Hemas Sustains Q1 Revenue Amid Market Volatility; Sharpens Focus on Margin Recovery

The Group recorded revenue of Rs. 28.77 Bn in Q1 FY27, an increase of 0.9% YoY, while gross profit margin improved by 0.2 percentage points to 30.4%. However, EBITDA declined by 14.1% to Rs. 2.26 Bn and Group earnings attributable to equity holders declined by 21.4% to Rs. 937 Mn. Revenue growth in Consumer Brands, Hospitals and Mobility was offset by a 3.8% decline in Life Sciences. The divergence between revenue and earnings was primarily caused by the rapid escalation of costs and the time required to recover these increases through pricing.

The quarter was shaped by heightened geopolitical uncertainty following the escalation of conflict in the Middle East. This resulted in sharp increases in fuel, petroleum-based raw materials, freight and insurance costs. In Sri Lanka, petrol and diesel prices were over 40% higher YoY, while the LKR depreciated by an average of 8% YoY and 5% QoQ. Average inflation of 5.9%, reaching 6.8% in June, also moderated consumption growth and increased direct and indirect operating costs.

While pricing and portfolio mix supported the gross profit margin, net operating costs increased by 9% YoY. Selling and distribution costs rose by 12.3% and accounted for more than half of the increase in operating costs, primarily reflecting higher logistics, fuel, freight and distribution-related expenses. In selected Consumer Brands categories, price increases were implemented selectively to protect volumes where cost pressures were expected to be temporary, resulting in the Group absorbing part of the increase during the quarter. In Life Sciences, the impact was more pronounced because pharmaceutical prices are regulated and price revisions did not immediately reflect the depreciation of the LKR and higher import costs. The resulting cost increases were therefore absorbed until regulatory approvals were received. In addition, LKR depreciation increased finance costs at the Leisure JV on its USD borrowings, further reducing Group earnings.

These pressures were partly mitigated by strong earnings growth in Mobility and higher finance income from the Group’s net cash position. Supply continuity was maintained throughout the quarter, although at a higher cost. Management’s immediate priorities are to restore cost recovery, protect volumes through calibrated pricing, accelerate productivity initiatives and improve profitability in Consumer Brands and Life Sciences. While energy and currency volatility are expected to persist, the Group remains focused on strengthening performance while executing its long-term growth priorities with discipline. 

Financial and Operating Performance

Enhanced Reporting structure

Going forward, the Group's segmental reporting will be broken into four major categories: Consumer Brands, Life Sciences, Hospitals, and Mobility. The key change is the split of the former Healthcare segment into two distinct categories, namely, Hospitals and Life Sciences, reflecting the fundamental differences between these businesses and how they are managed.

The primary distinction is that Hospitals is a service-oriented business, while pharma distribution and manufacturing are product-based businesses. Hospitals is also a labour and asset-heavy business with a longer payback period relative to pharma distribution and manufacturing. These differences result in distinctly different capital allocation needs, margins, and growth drivers, and the reporting structure has been segregated accordingly to reflect management's view of the business units. This change has been implemented in line with our commitment to improving transparency, giving shareholders a better understanding of the business.

Performance Update

This quarter, despite strong headwinds, topline grew marginally driven by sustained demand and price increases across the Consumer, Healthcare, and Mobility portfolios. However, due to adverse macroeconomic environment, net operating costs rose by 9% YoY, weighing on EBIT and EBITDA and diluted margins. Selling and distribution costs, up 12.3% YoY, accounted for over 50% of the Q1 increase in operating costs, reflecting the significant rise in logistics, fuel, freight, and related distribution costs. LKR depreciation increased finance costs at the Leisure JV on its USD borrowings, reducing the Group’s earnings for the quarter. Higher interest rates, however, benefited Hemas as a net cash-positive company, helping to recoup some of the lost operating margin, bringing the earnings margin to 3.3%, down just 0.9 percentage points YoY (compared to a 1.4 percentage point YoY decline in EBITDA margin).

