Hemas Holdings PLC (HHL) recorded a Group revenue of Rs.57.7 billion, an increase of 20.5 percent over last year.
The underlying cumulative operating profit of Rs.4.9 billion, excluding all disposed entities, reported an increase of 4.3 percent over last year in spite of profitability pressure experienced across most parts of the business due to input cost inflation and challenges around foreign exchange liquidity. Underlying Group earnings excluding dividend tax stood at Rs. 3.3 billion, an increase of 7.2 per cent over last year.
During the quarter, Group revenue grew by 21.9 per cent over last year. The Group underlying operating profit and earnings of Rs.2.3 billion and Rs. 1.3 billion saw a year-on-year increase of 5.7 per cent and 2.4 per cent respectively. The Group’s Healthcare businesses, in particular, contributed to the improved performance.
The Group divested its interest in Spectra Logistics for a total consideration of Rs.1.3 billion in October 2021 and the gain realised in the sale amounted to Rs.295.3 million.
Consumer Brands
The pandemic coupled with the macroeconomic headwinds continued to influence consumer behaviour, sales mix and market channel dynamics. As we experienced lower infection rates, the quarter under review was a near ‘normal’ quarter with minimal disruptions to trade and operations. With the rising inflationary pressure, basket value was skewed towards food and essentials, impacting shopper patterns for non-essential items. The quarter continued to witness escalation in commodity prices by over 50 per cent against last year. Global supply chain disruptions coupled with import restrictions in Sri Lanka underpinned by forex liquidity challenges exerted pressure on profitability margins .
Operating conditions in Bangladesh improved during the first two months into the quarter. However, daily COVID infection rates were rising towards the latter part of the quarter.
During the quarter, all schools were reopened, and the three-month prolonged trade union strike was called off by the teachers and principals. Further, tuition classes were allowed to operate with a 50 per cent capacity for O/L and A/L classes. As a result, the quarter witnessed an increased demand.
The Consumer Brands sector recorded a cumulative revenue of Rs.22.5 billion, a growth of 17.0 per cent over last year. However, sector cumulative earnings of Rs.1.6 billion witnessed a year-on-year decline of 14.8 per cent due to profitability pressure as stated above.
Home and Personal Care
HPC Sri Lanka delivered a steady volume-led growth across both modern and general trade channels compared to last year. Similarly, the recent launches and relaunches have been gaining good traction. Cumulative revenue from new launches stood at 16.1 per cent over 13.5 per cent recorded last year.
Sector profitability continues to be impacted due to steep increases in raw material cost along with cost impact due to foreign exchange liquidity pressures. In an ongoing effort to reduce the burden to consumer from the inflationary impact, we have adopted multiple strategies whilst continuing to prudently manage cost to recover margins.
Learning Segment
Atlas Axillia continued to gain market share across all key categories including books, school and colour products over last year with double digit volume growth through premiumization by way of design and technology. Market share within the premium books category was doubled with the relaunch of the Innovate Brand.
Healthcare
Market demand for healthcare services and medicines experienced a sudden surge with the COVID cases escalating. More outpatient visits were registered as restrictions on mobility eased across the island. Medical tourism witnessed improved performance with borders opening up and more patients opting for elective surgeries. Further, acceleration of digital adoption across the healthcare sector saw an increase in demand for digital healthcare platforms.
The Sector reported a cumulative revenue of Rs.33.7 billion, a growth of 23.7 per cent over last year whilst sector profit of Rs.2.7 billion was a 21.2 per cent growth over last year.
The Sector posted a revenue of Rs.11.5 billion whilst operating profit and earnings stood at Rs.886.7 million and Rs.651.5 million respectively for the quarter. Performance was broad based with all sectors growing competitively over last year. The growth in profitability was primarily driven by the robust performance in Hospitals. However, profit margins continued to be impacted due to challenges around forex liquidity.
Pharmaceuticals
Pharmaceutical businesses delivered a stable revenue growth year to date. Price controls on medicine coupled with scarcity in foreign exchange reserves have hampered medicine imports into the country. This has led to medicine supply shortages within the industry whilst adding to profitability pressure.
