Dairy Farm struggles in SE Asia

Dairy Farm International Holdings says softer sales growth and steep cost increases led to weakened margins in the third quarter.

In an interim management statement, which does not include financial data, the Hong Kong-based pan-Asian retailer says the group faced more difficult economic conditions, and focused on building market share and investing for the long-term health of its businesses.

Tighter margins and unfavourable exchange rate movements continued to affect the group’s US dollar reported results and led to lower underlying earnings for the period.

“The group expects similar trading conditions to prevail for the remainder of the year.”

Dairy Farm says profitability of its Singapore food business – where it owns the 7-Eleven franchise and Cold Storage supermarket chain – fell, principally due to weak performances from newly opened supermarkets and the impact on 7-Eleven of government restrictions on alcohol sales.

In Malaysia, the introduction of GST and softer consumer confidence dampened spending at its Giant stores.

“In Indonesia, despite good sales momentum in July and August, higher labour costs and price investments to attract customers have reduced margins,” the company said.

The Health and Beauty Division – led by the Guardian and Mannings brands – continued to perform well in Hong Kong, despite the slowdown in Mainland Chinese tourist arrivals, and has seen improvements in profitability in Singapore. The overall results were, however, held back by poorer performances in Malaysia and Indonesia.

Both the Home Furnishings and Restaurants Divisions have increased sales and profits. Ikea performed well in both Hong Kong and Taiwan, and the new Ikea store in Indonesia continues to trade ahead of expectations.

Restaurant group Maxim’s, which operates Starbucks amongst other brands,  maintained its consistent performance.

The group is to invest a further US$210 million in Yonghui Superstores in early 2016 so as to maintain its 19.99 per cent stake following a placement by Yonghui of a 10 per cent shareholding to internet retailer, JD.com. The investment by JD.com will provide Yonghui with additional opportunities for expansion into eCommerce.

“With respect to recent investments, there have been positive contributions from [supermarket chain] San Miu in Macau and from Yonghui in China, despite the challenging trading environment. Meanwhile, progress continues on the integration and repositioning of the Rose Pharmacy business in the Philippines,” the company said.

“Notwithstanding the challenging conditions, Dairy Farm was able to maintain its cashflow from operating activities through better working capital management.

Dairy Farm operates over 6400 outlets – including supermarkets, hypermarkets, convenience stores, health and beauty stores, home furnishings stores, cafes and restaurants – employing over 170,000 people, and had total annual sales in 2014 exceeding US$13 billion.

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