Business Unit Performance

Consumer Brands

Home and Personal Care — Sri Lanka

Beauty and Baby Care were the strongest performing categories in Hemas' HPC portfolio, both posting double-digit growth, with Beauty in particular crossing 20% YoY. This performance supported overall YoY revenue growth for the portfolio. Volume growth remained positive but nearly flat, due to declines in the Home Care segment.

Overall, currency depreciation and raw material inflation at gross profit level were partly offset by a favourable sales mix and price increases. However, at the operating level, despite controlled discretionary spending, higher costs eroded margins, which declined 2.5 percentage points YoY. At HPC Sri Lanka level, higher finance income partially helped recover some of this decline at the earnings level.

Digital initiatives continue to be strengthened, with a dual focus on enhancing consumer support and generating richer consumer insights to inform business decisions. These initiatives are expected to drive product demand as consumers become better educated on product benefits, while also equipping the HPC Sri Lanka team with sharper insights to better anticipate and meet consumer preferences. 

Home and Personal Care — Bangladesh

The industry continues to be shaped by growing demand for herbal and natural products, reflecting evolving consumer preferences. 

HCB Bangladesh's value added hair oil category saw a marginal YoY decline in the quarter ending June 2026, as volume decline outweighed price growth. Overall revenue, however, grew 5.2% YoY, driven by strong volume growth in the Male Grooming and Personal Wash categories. This revenue growth supported YoY improvements across gross profit, operating profit, earnings, and margins, underpinned by continued momentum in the newer categories. 

Fresh product launches planned across the remainder of FY27 are expected to sustain portfolio growth, despite the challenging macro environment. 

Learning

Our transformation from a stationery company to an activity-based learning company continues to gain momentum, as education reforms and evolving learning needs drive a fundamental shift towards more experiential and activity-based education.

Building on this momentum, the quarter saw the continued expansion of our EduToys portfolio offerings while also finalizing the strategy for our first activity-based workbook range, positioning Atlas to capture emerging opportunities in the evolving learning landscape.

Despite this being the traditional off-season, all key categories grew YoY, and we continue to command market share above 50% across the board, with Colour Pencils leading decisively at over 70% and our core Books category holding strongly above 55%. We also reinforced our commitment to children's wellbeing by launching Sri Lanka's first SLS-certified plastic water bottle, setting a new industry benchmark for quality and safety in everyday essentials.

While operating and earnings margins came under pressure, down two percentage points YoY on higher fuel and financing costs respectively, gross profit margins improved, reflecting the underlying quality and pricing power of our portfolio.

As we enter the inventory build-up and peak Back-to-School season, we expect the domestic Learning business to sustain profitability while continuing to accelerate our transition towards a broader, activity-based learning portfolio aligned with evolving consumer needs and education

trends.

Life Sciences

Pharmaceutical Distribution

Hemas Pharmaceuticals, the market leader in private pharma distribution and the distribution arm of the Hemas Group, recorded YoY value and volume growth, alongside 7 new product registrations during the quarter.

The Middle East conflict's impact was felt most acutely in the Life Sciences cluster, transmitted primarily through LKR depreciation. Because pharmaceutical pricing is tightly regulated by the National Medicines Regulatory Authority (NMRA), the Group had to absorb the resulting cost increases fully on its own until NMRA approved higher prices.

However, importantly, the NMRA's pricing formula for pharmaceuticals now includes a mechanism to account for exchange rate movements beyond a 5% threshold from the time the price is set annually, though price revisions may still lag due to the approval process. As expected price increments feed through into the financials, we expect margins to recover gradually over the upcoming quarters.

Pharmaceutical Manufacturing

Morison's own branded portfolio, continued to perform strongly with 50% volume growth YoY.

However, performance was challenged by the impact from LKR depreciation, rise in material prices, increase in fuel and electricity which were not compensated as price increases were not granted in Q1. Part of this impact will get mitigated in the next few quarters with the price increase that has now been granted for government buyback supplies.

