Sunshine records Rs. 10.7 b revenue in 9MFY14, with FMCG driving top line growth

Sunshine Holdings PLC (CSE: SUN) reported PAT of Rs. 776 million for the nine months ending 31 December 2013 (9MFY14), an 18.9% YoY decline compared to Rs. 957 million in 9MFY13. It’s reported top line stood at Rs. 10.7 billion in 9MFY14 against Rs. 9.8 billion during the same period last year. EPS was Rs. 3.20, out of which Rs. 1.40 is attributable to 3QFY14. EPS for 9MFY13 stood at Rs. 3.65.

The company’s EBIT margin has contracted to 10.5% in 9MFY14 compared to 14.1% in 9MFY13 due to margin erosion in the agri sector, resulting from crop loss due to bad weather, and wage hikes for plantation workers.

Despite an 18.9% YoY drop in group PAT, profit to equity holders was down only 11.9% YoY to Rs. 429 million in 9MFY14 due to the limited impact of the agri sector on the profit to equity holders as a result of low effective holding.

Business segments Healthcare
Revenues for the healthcare sector marginally grew to Rs. 4.0 billion in 9MFY14 up 2.7% YoY. This represents 37.0% of total group revenue. The sub segment pharmaceuticals, which is the largest segment within its healthcare business, grew by just 2.5% YoY, mainly due low growth in the overall healthcare sector in Sri Lanka of 0.1% for 12 months ending Sept 2013 as reported by IMS. The retail segment, Healthguard Pharmacy grew 7.8% YoY. 

The growth was mainly driven by new outlets in Thalawathugoda and Orion City, with same store sale growth amounting to 3.3% YoY

The segment witnessed a slight contraction in PAT margins to 6.0% in 9MFY14 from 6.5% in the same period last year. This is largely due to the increase in promotional expenses and growth in staff related costs. Majority of the promotional expenses were spent on its own brand wellness product line ‘Surelife’ which, the company believes, is an investment which that will yield benefits to the group in the near future.

9MFY14 Highlights
* Consolidated revenue of Rs. 10.7 b, an increase of 9.4% YoY
* PAT amounted to Rs. 776 m, down 18.9% YoY, mainly due to Agri wage impact and a dip in healthcare margins
* Healthcare growth lull due to stagnant market
* Agri revenue growth resilient at 8.8% YoY, despite bad weather
* FMCG on a bull run with 31.9% YoY growth, as it gains dominance over the local tea market

Agri business
The agri sector, which contributed 41.5% of group revenue, reported revenues of Rs. 4.5 billion in 9MFY14, up 8.8% YoY against Rs. 4.2 billion in 9MFY13. The primary driver of agri growth was the increase in palm oil production, up 9.5% YoY while tea volumes were flat due to rain affected crops in 1QFY14.

PAT declined to Rs. 311m for 9MFY14, from Rs. 589m recorded in 9MFY13. The overall decline in YoY PAT, and the contraction in PAT margins to 6.9% in 9MFY14 from 15.5% 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. Tea crop losses also contributed to the decline.

FMCG
The FMCG sector reported revenues of Rs. 1.8 billion in 9MFY14, up 31.9% YoY, on the back of both volume and price growth. The sector accounts for 16.4% of group revenue in 9MFY14. For 9MFY14, the segment sold 2,102,545 kgs of branded tea, up 16% YoY. The division also re-initiated the sale of its edible oil brand “Oliate” in 3QFY14.

PAT from the FMCG segment grew 71.6% YoY to stand at Rs. 226 million in 9MFY14, and margins increased to 12.7% in 9MFY14 against 9.7% in the same period last year.

Other
The packaging division reported revenues of Rs. 210 million, up 19.6% YoY on the back of new orders. As opposed to last year, the tin packaging company was able to attract new orders from two giant confectionary producers in Sri Lanka. PAT was negative at Rs. 6 million in 9MFY14, compared to negative Rs. 10 million in 9MFY13 due to high finance cost.

The renewable energy division witnessed a revenue growth of 34% YoY in 9MFY13 and contributed Rs. 89 million to group revenue. The mini-hydro plan, which is in its second year of operation, churned out a PAT of Rs. 5 million in 9MFY14 against a loss of Rs. 23 million in the same period last year. With all the initial costs accounted for, the company believes that the division will give consistent returns over the next few years.

3QFY14 results

For the quarter ending 31 December 2013 (3Q14), revenue is up 11.0% YoY to Rs. 3.7 billion, while PAT declined 7.7% YoY to Rs. 415 million. PAT margins contracted to 11.1% in 3QFY14 compared to 13.3% in the same period last year, mainly driven by the wage impact in the agri business segment.

Profit attributable to equity holders was down 8.3% YoY to Rs. 187 million in 3QFY14, with reported EPS at Rs. 1.40.

