To From Date

- Board of Directors of Hemas Holdings PLC - Division of Financial Forecasting - 5/22/2011

Subject - Financial Analysis of Hemas Holdings PLC for the year ended 03/31/2011

As you assigned we have performed detailed analysis of the financial performance and position of the Hemas Holdings PLC. We have taken a benchmark of industry competitor John Keels Holdings PLC to compare the financial information of Hemas Holdings PLC. We have performed a business introduction and overview on the Hemas Holdings PLC and John Keels Holdings PLC operations and the businesses. We have analyzed the past revenue and profit growth of the company and compared with John Keels Holdings PLC. We performed ratio analysis on the short term Liquidity of the Hemas Holdings PLC by analyzing working capital and then compared the results with John Keels Holdings PLC. We have performed an analysis on the Long term sustainability of Hemas Holdings by analyzing the Long term debt with total assets and the equity, and then compared with the ratios of John Keels Holdings PLC. We have performed an analysis on profitability of Hemas Holdings PLC by analyzing Gross profit and Net income with Turnover, Assets and Capital employed, then compared with John Keels Holdings PLC. We have performed an analysis on Market share and the dividends of Hemas Holdings PLC and compared with John Keels Holdings PLC. We have performed detailed analysis of financial information of Hemas Holdings PLC with John Keels Holdings PLC. We have enclosed detailed financial position and performance analysis in the report below.

Introduction
Hemas Holding PLC Hemas is one of Sri Lankas top diversified conglomerates, with a focus on five key sectors - FMCG, Healthcare, Transportation, Leisure and Power. We are a publicly listed company with over 2000 employees. Our products and services touch the lives of millions of people from new-born babies to large international businesses.

John Keels Holdings PLC John Keels Holding PLC (JKH) is Sri Lankas largest listed company, with business interest in Transportation, Leisure, Property, Consumer Foods & Retail, Financial Services and information Technology, among others. Since its modest beginnings as a produce and exchange broker in the early 180s, JKH has been known to constantly re-align, re-position and re-invent itself in pursuing growth sectors of the time. Our investment philosophy is based on a positive outlook, bold approach, and commitment to delivery and flexibility to change. JKH is also committed to maintaining integrity, ethical dealings, sustainable development and greater social responsibility in a multi stakeholder context. Having produced superior returns for our shareholders and experiences significant growth, the Groups immediate phases of growth are fuelled by our vision Building businesses that are leaders in the region. Both companies are well known companies in Sri Lanka as well as in the world. Key products and services offers to customers are also take a similarity in both of the companies. Both companies are performing well among their competitors and they are in a very strong position to outperform their competitors through their management style.

(Annual Report Hemas Holdings PLC 2010, Annual Report of John Keels Holdings PLC 2010)

Financial Analysis
Various ratios are used by managers and investors to analyze and forecast the profitability and efficiency of a company. Financial analysis often assesses the profitability, solvency, liquidity, stability of a company.

Financial Overview The best way of analyzing a companys performance with another company is to analyze financial performances for past years. Growth of a company compared to other company is clearly reflected in the analysis. Revenue & Profit Analysis Hemas Holding PLC Revenue analysis

16000 14000 12000 10000 Profit for the year 8000 6000 4000 2000 0 Year 2006 Year 2007 Year 2008 Year 2009 Year 2010 Revenue

Graph No 1
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JKH Revenue Analysis

60000 50000 40000 30000 20000 10000 0 Year 2006 Year 2007 Year 2008 Year 2009 Year 2010

Profit for the year Revenue

Graph No 2

Revenue / Profit Growth Rate Analysis

Year 2007 2008 2009 2010 Revenue Growth Hemas Holdings JKH 30% 10% 17% 27% 9% -2% -1% 17% Profit Growth Hemas Holdings JKH 6% 13% 13% 40% -37% -10% 25% 11%

Table No 1

Comments When we comment on the performance of the Hemas Holdings compared to JKH we performed an analysis of last 5 year Revenue and profit (Graph 1, Graph 2). We were able to find out that even in the financial crisis both of the companies have not made any losses. They have maintained their survival in a proper way. But when we compare Hemas Holdings with JKH we could see a little drop recently in the revenue. JKH has maintained their strong position in the market even in the financial crisis and Hemas Holdings revenue and profit growth ratios reflect a little drop recently compared to JKH profit and revenue growth ratios.

Ratio Analysis
Hemas holdings financial information is to be compared with John Keels Holdings in terms of profitability, solvency, liquidity, stability in order to assess the financial performance and stability and the financial position of Hemas Holdings. Following areas will be analyzed with the relevant benchmark to assess the financial performance and the position in the market. Short Term Liquidity Long Term Solvency Profitability Market Price and Dividend

Short Term Liquidity Objective To measure the solvency, or the ability, of Hemas Holdings PLC. to meet its short-term financial obligations and to assess the liquidity, or the ability, of Hemas Holdings PLC to convert current assets to cash to reduce current liabilities. The Ratios The most widely used financial ratios for establishing the short-term liquidity of a company are highlighted in the below chart. Ratios Current Ratio = Current Assets / Current Liabilities Quick Ratio = (Cash + Cash Equivalents +Accounts Receivable) / Current Liabilities Net Working Capital Ratio = Net Working Capital / Total Assets
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The short-term liquidity ratios are used in the evaluation of short-term liquidity to convert current assets into cash in order to reduce the financial obligations of the company as they become due. These ratios are particularly significant to the creditors and potential lenders of a company because they determine the ability of that company to meet current payments of a debt. However, investors and stockholders are also interested in the companys definition of current assets and current liabilities since these classifications have a direct impact on the amount of available working capital of an entity. As a general rule of thumb, a current ratio of 2:1 and a quick ratio of 1:1 are considered to be acceptable. Hemas 1.36:1 1.22:1 1.07:1 0.96:1 12% 7% JKH 2.05:1 2.07:1 1.92:1 1.91:1 18% 16%

Current Ratio

- 2010 - 2009 - 2010 - 2009 - 2010 - 2009

Quick Ratio

Net Working Capital Ratio

As shown in the table above, Hemas holdings were not able to achieve general rule of current ratio which is 2:1 in 2010 and 2009. But Hemas holdings were able to make the ratio increase in 2010. JKH has maintained Current ratio better than Hemas Holdings. Quick ratio of Hemas Holdings has achieved the general rule which is more than 1:1. But JKH performing well we compare the quick ratio and the net working capital ratio.

