HEMAS HOLDINGS PLC Hemas Holdings PLC | Interim Report 2022/23 - Q2
Financial Year 2022/23 - First Six Months Performance
Chief Executive Officer's Review
Amidst the macroeconomic headwinds, Hemas Holdings delivered a robust performance for the first six months through value creating relationships and execution of prudent strategies, to post a cumulative Group revenue of Rs.
- billion, a growth of 43.4 per cent over last year. Group operating profits of Rs. 4.7 billion recorded a growth of
- per cent over previous year, whilst the Group earnings of Rs. 2.2 billion is an increase of 41.1 per cent.
Macroeconomic pressures continued to impose challenges leading to high interest rates, multiple proposals to change the tax structure, lower liquidity in foreign currency, disruptions to power supply and scarcity of essentials. Soaring inflation of over 70 per cent, pushed a greater portion of the population below the poverty line, hampering the purchasing power of the consumers.
Financial Snapshot
FY23 Q2
The Group posted a revenue of Rs. 27.1 billion for the quarter, a growth of 36.8 per cent over same period last year driven by defensive core sectors and improved performance of key focus areas including international business and exports. Despite the margin pressure witnessed with high input costs and supply chain
challenges, the operating profit for the quarter Rs. 2.7 billion was an increase of 74.1 per cent against last year in which pandemic driven disruptions to businesses were present. The same growth momentum was not translated to earnings due to significant increase in finance cost resulting from increased borrowings to fund working capital. Group earnings stood at Rs. 1.2 billion, an increase of 21.9 per cent over last year.
Consumer Brands
Inflationary pressure witnessed over the previous quarters worsened during the quarter to reach a year-on-year NCPI growth of 73.7 per cent in September 2022. Reduction in purchasing power reduced market volumes as buying patterns were skewed towards affordable alternatives. Volumes continued to decline across all verticals where the value growth was primarily driven by price increases in key markets. During the quarter, global commodity prices witnessed a declining momentum in comparison to the preceding quarter.
Demand for stationery items was lower in July 2022 with many schools being closed due to fuel shortages. However, the same was improved during the latter months with both the schools and other educational institutes being reopened and traders increasing inventory levels for the 2023 back to school season. Market sentiments on possible shortages and price increases resulted in high income earning consumers to increase purchases while rest of the groups curtailed consumption to a certain extent. On the back of the pricing pressure customers deprioritised non- essential stationery items including colour products, bags, and bottles.
The surge of COVID-19 cases with the spread of the Omicron virus resulted in the Bangladeshi economy being further challenged with rising decade high inflation and the depreciating domestic currency. However, both the World Bank and Asian Development Bank have forecasted that the economy will grow by over 6 per cent, one of the highest for South Asia for 2022.
Cumulative revenue for the Consumer Brands Sector witnessed a 47.1 per cent growth over last year to reach Rs.
18.8 billion during the period. Revenue from the international vertical improved by over 6 per cent against last year with the increased focus for exports in both Home and Personal Care and Learning Segments. Operating profit, for the period stood at Rs. 1.9 billion a growth of over 100 per cent against last year resulting from the revenue growth and cost optimisation initiatives. Investments made for increasing working capital requirements limited the earnings growth to 53.2 per cent over last year.
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The Sector reported a revenue of Rs. 10.1 billion for the quarter, a growth of over 35 per cent against last year. The operating profit and the earnings grew by 81.2 per cent and 23.8 per cent against last year to reach Rs. 1.2 billion and Rs. 616.1 million respectively. Improved performance of the Learning Segment contributed to the 16.1 per cent growth in Sector revenue on a quarter-on-quarter basis.
Home and Personal Care
Demand contraction witnessed in the market was partially translated into the business leading to a double digit decrease in volume. Given the inflationary pressure, affordable pack size choices introduced to the market in the previous quarter under key brands including 'Diva', 'Dandex' and 'Baby Cheramy' gained traction. In line with the same sentiment, multiple products were introduced during the quarter including 'Shield' 50g sachet and 'Velvet' cutie 70g variant. Revenue from new products contributed to over 10 per cent of the total revenue.
Despite the global prices of key commodities showing a declining momentum, margins were under pressure during the quarter due to the lag effect.
