BEATING ECONOMIC CYCLES

Hemas’ acquisition of stationery manufacturer Atlas will spur group growth during periods of low consumption

Hemas Holdings – a Rs44 billion revenue group of companies with businesses in personal care manufacturing, healthcare, hotels and logistics – acquired Atlas Axillia in January this year for Rs5.7 billion. It came at a challenging time for Hemas. Growth was hit by low consumer demand for its personal care products, which account for 37% of annual group revenue, behind healthcare’s 43%. This was due to falling disposable incomes.

“Our personal care business has grown 8-10% over the last 12 months, the lowest in a number of years. People buy their shampoo and deodorant after they purchase food, that’s the reality,” says Steven Enderby, Chief Executive at listed Hemas Holdings. Growth came from trade promotions and buy-two-get-one-free type of banded offers that are not sustainable for too long. The acquisition of Atlas will change Hemas’ retail business for two reasons. First is the growing importance of education.

“We acquired Atlas because we understand the importance of education in the minds of Sri Lankan consumers,” Enderby said at the recent Asia Securities’ Wealth Insights Series: Consumer and Retail.

In a recent report, Fitch Ratings said Atlas will improve the group’s cash flow. “The business tends to be defensive across economic cycles. Demand is expected to grow, with increasing investments into public and private education,” the ratings agency stated.

Second is Atlas’ strong brand that positions the business for growth, according to Enderby. Hemas acquired Atlas because it’s the best stationery brand in the country with 40% market share. “It’s the brand consumers are saying they want to buy.

That’s invaluable,” Enderby said. Because of the brand edge, Hemas only plans to make incremental changes that will lead to better profitability at Atlas. The stationery manufacturer generates about half the sales of Hemas’ personal care business, but has twice the number of distributors, so that’s one area that can be tidied up. There could also be synergies sourcing raw materials, with the group already a large purchaser of paper and plastic.

“We don’t have one knock-it-out-of-the-park solution. There are multiple areas where we can tweak to drive profitability,” Enderby says.

Fitch believes Atlas will contribute 15-25% to group revenue for the 2018/19 financial year.