AFTER ACHIEVING A RECORD REVENUE IN 2019, FY2020 WAS SET TO BE A TRANSFORMATIVE YEAR FOR THE UBP GROUP. HOW DID THE GROUP PERFORM BEFORE THE ADVENT OF THE PANDEMIC IN MARCH 2020?
The Group’s performance last year was certainly a milestone. having achieved a record revenue of Rs 3.2 billion for the first time in our history, we began FY2020 with confidence and optimism. Between July and December 2019, all our businesses performed well, with the exception of Gros Cailloux. The trends and financial indicators during this period suggest that we were on track to generate yet another year of record revenues.
Notwithstanding a drop in the performance of our core businesses in the first two months of 2020 and the sharp decline we experienced after the lockdown was announced in March 2020, the year was marked by positive developments in many areas of our businesses:
- We pursued our digital agenda and deployed Office 365 across the Group, which represents an important milestone in our digital transformation journey. The roll-out of this new software was also well-timed, as one of the software’s biggest advantages is the ability to work from anywhere, on any device. This was especially beneficial during the lockdown, as our employees were able to swiftly transition to remote working with easy access to important documents and applications, thus enabling us to continue communicating and collaborating efficiently.
- We appointed a Head of Operations for our core businesses, whose role is to ensure synergies between our entities. Equipped with a bird’s eye view of UBP, we believe he will be instrumental in helping us achieve our performance objectives.
- We obtained our permit to operate the semi-mobile crushing plant at La Mecque. The idea is to leverage its mobility properties to maximise productivity and lower our operating costs, but also to improve our environmental impact.
- We decided to consider exiting from our subsidiary in Sri Lanka following years of facing administrative difficulties and institutional weaknesses.
- The situation in Madagascar remains worrying, even more so in the COVID-19 era. Our activities came to a complete stop and have resumed since, but the country continues to be under a state of health emergency and gatherings of 50 people remain prohibited. This puts a damper on an already complex situation, which has prompted us to rethink our future there. We aim to reach a conclusive decision in the coming year.
- Drymix obtained its ISO 9001:2015 certification in 2018, which attests to the quality of our products and our desire to align ourselves with high international standards. Soon, it will also be the island’s and Indian Ocean’s first laboratory to obtain the ISO/IEC 17025 accreditation for the testing of tile adhesives. Indeed, Research & Development forms the bedrock of Drymix’s ability to consistently innovate. For instance, the “Ti Béton” concrete bags launched last year received a very positive response from the market. This gives us fresh impetus to continue innovating and focusing on product differentiation in a drive to help our consumers undertake their DIY projects. Alongside this, we increased our shareholding in Drymix from 51% to 54.6% during the year.
- Drymix’s subsidiary in Réunion Island, Drymat, officially opened its doors in August 2019. In collaboration with our local partner who holds 20% of shares in the company, we have secured a strong footing in the market.
- We opened our sixth Espace Maison store in Beau Vallon in November 2019. Its distinguishing feature is the full-fledged hardware store designed for construction contractors and other individuals. The area, which we named Espace Pro, was built with the customer journey in mind: from its convenient layout and signage through the aisles, to the simplified check-out process, all touch points were mapped out to create a unique retail experience. This is complemented by a mobile app, Club Espace Pro, dedicated to professionals in the industry. The Beau Vallon store is set to be the pilot project, which we then aim to replicate across all our Espace Maison stores after taking into account customer feedback and tracking our KPIs.
On the downside, Gros Cailloux experienced yet another difficult year, with low yields in our vegetable-growing activities. Despite a 36.4% decrease in our output of sugar produced, a series of incentives granted by the government to small growers enabled us to generate an improved profit in this activity. In line with our ‘Smart Agriculture’ strategy, we installed a new irrigation system with the aim of increasing our efficiency through a more uniform distribution of water. Our results for Gros Cailloux therefore also take into account this substantial investment of Rs 7.9 million.
Overall, we delivered on our commitments across our five strategic pillars: (1) capitalise on synergy levers and ensure efficient processes, (2) ensure a continuous output of innovative products and services, (3) ensure customer engagement and satisfaction, (4) build a workforce able to seize opportunities and (5) continue to build a strong reputation around all our brands.
