Hemas delivered a healthy performance for the first three months of the financial year 2023/24, effectively navigating the macroeconomic headwinds as the country moves towards an economic stabilising phase. The Group posted a revenue of Rs. 29.1 billion, a 17.2 per cent growth over previous year while the operating profits witnessed a growth of 6.0 per cent to Rs. 2.2 billion. Amidst the increased finance cost, the Group’s earnings growth was limited, witnessing a marginal improvement of 1.2 per cent to Rs. 1.1 billion.
Operating Environment
Sri Lanka successfully secured the initial tranche of the International Monetary Fund (IMF) extended fund facility and progress was made in both domestic and external debt restructuring efforts. Year-on-year growth in the inflation rate, which stood above 70 per cent in September 2022, witnessed a significant decline and currently rests at 10.8 per cent as of June 2023. This progress can be attributed, in part, to the improved liquidity in the foreign exchange market, which resulted in the Sri Lankan Rupee appreciating by over 14 per cent during the first quarter.
Despite the positive indicators, it is important to acknowledge that consumers continue to face challenges as their disposable income levels are impacted by the increased cost of living. Although there has been a slowdown in the year-on-year inflation and interest rates, the ratios should be carefully interpreted as the current inflation figures are based on an already inflated base.
Consequently, affordability continues to be a concerning issue for the public and consumption remains contracted.
Consumer Brands
Market-wide price reductions were witnessed during the quarter, attributed to the reduction in global commodity prices and appreciation in the domestic currency. However, a noticeable slowdown in consumer demand was seen across the modern and general trade channels post festive season. The increase in taxes, higher tariffs on electricity and high borrowing costs had an ongoing influence on buying patterns, despite the price reductions.
In the stationery market, the demand for value-for-money alternatives continues to surge at a significant rate as consumers remain cautious amidst the increased pressures on disposable income. The relaxation of import restrictions, the appreciation of the rupee, and the decline in paper prices have resulted in the market experiencing an influx of brands. There has been a slowdown in secondary purchases from retailers due to the anticipation of future price reductions.
