TIDMDFI TIDMJAR TIDMJDS
RNS Number : 3443R
Dairy Farm International Hldgs Ltd
28 February 2019
To: Business Editor 28th February 2019
For immediate release
The following announcement was issued today to a Regulatory
Information Service approved by the Financial Conduct Authority in
the United Kingdom.
DAIRY FARM INTERNATIONAL HOLDINGS LIMITED
2018 PRELIMINARY ANNOUNCEMENT OF RESULTS
Highlights
-- Sales up 4% at US$11.7 billion
-- Strong Health and Beauty performance but further decline in Food
-- Food business US$453 million restructuring charge following strategic review
-- Multi-year transformation plan in progress under new leadership
"2018 was a pivotal year for the Dairy Farm Group with the
completion of the strategic review and the development of a
multi-year transformation plan to reshape the business. These
changes will make the business more agile and competitive. With a
more customer-focused and market-driven strategy, we will achieve
long-term sustainable growth."
Ben Keswick
Chairman
Results
Year ended 31st December
2017
2018 US$m Change
US$m restated %
Combined total sales including 100% of
associates and joint ventures 21,957 21,827 +1
Sales 11,749 11,289 +4
Underlying profit attributable to shareholders* 424 403 +5
Net non-trading items (332) (1) n/a
Profit attributable to shareholders 92 402 -77
USc USc %
Underlying earnings per share* 31.37 29.77 +5
Basic earnings per share 6.80 29.75 -77
Dividends per share 21.00 21.00 -
* the Group uses 'underlying profit' in its internal financial
reporting to distinguish between ongoing business performance
and non-trading items, as more fully described in note 1 to the
financial statements. Management considers this to be a key measure
which provides additional information to enhance understanding
of the Group's underlying business performance.
the accounts have been restated due to changes in accounting
policies upon adoption of IFRS 9 'Financial Instruments' and
IFRS 15 'Revenue from Contracts with Customers', as set out in
note 1 to the financial statements.
The final dividend of USc14.50 per share will be payable on 15th
May 2019, subject to approval at the Annual General Meeting to be
held on 8th May 2019, to shareholders on the register of members at
the close of business on 15th March 2019.
- more -
DAIRY FARM INTERNATIONAL HOLDINGS LIMITED
PRELIMINARY ANNOUNCEMENT OF RESULTS
FOR THE YEARED 31ST DECEMBER 2018
OVERVIEW
2018 was a pivotal year for the Dairy Farm Group. A detailed
strategic review was completed and a strong new senior leadership
team was built with the right expertise to take the business
forward. In addition, a multi-year transformation plan was
developed to reset and reshape the business to compete more
effectively.
Most store formats reported improved performance in the year,
with Health and Beauty delivering particularly strong results, but
there was increasing weakness in Food. The performance of the Hong
Kong Food business softened over the year and the Supermarket and
Hypermarket business across Southeast Asia deteriorated further.
The transformation plan will realign these Food businesses to meet
changing customer preferences.
OPERATING PERFORMANCE
Sales for the year by the Group's subsidiaries of US$11.7
billion were 4% ahead of 2017. Total sales of US$22.0 billion,
including 100% of associates and joint ventures, were 1%
higher.
Underlying operating profit from subsidiaries was US$426 million
compared with US$367 million in 2017, which included business
change costs of US$73 million principally relating to the exit of
various underperforming stores and stock clearance in the Food
business in Southeast Asia. Increased contributions from Health and
Beauty, and Convenience stores, offset disappointing results from
the Supermarket and Hypermarket business, while IKEA was slightly
ahead. Results include significantly higher store support centre
costs reflecting the increased investment in management and
functional capabilities necessary to take the business forward. The
contribution from associates and joint ventures was down. There was
a record result from Maxim's but a decrease in Yonghui's
contribution compared with the prior year. The Group's net
financing charge rose, reflecting higher interest rates and
additional borrowings to finance further investment in the
Philippines.
Underlying profit attributable to shareholders was US$424
million compared to US$403 million in the prior year, while
underlying earnings per share of USc31.37 were up 5% from 2017.
The net non-trading charge for the year totalled US$332 million.
This included a US$453 million restructuring charge for the Food
business in Southeast Asia partially offset by a net gain of US$121
million principally in relation to business and property
disposals.
Following the completion of a detailed strategic review, which
concluded that Southeast Asia Food was not viable in its current
form, impairments have been made against the goodwill and assets
associated with the Giant business and the leases of the
underperforming stores have been provided for as part of the
business restructuring charge. Net cash costs related to the
restructuring charge are expected to be less than US$50
million.
Partially offsetting the financial impact of the restructuring
was a net gain of US$119 million arising from the reorganisation of
Dairy Farm's interests in the Philippines and Vietnam and the sale
of non-core properties. Notably in the Philippines, a gain was
recognised on the sale of the Rustan Supercenters, Inc. business in
exchange for an investment in Robinsons Retail group, which was
partially offset by an impairment in the value of Rose Pharmacy,
which Dairy Farm now fully owns. Accordingly, the profit
attributable to shareholders was US$92 million for the year,
compared with US$402 million in 2017.
The Group maintained strong net cash flows from operating
activities of US$643 million, slightly below the US$671 million
recorded in 2017. Net debt at the end of 2018 increased from US$599
million to US$744 million, reflecting the additional investments in
the Philippines.
The Board is recommending an unchanged final dividend of
USc14.50 per share. This, together with the interim dividend of
USc6.50 per share, will make a total annual dividend of USc21.00
per share.
In the Supermarket and Hypermarket business, sales were lower
and profit fell significantly as trading worsened in Southeast
Asia. Trading in Hong Kong also softened in the year and increasing
rental and labour costs put pressure on profitability. Market
competition is intensifying in all key markets, providing customers
with more choice, competitive prices, and greater location
convenience. These changes have impacted the business significantly
and at an increasing rate.
The Convenience store business had a solid year with higher
sales and profit. Enhancements to range and services have been made
and the format is benefitting from the overall shift in customer
habits towards convenience. Notably, the 7-Eleven business in
Guangdong passed the 1,000th store milestone.
Health and Beauty had a very strong year, with sales and profit
showing double-digit growth. Mannings in Hong Kong and Macau
delivered exceptional results, in part benefitting from increased
tourist traffic from mainland China. Guardian in Southeast Asia
also made very good progress, reporting increased sales in all six
of its markets.
In the Home Furnishings Division, IKEA delivered further strong
sales growth in all its markets, and despite being adversely
affected by currency fluctuation, rising costs of goods and
pre-opening expenses for new stores, profits were slightly
ahead.
Maxim's had another good year, with record sales and profit,
supported by strong mooncake sales and the full year effect of the
successful integration of Starbucks Singapore into the group.
However, the business had a challenging year in mainland China as
the growth of home food delivery services impacted certain of its
restaurant formats.
Yonghui Superstores in mainland China reported strong sales
growth through positive like-for-like sales and 471 new store
openings. Profit was, however, impacted by the cost of a new
employee incentive scheme and losses from new retail formats. In
addition, Group results only benefitted from nine months of
Yonghui's performance as its 2018 full year results announcement
has not yet been made.
BUSINESS DEVELOPMENTS
Having completed the strategic review during the year covering
all of our businesses, Dairy Farm is now at the start of a
multi-year transformation programme. While the review has resulted
in a restructuring charge for the Southeast Asia Food business,
which has had a material impact on the Group's 2018 results, the
restructuring is an essential step for repositioning businesses
that have had a long and proud history of serving their
customers.
The new leadership team, with the right depth and breadth of
experience and functional expertise, is now largely in place.
During the year, this team has focused on developing and
implementing new strategies and business performance initiatives.
It has also reorganised the businesses into a new streamlined and
centralised structure, with regional hubs based in Hong Kong and
Singapore and the addition of enhanced functional leadership in key
disciplines. These changes will make the business more agile and
enable it to respond to and address the changing and challenging
consumer environment. Dairy Farm remains committed to being a
market leader and growing the business across Asia, but in order to
be successful, its formats need to be realigned to meet changing
customer preferences.
CORPORATE DEVELOPMENTS
As part of the transformation there were several significant
corporate developments during the year. These included the
investments in Robinsons Retail and Rose Pharmacy in the
Philippines.
In November, Dairy Farm entered a partnership with Robinsons
Retail, the Philippines' third largest retail business, whereby
Dairy Farm's Food business has become part of the Robinsons Retail
with Dairy Farm now having a 20% interest in the combined business.
Robinsons Retail had a strong year in 2018 and this new partnership
positions the Group well to take advantage of the growing
opportunities in the Philippines.
In December, Dairy Farm completed the acquisition of the
remaining 51% of Rose Pharmacy from its founders, and now owns 100%
of the business. This will allow Dairy Farm to drive the next phase
of the development of the business.
Yonghui has been a successful investment and a good partner for
Dairy Farm and I am pleased to have been appointed Chairman of the
Yonghui Board with effect from 20th December 2018, which will
enable a further strengthening of our relationship.
PEOPLE
In what has been another challenging year, I would like to thank
all our team members for their hard work and dedication in striving
to take the Group forward and deliver the trust, quality, value and
service that our consumers want and expect. While there is still
much work to do to rebalance the business, I am very supportive of
the changes the new management is making to reset and reshape Dairy
Farm for a strengthened future.
Dr George Koo and Sir Henry Keswick retired from the Board on
9th May 2018 and 31st December 2018 respectively. We would like to
record our gratitude to both of them for the significant
contributions they have made over many years to the Group. We were
pleased to welcome Dr Delman Lee to the Board in May. On 22nd
January 2019, we announced that the Group Finance Director, Neil
Galloway, will step down from the Board at the end of March and
leave Dairy Farm to return to the UK. His successor will be
appointed in due course. We would like to thank Neil for his
contribution to the Group.
PROSPECTS
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.
Ben Keswick
Chairman
GROUP CHIEF EXECUTIVE'S REVIEW
I have now had the privilege of being CEO of this iconic Group
of businesses for a full year and, in that time, I have been
impressed by the dedication of our people, the strength and
leadership of our market positions and the scale and reach of our
banners and brands.
Overall our businesses delivered a stable trading performance in
2018, despite tough market conditions, underpinned by an
exceptional Health and Beauty performance, particularly in Hong
Kong, and solid performances from our Convenience and IKEA
businesses. Our Convenience store format expanded its presence in
mainland China to over 1,000 stores during the year and IKEA saw
increasing benefits from a growing e-commerce business, which now
has sales equivalent to an 11th store. Strong Beauty category
promotions of our Health and Beauty businesses, alongside the
introduction of more mobile payment options in stores, further
improved customers' shopping experience and helped drive sales.