Learning
Continued efforts in improving brand equity via increasing awareness and customer engagement for 'Atlas' and 'innovate' have been proven effective with the brands gaining market share and volume gains despite the industry wide challenges. Greater focus on the portfolio accompanied by multiple strategic rationing techniques across the distribution network ensured the island-wide availability of essential supplies at reasonable prices.
In line with the strategic objectives to expand the scope of the Learning Segment, 'Learn' a wholistic ed-tech solution was launched with an aim of creating a trusted platform for curriculum development and lesson planning.
Consumer Brands International
Increased traction around the new launches 'Eva by Kumarika' and 'Actisef' resulted in an 18.6 per cent contribution to the total Home and Personal Care International revenue against the 9.2 per cent recorded last year. However, in line with the market contraction in the value-added hair oil market, business witnessed a marginal volume degrowth during the period.
Healthcare
Sri Lanka successfully contained the spread of the COVID-19 virus with the economy having minimal impact from pandemic driven disruptions during the quarter. However, the challenges around foreign exchange liquidity saw the Healthcare Sector continuously relying on both international credit lines which effectively increases the cost to the country and donations to combat the shortage of essential medication and health products.
Deteriorating purchasing power and product unavailability resulted in an overall volume contraction in the pharmaceutical market. The contraction was much higher for price elastic therapeutic segments including vitamins and nutrients.
The revenue for the first six months for Hemas Healthcare Sector stood at Rs. 32.2 billion, a growth of 45.1 per cent over same period last year. Despite the high growth in revenue, earnings for the period remained flat due to high interest costs and steep devaluation of currency. Multiple price adjustments approved by the National Medicines Regularity Authority (NMRA) partially compensated for the steep currency depreciation.
The Sector posted a revenue of Rs. 16.5 billion for the quarter, a growth of 40.9 per cent over last year. On a quarter- on-quarter basis, the growth of 5.4 per cent was collectively driven by all three business verticals: Hospitals, Pharmaceutical Manufacturing and Pharmaceutical Distribution. During the quarter operating profit and earnings recorded a growth of 40.0 per cent and a marginal degrowth of 3.1 per cent to reach Rs. 1.4 billion and Rs. 713.8 million respectively.
Hemas Holdings' DigiHealth, which aims to bring affordable and quality healthcare to the most vulnerable communities in rural Sri Lanka was recognised globally recently, when we were shortlisted at the FT/IFC Transformational Business Awards 2022 by Financial Times and International Finance Corporation.
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Pharmaceuticals
The Pharmaceutical Business of the Group lead the revenue growth of the Sector with multiple price adjustments implemented over the previous quarters being fully realised during the period.
Hemas Pharmaceuticals introduced 18 new products into the market including medication used in anti-cancer and blood thinning spaces that are categorised as critical illnesses. Hemas continued to partner with world renowned principals, trusted financial institutes and regulatory bodies to ensure continuous supply of medication in the hour of need.
Marking a milestone in the local pharmaceutical industry, Morison expanded its branded generics portfolio with the introduction of 'Bisoprolol' 5 mg 250s tablet, the first locally manufactured tablet of its kind targeted for high blood pressure. Following the four successful launches of Morison own brands portfolio, Bisoprolol will be supplied to the state healthcare system, a reflection of the Business' commitment to support the nation in making affordable healthcare accessible to all. The quarter saw a significant improvement in buyback revenue with Morison securing multiple tenders under the programme. However, the need for an equitable allocation mechanism remains a key imperative. The developments of the Homagama factory are progressing well with multiple initiatives driving operational savviness.
Hospitals
The core revenue witnessed a double-digit growth during the quarter with improved in patient and surgical admissions at high occupancy levels. Timely adaptation of customer centric strategies assisted the Hospitals to attract and retain patients who are shifting from Government medical schemes to private medical care amidst the challenges faced by the state healthcare system.
Mobility
Ongoing restrictions on imports and the challenges in the global supply chains resulted in total throughput and transhipment volumes of the Port of Colombo to experience a decline of 6.5 per cent and 4.5 per cent respectively. Subdued demand in Western markets resulted in an escalated decline in global freight rates during the quarter. Yields of the aviation industry remained elevated during the period which partially negating the adverse impact of the decline in volume. One-way travel from Colombo resulting from worker, student and migrant traffic continued to drive the passenger sector volumes.
