Hemas shows signs of recovery; consumer and healthcare lift 3Q

Consumer and healthcare business of Hemas Holdings PLC showed steady recovery over the previous year’s levels during the quarter ended December 31, 2019 (3Q20) while the leisure and mobility sectors languished, according to the financial accounts of the diversified group.

Hemas slightly advanced its revenues to Rs.18.1 billion in the three months under review from Rs.18.0 billion while operating profits remained flat at Rs.1.9 billion.

The group was seen spending heavily on advertising to lure more demand for its products and services. Such expenditure rose by 32 percent year-on-year (YoY) to Rs.1.94 billion.  “This growth was driven by our consumer and healthcare businesses with strong performance by Atlas during the important back to school season,” Hemas Group CEO Steven Enderby said. 
The acquisition of stationary maker, Atlas Axillia, by Hemas two years ago has proved to be an excellent acquisition and is compatible with the group’s FMCG portfolio. 

Despite some setbacks in the aftermath of the Easter attacks, “Atlas delivered robust back to school seasonal results, surpassing last year’s revenues and profitability,” Enderby said.  “Our monthly consumer revenues returned to prior year levels by the end of Q2 and we reported a Q-o-Q growth in revenue and operating profits of Rs.1.7 billion and Rs.538.3 million respectively for the three months period in consideration. 

“Despite this challenging environment, Q3 has been an active quarter with a number of launches and relaunches in our Home & Personal Care range in Sri Lanka,” he added. 

Enderby also said that price reductions had taken place across its consumer portfolio following the VAT rate cut and believes it will result in higher sales and profits in the ensuing quarters.  “We anticipate an improvement in consumer sentiment and economic activity due to the fiscal stimulus measures announced by the new government, feeding through into the economy,” he said.

The group’s healthcare segment, which consists of its pharmaceutical manufacturing and distribution business and its two hospitals in Thalawathugoda and Wattala, delivered strong top line performance and higher operating profits as occupancy levels averaged 70 percent during the quarter.

 “Hemas Hospitals improved Q3 operating profitability over Q2 by approximately Rs.100.0 million with EBITDA margins nearing prior year levels.  Morison PLC, our pharmaceutical manufacturing arm achieved revenue of Rs.2.7 billion and operating profit of Rs.187.0 million for the nine months ended December 31, 2019. Revenue growth was 7.2 percent with profitability flat against last year,” Enderby stated. 

Consolidated healthcare sector revenues for the quarter was Rs.7.9 billion, up from Rs.7.1 billion a year ago while the operating profit was Rs.638.8 million, up 25.3 percent YoY. 
During the year, Morison signed a 5-year buy back agreement with the Ministry of Health to supply pharmaceuticals while its new pharma manufacturing plant is nearing completion.  “We continue to invest behind new initiatives within the healthcare space, with our pharmaceutical distribution in Myanmar and digital healthcare businesses incurring start-up losses of approximately Rs.50.0 million for the quarter,” Enderby said. 

Meanwhile the group’s leisure, travel and aviation business cluster is still recovering from the relatively weak arrivals following the Easter Sunday deadly attacks. 

Its Serendib branded hotels recorded revenue of Rs.995.3 million, a 26.3 percent decline over last year with an average occupancy of 73 percent across its hotels during the quarter, 13 percent below the occupancy achieved in the same quarter last year.  “Rates across all properties reduced during the period under review, in order to boost occupancy, which led to a drop in profitability during the peak season,” the Group CEO said.  Meanwhile, the group’s logistics and maritime segment recorded lower revenue and profits with new business volumes in their new Spectra distribution centre coming in slower than expected.  For the three months ended December 31, 2019 the group reported earnings of Rs.1.64 cents a share or of Rs.974.7 million compared to earnings of Rs.1.72 a share or Rs.1.03 billion in the year earlier period. 

For the nine months to December, the earnings per share was Rs.1.27 on total profit of Rs.755.9 million, significantly lower from the Rs.2.5 billion reported for the corresponding period in 2018. 

The results were also impacted by the group’s home and personal care business in Bangladesh, which continued to remain depressed due to heavy competition in the value added hair oil segment and the increased duties under the new budget.