Sunshine Group ups stake in consumer biz; delivers strong profits for FY20

Fuelled by the strong growth in its healthcare sector, diversified Sri Lankan conglomerate Sunshine Holdings PLC reported a notable growth in the bottom line performances during the year ended March 31, 2020 (FY19/20). 
During this period, the group posted consolidated revenue of Rs.20.8 billion, delivering a 60 percent year-on-tear (YoY) increase in profit after tax (PAT). 

The group’s top line performance saw a decline in growth by 8 percent YoY, mainly due to the sale of the tea plantation business represented by Hatton Plantations PLC, during the first quarter, as well as the revenue contraction of the group’s consumer goods sector. 

The group’s healthcare and consumer business together contributed 78 percent to Sunshine’s top line, while the agribusiness sectors of the group contributed 18 percent of the total revenue.

During the month of May 2020, the group boosted its stake in the branded tea company, Watawala Tea Ceylon Limited (WTCL) to 100 percent, which effectively increased its exposure to the consumer sector.

It reduced the group interest in oil palm and dairy, by transferring the stake in Watawala Plantations PLC to a new joint venture called Sunshine Wilmar (Pvt.) Ltd. 

The strategic move is in line with the group’s strategy of taking a significant step in its growth plan while expanding its presence in Sri Lanka’s booming consumer goods sector.

The transaction, which obtained the shareholder approval during March 2020, was only completed in May, due to the closure of the Colombo Stock Exchange, due to the COVID-19 lockdown. PAT for the period in review rose to Rs.1.8 billion, which include a one-off gain from the sale of Hatton Plantations PLC, which amounted to Rs.341 million. 

The strong results were carried through to the group’s profit after tax and minority interest (PATMI), which grew by 102.4 percent YoY to Rs.1.1 billion. 

The group’s healthcare and agribusiness sectors were significant contributors to PATMI, accounting for 44 percent and 34 percent, respectively.

As the largest contributor to group revenue, Sunshine Healthcare grew its revenue by 19.7 percent YoY to Rs.11.2 billion on the back of both volume and price growth in the pharma and medical devices sub-sectors. 

Higher volumes, stable rupee and increased contribution from the medical devices sub-sector, propelled the EBIT margin by 200 bps (basis points) in FY20, compared to the same period last year. 

“In healthcare, we expect a strong growth in the first quarter, especially in medical devices and pharma sub-divisions. We are closely monitoring the changes in the exchange rate, which is sensitive to our margins. The sector will continue to focus on improving the product range and service quality. During the lockdown, Healthguard’s operations were disrupted but we were able to identify several opportunities in improving its digital capabilities. During the first quarter, we will look to improve Healthguard’s online business further,” Sunshine Holdings Group Managing Director Vish Govindasamy said.

Sunshine’s consumer brands – spearheaded by the premium brands like ‘Zesta’ and ‘Watawala Tea’ – recorded revenues of Rs.5.4 billion during the period in review, down 7 percent YoY.  PAT from the consumer segment contracted by 39.2 percent YoY, to stand at Rs.297 million for FY20. The decrease was mainly due to the higher investment in advertising and promotions relating to the relaunch of the ‘Zesta’ brand and market disruptions during 1QFY20. According to Govindasamy, the consumer business would continue to invest behind its brands to scale the domestic businesses. 

“The consumer business will have a challenging first quarter due to the COVID-19 pandemic, especially due to the disruption in logistics. The company would continue to invest behind its brands to scale the domestic businesses. We also expect a slower recovery in the gift boutique business, which is predominantly dependent on tourism.”
The group’s agribusiness sector, led by Watawala Plantations PLC (WATA), recorded a revenue decline by 46.1 percent YoY to Rs.3.8 billion, due to the divestment of HPL.

However, the palm oil segment together with dairy recorded an 8 percent YoY growth, mainly due to the better performance of the palm oil sector, driven by the shift in the palm oil yield curve. PAT for FY20 amounted to Rs.755 million, up 16.1 percent YoY. 

In agribusiness, the group expects to see moderate growth in volumes for the palm oil segment, due to the shift in the yield curve while the prices are expected to be stable in the short term. The RSPO (Round Table for Sustainable Palm Oil) audit is completed and expects to receive the certificate during FY21.  The dairy subsector has reached a total of 810 milking cows and the total number of animals stands at 1460. Govindasamy noted that the group expects to rationalise the feed cost further and increase the selling price due to the higher demand. 

Revenue of the group’s renewable energy business amounted to Rs.313 million in FY20, down 12.1 percent YoY, from Rs.356 million during FY19, as a result of lower rainfall in the catchment areas, coupled with plant maintenance activities. The sector PAT was negative at Rs.8 million for FY20, compared to a profit of Rs.63 million last year. The group also ventured into solar power with its new company, Sky Solar, with an installed capacity of 1MW.