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Dairy Farm International Holdings Ltd: Turnaround on the Cards?

Dairy Farm International Holdings Ltd (SGX:D01) had a disappointing 2017, with net profit down 13.9% year-on-year. The company has faced challenges in its core supermarket business as intensifying competition, both online and offline, affected profitability and sales in South East Asia.

Last week, the group released its half-year results for 2018. Here are important takeaways from its earnings update.

Financial performance

There was strong combined sales growth of 17% year-on-year to US$12,215 million from US$10,448 million. Underlying operating profit rose 9% to US$218 million, while underlying net profit rose 2% to US$215 million.

The group had underlying earnings per share of 15.88 US cents and declared a dividend of 6.50 US cents per share, giving it a payout ratio of 0.41.

Business segment information

There was improvement in sales in most of its business segments. Sales in its supermarket and hypermarket segment increased 4% in North Asia but declined 2% in South East Asia on a constant currency basis. Sales in its convenience stores increased 5% on constant currency; health and beauty segment rose 19% and home furnishing improved 13%.

Its key associates also had improved performances with Maxim’s sales growing 19% on constant currency basis and Yonghui improving 21%. Maxim’s sales were boosted through its acquisition of the Starbucks franchise in Singapore, and the Genki Sushi franchise in Singapore and Malaysia. Maxim also recently opened the first Shake Shack in Hong Kong.

However, profitability in its supermarket and hypermarket segment disappointed again. Operating profit in North Asia fell 14% while its Southeast Asia operations turned in a loss of US$22 million from a profit of US$7 million a year ago.

The other segments fared better, with profitability in convenience stores, health and beauty, and home furnishing up 5.8%, 73% and 3% respectively. The strong performance in these segments more than made up for the disappointing supermarket and hypermarket segments, helping to boost overall underlying profit by 9% as mentioned earlier.

Cash flow and balance sheet

Dairy Farm earned positive operating cash flow of US$312 million and free cash flow of US$174 million. The bulk of the company’s capital expenditures were spent on new stores and store refurbishments.

As of 30 June 2018, the group had total borrowings of US$1 billion and cash and equivalents of US$330 million, giving it a net debt position of US$670 million. It had a net gearing ratio of 12.4%, which is manageable.

Plans for the future

The company revealed that it has planned three phases to build sustainable growth over the long-term. The first phase is to build a strong base, including a strong leadership and store brand, which it hopes to achieve in 1-2 years. The group has appointed new leaders in its core management team in the last few months, including the appointment of Ian Mcleod as CEO in mid-2017. He was the former Coles chief executive and has many years of experience in the industry. This seems to be a step in the right direction for the company.


Chairman, Ben Keswick, said in the earnings press release:

“While the outlook for the remainder of the year is expected to remain challenging for the Food businesses, particularly in Southeast Asia, the Group’s other business should continue to make steady progress. Significant management and structural changes have been made to address the issues the Group faces in a number of areas, but time will be needed to deliver sustainable improvement.”


At the time of writing, shares of Dairy Farm exchanged hands at US$8.57, translating to a price-to-book ratio of 7.1, an annualised price-to-earnings of 27 and a dividend yield of 2.4%.

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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 Diary Farm International Holdings Limited and Starbucks. Motley Fool Singapore contributor Jeremy Chia owns shares in Starbucks.