Sunshine profits up 17.3% in 1H supported by strong Agri and FMCG performances

Diversified Sri Lankan conglomerate Sunshine Holdings Plc (CSE: SUN) reported impressive growth in top- and bottom-line performance after posting consolidated revenue of Rs. 10.3 billion and delivering a 24.2% Year-on-Year (YoY) increase in Profits After Tax (PAT) for the group during the six-month period ended (1HFY18). 

Consolidated group revenue increased by 8.9% Year-on-Year (YoY), bolstered by strong performances in the Agri and Fast Moving Consumer Goods (FMCG) sectors, despite a slight reduction in growth within the Healthcare sector. 

However, the group’s healthcare business emerged as the largest contributor to Sunshine’s top-line performance, accounting for 38% of total revenue, while the Agribusiness and Consumer sectors of the group contributed 36% and 23% respectively to total revenue.

Profit After Tax (PAT) for the period in review rose to Rs. 1.1 billion, on the back of a strong performance in the Agri sector, with strong positive results also being carried through to the group’s Profit After Tax and Minority Interest (PATMI) which grew by 25.8% YoY to Rs. 532 million. Watawala Plantation Plc, the group’s agribusiness subsidiary, was the largest contributor to PATMI, accounting for 34.9% of the total, and healthcare accounting for 29.2%. 

“Our continued strong financial performance reflects the dedication of our employees to delivering the best products and unmatched service and convenience to our customers,” said Sunshine Holdings Plc Group Managing Director Vish Govindasamy. 

“Our continuous focus on improving quality and internal efficiency through well-placed strategies has yielded strong results for the group, transforming another quarter into a successful, highly dynamic one. Throughout the period, key business sectors have faced notable challenges; however we are pleased to note that the Sunshine Group continues to display a resilient and entrepreneurial spirit in the face of such difficulties. Due to the impact of imposing price controls on pharmaceuticals last year, our healthcare sector continues to face significant challenges, but it has been able to emerge as the largest contributor to the group revenue. The Agri and Consumer sectors have been able to continue their momentum as both sectors have reported impressive revenue growth during this period.”

“We commend our dynamic team of employees, and our network of business partners and valued customers for their role in driving outstanding performance over the last quarter. Moving forward, we will continue to consolidate our operations with a view to further strengthening overall profitability while also exploring opportunities to expand growth within our current business segments,” added Govindasamy. 

In total, the group’s healthcare segment generated Rs. 4 billion in turnover during 1HFY18, representing a slight dip against last year and representing 38.1% of group turnover for the period. The imposition of pharmaceutical drug price controls, which came into effect in the third quarter of 2016, also affected the Pharma sub-segment as it reported a 1.2% YoY contraction in its revenue. Reported PAT for healthcare amounted to Rs. 155 million in 1HFY18, down 17.9% YoY. 

The group’s Agribusiness sector, represented by Watawala Plantations Plc (WATA), recorded 13.9% YoY growth up to Rs. 3.8 billion on the back of a 31.6% YoY growth in tea revenue driven by increased improvement in production quality and an increase in market price. 

During 1HFY18, the Palm Oil subsector reported a slight decrease in revenue of 6.9% YoY. Tea volumes increased by 5.0% while Palm Oil volumes were 1.9% higher than the same period last year. The Palm Oil segment, which made Rs. 536 million PAT for 1HFY18 against Rs. 741 million during the same period last year, continued to be the largest contributor to WATA profits.

Sunshine’s Consumer business thrived with an impressive top-line of Rs. 2.4 billion in 1HFY18, up 27.0% YoY, on the back of both volume and price growth. It also accounted for 23.2% of group revenue for the period. 

Spearheaded by their largest tea brand ‘Watawala Tea’ and premium brand ‘Zesta’, the domestic branded tea business within FMCG sold 2 kg million of branded tea, up 14% YoY, during 1HFY18. However, PAT from the FMCG segment saw a decrease of 38.6% YoY, to stand at Rs. 100 million for the first half. The decline was due to the higher Ceylon Tea prices eroding the GP margins.

Particularly in the context of Sunshine’s remarkable performance over the last quarter, Govindasamy expressed strong confidence over the outlook of the group over the coming year. While acknowledging the continuing impact of the price controls on its healthcare business, he noted the potential for further growth, supported by increased volumes to offset the reduced prices and greater attention to its growing surgical and medical devices subsector, which had displayed impressive growth potential over the recent past. 

Healthcare’s retail chain Healthguard focuses on developing a specialty beauty and wellness product range in FY18 as the group looks to introduce newer and more exciting ranges of products to the Sri Lankan consumer, while attracting more customers to the chain.

Similarly, the group’s consumer business will continue investment in its brands to scale both domestic and international businesses while the continuing success of its Palm Oil segment was also expected to continue to yield higher returns, brought about by superior agronomic practices.

The dairy segment of Sunshine Holdings is also set to expand in 2HFY18 with the total number of milking cows increasing to 479. The next herd of livestock is also expected to arrive from Australia with daily milking volume already reaching 10,000 litres per day. However, Govindasamy noted that the interim cost of feeding the whole herd would have a negative impact on the group’s Agri profits over the short to medium term.

Sunshine Holdings Plc is a diversified holding company contributing to nation building by creating value in vital sectors of the Sri Lankan economy – including healthcare, agribusiness, Fast Moving Consumer Goods and renewable energy. 

Many of its business units are leaders in their respective sectors and have secured partnerships with multiple top global brands and have won prestigious awards at the national as well as regional level. Sunshine Holdings’ jointly-owned plantation company is Sri Lanka’s largest palm oil producer and has also been the country’s largest tea producer for several consecutive years. 

The company’s healthcare marketing unit is the second largest in its sector nationally. Its tea sector also consists of Sri Lanka’s bestselling tea brand locally. The group, which provides employment to approximately 12,000, generates over $ 120 million in revenue. Sunshine Holdings is consistently ranked among the LMD Top 50 companies in Sri Lanka.