The Group's investment in key strategic partnerships also
continued to deliver good returns, with Yonghui, Maxim's, and the
recently added Robinsons, each enjoying sales growth and profit
expansion in their core operations during the year. Underlying
profit growth in Yonghui still remains strong and the business will
benefit further from the partial sell down of their investment in
the Yunchuang Technology business, which was
announced in December 2018.
However, the positive performances in our stronger trading
divisions and strategic partnerships were not enough to offset the
growing weakness in Food. Performance of North Asia Food softened
over the year and, while the food performance of our upscale stores
has improved, the prolonged weakness in our Supermarket and
Hypermarket business across Southeast Asia eroded performance
further.
Our Supermarket and Hypermarket business requires immediate and
significant course correction, to realign to changing consumer
expectations from a trusted, quality retailer. Like many other
retailers, we face significant challenges as the food industry
adapts to changing customer behaviour. Customers now want access to
products through a multitude of channels, in different formats,
ranges and locations and we are paying the price for historically
being slow in responding to changing consumer dynamics and
underinvesting in business infrastructure; something we urgently
are addressing.
STRATEGIC REVIEW
Following the Strategic Review undertaken shortly after my
arrival, we began the urgent work required to assess and address
the significant issues faced by the Group, especially those within
our Food business, to support the changing demands of the
customers. While the Strategic Review also highlighted
opportunities to improve performance in other parts of the Group,
the Food business is clearly the one requiring the greatest level
of focus and short-term action.
It is very clear that the level of change necessary to deliver
the required improvements will take at least five years to deliver
in a sustainable way. There are few 'quick fixes' and no 'silver
bullets'. Continuous improvement against a deliverable, long-term
strategic and operational plan is needed. We now have this plan in
place, with three distinct phases: Building a Solid Foundation;
Delivering Consistently Well; and Driving the Dairy Farm
Difference.
We are currently taking action in phase one of this plan, to
reset, reshape and transform Dairy Farm's business to improve
performance and profitability. The first important action has been
to bring in the right leadership talent who have the capability and
determination to deliver significant and meaningful
transformational change. During the year we have successfully
recruited a new leadership team (of the ten members of the team,
seven are new to the business and two are leaders with revised
responsibilities), who have begun to instil the right functional
discipline, efficiency and business capabilities to deliver against
a challenging turnaround plan. I am confident that this team has
the depth and breadth of expertise needed to address the historical
business underperformance and ensure we are successful in improving
and strengthening our business for the long term.
The new team is aligned on our strategic objectives and has
already commenced implementing change programmes to make
sustainable and long-term improvements, not only to what we offer
our customers, but also to how we operate and how we organise
ourselves more effectively to deliver against the challenges we
face.
As we carried out the Strategic Review, it became clear that we
were organised and deployed as multiple business units by banner,
country, format or all of the above. While allowing for locally
based decision-making, our way of working was to act as a series of
small businesses, without shared learning, quality functional
specialism, or the consistency of scale and expertise one might
expect from one of Asia's largest retailers. Our businesses have
now been centralised into two core trading Divisions, covering
North Asia and Southeast Asia. This reorganisation has allowed us
to collectively benefit as a Group from scale leverage, newly
appointed functional specialism and, most importantly, strong
regional leadership.
As new leaders have joined, we have begun to address key areas
where we have fallen behind, most notably in store format
development and digital expansion. As an example, having used
stronger consumer insights and intelligence to analyse our customer
offering and product selection, we have decided no longer to build
Hypermarkets. While some of these stores remain successful and
continue to show growth, it is clear that this format has struggled
to deliver effective returns across the Food Retail industry in
Southeast Asia and needs to be reshaped. We are now introducing
pilot stores, redefining space allocation and trialling new
innovations in our formats, to place greater emphasis on Fresh
food, demographic range optimisation and, where relevant, even
repurposing the space altogether. One Hypermarket in Indonesia is
being repurposed as an IKEA in 2019 with the prospect of this
conversion offering an opportunity to accelerate the expansion of
IKEA in that market, while also addressing an underperforming Food
store.
While we have strengthened our digital capability to better
respond to expanding opportunities in e-commerce, we are starting
from a very low base and are playing catch up.
There has been considerable effort placed on developing our
people capability, improving operating standards, reviewing supply
chain efficiencies and establishing the regional trading hubs in
the very early stages of the multi-year plan. These initial steps
provide us with confidence that we can continue to develop the
businesses that are performing and deliver the enhancements
necessary in the underperforming areas of Dairy Farm to build a
better business for the future. But these changes are not
insignificant and a transformation of this scale will be
challenging and will take time to deliver. One of the key benefits
of a portfolio business is that as some businesses or assets need
particular attention to address challenges, there is the
reassurance that others with momentum will continue to perform.
We are only in phase one of our transformation, but I believe we
are now facing into and addressing a series of challenges to
transform our business to better respond to the needs of present
and future customers, not merely repeating habits or assumptions
based in the past.
2018 was a year where we began taking a series of material
actions to correct the course of our business. Inevitably, there
are significant adjustment costs associated with this but, in the
longer term, these essential changes will not only deliver the
quality, service, value and, most importantly, trust our customers
expect, but will provide the Group with the greatest opportunity to
deliver improving and sustainable returns over time.
FIVE STRATEGIC IMPERATIVES
While organisation design and efficiency improvement are
important factors in operational success, we also recognise that as
a business we need to review our strategic position to compete in a
changing global retail environment. In order for us to achieve our
transformation we have identified five strategic priorities that
will enable us to effect the changes necessary to allow the
business to build a platform for future growth. The Strategic
priorities are: Grow in China; Maintain Strength in Hong Kong;
Revitalise Southeast Asia; Build Capability; and Drive Digital
Innovation.
Grow in China: China is one of the largest and fastest growing
consumer markets in the world, and one where convenience, health
and brand trust represent encouraging market potential for our
businesses there. While we have been represented in China for over
25 years with 7-Eleven and 14 years with Mannings, our scale of
growth has not fulfilled its potential. With both businesses
centred in Guangdong province, which is home to 100 million people,
we should be able to pool resources and grow these businesses more
successfully. Our Strategic Review identified opportunities to
revise our approach and by more effective definition of range,
space, store size and location, we believe there are opportunities
for both businesses to achieve stronger growth in scale in the
coming years. We have developed a strong and growing relationship
with Yonghui, who continue to impress, and we anticipate further
shared learning and idea generation between the two businesses
going forward. We also continue to develop relationships with
China's technology companies, with a series of trials taking place
to better understand the changes in customer expectations as
regards the use of technology in this market and beyond.
Maintain Strength in Hong Kong: We are in the fortunate position
that, within our home market of Hong Kong, we have a series of very
strong brands with a track record of effective performance. Each of
Wellcome, Mannings, 7-Eleven and IKEA have high brand presence,
strong brand awareness with consumers and importantly, high degrees
of brand trust. We have the further benefit of our long-standing
relationship with Maxim's, which continues to be a thriving
business with effective presence in each area of the market and a
growing portfolio of renowned international brands such as
Starbucks, Genki Sushi, The Cheesecake Factory and the recently
added Shake Shack, which has exceeded all performance expectations.
Mannings had an exceptional year in 2018, but Wellcome's
performance disappointed. While the underlying business remains
strong, substantial cost rises, particularly on rents, have had a
material effect on year-on-year profitability. As a result of the
Strategic Review, we will reconsider our approach to opening new
space, where we open it, and seek to deliver greater range clarity
by demographic across the Wellcome portfolio of retail brands.
IKEA benefitted from a full year of operation by a fourth store
opened in the last quarter of 2017, which cemented our leading
position within the home furnishings market in Hong Kong. While we
have faced some cost offsets with currency fluctuations on cost of
goods and new startup costs, we are very confident about our
underlying position for IKEA and its growth potential not only in
Hong Kong but also in the other markets where we operate the
franchise. We will also drive further innovation with a planned
relaunch of e-commerce and building on the recent experience of a
pop-up Christmas store in Hong Kong.
Revitalise Southeast Asia: As mentioned, we have some serious
problems in our Food business that require radical solutions and
actions. This will necessitate a fundamental re-engineering of our
Food offer and our customer proposition plus significant
rationalisation of space and of our General Merchandise offer,
converting Hypermarkets to large food format stores over time.
In Southeast Asia our core issue rests within our Giant brand
and particularly Hypermarkets in Malaysia, Indonesia and Singapore.
We have significantly underinvested in these Hypermarkets in the
past and they now need a course correction to reshape and resize
our offering, to ensure it is fit for purpose to meet the demands
of modern-day consumers and keep pace with the rising middle class.
We have already begun the process of redesigning our proposition in
Fresh and Grocery and we have pilot propositions already on the
ground. Our Malaysian pilot is a redefined Hypermarket where we
have halved the general merchandise range size and achieved
double-digit sales growth. We are also putting more emphasis on
Fresh Food, investing in value on Grocery and streamlining General
Merchandise and Apparel to optimise our range and space by
category. In another pilot conversion, General Merchandise has been
reduced by a third while Fresh space has been increased by over
70%. While it remains very early days for the pilots being
developed in each key market of Indonesia, Malaysia and Singapore,
we have been encouraged by their early performance. The predominant
challenges rest within mass market Hypermarkets and Supermarkets
where locations have been lacking in investment for years, or were
simply built in the wrong place, or the competitive landscape has
changed. These fundamental retail errors are now being addressed
head on. Encouragingly, our upscale stores within these markets are
showing signs of recovery as we raise operating standards of
quality, freshness, availability and even hygiene. That said, the
challenge that we face in right-sizing our Food business in
Southeast Asia is substantial and will take considerable time to
achieve.
Our Guardian Health and Beauty business remains a significant
opportunity for us in Southeast Asia. Countries which were
demonstrating trading difficulties a couple of years ago are
beginning to grow, if not thrive, under new leadership and we will
more aggressively invest in the expansion and format development of
our Health and Beauty business in the region.
We remain committed to being market leaders and growing our
business across Asia, but to be successful we must now realign our
formats to make them fit for purpose and to support the needs and
preferences of the consumers we serve. By repurposing and
remodelling our stores, we will build a stronger Food business, and
the early progress we have made gives us confidence that we can
breathe new life into it. It is, without doubt, a significant
challenge but I look forward to sharing our progress in the years
ahead.
