Embarking on a journey towards a brighter tomorrow four decades ago, diversified conglomerate Sunshine Holdings today stands tall and is ahead of the game due to its consistent efforts on creating a healthier Sri Lanka. The entity, starting off as a small retail shop in the city of Gampola in 1967, grew from strength to strength to become one of the leading healthcare companies in the country, positioning itself as a market leader in its space. While over the years the company added a number of segments to its areas of focus, the healthcare segment remained one of its key strengths. In the recent years, the segment became the highest revenue generator for the company. Mirror Business recently sat with the three heads of Sunshine Healthcare, who provided fine insights into their mantra on keeping the growth momentum steady. In a detailed chat, the trio: Sunshine Healthcare Lanka Ltd Medical Devices Division Chief Executive Officer Thiru Sayandhan, Sunshine Healthcare Lanka Ltd Chief Operating Officer Shantha Bandara and Healthguard Pharmacies Ltd Chief Executive Officer Infiyaz Ali, provided a comprehensive view on how things are done at Sunshine Healthcare, allowing it to reap the benefits of its decades of work.
Following are the excerpts from the interview:
Being one of the pioneers in the healthcare industry, operating in a space that is packed with competition, how has Sunshine Healthcare fared over the years?
Bandara: Healthcare has done very well. It has been one of the best years. Even though the results are yet to be published, we are expecting our performance to be doubled from the previous financial year. It has been one of the good years for revenue and profit growth. Highlighting our performance for 2018/2019, our healthcare business was the largest contributor to the group’s top line performance, accounting for 40 percent of the total revenue. Today our healthcare business includes consumers of the Healthguard pharmacies, pharmaceuticals and medical devices and is but one sector in our four-sector portfolio. By diversifying our healthcare business into three clearly defined sectors, we were able to pay greater attention to each. This strategy has allowed us to post robust performance, particularly for pharmaceuticals, which makes up 60 percent of our healthcare business.
Sayandhan: Post few changes in the industry and to be specific, the rupee depreciation had a major impact on our business because we are largely import based. Taking into account that factor, along with industry changes and the volatility in currency, coming out from those challenges, we are proud to say that we have done fairly well. We were able to increase the sales volumes of our key brands, which is one of the key contributors for the performance achieved. It is the highest when compared with the previous three years.
Could you point out specific factors that helped in achieving the ‘highest in three years’ performance?
Ali: Our people, the teams that we work with, are certainly a key element that has helped us get to where we are today. We have got the talent, the right set of people and that for us is imperative. In addition to that, our offering, the product portfolio, the strong relationships we have with our partners that we have sustained over the years, is yet another element. Furthermore, our focus in IT deployment – that has a major hand on our successes. We have and continue to be aggressive in the use of IT in the frontline. All three businesses: Healthguard, medical devices and pharmaceuticals, use the same ERP so that the visibility for the management is high. Senior managers are given business intelligence tools to enable faster decision-making. So, in a nutshell, it is our HR, our portfolio and the emphasis on IT that has allowed us to be successful.
Could you give a breakdown of the performance? That is, the contribution of each segment.
Bandara: We can allude to the sector performance. We have a very solid double-digit growth. The three of us put together as a healthcare sector, we have posted stellar results. Our latest financials show that the healthcare revenue for 1HFY20 grew 19.2 percent year-on-year (YoY), on the back of both volume and price growth in the pharmaceuticals and medical devices sub sectors. Higher volumes, stronger rupee and increased contribution from the medical devices sub sector propelled EBIT margin by 320 bps in 1HFY20. The pharma sub-segment, which represents 65 percent of healthcare revenue, grew 16.5 percent YoY for 1HFY20, due to higher sales volumes and price increases. The company’s pharma segment currently enjoys 11 percent market share of the local private pharma market. Noteworthy is that we have performed well in the insulin and cardio vascular segment. The access to such medicines is much greater now and our brands have done significantly better than the competition.
Sayandhan: For medical devices, we have four big names: Johnson&Johnson, Siemens, 3M and GNC. Their portfolios have enabled us to expand our reach and offering. One of the key contributors to our growth for the medical devices segment is that last year 3M appointed us as the master distributor while before it had five in the capacity of distributors. This is a significant achievement for us.
Ali: Touching in Healthguard, for the financial year 2018/2019, we contributed 14 percent to the total healthcare revenue. It successfully remains the brand that we are best known for in healthcare. Looking back on how Sunshine kicked off decades ago, we made a name for ourselves with early attempts at stocking a pharmacy with more than just pharmaceuticals. Healthguard follows suit. It is more than just a pharmacy. Healthguard, a drugstore chain, focuses on healthcare, wellness and wellness-led beauty care whilst also focusing on strengthening customer relationships and providing an exceptionally convenient service through the innovative use of technology.
Sunshine Healthcare functions as three separate segments but the financial reporting comes as one entity. Any plans to entirely segregate the three units?
Bandara: Sunshine Healthcare segregated to three verticals about two years ago to have improved focus on each segment. The decision worked well as seen in the outcome, in terms of revenue. Though for legal reporting we go as one, internally we function as three entirely different divisions. It is premature to say if we would or would not legally split as three entities. Having said that, there are possibilities for doing so in the future.
