27 January 2017

Bestway Group Announces Financial Results for 2016

The Group’s turnover increased by 9% to £3.28 billion from £3.01 billion in 2015. All our businesses were profitable for the year under review and overall Group profit before tax increased by 6% to £413.3 million as compared to £390.5 million in 2015. This was due to an improvement in the underlying performance of the Banking Group and the Cement business as well as a full reflection of the twelve month performance of Well Pharmacy and Pakcem.

Mr Zameer Choudrey CBE, the Group Chief Executive said, “2016 has been a year of consolidation for the Group. Despite difficult business conditions in the UK, we have maintained our market share across the Wholesale and Pharmacy businesses. During the year, Well Pharmacy was fully separated from The Co-Operative Group and it is now a standalone business, thus eliminating a key business risk”.

Business conditions in Pakistan have been more favourable than last year and we have capitalised on opportunities to enhance our market share in the cement and banking sectors through Bestway Cement Limited and United Bank Limited. During the year, Pakcem has been fully integrated into Bestway Cement Limited and has enabled us to enhance our market leader position in the sector.

During the year, the Group made repayments of £172.2 million as part of its ongoing de-leveraging strategy. This included £125.5 million repayment of debt in the UK, which had been taken as part of the acquisition of Well Pharmacy, as well as repayments of £46.7 million of debt by Bestway Cement Limited as part of Pakcem’s acquisition.

The accounts have been prepared in accordance with IFRS and the move from UK GAAP accounting has resulted in a conversion of the financial statements for the year ended 30 June 2015.

Wholesale Businesses

Turnover in the wholesale business amounted to £2.17 billion, a decrease of 1.1% compared to the corresponding period last year. The marginal decrease was in line with the performance of the broader wholesale sector.

Profit before tax decreased to £19.7 million. This has been driven by a conscious decision to invest in margin to support the independent retail sector against the increased competition from the multiples. There has also been investment in Foodservice and Symbol Club, which should translate into a more positive trading performance going forward. The variance in profitability is also explained by a lower gain on revaluation of properties of £3.0 million in 2016 compared to £18.8 million in 2015.

The wholesale sector has been adversely affected by food price deflation, intense competition and changing consumer habits. This has no doubt impacted our turnover and profitability. However, despite the challenges, we have maintained our focus on the three pillars of Symbol & Club, Foodservice and Digital;

• Symbol & Club: The Best-one and Xtra Local retail club membership continues to grow as we ensure greater discipline and compliance among our affiliated stores. During the year, we introduced The Great Rebate and MyRewards schemes to help our customers increase their margins and profitability.
• Foodservice: Our catering sales are up 5% with over 25 major suppliers now enjoying growth of over 20%.
• Digital: Our online business now has over 28,500 registered users with weekly sales averaging £4.7 million. The mobile app accounts for nearly 15% of all online transactions.

Cement Manufacturing

Two years ago, Bestway Cement Limited (BCL) entered into a binding agreement to acquire Pakcem. The transaction was completed in April 2015. During the year, Pakcem was fully integrated within BCL and BCL’s figures reflect a full 12 months of trading of Pakcem.

BCL has been able to capitalise on the growing cement demand in Pakistan and maximise capacity utilisation both of its core business as well as the recently acquired Pakcem plant. The gap between supply and demand has enabled the Pakistani cement sector to maximise sales with the benefit of stable pricing. However, in the medium term there is likely to be a wave of capacity expansion, which may impact both cement prices and capacity utilisation. BCL is well placed for a change in market conditions given it is the lowest cost producer in the country and it has a diversified cement brand portfolio.

During the period under review, BCL’s despatches increased by 42.2% to 6.9 million tonnes from 4.9 million tonnes in 2015. This increase reflected Pakcem’s despatches for the full 12 months compared to only two months despatches in the corresponding period last year.