WHICH FIGURES BEST HIGHLIGHT YOUR PERFORMANCE DURING FY2020?
Before providing you with a summary of our performance over the entire financial year, I believe it is important to first offer you a snapshot of our results between July 2019 and February 2020, before the lockdown went into effect. You will observe that the difference before and after COVID-19 is stark.
As stated earlier, the Group began the year on a very promising note and generated a revenue of Rs 1.8 billion between July and December 2019, compared to Rs 1.7 billion for the same period the previous year. This 6.1% growth in revenue was driven by a solid performance in our core business and retail segments locally. Espace Maison, for its part, recorded a revenue of Rs 540.1 million, a 7.6% rise compared to the previous year. Our Group operating profit stood at Rs 188.2 million, up by 1.4% compared to December 2019.
Our revenue and profitability for the first two months of 2020 were somewhat impacted by bad weather conditions and delays encountered by ongoing major projects, which added to an increase in the production cost of our core business. Upon the announcement of the lockdown in March 2020, we witnessed a decline in revenue due to the halt of all our operations and activities. The virus was spreading at a rapid pace and social distancing measures were implemented strictly. Our priority was, and remains, the safety and well-being of our employees, and we made a clear decision to not reopen our production sites unless we were certain we could do so safely. Retail stores that were deemed non-essential were forbidden from operating, and public gatherings were banned. Fortunately, Espace Maison was able to supply pet food through home delivery, before being authorised to open its shops and operate under a contactless Click & Collect model only. These restrictions impacted our overall revenue, which declined by 47.4% to Rs 422.5 million for the quarter to June 2020 (compared to Rs 803.7 million for the same quarter in 2019). After obtaining the Work Access Permits (WAPs) for our production and sales activities in May 2020, our revenue took a turn for the better, increasing progressively in June 2020 to reach Rs 2.9 billion for the financial year (FY2019 – Rs 3.2 billion).
Espace Maison’s online presence played an important role in helping us offset part of our losses. Despite this, our performance for the year was impacted by exceptional stock provisions and by the expected low performance of our new Beau Vallon store.
Gros Cailloux’s vegetable-growing activities were affected by a drop in yield and prices, despite an appreciable increase in agricultural produce since the end of lockdown as consumers have begun favouring local producers. The leisure park’s activities have naturally seen a sharp decline, a trend we expect to subsist throughout 2020 and even 2021. Our performance was also impacted by an adverse valuation of our consumable biological assets. Consequently, our Group profit decreased substantially from Rs 207.3 million for FY2019 to Rs 21.9 million for the financial year under review.
Even though our budget for FY2021 is based on a level of activity we used to generate three years ago, we take comfort in knowing that had we continued on our trend, despite the unfavourable weather conditions in the beginning of 2020, the Group would have generated 8% more revenue than in the previous year. This leaves us with the confidence that our strategic directions are sound.
THE OUTBREAK OF COVID-19 HAS DISRUPTED COUNTRIES, BUSINESSES AND COMMUNITIES ACROSS THE WORLD. HOW DID THE UBP GROUP RESPOND TO THIS UNPRECEDENTED CRISIS?
It is no understatement to say that the world has changed dramatically in 2020. The speed and magnitude of the COVID-19 crisis is unlike anything we have experienced in our lifetime. A tragic number of people have lost their lives despite countries implementing nation-wide lockdowns, quarantines and social distancing measures. But beyond the human toll, the economic and social damage is already alarming. Production flows are disrupted, demand for non-essential goods is plummeting, and income losses and financial hardships are bringing SMEs and households to their knees. Sadly, I believe we have yet to face the full force of the downstream effects of the pandemic, like deepening existing inequalities, and that the shock will be felt for years to come.
As the pandemic reached Mauritius in March 2020, the government ordered a two-week complete lockdown, which was later extended, as a precautionary measure to curb the spread of the virus. As a result of these bold measures, we became free of COVID-19 as early as May 2020. This is a huge feat given that Mauritius was identified as being one of the most “high risk” countries by the World Health Organisation due to our high volume of international travel and population density.