Outlook
Overall, 9MFY14 has been challenging, but the company has managed to turn the business around due to a strong 3Q14 performance.

For the healthcare sector, majority of our growth will mirror the local health sector growth. The group is particularly bullish on its own brand wellness product “Surelife” which it believes will drive above average growth and superior margins in its health segment.

Historically, 4Q is known to be the quality season for agri business, and provided there are no extraordinary weather conditions, the company believes that it can recuperate most of its lost crop in the next few months up to the year-end FY14, to be at least on par with the volumes witnessed last year.

The FMCG business will continue to grow at the same pace till the end of the year. It also expects a slight improvement in margins as Colombo tea prices contract from its record highs witnessed during 3QFY14.

“Taking into consideration the current environment we are operating in, I continue to be optimistic about reporting a sustainable growth in all business units, as we move into the final quarter of FY14,” said Sunshine Holdings PLC Chairman Rienzie T. Wijetilleke.

Sunshine Holdings Plc is a diversified holdings company, with interests in healthcare, agribusiness, FMCG, and renewable energy among other growth industries.

The group’s key portfolio comprises plantation infrastructure across palm oil, tea, and rubber, along with mature healthcare products in pharmaceutical, surgical, and diagnostics and wellness supported by a dynamic proprietary distribution infrastructure with an island-wide reach. Sunshine Holdings’ fast growing FMCG Company is one of the largest branded tea company in Sri Lanka.

The group, which has over 12,500 employees and has generated approximately $ 100 million in revenue, is consistently ranked among the LMD top 50 companies in Sri Lanka.
www.ft.lk

CB evaluating offers to establish Central Counterparty system

By Duruthu Edirimuni Chandrasekera

The Central Bank (CB) is now examining some15 Expression of Interest (EOI) from eligible organizations/persons in the capacity of a Consultant cum Project Manager to set up a Central Counterparty (CCP) and implement a Clearing & Settlement System for faclitating the transactions in the domestic financial markets, CB officials said.

CB together with the Securities and Exchange Commission (SEC), CSE and LankaClear (Pvt) Ltd have jointly invited EOIs late last year for a central counterparty (CCP), which inserts itself between counterparties to financial contracts traded in one or more markets, becoming the buyer to every seller and the seller to every buyer. The CCP is essential for demutualization and dematerialization of the CSE.

“By this month’s end we hope to finalise a party,” a CB official told the Business Times. The Consultant cum Project Manager is anticipated to design the business stipulation for the proposed CCP following an appraisal of the Sri Lankan financial markets and the expected development in the market infrastructure and risks.

“We want him (or institution) to recommend a structure for the CCP taking into account the requirements of all stakeholders, i.e. ownership, financial capital structure and governance; within one month of the commencement of the assignment, submit an inception report stating the project plan and any issues anticipated. The report will be discussed at an inception meeting comprising of all stakeholder representatives; drafting of rules regulations and bylaws that are necessary for the functioning of proposed CCP,” the official said.

He also said that a CCP has the capability to lessen risks to market participants by imposing more tough risk controls on all participants and to add to the liquidity of the markets it serves, because it tends to reduce risks to participants and, in many cases, because it assists anonymous trading.

With this, Demutualization, the process through which a member-owned company becomes shareholder-owned, will be finally true for the CSE.

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CB’s ‘rush to merge’ policies

Last year when a well-known finance company crashed, among its top directors was a man who had been convicted abroad and had changed his name and passport.

A Central Bank (CB) official, asked how the ‘convict’ was permitted to be a director under ‘fit and proper’ rules in the governance code, said “since he was appealing against the conviction, he is presumed innocent”.

So has the CB broken its own code? The CB says in governance provisions relating to appointment of directors of finance companies that directors are persons who have not been subjected to an investigation or inquiry involving fraud, deceit, dishonesty or other similar criminal activity; or have not been convicted by any court in Sri Lanka or abroad in respect of an offence involving fraud, deceit, dishonesty or similar criminal activity. There are more deterrents against rogue directors under these rules but the fact of the matter is that the CB approved a director who had been convicted abroad, in violation of its own law. This is just one case. Some banking officials say that because it is difficult nowadays to find ‘unscrupulously honest’ persons as directors (meaning everyone has done some wrong in his/her lifetime), the rules are bent a bit to accommodate ‘somewhat’ honest persons. What an argument!

Clearly this raises credibility issues pertaining to the ‘fit and proper’ criteria of directors in this sector.

It also raises fundamental issues relating to the current CB plan to consolidate the financial sector. While consolidation as a mechanism to strengthen institutions in preparation to ‘weather any storm’ or a financial crisis and also protect depositors and shareholders is a welcome move, the hurry to enforce the new plan has raised many eyebrows.

