Pharma, consumer biz minimize virus impact on Hemas in 4Q

Pharmaceutical, FMCG and personal care sectors acted largely as a defence against the disruptions brought on by the coronavirus pandemic at Hemas Holdings PLC during the quarter ended March 31, 2020 (4Q20), as they to a larger degree blunted the negative impact coming from the leisure business on the group performance.

Hemas, saw strong business in January and February amid stronger consumer demand from higher disposable income stemming from tax cuts until the COVID pandemic forced businesses to shutter.

Hemas management had to resort to some harsher decisions to conserve cash by way of deferring capital expenditure and imposing salary cuts.

“During the first two months of Q4, our consumer businesses performed well with strong demand across all categories. Consumer spending experienced good growth with increased consumer confidence and improved disposable incomes driven by tax cuts,” Hemas Group CEO Steven Enderby said. “However, this encouraging performance was impacted by the COVID-19 outbreak in March and the nationwide lockdown bringing sales to a virtual standstill in the last two weeks of March 2020. This resulted in sales in anticipation of the Sinhala and Tamil New Year being depressed,” he added. 

The group reported revenues of Rs.14.6 billion for the quarter under review down 9 percent, year-on-year (YoY). 

The group’s consumer business, which also consists of stationary business Atlas, saw the revenue at Rs. 4.1 billion for the period, down from Rs.5.2 billion in the year earlier period.
“After a successful back-to-school season, Atlas performance was impacted during 4Q due to schools being closed 3 weeks ahead of its schedule for New Year holidays,” Enderby said.  
However, this segment made an operating profit of Rs.120.5 million compared to a loss of Rs.36.9 million in the same period last year. 

Meanwhile, the group’s healthcare segment, which consists of pharmaceutical trading and manufacturing and two hospitals in Wattala and Thalawathugoda, saw its revenues for the quarter rising to Rs.8.9 billion compared to Rs.7.2 billion in the year earlier period.

However, the segment saw a slight dent in the operating profits to Rs.656.8 million, which was due to the adoption of SLFRS 16 and the VRS costs at Morisons warehouse.
The company has now outsourced the warehousing at Morisons to its group distribution centre, Spectra, under its logistics arm and anticipates the move to reduce the costs going forward.

The company’s domestic pharmaceutical manufacturing business was disrupted in the early part of the lockdowns but its capacity utilisation was normalising by May with the easing of lockdowns. 

Morisons was building a new pharmaceutical manufacturing facility in Homagama, which was at an advanced stage of completion when the curfew forced suspension of work. The company has re-commenced constriction from mid-May. 

Meanwhile, Hemas’ 300-room hotel chain would be the hardest hit from the pandemic due to travel advisories and subsequent restrictions that came in to effect. 
The segment’s revenues for the three months fell to Rs.1.1 billion from Rs.1.9 billion in the year earlier period while the operating profit fell to Rs.135.2 million from Rs.284 million in the year earlier period. 

However, the impact on group’s cash flows from Hemas’ leisure sector would be less as the sector accounts for less than 5 percent of the group revenue.

The consumer and healthcare businesses account for more than 90 percent of revenue and profits of the group.  

Meanwhile, the group’s mobility segment, which accounts for logistics and maritime businesses, saw its revenue slipping to Rs.489.7 million from Rs.653.9 million in the year earlier period. However, the operating profit rose to Rs.221.7 million from Rs.70.8 million although the full year remained weak. 

“New business volumes in our Spectra distribution centre have built up more slowly than planned. In maritime, due to weakened local economic conditions and global slowdown, year-to-date throughput has declined. Slowdown in transshipment volumes and movement in the export sector coupled with import restrictions have resulted in depressed revenues in the maritime segment,” Enderby said. 

The group reported an earnings of 80 cents a share or Rs.479.8 million for the three months to March compared to Rs.1.45 a share or Rs.863 million in total earnings in the year earlier period. 

For the full year ended March 31, 2020, the group reported earnings of Rs.2.07 a share or Rs.1.24 billion compared to earnings of Rs.5.65 a share or Rs.3.37 billion in the previous year.