Tough 3Q but Hemas Group ups 9-month earnings by 26% for Rs. 2.4 b

Hemas Holdings Plc yesterday said Group revenue for the first nine months of FY 2016/17 rose by 12.9% to achieve Rs. 31.9 billion compared with the same period a year ago, while operating profit reached Rs. 3.3 billion and earnings Rs. 2.4 billion, a growth of 18.3% and 26.1% respectively. 

However, during the third quarter, Hemas said it had seen increasingly challenging operating conditions across most sectors. 

Increasing VAT rates and the introduction of VAT at hospitals, new pharmaceutical pricing regulation and increasing inflation have impacted Q3 profitability. In addition, Hemas has seen higher sales and distribution costs incurred in Bangladesh as it grows its operations there. 

Further, Hemas has experienced continued losses at its new hotel, Anantara Peace Haven Resort in Tangalle, and software venture ‘N*Able’ has performed behind last year.  

“As a result, Q3 saw revenue growth of 14% and PAT growth of 1.9% over the corresponding period last year,” Hemas CEO Steven Enderby said.

“We anticipate a challenging last quarter for our businesses with the latest developments in the macroeconomic context. 

However, we continue to work hard to sustain our strong growth in the final quarter of the financial year and achieve our highest ever levels of revenue and profitability,” he added.

Following is the review of sectoral performance by Enderby.

During the first nine months of the year under review, the Group’s consumer sector delivered revenues of Rs. 12.3 billion, a 10.1% increase over the previous financial year. Operating profits were Rs. 1.7 billion, 22.9% YoY growth, whilst earnings grew at 29.8% to stand at Rs. 1.4 billion. 

With a view to expand our footprint in personal care and build our position in skincare within Sri Lanka, we launched a new lotion and personal wash range under the Velvet brand. This product range is designed specifically for Sri Lankan skin. Our local consumer sector growth is driven by market share improvement in our personal care and personal wash portfolio. 

Further, relatively benign commodity prices during the first half of the year contributed towards the sector gross margin improvement. Bangladesh Consumer sector growth was mainly driven by extended reach attained through our own distribution channels and strong marketing activities. 

Consolidated healthcare sector revenue stood at Rs. 13.9 billion, a growth of 17.0%. Operating profit and earnings grew at 14.6% and 13.5% to achieve Rs. 1.5 billion and Rs. 964 million respectively. 

During the last quarter, the healthcare sector experienced challenges arising from new pharmaceutical price regulation and the introduction of VAT on specified hospital services. Our pharmaceutical distribution operation recorded a solid performance over last year with increased volume growth. Our hospitals also delivered good growth over last year with the latest investments in bed expansion in Hemas Hospital Wattala and a range of new surgical specialties and medical equipment.  

J.L. Morison posted a YoY growth of 6.0% and operating profit growth of 1.3% for the nine months ended 31 December 2016. Our Rx Pharma portfolio continued to do well, benefiting from new product launches. We continue to focus more on new product launches to increase our manufacturing presence in Sri Lanka, and have exited the agricultural supply operations which have been part of J.L. Morison for many years. As a result, underlying revenue excluding agricultural operations grew by 15.1% and EBIT by 11.8%. 

Our Leisure, Travel and Aviation (LTA) business recorded total revenue of Rs. 2.9 billion, reflecting 5.4% YoY growth for the first nine months. The hotels sector recorded a revenue growth of 2.8% over last year, recording a topline of Rs. 1.2 billion. 

LTA experienced a decline in segmental profitability during the first nine months, compounded by losses at Anantara Peace Haven Tangalle Resort which is in its first full year of operations. However, the performance of Anantara Peace Haven Tangalle Resort ramped up during the last quarter under review with more tourist arrivals kicking in during the start of the peak season. We continue our efforts to enhance and develop the luxury travel market in Sri Lanka through our close relationship with the Minor Group. 

The Travel and Aviation segment continued to show mixed results with some GSAs showing improvements in both yields and numbers of passengers handled while others faced competitive operating environments. Air cargo handling experienced a stronger growth compared to passenger growth over the last quarter and as a result this segment recorded YTD growth in revenue of 6.1%. Hemas’ Travel and Aviation sector is striving to seek new growth opportunities in a competitive marketplace via new agency representation for airlines.

Hemas Logistics and Maritime recorded a growth of 95.5% over last year, recording a topline of Rs. 1.3 billion. This growth has been driven by our new maritime agency, Evergreen. The acquisition of this agency gives us a stronger position in the logistics and maritime space. 

Hemas is further strengthening its presence in the logistics space by constructing a new state-of-the-art Logistics Park to consolidate warehousing, improve capacity and provide a range of new services to clients. This new investment is through a joint venture with GAC.