Last week, retired banker Ranjith Fernando raised the ‘hurry to merge’ issue and asked the question as to why ‘good’ companies are being forced to merge.

He told a seminar that the plan seems to protect four or five failed companies, in most cases where the directors have misused funds or mismanaged depositors’ funds, while ‘good’ finance companies are being penalized.

Opposition legislator Eran Wickramaratne raised the same issue in a newspaper interview and asked whether there was a motive behind this ‘rush to merge’

There are larger issues in the finance company sector that needs immediate attention than the rush to consolidate. In the ‘fit and proper’ rules, there are at least two CEOs of top financial institutions who figured in a Supreme Court inquiry which contraves ‘fit and proper’ rules pertaining to being investigated, while a former Merchant Bank Chairman was reprimanded by the Supreme Court for being dishonest.

There are scores of directors and senior officials who aren’t “fit and proper” to continue or be appointed but nevertheless it’s a merry-go-round. When Ross Maloney came forward as an investor to bail out the failed Central Investment & Finance Ltd his application was approved despite the fact that accounts at his Touchwood Group had at one time been questioned by the Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB). The latest: Maloney and his wife are absconding from a Securities and Exchange Commission probe after off-loading, crisis-hit Touchwood. Their whereabouts? Unknown!

The worst move by finance companies was investments in real estate, sometimes by directors in their own name using depositors’ funds. These investments were made with a longer-than-usual return period (over 5 years) while collecting deposits at short 1-2 year periods. Routine lending was also longer than the 1-2 year periods which meant that the companies had to have a steady inflow of deposits to return deposits that matured.

In some cases assets were nowhere near liabilities. One finance company’s borrowings is in the region of over Rs 4 billion as against equity of Rs. 80 million in contravention of the rule that borrowings should be just seven times the size of equity.

Under the plan in which ‘affected’ finance companies have to submit a confirmed proposal to merge by March 31, these institutions must have Rs. 1 billion in equity and Rs. 8 billion in assets by January 2016, a tall task for companies that have assets of less than half of that.

38 companies in what is called ‘category B’ must come up with plans by end March to merge or be acquired by 13 bigger and more successful institutions that belong to ‘category A’ or banks. The Business Times has consciously refrained from publishing the list, which it has, of companies listed for mergers to avert a possible run on deposits and another crisis.

Is there an agenda? Are the authorities trying to protect 4-5 failed companies whose directors have taken the money and run? Why the hurry to merge or the urge to merge? These are questions being persistently asked both in the financial sector and the public amidst the inability of the CB to rein in errant directors.

The desperate rush to find partners for affected finance companies is pushing some of them towards the precipice. In the rush some companies are most likely to prop up their balance sheet with ‘dubious’ partners and ‘slush’ funds, once again putting depositors at risk.
www.sundaytimes.lk

JKH hopes casino controversy will fade away

By Duruthu Edirimuni Chandrasekera

While construction of the US$820 million -worth Beira lakeside development project by John Keells Holdings’ (JKH) is on track, the group is hoping the controversy relating to casinos would be resolved as soon as possible, a company official said.

“We have started building the Waterfront project,” he told the Business Times, adding that they are talking to two international gaming operators to run the intended casino but progress has been stalled by unclear laws.

Last month, local casino operator Ravi Wijeratne said he was in discussions with JKH to use his licence while earlier it was reported that the conglomerate was discussing the use of businessman Dhammika Perera’s casino licence. Eventually when the casino takes off it would be a tripartite agreement between JKH, the local licence holder and the foreign casino operator.

JKH, the largest private land owner in Colombo with 25 acres of free-hold land at prime locations in the city and more than 120 acres (excluding existing hotel lands) outside Colombo, will focus on completing its Beira waterfront project this year and in 2015, the official said.

“We want to concentrate on our core business areas,” he said noting that the company won’t launch any new projects relating to property in the near term. Revenues from the apartment project, ‘7th Sense’ and part of the ‘OnThree20’ apartment sales will add to the bottomline of the company for this year. The former is due to be completed by April 2015 while the latter in March.
http://www.sundaytimes.lk/

Mobitel finalizes deal to acquire Hutch for undisclosed price

Transaction to be completed "very soon’’

Mobitel (Pvt) Limited, the fully-owned cellular subsidiary of government controlled Sri Lanka Telecommunications, has finalized an arrangement to buy Hutchison Telecommunication Lanka which has been in business here for several years for an undisclosed price.

The deal will be completed "very soon", sources familiar with it said yesterday. Analysts expected the tab to top USD 100 million.

The transaction has been finalized following necessary due diligence with the two sides agreeing on terms and conditions. Regulatory clearance must now follow.

