I am pleased to present the Annual Report for the year ended 31 March 2022. The Group Managing Director’s review presents a detailed analysis of your Company’s operations, and therefore my statement is confined to an overview.

Your Company performed well during the course of the year though the start and end were impacted by external factors. The 3rd wave of the COVID-19 pandemic disrupted retail sales during the first half of the year and the steep devaluation of the Rupee and acute shortage of foreign exchange along with rising inflation arising out of country’s serious macro-economic challenges, posed notable impediments to the Healthcare and Consumer sectors. Rising global commodity prices had a dual effect on the Group’s results. The Agri sector benefitted from higher Palm Oil prices, while the Confectionery business was challenged by the significant increase in the price of sugar. Despite the many challenges, I am happy to report that your Company progressed and pursued its growth journey with prudence. The Group recorded a revenue of Rs. 32.2 Bn., a growth of 32.2% and a profit after tax of Rs. 4,997 Mn., an increase of 96.9% over last year.

With the COVID-19 pandemic waning and vaccination cover increasing, hospitals witnessed higher patient footfall in the first quarter, a trend that continued through the year. Consequently, the Group’s Healthcare sector recorded a 37.1% growth in revenue over 2021/22, delivering a profit after tax of Rs. 1,070 Mn., an increase of 29.9% over the previous year. The merger of Sunshine Healthcare Lanka with the healthcare arm of Akbar Brothers in January 2021 was a significant event that added local pharmaceutical manufacturing to Sunshine Healthcare’s portfolio. The launch of Healthguard Infinity, a distribution-as-a-service business, was another major initiative during the year under review. Healthguard Infinity provides pharmaceutical importers and manufacturers a channel to distribute their products to pharmacies and hospitals across Sri Lanka. It also gives access to temperature controlled storage facilities and round-the-clock work teams providing a 24-hour delivery service. These two initiatives have resulted in the formation of Sri Lanka’s first integrated healthcare enterprise, encompassing the entire supply chain from R&D to retail, including islandwide last-mile distribution.

Sunshine’s consumer division encountered much turbulence during the year under review and had to combat many economic and marketplace challenges. The retail trade faced disruptions to sales and cash-flow challenges due to pandemic related intermittent market closures resulting in destocking by the trade, impacting both Tea and Confectionery businesses. The inability to pass on the entirety of the increases in input costs to cash-strapped consumers led to contraction of profit margins impacting sector profitability. The Consumer sector recorded a 13.2% growth in revenue over 2021/22, delivering a profit after tax of Rs. 479 Mn., an increase of 2.7% over the previous year.

Towards the end of the previous financial year, the Company completed two vital initiatives as part of our expansion strategy to widen our portfolio and footprint across the FMCG market. Having cemented market leadership in branded tea, Sunshine entered the confectionery sector via the acquisition of Daintee, a market leader in toffees and sweets with a presence in biscuits and chocolates. Furthermore, Watawala Tea Ceylon Ltd. was rebranded as Sunshine Consumer Lanka Ltd. and incorporates both the Tea and Confectionery business. With these initiatives in place, the focus this year was to amalgamate and integrate the tea and confectionery distribution networks including the sales forces and to upgrade the operations of Daintee to meet Group standards. As expected, the process faced numerous transitional issues that are being successfully resolved, with management remaining confident of expected synergies and cost benefits being realised in the near future.

Another strong performance by palm oil saw the agriculture sector recording a revenue growth of 64.6% over the previous year, delivering a profit after tax of Rs. 3,458 Mn., an increase of 108.0% over last year. Palm oil prices reached an all-time high largely due to global market supply issues. However, the production of palm oil was hampered due to the shortage of fertilizer despite best efforts to overcome the problem via the use of organic substitutes. As a result, we were not able to capitalise fully on the favourable market conditions.

