Strong performance by Atlas underpins Hemas profit growth

Hemas Holdings PLC has continued its recovery from a challenging first six months with Q3 FY 19/20 Group revenue and operating profit broadly in line with Q3 FY18/19. 

The company in a statement said on a Quarter on Quarter (Q-o-Q) basis, it grew strongly over Q2 FY19/20. Revenue grew by Rs. 2.3 b, 14.9% over Q2 while operating profit and earnings rose by Rs. 1.2 b and Rs. 767.5 m. 

“This growth was driven by our Consumer and Healthcare businesses with strong performance by Atlas during the important back to school season,” said Hemas Holdings Plc Group CEO Steven Enderby. 

Group CEO Steven Enderby

On a year-to-date basis, the Group’s performance has been impacted by the aftermath of the Easter Sunday attacks during Q1 and Q2, recording a consolidated revenue of Rs. 47 b for the nine months ended 31 December 2019, 2.1% lower than last year.

Operating profits for the first nine months of the financial year were Rs.2.6Bn, a Year-on-Year (YoY) decline of 39.9%. Group earnings stood at Rs. 755.9 m for the nine months. Q3 indicated a significant recovery in profitability to Rs. 974.7 m from the cumulative loss of Rs. 218.8 m during Q1 and Q2. 

The Group delivered an underlying revenue of Rs. 46.6 b and earnings of Rs. 1.1 b, 1.8% growth and 57.0% decline over last year, excluding the negative impact of Rs. 230 m from N*able, the technology business sold in Q2 FY20 and Hemas Southern Hospitals which Hemas exited in Q3 FY19. 

Consumer: During the quarter, both Consumer businesses witnessed a steady recovery following subdued performance in the first half amid a general economic slowdown and the adverse impact from the aftermath of the Easter Sunday attacks. 

“Atlas delivered robust back to school seasonal results, surpassing last year’s revenues and profitability. 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 b and Rs. 538.3 m respectively for the three months period in consideration,” Enderby said. 

Despite this challenging environment, according to the Group CEO the Q3 has been an active quarter with a number of launches and re-launches in the Home & Personal Care range in Sri Lanka. Subsequent to the recent reduction in VAT rates by the Government, price reductions have been taken across Hemas consumer portfolio ensuring this benefit is passed on to consumers.

Due to the sharp slowdown in the first quarter, year-to-date consumer sector revenue stood at Rs. 19.7 b for the nine months ending 31 December 2019, indicating a YoY decline of 2.8%. Sector profits of Rs. 1.8 b witnessed a drop of 35.7% over last year due to higher spends in marketing and sales and distribution, to strengthen the Hemas brands. 

Hemas’ Home and Personal care international business remained depressed during the quarter as a result of heavy competition in the value-added hair oil segment in Bangladesh coupled with increased duty and tariff under the new budget.

Healthcare: Consolidated healthcare sector revenue for the first nine months of the year stood at Rs. 22.5 b, a YoY increase of 9.8% whilst operating profit and earnings increased by 6.1% and 1.3%, due to steady recovery at Morison and Hemas Hospitals compared to the first half. 

Hemas pharmaceutical distribution registered satisfactory performance with the price increase on price-controlled pharmaceuticals becoming effective in May. Further, Hemas has seen increased volume growth in distribution segment. 

Both Thalawathugoda and Wattala hospitals recorded a strong recovery in revenues and profitability aided by improved operating metrics with average occupancy of 70% during the quarter. Hemas Hospitals improved Q3 operating profitability over Q2 by approximately Rs. 100 m with EBITDA margins nearing prior year levels. 

Morison PLC, the pharmaceutical manufacturing arm, achieved a revenue of Rs. 2.7 b and operating profit of Rs. 187 m for the nine months ended 31 December 2019. Revenue growth was 7.2% with profitability flat against last year. 

“During the period we signed a new five-year buyback agreement with the Ministry of Health continuing to build on our growing reputation as a high quality, cost effective pharmaceutical supplier to the nation. The construction of our new plant is progressing well and we are now installing machinery and equipment,” Enderby said.

“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 m for the quarter. Net finance cost increased due to working capital financing at pharmaceutical distribution and the expenditure on the new Morison manufacturing plant,” he added.

Leisure, Travel and Aviation: Hemas Leisure, Travel and Aviation business performance declined sharply with revenues and earnings down Rs. 584.8 m and Rs. 112.5 m compared to last year. A series of stringent cost control initiatives partially offset this fall in profitability. Although tourist arrivals in Q3 indicate an 11% shortfall over last year, arrivals to Sri Lanka for the quarter ended December 2019 picked up by 46% compared to the quarter ended September 2019. 

Serendib Group of Hotels recorded a revenue of Rs. 995.3 m, a 51.2% decline over last year with an average occupancy of 73% across its hotels during the quarter, 13% 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. 

Against this backdrop, Travel and Aviation interests also recorded a revenue decline of 13.2%, and an operating loss of Rs. 12.8 m during the nine months ending 31 December 2019. This is primarily driven by cancellation of tour groups in inbound segment.  

Mobility: Hemas Logistics and Maritime recorded a revenue decrease of 15.6% over last year, with revenues of Rs. 1.8 b. New business volumes in the new Spectra distribution centre have built up more slowly than planned. By 31 December 2019, the distribution centre was operating at 70% capacity. In maritime, due to weakened local economic conditions and global slowdown, year-to-date throughput has declined.

“The Group has seen an ongoing recovery in a period of weak economic growth. This performance demonstrates the resilience of our business model and the dedication of our team. We continue to work hard to sustain our growth in the final quarter. 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,” Group CEO Enderby said.