Build Capability: Since the start of 2018 we have almost
completely changed the leadership team. We now have a group of
people with strong track records in the Retail and Consumer
industries leading this business. This significant increase in
experience and capability is absolutely key to the success of our
work ahead. Embedding their knowledge and expertise right across
the Group is now the priority. With around 200 years of Retail and
Consumer experience collectively across the leadership team we now
have the ability to drive the considerable changes necessary to not
only improve Dairy Farm's performance, but to transform the
business to a modern-day retailer focused on delivering what
customers want, where and how they want it.
We have also built strength in depth, with over 30 new senior
management appointments across the Group beyond the leadership team
itself, adding further experience and energy to the transformation
effort.
Drive Digital Innovation: Retail is seeing rapid change and
Dairy Farm has been slow in responding to the pace of Digital
change. We have significantly underinvested in Digital (people and
technology) and as a result are behind the curve. In 2018 we began
to change this. Two new positions have been created; Chief Digital
Officer and Chief Technology Officer. Both were appointed in the
fourth quarter of 2018 and have decades of relevant experience.
They have already begun to review all our current ad-hoc programmes
and initiatives, to reset and reshape our Group approach to a badly
needed IT infrastructure upgrade and accelerate our core SAP system
rollout, as well as carrying out a review of our digital priorities
within each business and region. We have made some improvements in
developing our digital offer, with numerous initiatives and pilot
schemes now in place, as well as developing partnerships with key
Chinese technology companies. The reality, though, is that our
digital capability is in
its infancy; something we believe is vital that we change.
LEVERAGING SCALE
The key objective of our transformation is to leverage our
expertise and scale more effectively across our countries and
banners. This will be achieved by operating more effectively as one
company. The structure change which has established two trading
Divisions for Dairy Farm now allows us the opportunity to drive a
much stronger and more consistent approach across the company.
While we fully recognise that there needs to be localisation of
offer and customer proposition at both a banner and a country
level, we also believe there are significant opportunities for us
to drive efficiency and lower costs through a more cohesive
approach towards leveraging synergy and scale. One good example of
this is in Own Brand development.
Our approach to Own Brand development has been variable,
non-strategic and has lacked cohesion. While several Own Brand
products have performed reasonably well, there has been no clear
direction on how Own Brand should be positioned within each market
and within each store brand. Equally, because of the way we have
been operating under a devolved structure, there has been a
disparate approach to development, positioning and priorities
across countries, with no emphasis placed on leveraging sourcing
through total business scale. This position is equally true in Food
and Health and Beauty and across both North Asia and Southeast
Asia.
As part of the multi-year plan there will be a radical
repositioning of our Own Brand portfolio, establishing clear brand
and quality range architecture across our business. To deliver a
better value proposition in competitive retail markets, successful
delivery of a strong Own Brand portfolio will be a key strategic
development for us and with the reorganisation into Regional hubs
delivering fewer better quality decision points, we have a much
better chance of delivering successfully.
In addition to Own Brand, we also see significant opportunities
to improve consistency and lower costs in other areas such as
Procurement, Category Management, People Development, Store
Productivity, Supply Chain Optimisation and Business Process
Re-engineering.
A series of pilot improvement programmes have already been
developed which are designed to increase customer focus and improve
competitiveness. Given the transformation journey has only recently
begun, this work is at an early stage and will take considerable
time and effort to embed such change in a sustainable way within
the stores and within the business more broadly, but all this work
is designed to transform Dairy Farm and reshape the company for a
strong, sustainable future.
2018 PERFORMANCE
Overall sales in the Food business declined by 1% to US$8.0
billion, with underlying operating profit of US$126 million, 43%
lower than 2017.
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 labour 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. The business became part of the Robinsons Retail group in
November.
The Convenience format, by contrast, had a good year with sales
and operating profits ahead of last year. In Hong Kong and Macau,
Ready-to-Eat food continued to boost sales. In mainland China we
expanded beyond 1,000 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.
Our Health and Beauty businesses had an exceptional year.
Overall sales grew 17% to US$3.0 billion, driven primarily by
Mannings in Hong Kong and Macau, which were well placed to take
advantage of a significant increase in tourist arrivals from
mainland China. The Guardian businesses in Southeast Asia also
performed well. This drove a 59% underlying operating profit
increase to US$334 million. In addition, Rose Pharmacy is now 100%
owned by Dairy Farm, increasing our ability to drive the business
forward in the Philippines.
In our Home Furnishings Division, sales were up 10% to US$721
million, supported by the full year effect of the new IKEA store in
Hong Kong, plus the increasing contribution from e-commerce.
Underlying operating profit was flat on prior year at US$68 million
with increased cost of goods, exacerbated by currency fluctuations
and the additional costs of the new store in Hong Kong as it
develops to maturity.
The Restaurants Division delivered another year of excellent
results. Once again, the popularity of Maxim's mooncakes supported
double-digit sales and profit growth. In addition, Maxim's
benefitted from the full year effect of the integration of
Starbucks Singapore, which has gone very well and is already
delivering additional efficiency improvements. During the year
Maxim's helped introduce more international brands to new Asian
markets, with the opening of the first Shake Shack in Hong Kong and
Genki Sushi in Malaysia.
Yonghui delivered strong sales growth in the year, driven
largely by store openings while also having positive like-for-like
sales. While underlying profit growth from retail operations was
solid, profit was affected by the cost of a new employee share
incentive scheme, and the impact of losses from the Yunchuang
digital business which was partially divested at the end of the
year. In addition, Group results benefitted from only nine months
of Yonghui's performance as its 2018 full year results announcement
has not yet been made.
TRANSFORMING DAIRY FARM FOOD
In recognition of the challenges facing our Southeast Asia Food
business, we have taken decisive action to reset this business,
which has a significant one-off financial impact on our reported
2018 results. We have written down the goodwill associated with the
Giant business across the region, impaired underperforming assets,
booked onerous lease provisions related to underperforming stores,
written off poor quality stocks, and incurred various related
business correction costs in relation to resetting and reshaping
this business, allowing us to build for the future and draw a line
under the weakness of the past. In aggregate, we have incurred a
non-trading after-tax and non-controlling interests charge of
US$453 million to reset our Southeast Asian Food business. It is
worth noting that the majority of this relates to non-cash items
with net cash costs expected to be less than US$50 million. This is
clearly a significant decision, but it is necessary if we are to
move forward, clear of legacy issues that will otherwise continue
to constitute a drag on future financial performance.
In addition to the above, we have recognised a number of
additional non-trading items in 2018. We realised a gain from the
exchange of our Food business in the Philippines for a share in
Robinsons Retail and the exit of our Giant operation in Vietnam. We
also realised an impairment of goodwill relating to Rose Pharmacy
in the Philippines while taking full ownership of this business,
which we believe better places us to invest to support sustainable
performance improvement in the future. Elsewhere, we made gains on
the sale of several Food properties which we did not believe were
strategic assets to own.
Together with the costs of resetting the Southeast Asian Food
business and some other smaller items, we have accordingly
recognised non-trading items to the 2018 results of US$332 million,
as set out below.
2018
Non-trading items US$m
Goodwill impairment (102)
Impairment of other assets (173)
Onerous lease provisions (83)
Business correction costs (95)
Total Food Business Restructuring charge (453)
Net gain arising from the reorganisation of interests in the
Philippines and Vietnam 91
Other non-trading items 30
Total non-trading items (after tax and non-controlling
interests) (332)
BUSINESS REVIEW
FOOD
Food (excluding Yonghui) reported US$8.0 billion in sales, 1%
lower than last year in constant currency. Operating profit
decreased 43% to US$126 million, driven by deteriorating
performance from the Supermarket and Hypermarket businesses in both
North and Southeast Asia. In contrast, the Convenience format
performed well.
FOOD - SUPERMARKETS AND HYPERMARKETS
Sales of US$5.9 billion from our Supermarkets and Hypermarkets
were 2% lower than last year in constant currency, while operating
profit fell by 75% to US$34 million. Like-for-like sales were
generally weak or negative, other than in the Philippines where we
saw good growth.
HONG KONG
Sales saw a moderate rise, consolidating market share gains made
in recent years. Costs, particularly rentals, continued to
escalate, leading to a reduction in operating profit overall. With
the outlook for the property market remaining challenging for
retailers, our property strategy is under review to minimise the
impact of future rent increases. This will mean much more rigourous
decision making in selecting new stores. The nascent e-commerce
business recorded double-digit growth and upgrades continued to be
made to our in-store shopping experience, such as the introduction
of self-checkout counters across many of our stores. However, there
is significant additional work to be done to meet customer
expectations for a digital retail experience.
MACAU
San Miu in Macau performed well in 2018. Both sales and profit
were ahead of last year despite higher store expenses and
increasing competition. Two new stores were opened during the year,
supported by an investment in a new dry distribution centre which
commenced operations in 2017. Own Brand participation continued to
increase and the upscale range was further improved.
TAIWAN
A mixture of weak market sentiment, conservative consumer
spending and fierce competition led to a reduction in sales for
Wellcome Taiwan. Profit was further impacted by price deflation in
fresh food and supply shortages of imported fruits. Moving forward,
the business is set to focus on strengthening operating
fundamentals for future growth.
INDONESIA
Overall sales of our food businesses in Indonesia decreased this
year, driven by continued weakness in Giant's Hypermarkets and
Supermarkets with negative like-for-like sales and the closure of
underperforming stores. In contrast Hero Supermarkets saw
increasingly positive trends with modest sales increases. Losses
worsened compared to last year and turnaround plan is now being
implemented to address declining customer count and profitability
with several stores being used to pilot changes. Improvements can
already be seen in on-shelf availability and fresh food quality and
there is now clearer communication in store. There is also a review
of space allocation within stores. These initiatives are delivering
encouraging initial results where they have been implemented.
MALAYSIA
The business environment remained extremely challenging for our
Hypermarkets and Supermarkets in Malaysia. Poor market sentiment
persists and smaller minimarkets are growing to threaten the
traditional formats. As a result, sales were lower than last year
and losses increased further due to lower sales, weaker margins and
higher store expenses. Significant work will be required to reset
and reshape our core Giant Supermarket and Hypermarket operations
if they are to return to profitability. As with Indonesia, there is
a review of all our stores, space and stock allocation within them,
the relevance of our customer offer in terms of both range and
pricing, with a focus on improving the core fresh food and grocery
proposition. The pilot stores in which these consequent changes
have been implemented are delivering encouraging results.
