Dairy Farm FY19 results: sales down 4.7%

Charles Chan
Senior Retail Analyst

Date : 05 March 2020

Dairy Farm has reported a mixed set of results for the fiscal year ended 31st December 2019. Performance of its Southeast Asia Grocery Retail and Health and Beauty businesses improved, but underlying profit for the Group was impacted by social unrest in Hong Kong.

Sales growth from 4 out of 5 divisions, but 2019 sales down 4.7%

Dairy Farm’s sales in 2019 fell 4.7% to US$11.1bn year-on-year (yoy). This was despite improvements across four out of the five segments that it reports.

Consolidated sales including joint ventures and associates increased 26% to US$27.6bn yoy. This was driven by strong sales growth and positive LFL sales by Yonghui in mainland China.

Food: large format sales down further, but convenience remains robust

Sales from supermarkets and hypermarkets (excluding Yonghui) declined 12% to US$5.2bn yoy. This was due to the divestment of the Rustan Supercenters business and space optimisation in Southeast Asia. Sales in Hong Kong and Macau increased in 2019, but profits were impacted by cost pressures and ongoing investments in people and capabilities.

Dairy Farm’s convenience business, 7-Eleven (Hong Kong, Macau, Singapore and operations in South China) reported sales of US$2.2bn, up 4% yoy. This was mainly driven by new store openings and strong like-for-like sales in mainland China. Private label ready-to-eat and meal deals continued to help improve sales performance. However, profits for the segment fell 6.8% to US$82m yoy. The retailer added a net total of over 200 new 7-Eleven stores in Guangdong during the year. 

In China, the retailer's key associate business, Yonghui, maintained strong sales momentum. It remains one of the fastest growing retailers in the market. For 2019 (12 months ended 30th September 2019), it posted sales growth of 47% to US$10.8bn. This was mainly driven by store expansion, with more than 600 new stores and the launch of its ‘Mini Store’ format (operates about 700 sq m, positioned to serve communities and fresh food accounting for more than 60% of the store).

Health and beauty: sales up 1%

The Health and Beauty (effectively led by Mannings and Guardian) posted sales increase of 1% to US$3.1bn, but operating profit fell 11% to US$296m (social unrest in Hong Kong). Total sales was supported by the consolidation of Rose Pharmacy (Philippines) and strong revenue and LFL sales growth in other Southeast Asia markets especially in Indonesia and Malaysia.

Home furnishing and restaurants: solid sales growth

Home Furnishings (Ikea in Hong Kong, Taiwan and Indonesia) continued to achieve solid sales growth, posting 6 % growth to US$765m.

Dairy Farm's restaurants business and key associate, Maxim's reported a 4% sales increase to US$2.7bn, benefiting from acquiring Starbucks Thailand business in May 2019 (through a 64%-owned joint venture, with about 370 stores trading). However, Maxim’s overall business was significantly impacted by the ongoing social unrest in Hong Kong.

Over 10,000 outlets across Group

As at 31st December 2019, Dairy Farm, including associates and joint ventures, operated over 10,000 outlets across all formats, compared with some 9,700 at the end of 2018.

Underlying profit down 14%

The underlying operating profit of the Group’s subsidiaries was US$437m, 14% lower than 2018. This was primarily due to social unrest in Hong Kong in the second half of the year. The impact was felt greatest at Mannings, because of the significant reduction in the number of visitors from mainland China to Hong Kong. This was offset by significant improvement in profitability for the retailer’s Southeast Asia Grocery Retail business following space optimisation.

John Witt to become Managing Director

With effect from 15th June 2020 the roles of Chairman and Managing Director, currently held by Ben Keswick, will be separated. Ben Keswick will remain as Chairman and John Witt will take on the role of Managing Director of the company.

Future outlook

The retailer is making solid progress on its multi-year transformation plan, implementing the Group’s customer-focused and market-driven strategy. Due to the scale of change, however, it recognises that it will take time to execute successfully.

Chairman of Dairy Farm, Ben Keswick, said, “While difficult market conditions in Hong Kong impacted the Group’s financial performance during the year, the multi-year transformation of the Dairy Farm Group continued to gain momentum during 2019, with signs of progress across our businesses. The Group’s space optimisation plan, new store formats and improvement programmes together generated greater efficiencies and started to deliver tangible results. We expect this progress to continue in 2020, although the Group’s results are being materially impacted by the ongoing COVID-19 outbreak. Performance for the remainder of the year will depend on the duration, geographic extent and impact of the outbreak and the measures taken to control it.”

Want to know more?

Subscribers can read more on Dairy Farm's Strategic Outlook here.