SUNSHINE HOLDINGS PLC

Annual Report 2021/22

Leadership

Group Managing Director’s Review

Our year was defined by strong strategic initiatives through prudent cash management, business expansion and investments in next-generation technology – all of which helped us generate positive results in a year that tested the mettle of our people and our true resilience as a company.

While the first quarter of the year saw the country head back into lockdown with the emergence of the Delta variant of COVID-19, access to healthcare and pharmaceutical products as well as consumer goods continued. Restrictions eased both locally and globally by the end of Q2, with the business focused on moving forward and realising the dividends of our mergers and investments. Our strategic exit from the renewable energy sector at the onset of the financial year helped us fully focus our resources to implement and execute the expansion across both healthcare and consumer segments. However, rapidly dwindling foreign currency reserves and rising inflation caused major disruptions to the sourcing and import verticals of our operations in Q4, shrinking our bottom-line margins.

Despite the challenges of the year under review, Sunshine Holdings Group recorded a sound performance with an Rs. 32.2 Bn. consolidated revenue for the reporting year. This is a strong growth of 32.2% from the previous year, paving the way for a net profit of Rs. 4,997 Mn., an increase of 96.9% over last year. Our total assets grew to Rs. 29.2 Bn. from Rs. 26.9 Bn., backed by the growth in equity from Rs. 15.3 Bn. to Rs. 18.4 Bn. The group has a strong financial position as at 31 March 2022, with Fitch Ratings re-affirming our National Long-Term Rating at AA+ (lka) with a stable outlook, our measured approach to mergers and acquisitions, our growing market share in healthcare and agriculture segments, and our healthy balance sheet, gave rise to a strong financial position as at 31 March 2022.

HEALTHCARE

Our strategic investments in the healthcare division in early 2021 gave us the capabilities and expanded market reach to scale and broaden our existing portfolio, and we ended the financial year with a 37.1% growth in revenue over the previous year.

The Group’s Healthcare business merged with Akbar Pharmaceuticals, Lina Manufacturing and Lina Spiro in January 2021. With this merger, we added research and development as well as manufacturing to our healthcare portfolio,

Our growing presence across the healthcare sector enabled us to address pressing supply chain issues that had plagued Sri Lanka’s pharmaceutical industry for years – and issues that were acutely felt during the COVID-19 pandemic. The global pharmaceutical supply chain was making a sharp pivot from a Just-in-Time model to a disruptive and agile model that needed to navigate growing industry complexities. With close to 200 importers sourcing supplies to over 3,000 pharmacies and clinics, the Sri Lankan pharma supply chain was similarly faced with demanding challenges due to the inefficiencies of a distribution model made of a patchwork of some 80 distributors.

In early 2021, we established Healthguard Infinity – the first of its kind healthcare Distribution-as-a-Service to assist local pharmaceutical importers and manufacturers in expanding their reach among retail pharmacy outlets across Sri Lanka. By leveraging our existing integrated distribution system with fully-compliant practices and cold chain capabilities, we filled the gap in the local market for a reliable last-mile distribution partner. With a fully-automated system powered by the deployment of digital and analytical tools, we provided clients with access to real-time data to help them realise significant efficiencies and cost savings across their operations.

During the financial year under review, Healthguard Infinity achieved several performance milestones, with Sri Lanka facing a shortage of medicine and medical supplies as well as an energy crisis towards the end of the reporting period, Healthguard Infinity is gearing up to serve our clients and consumers better by offering uninterrupted services while leveraging market data collected to offer Insights-as-a-Service to develop a deeper understanding of consumers and increase efficiencies.

AGRI BUSINESS

Our agriculture sector, too, showed resilient growth for the most part of the financial year, but was negatively impacted as anticipated by the import ban on chemical/inorganic fertiliser imposed by the Government in April 2021.

The USD 2 Mn. investment made in Watawala Dairy by SBI Japan at the beginning of the financial year further strengthened our balance sheet while bringing in vital foreign direct investment to Sri Lanka at a time when investor confidence and sentiment was greatly affected (and continues to be so). We utilised the investment to expand the herd, further improve infrastructure to function at optimal levels, and to strengthen the upstream value chain. However, sourcing local feed proved to be challenging during the final quarter of the accounting year due to cultivations being severely affected by the fertiliser ban.