Notwithstanding the challenges in Giant, our upscale food business,
principally under the Cold Storage brand, and minimart trial stores
achieved better performance, with promising sales increases.
However, it will take time and significant effort to reinvent our
business model, to deliver profitable new and reimagined retail
destinations that better meet customer needs.
THE PHILIPPINES
Sales and profit of our Philippines Food business were slightly
behind the prior year, in part related to operating costs of
several new stores. In November, the Food business in the
Philippines was exchanged for a stake in Robinson's Retail
Holdings, Inc., the third largest retailer in the country. With the
investment completed, Robinsons and Dairy Farm will work together
to ensure that both groups benefit from each other's scale,
knowledge and expertise. Alongside the investment Dairy Farm has
two seats on the Robinsons Board. This development will allow us a
stronger opportunity to participate in the development of this 100
million people consumer market.
SINGAPORE
Sales were slightly below prior year driven by negative
like-for-like sales and some store closures. Profit was
significantly lower due to lower margins and rising costs.
Competition from e-commerce platforms and independent discount
retailers continued to inhibit market growth, particularly for the
traditional Supermarket and Hypermarket format. Customer footfall
improved, however, in Cold Storage stores where we have acted to
reset our range and made targeted investments intended to improve
our customer relevance and price perception. As with our food
operations in Malaysia and Indonesia we are piloting new ideas and
plan to implement successful initiatives more widely across the
business. Short-term improvements have been made to our current
e-commerce offer, while longer term plans to build this customer
channel in a more impactful and relevant way are under
development.
CAMBODIA
Sales increased as we opened more stores, though like-for-like
was flat as competition toughened. The first three Lucky Express
stores were opened during the year and initial results were
promising.
FOOD - CONVENIENCE STORES
Convenience reported US$2.1 billion in sales, an increase of 4%
over last year in constant currency. Operating profit increased by
9% to US$92 million.
HONG KONG AND MACAU
Both sales and profit of 7-Eleven Hong Kong were ahead of last
year, with ready-to-eat remaining a key driver. Own Brand achieved
strong performance and is expected to further leverage on its
growth. The store network grew slightly with more sites secured in
key locations. Digital and other services were continuously added
to keep up with changes in the marketplace, while several new
payment methods were added to meet customer demand. In Macau,
7-Eleven saw solid improvement in sales and profit. Tobacco sales
returned to normal level after the display ban in January.
Furthermore, a new skin care assortment targeted at tourist stores
helped to boost Health and Beauty category sales.
MAINLAND CHINA
While profit was in line with prior year, sales increased with
store expansion. During this year, the 1,000th store milestone was
crossed and the business expanded into three new cities in west
Guangdong. On top of existing delivery promotions with Meituan and
mobile payment promotions, facial recognition self-checkout
machines were launched in 50 stores alongside a WeChat-based
loyalty program which has already proved popular. A new
distribution centre in Shenzhen is under planning to meet
increasing expansion plans.
SINGAPORE
Overall sales fell slightly but like-for-like sales grew
positively, which, together with cost savings initiatives in
overheads and operations, drove improved profit. New products and
Own Brand initiatives continued to support growth in the drinks,
snacks and beauty categories. To keep up with customer aspirations,
digital technology was leveraged in payment, top-ups and marketing.
New parcel collection services are also in progress to improve
customer traffic and incremental service income.
HEALTH AND BEAUTY
Health and Beauty achieved US$3.2 billion in total sales, an
increase of 16% in constant currency, while operating profit
increased 59% with better performance across major markets.
HONG KONG AND MACAU
Mannings in Hong Kong and Macau recorded an exceptional
performance in 2018. An increase in local spending along with a
strong rebound in the number of tourist visitors in both markets
propelled sales and profit. The Beauty Care and Baby categories
continued to be key revenue drivers while Own Brand products gained
more popularity. Scan-and-Go functionality via mobile was
introduced to all stores and self-checkout trials were carried out,
further improving the shopping experience.
MAINLAND CHINA
It has been a transition year for Mannings China. Sales were
slightly ahead of last year, mainly thanks to imported product
ranges. However, profit declined due to rising store expenses and
unplanned closures of several stores. The e-commerce business,
including Own Brand online as well as domestic and cross-border
e-commerce, made good progress. With optimised range structure,
improved Mannings position and continuous innovations such as
virtual walls and facial recognition, we will continue to build
capability in the market and strengthen our position.
SINGAPORE
Despite the generally challenging retail market driven by the
growth of e-commerce and imported products, sales and profit were
broadly in line with prior year. With a focus on providing new and
exclusive ranges at good value, Own Brand products became
increasingly popular with our customers.
MALAYSIA
Following several challenging years, in 2018 Guardian Malaysia
delivered healthy growth in both sales and profit. Along with a
favourable external environment given the election sentiment and
tax holiday, 'Beauty Days' promotions and store reinvention drove a
strong performance. Our Beauty category remained a star performer.
Building on the positive results, we expect to increase new store
openings and undertake refurbishment of the existing estate to
capture further market opportunities.
INDONESIA
Despite increasing competition, our Indonesian Health and Beauty
business achieved increasing sales and profit improvement, with
healthy higher customer footfall driving like-for-like sales
growth. Marketing initiatives such as 'Beauty Days' proved
successful and delivered significant sales uplift. Own Brand
penetration remained strong, and there were further improvements in
range selections.
VIETNAM
In Vietnam, sales increased, driven by new store openings and
the strong performance of our Beauty ranges. As a relatively new
business in Vietnam, we continued to develop our brand proposition
to better serve the Health and Beauty needs of our customers.
CAMBODIA
Guardian reported good sales performance with strong
like-for-like growth. However, losses increased as we invested in
new store expansion.
THE PHILIPPINES
While sales at Rose Pharmacy showed modest improvement, this was
offset by the increase of operating expenses, resulting in a slight
fall in profit. A continuous focus on cost saving measures is
expected to help boost performance. Own Brand products, especially
health care items, continued to prove popular in the market. In
December, Dairy Farm completed the acquisition of the remaining 51%
interest in Rose Pharmacy and now owns the company outright, which
will give greater opportunity for accelerating growth.
HOME FURNISHINGS
IKEA achieved record sales of US$721 million in 2018, up 11% in
constant currency, while operating profit was in line with last
year at US$68 million, despite cost increases, in part related to
investments in new store expansion.
HONG KONG, TAIWAN AND INDONESIA
IKEA achieved record sales again in 2018, bolstered by the full
year effect of the new store opened in Hong Kong in the fourth
quarter of 2017, together with strong like-for-like performances in
Taiwan and Indonesia. While there was a strong profit increase in
both Taiwan and Indonesia, lower profits in Hong Kong left overall
profits in line with last year for the Division. Encouragingly
there has been strong growth in IKEA's e-commerce channels in all
markets and a significant revamp of the e-commerce site has been
launched in Indonesia and will follow in Hong Kong and Taiwan
during 2019 which is expected to improve this channel's adoption by
customers significantly.
This year IKEA announced commitments to inspire and enable
sustainable living. This includes reducing the total IKEA climate
footprint by an average of 70% per product, using only renewable or
recycled materials by 2030 and removing all single-use plastic
products from the IKEA range globally by 2020. To meet these
challenges, IKEA is investing more resources to develop new
materials and a truly recyclable IKEA range.
Progress continues to be made on new site development. A new
store has been announced in Macau with plans to open in 2020. In
Taiwan, significant progress has been made on the fit out of the
new store in southern Taipei, which is expected to open in 2019, as
well as the construction of a new store in Taoyuan by 2021. In
Indonesia, we have made progress on the construction of the second
store in Jakarta Garden City and secured the site for a third store
in Bandung with planned openings in 2021. We have also identified
an opportunity to convert an existing Giant Hypermarket in
Indonesia to a smaller format IKEA store during 2019. In the
meantime, we have been establishing pop-up stores in Hong Kong and
Taiwan for the first time to provide festival inspiration.
We will continue to strengthen our affordability position by
investing in prices to further drive sales and volume growth, and
increase our focus on market specific products to enhance local
customer appeal. We are also developing shopping experiences beyond
'cash & carry' to meet the needs of today's customers,
experimenting with different store formats and distribution set
ups.
RESTAURANTS
Maxim's reported another record year, with US$2.6 billion in
total sales, an increase of 16% over last year in constant
currency, while profit increased by 13%. The business had a
particularly strong performance in both its branded products
division, with record mooncake sales, and Starbucks benefitting
from a full year of operating in Singapore.
In Hong Kong, Maxim's achieved record high sales and strong
profit growth. Maxim's mooncakes grew even more popular with the
introduction of an online sales platform. The Japanese Chain
Restaurants division had an impressive sales increase, driven by
the conversion of Genki Sushi stores to 'Kousoku' lines with a
'sushi bullet train' which will continue over the next two years.
The first Shake Shack was opened in May with overwhelming public
reception supported by the effective use of social media, and a
second store was opened in December.
A Starbucks Hong Kong Flagship was opened and 'Mobile Order
& Payment' has been particularly successful across all stores.
Moreover, Maxim's is also responding to the popularity of Taiwanese
tea with its Cha Long brand, launching six stores during the
year.
In Macau, Maxim's signed lease terms with the Airport Authority
to operate Quick Serving Restaurants and Starbucks in Macau
Airport, commencing in 2019. More international brands are also
expected to be introduced to the market from the year onwards.
In mainland China, expansion continued including the addition of
a new Cantonese restaurant in Nanjing and The Cheesecake Factory in
Beijing. The first Shake Shack in China will open in Shanghai in
early 2019. However, performance in China during the year was very
challenging with the growth in food delivery services impacting
profitability on the back of changing consumer behaviour.
In Singapore, Maxim's benefitted from the full year financial
impact of integrating Starbucks and Genki Sushi into the business.
Profitability improved further since the acquisition through
refining operational efficiencies and efforts to reduce ineffective
marketing tactics. The business further extended its footprint in
Malaysia by opening the first Genki Sushi store in Kuala Lumpur in
November.
YEAR AHEAD
Looking to the year ahead, there is much work to do and many
challenges to face, but I see distinct and clear opportunities.
