Sunshine Holdings profits halve in 3Q amid higher sales and finance costs

Diversified conglomerate Sunshine Holdings PLC saw its earnings more than halved in the December quarter 2022 (3Q23), amid higher sales costs and finance cost, the interim financial accounts released to the Colombo Stock Exchange showed.

The group reported a revenue of Rs.13.6 billion for 3Q23, up 64 percent year-on-year (YoY), though the cost of sales rose at a faster 94 percent YoY to Rs.10.7 billion, resulting in a gross profit of Rs.2.8 billion, up just 4 percent YoY.

The operating profit of the group remained flat at Rs.1.5 billion. The net finance cost for the quarter under review was Rs.387.5 million, up from Rs.31.5 million a year ago.

For the 3Q23, the group reported earnings of 56 cents or Rs.272.2 million, compared to earnings of Rs.1.36 per share or Rs.611.4 million reported for the corresponding period of the previous year. 

For the nine months of the financial year (9MFY23), the group reported earnings of Rs.4.56 per share or Rs.2.2 billion, up 21 percent YoY, on a revenue of Rs.38.5 billion, up 60 percent YoY.

The group’s healthcare business emerged as the largest contributor to Sunshine’s top line performance, accounting for 45.7 percent of total revenue. 

The consumer and agribusiness sectors of the group contributed 36.5 percent and 17.2 percent, respectively, of the total revenue.  In April 2022, Sunshine Tea (Pvt.) Ltd, which is a tea export business, was acquired by the group and its performance is consolidated under the consumer goods sector, with effect from April 1, 2022.

The group’s healthcare segment generated Rs.17.6 billion in turnover during 9MFY23, representing a significant growth of 36.3 percent YoY, on the back of improved performance in the pharmaceutical and medical devices segments.

Lina, the pharma manufacturing business of the group, experienced revenue growth, mainly due to the price revisions, together with the revenue earned from the Metered Dose Inhaler (MDI) sales to the government. 
The first MDI sale was made in the month of July 2022, marking the commencement of commercial operations in Lina Spiro. The healthcare sector PAT decreased by 2.5 percent YoY.

Recording a 133.8 percent increase in revenue compared to the corresponding period of last year, the consumer goods sector recorded a revenue close to Rs.14.1 billion.

Excluding the new addition of Sunshine Tea, revenue growth stood at 30.7 percent. Both tea and confectionary categories have seen a noteworthy increase in revenue during the period in review.  The PAT of the sector amounted to Rs.498 million (up 115.7 percent YoY) compared to the same period last year.

The group’s agribusiness sector, represented by Watawala Plantations PLC (WATA) and Watawala Dairy Limited (WDL), saw a revenue increase of 32.1 percent YoY to Rs.6.6 billion. 

The EBIT margin for 9MFY23 stood at 41.5 percent, against 56.2 percent in the corresponding period of last year, owing to the increased cost of bought crop and reduction in crop volumes by 6.32 percent YoY. 

The PAT of the agri sector closed at Rs.2.6 billion for 9MFY23, down 2.8 percent YoY compared to the same period last year. Commenting on the performance, Sunshine Holdings Chairman Amal Cabraal said, “Amidst tough market conditions, the notable growth in revenue is attributed to strong contributions from all our business sectors on the back of well executed strategies. In the short to medium term, we expect the operating environment to remain challenging.”

“Unprecedentedly high finance costs, soaring inflation along with significantly increased tax rates impacting disposable income and dampening consumption and key export markets experiencing recessionary conditions are some of the key challenges that need to be overcome. The effects of the economic crisis and consequent corrective measures are leading to talent migration and talent retention has become increasingly challenging,” he added.