2020 Preliminary Announcement of Results

 

 

 

Announcement                                                                                             

 

11th March 2021

 

The following announcement was issued today to a Regulatory Information Service approved by the Financial Conduct Authority in the United Kingdom.

 

DAIRY FARM INTERNATIONAL HOLDINGS LIMITED

2020 PRELIMINARY ANNOUNCEMENT OF RESULTS

 

Highlights                                                      

·        Underlying profit of US$276 million, down 14%

·        Substantial sales and profit growth in Grocery Retail

·        Solid trading in Home Furnishings

·        Health and Beauty, Convenience and Maxim's significantly impacted by COVID-19

 

"2020 was a challenging year for Dairy Farm, with the COVID-19 pandemic impacting the Group's operations and, as a result, its financial results.  Continued progress in implementing the Group's transformation programme, however, helped the business adapt to the rapidly changing environment, while the diversity of the Group's businesses, coupled with the impact of ongoing efficiency improvement programmes, supported the Group's overall financial performance." 

 

Ben Keswick

Chairman

 

Results

Year ended 31st December
		2020 US$m		2019 US$m		Change %
Combined total sales including 100% of associates and joint ventures		28,159		27,665		+2
Sales		10,269		11,192		-8
Underlying profit attributable to shareholders*		276		321		-14
Net non-trading items		(5)		3		n/a
Profit attributable to shareholders		271		324		-16
		US¢		US¢		%
Underlying earnings per share*		20.38		23.72		-14
Basic earnings per share		20.03		23.93		-16
Dividends per share		16.50		21.00		-21
*  the Group uses 'underlying profit' in its internal financial reporting to distinguish between ongoing business performance and non-trading items, as more fully described in note 36 to the financial statements.  Management considers this to be a key measure which provides additional information to enhance understanding of the Group's underlying business performance.

The final dividend of US¢11.50 per share will be payable on 12th May 2021, subject to approval at the Annual General Meeting to be held on 5th May 2021, to shareholders on the register of members at the close of business on 26th March 2021.

 

 

DAIRY FARM INTERNATIONAL HOLDINGS LIMITED

 

 

PRELIMINARY ANNOUNCEMENT OF RESULTS 

FOR THE YEAR ENDED 31ST DECEMBER 2020

 

OVERVIEW

2020 was a challenging year for Dairy Farm, with the COVID-19 pandemic impacting the Group's operations and, as a result, its financial results.  Continued progress in implementing the Group's transformation programme, however, helped the business adapt to the rapidly changing environment, while the diversity of the Group's businesses, coupled with the impact of ongoing efficiency improvement programmes, supported the Group's overall financial performance.  A number of key initiatives gathered momentum in the year and the Group is now more effectively leveraging scale and developing an improved customer proposition across all banners and markets. 

 

OPERATING PERFORMANCE

Sales of US$10.3 billion for the year by the Group's subsidiaries were 8% behind those of 2019.  Total sales, including 100% of associates and joint ventures, were 2% higher at US$28.2 billion, primarily due to a higher sales contribution from Yonghui.

 

The Group's subsidiaries saw underlying operating profit of US$412 million, 6% behind the previous year.  Strong growth in operating profit for Grocery Retail and IKEA was offset by a reduction in profit for the Health and Beauty and Convenience businesses.  Among the Group's subsidiaries, disruption caused by the COVID-19 pandemic has had the greatest impact on our Health and Beauty business in Hong Kong.

 

Underlying profit attributable to shareholders was US$276 million, down 14% from US$321 million last year.  Underlying earnings per share of US¢20.38 were also down 14%.

 

The Group maintained solid cash flows from operating activities, after lease payments, of US$361 million (2019: US$498 million).  Net debt at the end of 2020 was US$817 million, down from US$821 million at the end of last year.

 

The Board is recommending a final dividend of US¢11.50 per share, giving a total dividend of US¢16.50 per share for the year, a 21% reduction compared to 2019.

 

Food - Grocery Retail

Total Grocery Retail sales increased by 3% to US$5.3 billion.  Strong like-for-like sales growth across both North Asia and Southeast Asia was partially offset by the annualisation impact of the Group's space optimisation programme, which was executed in 2019.

