The financial year 2019/20 has been the most challenging in the 70 year history of the Hemas Group with performance impacted by the aftermath of the Easter Sunday 2019 terrorist attacks coupled with the Covid-19 pandemic during the second half of March 2020.
This has resulted in the group recording a consolidated revenue of Rs.61.6 billion for year ending March 31, 2020, 3.8% lower than last year. Operating profits for the financial year stood at Rs.3.6 billion, a YoY decline of 37.1%, according to the review (contained in the annual report) of Group CEO Steven Enderby released to the media on Thursday.
The following are excerpts from his review:
During the year, the group continued its recovery from the aftermath of the Easter Sunday crisis with post-tax profits of Rs.1.7 billion for the second half of the financial year, compared with the loss of Rs.298 million reported in the first half. This is despite the impact of COVID-19 on March 2020 performance. This improvement has been driven by our core Consumer and Healthcare businesses. When adjusted for the divestment of N*able in July 2019 and Travel and Aviation interests in March 2020, Q4 FY 2019/20 underlying revenue and operating profit grew by 2.0% and 3.5%.
The group continues to show the same resilience as we respond to the COVID-19 pandemic with our Consumer and Healthcare businesses, which account for more than 90% of revenues and profits, showing month on month recovery in Q1 20/21. The group has taken multiple measures including, engaging high quality medical and public health advice, social distancing, provision of protective equipment and working from home to safeguard the health of our employees and ensure compliance with directives issued by the Government of Sri Lanka.
Consumer
During the first two months of Q4, our Consumer businesses performed well with strong demand across all categories. Consumer spending experienced good growth with increased consumer confidence and improved disposable incomes driven by tax cuts. However, this encouraging performance was impacted by the Covid-19 outbreak in March and the nationwide lockdown bringing sales to a virtual standstill in the last two weeks of March 2020. This resulted in sales in anticipation of the Sinhala and Tamil New Year being depressed. As a result, revenue across the consumer segment fell by 22.4% compared with Q4 last year. The drop in revenue was mainly attributable to Home and Personal Care International segment and Atlas. However, operating profit grew by Rs.157.5 million over Q4 last year.
For the full year, our Consumer businesses experienced a sharp contraction in the first two quarters following the Easter Sunday attacks and a strong recovery in Q3 and Q4 until the nationwide lockdown in March. As a result, Hemas consumer sector recorded a full year revenue of Rs.23.8 billion, a YoY decline of 6.8%, with sector profits of Rs.1.9 billion, a drop of 30.5% over last year.
Healthcare
Healthcare sector recorded Q4 revenues of Rs.8.9 billion, a YoY growth of 23.7%. Operating profit was impacted by the adoption of SLFRS16 and the VRS costs at Morisons warehouse.
The financial year closed with the sector recording a consolidated revenue of Rs.31.4 billion, a YoY increase of 13.4%. Operating profit grew by 3.6% whilst earnings declined by 6.5%. Our pharmaceutical distribution business registered satisfactory performance due to the price increase on price-controlled pharmaceuticals in May 2019 and the onboarding of a new significant principal in the nutrition segment during the quarter.
Leisure, Travel and Aviation
Hemas Leisure, Travel and Aviation business performance declined with full year revenues and earnings down by Rs.1.4 billion and Rs.479.8 million compared to last year. Although month-on-month recovery in tourist arrivals was faster than anticipated, arrivals in the fourth quarter of FY 2019/20 declined due to global travel advisories in the wake of the COVID-19 pandemic. This led to a 32% shortfall in tourist arrivals during Q4 compared to last year.
Serendib Group of Hotels recorded a revenue of Rs.1.6 billion, a 22.1% decline over last year with an average occupancy of 73% across its hotels during the quarter, 18% below the occupancy achieved in the same quarter last year. Rates across all properties were reduced in order to boost occupancy. This led to a drop in profitability during the peak season.
Mobility
Hemas Logistics and Maritime recorded a revenue decrease of 17.8% over last year, with revenues of Rs.2.3 billion as at March 31, 2020. New business volumes in our Spectra distribution centre have built up more slowly than planned. In maritime, due to weakened local economic conditions and global slowdown, year-to-date throughput has declined. Slowdown in transshipment volumes and movement in the export sector coupled with import restrictions have resulted in depressed revenues in the maritime segment.
Future Outlook
The impact of the pandemic on the group revenues and profitability has been negative, both in the last few weeks of FY 2019/20 and continuing into FY 2020/21. Cost cutting and cash conservation measures to protect the businesses have been initiated. We have deferred capital expenditure, curtailed discretionary spending and instituted salary cuts at senior levels in the Group and in Group businesses with very low revenues. Each business is executing detailed plans to rebuild demand and supply of key products and services and to conserve cash and contain costs. While the forecasted liquidity position of the Group is satisfactory, undertaking proactive steps will enable us to maintain a stronger balance sheet and facilitate a smoother and faster recovery trajectory.
We will continue to invest behind our core portfolios, while also adapting to shifts in consumer behavior that have been brought about by this unprecedented crisis. We believe increased consumer consciousness towards health and hygiene is an opportunity for Hemas. We will continue to innovate with existing and new brands to meet these emerging consumer needs, while aggressively focusing on cost management and cash conservation in order to navigate through these challenging times.
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