SLT sources said that acquiring Hutch, a unit of the Hong Kong based Fortune 500 company Hutchison Whampoa will raise the number of its base stations from 5,500 at present to 8,000 and Mobitel will also add a million more subscribers to its present five million strong subscriber base.

"This deal will also clear spectrum interference by Indian CDMA operators and the quality of service to our customers will improve substantially," these sources said.

"By acquiring Hutch, Mobitel will be the largest 3G operator in the country with the best band width."

The acquisition would be partly funded with internally generated cash and partly by debt, they said.
www.island.lk

Lighthouse Hotel profits down, anticipates growth with new rooms

By J Kurukulasuriya

Ceylon FT: The Lighthouse Hotel Plc, a member of the Jetwing Group of hotels, reported a net profit of Rs 39 million, down 29% as compared to the corresponding previous period, interim results for the nine months to 31 December 2013 show. 

But the company noted that five months of the period under review, related to the off-season of the tourism industry, and in the three months to 31 December, profits were up 35%.

Overall revenue improved by four per cent to Rs 430 million in the nine month period, and grew by 11% in the last quarter.

In anticipation of improved showings in the near future, it reported that the construction of an additional 20 deluxe rooms, two suites, three spa rooms, a new restaurant and a bar have now been completed; and the new rooms, except the Spa rooms, have all been in operation since January 2014.

A marked Rs 2.5 million fall in finance income, and a fall of more than Rs 4.5 million in other income, affected the results, along with increases in finance costs from Rs 25,000 to 440,000, most of which was incurred in the last quarter.

The Balance Sheet of the company indicates that it incurred interest bearing loans & borrowings of over Rs 100 million since the last audited Balance Sheet date, 31 March, indicative of the hotel's investment in its new rooms.

'Other Current Financial Assets' fell Rs 99 million since the last audited Balance Sheet date.

The share price fluctuated between a high of Rs 44.90 and low of Rs 39.10 during the quarter ended 31 December.

Jetwing Hotels Management Services (Pvt) Ltd., is the largest shareholder of The Lighthouse Hotel, with a stake of 37%, followed by Mercantile Investments and Finance PLC, which hold 17%. The EPF is the 3rd largest holder, with 11% of the shares, and Bank of Ceylon holding 10%.
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Aitken Spence profits up 10% on falling costs

Ceylon FT: Diversified Aitken Spence PLC reported a net profit of Rs 2.9 billion for the nine months ended December 2013, up 10% from a year ago, interim financial results showed.

Profits before tax rose 10% to Rs 3.5 billion and earnings per share increased 11.2% to Rs 5.68. Revenue rose 10.8% to Rs 24.8 billion and falling costs saw profits from operations to Rs 3.75 billion, up from Rs 3.43 billion a year ago.

Profit before tax from the tourism sector rose 26.2% to Rs 2.3 billion while revenue rose by 10% to Rs 10.3 billion, for the nine-month period.

"The company recorded strong growth from its resorts and inbound travel business in Sri Lanka. Aitken Spence operates a wide portfolio of hotels and resorts in Sri Lanka, Maldives, India and Oman. Its travel arm, the largest in Sri Lanka, is a joint venture with TUI Travel," the company said in a statement announcing its interim results.

During the period, Aitken Spence Hotel Holdings PLC., a subsidiary company, entered into a shareholders' agreement with RIU Hotels of Spain to build a 500-room luxury resort in Ahungalla, costing approximately USD 100m.

Cargo logistics sector, which includes its international maritime services arm, recorded Rs 545 million as profits-before-tax, an increase of 29% from a year ago, while revenue grew 16.8% to Rs 5.1 billion. Aitken Spence has port management services in Africa and the Pacific.

During the period under review Aitken Spence acquired 51% shares in Ports Terminal Limited., through a public-private partnership and took over the managerial and operational responsibilities at the Fiji Ports Corporation.

Strategic investments sector showed a 38% decline in profits-before-tax to Rs 489 million and a 34% decline in revenue to Rs 9 billion.

"Whilst the printing and garments businesses performed well, the power business has shrunk as its plants in Horana and Matara were not operational, following the cessation of the power purchase agreement entered into with the Ceylon Electricity Board," the company said.

Subsequent to the balance sheet date, the 24 MW thermal power plant owned by Ace Power Generation Horana (Pvt) Ltd., was disposed.

The group's services sector saw profits-before-tax grow 18.5% to Rs 154 million and revenue rising by 19% to Rs 458 million. The services sector includes financial services, insurance, elevator agency and technology businesses.

The blue-chip's financial results for the three months ended 31st December 2013 saw profit-before-tax increase by 47% to Rs. 1.58 billion and profit-after-tax increased by 53% to Rs.1.38 billion, while profit attributable to shareholders rose by 54% to Rs 1.1 billion.
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