But before I dive into the current state of our business, I want to start with what I consider to be our greatest asset: our people. Despite the environment of uncertainty and fear that was prevailing, I remain amazed by the speed at which our team members reacted from the very onset. Our employees’ instinctive reaction was to step up to support our company, each other and customers. They took up their respective responsibilities with a level of willingness, ownership and motivation I could not have imagined. Many voluntarily left the comfort of their homes to secure our production sites overnight, with only one thing in mind: the safety of our people. It was nothing short of incredible to witness our team members display such kindness and solidarity even in moments of heightened stress. One indicator that clearly illustrates this is the Employee Engagement, which increased from 75% to 78% in the survey carried out this year. This only reinforces my belief in the values we have been instilling into our culture. The UBP Group truly is one big family. The very next day, we began setting up a plan of action to ensure business continuity. Our first priority was to secure our sites and offices and implement a Work-from-Home protocol. I must say the transition was smooth, thanks to our digitization efforts over the years. Office 365 was particularly useful in keeping everyone connected and productive.
Next, we set up a Facebook page through which we could maintain frequent communication with our employees. It is in times of uncertainty that we realise how much our employees depend on us as trusted sources. We were determined to be as frank and transparent as possible, with regard to what we knew, but also what we did not know. Through video messages, we opened an ongoing line of dialogue, providing information on how to remain safe and maintain social distancing, how to balance the blurring work/home boundaries and what priorities would guide our decisions. All our leaders, myself included, made themselves accessible to our staff so we could maintain a sense of calm and reassurance. This is when our shared sense of purpose and humanity really revealed themselves. In our common enemy that is COVID-19, we reaffirmed our unity as a Group.
Third, we began exploring scenarios for business recovery and resilience: how can we leverage our technology and strengths to adapt to the new normal? How do we address emerging customer needs? How do we maintain our cash flow? Certain businesses, like Espace Maison, were more equipped than others to kickstart their activities. Having launched the latest version of its e-commerce website not long before lockdown, Espace Maison was relatively prepared to serve the urgent needs of customers. The challenge was that with no time to run the necessary tests prior to launch, we knew we would likely encounter technical difficulties. Under the circumstances, speed was of the essence and failure was not an option: with families confined to their homes, demand for Royal Canin products escalated and the number of online queries multiplied. We therefore carried on operating. To our pleasant surprise, Espace Maison’s team rose to the challenge and managed to resolve the issues along the way, all while offering high levels of customer service. Despite the technical setbacks and delays, our clients, many of whom are regular shoppers at Espace Maison, were appreciative of our sincere desire to help. Through our humane approach, we forged a stronger bond with them in this period. In fact, one of the unexpected benefits of this crisis was the conversion of customers who were previously resistant to using digital platforms. Espace Maison experienced a significant surge in the number of users during the lockdown, which has translated into a more widespread adoption of our e-commerce platform since then.
Having met the initial challenges of the pandemic, the next step was to establish a set of Back to Work guidelines for our different activities, which clearly outline the various phases of gradually returning back to the workplace once the lockdown was lifted. All departments and functions were apprised of the new mandatory safety regulations, as well as the new practices in the areas of logistics, meetings or even customer-facing interactions.
In June 2020, our core management team got together to review our strategic priorities. We defined a short-term COVID Plan with the objective of building more agility into our organisational structures, leadership, culture, products and services. A major component of this roadmap is investing in and empowering our key personnel so they are equipped with the skills and confidence to not only capitalise on emerging opportunities, but also respond to threats. This roadmap ultimately brings us a step closer to our long-term strategy, which remains as relevant as ever, even in today’s disruptive landscape.
“I believe the greatest challenge we face is remaining profitable in a world ridden with uncertainty, while also upholding our promise of supporting our employees and preserving employment in all our subsidiaries.”
Even as we confront this uncertain climate, whose impact is clearly visible in our figures for the year, we must recognise that we did not face the same challenges as businesses in other industries. Barring two months of standstill, our activities were quick to resume in May 2020. In fact, I believe UBP is uniquely positioned: we can use this window of opportunity between the first wave of the pandemic and the predicted second wave to develop adequate strategies that will, at the very least, cushion the blow. This is not the case for industries like tourism and hospitality, that are still suffering from the absence of tourists.
