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3 Things Investors Should Know About Dairy Farm International Holdings Ltd’s 2017 Earnings

Dairy Farm International Holdings Ltd (SGX: D01) is a pan-Asian retail group with more than 7,000 outlets (including associates and joint ventures) across 11 countries and territories. It operates supermarkets, hypermarkets, convenience stores, health and beauty stores, home furnishings stores, and restaurants under various popular brands.

Last week, Dairy Farm announced its financial results for 2017. Let’s take a look at three main aspects of the announcement here.

Show me the money

Combined total sales, which includes 100% of associates and joint ventures, rose 7% year-on-year to US$21.83 billion. The improvement was mostly due to strong growth at both its key associates, Yonghui and Maxim’s.

For the year, four of Dairy Farm’s five formats – Food (Convenience Stores), Health and Beauty, Home Furnishings and Restaurants – posted revenue gains. The only laggard was the Food (Supermarket and Hypermarket) format.Source: Dairy Farm’s 2017 earnings presentation

The group’s 19.99% owned associate, Yonghui, opened 292 net new stores in mainland China. Yonghui generated revenue growth of 19%.

Sales from Dairy Farm’s subsidiaries went up 1% to US$11.29 billion.

During the year, the group recognised US$64 million worth of business change costs, mainly related to the closure of a series of loss-making stores in Indonesia, Singapore, and Malaysia, and stock clearance in the Food division.

Partially due to the business change costs, Dairy Farm’s profit attributable to shareholders tumbled 14% to US$404 million, resulting in the diluted earnings per share falling from 34.68 US cents in 2016 to 29.82 US cents in 2017. Poor performances in the Supermarket and Hypermarket businesses in Malaysia, Singapore, and Indonesia also contributed to the decline in the bottom-line.

The net profit margin for 2017 stood at 3.6%, down from 4.2% seen a year ago.

Dairy Farm’s balance sheet strengthened for the year. As of 31 December 2017, it had US$332.4 million in bank balances and other liquid funds, and total debt of US$934.7 million. This translates to a net debt position of US$602.3 million. In comparison, at the end of 2016, it had US$640.8 million in net debt.

As for the return on equity (ROE), it came in at 23.9% for 2017, representing a fall of 7.3 percentage points from 2016’s ROE of 31.2%.

Cash flow from operations for 2017 grew 23.7% to US$671.3 million. The growth was due to “better working capital management”. With capital expenditure of US$279.30 million, free cash flow for the year came in at US$392 million. This marks a 31.4% improvement compared to 2016’s free cash flow of US$298.3 million.


The board proposed a final dividend of 14.50 US cents per share. Together with the interim dividend of 6.50 US cents, the total dividend for 2017 would be 21 US cents per share, unchanged from a year ago.

What the future holds

Ben Keswick, chairman of Dairy Farm, said:

“After a disappointing year in 2017 for our Food businesses in Southeast Asia, actions are being taken to improve their long-term performance. All of the Group’s other formats and markets are trading well and growth opportunities are being pursued, in mainland China and elsewhere. With our established market positions in a range of retail formats, our strong balance sheet and our determination to adapt to meet our customers’ needs, we are well placed to benefit from the growth prospects in the region.”

Dairy Farm is also undertaking a “strategic review” to identify the opportunities to improve its business, address the underlying performance issues, and set a business direction for the next five years.

As Keswick noted, it was a “disappointing” 2017 for Dairy Farm’s shareholders, but the pan-Asian retailer should do well in the upcoming years if it gets its formula right.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Dairy Farm International Holdings Ltd. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.