Long Term Solvency Objective To apply ratio analysis to assess the debt levels of Hemas Holdings PLC. The Ratios The most commonly used ratios by financial analysts for determining the long- term solvency of an entity are shown in the following table. Debt-to-Total Assets = Total Liability / Total Assets Debt-to-Equity
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= Total Liability / Total Shareholders funds These ratios are used for solvency evaluation. The main focus of these ratios is the entitys ability to repay long-term creditors. Both creditors and shareholders are equally interested in these ratios. Typically, these ratios should be as low as possible. These ratios indicate the entitys ability to withstand relatively sour business conditions without suffering net losses or insolvency. Although, these ratios should not be taken at face value since they are dependent on many factors, these ratios are most useful for making apple-to-apple comparisons in the industry.

Hemas Debt-to-Total Assets - 2010 Debt-to-equity -2010 0.43:1 0.89:1

JKH 0.43:1 0.85:1

There is no change in Debt-to-Total Assets in Hemas Holdings and JKH. Both companies total assets reflect 43% of liabilities. Hemas Holdings Debt capital is not greater than the equity capital. Hemas holdings Debt to Equity ratio is below 1 and that means the interest of creditors is lower than the interest of shareholders. This position of the Hemas Holdings and JKH is satisfactory when evaluating solvency of companies.

Profitability Objective To determine the profitability of Hemas Holdings PLC using various financial ratios. The Ratios Profitability ratios are used in an effort to evaluate managements ability to monitor and control expenses and to earn a profit on resources committed to the business. The ratios assess Hemas Holdings strengths and weaknesses, operating results and growth potential. These ratios are used to measure how efficiently the assets are being used to generate net income and sales. The higher the ratio, the more effectively a company is using their assets.

Gross Profit = Gross Profit / Turnover ROCE

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= PBIT / Total Capital Employed EPS = Net Income / Equity Shares Net Profit Ratio = Net Income / Turnover Return on Assets = Net Income / Average Total Assets

Hemas Gross Profit Margin - 2010 Net Profit Margin ROCE Return on Assets EPS - 2010 - 2010 - 2010 - 2010 34% 6.1% 21% 6.05% 8.82

JKH 23% 11.6% 16% 5.82% 8.45

Analysis Hemas Holdings has established a higher gross profit margin than JKH. But JKH was able to maintain their high net profit margin through controlling operating expenses of the entity. Hemas was able to make a higher Return on Capital Employed ratio than JKH which is 21%. EPS and Return on Assets also satisfactory which is respectively 8.82 and 6.05%. Market Share and Dividend Objective To apply ratio analysis to determine the return on investment for Southwest Airlines. The Ratios The following are the most commonly used ratios in determining the return on investment:
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Price Earnings = Market Price / EPS Dividend Yield = Dividend per share / Market Price Dividend pay out = Dividend per share / EPS

Market share analysis Hemas Holdings PLC

Hemas market Prices

30 25 20 15 10 5 0 Hemas market Prices

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JKH Market Price Analysis

JKH Market Price

200 180 160 140 120 100 80 60 40 20 0 JKH Market Price

Ratio Computation Hemas Price Earnings Ratio Dividend Yield Ratio Dividend payout 2.67 times 7% 20% JKH 21.51 times 2% 36%

When we consider the price earning of the Hemas Holdings, it reflects a satisfactory answer than JKH. Because Hemas Holdings have maintained the price earnings ratio in a lower level which is 2.67 times. But EPS of JKH need 21.51 times to recover the market price of JKH. Therefore investors may pay their attention more on Hemas as an industry competitor of JKH. Dividend yield of Hemas Holdings is also in good position when comparing to JKH dividend yield. Hemas Holdings has paid 20% of earning to their shareholders and JKH has paid 36%.

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Conclusion

As a competitor in same industry both companies performance are satisfactory and well performing in the industry. Short term liquidity should be improved by Hemas holdings PLC through a proper leading to working capital. Both companies are in same position when evaluating the Long Term Solvency. Shareholders strength in the company is more the creditors of the companies. Return attributable to shareholders funds and debt capital is more than JKH. But JKH was able to maintain a higher Net Profit margin than Hemas. Therefore Hemas Holdings Should manages to keep operating expenses in lower level. Market Prices of JKH has grown up throughout the financial year ended 31 March 2010. Hemas Holdings Market Price has gone up in the year mid, but by the end of the year it has come down. Price earnings and dividend yield is been maintained in proper way by Hemas Holdings Management. With diversification of the businesses, JKH has achieved success in the industry. Hemas Holdings should seek another opportunities to get the businesses more diversified in the industry.

Finally Hemas Holdings PLC short term liquidity and profitability should be improved. The Long term solvency is properly managed by the management of Hemas Holdings PLC. On the point of investors Earning and Dividend payout is going on properly with compare to other companies.

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