At the turn of the decade, nobody could have anticipated that the world would be gripped by a health crisis. As we entered the lockdown in March 2020, we found ourselves as equally prepared as our peers. However, our portfolio of businesses has proven to be resilient in challenging times like these and our investment in our people and the technologies that enable them helped Sunshine to rise to the challenge and carried us through. We came together as a family and a company to support each other and the nation, ensuring that we continued to serve our customers and deliver critical medicines and equipment.

Sunshine Holdings did not just adopt a reactive approach during the pandemic. During 2020, we made significant moves to affirm the strategic direction of the Company. Our strategic merger with Akbar Pharmaceuticals, the launch of the Healthguard Infinity distribution service, and the acquisition of Daintee Limited will reshape our businesses for years to come and establish Sunshine Holdings as a major player in the country’s healthcare and consumer goods sectors. These moves are the result of careful planning and a bold vision that have been executed over several years under the guidance of our Board of Directors. Fitch Ratings upgraded our National Long-Term Rating at “AA+(lka)” with a stable outlook, acknowledging our measured approach to mergers and acquisitions, our exposure to the strong healthcare and consumer goods segments, and our healthy balance sheet.

Aiding the national efforts against COVID-19

Sunshine Holdings has a long history of responding to the needs of the nation in times of crisis. Our priority was towards our employees and we ensured that they continued to be paid on time, even though we lacked clarity on our own cash flows as the nation entered a lockdown. We engaged with our business partners to obtain medicines that could be used for possible treatments as the understanding of the virus continued to evolve. The Company donated pharmaceutical goods for the needy, PCR tests, and ICU beds, of which there was a shortage, and contributed to the President’s Fund. At the request of the Ceylon Chamber of Commerce, we donated a Rs. 9.5 Mn. mechanical ventilation and air conditioning system together with Fairfirst Insurance to the new ICU facility at the National Institute of Infectious Diseases to assist in the fight against COVID-19. Furthermore, we distributed 2,000 care packages in Galle to people who were not able to visit their grocery stores and supplied tea free of charge to all the quarantine centres operated by the Army across the country.

Healthcare

In January 2021, we completed the strategic merger of our healthcare business with the healthcare division of Akbar Brothers, which consists of Akbar Pharmaceuticals, Lina Manufacturing, and Lina Spiro. This has led to the creation of Sri Lanka’s first fully integrated healthcare company that operates in all five segments of the healthcare industry including research and development, manufacturing, importation, distribution, and retail. We had long been considering making this expansion to our healthcare business and Akbar Pharmaceuticals was the right fit for us in terms of capabilities, values, thought processes, and their people. We expect this merger will greatly help us to expand our market share over the next few years.

During the period under review, we also launched Healthguard Infinity, the first of its kind healthcare Distribution-as-a-Service to assist local pharmaceutical importers and manufacturers to expand their reach across the island through a reliable and sophisticated last-mile distribution partner. We have long utilised our own integrated distribution system to deliver to over 3,000 pharmacies and clinics in Sri Lanka and identified that there were considerable inefficiencies in the distribution models currently utilised in the sector. Developing a competent distribution system for pharmaceuticals and implementing stringent distribution practices requires significant investment, particularly where the cold chain is involved. By leveraging our distribution system and cutting-edge technology such as Artificial Intelligence, machine learning, and cloud analytics, any pharma company can realise significant efficiencies and cost savings in the distribution of pharmaceutical goods.

Consumer goods

Prior to our acquisition of Daintee Limited in August 2020, we were a one-product consumer goods company. We had identified consumer goods as a burgeoning sector in the country and developed an appetite to become one of the largest Fast-Moving Consumer Goods (FMCG) companies in Sri Lanka. As the market leader in tea, we saw Daintee, a market leader in the confectionery business, and its brands as complementary to our business. The time was right to rebrand Watawala Tea Ceylon Limited to Sunshine Consumer Lanka Ltd. to reflect our new strategic direction and move beyond tea. Sunshine Consumer Lanka Ltd. is now home to the market leading brands of tea – Watawala, Zesta, and Ran Kahata, and market leading brands in confectionery – Daintee, Milady, Bensons, Chito, Chix, X-tra, and Mr Bitz. The 100% acquisition of Daintee Limited was valued at Rs. 1.7 Bn.

Agribusiness

Although our palm oil plantation was operating at optimal levels for most of the year, the lockdown led to labour shortages during the first quarter of FY21, causing the plantation to operate at a reduced capacity. With the Government’s import ban on chemical/inorganic fertilizers that was imposed in April 2021, there will be a negative impact on the palm oil segment from the resulting reduction in growth and crop yields. We are looking into alternative methods of supplying nutrients organically to mitigate this impact.

