Sri Lanka’s Hemas Group revenue exceeds Rs. 24 billion for 1Q22/23.
The Morning: Hemas Holdings PLC (HHL) stated it continued to be resilient amidst challenging macroeconomic conditions to post a group revenue of Rs. 24.8 billion, an increase of 51.4% over the same period of last year.
“I am extremely proud of our collaborative nature that brings all internal and external stakeholders together as one team to create meaningful relationships and synergies to strengthen the group’s drive in helping rebuild the economy in the months to come,” said HHL CEO Kasturi C. Wilson.
Hemas stated it unlocked group synergies and remained agile and resilient to deliver exceptional results amidst a challenging environment. The operating environment will continue to be challenging in the next few months, and from a national perspective, arriving at a staff level agreement with the International Monetary Fund (IMF) will be a key priority, it added. With a clear strategic focus in place and resilient core sectors, Hemas stated it is equipped to battle the upcoming challenges, while prudent and pre-emptive liquidity management measures are in place to further strengthen the cash position of the group.
Although a contraction is being witnessed across all consumer segments, in the short to medium term, Hemas stated, its focus will be to drive market share improvements by continuing to cater to the ever-evolving needs of consumers. The group will also continue to invest in research and development capabilities in both consumer and healthcare spaces to fulfil the changing needs of the nation.
Internationalisation and expanding its regional footprint will also be a key focus area for both home and personal care and learning segments, while digitisation, efficiency improvement, and prudent cost management will be integral pillars of strengths across the group in the coming months.
Whilst the Covid-19 pandemic had minimal impact on the quarter under review, continued economic pressure hindered group performance, with Sri Lanka facing its worst economic crisis since Independence. Lack of foreign exchange liquidity resulted in challenges to access essentials such as fuel, food, and medicine. The country also defaulted its external debt obligations, resulting in the downgrading of the country’s long term credit rating to a “Restricted Default”. Steep currency depreciation, volatile global commodity prices and supply chain disruptions further challenged the businesses resulting in a significant increase in headline inflation. Consequently, an increase in civil unrest and political instability was witnessed in comparison to the previous quarter.
Despite the macroeconomic challenges, continued strategic focus on Hemas’s defensive core sectors resulted in a growth in revenue of 17.7% for the group against last quarter. The consumer and healthcare sectors contributed to improved earnings of Rs 1.1 billion, a growth of 69.5% against last year and 1.6% against last quarter. Group-wide synergies and customer-centric new product launches and line extensions coupled with effective savings through collaboration with all stakeholders, improved lean initiatives and digital transformation projects drove the performance for the quarter. Operating profit for the quarter stood at Rs. 2.0 billion compared to Rs. 1.1 billion recorded last year and Rs. 1.5 billion reported last quarter.
In June 2022, both the Colombo Consumer Price Index (CCPI) and the National Consumer Price Index (NCPI) increased for the ninth consecutive month, a growth of 54.6% and 58.9% respectively on a year-on-year basis. Soaring inflation led to a shift in consumer behaviour, and customer purchase decisions were weighted towards affordability instead of brand loyalty. Industry also witnessed value growth while the corresponding volume recorded a degrowth across all verticals. Both basket values and footfall to stores recorded higher values with increased prices and customers opting for multiple visits for the same basket of items.
An increase in trader and consumer stock up for the back-to-school season coupled with lower availability of imported products improved the market demand for locally manufactured stationery items. Subsequent school closures towards the latter part of the quarter had minimal effect on demand. Teacher engagement on online platforms reduced with less concentration on grades that are not exam focused, adversely impacting the e-learning momentum amongst school children. Further, the challenges of rising paper prices accompanied by difficulties in accessing foreign exchange for imports with paper being considered a non-essential item continued to the quarter under review.
The operating environment of Bangladesh experienced challenges with the rising inflation since mid-last year coupled with a quarterly trade deficit. Both food and non-food inflation rose over 7%, adversely impacting the disposable income levels. With the country’s slow phased vaccination drive, a rise in Covid-19 cases and related deaths were witnessed towards the latter part of the quarter. On the back of a visible slowdown in worker remittances and increased import payments, Taka faced marginal depreciation pressure. However, Bangladesh remains a highly attractive investment hub with double digit growth in export earnings and above average growth expectations.
The consumer brands sector recorded a revenue of Rs. 8.7 billion, an increase of 62.7% over last year driven by improved performance of all business units. Hemas’s purpose-led core portfolio and extensive value adding new product launches collectively resulted in increased market share across multiple categories. Expansions made in its overseas footprint in both home and personal care and learning segments resulted in a 74.2% growth in year-on-year export and international revenue. Consequently, the sector reported an operating profit of Rs. 704.3 million and earnings of Rs 499.0 million, a growth of over 100% over last year, stemming from the revenue growth and efficiency improvements. However, the sector witnessed a 15.2% decline in operating profit against last quarter with the slowdown in seasonal revenue of the learning segment and overall input cost pressure on margins.
Foreign exchange liquidity pressure continued to adversely impact the supply chain. Global commodity prices affected the margins leading to a margin erosion despite implementing cost saving initiatives and efficiency improvement projects to negate the adverse impact. Cautious price adjustments were also made during the quarter in line with the market.
OSL take:
The impressive revenue recorded by Sri Lanka’s Hemas Group is indicative of the overall strength and growth of the country’s private sector. It also shows Sri Lanka’s economic resilience despite facing many challenges including a global pandemic and the increasing business potential in the key economic sectors in the country. Sri Lanka’s geographical positioning in the Indian Ocean and the strong trade ties enjoyed by the country have also helped boost business and trade opportunities in the country. The local authorities are also engaged in various promotional activities to woo foreign investors to the country while also working to improve the country’s standing in the ease of doing business environment Index. The country’s development programme has also presented many business/investment opportunities. However, given the overall economic activities and increasing business potential in the country, foreign businesses/investors could explore opportunities in Sri Lanka while also looking at the possibility of forming partnerships or joint ventures with local businesses to expand operations.
| Article Code : | VBS/AT/25082022/X_3 |