There is a comprehensive strategic, fundamental multi-year
transformation plan in place, designed to move Dairy Farm, and all
its potential, into a new era of retail. Its successful execution
will require considerable time, effort, resolve and determination,
but we have significant opportunities to pursue.
We believe we will emerge a better, more profitable and
sustainable business, with the right balance and mix in our retail
portfolio, capable of withstanding the significant industry change
we will continue to experience, and deliver retail propositions
that are valued, relevant and trusted by our customers across
Asia.
This scale of change will not be possible without the talent,
determination and commitment of our people. Having travelled
extensively during the year to meet Team Members in Support
Centres, Distribution Centres and stores from 100,000 square feet
to 1,000 square feet, I am even more encouraged about the desire of
our teams to do the best they can to deliver the change necessary.
I would like to thank them for their commitment to serving our
customers.
I also want to express my thanks to those customers, and take a
moment to reaffirm our commitment to giving you stores you can
trust to deliver the quality, service and value you deserve.
Ian McLeod
Group Chief Executive
Dairy Farm International Holdings Limited
Consolidated Profit and Loss Account
for the year ended 31st December 2018
2018 2017
Non-
Underlying Non- Underlying trading
business trading business items Total
performance items Total performance US$m US$m
US$m US$m US$m US$m restated restated
Sales (note 2) 11,749.3 - 11,749.3 11,288.7 - 11,288.7
Cost of sales (8,100.5) - (8,100.5) (7,856.1) - (7,856.1)
----------- ------- --------- ----------- -------- ---------
Gross margin 3,648.8 - 3,648.8 3,432.6 - 3,432.6
Other operating
income
(note 3) 194.9 181.2 376.1 182.4 1.5 183.9
Selling and
distribution
costs (2,876.7) - (2,876.7) (2,714.1) - (2,714.1)
Administration
and other
operating
expenses (540.8) (528.5) (1,069.3) (533.5) - (533.5)
----------- ------- --------- ----------- -------- ---------
Operating profit
(note 4) 426.2 (347.3) 78.9 367.4 1.5 368.9
Financing charges (37.8) - (37.8) (28.0) - (28.0)
Financing income 5.1 - 5.1 1.7 - 1.7
Net financing
charges (32.7) - (32.7) (26.3) - (26.3)
Share of results
of associates and
joint ventures
(note 5) 131.6 1.2 132.8 143.4 (1.2) 142.2
----------- ------- --------- ----------- -------- ---------
Profit before tax 525.1 (346.1) 179.0 484.5 0.3 484.8
Tax (note 6) (98.6) (2.8) (101.4) (92.5) (0.5) (93.0)
----------- ------- --------- ----------- -------- ---------
Profit after tax 426.5 (348.9) 77.6 392.0 (0.2) 391.8
----------- ------- --------- ----------- -------- ---------
Attributable to:
Shareholders of
the Company 424.3 (332.3) 92.0 402.6 (0.2) 402.4
Non-controlling
interests 2.2 (16.6) (14.4) (10.6) - (10.6)
----------- ------- --------- ----------- -------- ---------
426.5 (348.9) 77.6 392.0 (0.2) 391.8
----------- ------- --------- ----------- -------- ---------
USc USc USc USc
Earnings per
share
(note 7)
* basic 31.37 6.80 29.77 29.75
* diluted 31.36 6.80 29.76 29.74
----------- --------- ----------- ---------
Dairy Farm International Holdings Limited
Consolidated Statement of Comprehensive Income
for the year ended 31st December 2018
2018 US$m 2017 US$m
restated
Profit for the year 77.6 391.8
Other comprehensive income
--------- ---------
Items that will not be reclassified
to profit or loss:
--------- ---------
Remeasurements of defined benefit
plans (12.0) 19.2
Tax relating to items that will not
be reclassified 2.2 (2.6)
(9.8) 16.6
Share of other comprehensive income
of associates and joint ventures 0.9 5.4
--------- ---------
(8.9) 22.0
--------- ---------
Items that may be reclassified subsequently
to profit or loss:
Net exchange translation differences
--------- ---------
- net (loss)/gain arising during the
year (99.0) 108.6
- transfer to profit and loss 46.7 -
(52.3) 108.6
Cash flow hedges
--------- ---------
- net gain/(loss) arising during the
year 3.1 (1.8)
- transfer to profit and loss 1.8 0.2
4.9 (1.6)
Tax relating to items that may be
reclassified (1.0) 0.2
(48.4) 107.2
--------- ---------
Other comprehensive (expense)/income
for the year, net of tax (57.3) 129.2
--------- ---------
Total comprehensive income for the
year 20.3 521.0
--------- ---------
Attributable to:
Shareholders of the Company 38.4 532.8
Non-controlling interests (18.1) (11.8)
--------- ---------
20.3 521.0
--------- ---------
Dairy Farm International Holdings Limited
Consolidated Balance Sheet
at 31st December 2018
2018 US$m 2017 US$m
Net operating assets
Intangible assets 666.7 814.7
Tangible assets 848.0 1,184.2
Associates and joint ventures 2,066.9 1,601.0
Other investments 7.4 6.9
Non-current debtors 160.3 162.6
Deferred tax assets 23.8 26.4
Non-current assets 3,773.1 3,795.8
Stocks 913.1 950.0
Current debtors 372.0 350.7
Current tax assets 35.2 27.1
Cash and bank balances 296.2 332.4
--------- ---------
1,616.5 1,660.2
Assets classified as held for sale - 11.2
--------- ---------
Current assets 1,616.5 1,671.4
--------- ---------
Current creditors (2,398.6) (2,469.5)
Current borrowings (1,025.7) (412.7)
Current tax liabilities (84.3) (71.6)
Current provisions (104.1) (52.5)
--------- ---------
(3,612.7) (3,006.3)
Liabilities directly associated with assets
classified as held for sale - (6.2)
Current liabilities (3,612.7) (3,012.5)
--------- ---------
Net current liabilities (1,996.2) (1,341.1)
Long-term borrowings (14.5) (522.0)
Deferred tax liabilities (58.6) (62.7)
Pension liabilities (47.6) (34.2)
Non-current creditors (39.7) (42.7)
Non-current provisions (125.6) (37.4)
Non-current liabilities (286.0) (699.0)
1,490.9 1,755.7
--------- ---------
Total equity
Share capital 75.1 75.1
Share premium and capital reserves 58.3 57.9
Revenue and other reserves 1,313.6 1,557.0
--------- ---------
Shareholders' funds 1,447.0 1,690.0
Non-controlling interests 43.9 65.7
---------
1,490.9 1,755.7
--------- ---------
Dairy Farm International Holdings Limited
Consolidated Statement of Changes in Equity
for the year ended 31st December 2018
Attributable to shareholders of the Company Attributable
---------------------------------------------------
Revenue
Share Share Capital and other to non-controlling Total
capital premium reserves reserves Total interests equity
US$m US$m US$m US$m US$m US$m US$m
2018
At 1st January 75.1 33.1 24.8 1,557.0 1,690.0 65.7 1,755.7
Total comprehensive
income - - - 38.4 38.4 (18.1) 20.3
Dividends paid by the
Company (note 9) - - - (284.0) (284.0) - (284.0)
Dividends paid to
non-controlling
interests - - - - - (0.2) (0.2)
Unclaimed dividends
forfeited - - - 0.4 0.4 - 0.4
Share-based long-term
incentive plans - - 0.4 - 0.4 - 0.4
Change in interests in
subsidiaries - - - - - (3.5) (3.5)
Change in interests in
associates and joint
ventures - - - 1.8 1.8 - 1.8
Transfer - 0.8 (0.8) - - - -
At 31st December 75.1 33.9 24.4 1,313.6 1,447.0 43.9 1,490.9
2017
At 1st January 75.1 31.1 28.3 1,370.8 1,505.3 74.1 1,579.4
Total comprehensive
income - - - 532.8 532.8 (11.8) 521.0
Dividends paid by the
Company (note 9) - - - (284.0) (284.0) - (284.0)
Dividends paid to
non-controlling
interests - - - - - (0.5) (0.5)
Unclaimed dividends
forfeited - - - 0.6 0.6 - 0.6
Share-based long-term
incentive plans - - 1.6 - 1.6 - 1.6
Change in interests in
subsidiaries - - - (66.4) (66.4) 6.3 (60.1)
Change in interests in
associates and joint
ventures - - - 0.1 0.1 - 0.1
Capital repayment to
non-controlling
interests - - - - - (2.4) (2.4)
Transfer - 2.0 (5.1) 3.1 - - -
--------- -------- --------- ---------- ------- ------------------ -------
At 31st December 75.1 33.1 24.8 1,557.0 1,690.0 65.7 1,755.7
--------- -------- --------- ---------- ------- ------------------ -------
Revenue and other reserves comprised revenue reserves of US$1,657.1 million (2017: US$1,855.7 million),
hedging reserves of US$4.3 million (2017: US$0.4 million) and exchange reserves of US$347.8 million loss
(2017: US$299.1 million loss).
----------------------------------------------------------------------------------------------------------
Dairy Farm International Holdings Limited
Consolidated Cash Flow Statement
for the year ended 31st December 2018
2017
US$m
2018 US$m restated
Operating activities
--------- ---------
Operating profit (note 4) 78.9 368.9
Depreciation and amortisation 229.1 221.0
Other non-cash items 386.7 15.1
(Increase)/decrease in working capital (19.1) 92.1
Interest received 3.9 1.6
Interest and other financing charges paid (34.3) (28.0)
Tax paid (96.0) (84.3)
--------- ---------
549.2 586.4
Dividends from associates and joint ventures 94.2 84.9
Cash flows from operating activities 643.4 671.3
Investing activities
--------- ---------
Purchase of a subsidiary (note 10(a)) (54.6) -
Purchase of associates and joint ventures
(note 10(b)) (223.1) (5.8)
Purchase of intangible assets (33.2) (60.9)
Purchase of tangible assets (222.9) (218.4)
Sale of subsidiaries (note 10(c)) (1.6) -
Sale of properties (note 10(d)) 32.6 3.2
Sale of tangible assets 1.9 1.3
Cash flows from investing activities (500.9) (280.6)
Financing activities
--------- ---------
Change in interests in subsidiaries (note
10(e)) (3.5) (60.1)
Capital repayment to non-controlling interests - (2.4)
Drawdown of borrowings 998.2 851.0
Repayment of borrowings (963.6) (1,014.2)
Net increase in other short-term borrowings 67.1 122.3
Dividends paid by the Company (note 9) (284.0) (284.0)
Dividends paid to non-controlling interests (0.2) (0.5)
Cash flows from financing activities (186.0) (387.9)
Net (decrease)/increase in cash and cash
equivalents (43.5) 2.8
Cash and cash equivalents at 1st January 334.5 322.6
Effect of exchange rate changes (6.5) 9.1
--------- ---------
Cash and cash equivalents at 31st December
(note 10(f)) 284.5 334.5
--------- ---------
Dairy Farm International Holdings Limited
Notes
1. ACCOUNTING POLICIES AND BASIS OF PREPARATION
The financial information contained in this announcement has
been based on the audited results for the year ended 31st December
2018 which have been prepared in conformity with International
Financial Reporting Standards ('IFRS'), including International
Accounting Standards ('IAS') and Interpretations adopted by the
International Accounting Standards Board.
