Hemas Holdings PLC (HHL) and its subsidiaries reported a consolidated revenue of Rs.35.6Bn; a year-on-year (YoY) growth of 11.4% and profit attributable to equity holders of Rs.2.1Bn, a decline of 12.7% for the nine months ending December 31, 2017. Cumulative operating profit for the first nine months of the FY18 stood at Rs.2.9Bn; a YoY decline of 10.8%. Our double-digit growth in consolidated revenue is preliminary driven by healthcare and mobility sectors. Despite consolidated revenue growth, our Bangladesh consumer business, pharmaceutical distribution, leisure and travel segments are all facing margin challenges resulting in reduced group earnings. Domestic consumer demand, mainly in the rural sector, remains soft impacted by higher headline inflation, poor climatic conditions persisting in parts of the country, lower levels of inward remittances and the VAT increase. While recognising the pressures this exerts on operating profits we continue to invest in expanding our portfolio of consumer products both here and in Bangladesh, developing our digital footprint and driving profit improvement in our home and personal care business.

On January 19, 2018, we acquired 75.1% of Atlas Axillia Company (Private) Limited, for a purchase consideration of Rs.5.7Bn. Atlas holds a leading position in School and Office with over 40% market share and has been voted the most loved brand in Sri Lanka on multiple occasions, including the most recent award in 2017. With the acquisition of Atlas, Hemas is consolidating its leadership in Sri Lankan consumer brands and we look forward to bringing our brand building excellence to this new category. The business has a strong profit and dividend track record. Atlas will be the third largest business in the Hemas Holdings Group and will operate independently as a subsidiary of Hemas Holdings PLC. Based on the historic performance of Atlas and HHL, we anticipate Atlas will add approximately 15% to our revenues. During FY17/18 we will consolidate only from the date of acquisition and will consolidate on a full year basis in FY 18/19. It will also introduce increased seasonality to our earnings due to the importance of the back to school season in Q3 of the financial year. Following the acquisition, we have fully utilized the proceeds from the rights issue raised in 2015.

The consumer sector posted a revenue of Rs.12.4Bn for the first nine months ending December 31, 2017, indicating a growth of 1.0% over the previous financial year. Year-to-date operating profits were Rs.1.4Bn, 18.6% YoY decline. We saw signs of recovery in the consumer segment during Q3 with a revenue growth of 8.6% for the three months in consideration despite challenging domestic macro environment seen in the first six months. Our Sri Lanka business reported steady growth in key personal care categories with market shares being maintained across most major categories. However, overall profitability growth was below expectations on-account of our Bangladesh operations. We continue to work hard on improving profitability in Bangladesh. We have completed the restructure of our sales and distribution network and are now investing behind our market leading brand Kumarika. We relaunched Kumarika with an improved hair oil formulation in December.

Our consolidated healthcare sector revenue stood at Rs.16.6Bn, a YoY increase of 19.4% whilst operating profit and earnings grew at 14.5% and 19.3% during the past nine months ending December 31, 2017. Our healthcare sector was the main contributor to growth year-to-date. Hemas pharmaceutical distribution operation registered strong revenue growth increasing its market leadership position owing to new additions to our pharmaceutical portfolio. However, profitability in the industry remains challenging due to price regulation and devaluations in the wake of depreciation of the rupee. As a result, pharmaceutical distribution profitability was negatively impacted. On December 15, 2017, the Government approved an increase of 5% on the Maximum Retail Price of 48 molecules that were under price control.

Our Hospitals have performed well throughout the financial year to date. Higher occupancy levels and increased focus on surgeries have contributed towards a revenue growth of 21.2%. We are also seeing growth from increased specialised surgeries as we continue to expand our services, push to higher levels of clinical excellence and generate improved performance from investments made. We also see improved contributions from the laboratory network.

Morison’s posted a revenue of Rs.2.8Bn and operating profit of Rs.503.6Mn for this interim period. Morison’s underlying operating profit growth, excluding Agro, which we exited during the latter part of FY17, was 38%. Growth against the previous year was primarily driven by pharma manufacturing and pharma distribution. In December, Morison Limited ventured into Myanmar with distribution of its baby diaper brand “Bunnies”. This is the initial step towards establishing Morison PLC’s presence in a regional market.

Hemas Logistics and Maritime recorded revenue growth of 52.2% over last year with revenues of Rs.2.1Bn. This growth has been driven by both our agencies and logistics. During the year, Spectra, our logistics joint venture with GAC and McLarens has shown improved results, mainly driven by the 3PL operations. Spectra Integrated logistics expanded operations with a new state-of-the-art container yard in the Muthurajawela Industrial Zone on January 22, 2018. Construction of the new warehousing complex is on track to be completed in early FY 2019.

Our Leisure, Travel and Aviation business posted a total revenue of Rs.2.6Bn, reflecting a decline of 11.0% YoY for the nine months under consideration. Our hotel portfolio performed negatively resulting from softening room rates and a rise in operating expenses. As a result, operating loss for the segment during the first nine months stood at Rs.34.7Mn, a 112.0% decline in YoY operating profitability. During Q1, overall arrivals to Sri Lanka witnessed a moderation in growth due to the negative publicity and travel warnings due to flooding and landslides in May. After two quarters of decline in revenue growth, Serendib Hotels reported stabilised revenue resulting from increased occupancies across the hotel portfolio. Lantern, the latest addition to our hotel portfolio contributed positively towards revenue. Travel and Aviation segment indicated a decline in revenue of 4.2%. Overall profitability of this segment continued to be below expectations stemming from poor performance in inbound travels and hotels. Anantara Peace Haven Tangalle performed comparatively better than last year on occupancy, however losses incurred year-to-date have impacted Group profitability.

Our technology business, N*Able generated strong revenue growth due to the successful completion of three major projects during the quarter in contrast to its weak start in FY17.

FY 2018 has been a challenging year with the trend of good revenue growth in tough economic conditions but depressed earnings continuing throughout the nine months.

  • Steven Enderby
  • Group Chief Executive Officer