FMCG drives Sunshine Holdings revenue to Rs. 14.7 b; Rs 1.2 b profit

Monday, 26 May 2014 00:00 - - {{hitsCtrl.values.hits}}

Sunshine Holdings PLC has reported PAT of Rs. 1.168 billion for the year ending 31 March 2014 (FY14), down 6.8% YoY compared to Rs. 1.254 billion in FY13. The company’s reported top line stood at Rs. 14.7 billion in FY14 against Rs. 13.1 billion during last year. Its EPS was Rs. 4.47 billion, down 2.5% YoY.

EBIT margin has contracted to 10.9% in FY14 compared to 13.1% in FY13 due to margin erosion in the agri sector, which is explored in detail below. Despite a 6.8% YoY drop in group PAT, profit to equity holders (PATMI) was down only 2.1% YoY to Rs. 599 million in FY14, due to the limited impact of agri sector on the profit to equity holders as a result of low effective holding. Company stand-alone profit was up to Rs. 1.2 billion in FY14, against Rs. 179 million last year, mainly on account of a profit from sale of shares in one of its subsidiaries. Net Asset Value per share increased to Rs. 35.29 as at end FY14, compared to Rs. 28.14 at the beginning of the year. Healthcare Healthcare revenue of Rs. 5.5 billion in FY14 marginally grew 4.1% YoY. This represents 36.8% of total group revenue. The lull growth for the sector is mainly on the back of a stagnant healthcare sector in Sri Lanka, which only grew 2.7% YoY for FY14 as reported by IMS. Nevertheless, the healthcare division launched 63 new products during the year, including three own-brand products, which the company believes will generate growth in the years to come. The retail segment, represented by Healthguard Pharmacies grew 11.4% YoY. The growth was mainly driven by two new outlets in Thalawathugoda and Orion City. The group plans to expand its retail footprint further by adding another three more stores during FY15. The segment witnessed a slight contraction in PAT margins to 6.4% in FY14 from 6.9% in the last year. This is largely due to the increase in brand building expenses and growth in staff-related costs. The majority of its promotional expenses were spent on its own wellness product brand ‘Surelife’, which it believes is an investment that will yield benefits to the group in the near future. Agribusiness The agri sector, which contributed 41.8% of group revenue, reported revenue of Rs. 6.2 billion in FY14, up 14.9% YoY against Rs. 5.4 billion in FY13. Revenue growth came on the back of an increase in palm oil production, up 9.0% YoY to 8.1m kgs. Tea volumes were almost flat at 9.9m kgs due to heavy rain during 1QFY14. PAT declined to Rs. 434 million for FY14, from Rs. 725 million recorded in FY13. The PAT for the year consists of a Rs. 633 million profit from palm oil and a loss of Rs. 277 million for tea. The overall decline in YoY PAT, and the contraction in margins to 6.9% in FY14 from 13.3% last year, is mainly attributed to the 20.0% YoY wage hike which came into effect from April 2013, which inflated the cost of production across all crops. The total increase in cost due to the wage increase is approximately Rs. 379 million. "FY14 Highlights

Consolidated revenue of Rs. 14.7 b, an increase of 12.5% YoY;
PAT amounted to Rs. 1.2 b, down 6.8% YoY, mainly due to agri wage impact
Healthcare growth lull due to stagnant market;
Agri revenue growth resilient at 14.9% YoY, despite bad weather
FMCG on a bull run with 23.8% YoY growth, as it gains market share"

FMCG The FMCG sector reported revenues of Rs. 2.5 billion in FY14, up 23.8% YoY, on the back of both volume and price growth. The sector accounts for 16.6% of group revenue in FY14. The branded tea business within the FMCG segment sold 2.8m kgs of branded tea, up 11.4% YoY, primarily driven by their premium brand ‘Zesta’. The division also markets edible oil under the ‘Oliate’ brand and bottled water under ‘Zest’ brand. PAT from the FMCG segment grew 56.8% YoY to stand at Rs. 311 million in FY14, with margins increasing to 12.5% in FY14 compared to 9.9% in the same period last year. Other Packaging revenues amounted to Rs. 293 million, up 41.1% YoY on the back of new orders. As opposed to last year, the company’s tin packaging unit was able to attract new orders from two giant confectionary producers in Sri Lanka. PAT was negative at Rs. 5 million in FY14, compared to negative Rs. 31 million last year. The improvement in margin was due to higher capacity utilisation during FY14. Revenue for the renewable energy division witnessed a slight dip of 3.1% YoY to Rs. 97 million in FY14 due to low rainfall during 4QFY14. The mini-hydroplant, which is in its second year of operation, broke even with a profit of Rs. 0.2 million in FY14 against a loss of Rs. 13 million last year. Outlook For FY15, we expect revenue growth to be largely driven by Healthcare and FMCG segments. The company’s healthcare segment will focus on aggressively growing its wellness brands business. The group also expects more traction from the new products which were introduced during FY14 and also plans to expand its healthcare retail sub segment by adding another three stores to the chain. In FMCG, the company remains bullish on its ‘bottom of the pyramid’ strategy, in which it targets the conversion of its unbranded tea consumers with the ‘Ran Tea’ brand. This segment is estimated at approximately 14m kgs a year. The company will also expand its edible oil and bottled water brand. Agri growth will mainly be driven by the palm oil segment, in which it targets to further increase yields through good agri practices. FY15 being a non-wage year, the agri segment is poised to post strong profits over the coming year. In the company’s 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. The two projects are currently pending its PPA’s from the CEB.