Financial Year 2022/23 – First Nine Months Performance
Chief Executive Officer’s Review
Hemas Holdings PLC delivered a commendable performance in the first nine months of the financial year 2023.
Notwithstanding the volatile economic conditions, the Group posted a cumulative revenue of Rs. 81.7 billion, a 41.6 per
cent growth over last year. Despite the 51.5 per cent growth in Group operating profits, reported earnings for the period
remained flat at Rs. 3.2 billion amidst the escalating interest rates.
Sri Lanka struggled to maintain economic stability amidst lingering concerns regarding soaring inflation, delays in entering into a comprehensive IMF programme and limited foreign exchange reserves. Inflation as per the National Consumer Price Index (NCPI) hit a record high in September 2022, which subsequently decreased to 59.2 per cent in December. The domino effect of multiple tax reforms is to be realised in the months to come. Even though challenges surrounding the disruptions to power supply, and lack of essentials were present, the operating conditions saw relative improvements in comparison to the preceding quarter.
While the prolonged effects of the economic crisis continued to impact the operating dynamics and the consumption habits, the Group posted a revenue of Rs. 29.8 billion for the quarter, a growth of 38.2 per cent over same period last year. Increased resilience in the backdrop of successive crises coupled with future focused business strategies on optimising working capital, internationalisation and customer centricity resulted in a stronger recovery in business activities. The positive momentum of declining global commodity prices and improved exchange availability was not reflected in the earnings due to inflationary pressure and elevated borrowing costs.
Consumers remained cautious on their purchase decisions on the back of multiple tax reforms and inflationary pressure
leading to volume contractions across the industry. With the reduction in key global commodity prices, the domestic
market witnessed a decline in prices for multiple personal care products. Increased availability of fuel resulted in
distribution efficiencies and significant improvement in footfall to the stores.
Stationery market witnessed increased competition with almost all market participants being active under improved operating conditions. Value for money products gained traction under increasing pressure on disposable income with non-essential items recording higher volume reductions. Towards the latter part of the quarter, multiple donor-led support programmes were introduced to the system by various parties including corporates, non-profit organisations and individuals as an effort to ease the burden to the customers.
Bangladesh economy was adversely impacted by the soaring inflation, depreciating currency, energy shortage, slowdown of the recovery from the pandemic, the war in Ukraine and poor economic conditions in key export markets. However, the country is expected to benefit from the IMF programme which was signed in January 2023 with a view of preserving macroeconomic stability.
Consumer Sector reported a 44.3 per cent growth in cumulative revenue to reach Rs. 32.5 billion for the first nine months of the year. Increased focus on the International and exports segments, notably on personal care and learning verticals positively contributed to the revenue growth. Despite the growth in operating profit, the dual impact of increase in interest rates and the widened working capital base restricted the earnings to Rs 1.9 billion as against Rs. 1.6 billion reported last year.
The Sector reported a revenue of Rs. 13.6 billion for the quarter, supported by the improved performance of both the Home and Personal Care and Learning Segments. Prudent efforts to identify challenges and implement appropriate pricing and cost management strategies along with dynamic supply chain solutions allowed the Sector to achieve an operating profit of Rs 1.8 billion during the quarter.
Volume contraction witnessed in the preceding periods continued to the quarter under discussion with key categories
experiencing challenges amidst the deteriorating purchasing power. Considering the rising inflationary pressure on
consumers, the business took a decision to pass down the benefit of declining global commodity prices in the form of
price reductions and discounts. Moreover, value for money pipeline was further strengthened with additions to the ‘Velvet
cutie’ and ‘Baby Cheramy’ value packs. Our efforts in tackling period poverty were further supported by the
Government’s decision to remove taxes on feminine hygiene products resulting in a growth in volumes for the sub sector.
The quarter witnessed an 8.6 per cent contribution to revenue from new product launches supported by the increased
traction for key brands including ‘Baby Cheramy’, ‘Diva’, ‘Fems’ and ‘Vivya’.