 

Operating profit for the Group's Grocery Retail business increased significantly from US$63 million in 2019 to US$267 million in 2020, demonstrating the benefit of a diversified retail portfolio.  There was strong profit growth across both North Asia and Southeast Asia, driven by benefits accrued from implementing improvement programmes, strong like-for-like sales and government subsidies.  Performance in Indonesia, however, was negatively impacted by significant government restrictions on movement, which affected traffic into hypermarkets.

 

Food - Convenience

Disruption caused by the pandemic impacted customer traffic into our Convenience stores, resulting in a 4% reduction in sales to US$2.1 billion.  Operating profit decreased by 31% to US$57 million, driven primarily by a combination of the shortfall in sales and a sales mix shift towards lower product margin categories.

 

Health and Beauty

Total sales for the Health and Beauty Division reduced by 35% to US$2.0 billion as the pandemic impacted customer traffic across our key markets.  In North Asia, enforced border closures have led to a virtual elimination of tourism, most notably from the Chinese mainland, which has significantly impacted our Mannings business in Hong Kong and Macau.  The resultant decline in sales performance was the primary cause of a significant decrease in operating profit from US$296 million in 2019 to US$66 million.

 

Faced with challenging trading conditions, the Group is focusing on ensuring that its customer value proposition - from the perspective of pricing, stores and channel to market - remains relevant and competitive.  Price investment campaigns have been introduced across our key markets with encouraging results so far.  The Group is also managing costs appropriately.

 

Home Furnishings

In Home Furnishings, sales for IKEA increased by 9% in the year, as new store openings and strong e-commerce growth offset pandemic related disruption.  Operating profit increased by US$28 million to US$71 million, due to a combination of new store profit contribution, lower cost of goods, strong cost controls, reduced pre-opening expenses for new stores and government support.

 

Associates

The contribution from 50%-owned Maxim's declined to US$36 million, from US$82 million in the prior year, as the pandemic, government-imposed restrictions on movement and social distancing measures caused a significant reduction to customer visits to restaurants, as well as leading to some temporary closures. 

 

The Group's share of underlying results in Yonghui grew from US$23 million in 2019 to US$29 million in 2020, primarily due to strong sales growth.  Dairy Farm's share of underlying results in Robinsons Retail fell by 5% to US$14 million.  The financial performance of Robinsons Retail in the year was impacted by government restrictions on movement due to the pandemic, particularly with respect to its discretionary formats.

 

TRANSFORMATION

During the year, the Group's transformation gathered momentum with the completion of a number of key initiatives.

 

Dairy Farm is accelerating the pace of its digital change to adapt to the rapidly changing environment.

 

The launch of Yuu Rewards in July 2020 represented a critical milestone in driving Dairy Farm's modernisation and digital transformation.  Yuu will support a more customer-centric approach across all the Dairy Farm banners and drive an enhanced level of customer engagement.

 

There has also been continuing investment in e-commerce, especially in the Group's Home Furnishings and Health and Beauty businesses, and the Group is treating this area as a strategic priority.  The Group is also investing significantly in existing legacy IT systems to improve the digitisation of in-store operations.

 

During the year, the Group also launched Meadows, its new Own Brand offering across Hong Kong, Singapore and Malaysia.  Over 600 items have already been launched across banners and markets at lower prices.  The future growth of Own Brand will allow the Group to leverage scale and gain competitive advantage.

 

A number of price investment campaigns were introduced across key banners in the year to enhance our customer value proposition across our regions.  In Singapore, the Group's price reinvestment campaign coincided with the relaunch of the Giant banner with a major rebrand and space reallocation in refreshed or refitted stores.  Initial performance has been encouraging.

 

BUSINESS DEVELOPMENTS

The Group divested Wellcome Taiwan during the year.  In October, Dairy Farm deepened its strategic partnership with Philippines-listed multi-format retail group, Robinsons Retail, by combining its interests in the wholly-owned subsidiary Rose Pharmacy through a sale to Robinsons Retail's subsidiary Southstar Drug.