Additionally, reduction in buy back volumes compared to assigned quantities under the guaranteed buy back agreement with the Ministry of Health Sri Lanka, continued to impact the overall performance. Excluding buyback agreements, Pharmaceutical manufacturing arm, Morison reported a steady cumulative growth of 35.2 per cent in revenue, driven by increased private market sales.
Whilst we urge the government to lay out a strategy for equitable allocation of buy back on local manufacturers, we are looking at opportunities to accelerate contract manufacturing, exports and other alternative opportunities to de-risk Morison from the volatility of the buyback agreements.
Due to the challenges in the operating environment in Myanmar, we have entered into a sale and purchase agreement with our joint venture partner to sell HHL’s stake in Myanmar. As a result, we will be exiting the operations in Myanmar, effectively from the fourth quarter onwards.
Hospitals
Hospitals witnessed an average increase in admission volumes by 10.6 per cent over last year for the first nine months.
The third quarter of the year saw robust growth as the focus on non-COVID-19 patients was increased, especially Non Communicable Diseases (NCDs), which pose a substantial risk to the health of the people. Further, an outbreak of dengue was another contributor to the increased admissions during the quarter.
Thalawathugoda and Wattala recorded an overall occupancy of 66.7 per cent and 61.3 per cent respectively for the quarter. Additionally, demand for diagnostics experienced a surge in volumes in our laboratory network. Increased surgical admission volumes further strengthened the EBITDA margin by registering a growth of 10 percentage points against last year.
Maritime business faced challenges as vessels continued to skip Sri Lanka to recover the schedules. Year-to-date adverse impact of the volume drop was partially negated by the accelerated freight rates witnessed globally.
The Aviation Cargo business continued its robust performance, while the Passenger arm of the Aviation business saw significant improvement during the quarter with Dubai gaining traction as a tourist destination and European Union relaxing immigration rules for students travelling for educational purposes.
Mobility Sector posted a cumulative revenue of Rs.1.5 billion, a growth of 9.0 per cent against FY 2021, whilst the underlying revenue, excluding logistic operations grew by 34.8 per cent to Rs. 940.5 million. Similarly, the overall earnings and underlying earnings increased by over 100 per cent to reach Rs. 667.0 million and Rs. 392.2 million respectively against same period last year.
During the quarter, underlying revenue grew by 49.8 per cent to Rs. 363.0 whilst underlying earnings stood at Rs.192.1 million.
Following the divestment of HHL’s interest in Spectra Logistics in October 2021, Mobility sector will continue to focus on the logistics segment, in a model which enables us to leverage on existing capabilities.
Our Commitment to ESG
During the quarter the Group’s carbon footprint per million Rupees of revenue decreased by 12.5 per cent and water withdrawal per million Rupees of revenue decreased by 4.3 per cent over last quarter. Group companies will continue to work towards reducing their environment impact by striving to achieve its established Environmental Goals which mandates a reduction in energy and water consumptions. In line with the Group strategy to reduce our carbon footprint, businesses with significant operations have started the process of moving towards greater utilization of renewable sources of energy
As a part of our partnership with the Ministry of Environment’s initiative “Not a Rule but a Discipline”, Group facilitated the placement of over 2,000 recycling bins at Government institutions and schools to collect disposable plastic pens and toothbrushes. The expected collection of this initiative is approximately 90,000 kg of plastic waste per year. Doing our part to ensure a healthier nation, the Group launched ‘Say Yes to Life,’ a campaign to create awareness and support the early management of diabetes in our communities. The Group also tied up with the Ministry of Health to screen and stratify diabetics among Sri Lankans of all ages in line with World Health Organization guidelines.
Outlook
Against a challenging operating environment, I am encouraged by the progress we have made in the first nine months into the year.
In the near-term, the operating environment will continue to remain challenging. In this scenario, we will manage our business with agility, and continue to grow our footprint whilst maintaining our focus in managing margins. We remain confident of the medium to long term potential of the Consumer and Healthcare sector in Sri Lanka and Hemas’ ability to deliver a consistent growth. Further, we continue to invest in uplifting digital capability within the organisation.
Further, we strengthened the focus in continuing to expand our footprint beyond Sri Lanka, as we drive our internationalisation strategy.