Dairy Farm International Holdings (SGX: D01) is one of the largest retailers in the Asia Pacific region. The company currently has more than 5,800 outlets, including those from its associates and joint venture partnership, and it is active in 12 countries and territories.

Dairy Farm had just announced its full-year results recently and in the earnings release, it revealed that it had just restructured its business segments into four main divisions: Food (Consisting of Supermarkets, Hypermarkets and Convenience Stores); Health & Beauty; Home Furnishing and; Restaurants. The company operates through a number of brands, including Wellcome, Cold Storage, Giant, Hero, 7-Eleven, Mannings and Guardian.

Performance for the Year

For 2013, Dairy Farm was able to grow its revenue by 6% year-on-year to US$10.36 billion. Gross margins also improved by 1 percentage point to 29.8% for the year.

Moving down to its bottom-line, the company ended the year with a 12% increase in profit to US$501 million; this translated into an earnings per share figure of 37.05 US cents, up 12% over the previous year.

But while the reported profits looked strong, Dairy Farm’s ‘adjusted underlying profit’ was actually down 4% year-on-year to US$480 million, or down 5% to 35.52 US cents on a per-share basis. Dairy Farm’s earnings releases includes an ‘underlying profit’ figure to help “distinguish between ongoing business performance and non-trading items [the latter of which could be understood as gains or losses that are non-recurrent in nature or that which aren’t reflective of the company’s daily retailing business activities]”.

Dairy Farm continues to have a strong balance sheet as it operates in a net cash position. Its balance sheet has even improved compared to a year ago as its net cash position (total cash minus total debt) had increased to US$638 million from US$521 million.

Of its four segments, Food is in the most difficult position as it is facing stronger competition and increasing costs. However, for the other three segments, the group is seeing strong growth and is rapidly expanding in these businesses.

Investments for the Future

Dairy Farm has decided to focus on improving its branding and operation efficiencies. Therefore, there are plans to invest more in its human resources, IT infrastructure and systems, supply chain, e-commerce and store enhancement activities.

Although the company is facing increasing labour cost and margin pressures in all of the markets it operates in, it is confident that its focus on long-term investments and brand enhancements will be able to eventually provide much greater value to both its customers and shareholders.

Foolish Bottom Line

The company has recommended a final dividend of US$0.165 per share, bringing the total dividend for the year to US$0.23 per share, unchanged from the total dividends for 2012. At Friday’s closing price of US$9.13 for Dairy Farm’s shares, that translates into a dividend yield of 2.52% and price-earnings ratio of 25.

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