CONSTRUCTION HAS LONG BEEN A DRIVER OF THE ISLAND’S ECONOMIC GROWTH AND IS NOW SET TO PLAY A MAJOR ROLE IN OUR RECOVERY. IS THIS A REASONABLE EXPECTATION?
In many respects, I do believe construction could play a key role in leading Mauritius to recovery, especially because the impact of the pandemic on some of the island’s core industries have been far more severe.
Tourism and hospitality, being dependent on tourist arrivals, are the hardest hit and will likely be among the last sectors to resume their activities. Even since our borders have reopened, tourists have been hesitant to travel due to tighter budgets and health-related fear. Alongside this, the financial services sector’s reputation has been tainted by the European Commission’s decision to place Mauritius on its list of high-risk countries for money laundering and the financing of terrorist networks. All of this is exacerbated by our over reliance on imports to procure raw materials or even food for the population.
Given this context, there is no doubt that focusing on construction will provide economic relief to the country, at least over the short term. The government has thrown a lifeline to our industry through an investment of Rs 41 billion and initiatives like the building of social housing units, bus terminals, roads, bridges, dams, hospitals and the completion of the Metro System and fly over road projects. Beyond these measures, these large-scale projects are labor-intensive and contribute to generating employment. This is critical, as the social and psychological impact of unemployment cannot be overstated. The loss of jobs is not only the loss of income; it also strips people of dignity and meaning. If placing construction at the heart of our recovery plan will preserve thousands of jobs, I support it wholeheartedly.
This context seems encouraging and I believe UBP is heading into this new financial year on stronger footing than many other businesses. But we must not rest on our laurels. That’s because in the best or worst of times, the health of the construction industry is tied to the state of the economy. Declining tourist arrivals, the depreciation of our currency against the USD and the EURO and a high inflation rate means that private sector businesses will hold off on large expenditures; likewise, the private dwellings market, which makes up about 60% of our core business revenue, is increasingly reluctant to spend large amounts of money on anything beyond essentials. If that persists, our Group will not come out of this crisis unscathed.
For this recovery to be durable, there is an urgent need to tackle the existing challenge of unskilled labour in our industry. A key element of the government’s plan is an emphasis on the development of skills—an initiative we strongly support. There is no better time to train the new generation of workers in skills related to construction and other ancillary services so we can revitalise the industry and ensure we achieve sustainable success.
WHAT ARE THE GREATEST CHALLENGES FACING THE GROUP AND HOW DO YOU PLAN ON ADDRESSING THEM?
I believe the greatest challenge we face is remaining profitable in a world ridden with uncertainty, while also upholding our promise of supporting our employees and preserving employment in all our subsidiaries.
Gros Cailloux will no doubt be one of our focus areas this year. With reduced activities in landscaping and leisure, and a resulting decline in revenue, our priority will be to increase our agricultural capacity and capitalise on the growing trend of consumers choosing to purchase locally-grown produce, particularly those that are certified by ‘Made in Moris.’ In parallel, we are also seeking new opportunities to enhance our offering in terms of leisure activities. Overall, we anticipate FY2021 to be another challenging year for Gros Cailloux.
In parallel, the retail industry is expected to plummet due to a disrupted global supply chain, rising import prices and extremely unfavourable foreign exchange rates. Consumer habits have shifted and indicators suggest that these habits will endure beyond the crisis. As a direct result, Espace Maison should experience declining revenues as from January 2021. We are in the process of revising our sales strategy in line with new customer behaviours and a different risk environment.
It is unclear how the pandemic will play out or what the longer-term economic impacts will be. With no visibility into what the future holds, we are focusing our attention on our strengths and core capabilities:
- The management team has taken protective measures to embark on a Group-wide cost containment programme, which we believe is key in navigating the current landscape. To this end, we are either deferring or cancelling a number of planned investments so we can manage our cash flow more carefully. These do not include digital innovations, which we in fact intend to accelerate. Our goal, ultimately, is to ensure that our cost structure can support the Group over the next 12 months. But cost-cutting to us does not mean simply tightening the belt; it also means redirecting our costs to the right growth drivers. This brings me to my second point.
