Strategic consolidation in FMCG sector boosts Sunshine Holdings’ EPS by 23.3% in 1HFY19

Diversified Sri Lankan conglomerate Sunshine Holdings PLC reported top-line performance growth of 5.7% YoY to stand at Rs.10.9 billion for the six months period ending 30 September 2018 (1HFY19). 

The top line increase was mainly due to strong performances in the consumer and healthcare sectors and despite a contraction within the agribusiness sector. The company also reported a 23.3% growth in earnings per share (EPS), stemming from the strategic consolidation of its consumer goods sector during the latter part of FY18. 

Profit after tax (PAT) for the period in review declined by 30% to Rs. 804 million and profit margins have also reduced to 7.4% compared to last year’s (1HFY18) 11.1%, mainly due to lower profitability in the agribusiness sector and holding company’s higher finance cost. The group’s healthcare business emerged as the largest contributor to Sunshine’s top-line performance, accounting for 40% of total revenue, while agribusiness and consumer goods sectors of the group contributed 32% and 25% respectively of the total revenue. 

Profit after Tax and Minority Interest (PATMI) increased by 20.5% YoY to Rs. 424 million with the agribusiness sector, represented by Watawala Plantation PLC and Hatton Plantations PLC, making the largest contribution to PATMI, accounting for 46% of the total. Net Asset Value per share increased to Rs. 52.72 as at end 1HFY19, compared to Rs. 46.74 at end of 1HFY17.

“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 one,” said Sunshine Holdings PLCGroup Managing Director VishGovindasamy. “Throughout the period, key business sectors of the Group have faced notable challenges but however we are pleased to note that the Sunshine Group continues to display a resilient and entrepreneurial spirit in the face of such difficulties.”

“Our continued growth success reflects the dedication of our employees to deliver the best products and unmatched service and convenience to our customers. I would like to commendour dynamic team of employees, and our network of business partners and valued customers for their role in driving outstanding performance despite a number of challenges,” stated Govindasamy further. 

In total, the group’s healthcare segment grew by 11.5% YoY, generating Rs. 4.4 billion in turnover during 1HFY19. The growth was witnessed on the back of volume increase in the pharma sub-sector and footfall growth in retail. Revenue for the current period was negatively impacted by the second round of drug price control which came into effect in September 2018. 

The pharma sub-segment which represents 65% of Healthcare revenue grew 8.1% YoY for 1HFY19, due to higher sales volumes. Growth in other sub-sectors were: Medical devices (+19.4% YoY) and retail (+9.9% YoY). The Group expects the growth of the medical devices sector to be driven by the recent partnerships with 3M Global Channel Services and ErbaLachema while newly acquired pharma agencies from Hayleys Consumer division will enhance pharma division’s revenue.  “In healthcare, we expect strong growth momentum in volumes to continue into 2HF19. Revenue over the next six months will be challenged by the second round of drug price control which came into effect from 1 September 2018. The depreciation of the Sri Lankan Rupee against the US Dollar continues to impact the margins of the entire industry,”Govindasamy commented. 

Sunshine’s Consumer business thrived with an impressive topline of Rs. 2.8 billion in 1HFY19, up 15.8% YoY, on the back of both volume and price growth. It also accounted for 25% of group revenue for the period. Moreover, PAT from the FMCG segment saw a significant increase of 134.9%YoY, to stand at Rs. 236 million for 1HFY19. The increase was mainly driven by the lower input costs resulting in a higher gross profit margin.

The Group’s Agri business sector saw a revenue decline of 7.9% YoY to Rs. 3.5 billion. This was mainly due to unfavourable weather conditions impacting the tea plantations managed by Hatton Plantations (HPL). However, palm oil sub-sector reported an increase in revenue of 4.8% YoY due to the increase in net sale average (NSA) and a marginal increase in crop. Tea volumes were contracted by 26.8% YoY, resulting in a revenue drop of 17.9% YoY. Due to lower yields, PAT for Agri sector1HFY19 amounted to Rs. 453 million, contracting 39.0% YoY. 

In the context of Sunshine’s performance over the last quarter, VishGovindasamy 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 that the potential for further growth, supported by increased volumes to offset the reduced prices and greater attention to its growing surgical and medical devices sub-sector. Healthcare’s retail chain Healthguard focuses to develop specialty Beauty and Wellness product range as the Group looks to introduce newer, exciting ranges of products to the Sri Lankan consumer, while attracting more customers to the chain by increasing the presence in the digital platform.

Similarly, the Group’s consumer business would continue investments into its brands to scale both domestic and expect strong margins for the second half with weak tea prices at the auction during the first half. In the tea segment, Group expects profitability to be further challenged due to low crop on the back of adverse weather in Hatton and Lidula regions. However, a moderate growth in volumes for the palm oil segment is expected while prices are expected to increase with the currency depreciation. 

During 1HFY19, Group’s renewable energy division saw a revenue increase of 89.4% YoY to Rs. 197 million as a result of higher rainfall in the catchment areas. The sector made a profit of Rs. 102 million for 1HFY19, compared to a profit of Rs. 15 million in the same period last year. The construction of Sunshine’s third plant, which was planned to be commissioned during October 2018, has been postponed to end November 2018 due to slow progress on account of inclement weather. 

The overall operation of the dairy segment of Sunshine Holdings is steadily growing to the target of 1,000 milking cows. The total milking cows have reached 991 and the total number of animals has increased to 1,536. However, Govindasamy noted that the interim cost of feeding the whole herd would have a negative impact on the group’s agri profitability.