The Group has adopted the following new accounting standards in
2018. Other amendments, which are effective in 2018 and relevant to
the Group's operations, do not have a significant effect on the
Group's accounting policies. The Group has not early adopted any
standard, interpretation or amendment that have been issued but not
yet effective.
IFRS 9 'Financial Instruments'
Under IFRS 9, the gains and losses arising from changes in fair
value of the Group's equity investments, previously classified as
available-for-sale, have been recognised in profit and loss,
instead of through other comprehensive income. Such fair value
gains or losses on revaluation of these investments are classified
as non-trading items, and do not have any impact on the Group's
underlying profit attributable to shareholders and shareholders'
funds. The new hedge accounting rules, which align the accounting
for hedging instruments closely with the Group's risk management
practices, and the new forward-looking expected credit loss model
replacing the incurred loss impairment model, have no significant
impact to the Group.
IFRS 15 'Revenue from Contracts with Customers'
IFRS 15 establishes a comprehensive framework for the
recognition of revenue. It replaces IAS 11 'Construction
Contracts', and IAS 18 'Revenue' which covers contracts for goods
and services. The core principle in the framework is that revenue
is recognised when control of a good or service transfers to a
customer. There is no significant impact of the new standard on the
Group.
Changes to accounting policies on adoption of IFRS 9 and IFRS 15
have been applied retrospectively, and the comparative financial
statements have been restated.
The effects of adopting IFRS 9 and IFRS 15
(a) On the consolidated profit and loss account for the year
ended 31st December 2017
Increase/(decrease)
US$m
Other operating income 1.0
Share of results of associates and joint
ventures (2.0)
Tax (0.1)
-------------------
Profit after tax (1.1)
-------------------
Attributable to:
Shareholders of the Company* (1.1)
Non-controlling interests -
(1.1)
-------------------
d
* Further analysed as:
Underlying profit attributable to shareholders -
Non-trading items
* fair value gain on equity investments 0.9
* share of Yonghui's fair value loss on equity
investment (1.8)
* share of net gain from disposal of an investment by
Yonghui (0.2)
Profit attributable to shareholders (1.1)
-------------------
USc
Basic underlying earnings per share -
-------------------
Diluted underlying earnings per share -
-------------------
Basic earnings per share (0.08)
-------------------
Diluted earnings per share (0.08)
-------------------
(b) On the consolidated statement of comprehensive income for
the year ended 31st December 2017
Increase/(decrease)
US$m
Profit for the year (1.1)
Other comprehensive income
Items that may be reclassified subsequently to
profit or loss:
Revaluation of other investments at fair value
through other comprehensive income
* net gain arising during the year (1.0)
1
Tax relating to items that may be reclassified 0.1
Share of other comprehensive income of associates
and joint ventures 2.0
Other comprehensive income for the year, net of
tax 1.1
-----
Total comprehensive income for the year -
-----
Attributable to:
Shareholders of the Company -
Non-controlling interests -
-
-----
(c) On the consolidated balance sheet at 31st December 2017
There is no impact on the consolidated balance sheet upon the
adoption of IFRS 9 and IFRS 15.
(d) Changes in principal accounting policies on adoption of IFRS
9 and IFRS 15
Investments
The Group's investments are measured at fair value through
profit and loss. The classification is based on the management's
business model and their contractual cash flow characteristics.
Equity investments are measured at fair value with fair value
gains and losses recognised in profit and loss. Transaction costs
of financial assets carried at fair value through profit and loss
are expensed in profit and loss.
Investments are classified as non-current assets. All purchases
and sale of investments are recognised on the trade date, which is
the date that the Group commits to purchase or sell the
investments.
Non-trading items
Non-trading items are separately identified to provide greater
understanding of the Group's underlying business performance. Items
classified as non-trading items include fair value gains and losses
on equity investments which are fair value through profit and loss;
gains and losses arising from the sale of businesses, investments
and properties; impairment of non-depreciable intangible assets and
other investments; provisions for the closure of businesses;
acquisition-related costs in business combinations; and other
credits and charges of a non-recurring nature that require
inclusion in order to provide additional insight into underlying
business performance.
Sales recognition
Sales consist of the fair value of goods sold to customers, net
of returns, discounts and sales related taxes. This does not
include sales generated by associates and joint ventures. Sale of
goods is recognised at the point of sale, when the control of the
asset is transferred to customers, is recorded at the net amount
received from customers.
2. SALES
Including associates
and joint ventures Subsidiaries
---------------------- ------------------
2018 2017 2018 2017
US$m US$m US$m US$m
Analysis by operating
segment:
Food 15,424.7 16,148.7 7,992.2 8,038.3
- Supermarkets/hypermarkets 13,320.6 14,128.7 5,888.1 6,018.3
- Convenience stores 2,104.1 2,020.0 2,104.1 2,020.0
Health and Beauty 3,225.7 2,787.2 3,035.8 2,597.4
Home Furnishings 721.3 653.0 721.3 653.0
Restaurants 2,585.5 2,238.1 - -
---------- ---------- -------- --------
21,957.2 21,827.0 11,749.3 11,288.7
---------- ---------- -------- --------
Sales including associates and joint ventures comprise 100% of
sales from associates and joint ventures.
Operating segments are identified on the basis of internal
reports about components of the Group that are regularly reviewed
by the Board for the purpose of resource allocation and performance
assessment. Dairy Farm operates in four segments: Food, Health and
Beauty, Home Furnishings and Restaurants. Food comprises
supermarket, hypermarket and convenience store businesses
(including the Group's associate, Yonghui, a leading
supermarket/hypermarket retailer in mainland China). Health and
Beauty comprises the health and beauty businesses. Home Furnishings
is the Group's IKEA businesses. Restaurants is the Group's catering
associate, Maxim's, a leading Hong Kong restaurant chain.
Sales and share of results of Yonghui represent only nine months
from January to September 2018 based on their latest published
announcement (2017: full year results). The share of Yonghui's
results for October to December 2018 will be accounted for in the
year ending 31st December 2019 (note 5).
Robinsons Retail Holdings, Inc. ('RRHI'), the Group's newly
acquired associate, has not announced its 2018 full year results
yet. Sales and share of results of RRHI from the date of
acquisition of its 20% interest to 31st December 2018 will be
accounted for in the year ending 31st December 2019 (note 5).
Set out below is an analysis of the Group's sales by
geographical locations:
Including associates
and joint ventures Subsidiaries
---------------------- ------------------
2018 2017 2018 2017
US$m US$m US$m US$m
Analysis by geographical
area:
North Asia 17,254.1 17,153.6 7,422.4 6,870.9
Southeast Asia 4,703.1 4,673.4 4,326.9 4,417.8
---------- ---------- -------- --------
21,957.2 21,827.0 11,749.3 11,288.7
---------- ---------- -------- --------
The geographical areas covering North Asia and Southeast Asia,
are determined by the geographical location of customers. North
Asia comprises Hong Kong, mainland China, Macau and Taiwan.
Southeast Asia comprises Singapore, Cambodia, the Philippines,
Malaysia, Indonesia, Vietnam and Brunei.
3. OTHER OPERATING INCOME
2018 US$m 2017 US$m
Concession and service income 159.9 145.4
Rental income from properties 27.7 27.9
Profit on sale of businesses and properties 180.7 0.5
Fair value gain on equity investments 0.5 1.0
Net foreign exchange gains and others 7.3 9.1
--------- ---------
376.1 183.9
--------- ---------
4. OPERATING PROFIT
2018 US$m 2017 US$m
Analysis by operating segment:
Food 126.5 220.0
- Supermarkets/hypermarkets 34.1 135.1
- Convenience stores 92.4 84.9
Health and Beauty 334.3 209.9
Home Furnishings 68.4 68.0
--------- ---------
529.2 497.9
Store support centre (103.0) (57.7)
426.2 440.2
Business change costs - (72.8)
--------- ---------
Underlying operating profit 426.2 367.4
Non-trading items:
- business restructuring costs (467.3) -
- profit on sale of businesses and properties 180.7 0.5
- loss on reclassification of a joint
venture as a subsidiary (61.2) -
* fair value gain on equity investments 0.5 1.0
78.9 368.9
--------- ---------
In 2017, following management's decision to exit various stores
and stock categories in the Food businesses in Southeast Asia, a
charge of US$61.1 million was recognised in the profit and loss. In
addition, a restructuring cost of US$11.7 million for the Group was
also recognised in the profit and loss.
Set out below is an analysis of the Group's underlying operating
profit by geographical locations:
2018 US$m 2017 US$m
Analysis by geographical area:
North Asia 528.0 457.7
Southeast Asia 1.2 40.2
--------- ---------
529.2 497.9
Store support centre (103.0) (57.7)
426.2 440.2
Business change costs - (72.8)
Underlying operating profit 426.2 367.4
--------- ---------
5. SHARE OF RESULTS OF ASSOCIATES AND JOINT VENTURES
2018 US$m *2017 US$m
Analysis by operating segment:
Food - Supermarkets/hypermarkets 30.1 52.0
Health and Beauty (4.4) (5.0)
Restaurants 107.1 95.2
--------- ---------
132.8 142.2
--------- ---------
Share of results of associates and joint ventures included the
following from non-trading items:
2018 US$m 2017 US$m
Share of Yonghui's fair value gain/(loss) on
equity investments 1.2 (1.8)
Share of net gain from disposal of an investment
by Yonghui - 0.6
1.2 (1.2)
--------- ---------
Results are shown after tax and non-controlling interests in the
associates and joint ventures.