With an aim of uplifting safety standards and innovating best quality baby care products, ‘Baby Cheramy Safety
Institute’, the first of its kind development facility in Sri Lanka was launched during the quarter. In line with the strategic
drive to explore adjacent spaces, Hemas ventured into the food industry with the recent launch of ‘Tasty Country
Flakers’, a wholesome cereal made with natural ingredients. The product was successfully introduced to the market via
multiple trading platforms as a healthier alternative to breakfast cereals.
Reinforcing its strength and stability, the Learning arm of the business continued to maintain its market leading position with improvements to market share in all key categories. Building up to the back-to-school season that is expected in the fourth quarter, increased demand was witnessed for stationery products in the month of December. ‘Atlas Learn’ platform which was launched in the previous quarter as an enabler for curriculum development and lesson planning has gained traction with increased active user engagement. In recognition of our commitment to purpose and innovation, Atlas was honoured with the Local Brand of the Year (Gold) and the CSR Brand of the Year (Bronze) accolades at the SLIM Brand Excellence Awards.
Consumer Brands International
During the quarter, revenue from new launches resulted in a 24.0 per cent contribution to the total Home and Personal Care International revenue against the 16.9 per cent recorded for the same period last year. In response to the economic pressure, ‘Actisef’ launched the mini variant at an affordable price point to provide the customers with much needed choice amidst reducing disposable income levels. Aligning to our long-term commitment to drive internationalisation and export footprint, the Consumer Brands International Segment witnessed a double-digit growth in cumulative revenue due to increased focus on personal care and stationery products in regional markets, mainly in Bangladesh, Pakistan and Maldives.
Healthcare remained one of the most vulnerable sectors to the economic crisis as the Government struggles to efficiently
finance the needs of the sector despite the donations and credit lines offered by multiple sovereign and independent
bodies. The outward migration by young specialists will worsen the situation in the state health sector that has been
grappling with a serious shortage of medicines.
Affordability remained a key priority in the pharmaceutical industry where a double-digit market volume contraction was witnessed under diminishing disposable income levels. While the contraction was relatively lower for most of the essential categories, the market witnessed an increasing buying frequency for all therapeutic segments. Cumulative revenue for the period stood at Rs. 48.0 billion, a growth of 42.5 per cent over same period last year resulting from the National Medicines Regularity Authority (NMRA) approved price adjustments made to partially compensate for the steep currency devaluation. In line with the growth in revenue, operating profit for the period improved to Rs. 3.8 billion while the escalating finance costs resulted in a degrowth in earnings of 8.5 per cent.
The Healthcare Sector achieved a revenue of Rs. 15.8 billion for the quarter, a growth of 37.3 per cent over last year. During the quarter, the Sector delivered operating profit and earnings of Rs. 1.3 billion and Rs. 412.3 million respectively.
Pharmaceutical businesses continued to drive Sector performance with the implementation of proactive strategies to identify and navigate challenges surrounding increasing finance costs, limited foreign liquidity and supply chain constraints. The maturity and the readiness of the business ecosystem including principals, financial institutions and governing bodies were proven effective during the quarter in ensuring seamless supply of essential medication into the market. Amidst the challenges, the Pharmaceutical arm continued to broaden the product portfolio with the introduction of over 40 new products in various therapeutic segments including respiratory and wellness spaces.
Morison branded generics portfolio launched with the focus of making premium healthcare affordable, gained traction to post a volume-led growth. Homagama plant, the latest addition to the Morison production network, is well on track to achieve its long-term objectives. Multiple products are being manufactured in the facility while many are in the pipeline to obtain National Medicines Regulatory Authority (NMRA) approval for manufacturing.
Despite the margin pressure experienced with the shift in service portfolio under reduced surgical admissions for the quarter, Hospitals business recorded a double-digit growth in core revenue adjusted for COVID-19 related income. Efficiency improvements and savings through adaptation of a lean culture enabled the business to minimise the adverse impact of accelerating overheads.