Domestic despatches increased by 43.9% to 5.9 million tonnes from 4.1 million tonnes in 2015. On a like to like basis, domestic despatches increased by 13.3%. Exports grew by 21.9% to 941 thousand tonnes as compared to 772 thousand tonnes in 2015. BCL maintained its position as the largest cement producer and the market leader in the domestic market and the largest exporter to Afghanistan and India.

Turnover for the financial year 2016 increased by 44.2% to £295.7 million compared to £205.0 million for 2015. Profit before tax registered an increase of 41.8% from £68.2 million in 2015 to £96.7 million for the year to 30 June 2016. This is due to the increase in sales volumes.

In April 2015, BCL had taken on debt of £182 million for Pakcem. During the year under review, the company repaid £46.7 million of its debt. For the year ended 30 June 2016, BCL declared a combined dividend of 10 PKR per share.

Construction work on the 12MW Waste Heat Recovery Power Plant (WHRPP) at Pakcem plant was completed in record time and the plant commenced operations in November 2016, well ahead of schedule. This will reduce our cost of production, as we will be relying on our own power sources, and we shall be able to enjoy financial benefits in future years. This will also reduce emission of waste gases and positively impact the environment.

In May 2016, the merger of Pakcem into BCL was approved by the shareholders of both companies.

Banking

UBL is one of the largest banks in Pakistan that has market leading positions in all core businesses and was awarded the “Best Bank 2016” award at the inaugural Pakistan Banking Awards. The bank’s long term strategy is to evolve its leading segments resulting in deeper market access and creating opportunities through new product development.

UBL has been able to counteract the narrowing of the interest rate corridor through continued focus on expanding its low-cost deposit base and diversifying of its non-fund income portfolio. There is likely to be ongoing pressure on interest rates in Pakistan in the medium term, however, UBL is well placed to continue to drive volume growth to counteract market conditions.

UBL’s net interest income increased by 15.6% from £342.2 million in 2015 to £395.6 million in 2016. UBL’s profit before tax recognised in the Group’s accounts during the period under review increased from £272.1 million in 2015 to £307.8 million, an increase of 13.1%. For the year ended 30 June 2015, the bank declared total dividend of 13 PKR per share.

UBL’s total assets at 30 June 2016 were £12.1 billion as compared to £8.8 billion for the corresponding period last year, an increase of 37.5%. UBL’s deposit base grew by 30.3% to £8.6 billion for the year to 30 June 2016.

Buoyed by the good performance of the Tanzanian subsidiary, the bank recently opened up another branch in Tanzania.

UBL’s branchless banking ‘Omni’ has doubled its agent network to over 40,000 spread across Pakistan.

Pharmacy

The period under review reflects the first full year of trading of Well Pharmacy within the Bestway Group. Given the challenges presented by government intervention, both directly in pharmacy via reduction in NHS funding and indirectly via National Living Wage policy, Well Pharmacy’s performance for the year ended 30 June 2016 has been very credible.

Despite, the impending reduction in Government funding, Well Pharmacy is well-placed to adapt to market conditions and deliver on its strategic plans. In the medium-term, there will need to be focus on driving efficiencies in the business without compromising on patient service.

Turnover of the pharmacy business for the year ended June 2016 was £802.7 million, with profit before tax of £27.5 million.

The sales growth was driven by prescription volumes and is now comfortably above our competitors and ahead of the market in UK. During the year under review, Well’s market share of the prescriptions nationally grew to 6.0%.

Overall stores performance was driven by good cost control and higher operating margins.

Last year we introduced new initiatives like B2B trading under “Bestway Medhub” and “WellCarePlus”, a care home pharmaceutical supply solution. The B2B business has grown steadily during the period under review and delivered on its forecast profit target; while WellCarePlus has grown sales steadily during the year.

The rebranding of Well Pharmacy was completed in October 2015 and this coincided with the move to its new headquarter in Manchester. In February 2016, Well Pharmacy’s operations were fully separated from the Co-operative Group. During the year, the company added Ideal Healthcare Limited to its existing portfolio.