Cumulative underlying revenue for the Mobility Sector grew by 57.9 per cent to reach Rs. 912.5 million with improved performance from the Maritime and Aviation verticals. Collective impact of increased yields of the Maritime and Aviation Businesses and the currency devaluation benefit resulted in a 97.5 per cent growth in the underlying operating profit for the first six months.
During the quarter, the Sector reported an underlying revenue of Rs. 468.6 million, a growth of 62.7 per cent over last year and a marginal increase of 5.6 per cent over last quarter. In line with the growth in revenue, operating profits and earnings for the quarter witnessed a growth of over 100 per cent to reach Rs. 500.1 million and Rs 341.4 million respectively.
Our Commitment to ESG
During the quarter, the Group's carbon footprint per million rupees of revenue decreased by 41.7 per cent to 0.1 MT while the water withdrawal per million rupees of revenue decreased by 33.3 per cent to 1.6 cubic meters. The Group training hours increased by 14.2 per cent to 3.2 hours per employee.
The Group launched its Environmental Agenda 'Haritha Mehewara', a long-term commitment to protect and conserve the island's critically endangered endemic species through necessary actions and interventions. As a part of this agenda, Hemas will partner with Wildlife and Nature Protection Society (WNPS) to protect 52 critically
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endangered endemic species. In addition, Hemas' partnered with Clean Ocean Force to safeguard Negombo's threatened eco system where an estimated 350 to 500kgs of PET bottles will be removed, along with another 100kgs of other plastics, cans and pollutants through a weekly and bi-weekly plastic removal initiative.
Our social commitment to champion inclusivity and eliminate inequality continued with the Hemas Outreach Foundation beginning construction of its 61st Piyawara pre-school in the Ampara District. Our flagship brand Baby Cheramy celebrated 60 years with the launch of its parental education programme 'Daru Patiyata Surakshitha Lowak', where 30 clinics have been planned with the association of the Ministry of Women & Child Affairs and the support of the Ministry of Health. The Kumarika purpose project 'Sonduru Diriyawanthi' celebrated one year of impacting lives and continued its efforts to provide 6,000 natural hair wigs and care packs to 10 cancer hospitals around the island.
The Group continued its efforts to ensure a social security net is built for the most vulnerable communities through necessary interventions and initiatives. Hemas partnered with Lifeline Sri Lanka, a partnership between UNICEF and Rotary International to ensure children and families across the nation have access to lifesaving medicines, drinking water, education materials and other critical supplies.
Outlook
While the country is making some progress towards economic restoration, a comprehensive strategy on expenditure rationalisation, along with an agreement with creditors is crucial to receive the International Monetary Fund's $2.9 billion extended fund facility and unlock more funding in the years to come. In the interim, protecting the vulnerable communities is critical as Sri Lanka adopts aggressive reforms to navigate the economic crisis. In collaboration with authorities, the Group will continue to support those most in need as it fulfils its corporate responsibility in supporting the nation.
We expect the economic pressure and uncertainty to be heightened in the quarters to come. Nevertheless, Hemas will continue to focus on the strategic pillars that enabled the Group to sustain and deliver balanced growth during pressing times. Backed by a resilient core portfolio and the extensive innovation pipeline to cater to changing consumer needs, volume driven market share gains will be prioritised by all businesses in the short-medium term.
Regional expansions via internationalisation and exports will be a key focus area. On the back of the hyper inflationary environment, strategies on strengthening the Group's liquidity position via effective working capital management, increase in digitisation efforts, realising of Group wide synergies and implementing efficiency improvement initiatives will be further integrated into the business operations.
The passion and competence of the team at Hemas is the backbone behind the success of the Group. As we look forward into the future, we are positive that the Group is well positioned to steer though the near-term challenges and continue to create value whilst fulfilling our purpose to ensure every family has a better tomorrow.
Kasturi C. Wilson
Group Chief Executive Officer
November 8, 2022
Colombo
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Hemas Holdings plc published this content on 08 November 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 08 November 2022 11:33:38 UTC.