Despite the relaxation of import restrictions, total throughput and transhipment volumes at Port of Colombo declined by
over 7.0 per cent during the first nine months due to slow down in the global economy and reduced demand in key
destinations. With the introduction of the updated carbon dioxide emission laws, shipping lines are likely to adjust the
schedules to compensate for the time lost on slowdown in the sailing speed which will have an adverse impact on global
itineraries. Aviation industry is returning to normalcy with multiple airlines which discontinued operations over the past
few months recommencing operations under improved business conditions. Passenger sector witnessed an increased
demand for both inbound and outbound travel, despite the high yields.
Improved volumes and the yields of the passenger vertical coupled with the devaluation benefit positively contributed to the 37.9 per cent growth in underlying revenue of the Mobility Sector. Consequently, the Sector posted a cumulative underlying operating profit of Rs 1.2 billion while the earnings remained flat at Rs. 655.1 million.
Underlying revenue of the Sector increased by 5.8 per cent to Rs. 384.5 million during the quarter while the operating profit witnessed a degrowth of 19.4 per cent due to decline in freight rates and cargo sector volumes.
Our Commitment to ESG
During the quarter, the Group continued to monitor its relevant social and environment topics to identify, manage and
rectify any risks and to report on its key ESG topics. The carbon footprint of the Group per million rupees of revenue
decreased by 28.6 per cent to 0.15 MT, while the water withdrawal per million rupees of revenue decreased by 31.8 per
cent to 1.5 cubic meters. The Group training hours increased by 11.5 per cent to 2.9 hours per employee.
Ensuring sustainable use of our natural resources, the Group invested in roof mounted solar panels across its locations with significant operations to offset 25.0 per cent of its electricity consumption. Hemas continued its focus on offsetting it plastic waste by extending its partnership with Clean Ocean Force for a daily plastic removal initiative at Preethipura beach. The Group addresses marine pollution through its beach caretaker and ocean strainer projects across nine locations where over 27,000 KG plastic has been collected.
The Group flagship purpose initiative ‘Say Yes to Life’- our commitment to tackle diabetes in Sri Lanka, celebrated World Diabetes Day by carrying out free testing for over 5,000 internal and external stakeholders through the Hemas Hospitals network. The Hemas Outreach Foundation successfully conducted its 21st annual Teacher Training Program in partnership with the Ministry of Women and Child Affairs attended by over 100 teachers from Piyawara pre-schools across the island.
Tackling period poverty ‘Fems Aya’ expanded its initiative to the grassroots by joining hands with Rotaract in Rotary International District 3220 and during the quarter conducted training sessions for over 2,000 women. Through the launch of ‘Diva Dathata Diriya’, the Group focused on empowering women and providing her solutions to aspire for more for themselves and their families to live a better life. During the quarter, four training sessions were conducted in our factory premises in Dankotuwa in partnership with the Women in Management. Our flagship brand ‘Baby Cheramy’ ‘Daru Patiyata Surakshitha Lowak’ parental clinics conducted in partnership Ministry of Women & Child Affairs and the support of the Ministry of Health reached over 4,500 families. ‘Atlas’ through its Light a Future initiative continued providing essential learning tool packs to children in vulnerable communities. The initiative conducted in partnership with Sarvodaya Shramadana aims to provide stationary to 100,000 children who are in danger of dropping out of school.
Challenges surrounding the domestic economic crisis including soaring inflation, elevated interest rates, adverse impact
of all time high tax rates on disposable income, together with global economic pressure will present even greater
challenges to businesses and communities. Against this backdrop, implementation of timely liquidity and working capital
management initiatives will be prioritised as the Group continues to invest on growth and new markets. Hemas will build
on the foundations put in place over the last seven decades to future-proof the Group and remain resilient, contributing to
the economy with continuous employment opportunities and product offerings.
Ongoing focus will be placed on strengthening the core portfolio while investing in research and development capabilities to cater to the ever-evolving needs of the customers. The Group will invest in opportunities for value addition through our ecosystem partnerships in the Consumer and Healthcare spaces while maintaining an optimum risk profile to deliver balanced growth. Internationalisation and expanding the export portfolio will remain a key priority as the Group seeks to increase long-term value creation while empowering families to live a better tomorrow.