- Containing our costs will grant us the agility and flexibility to pursue growth-focused strategies. For this, organisational efficiency is crucial. We are reconsidering the effectiveness of our operating model, products, markets and channels in a way that focuses on high-value and future-oriented projects. Our newly onboarded Financial Controller and Risk & Compliance Officer will both be instrumental in helping us achieve these goals and build resilience so that UBP can thrive in a post-COVID-19 world.
Security is yet another of our big challenges. On a sad note, I am devastated to share that we lost a valuable member of our UBP family in a tragic accident on October 14, 2019. No words can adequately describe our sorrow at the demise of Swaley Cheekhoory, who spent 31 long years with the Group. Unfortunately, production sites are by nature prone to certain risks and hazards. To those who have lost a dear friend and colleague in Swaley, allow me to reassure you that we are redoubling our efforts to strengthen our safety procedures. Beyond the routine checks by Health and Safety officers, we are in the process of setting up a Health and Safety Strategic Committee, whose role will be to maximise employee safety. On behalf of the Group, I would like to convey our sincere condolences to Swaley’s family.
IN ADDITION TO CHALLENGES, MANY OPPORTUNITIES ARE EMERGING FROM THIS PANDEMIC. HOW IS THE UBP GROUP PLANNING TO RESET FOR GROWTH BEYOND THE CRISIS? WHAT ARE YOUR IMMEDIATE PRIORITIES AND LONGER-TERM OBJECTIVES?
I believe the greatest challenge we face is remaining profitable Every crisis, whether it is the 2008 financial crisis or the COVID-19 pandemic, has presented opportunities to reshape our economies and societies in lasting ways. If played out well, a crisis of this scale could result in long-term success. Our reactions and actions during the lockdown have revealed that we have the capabilities to adapt to unexpected situations: we swiftly migrated to new ways of working, with virtual meetings and other forms of digital collaboration becoming standard.
INNOVATION AND DIGITALISATION
The crisis has accelerated existing trends and created an environment in which digitalisation and innovation are king. The e-commerce activity peaked during lockdown as online shopping became the safest and most convenient way to procure necessities. Espace Maison’s performance illustrates this trend. It experienced a spike in demand from existing users and new demographics, like older generations, who continue to favour online purchases today. Knowing that consumer behaviour has altered permanently and that competition has heightened, we are multiplying our efforts to provide a seamless digital experience to our customers: we are continuing to upgrade our mobile platform and remain connected to our clients via social media, while ensuring that our brick-and-mortar shops offer innovative features that enhance the in-store shopping experience.
Beyond e-commerce, our strategy entails consistent digitalisation along our value chain. Notable examples include the migration of our head office server to cloud services and the implementation of a new CRM for Drymix, UBP and Espace Maison. In conjunction with our UBP 2.0 project, which is centred on digitalising our production processes to gain in efficiency and agility, we are developing solutions that will no doubt enable our employees to carry out their day-to-day functions from anywhere and be more nimble to customer needs. I am proud that our efforts and investments in a robust digital transformation strategy over the last few years are paying off, but we still need to progress to be ahead of the curve in this area.
ADAPTING TO NEW CONSUMER HABITS
As consumers are increasingly recognising the need to prioritise local brands in a drive towards more self-sufficiency, this presents a major opportunity for our activities at Gros Cailloux. We aim to meet the growing demand for local produce by continuing to develop our smart agriculture techniques.
Consumers have also paused to reflect on their consumption as they lose confidence in the global food-supply chain. They are now shopping more mindfully and cost-consciously, choosing to go down the DIY path. This is not only applicable to home improvement projects, but also home vegetable and fruit gardening. We have found that by combining the complementary activities and products of Espace Maison and Gros Cailloux, we are uniquely positioned to meet this unprecedented interest in DIY projects, which will certainly outlive COVID-19.
