10 Quick Things Investors Should Learn About Dairy Farm International Holdings Ltd’s Latest Earnings

Dairy Farm International Holdings Ltd  (SGX: D01) is one of the cool companies in Singapore that shares webcasts and/or transcripts of their earnings presentations.

There may be useful and important information that investors can learn from the webcasts and transcripts.

Last week, Dairy Farm had released its results for the first-half of 2016. I had spent time listening to the audio webcast of its earnings presentation and came away with 10 things that may interest investors.

But first, here’s a quick background on Dairy Farm. The pan-Asian retailer has a stake in around 6,500 outlets across Asia. The company has four main business segments: Food, Home Furnishings, Restaurants, and Health and Beauty. Brands such as  Mannings, Guardian, Cold Storage, Giant Hypermarket, and IKEA fall under Dairy Farm’s vast umbrella.

With that, here are my notes:

  1. Graham Allan, Group Chief Executive, kicked off the meeting. He said that Dairy Farm had reported a solid set of results. Allan mentioned that the management team looks at the business in constant currency terms. From that view, Dairy Farms’ revenue was up 2% year-on-year.
  2. Total sales, which includes its associates Maxim and Yonghui Superstores, was up 31% year-on-year. Allan said total sales benefitted from a full quarter’s worth of contribution from Yonghui, which had reported strong sales growth. Meanwhile, underlying profit was up 5% in constant currency terms.
  3. Most of the businesses did better in the first-half of 2016 as compared to the same period a year ago. The exception was the Health and Beauty segment, which experienced lower profits in Malaysia and Hong Kong.
  4. Overall, Allan also said that the first-quarter was generally weak but business improved in the second-quarter. He pointed out that the Health and Beauty segment in Hong Kong actually had profit growth in the second-quarter, but was dragged down by results from the first-quarter.
  5. Dairy Farm reduced its store count in the Food and Health and Beauty segments by over 90 in the first-half of the year. Despite the reduction, Allan pointed out that sales (on a constant currency basis) was up for both segments.
  6. Allan also followed up by giving an overview on how Dairy Farm is performing against its long-term strategy. Under winning brands, he cited the growing like-for-like sales. The two markets which lag here are Malaysia and Indonesia. Under format leadership, Allan said that Dairy Farm is accelerating its investments in eCommerce and CRM (customer relationship management) activities, including loyalty programs. Under operational excellence, Allan said that Dairy Farm is maintaining the implementation of the SAP system. Under profitable growth, Dairy Farm is seeing strong growth in its corporate brands. Under passionate people, Allan said that it is continuing to invest in building capabilities, particularly in merchandising capability.
  7. Neil Galloway, Group Finance Director, talked about some financial figures. Galloway said that the support office costs increased from US$20 million a year ago to US$30 million in the reporting period. He said that this reflects the investments Dairy Farm has made around IT systems, quality assurance, and supply chain which are critical to its business.
  8. Moving on the balance sheet, Galloway said that there was an increase in inventory due to the Ramadan month. Inventory rose from US$937 million last-year to US$982 million. Galloway also said that Dairy Farm has refinanced its short-term borrowings and extended it to between three and five years. Net debt increased to US$602 million, up from the net debt of US$482 million seen at the end of 2015.
  9. Galloway talked about Dairy Farm’s free cash flow too, which had declined from US$168 million in the first-half of 2015 to US$71 million. He said this was down to the timing of supplier payments and the additional stock build-up related to the Ramadan month.
  10. Galloway also spent some time on capital expenditures. Dairy Farm spent US$110 million in the first-half of 2016, down from the US$147 million spent in the first-half of last year. Around half was spent on new stores and a quarter was spent on store refurbishments. Some 14% was dedicated to IT investments while the remaining 7% was allocated for supply chain and other investments.

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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.