Hong Kong protests taint solid Dairy Farm results
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Ongoing restructuring is impacting on Dairy Farm International’s grocery and convenience sales – but total group income is up.
In a third-quarter management update, the company said combined sales including 100 percent of those of associates and joint ventures for the period were ahead of the same period last year, primarily due to the investment in Robinsons Retail in the Philippines in November.
Sales by the group’s subsidiaries in the quarter declined, as revenue from hypermarkets and supermarkets was impacted by the Southeast Asia store optimization plan and the divestment of the Rustan Supercenters business in the Philippines. That said, profits from that division improved as underperforming Giant stores were closed and others upgraded.
“While the turnaround of the Southeast Asian businesses remains at an early stage, there are encouraging signs of improvement. The group continues to invest in and grow its capabilities in Southeast Asia in line with the multi-year transformation plan.
“Convenience stores and home furnishings continued to perform well, with sales ahead of the same period last year,” said the company. “While Southeast Asia health-and-beauty sales improved, overall health-and-beauty revenue weakened as the performance was impacted by difficult market conditions in Hong Kong.”
The group’s convenience-store sales in the quarter were ahead of last year, with profitability modestly lower due to ongoing investment in new stores as well as rental and labour cost pressures.
“Convenience stores and home furnishings continued to perform well, with sales ahead of the same period last year,”
In health and beauty, Mannings’ sales and profits were significantly impacted by the ongoing social unrest in Hong Kong, however, Guardian in Southeast Asia delivered an “encouraging performance,” with solid sales growth, particularly in Indonesia. “The group continues to invest in and grow its health-and-beauty network across Southeast Asia.”
The home-furnishings business (Ikea) reported solid sales growth for the quarter, as strong growth in Taiwan and Indonesia offset a lower performance in Hong Kong due to weak consumer sentiment. Profitability continued to be impacted by the increased cost of goods compared with last year and pre-opening expenses for stores under development, the company said. Ikea’s e-commerce operations continue to grow, with positive results in all markets as improvements were to website functionality.
Dairy Farm International’s associate Maxim’s performance during the third quarter was impacted by the ongoing social unrest in Hong Kong, while supermarket chain Yonghui reported strong underlying growth in profitability.
The group said its results also continued to benefit from its share of results from the 20-per-cent interest in Robinsons Retail.
For the full year, the group expects to see benefits from its transformation program, but some of this will be “more than offset by weak trading conditions” in several of its Hong Kong businesses.
“Nonetheless, Dairy Farm remains firmly focused on its multi-year strategic transformation to deliver long-term improvements to the business.”
Questions & Answers
Q.What specifically caused the overall group income to increase despite some internal sales declines?
What specifically caused the overall group income to increase despite some internal sales declines?
The primary reason for the increase in combined sales was the investment made in Robinsons Retail in the Philippines in November. This offset declines seen in the group's subsidiaries.
Q.How did the hypermarket and supermarket division improve its profits despite declining revenue?
How did the hypermarket and supermarket division improve its profits despite declining revenue?
Profits improved in this division due to the closure of underperforming Giant stores and upgrades to others. This was part of a Southeast Asia store optimisation plan.
Q.Which specific businesses or regions within Dairy Farm were most negatively affected by the social unrest in Hong Kong?
Which specific businesses or regions within Dairy Farm were most negatively affected by the social unrest in Hong Kong?
Mannings' sales and profits were significantly impacted, as was the performance of associate Maxim's. Ikea also experienced a lower performance in Hong Kong due to weak consumer sentiment.
Q.What is the group's outlook for its full-year results, considering the mixed performance across divisions?
What is the group's outlook for its full-year results, considering the mixed performance across divisions?
The group anticipates benefits from its transformation programme for the full year. However, these will be largely offset by weak trading conditions in several of its Hong Kong businesses.
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