HAVE SUSTAINABILITY AND CSR TAKEN A BACKSEAT IN THE COVID-19 ERA?
Today, headlines are revolving around the pandemic, but climate change could cause economic damages that are far worse than those caused by COVID-19. The pandemic has exposed the environmental damage and social inequalities driven by our current economic system. Now is the best time to reflect on the world we are leaving behind for our children. To us, a resilient recovery means developing sustainable building solutions, as well as getting our vulnerable communities back on their feet.
During the year, we increased our on-the-ground engagement beyond contributing to the national COVID-19 Solidarity Fund. We were active participants in the cleanup effort following the MV Wakashio Oil spill, contributing material, equipment and logistics to the cause. We also pursued our sustainability agenda, with a strong emphasis on energy efficiency. Some of the most notable measures include the upgrade of our fuel monitoring system to reduce fuel consumption and emissions, the implementation of Le Geste Vert d’Espace Maison to encourage recycling and the integration of the UN’s 17 Sustainable Development Goals (SDGs) into our daily actions. At the same time, we continue to explore the development of eco-friendly products.
Preserving the livelihoods of our affected communities has never been more pressing. Our responsibility as citizens of Mauritius extends beyond distributing dividends to our shareholders. Our newly formed Sponsoring Committee was active in supporting our beneficiaries to the tune of over Rs 1.6 million during the year, while gathering volunteers from the Group to help us carry out projects in the areas of Poverty, Education, Sports, Culture and the Environment –
LOOKING AHEAD TO 2020 AND BEYOND, WHAT DOES THE FUTURE LOOK LIKE FOR UBP GROUP?
As we look ahead to 2020 and beyond, even in the midst of an uncertain economic climate, we are rather optimistic about what the future holds for our Group. We know we are fortunate to be operating in an industry that is less vulnerable than other sectors and that has already been experiencing growth. Despite the two-month setback during the lockdown period and assuming a second wave of infections doesn’t strike, we are expecting our core business to return to the activity levels we were accustomed to three years ago. Given the current circumstances, this is an extremely positive scenario.
We expect our core business segment to pick up in the first six months of FY2021 due to the resumption of major public infrastructure and property development projects that were underway when the lockdown was imposed. In contrast, several new property development and smart city projects have been delayed or may be cancelled altogether, and the retail segment will be severely affected by a shrinking purchasing power and imported inflation. As for Gros Cailloux, we are rethinking our strategy in a way that will likely bear fruit in the next two years. Bearing the above in mind, we expect a slowdown in revenue in the second semester of FY2021.
I do not know for certain if Mauritius will be hit by a second wave of infections. But what I do know is that resilience is a recurring theme in UBP’s history. Rather than rely on forecasts, we choose to rely on our highly adaptive business model that has served us well in good and bad times. Over the years, the Group has worked hard to maintain a strong balance sheet and healthy levels of cash on hand, thanks to a prudent and forward-thinking approach. We have also accomplished transformative work to build a more resilient UBP through our investments in digital, sustainability and our human capital. The result? Engaged employees, strong brands and loyal customers. These are not only the pillars of our past success, but also the foundation for our future success.
DO YOU HAVE ANY CLOSING THOUGHTS?
I would like to begin by thanking the management team and the Board of Directors for helping us navigate what we can only describe as an unusual year. I am grateful for their responsiveness, reliability and sound advice in these difficult times.
I also extend my gratitude to our shareholders, customers and partners for their ongoing trust and confidence in our Group.
Last but not least, a heartfelt thank you to our 1,399 team members. I am so proud of the way they have come together in true spirit of solidarity, even in uncharted territory. Thank you for bringing our values and mission to life in a more meaningful way.
Before I end my message, I would like to share some lessons I have drawn from this crisis, both from the perspective of a CEO and in a more personal capacity. When confronting a challenge of this scale, you have two ways out: you can either get trapped in a downward spiral of “what-ifs”, or you can accept that uncertainty is an unavoidable part of life. With this mindset, you can focus on taking action over the aspects that are within your control. Play on your strengths, trust those around you, continue serving and living your purpose, and most importantly, let us not forget that we are stronger together.