Hemas Holdings PLC (HHL) has ended FY21 with a strong performance despite the challenges encountered in the macroeconomic environment, including the COVID-19 pandemic and the intensity of the competitive landscape.
HHL recorded group revenue of Rs. 16.6 billion for the quarter ended 31 March 2021, up 18.3% from a year earlier and operating profit grew 59% to Rs. 1.3 billion up 58.8% whilst earnings shot up by 79% to of Rs. 859.8 million.
The group recorded a cumulative underlying revenue of Rs. 64.5 billion for the FY 2020/21, an 11.3% growth against FY 2019/20, after adjusting for the disposal of Serendib Hotels PLC, Travel and Aviation segment and N*able.
Similarly, the cumulative underlying group operating profit of Rs. 6 billion for the year was a year-on-year increase of 56.2% over FY20’s Rs. 3.8 billion. After-tax consolidated profit amounted to Rs. 3.3 billion as against Rs. 1.3 billion in FY20.
As the group rationalised its portfolio and focused on re-energising the core, the group stepped up and delivered a cumulative underlying performance for the year that surpassed results of FY 2018/19, the most recent year in which normalcy prevailed.
HHL Group CEO Kasturi Wilson described 4Q FY21’s result as “resilient performance by delivering another strong quarter.” She added that the Home and Personal Care (HPC) and Learning segment represented by Atlas along with Healthcare were the significant contributors to the robust performance.
“Our efforts on working capital management and cost rationalisation measures were proven effective in strengthening the group’s liquidity position, which was also endorsed by Fitch ratings with the reaffirmation of ‘AAA (lka)- Outlook Stable’ rating criteria for the group,” she added.
Following is Wilson’s brief review of the sectoral performance of HHL.
The Consumer Brands sector revenue for the quarter was Rs. 5.8 billion, an increase of 43.1% over the corresponding quarter last year. Full-year revenue recorded an increase of 5.3% compared to last year due to improved performance of the HPC sector including HPC Bangladesh. This was effectively driven by underlying volume growth leading to market share improvement across all major categories within the HPC segment. However, the prolonged closure of schools which resulted in a contraction of the market had an impact on our Learning Segment, Atlas.
Continued focus on efficiency improvements resulted in the sector reporting an operating profit of Rs. 741 million for the quarter compared to Rs. 120.5 million recorded same period last year. The Consumer Brands business’s profitability margin for the quarter contracted as a result of steep exchange rate depreciation and rising inflation coupled with an increase in commodity prices.
During the quarter, changes in consumer behaviour and channel dynamics led to a slowdown in the market and basket sizes compared to the preceding quarter. Nevertheless, the shift in consumer preference towards personal hygiene and home care products continued and resulted in the group experiencing a robust year-on-year growth across all categories in the HPC Sri Lanka portfolio. During the year, HPC introduced the Baby Cheramy herbal range, Diva Power washing liquid and powder, Clogard Salt natural toothpaste and new ranges of Kumarika to the market. Further, the Shield range was expanded into new products such as sanitiser gel, sanitiser liquid hand wash. HPC Sri Lanka commenced distributorship of its new global partnership brands in the form of Nivea, L’Oréal and Garnier after a successful transitioning from Morison, with the primary objective of unlocking value through cross-functional synergies.
Our Learning segment, Atlas, experienced strong year-on-year growth during the quarter due to the gradual reopening of schools, especially in the Western Province. The company also grew its market share and profitability, positively impacting the company’s contribution to the sector. However, due to the prolonged closure of schools, the stationery market experienced a contraction in volume over last year, leading to an overall cumulative revenue decline in the performance of Atlas over last year.
Value unlock through channel excellence saw the distribution of the Over The Counter (OTC) segment of Morison moved to the pharmaceuticals distribution business. The OTC-owned brands Lacto, Gripe and Valmelix saw higher revenue and profit contribution during the quarter due to increased demand on consumer health coupled with the realisation of efficiencies through increased distribution reach. During the quarter, Morison launched Lacto Hydra Intense Cream, a specialised personal care solution to sensitive skin, a breakthrough innovation in the Lacto family, a trusted skincare partner for decades.
