Hemas’ core sectors resilient in 1Q22/23, delivers strong performance

Hemas Holdings PLC (HHL) continued to be resilient amidst challenging macroeconomic conditions to post a group revenue of Rs. 24.8 billion in Q12022/23, an increase of 51.4 per cent over same period last year.

Whilst the COVID-19 pandemic had minimum impact on the quarter under review, continued economic pressure hindered the Group performance, with Sri Lanka facing its worst economic crisis since independence, Group CEO Kasturi C. Wilson said in her quarterly review.

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 defensive core sectors resulted in a growth in revenue of 17.7 per cent for the Group against last quarter. Consumer and Healthcare Sectors contributed to improved earnings of Rs 1.1 billion, a growth of 69.5 per cent against last year and 1.6 per cent 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 billion compared to Rs. 1.1 billion recorded last year and Rs. 1.5 billion reported last quarter.

Consumer Brands

Soaring inflation has led to a shift in consumer behaviour, and customer purchase decisions were weighted towards affordability instead of brand loyalty. The industry also witnessed value growth while the corresponding volume recorded a degrowth (shrinking) 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 been considered a non-essential item continued to the quarter under review, according to the 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 per cent, 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 currency faced marginal depreciation pressure. However, Bangladesh remains a highly attractive investment hub with double digit growth in export earnings and above average growth expectations.

Home and Personal Care

Both the modern and general trade channels witnessed a double-digit growth across personal care, personal wash, and laundry verticals. During the quarter, multiple products were launched improving Hemas’ innovative and strategic position in the market.  Understanding the shift in consumer behaviour, pack size choices were introduced for many key brands including ‘Diva’ and ‘Baby Cheramy’ providing the customers an affordable alternative amidst the increasing inflationary pressure. All launches and relaunches of key brands gained traction despite the adverse market conditions resulting in over 10 per cent contribution to the revenue. 

Foreign exchange liquidity pressure continued to adversely impact the supply chain.

Healthcare

The state Healthcare sector was adversely affected with shortage in medicine supply, amidst constraints on government spending on healthcare due to lower forex liquidity. The country relied heavily on donations and credit lines for essentials for supplies, whilst prioritising requirements for urgent critical surgeries. Despite the lower spread of COVID-19, a surge in cases was witnessed in early July 2022.

Hemas Healthcare sector recorded a revenue of Rs. 15.7 billion, a growth of 49.9 per cent over last year.

Pharmaceuticals

The Pharmaceutical business of the Group delivered a steady performance during the quarter leading to a double-digit year-on-year revenue growth of 57.5 per cent. Price increases introduced in March 2022 were followed by further adjustments in April 2022 due to the industry facing immense pressure amidst steep rupee depreciation.

Outlook

Although a contraction is being witnessed across all consumer segments, in the short to medium term Group 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.