The Dairy sector performed well in the first half of the year, but thereafter was hampered by the shortage of maize, a key element in cattle feed. Due to the absence of fertiliser, the extent of maize cultivation in the country fell from 120,000 acres to 30,000 acres during the year, causing feed costs to surge. Whilst higher milk selling prices to some extent mitigated the significant cost increases, the dairy sector performance was below expectation, growing revenue by 6.8% and delivering a bottom line of Rs. 28.0 Mn., an increase of 37.6% over last year. Nevertheless, in accordance with the country’s aim of reaching self-sufficiency in local milk production, Sunshine will continue to drive the dairy business while combating the multiple challenges in the operating environment.

During the year under review, your Company exited the energy sector, which was plagued by regulatory issues and other hurdles that precluded the delivery of the expected return on investment. Sadly, there was insufficient commitment by the Government for the generation of renewable energy by the private sector.

I am happy to report that your Company has made good progress in the management of its human resources. A formal employee survey carried out by the internationally recognised ‘Great Place to Work’ organisation rated Sunshine Healthcare among the top 40 companies in the country, with every other company belonging to the Group also certified as a ‘Great Place to Work’. These results have been the culmination of a series of HR activities carried out over the past few years. As a Group, Sunshine believes that happy and content employees are more empowered and accountable, and ultimately deliver outstanding results. Whilst continuing to foster the HR initiatives already in place, many new practices are also being pursued to ensure all Group companies remain great places to work.

Much progress has also been made on the IT front. Investing a sum exceeding Rs. 200 Mn., the Group’s ERP systems were revamped and upgraded, bringing all companies onto a common digital platform. This investment has already begun to pay dividends through the simplification of operations, improved data gathering and dissemination, increased productivity, better execution and improved cost efficiencies. Leveraging digital technology is a key strategic thrust for Sunshine. This is evident across the various operations of the Group, but is especially so in the Healthguard retail business. Healthguard’s on-line store, which was augmented during the time of pandemic-induced restrictions, is one of the most efficient on-line pharmaceutical stores in Sri Lanka. Sunshine is aware of the immense potential that digital technology offers and is committed to investing and accelerating its journey on this front.

The Group is acutely aware that it’s business depends on the bonds we create with our wider stakeholder group, and consider it our duty and responsibility to give back to society. Sunshine has a very wide-ranging CSR programme with a planned set of activities. During the year under review, many donations of medical equipment were made to several hospitals, with the Rs. 62 Mn. contribution to build a mobile laboratory for COVID-19 testing at the University of Sri Jayewardenepura a notable initiative. Much of the societal CSR is carried out through the Sunshine Foundation for Good. Clean water provision is a key priority for the Foundation, particularly in the context of the prevalence of chronic kidney disease in parts of the country. Two reverse osmosis plants capable of providing 10,000 litres of water per day were established in Tabuttegama and Galnewa during the year, and there are plans to establish five more plants in the Pooneryn area in the forthcoming year. Sunshine also operates a day-care centre for differently-abled children in Lindula which can accommodate 24 children.

The year ahead will be one of unprecedented challenge. As the country battles to overcome the economic, political and social crisis, consumers and businesses will have to face and steer through a period of significant turmoil. The ongoing shortage in foreign exchange, the scarcity of fuel, interruptions to power supply and rising commodity prices will continue to impede operations in the forthcoming year. The effects of the rapid increase in inflation, steep rise in interest costs, sharp devaluation of the Rupee and the expected increases in tax rates will pose added challenges. Nevertheless, I am confident that with the Board’s guidance and the relentless efforts of the competent and dedicated team, the Sunshine Group will continue to create and deliver value to all stakeholders.

On behalf of the Board, I would like to thank the outgoing Chairman, Mr Munir Shaikh. Mr Shaikh joined the Board in 2010 and served as Chairman from 2015 until his retirement during the year under review. The Board places on record its heartfelt appreciation for his invaluable contribution to the Company. The sound advice and guidance provided by Mr Shaikh has been instrumental in guiding the business to its present position of strength which the Group will strive to build on.

Finally, I wish to thank the Board of Directors for their advice and assistance in steering the Group. I also wish to thank our customers, business partners, suppliers, regulators and our shareholders for their support and cooperation. Last but not least, a very special word of appreciation and thanks to all employees who have worked diligently under tough conditions to deliver strong results.

A Cabraal
Chairman

27 May 2022