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Diversified Sri Lankan conglomerate Sunshine Holdings PLC has reported top line growth of 8.0% YoY to stand at Rs. 5.6 billion during the first quarter of the current financial year (1Q FY19).
The top line increase was mainly by strong performances in consumer and healthcare sectors, and despite a slight degrowth within the agribusiness sector.
Profit after tax (PAT) for the period in review declined by 38.8% to Rs. 343 million and profit margins has also reduced to 6.2% compared to last year’s (1Q FY18) 10.9%, mainly due to lower profitability in the agribusiness sector and holding company’s higher finance cost. Profit after tax and minority interest (PATMI) declined 21.6% YoY to Rs. 192 million with the agribusiness sector, making the largest contribution to PATMI, accounting for 50% of the total.
The group’s healthcare sector emerged as the largest contributor to Sunshine’s top-line performance, accounting for 40% of total revenue, where agribusiness contributed 33% and consumer 25% of the total revenue.
Recently, Sunshine announced a private placement to raise Rs. 775 million with SBI Ven Holdings Ltd., the overseas private equity firm of Japan’s financial giant SBI Holdings Inc. Through this private placement, Sunshine Holdings looks to reduce its net debt and net finance cost.
The Group’s Healthcare sector posted revenue growth of 15.6% YoY on the back of volume increase in the pharma sub-sector and foot fall growth in retail, represented by its rapidly-growing Healthguard Pharmacy chain, growing 13.5% YoY, among notable developments within.
The pharma sub-segment, which represents 67% of healthcare revenue, grew 15.6% YoY in 1Q FY19 due to higher sales volumes. Medical devices sub-sector grew by 16.2% YoY and the Group expects the growth of the sub-sector to be driven by the recent partnership with 3M Global Channel Services, which appointed Sunshine Healthcare as the master distributor for its products in Sri Lanka.
“In Healthcare, we expect strong growth momentum in volumes to continue into 2Q FY19. The healthcare industry is expecting another phase of price control by the regulator during 2Q FY19. Although this was announced by the Minister of Health on 1 August, no guidelines have been issued by the regulator on the same,” Govindasamy commented.
The consumer sector reported revenues of Rs. 1.4 billion in 1Q FY19, up 22.2% YoY, on the back of both volume and price growth, and accounted for 25% of group revenue for the period. The domestic branded tea business within consumer sold 1 million kg of branded tea, up 8.3% YoY, driven by Sri Lanka’s number one tea brand ‘Watawala Tea’, and their budget brand ‘Ran Kahata’. PAT from the consumer segment grew by 77% YoY during 1Q FY19, mainly driven by the higher sales volumes coupled with margin expansion due to reduced tea prices during the quarter.
The Group’s agribusiness sector, led by Watawala Plantations PLC and Hatton Plantations PLC, saw a revenue decline of 7.2% YoY to Rs. 1.8 billion due to unfavorable weather conditions. Palm oil volume contracted by 16.9% YoY for 1Q FY19 due to a decrease in yield and reflected a YoY revenue drop of 11.5%, despite an increase in net sale average (NSA). Tea volumes contracted by 14.3% YoY, resulting in a revenue drop of 9.8% YoY.
Particularly in the context of Sunshine’s performance over the last quarter, Vish Govindasamy expressed strong confidence over the outlook of the group over the coming year. While acknowledging the continuing impact of the rupee’s depreciation against the dollar, which continues to impact the margins of the Healthcare industry, he noted that the potential for further growth, supported by increased volumes to offset the reduced prices and greater attention to its growing surgical, medical devices and retail sub-sectors.
He also noted that Group’s consumer business would continue to invest behind its brands to scale the domestic businesses, while expecting strong margins for 2Q with weak tea prices at the auction during the 1Q. In the agribusiness, he expects to see moderate growth in volumes for the palm oil segment while prices remain at current levels. In the tea segment, he expects profitability to be challenged due to low crop on the back of adverse weather in the Hatton and Lidula region.
On the dairy sub-sector, the total milking cows has reached 896 and the total herd to 1,374. Overall operation is steadily growing to the target of 1,000 milking cows. Nevertheless, the interim cost of feeding the whole herd will have a negative impact on agri profitability. In the renewable energy segment, construction of the third plant is underway and is expected to be commissioned by the end of August.
About Sunshine Holdings
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, have secured partnerships with top global brands and have won prestigious awards at the national as well as the regional level. The leading brands of the group include Zesta, Healthguard, Watawala Tea, Pedia Plus and Diabeta Plus. Estate Management Services Ltd. (EMS), the agri-business arm of Sunshine Holdings PLC, manages Watawala Plantations, Sri Lanka’s largest palm oil producer, and Hatton Plantations, one of the largest tea producers in Sri Lanka. The company’s healthcare marketing unit is the second largest in its sector nationally. Its tea sector also consists of Sri Lanka’s best-selling tea brand locally. The group, which provides employment to approximately 10,000, generates over $ 138 million in revenue.