* Includes Yonghui's nine months results from January to
September 2018 (2017: full year results) while the 20% interest of
RRHI's results from the date of acquisition to 31st December 2018
will be accounted for in the year ending 31st December 2019 as the
2018 full year results were not yet announced (note 2).
6. TAX
2018 US$m 2017 US$m
Tax charged to profit and loss is analysed
as follows:
Current tax (102.1) (86.9)
Deferred tax 0.7 (6.1)
--------- ---------
(101.4) (93.0)
--------- ---------
Tax relating to components of other comprehensive
income is analysed as follows:
Remeasurements of defined benefit plans 2.2 (2.6)
Cash flow hedges (1.0) 0.2
--------- ---------
1.2 (2.4)
--------- ---------
Tax on profit has been calculated at rates of taxation
prevailing in the territories in which the Group operates. Share of
tax charge of associates and joint ventures of US$34.7 million
(2017: US$32.0 million) is included in share of results of
associates and joint ventures.
7. EARNINGS PER SHARE
Basic earnings per share are calculated on profit attributable
to shareholders of US$92.0 million (2017: US$402.4 million), and on
the weighted average number of 1,352.6 million (2017: 1,352.4
million) shares in issue during the year.
Diluted earnings per share are calculated on profit attributable
to shareholders of US$92.0 million (2017: US$402.4 million), and on
the weighted average number of 1,353.4 million (2017: 1,353.0
million) shares in issue after adjusting for 0.8 million (2017: 0.6
million) shares which are deemed to be issued for no consideration
under the share-based long-term incentive plans based on the
average share price during the year.
Additional basic and diluted earnings per share are also
calculated based on underlying profit attributable to shareholders.
A reconciliation of earnings is set out below:
2018 2017
----------------------------- -----------------------------
Basic Diluted Basic Diluted
earnings earnings earnings earnings
per share per share per share per share
US$m USc USc US$m USc USc
Profit attributable
to shareholders 92.0 6.80 6.80 402.4 29.75 29.74
Non-trading
items (note
8) 332.3 0.2
----- -----
Underlying
profit attributable
to shareholders 424.3 31.37 31.36 402.6 29.77 29.76
----- -----
8. NON-TRADING ITEMS
Non-trading items are separately identified to provide greater
understanding of the Group's underlying business performance. Items
classified as non-trading items include fair value gains and losses
on equity investments which are fair value through profit and loss;
gains and losses arising from the sale of businesses, investments
and properties; impairment of non-depreciable intangible assets and
other investments; provisions for the closure of businesses;
acquisition-related costs in business combinations; and other
credits and charges of a non-recurring nature that require
inclusion in order to provide additional insight into underlying
business performance.
An analysis of non-trading items in operating profit and profit
attributable to shareholders is set out below:
Profit attributable
Operating profit to shareholders
2018 US$m 2017 US$m 2018 US$m 2017 US$m
Business restructuring costs
- impairment of intangible assets (102.1) - (102.1) -
- impairment of tangible assets (186.0) - (173.1) -
- onerous lease provisions (83.1) - (83.1) -
- business correction provisions (96.1) - (95.2) -
--------- --------- ---------- ---------
(467.3) - (453.5) -
Profit on sale of businesses 152.5 - 152.5 -
Loss on reclassification of a
joint venture as a subsidiary (61.2) - (61.2) -
Profit on sale of properties 28.2 0.5 28.2 0.1
Others 0.5 1.0 1.7 (0.3)
120.0 1.5 121.2 (0.2)
(347.3) 1.5 (332.3) (0.2)
--------- --------- ---------- ---------
Following the completion of a detailed strategic review
undertaken since late 2017, it was concluded that the Group's
Southeast Asia Food business was not viable in the current form.
Impairments against certain goodwill and assets, provisions in
relation to onerous leases on underperforming stores and other
associated business correction provisions have been recorded.
Business correction provisions included expected future payments to
landlords, tenants and employees.
Profit on sale of businesses included profit on disposal of 100%
interest in Rustan Supercenters, Inc. ('RSCI') amounting to
US$143.8 million and US$8.7 million related to Asia Investment and
Supermarket Trading Company Limited ('AISTC') (note 10 (c)).
The Group reorganised its business in the Philippines by
exchanging its 100% interest in RSCI with RRHI, the third largest
retailer in the Philippines, listed on the Philippines Stock
Exchange, for a 12.15% interest in the enlarged share capital of
RRHI at a non-cash consideration of US$336.2 million. This together
with a further 6.1% interest acquisition in the enlarged share
capital from the existing controlling shareholders, and certain
on-market purchases, gave the Group a total shareholding of 20% in
RRHI at 31st December 2018, arriving at a total consideration of
US$556.2 million (note 10 (b)).
The profit on disposal of 100% interest in RSCI is shown
below:
2018 US$m
Consideration received in the form of 12.15%
interest in RRHI 336.2
Less:
- net assets disposed of (149.4)
- release of exchange reserves (31.0)
- transaction costs (12.0)
Profit on sale of business 143.8
---------
In addition, the Group acquired the remaining 51% interest in
Rose Pharmacy, Inc. ('Rose Pharmacy') from its joint venture
partner in December 2018 and Rose Pharmacy became a wholly-owned
subsidiary (note 10(a)). Upon the completion of the remaining
interest acquisition in Rose Pharmacy, goodwill amounting to
US$97.5 million was recognised, followed by goodwill impairment
amounting to US$15.3 million. The loss on reclassification of a
joint venture as a subsidiary is summarised as follows:
2018 US$m
Fair value of previously held investment
in a joint venture 42.0
Less:
- carrying value of investment disposed of (73.1)
- release of exchange reserves (14.7)
- transaction costs (0.1)
(45.9)
Impairment of goodwill (15.3)
Loss on reclassification of a joint venture
as a subsidiary (61.2)
---------
9. DIVIDS
2018 US$m 2017 US$m
Final dividend in respect of 2017 of USc14.50
(2016: USc14.50) per share 196.1 196.1
Interim dividend in respect of 2018 of USc6.50
(2017: USc6.50) per share 87.9 87.9
--------- ---------
284.0 284.0
--------- ---------
A final dividend in respect of 2018 of USc14.50 (2017: USc14.50)
per share amounting to a total of US$196.1 million (2017: US$196.1
million) is proposed by the Board. The dividend proposed will not
be accounted for until it has been approved at the 2019 Annual
General Meeting. This amount will be accounted for as an
appropriation of revenue reserves in the year ending 31st December
2019.
10. NOTES TO CONSOLIDATED CASH FLOW STATEMENT
(a) Purchase of a subsidiary
2018 US$m
Intangible assets 5.9
Tangible assets 4.1
Non-current debtors 1.5
Deferred tax assets 1.5
Current assets 46.7
Current liabilities (52.3)
Non-current liabilities (4.1)
Fair value of identifiable net assets acquired 3.3
Adjustment for fair value of previously
held investment in a joint venture (42.0)
---------
(38.7)
Goodwill 97.5
Consideration paid 58.8
Cash and cash equivalents at the date of
acquisition (4.2)
Net cash outflow 54.6
---------
For the subsidiary acquired during 2018, the fair values of the
identifiable assets and liabilities at the acquisition date are
provisional and will be finalised within one year after the
acquisition date.
Net cash outflow for purchase of a subsidiary during the year
represented US$54.6 million for acquisition of the remaining 51%
interest in Rose Pharmacy, which operates health and beauty stores
chain in the Philippines in December 2018. Following the
acquisition, Rose Pharmacy became a wholly-owned subsidiary of the
Group (note 8).
The goodwill arising from the acquisition amounted to US$97.5
million was attributable to the retail network and its market
position in the Philippines. None of the goodwill is expected to be
deductible for tax purposes.
There was no contribution from the subsidiary acquired to the
Group's sales and profit after tax since the acquisition took place
at end of December 2018. Had the acquisition occurred on 1st
January 2018, consolidated sales and profit after tax for the year
ended 31st December 2018 would have been US$11,910.2 million and
US$68.1 million, respectively.
(b) Purchase of associates and joint ventures in 2018 mainly
related to the acquisition of 7.85% interest in RRHI at a total
consideration of US$220.0 million (note 8) and a capital injection
of US$3.1 million in the Group's business in Vietnam.
Purchase in 2017 mainly related to the Group's capital injection
of US$3.4 million in the business in Vietnam and US$2.4 million in
Rose Pharmacy.
(c) Sale of subsidiaries
2018 US$m
Intangible assets 1.7
Tangible assets 0.1
Current assets 3.3
Current liabilities (5.8)
Net liabilities disposed of (0.7)
Release of exchange reserves 1.0
Profit on disposal 8.7
Net sale proceeds 9.0
Cash and cash equivalents of the subsidiary
disposed of (2.6)
Net cash inflow 6.4
---------
In February 2018, the Group disposed of its 100% interest in
AISTC, operating a hypermarket in Vietnam to a third party, for net
cash inflow of US$6.4 million.
In November 2018, the Group completed the exchange of its
interest in RSCI with RRHI with no cash consideration received
(note 8). The disposed cash and cash equivalents of RSCI and the
associated transaction costs leading to a net cash outflow of
US$8.0 million, together with the net cash inflow from the disposal
of AISTC, it brought to a total net cash outflow of US$1.6
million.
(d) Sale of properties
Sale of properties in 2018 included disposal of 14 properties in
Singapore for a total consideration of US$32.6 million.
Sales in 2017 comprised sale of land in Malaysia and a property
in Taiwan for a total cash consideration of US$3.2 million.
(e) Change in interests in subsidiaries
In October 2018, the Group acquired an additional 1.29% interest
in PT Hero Supermarket Tbk ('PT Hero') for a total consideration of
US$3.5 million.
In 2017, the Group acquired a further 34% interest in RSCI for a
total consideration of US$59.9 million and an additional 0.06%
interest in PT Hero for US$0.2 million.
(f) Analysis of balances of cash and cash equivalents
2018 US$m 2017 US$m
Cash and bank balances 296.2 332.4
Bank overdrafts (11.7) (1.1)
Cash and bank balances included in assets
held for sale - 3.2
284.5 334.5
--------- ---------
11. CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES
Total capital commitments at 31st December 2018 amounted to
US$408.5 million (2017: US$338.7 million).
Various Group companies are involved in litigation arising in
the ordinary course of their respective businesses. Having reviewed
outstanding claims and taking into account legal advice received,
the Directors are of the opinion that adequate provisions have been
made in the financial statements.
