Dairy Farm reports challenging FY17 results

Date : 12 March 2018

Dairy Farm has reported a disappointing set of annual results, mainly attributed to the performance of its supermarkets and hypermarkets in South-east Asia.

Annual sales up a modest 1% YoY

Sales was up 1% YoY to US$11.3bn while consolidated sales including joint ventures and associates increased 7% to US$21.8bn, reflecting strong sales growth of 17% to US$ 8.6bn at Yonghui. However, net profit fell to US$403.5m for the 12 months ending December 31st, down from US$469m the year before. The retailer added a net 633 stores during the year.

Food: convenience growth offset by large formats

Sales from supermarkets and hypermarkets (excluding Yonghui) declined -3.2% to US$6bn from previous year in constant currency. Operating profit plummeted -30.4% to US$135m. Large formats sales in Malaysia, Singapore and Indonesia continued to struggle, with a network of unprofitable stores closed in the fourth quarter, compounded by a major clearance of excess old stock. Performance in Hong Kong showed greater resilience, and Rustans in the Phillipines became a wholly-owned subsidiary following the acquisition of the remaining 34% equity.

Its 7-Eleven convenience stores reported sales of US$2bn, up 4% from previous year in constant currency terms. Operating profit increased by 16% to US$85m. The convenience format reported like-for-like growth in Hong Kong, South China and Singapore, driven by click and collect ecommerce services, a general consumer trend towards convenience, stronger collaboration with SEJ and encouraging growth in Guangdong.

Health and beauty: sales and profit up

Similar to 2016, the Health and Beauty division performed strongly, with sales increasing 7% to US$2.6bn and operating profit rising 20% to US$210m. Strong performances in Hong Kong Macau, Indonesia and Vietnam, plus improvements in Mainland China. Singapore and Malaysia were noted to have struggled during 2017.  

Home furnishing and restaurants: strong growth

Home Furnishings (Ikea in HK, Taiwan and Indonesia) again achieved record sales and operating profit during 2017. In constant currency terms, operating profit rose by 8.5% to US$77m and restaurants business reported US$2.2bn in total sales, an increase of 11%.

Future outlook

Dairy Farm will look to deepen its ecommerce presence across home furnishings, food, and health and beauty operations. Maintaining strength in Hong Kong will continue to be important, as will be growth in China. A strategic review to recapture stronger financial performance and profitability is underway. In Singapore, for example, Cold Storage has undergone a detailed range review and recently launched a new format.

In its health and beauty banners, Guardian and Mannings, the retailer will continue to develop its private label brands. Furhermore, the retailer is committed to expanding its c-store network further, as well as testing new smaller-store formats in some markets.

Group chief executive Ian McLeod said, 'In general, we have not responded fast enough to new competition and changing consumer preferences across many of our markets, and need to improve the shopping experience for our customers, as well as address gaps in our range and become more price competitive.'


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