Hemas 2Q net profit down 14% over slowing demand, higher costs

• Group CEO Enderby says overall business environment appears challenging for the second half of the year
• “We have developed plans to drive improved profitability and address areas of weaker performance”-Enderby

Diversified conglomerate Hemas Holdings PLC continued to face challenges during the second quarter of the 2018 financial year (2Q18) ended September 2017, with a sharp fall in the bottom line compared to the same period last year, attributed to contractions across most of the group’s operating segments stemming from cost increases.

Net profit for 2Q18 fell 14.3 percent year-on-year (YoY) to Rs.726 million, while earnings per share fell to Rs.1.27 from Rs.1.48 YoY. The share prices of Hemas remained unchanged at Rs.130 at market close yesterday.

Hemas’ leisure, travel and aviation segment ran into a net loss of Rs.17.8 million due to a fall in occupancy at group hotels, while the consumer segment net profits fell by 20 percent YoY due to a weakening domestic market and higher distribution expenses, especially in the group’s operations in Bangladesh, according to  Bartleet Religare Securities (BRS).

BRS said that the healthcare segment net profits fell in the low single-digit level due to rupee depreciation, although the pharmaceuticals manufacturing arm registered a 7 percent YoY growth in earnings. The logistics and maritime segment profits increased 78.1 percent YoY to Rs.148.5 million.
Group revenue expanded 8.6 percent YoY to Rs.11.7 billion. The healthcare segment, which accounts for nearly half of the group’s revenue, recorded Rs.5.5 billion in sales, increasing 14.1 percent YoY.

The consumer goods segment revenue fell 3.4 percent YoY to Rs.4 billion due to higher domestic inflation and slowing consumer demand according to BRS, while the leisure, travel and aviation segment revenue fell 16.6 percent YoY to Rs.892.5 million.

Group cost of sales accelerated by 9.6 percent YoY to Rs.7.3 billion resulting in gross profits increasing 6.9 percent YoY to Rs.4.4 billion. Administrative expenses increased 13.7 percent YoY to Rs.2.1 billion.

The group asset base at end-2Q18 expanded to Rs.47.9 billion compared to Rs.47.3 billion at the start of the financial year, due to the group’s leisure arm purchasing a boutique villa brand and investments into expansions in the group’s logistics and healthcare sectors.

Total interest-bearing borrowings increased to Rs.4.9 billion in the same period, from Rs.4 billion.
Meanwhile, during the first half of the 2018 financial year, Hemas’ net profits fell 8 percent YoY to Rs.1.4 billion, while revenue increased 11.6 percent YoY to Rs.23 billion and cost of sales increased 13.2 percent YoY to Rs.14.4 billion.

The second half of the year too will remain challenging for Hemas.

“The overall business environment appears challenging for the second half of the year. We have developed plans to drive improved profitability and address areas of weaker performance identified during the period to September 30, 2017,” Hemas Group CEO Steven Enderby said.

The Esufally family owns just over 64 percent of shares in Hemas both directly and indirectly, shedding a negligible portion of their holdings compared to a year ago.

The Franklin Templeton Investment Funds owns 7.78 percent of the shares in Hemas, down from 9.11 percent YoY.

A new entrant to the top 20 shareholder list during the year was Norges Bank, now owning nearly 3 percent of the shares in Hemas.