Strong agri, consumer goods sector performances boost Sunshine Group profits by 23%

Fueled by strong growth in its health, consumer and agri-business sectors, diversified Sri Lankan conglomerate Sunshine Holdings has reported impressive growth in top and bottom line performances during the first nine months of the current financial year (9MFY18). 

During this period the group posted consolidated revenue of Rs. 15.6 billion, delivering a 23% Year-on-Year (YoY) increase in Profits After Tax (PAT). 

The group’s healthcare business emerged as the largest contributor to Sunshine’s top-line performance, accounting for 39% of total revenue, while the agribusiness and consumer sectors of the group contributed 34% and 25% respectively of the total revenue.

Profit After Tax (PAT) for the period in review rose to Rs. 1.6 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 63.8% YoY to Rs. 722 million. 

Watawala Plantation Plc (CSE: WATA) and Hatton Plantations Plc (CSE: HPL), the group’s agribusiness subsidiaries together were the largest contributor to PATMI, accounted for 38% of the total and healthcare accounted for 27%.

“Our continuous focus on improving quality and internal efficiency through well-placed strategies has yielded strong results for the group yet again, transforming another quarter into a successful, highly dynamic one,” stated Sunshine Holdings Group Managing Director Vish Govindsamy. 

“It is noteworthy to mention that the group’s healthcare arm has been able to post strong results over the last nine months and become the largest contributor to group revenue after it grappled significantly due to the implementation of the price controls over 48 molecules during last year. Agri and Consumer sectors have also been able to continue their momentum and contribute significantly 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 nine months. 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,” Govindasamy added.

As the largest contributor to group revenue, Sunshine Healthcare grew its revenue by 3.3% YoY to Rs. 6 billion. The revenue growth was propelled due to higher sales volume despite the negative impact of the price control imposed by the National Medical Regulatory Authority (NMRA). The pharma sub-segment, which represents 65% of healthcare revenue, was also up by 4.4% YoY. Reported PAT for healthcare amounted to Rs. 201 million in 9MFY18, up 121.6% YoY.

Sunshine’s Consumer brands – spearheaded by premium brands like Zesta and Watawala Tea – recorded impressive growth in revenue, with stronger domestic business growth enabling a sharp 27.4% YoY growth to Rs. 3.8 billion on the back of both volume and price increases. 

The domestic branded tea business sold 3.2 million kilos of branded tea, up 16% YoY. However, due to higher Ceylon Tea prices eroding the gross profit margins and increased finance cost, the Consumer Goods segment saw a decrease of its PAT by 17.4% YoY to Rs. 206 million for the nine months.  

The group’s agribusiness sector, led by Watawala Plantations Plc (WATA) and Hatton Plantations Plc (HPL), recorded 13.3% YoY growth up to Rs. 5.3 billion on the back of a 21% YoY growth in tea revenue driven by improvement in price. During 9MFY18, the palm oil subsector reported a slight decrease in revenue of 8% YoY due to the decrease in market price of crude palm oil (CPO). 

Tea volumes were constant for the period in review while palm oil volumes were 1% higher than the same period last year. The reported PAT for Agribusiness to Rs. 1 billion was up 2.5% YoY. The palm oil segment, which made Rs. 833 million PAT for 9MFY18 against Rs. 1.057 million during the same period last year, continued to be the largest contributor to Agri business profits. The growth in profits can be attributed to profitability in the tea subsector compared to losses last year, despite a slight dip in profits in the palm oil subsector coming from an increase in operational expenses and crude palm oil price decrease.

Govindasamy expressed strong confidence over the outlook of the group over the coming year where he noted that the group would focus on increasing sales volume as far as the healthcare business was concerned, despite the depreciation of the rupee against the dollar continuing to impact the margins of the entire healthcare industry. 

He also said that greater attention would be given to its growing surgical and medical devices subsector, which had displayed impressive growth potential over the recent past.

Similarly, the group’s consumer business would continue investments into 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. Govindasamy expects the palm oil prices to remain at the current levels and their tea business to perform strongly during 4QFY18 where tea prices are forecast to remain at a high level.

The dairy subsector has reached a total of 487 milking cows and 10,000 litres of milk per day. The total number of animals has also grown to 1,073 with the new 500 in-calf heifers from Australia and the group expects the next heard of animals from Australia to reach the farm by next quarter. However, Govindasamy noted that the interim cost of feeding the whole herd would have a slightly negative impact on Agri profitability.