The Healthcare sector recorded a revenue of Rs. 10 billion during the quarter against Rs. 8.9 billion over the corresponding period last year, an increase of 12.3%. The growth in the sector was collectively driven by the Pharmaceutical Distribution and Manufacturing businesses. Cumulative revenue and earnings for the year were Rs. 37.2 billion and Rs. 2 billion in comparison to Rs. 31.4 billion and Rs. 1.4 billion reported in the preceding year.
Pharmaceutical Manufacturing business, Morison and Pharmaceutical Distribution business delivered a healthy financial performance during the quarter leading to a cumulative double-digit year-on-year earnings growth of 40.6%. Morison continued to strengthen its private manufacturing product pipeline with developments, such as Empamor, the first locally-manufactured sodium-glucose co-transporter-2 (SGLT2) inhibitor in Sri Lanka. Amidst increased exchange losses due to steep currency depreciation during the fourth quarter, both entities experienced a contraction in Operating Profit Margins, however, they both reported improved earnings owing to reduced finance costs due to improved working capital management. During the quarter, the Myanmar operation under Pharmaceutical Distribution continued to face challenges due to political uncertainty and exchange losses, impacting the profitability for the segment.
The Hospitals business witnessed positive quarter-on-quarter momentum in patient footfall. Additional revenue streams, such as mobile lab services, home care services and Kaya Intermediary Care Centre, supported revenues for the quarter. Similarly, lean initiatives and resultant cost savings partially negated the rise in costs witnessed on account of the stringent adoption of COVID-19 related health and safety protocols.
Hemas Hospitals also opened their own laboratory to test PCR samples during the latter part of the quarter. Despite challenges experienced during the first half of the financial year, annual performance caught up with an overall occupancy of 47% during the second half.
The Mobility sector reported revenue for the quarter of Rs. 734.1 million, a growth of 27.1%% over the corresponding quarter last year, and the operating profit for the quarter of Rs. 255.1 million was an increase of 12% against the previous year. Full-year revenue for the sector Rs. 2.2 billion was a decline of 20.6% over last year. Focused cost rationalisation along with the recovery of the logistics business resulted in the cumulative operating profits being recorded at Rs. 654 million, a year-on-year growth of 24.2%.
During the year under review, the Port of Colombo handled 6.8 million 20-foot Equivalent Units (TEUs) with a year-on-year decline of 6.1%. Similarly, transhipment volumes also witnessed a year-on-year decline of 4.8%. In this backdrop, the Maritime Business continued to face challenges in the quarter, with global ports being congested and vessels opting to bypass the Port of Colombo to recover the schedules, resulting in a drop in throughput.
The group’s logistics business Spectra witnessed a year-on-year improvement in terms of profits. Increased occupancy and handling volumes of both the verticals, Container Depot and Distribution Centre drove the growth in sector profitability.
In spite of the drop in passenger revenue due to restrictions in air travel, the Aviation business remained profitable on account of an increase in air cargo volumes.
The third wave of the COVID-19 pandemic is expected to further disrupt the day-to-day business operations and create uncertainty and volatility in the economic environment. Inflation and currency devaluation are expected to add pressure on the group’s profitability. However, the group will continue to focus on its strategic priorities and pursue a balanced top-line and bottom-line growth while contributing to support the Government in its efforts to rebuild the nation.
The group will remain a purpose-led organisation that anchors its strategies around enriching the lives of communities. I am extremely proud of our team, in particular our frontline workers, for bringing out the best in themselves. During challenging times, they pushed forward, while ensuring that we do our part in keeping ourselves and our communities safe. I thank our consumers and the communities in which we operate for their support, and our shareholders, for the confidence placed in us.
We begin the year in good shape amidst the third wave of COVID-19. Our different businesses are well-positioned to deliver more from our core and are confident of our ability to adapt to a rapidly changing and challenging environment, perform above market benchmarks and remain relevant and strong despite the global crisis being faced.
(FT)