Taking the discussion to a more macro level, how has the government’s policy framework impacted the performance in the healthcare space?
Bandara: The pharmaceutical business is highly regulated in any market and that is how it should be. We, as a company, are fully compliant to all regulatory standards that are there. The government has continuously improved the segment and we have no issues in complying with the same. Since we are working with a number of multi-national companies (MNCs), there are a number of compliances that we need to meet. With regard to quality, we have a quality division that assesses each and every process till the product reaches the customer. At any given time, there will be 10 audits done on our processes. So, any new regulation that comes from the government, it is not a challenge to us, since we are already doing the needful from our end.
Ali: We take our responsibility to the consumer very seriously and that has enabled us to build trust with our stakeholders. We do not compromise this factor. We believe we are beyond the regulation. When looking at what our group has specified as ‘responsible’, we are far ahead than what the government specifies.
Sayandhan: Our entire function revolves around four principles: innovation, diversity, synergy and sustainability. The latter is what pushes us towards ensuring we do enough to gain the trust of our consumers.
Strong internal audits were highlighted. What benchmark do they aim at?
Sayandhan: One is the SEC standard, which are stringent. We have an independent audit team to look at the NMRA. Its requirements are taken into the scope. Our internal audits also takes place at group level. In terms of checks and balances, to make sure all is happening as it should, there are monthly reviews of the audit within the group, especially within the healthcare segments.
Ali: To point out one such, at Healthguard we do mystery customer surveys. This is one of the many methods we use to find out if the customers are happy with what they are offered at our drugstore chain. Similarly, we also have audits to assess the satisfaction of our employees.
Could you go into the specifics on Healthguard? What are the aspirations for that segment?
Ali: Healthguard has a strong presence. It is the only drugstore chain in the country. We are playing in a differentiated space entirely so we are not like the traditional chain pharmacy. We put more emphasis also on the wellness and beauty space. Our focus is beyond the basic. We are not only about the making available the curatives measures but also making sure the access to preventive measures.
Any plans for expansions?
Ali: There are enough opportunities within Colombo and the neighbourhood to improve our footprint. Currently, we have 23 outlets and the newest one is at One Galle Face.
What are the challenges faced in the local healthcare space?
Ali: If we are going to expand our business, we need a pipeline of well-trained and qualified, educated pharmacists. People are the essential pillar of our organisation. They are who drive our advantage. We put in lots of efforts in training our people. We have a dedicated training centre for that. We need to get more people into this industry and that is one of the biggest challenges.
Does Sri Lanka have enough courses to cater to this demand?
Bandara: The good news is that it is getting better evolved in Sri Lanka. There are B-Pharma courses, not just at diploma level but it is being offered as a degree programme. That is a good sign. There will be more skilled people coming in. This is essential for the long-term viability of this industry as a whole.
Have you tried up with the universities to get in more people?
Bandara: Yes, we have partnered with the universities and we also offer internships. This is so that they understand what pharmaceutical is all about. One of the attractive aspects about Healthguard is that when you come in, they develop the knowledge and exposure that are far greater than a traditional pharmacy.
Sayandhan: Talent is essential since we are dealing with top brands. Once they receive the proper training, a particular individual becomes very unique for that product. Therefore, retaining the talent is just as important and challenging. Pharma business as a whole has a challenge of holding on to gross profits (GP), the reason being we operate in a much regulated environment where our prices are governed by the government. With cost escalations happening, it is difficult to hold on to margins. The volatility of the US dollar or whatever country we import from has a clear impact on our GP.
In what area does the healthcare segment identify opportunities to leapfrog?
Sayandhan: There is so much for medical devices, especially since we are in a market that is moving towards an ageing population. So, we are on the constant lookout to fill in the gaps, which we do so by partnering. It is all about in-depth analysis and managing the portfolio.
Ali: For Healthguard, it is more on venturing into the online health space, which is evolving rapidly, the way it is delivered and the way it is accessed. Technology has made services delivery convenient and increasingly accessible. Sri Lanka is very early on with regard to the online trends but we see some headway being made. Innovations are taking place in reducing patient errors when consuming drugs. We need to be mindful of these opportunities and identify which are relevant to the Sri Lankan context. In addition to that, there is immense potential in the wellness space.
What are your medium, long-term goals?
Sayandhan: For medical devices, at the moment, we hold a significant market share but we want to be number one. Getting there fast is something we are looking at. We believe we have the potential to grow with our principal partners with their existing portfolio. We want to enhance that relationship. We also want to be number one in healthcare, when the three verticals are put together.
What is the outlook for the rest of the financial year?
Bandara: We have a robust way of exploring opportunities; there is a team that explores these in the group. We expect strong growth for 3QFY20, especially in the medical devices and pharma sub-divisions. We are looking at increasing our customer base from the existing portfolio. The sector will continue to focus on improving the product range and service quality.
Sayandhan: We are also evaluating number new businesses in the pipeline. We are looking at new partnerships. We will be signing a number of agreements for this purpose in the near future.
Ali: As mentioned before, for Healthguard we need to look at increasing our footprint. The focus continues to be on developing specialty range of beauty and wellness products while attracting more customers to the chain.
