Dairy Farm Group profit takes a hit from restructure

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Photo from: dairy farm website

(Source: Inside Retail Asia | March 1, 2019)

Dairy Farm Group has chalked up early wins as it embarks on a five-year transformation plan, with net profit up 5.2 percent to US$424 million last year.

Group sales rose 4.1 percent to $11.75 billion, however Dairy Farm Group profit took a $453 million hit from charges relating to the restructure of its ailing Southeast Asian food business. This was partially offset by the sale of its Giant hypermarket store in Ho Chi Minh City, Vietnam, to Auchan and of Rustan’s in the Philippines, which collectively returned $91 million. After factoring in those items, the group’s net profit fell from $402 million in 2017 to just $92 million last year.

Chairman Ben Keswick described the year as “pivotal” for the group with the completion of the strategic review and the development of a multi-year transformation plan to reshape the business. “These changes will make the business more agile and competitive. With a more customer-focused and market-driven strategy, we will achieve long-term sustainable growth,” he said.

While the food business continued to struggle in some markets, Dairy Farm Group achieved a solid performance in its health and beauty business, principally the Guardian and Mannings network, with sales growing at a double-digit rate.

The convenience store business (it has the 7-Eleven business in Hong Kong, Singapore and parts of Mainland China), achieved growth in both sales and operating profit.

“In Hong Kong and Macau, [7-Eleven’s] ready-to-eat food continued to boost sales,” said CEO Ian McLeod. “In Mainland China we expanded beyond 1000 stores. In Singapore there was a slight decline in total sales following the closure of some stores related to the end of a franchise arrangement.”

But across the supermarket businesses – Giant, Cold Storage and Wellcome – in Singapore, Hong Kong, Malaysia and the Philippines, the news was not so good.

“Market competition is intensifying in all key markets, providing customers with more choice, competitive prices, and greater location convenience,” said Keswick. “These changes have impacted the business significantly and at an increasing rate.”

“The challenges for supermarkets and hypermarkets are worsening, and while this is being felt across all our markets, it is being felt most acutely in Southeast Asia. Sales in Hong Kong were ahead of last year, but profit was behind as operating costs, particularly rental and labor costs, continued to increase. Sales and profit were also lower in Taiwan. Giant supermarkets and hypermarkets results were poor across our key markets in Southeast Asia, with lower sales and profits in Singapore, Malaysia and Indonesia. Our food business in the Philippines enjoyed significant growth, driven by strong like-for-like sales and several new store openings.”

Dairy Farm Group’s Ikea business in Hong Kong, Taiwan and Indonesia achieved “strong sales growth” across all markets, aided in part by the opening of a new Hong Kong store and increased sales online.

Looking forward, Keswick remained upbeat, despite the drop in Dairy Farm Group profit last year. “With a more customer-focused and market-driven strategy we will stay competitive, improve performance, and achieve long-term sustainable growth. While the group faces significant challenges in the short-term as we reset and reshape the food business as part of the multi-year transformation plan, the group’s other businesses and key associates are performing well and have strong market positions.”

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