Hemas delivers strong 3Q; but grapples with cost escalations

Hemas Holdings PLC reported strong top and bottom line performances for the three months ending on December 31, 2021 (3Q22), recovering from the brief setback seen in the previous quarter amid improved consumer activity. 
However, the group had to contend with the escalation in costs, both as a result of the global commodities prices boom and the foreign exchange troubles at home.
The FMCG juggernaut reported revenues of Rs.21.5 billion, up by a robust 21.9 percent from the same period in 2020, while the cost of sales rose by 27.1 percent to Rs.15.5 billion, reflecting the enormous pressure that came from cost inflation. 

Hemas share ended 40 cents or 0.58 percent lower yesterday at Rs.68.80. 
“The pandemic coupled with the macroeconomic headwinds continued to influence consumer behaviour, sales mix and market channel dynamics,” Hemas Group CEO Kasturi C. Wilson said.
“As we experienced lower infection rates, the quarter under review was a near ‘normal’ quarter with minimal disruptions to trade and operations. With the rising inflationary pressure, basket value was skewed towards food and essentials, impacting shopper patterns for non-essential items,” she added. 
The group reported an operating profit of Rs.2.62 billion, up 24.9 percent over the same period a year ago. 
Pressure from costs was intense on the group’s consumer brands business, which houses its home and personal care range and learning segment under Atlas Axillia stationery business. 
For the quarter under review, the group’s consumer brands business generated revenues of Rs.9.69 billion, up 22.2 percent but the operating profit declined by 14.5 percent to Rs.1.30 billion over the same period in 2020. 
“Sector profitability continues to be impacted due to steep increases in raw material cost along with cost impact due to foreign exchange liquidity pressures,” Wilson said. 
The group’s healthcare businesses put up the best top and bottom line performances during the period as both in-patients and out-patient volumes grew while the pharmaceutical business delivered stable revenue growth, albeit with challenges from price controls and drug shortages caused by the foreign exchange crunch, which added to the profitability pressure. 
“Additionally, reduction in buy back volumes compared to assigned quantities under the guaranteed buy back agreement with the Health Ministry of Sri Lanka continued to impact the overall performance,” Wilson said. 
This segment delivered revenues of Rs.11.5 billion, up 24 percent while the operating profit grew by 35 percent over the corresponding quarter in 2020. 
Meanwhile, the group’s mobility business generated revenues of Rs.363.0 million, down from Rs.458.1 million in the year earlier period. However, the segment’s operating profit rose to Rs.582.7 million, compared to Rs.139.9 million a year ago, as Hemas in October divested its interest in Spectra Logistics for a total consideration of Rs.1.3 billion, generating a gain of Rs.295.3 million. 
At a consolidated level, the group reported earnings of Rs.1.6 billion or Rs.2.69 a share for 3Q22, compared to earnings of Rs.837.8 million or Rs.1.41 a share in the year earlier period. 
For the nine months ending on December 31, 2021, Hemas reported earnings of Rs.3.19 billion or Rs.5.34 a share compared to earnings of Rs.2.39 billion or Rs.4.01 a share in the corresponding period in 2020.