Financial Times

Rising inflation to hit Hemas consumer business
By Duruthu Edirimuni
Hemas Holdings Ltd. (HHL) has said it faces a challenging second half on the back of rising inflation which is expected to hit its consumer business although the power and leisure sectors are expected to do well. The group continues to maintain market leadership in their healthcare sector, Chief Executive Officer Husein Esufally, said.

"The healthcare sector showed strong performance during this half year, recording a turnover growth of 31 percent to one billion rupees while profits grew by 48 percent to Rs. 42 million," he said, adding the surgical business was spun off into a different unit in order to provide better focus.

However, consumer spending is seen being curtailed by the rising cost of living. HHL's personal care sector recorded a turnover growth of seven percent to Rs. 1.5 billion, while profit grew 37 percent to Rs. 176 million.

"This sector performed in a stagnant market," Esufally said, adding the group had entered into the feminine hygiene category through the acquisition of 'Fems' brand from Maxims Group. This brand yields Rs 300 million annual turnover with an 18 percent market share. The group exited from the distribution agreement with Proctor & Gamble (P&G) since it was mismatched with their personal care sector strategy.

Many analysts said a growth on both these sectors will be hit hard due to high inflation. However they feel this will not hamper their profits for the balance half of the year as HHL is counting on power, leisure and travel sectors to steer growth.

Esufally said the Heladhanavi power project profits will start kicking in for the second half of the year. "Commercial operations commenced early October, two months ahead of its scheduled start," he said, adding that a short-term power purchase agreement was entered into with the Ceylon Electricity Board (CEB).

The leisure sector recorded a Rs. 13.4 million profit for the first half, down by 55 percent to that of last year, but HHL has plans to cash in on the thriving tourism sector for the second half. Turnover on this sector grew by 37 percent to Rs. 210 million.

Esufally, commenting on their stance for the second half, was upbeat on the leisure sector, announcing a high-end boutique type resort combined with residential villas on a 43-acre estate in Tangalle named the Peace Haven.

"It will be operated by an internationally renowned brand," Esufally said, adding the group is in talks with several parties and currently Horwath Asia Pacific is carrying out some market feasibility studies on the land. The investment for HHL's leisure sector totals Rs. 100 million, including those of Serendib Group and Lihiniya Surf.

Esufally said their numbers for winter 2004/05 will be boosted on the TUI Nordic account Hemas has secured from Aitken Spence. The Nordic sector of TUI, a foreign tour operator, brings business from Scandinavia.

"This is expected to bring in 5000 tourist arrivals for the balance half of the year," Esufally said. He said current growth trend in transportation and growth in both passenger and cargo businesses is expected to continue towards the end of the year.

Esufally said the group's strategic partnership with EFI, the general sales agent for Alitalia and Kenyan Airways, will help the transportation sector augment its growth.

HHL has a 50 percent stake in EFI. The partnership with BTI, a travel management company focussing on corporate travel, is expected to strengthen HHL's market share in the corporate travel segment. HHL industry segment group earnings recorded net profit of Rs. 257.7 million, losing 1.1 percent over the corresponding period of 2003/4.

Back to Business