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Positive sales and profit growth for Dairy Farm despite challenging environment for Supermarkets and Hypermarkets - 2018 Annual Report

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Dairy Farm International Holdings (Dairy Farm)

Source: Dairy Farm

Dairy Farm is a pan-Asian retailer and a member of the Jardine Matheson Group. Together with its associates and joint ventures, the company operates supermarkets, hypermarkets, convenience stores, health and beauty stores and home furnishings stores under well-known brands.

FY 2018 Financial Highlights:

Source: Dairy Farm Annual Report 2018

  • Dairy Farm’s consolidated sales increased by 4% year-on-year to USD 11.7 billion in FY 2018.
  • Underlying operating profit grew 16% to USD 426 million, even after including business change costs of USD 73 million. These costs were incurred by the exit of various underperforming stores and stock clearance in the Food business in Southeast Asia
  • Meanwhile, the company’s underlying profit attributable to shareholders rose by about 5% to USD 424 million.
  • Consequently, underlying earnings per share also went up by 5% year-on-year to US¢31.37.

Performance Drivers:

Source: Dairy Farm Annual Report 2018

Performance Drivers (Positive Factors)


  • Health and Beauty Businesses

Dairy Farm’s Health and Beauty businesses achieved a 16% year-on-year growth in total sales to USD 3.2 billion, while operating profit increased 59% to USD 334 million. This was mainly driven by Mannings in Hong Kong and Macau, which experienced a strong performance on the back of a hike in tourist arrivals from mainland China.

  • Restaurants Business

The company’s restaurants business registered a 16% year-on-year increase in total sales to USD 2.6 billion, while profit grew by 13%. This improvement was supported by a strong performance by the business’ branded products division, record-high mooncake sales, as well as the first full-year contributions from Starbucks Singapore.

  • Convenience Business

Dairy Farm’s Convenience business recorded a year-on-year increase in both sales and operating profits for FY 2018. Sales grew 4% to USD 2.1 billion while operating profits rose 9% to USD 92 million. Geographically, Hong Kong and Macau performed strongly with the Ready-to-Eat food segment the key driver behind sales. Mainland China also saw a boost in sales due to store expansion – crossing the 1,000th store milestone and breaking into three new cities in west Guangdong. In Singapore, overall sales fell slightly due to the closure of some stores following the end of a franchise arrangement. Nevertheless, profit improved as a result of an increase in like-for-like sales, as well as cost savings initiatives.

  • Home Furnishings Business

Total sales for Dairy Farm’s Home Furnishings business rose by 11% year-on-year to USD 721 million, backed by the first full-year operations of the new IKEA store in Hong Kong, as well as improved contributions from e-commerce. On the other hand, underlying operating profit remained relatively unchanged at USD 68 million due to increased cost of goods, currency fluctuations, as well as additional development costs of the new store in Hong Kong.

Performance Drivers (Negative Factors)

  • Food Business

Dairy Farm’s overall sales in the Food business (excluding Yonghui Superstores) fell by 1% year-on-year to USD 8.0 billion in FY 2018, while underlying operating profit dropped by 43% to USD 126 million. This was mainly caused by weak performances in the Supermarkets and Hypermarkets division, particularly in Southeast Asia. Hong Kong saw improvements in sales for the year, but a decline in profits due to higher operating costs (rental and labor). Sales and profit in Taiwan, Singapore, Malaysia and Indonesia were all lower – attributable to weak market sentiments, conservative consumer spending and fierce competition.

On a positive note, although the Philippines also recorded a slightly lower sales and profit in FY 2018 compared to the previous year, the country saw strong growth in like-for-like sales and successfully launched several new stores.

  • Yonghui Superstores

Although Dairy Farm’s Yonghui Superstores in mainland China recorded strong sales growth in FY 2018 as a result of an increase in the number of stores, profit was affected by investment in new formats, the cost of a new employee share incentive scheme, as well as losses incurred from the partial divestment of the Yunchuang digital business.

Source: Dairy Farm Annual Report 2018