Our dairy business has continued to operate at normal capacity, although sourcing local feed proved to be challenging under the restrictions imposed by the lockdown. The increase in demand for fresh milk in the country will see us further consolidate our operations in our dairy segment, which will result in better prices. The capital raised through the private placement to SBI Japan will help to strengthen our balance sheet and increase our herd to optimal levels.

Renewable energy

As the energy requirements of the country continue to grow, there is an increasing need for stable power generation. We currently generate approximately 1.4 MW of solar energy which is connected to the national grid. However, Sunshine has strategically exited from hydropower segment in April 2021 to focus more on Healthcare and Consumer businesses.

Human capital

We believe that our employees are the embodiment of our values. In a year such as the one we have just had, the continuous investment that Sunshine Holdings makes in its people truly comes to the fore. Our leadership ensured that our employees were able to work safely during the pandemic and carried our teams forward. We continued to engage with our employees transparently and even though most of our employees were working remotely, we held employees’ engagements virtually, adhering to the guidelines issued by the Health authorities.

The Company amended its employment terms and conditions to include a zero-tolerance approach to proven cases of gender-based violence and sexual harassment. Our reporting mechanisms were updated to protect the identity of complainants and adopt a victim-centred approach in applying remediation in accordance with our HR policies and national regulations. The complaints channel is open to all staff, including outsourced and contracted staff. The Great Place to Work® (GPTW) survey endorsed that Sunshine entities are great places to work.

Social capital

Corporate social responsibility lies in the DNA of our Company. Beyond our nation building efforts across our businesses, we firmly believe in giving back to the society with whom we do business. With the establishment of the “Sunshine Foundation for Good” during our 50th anniversary, all our companies were able to channel their corporate social responsibility efforts and initiatives under one umbrella, with health and education being the two main pillars of the foundation. During the period under review, we commissioned four reverse osmosis (RO) plants in Galewela in the Central Province, Galgamuwa in the North Western Province, Rajanganaya and Medawachchiya in the North Central Province, enabling over 6,000 students and 10,000 residents of the surrounding villages to have access to over 40,000 litres of clean drinking water a day at Mahasen Maha Vidyalaya, Usgala Gemunu Maha Vidyalaya, Galewela Madhya Maha Vidyalaya, and Anuradhapura Sri Sobitha Maha Vidyalaya. The lack of access to clean drinking water is a major contributor to chronic kidney disease and providing clean RO water will not only help to eliminate the disease but also help to reverse the effects for those who have been affected. In partnership with the Sri Lanka Navy, we have commissioned a total of eight RO plants in the North Western, North Central, Southern, Central, and Uva Provinces, providing clean water to over 20,000 residents and we will continue to carry on these efforts.

Outlook

Our financial performance is the result of prudent cash management, optimal debt, careful strategies, and productivity enhancement. We determined a need for increased liquidity in the market and in February 2021, we announced a subdivision of our shares on the basis of one into three. This would increase our shares in issue from 149.55 million to 448.66 million.

Our investments in technology have been quite measured and always done with our customers in mind and how they stand to benefit. We invested in rolling out the IFS Enterprise Resource Planning (ERP) system across the Group, having evaluated how integrating the system will benefit our expansion plans. Our digital transformation greatly contributed to the ease in with which we shifted to working from home during the pandemic. The past year has also shifted our thinking in the role of the office and how working from home may become more universally accepted going forward. As always, it is a journey and when a strong business case presents itself, we will make the necessary investments and changes.

Recruiting good talent in Sri Lanka remains a challenge. Education is critical to developing good talent but there remains a dichotomy between what is taught in schools and what is required to function in a business. We continue to invest in our employees and provide them opportunities for learning, even making it a part of their KPIs to develop themselves. The bigger picture is that self-development benefits everyone, including the Company.

We anticipate that there will be opportunities for consolidation in various sectors and we will continue to explore these on a case-by-case basis. With the expansion of our healthcare business, we see opportunities to expand production of prescription products and an emerging market for wellness products. However, the challenge to the Company we currently perceive is the depreciation of the Sri Lankan Rupee. We are reliant on imports for our pharmaceutical products and medical devices, whose prices are highly regulated. We have long requested the Government to implement price controls that are tied to the currency exchange rate, but a long-term pricing mechanism is yet to be developed. Unfortunately, the ongoing pandemic may continue to impact the currency, although our Government is trying earnestly to bring in foreign investment to the country and stabilise the situation.

As a Sri Lanka-focused conglomerate, we are willing to capitalise on opportunities and take risks because we remain bullish in the long term on Sri Lanka and believe that the market has plenty of scope to develop.

In closing, I would like to express my thanks to our many 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 for carrying our Company through the past year. We will continue to live up to our values and persevere through whatever challenges lie ahead of us, with the continued support of our stakeholders.

V Govindasamy
Group Managing Director

25 May 2021