Sunshine Holdings 3Q profits under pressure as higher taxes weigh on consumer demand

Sunshine Holdings PLC’s third quarter performance showed that the Sri Lankan consumer still remains weak amid higher taxes, specially the higher value added tax (VAT).  This is as the diversified conglomerate saw some stress in its consumer brands business and also in its agribusiness, as its margins and profits came under some stress in the three months ended in December 2024.

The group reported revenues of Rs.15.13 billion in the October-December period, up by 6.4 percent from the same period in 2023.

The top-line growth was mainly supported by its outsize healthcare business, comprising of its pharmaceutical agency, distribution and manufacturing operations. The owners and operators of the Healthguard Pharmacy chain said they saw higher revenue in the chain, supported by both values and volumes but the wellness category taken separately saw some volume decline, validating the concerns on the health of the consumer, the company highlighted. This was amply seen from its consumer brands business, comprising of its confectionary business and the branded tea segment.

“The confectionery segment continued to face challenges, due to the weak consumer sentiment, following the VAT increases and intensified competitor activities in the market,” the company said in an earnings release. As a result, the company said it saw a significant volume drop, which had translated into as much as a 30 percent fall in the revenue from this category in the nine months through December 2024, as data aren’t separately available for the third quarter.

Meanwhile, in the company’s branded tea segment, volumes grew by just 1.4 percent, despite a 13.3 percent value contraction in the nine months through December 2024 from a year ago, “primarily due to the partial implementation of the VAT to the consumer”, the company added.

While its Watawala Thei and Ran Kahata have shown some resilience, its Zesta-branded tea experienced a volume decline, the company further said. Despite these top-line and margin pressures in the domestic market, the company said its export business showed improvement in volumes, offsetting the impacts coming from the domestic market.

The company saw a 30 percent increase in the revenue from exports for the nine months.

Its overall consumer business did revenues of Rs.14.37 billion for the nine months, down by just 3.1 percent.

Sunshine Holdings saw a contraction in the earnings before interest and tax margins in its consumer business, which it attributed to the weakened consumer sentiments after the imposition of the VAT. Meanwhile, its agribusiness also saw lower revenues, due to the lower prices for oil palm and also the decline in prices and volumes for its dairy products.

The group reported an operating profit of Rs.2.76 billion for the three months, up 7.5 percent from the same period a year ago.

The earnings came out as Rs.2.42 a share or Rs.1.19 billion for the quarter, compared to Rs.2.85 a share or Rs.1.39 billion in the corresponding period in 2023.

For the nine months, the company reported earnings of Rs.6.83 a share or Rs.3.36 billion, compared to Rs.8.05 a share or Rs.3.96 billion in the year earlier period.

The company however remains optimistic about the future, particularly in the expansion of its healthcare operation, with the completion of the equity infusion from the International Finance Corporation into Sunshine Healthcare Lanka in October last year.