12. RELATED PARTY TRANSACTIONS
The parent company of the Group is Jardine Strategic Holdings
Limited and the ultimate parent company is Jardine Matheson
Holdings Limited ('JMH'). Both companies are incorporated in
Bermuda.
In the normal course of business the Group undertakes a variety
of transactions with JMH and its subsidiaries, associates and joint
ventures. The more significant of such transactions are described
below.
Under the terms of a Management Services Agreement, the Group
paid a management fee of US$0.4 million (2017: US$2.0 million) to
Jardine Matheson Limited ('JML'), a wholly-owned subsidiary of JMH,
based on 0.5% of the Group's profit attributable to shareholders in
consideration for certain management consultancy services provided
by JML. The Group also paid directors' fees of US$0.5 million in
2018 (2017: US$0.5 million) to JML.
The Group rents properties from Hongkong Land Holdings Limited
('HKL'), a subsidiary of JMH. The gross annual rentals paid by the
Group to HKL in 2018 were US$3.4 million (2017: US$3.0 million).
The Group's 50%-owned associate, Maxim's Caterers Limited
('Maxim's'), also paid gross annual rentals of US$13.7 million
(2017: US$11.8 million) to HKL in 2018.
The Group uses Jardine Lloyd Thompson Limited ('JLT'), an
associate of JMH, to place certain of its insurance policies.
Brokerage fees and commissions, net of rebates, paid by the Group
to JLT in 2018 were US$1.9 million (2017: US$2.0 million).
The Group sources information technology infrastructure and
related services from Jardine Technology Holdings Limited ('JTH'),
a subsidiary of JMH. The total fees paid by the Group to JTH in
2018 amounted to US$10.5 million (2017: US$9.9 million). Maxim's
also paid total fees of US$6.4 million (2017: US$3.5 million) to
JTH in 2018.
The Group also obtains repairs and maintenance services from
Jardine Engineering Corporation ('JEC'), a subsidiary of JMH. The
total fees paid by the Group to JEC in 2018 amounted to US$7.2
million (2017: US$9.3 million).
Maxim's supplies ready-to-eat products at arm's length to
certain subsidiaries of the Group. In 2018, these amounted to
US$33.6 million (2017: US$30.5 million).
There were no other related party transactions that might be
considered to have a material effect on the financial position or
performance of the Group that were entered into or changed during
the year.
Amounts of outstanding balances with associates and joint
ventures are included in debtors and creditors, as appropriate.
Dairy Farm International Holdings Limited
Principal Risks and Uncertainties
The Board has overall responsibility for risk management and
internal control. The process by which the Group identifies and
manages risk will be set out in more detail in the Corporate
Governance section of the Company's 2018 Annual Report (the
'Report'). The following are the principal risks and uncertainties
facing the Company as required to be disclosed pursuant to the
Disclosure Guidance and Transparency Rules issued by the Financial
Conduct Authority in the United Kingdom and are in addition to the
matters referred to in the Chairman's Statement and Group Chief
Executive's Review.
Economic Risk
Most of the Group's businesses are exposed to the risk of
negative developments in global and regional economies and
financial markets, either directly or through the impact such
developments might have on the Group's joint venture partners,
associates, franchisors, bankers, suppliers or customers. These
developments could include recession, inflation, deflation,
currency fluctuations, restrictions in the availability of credit,
business failures, or increases in financing costs, oil prices, the
cost of raw materials or finished products. Such developments might
increase operating costs, reduce revenues, lower asset values or
result in some or all of the Group's businesses being unable to
meet their strategic objectives.
Commercial Risk and Financial Risk
Risks are an integral part of normal commercial practices, and
where practicable steps are taken to mitigate them. Risks can be
further pronounced when operating in volatile markets. While the
Group's regional diversification does help to mitigate some risks,
a significant portion of the Group revenues and profits continue to
be derived from our operations in Hong Kong.
A number of the Group's businesses make significant investment
decisions in respect of developments or projects and these are
subject to market risks. This is especially the case where projects
take time to come to fruition and achieve the desired returns.
The Group's businesses operate in areas that are highly
competitive, and failure to compete effectively, whether in terms
of price, product specification, technology, property site or
levels of service or to adapt to changing consumer behaviours,
including new shopping channels and formats, can have an adverse
effect on earnings. Significant pressure from such competition may
also lead to reduced margins.
It is essential for the products and services provided by the
Group's businesses to meet appropriate quality and safety standards
and there is an associated risk if they do not, including the risk
of damage to brand equity or reputation, which might adversely
impact the ability to achieve acceptable revenues and profit
margins.
The steps taken by the Group to manage its exposure to financial
risk will be set out in the Financial Review and in a note to the
Financial Statements in the Report.
Concessions, Franchises and Key Contracts
A number of the Group's businesses and projects are reliant on
concessions, franchises, management or other key contracts.
Cancellation, expiry or termination, or the renegotiation of any
such concessions, franchises, management or other key contracts,
could have an adverse effect on the financial condition and results
of operations of certain subsidiaries, associates and joint
ventures of the Group.
Regulatory and Political Risk
The Group's businesses are subject to a number of regulatory
regimes in the territories in which they operate. Changes in such
regimes, in relation to matters such as foreign ownership of assets
and businesses, exchange controls, licensing, imports, planning
controls, emission regulations, tax rules and employment
legislation, could have the potential to impact the operations and
profitability of the Group's businesses.
Changes in the political environment in the territories where
the Group operates could adversely affect the Group's
businesses.
Terrorism, Pandemic and Natural Disasters
The Group's operations are vulnerable to the effects of
terrorism, either directly through the impact of an act of
terrorism or indirectly through the effect on the Group's
businesses of generally reduced economic activity in response to
the threat, or an actual act, of terrorism.
The Group businesses could be impacted by a global or regional
pandemic which seriously affected economic activity or the ability
of businesses to operate smoothly. In addition, many of the
territories in which the Group operates can experience from time to
time natural disasters such as earthquakes, volcanoes and
typhoons.
Technology Risk
The Group has invested significantly in and is heavily reliant
on its IT infrastructure and systems for the daily operation of its
business. Any major disruption to the Group's IT systems could have
a significant impact on operations. The ability to anticipate and
adapt to technology advancements or threats is an additional risk
that may also have an impact on the business.
Dairy Farm International Holdings Limited
Responsibility Statement
The Directors of the Company confirm to the best of their
knowledge that:
a. the consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards,
including International Accounting Standards and Interpretations
adopted by the International Accounting Standards Board; and
b. the sections of the Company's 2018 Annual Report, including
the Chairman's Statement, Group Chief Executive's Review, Business
Review and the Principal Risks and Uncertainties, which constitute
the management report, include a fair review of all information
required to be disclosed by the Disclosure Guidance and
Transparency Rules 4.1.8 to 4.1.11 issued by the Financial Conduct
Authority in the United Kingdom.
For and on behalf of the Board
Ian McLeod
Neil Galloway
Directors
The final dividend of USc14.50 per share will be payable on
15th May 2019, subject to approval at the Annual General Meeting
to be held on 8th May 2019, to shareholders on the register
of members at the close of business on 15th March 2019. The
shares will be quoted ex-dividend on 14th March 2019, and
the share registers will be closed from 18th to 22nd March
2019, inclusive.
Shareholders will receive their cash dividends in United States
Dollars, unless they are registered on the Jersey branch register,
in which case they will have the option to elect for their
dividends to be paid in Sterling. These shareholders may make
new currency elections for the 2018 final dividend by notifying
the United Kingdom transfer agent in writing by 18th April
2019. The Sterling equivalent of dividends declared in United
States Dollars will be calculated by reference to a rate prevailing
on 2nd May 2019.
Shareholders holding their shares through CREST in the United
Kingdom will receive their cash dividends in Sterling only
as calculated above. Shareholders holding their shares through
The Central Depository (Pte) Limited ('CDP') in Singapore
will receive their cash dividends in United States Dollars
unless they elect, through CDP, to receive Singapore Dollars.
Shareholders on the Singapore branch register who wish to
deposit their shares into the CDP system by the dividend record
date, being 15th March 2019, must submit the relevant documents
to M & C Services Private Limited, the Singapore branch registrar,
no later than 5.00 p.m. (local time) on 14th March 2019.
Dairy Farm
Dairy Farm is a leading pan-Asian retailer. At 31st December
2018, the Group and its associates and joint ventures operated over
9,700 outlets and employed over 230,000 people. The Group had total
annual sales in 2018 exceeding US$21 billion.
The Group provides quality and value to Asian consumers by
offering leading brands, a compelling retail experience and great
service; all delivered through a strong store network supported by
efficient supply chains.
The Group operates under a number of well-known brands across
four divisions. The principal brands are:
Food
-- Supermarkets/Hypermarkets - Wellcome in Hong Kong and Taiwan;
Yonghui in mainland China; Cold Storage in Malaysia and Singapore;
Giant in Brunei, Indonesia, Malaysia and Singapore; Hero in
Indonesia; and Robinsons in the Philippines.
-- Convenience stores - 7-Eleven in Hong Kong, Macau, Singapore and Southern China.
Health and Beauty
-- Mannings in Greater China; Guardian in Brunei, Cambodia,
Indonesia, Malaysia, Singapore and Vietnam; and Rose Pharmacy in
the Philippines.
Home Furnishings
-- IKEA in Hong Kong, Indonesia, Macau and Taiwan.
Restaurants
-- Maxim's in Cambodia, mainland China, Hong Kong, Macau,
Malaysia, Singapore, Thailand and Vietnam (directly and via various
joint ventures or franchises).
Dairy Farm International Holdings Limited is incorporated in
Bermuda and has a standard listing on the London Stock Exchange,
with secondary listings in Bermuda and Singapore. The Group's
businesses are managed from Hong Kong by Dairy Farm Management
Services Limited through its regional offices. Dairy Farm is a
member of the Jardine Matheson Group.
- end -
For further information, please contact:
Dairy Farm Management Services Limited
Neil Galloway (852) 2299 1896
Kirsten Molyneux (852) 2299 1884
Brunswick Group Limited
Zhou Yi (852) 3512 5042
Full text of the Preliminary Announcement of Results and the
Preliminary Financial Statements for the year ended 31st December
2018 can be accessed through the Internet at
www.dairyfarmgroup.com.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR BRGDDDUDBGCR
(END) Dow Jones Newswires
February 28, 2019 04:18 ET (09:18 GMT)
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