Hemas
mulls acquisitions, venturing into India
By Duruthu Edirimuni and Ravi Mahendra
Hemas Holdings which went public last year and is the newest of
the diversified groups is looking to grow bigger through acquisitions,
while also considering taking some of their brands into India. Hussein
Esufally, CEO, Hemas Holdings spoke to The Sunday Times FT about
the future plans for Hemas and his views on business.
What
is the long-term strategy of Hemas? Is it limited to Sri Lanka or
will you venture abroad?
We measure our success based on creating shareholder value.
We look at our share value against the earnings per share and we
try to run our business based on adding value to the shareholders.
In a broad perspective that is our ultimate goal. We have four sectors,
personal care, healthcare, leisure and transportation. Venturing
abroad stems more from the fact that we have competitive advantage
in these sectors. We are not very successful up to now in venturing
abroad, but we are certainly looking at India and the region.
When
we consider the brands, it is an extremely competitive industry.
When we look at the brands dispassionately, it is not just the quality
of the product, but building the equity and also the amount of investment
in building a brand among other multinational brands.
What
is Hemas's competitive advantage when compared to other companies?
We are not a very homogeneous company, where we are in one bunch
of products, but we are in several business areas. I would like
to answer this question from the point of view of what our competitive
advantage is in each of the four sectors we are in.
In
fast moving consumer goods (FMCGs) we have a competitive advantage
because we understand the local market. We have strong brands, a
strong distribution network, in pharmaceuticals we have a professional
outfit, a strong sales and logistics network and also we are the
largest distributor with strong partners. In transportation we focus
more on the aviation side where we are tied up with strong partners
such as Emirates and Malaysian Airlines. In leisure we have leading
tour operators, but we are looking more at the hospitality industry
and we will leverage on that knowledge. On a group level our competitive
advantage is that we have a very good team and they have the space
to do their own thing, as the company is not bureaucratic at all.
Who
is your main competitor in this market?
We compare ourselves constantly with leading conglomerates
both in Sri Lanka and overseas and we try to analyse whether we
add more value than them and how our governance systems compare.
However, in the various sectors we look at our competition based
on firms that provide the same goods and services as we do.
Your
earnings have been growing during each of the three quarters of
2004. Will there be a similar trend in the last quarter or will
the tsunami slow things down?
The tsunami will certainly impact the leisure sector.
Having said that we have other businesses as well, which have not
been affected as much as the leisure sector.
There
is an argument that conglomerates do not add as much value as focused
corporates. What do you feel from the Hemas' perspective?
I would tend to agree with that. You lose sight of your
customers when you grow that big. We at Hemas operate more as individual
businesses. We tend to bring in a more focussed leadership to each
of our businesses as each sector has its own leadership.
Will
Hemas mainly focus on organic growth or growth through acquisitions?
We are looking at acquisitions and partnerships to grow
in the future. We will rather look for a few big things than venture
into smaller things at this point in time. We are aware of where
we want to expand. Now we have grown to a size where we are looking
to acquire and we are also armed with the confidence levels for
this as well. We are looking for acquisitions within the sectors
that we are already in.
You have invested in the power generation sector (Heladhanavi).
Will there be any impacts on this project due to the current crisis
at the CEB?
We are certainly hoping that there will not be any impacts
on this project due to the current crisis at the CEB. The country
needs power. The state acknowledges individual power generators.
I hope that the state will not jeopardize the current demand and
that they will get over the issues soon.
The
distribution relationship with P& G has terminated. Why did
this happen and what will be the bottom-line impact on the group?
The strategy of P & G was a clear focus on the top
20 percent of the market. We were in categories like detergents.
Over the years Hemas has grown and P & G's philosophy has also
changed so it meant sense for both of us to part ways. However,
the bottomline impact was not very significant.
How
has the tsunami affected your leisure sector and how much of recovery
have you achieved?
The tsunami caused a substantial damage at the Serendib
and the Dolphin hotels. But we started running a month afterwards
and now all the rooms have been done up. The real impact is the
loss of business in the winter. I feel that the industry will not
bounce back the same way as some people say. In winter hopefully
the occupancies may go up. It may take a year or two for tourism
to bounce back. The 100-metre rule on buildings in the coastal areas
is the real concern and the government needs to clarify its stand.
What
is the position of the apparel sector (strategic investments). Will
it be sustainable and is there any progress in attracting an international
partner?
We divested 70 percent of the apparel sector to the Fielding Group
who is based in the UK. It is now an associate company.
One
of your competencies seems to be the ability to build generic brands
(personal care sector). Is there an ability to transform this into
other sectors of the group?
We have the philosophy that in the end when you work as
an intermediary you are not in much control, whereas if you are
a principle, you are much more in control of your destiny and can
build generic brands. Certainly we will look at being this focussed
in our other sectors as well.
You
were a private entrepreneurial business for 55 years and recently
went public. Is this change creating pressures on management and
impacting on entrepreneurship in any form?
I would say pressure on management. That poses new challenges.
That does not impact on the entrepreneur of the organisation.
The
family still holds about 85 percent in the company. Will this continue
or will there be gradual reductions?
There will be reductions.
You have been CEO since 2001 and have been involved in developing
the personal care sector before. What was your most challenging
moment in the company?
I guess when the company took a decision to have a CEO.
Moving away from my very comfortable seat at the personal care business,
which I was very passionate about. For me there is a shift in focus
and more administrative work for me now.
Many
say that Sri Lanka's economy is eternally fluctuating with little
actual wealth. Do you believe that it is possible to create sustainable
shareholder wealth in this environment?
It is certainly not an easy task. Our forecasted growth
rate is one of the lowest in South Asia and on top of that we have
all the uncertainties in the policy framework. We need to get this
equation together in order to create sustainable shareholder wealth.
I
believe you are currently implementing SAP. Will it give you the
relevant competitive advantage and will it be implemented across
the group?
It is only in a few sectors that we are implementing it.
We have approached this as a business project and not as an IT project.
It is not merely changing one economic system to another. We are
looking at the return on investment and bottom line with this project.
Do
you find it easy to attract the right workforce in this market and
how does labour turnover affect you?
It is always a challenge to attract the right workforce.
We try to recruit people who are marketing and finance oriented
and who have high standards of excellence in their work ethic. We
find that this is the key to be more competitive in our main line
of business. We don't see a huge turnover at Hemas, but at the end
of the day it is not so much the numbers we really consider, but
how and where we can have the right people.
What
measures have you taken to strengthen corporate governance in the
group?
We have an eminent group of directors. We are one of the
few companies that have an investor forum twice a year. We have
a code of ethics in the company. All this has culminated in a positive
outlook for Hemas as far as corporate governance is concerned. |