In both instances, rising prices and growing market demand during Q4 completed a strong top-line and bottom-line performance from palm oil and dairy for the accounting year.

CONSUMER GOODS

With the rebranding of Watawala Tea Ceylon Limited to Sunshine Consumer Lanka Ltd and the acquisition of Daintee Limited in mid 2021, we made significant moves into the Fast-Moving Consumer Goods market. However, our ambitious expansion targets for the sector were put on hold due multiple challenges in terms of intermittent market closures as well as reduced demand for non-essential consumer goods in an increasingly precarious economic context. Despite these challenges, our efforts this year were focused on overhauling practices and driving standards at Daintee to align them with Group standards. Initiatives included upgrading IT infrastructure, accounting systems, governance structures, and human resources practices, along with rationalising and integrating the distribution and sales networks of our tea and confectionery arms. These initiatives have set a strong foundation on which we can expand our FMCG presence in the near future.

INVESTING IN OUR PEOPLE

One of our major success stories during the period under review is the integration of our acquired entities into our existing businesses in both healthcare and consumer goods sectors. In Sunshine’s strategic direction towards expansion and diversification, we have identified acquisitions to be the crucial element of growth and the eventual restructuring and consolidation of our business. We believe in proactively developing a post-acquisition integration process in order to generate synergy and create greater value from economies of scale, combining assets and most importantly from the sharing of resources – especially human capital and knowledge. We ensured the cultural alignment of our expanding teams and gradually reconciled operational functions including marketing, branding, management and sales. Communication was always transparent with timely and concise information about the acquisition and its effects shared across all stakeholders involved.

INVESTING IN TECHNOLOGY

Sunshine Holdings also kept pace with the digital revolution and enterprise technologies so that we remain future-aligned to achieve our business ambitions. During the year under review we ensured that the systems that run our mission critical processes such as financials, planning and HR were upgraded by expanding and implementing the IFS Enterprise Resource Planning (ERP) system across the entire Group to ensure faster, intelligent decision-making, better execution, and value creation. This boundary-less transformation strategy will empower our organisation to evolve and rapidly adapt to new technology changes in future, while continuously increasing our operational and cost efficiencies.

INVESTING IN OUR COMMUNITIES

We continued to assist national efforts against COVID-19 during the year under review as a responsible corporate citizen, ensuring our cold chain services were made available for urgent distribution of vaccines, pharmaceutical supplies among other donations in kind. Beyond the nation building initiatives imbued across our businesses, we continued our community development projects under the main pillars of the “Sunshine Foundation for Good” – Healthcare and Education, across multiple large-scale initiatives and community development projects. In recognition of the multiple forms of value we create for stakeholders, we were once again selected as an Honourable Mention at Sri Lanka’s Most Admired Companies Awards 2021.

FUTURE OUTLOOK

While anticipating an extremely challenging operating environment in the coming financial year with a majority of our business reliant on imports, we will continue to find opportunities to develop our people, our businesses and our communities. We will implement our long-term vision and an investor-friendly governance framework to build confidence and attract leading global equity firms to redirect investments towards Sri Lanka and support the Government in rebuilding depleting foreign reserves.

To do this, we will have to pivot and remain resourceful. A strong development during the year has been the full acquisition of an export business. Sunshine Tea. Over the past few months, the Group has leveraged Sunshine Tea to support our import-dependent healthcare business given the USD liquidity crunch stemming from the drop in Sri Lanka’s foreign reserves. Taking advantage of our strength as a Group with initiatives like this will help us remain resilient in a dire economic context.

In closing, I would like to express my gratitude to all stakeholders including our investors, business partners, suppliers, bankers, the Government and regulators. I thank our customers for their continued patronage of our Company. I thank our team at Sunshine Holdings, whose commitment and devotion to the Company helped us to see through difficult times. I am confident of the commitment and loyalty during what will be a crucial juncture of our growth trajectory during the coming financial year, and of our commitment to live up to our shared values, together overcoming any challenge that lies ahead of us.

V Govindasamy
Group Managing Director

27 May 2022

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