Tuesday, 4 November 2014 00:38
Sunshine Holdings PLC reported PAT of Rs. 551 million for the six months ended 30 September 2014 (1HFY15), up 52.6% YoY on a consolidated top line of Rs. 8.2 billion, up 16.9% YoY due to strong performance by all three of its core sectors.
EBIT margin of 9.3% for 1H FY15 was up 100 bps from 8.3% in 1HFY14. The growth in revenue is mostly attributed to the Agri sector, especially palm oil and tea. Healthcare and FMCG also contributed to grow the top-line. The increase in profitability is attributed to better margins in palm oil and lower interest cost due to contraction in lending rates.
For 1HFY15, PAT grew 52.6% YoY, but profit to equity holders (PATMI) is up only 17.0% YoY to Rs. 283 million. Majority of the growth in PAT is on account of the strong performance of the Agri sector which has a limited impact at the PATMI level due to low effective holding. Healthcare still remains the largest contributor to PATMI in 1HFY15 with Rs. 154 million, which represents 54.6% of total PATMI.
Net Asset Value per share increased to Rs. 37.58 as at end 1HFY15, compared to Rs. 36.23 at the beginning of the year (FY14).
Healthcare revenue for 1HFY15 grew 8.0% YoY and stood at Rs. 2.9 billion. This represents 35.8% of Group turnover for the period. 2QFY15 was a better quarter for the healthcare sector with revenues amounting to Rs. 1.5 billion, up 12.0% against 2QFY14.
The Pharma sub segment which made Rs. 2.0 billion in revenues (67.4% of healthcare revenue) grew 5.6% YoY over 1HFY14. This was a commendable performance against the market growth of just 2.07% based on IMS data. Growth in other sub sectors were at; Retail (+15.2% YoY), Surgical (+13.7% YoY), Diagnostics (+4.3% YoY) and OTC (+17.3% YoY). The strong growth in their retail sector came in the back of increased revenues from three new outlets, namely Thalawathugoda, Orion City, Ethul Kotte.
PAT for healthcare amounted to Rs. 154 million in 1HFY15, up 1.2% YoY. PAT margin contracted to 5.3% in 1HFY15, against 5.6% in 1HFY14, due to higher growth in operating expenses, including promotional expenses which grew 25.1% YoY.
The healthcare business was rebranded as ‘Sunshine Healthcare Lanka’ in 2HFY15 and as such will build on the brand strength of the group name. Through this rebranding they have communicated to all stakeholders, their vision for a continued focus on the healthcare business to be the most admired healthcare marketing company in Sri Lanka.
The FMCG sector reported revenues of Rs. 1.3 billion in 1HFY15, up 16.0% YoY, on the back of both volume and price growth. The sector accounts for 16.2% of group revenue for the quarter. The branded tea business within FMCG sold 1.5 milliom kilograms of branded tea, up 11.6% YoY, primarily driven by their largest brand ‘Watawala Tea’. The division also markets edible oil under the ‘Oliate’ brand and bottled water under ‘Zest’ brand.
PAT from the FMCG segment contracted 7.4% YoY to stand at Rs. 123 million in 1HFY15, with margin of 9.3% in 1HFY15, compared to 11.7 % in the same period last year. The dip in profitability is due to a challenging 1QFY15 which generated only Rs. 29 million PAT at a margin of 4.9%. But this was reversed in 2QFY15 where profits grew by 19.6% to stand at Rs. 94 million. 2Q PAT margin was at 12.9% and was comparable to same period last year.
The Agri sector with revenues of Rs. 3.7 billion in 1HFY15, up 27.9% YoY, contributed 45.1% of the total group revenue. Management attributes the strong topline growth mainly to its tea segment which saw higher volumes aided by favourable weather in 1QFY15, and increased quantities of bought crop. Palm Oil volumes (+5.7% YoY) continued to grow steadily during 1HFY15.
PAT for 1HFY15 amounted to Rs. 262 million, against Rs. 99 million in the same period last year. The growth is mainly attributed to the strong performance in the 1QFY15, with PAT for 2QFY15 just amounting to Rs. 31 million, down 64.2% YoY. 2QFY15 was challenging for the Agri sector which was adversely affected by inclement weather.
Nevertheless, the Palm Oil segment which made Rs. 421 million PAT for 1HFY15, continued to be the largest contributor to WATA profits and managed to cover the losses in both tea and rubber.
Packaging revenues amounted to Rs. 137 million, up 4.0% YoY in 1HFY15, against Rs. 132 in the same period last year. 2QFY15 was challenging to the packaging division which saw a contraction in sales to the Tea Export Industry currently suffering from tensions in the CIS and the Middle East. Sales to the confectionary sector were also lull highlighting the challenges in the industry. PAT was negative for the packaging business at (Rs. 7 million) due to a challenging 2QFY15 as a result of low capacity utilisation at the plant.
Revenue for the renewable energy division witnessed a dip of 24.6% YoY to Rs. 46 million in 1HFY15 due to low rainfall during 1QFY15 and also five day loss of revenue due to CEB grid failure. As a result, the mini-hydro plant, which is in its second year of operation made PAT of Rs. 2 million, down 36.3% YoY.
For FY15, they expect revenue growth to be largely driven by their core business segments. Their healthcare segment will focus on aggressively growing its Wellness brands business, and to increase the retail footprint of Healthguard. The group also expects more traction from the new products which were introduced during FY14. In the Parma space, the company has launched 51 products for 1HFY15 and plans to lunch another 26 products in 3QFY15.
In FMCG, they are bullish on their bottom of the pyramid strategy, in which they target to convert the unbranded tea consumers with they ‘Ran Tea’ brand. This segment is estimated to consume approx. 14 million kilograms a year. They will also continue to expand their edible oil and bottled water business going forward.
For the Agri sector, they expect the Palm Oil segment to continue its strong performance for 2HFY15. They expect CPO prices to be challenged during 2HFY15, given the global dip in CPO prices.
They are also mindful of the demand side issues with buying at the auctions slowing down due to issues in key Ceylon tea markets in CIS and the Middle East.
In their road map towards 10MW, the group plans to add another two mini-hydro plants with a combined capacity of 5MW, at a cost of Rs. 1.2 billion. Power Purchase Agreements (PPA) with the CEB were signed during 2QFY15 and the two projects will commence construction soon.