Dairy Farm International Holdings Ltd (SGX: D01) is one of the cool companies in Singapore that shares webcasts and/or transcripts of their quarterly earnings presentations. There may be useful information that investors can learn from the webcasts and transcripts. Last week, Dairy Farm had released its earnings for the year ended 31 December 2015. I had spent time listening to the webcast for the earnings release and noted seven key takeaways from it. But before I share them, here’s a quick background on the company for context. Dairy Farm is a retailer with a stake in over 6,500 retail outlets around Asia….
There may be useful information that investors can learn from the webcasts and transcripts. Last week, Dairy Farm had released its earnings for the year ended 31 December 2015. I had spent time listening to the webcast for the earnings release and noted seven key takeaways from it.
But before I share them, here’s a quick background on the company for context. Dairy Farm is a retailer with a stake in over 6,500 retail outlets around Asia. It has four main business segments: Food, Health and Beauty, Home Furnishings, and Restaurants. Retail store brands such as Maxim, Mannings, Guardian, Cold Storage, Giant Hypermarket, IKEA and more fall under the company’s vast umbrella. You can also read more about Dairy Farm in here and here.
With that, here are my notes from Dairy Farm’s webcast:
- Graham Allan, the company’s chief executive, kicked off the meeting by giving an overview of the retailer’s strategy. The five key strategic focus areas were Winning Brands, Format Leadership, Operational Leadership, Profitable Growth, and Passionate People.
- Next, Allan talked about the current market conditions. He said that Dairy Farm is facing challenges in almost all its markets. He singled out China and Hong Kong in a weak Asian market. Despite the headwinds, Allan remained confident about Dairy Farm’s long-term market position. He added that Dairy Farm is fanatical about measuring its market share and said that it had gained market share in almost all its markets. The exception to this would be the Food segment in Singapore.
- Moving on to financial figures, Allan said that 2015’s top-line was down in part due to weaker currencies. Sales, on a constant currency basis, grew by 5% when compared to 2014. He was also candid in saying that sales grew weaker as the year progressed. To the point, in constant currency terms, Dairy Farm’s sales grew 7% year-on-year in the first half of 2015 but only 3% year–on-year in the second half. Allan pointed towards two major reasons, namely, soft Malaysia and Hong Kong sales. Malaysia was impacted by the goods and services tax (GST) implementation in April 2015 while Hong Kong suffered from lower mainland visitors.
- Dairy Farm’s profit declined by 14% in 2015, but was partly affected by one-off charges related to PT Hero. Meanwhile, operating cash flow was up 4% while free cash flow was up 18%. This prompted Allan to say that it was a pretty good year from a cash flow perspective.
- The Food segment is the main culprit holding back sales of Dairy Farm for the year. Allan said that Dairy Farm was focusing on increasing the contributions from the fresh produce and house brand businesses in the Supermarket and Hypermarket sub-segment. On the convenience store sub-segment, the focus is on increasing the contribution of ready-to-eat meals. Meanwhile, Dairy Farm is investing in eCommerce for its Health and Beauty segment as well as increasing the penetration of its corporate brands. Elsewhere, Dairy Farm is looking to build on the good performance of its Home Furnishing business by expanding its eCommerce offerings.
- Neil Galloway, Group Finance Director, pointed out that Dairy Farm received around US$50 million in dividends from Yonghui Superstores for 2015. As a reminder, Dairy Farm had invested US$912 million for a 19.99% stake in Chinese grocery retail chain Yonghui in late 2014.
- Capital expenditure for Dairy Farm fell from US$345 million in 2014 to US$309 million in 2015. This drop was mainly from a more cautious approach to new-store growth. Galloway noted that Dairy Farm will not be rushing headlong into store expansion and will be pursuing profitable store growth. To be sure, the company’s investments in IT and its supply chain infrastructure had increased in 2015. Galloway said the investments in supply chain was around distribution which is strategically important for Dairy Farm.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong owns shares in Dairy Farm International Holdings.