(Source: Inside Retail Asia | August 4, 2017)
Dairy Farm International Holdings had solid profit growth in the first half despite lower sales in its supermarkets and hypermarkets, says chairman Ben Keswick.
“While the rest of the year is expected to stay challenging for supermarket and hypermarket activities in Southeast Asia, the group’s other businesses continue to make steady progress.”
Overall profits increased with strong results from Maxim’s and Yonghui as well as good performances from the health-and-beauty and home-furnishings divisions, more than compensating for the lower earnings in the food division.
Sales for the period by the group’s subsidiaries of US$5.5 billion were marginally behind last Year’s first half, but flat at constant exchange rates. Total sales, including associates and joint ventures, were 3 percent higher at $10.4 billion. The underlying net profit was $211 million, up 6 percent.
Supermarket and hypermarket sales declined 3 percent lower at constant exchange rates, and profits fell because of continuing softness in some key markets. Trading continued steadily in Hong Kong, but difficult trading conditions in Malaysia, Singapore and Taiwan resulted in lower sales and profits.
In Indonesia, better margin management enabled profits to be maintained despite lower sales, while profitability improved in the Philippines even though sales were flat following the closure of a hypermarket.
Yonghui had 15 percent growth in revenue and a 57 percent jump in profit, thanks to higher store numbers and margin improvement from more effective merchandising.
China underpins growth
Dairy Farm’s convenience stores performed well. Hong Kong and Macau were ahead of last year, supported in part by a modest increase in tourist numbers. In Singapore, sales were lower as some stores were closed, although earnings benefited as several had not been profitable. Store expansion in Mainland China continued to underpin sales growth.
In the health and beauty division, good sales and profit growth were achieved in Hong Kong, Macau and Indonesia.
In Malaysia and Singapore, sales and profits fell as consumer confidence remained low. Mainland China sales were enhanced with successful promotions, and in the Philippines, improved systems following the integration of Rose Pharmacy started to yield positive results.
In home furnishings, Ikea’s performance was driven by strong sales in Indonesia and Taiwan, despite a soft performance in Hong Kong. Store expansion continues with a fourth Ikea store opening in Hong Kong later this year and a site secured for a second store in Jakarta. Meanwhile, e-commerce activities are showing encouraging results in all three markets.
In the restaurants division, Maxim’s (which operates Starbucks in Hong Kong and Vietnam, and other food brands across Southeast Asia) delivered a strong performance as its expansion continued. There are now more than 1000 outlets across Greater China and Southeast Asia.
Dairy Farm last month agreed to take over Rustan’s in the Philippines by acquiring the remaining 34 percent stake from its JV partner.
Maxim’s opened its first The Cheesecake Factory in Hong Kong in May, and in July announced the franchise to run American burger-and-fries restaurant Shake Shack in Hong Kong and Macau. The first store opens next year.
At the end of June, the Dairy Farm group had more than 6600 outlets across all formats, compared with 6548 at the end of last year.
Meanwhile, group CEO Graham Allan steps down at the end this month after five years of introducing changes that have laid the foundation for growth, says Keswick. He will be succeeded by Ian McLeod, who has had more than 30 years’ experience in retail.