.9 million. 

  However Jinadasa sees some tentative signs of stability in the economic conditions in the group’s key markets, with both the US and European economies showing resilience, as reflected by their low unemployment levels and still relatively strong consumer demand in the face of the rate hikes.

However, the UK economy has shown some cracks with the weakening consumer demand, although it avoided a recession amid the tightening monetary policy.

“The declining inflation rates and ongoing strength of labour markets in Europe and North America, in particular suggest a more resilient outlook for consumer spending in these economies,” Jinadasa said in a quarterly earnings press release, projecting some optimism.  

“Nonetheless, the durability of the improvement in the global economic conditions remains uncertain and performance is expected to vary across markets,” he said adding some caution.

The group reported an operating loss of Rs.428.6 million, compared to an operating profit of Rs.777.4 million in the year earlier period.  The group ended up reporting a net loss of Rs.1.7 billion or Rs.1.29 a share, compared to a net profit of Rs.452.2 million or 44 cents a share in the corresponding period in 2021. 

The group booked a finance cost of Rs.1.09 billion for the three months, up from Rs.323.9 million. 
Hela Apparel became a listed entity in February last year, after it offered a 20.5 percent stake or 267.1 million shares, at Rs.15.0 each, to raise Rs.4.0 billion. 

Hela share ended at Rs.9.00 yesterday, down 20 cents or 2.17 percent. 

Lesing Hela Limited, Tars Investments Lanka Private Limited and Jinadasa held 46.89 percent, 17.99 percent and 10.48 percent stakes, respectively in the company, as of December 31, 2022.