The new product pipeline continues to progress, with 3 new products being launched in the NCD space in Q1. EU GMP certification for the Homagama plant also remains on track.

Hospitals

June saw medical admission volumes grow though on a quarterly basis there was a marginal degrowth. Surgical admission volumes declined, reflecting higher communicable disease and dengue patient volumes during the period, which occupied a larger share of hospital capacity. Cath lab admissions grew 84% YoY.

While revenues grew 11%, the shift in patient mix impacted margins, which saw marginal contractions.

Initiatives are underway to establish a holistic approach to the patient revenue lifecycle, helping patients stay on track with recommended follow-ups and check-ups, ensuring both patients and the hospital benefit from timely, continuous care.

Mobility

Evergreen cargo throughput grew 28.5% YoY, with incremental volume driven by the Middle East crisis, which positioned Sri Lanka as a regional alternative to Middle East ports. This shift had a positive impact, supported by rising freight rates. 

On the aviation front, Q1 capacity was reduced due to disruptions. Air cargo remained resilient, supported by high yields amid limited capacity. The upcoming tourist season is expected to support passenger demand, which was soft during Q1 FY27, with the fourth frequency reintroduced in July. 

People, Culture & Future-Ready Skills 

The Talent Strategy and related policies for FY26–28 have been formalised, laying the foundation for a structured, multi-year approach to talent management. Group strengthened its talent review and development plans, reinforcing the Group's efforts to strengthen its succession and leadership pipelines. In parallel, the Hemas Leadership Academy has launched a series of future skills focused upskilling programmes, covering strategic thinking, project management, change management, and AI literacy, as part of the broader Talent Strategy for FY26–28.

Hemas introduced its updated corporate values during the quarter ending June, with a planned rollout across all business units in July. The update sharpens existing values to accelerate execution speed, ownership, and learning, equipping the organisation to stay ahead as Hemas moves into its next phase of growth. These reinforced behaviours are critical at this stage, serving as a catalyst for the Group's human capital to sustain and build on its growth momentum. 

Sustainability 

The Group continued to advance its sustainability priority areas during the quarter, embedding sustainability into business performance while strengthening long-term resilience and regulatory readiness.

Cumulative plastic recovery exceeded 2.9 million kilograms, reflecting continued progress towards the Group's commitments to recover 62.5% of plastic placed on the market by 2026/27 and 100% by 2030. These efforts will support the Group’s readiness for Sri Lanka's forthcoming Extended Producer Responsibility (EPR) regulations.

Water intensity increased from 1.6m³ to 1.7m³ compared to the previous quarter, highlighting the need for continued focus on operational efficiency. Targeted conservation and process optimization initiatives are being accelerated across priority operations to improve resource efficiency. 

Renewable energy adoption increased to 13.6% of total electricity consumption, up from 8.9% in the previous quarter, reflecting continued progress towards the Group's target of sourcing 25% of electricity from renewable energy.

The Group's purpose-led initiatives positively impacted over 25,500 individuals during the quarter across education, health and wellbeing, and community development. The expansion of the Piyawara preschool network with two new preschools in Ragala and Badulla, supporting approximately 100 additional families, further strengthened access to quality early childhood education in underserved communities 

Strategy and Outlook

Guided by four overarching capital allocation themes, the Group has established goals to accelerate its pace of growth by aggressively pursuing adjacencies through both organic and inorganic growth, exploring a new sector entry in Sri Lanka, growing international revenue, and developing human capital and digital capabilities across the Group. Alongside this, strengthening internal efficiencies to reduce the impact of costs on earnings remains a key priority for the Group.

While the near-term operating environment remains volatile, our priorities are clear: restore margins in Consumer Brands and Life Sciences, sustain growth momentum in Hospitals and Mobility, and execute our growth investments with discipline. Our diversified portfolio and net cash position provide resilience, while actions on pricing, cost recovery and productivity will strengthen performance. We remain firmly focused on delivering our long-term growth ambitions and creating sustainable value for our shareholders and stakeholders.