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Southeast Asia a pain point for Dairy Farm International

“Significant challenges” across the Southeast Asian supermarket business are continuing to test Hong Kong-listed multi-format retailer Dairy Farm International.

In a management statement discussing the company’s third-quarter performance – which did not include any figures – Dairy Farm said its businesses produced “mixed results” with a strong performance in health and beauty and good results from home furnishings and restaurants divisions. However, the performance of the Hong Kong supermarkets business has softened.

The company said the Southeast Asian grocery store business – Cold Storage and Giant stores in Singapore and Malaysia – is expected to continue for the remainder of the year with the group’s full year results expected to be impacted by increasing costs from ongoing investment in technology, supply chain infrastructure, stores and people in order to improve the long-term performance of the business. Sales and profits fell in its supermarkets in both countries. Falling sales in Indonesia were mitigated by management action which resulted in reduced losses there.

In North Asia, sales from the food businesses were slightly ahead of the same period last year, but profits were lower as a result of weakening margins and continued cost pressures, particularly from increased rents.

However, the health and beauty businesses in Hong Kong and Macau (Guardian stores) delivered “strong sales and profit growth”.

The Philippines food business showed good sales growth, benefitting from the opening of several new stores, but profit was slightly behind the prior year due to increased operating costs. There was continuing good sales and profit improvement in the group’s health and beauty businesses, notably in Malaysia and Indonesia.

Ikea’s sales and profits were ahead of last year in Taiwan and Indonesia. In Hong Kong, sales were higher, supported by the new store which opened last year; however profits were lower as a result of higher operating costs.

In Hong Kong, Maxim’s delivered another record-breaking mooncake sales performance during Mid-Autumn Festival, which was earlier than last year, and helped drive sales and profit higher during the period. Supermarket Yonghui reported strong sales growth in the quarter but profit was lower than the prior year due to investment in new formats and the additional costs of the new employee incentive scheme.

Approval was received from the Philippines Competition Commission in August for the combination of Dairy Farm’s Food business in the Philippines with Robinsons Retail Holdings, with completion expected to take place within weeks.

In early October Dairy Farm agreed to acquire the remaining 51 per cent interest in Rose Pharmacy in the Philippines, which is now subject to regulatory approvals.

Dairy Farm, together with its associates and joint ventures, operate more than 7400 outlets, including supermarkets, hypermarkets, convenience stores, health and beauty stores, home furnishings stores and restaurants – employing more than 200,000 people. Total sales last year exceeded US$21 billion.

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