 

As at 31st December 2020, Dairy Farm, including associates and joint ventures, operated 9,997 stores across all formats, compared with 10,012 stores at 31st December 2019 on a continuing basis.

 

PEOPLE

Our businesses are operating in extraordinary circumstances and our people are facing huge challenges.  We would like to express our deep gratitude for the continuing dedication and resolve of our team members in putting our customers first during these difficult times.

 

The Group made significant investments in the year to address the challenges of COVID-19 and support employees, customers and the community.  These costs were offset by support received from governments in several of our key markets, which has helped maintain employment in a number of our businesses.

 

We were pleased to welcome Clive Schlee as a Non-Executive Director of the Company with effect from 6th May 2020.  He brings many years of valuable experience within FMCG businesses.  John Witt succeeded me as Managing Director on 15th June 2020.  I will continue as Chairman. 

 

Jeremy Parr and Mark Greenberg stepped down as Directors of the Company on 3rd December and 31st December 2020 respectively.  We would like to thank them both for their contribution to the Board during their tenure.

 

PROSPECTS

We remain confident in the Group's ability to continue to adapt and thrive and achieve long-term sustainable growth, with good progress being made in implementing the Group's customer-focused and market-driven strategy.  We expect challenging conditions to continue in the coming year, however, it is too early to predict what the impact of the pandemic will be on the Group's performance in 2021. 

 

 

 

Ben Keswick

Chairman

 

 

GROUP CHIEF EXECUTIVE'S REVIEW

 

INTRODUCTION

2020 has been an unprecedented and challenging year for Dairy Farm.  The Group has had to constantly adapt the management of its operations against a backdrop of varying levels of community infection rates and rapidly evolving customer behaviours.  This was done in the context of different and changing approaches to managing the pandemic by governments in the regions where we operate, as well as the need to invest in and ensure our team members' safety and well-being. 

 

Despite these challenges, the Group's transformation plan executed over the past three years has supported our ability to adapt to the ever-changing environment.  In addition, the diversity of the Group's business mix from the perspective of both direct and indirectly managed 
businesses, formats and geographies has provided effective insulation from unprecedented trading conditions.

 

Underlying operating profit for the Group's subsidiaries reduced by 6% in the year, with strong profit growth in Grocery Retail and Home Furnishings offset by reduced profitability in Convenience Stores and Health and Beauty.  The contribution from key associates decreased materially, primarily due to lower profitability from Maxim's (where we own 50%), which was significantly impacted by disruption caused by COVID-19.  Total underlying net profit for the Group reduced by 14% to US$276 million.

 

FIVE STRATEGIC IMPERATIVES

1) Growth in China

7-Eleven South China opened over 200 additional new stores during the year despite the challenges of movement restrictions.  China's extremely tight lockdown regime significantly impacted foot traffic in the early part of the year, with up to 500 stores having to close for prolonged periods.  Subsequently, when movement restrictions became less severe, regulations prohibiting the sale of Ready-to-Eat products impacted sales recovery.  Despite the challenges posed by trading conditions, strong execution of product innovation and promotions led to a significant improvement in sales in the second half of the year.  During the year, 7-Eleven South China began a project to transform its legacy IT systems with a new end-to-end agile IT solution, to support both an improved customer shopping experience and its future growth ambitions.

Mannings China's sales performance was impacted significantly in the first quarter as restrictions on movement led to reduced traffic.  However, the business reported improving like-for-like sales trends throughout 2020.  Mannings China continues to execute its space optimisation plan with greater focus around the Greater Bay Area, where Mannings has stronger brand awareness and can leverage the existing scale of 7-Eleven.  E-commerce growth continues to be strong, with penetration now over double digits.

 

Yonghui delivered strong sales growth in the first half of 2020, driven by good like-for-like sales growth and robust e-commerce growth.  Profitability also increased significantly over this period.  Tighter family disposable income as well as more intense competition, however, did contribute to a slowdown in sales performance in the third quarter of the year. 

 

2) Maintaining Strength in Hong Kong

Wellcome Hong Kong reported double-digit like-for-like sales growth in 2020, driven by a trend towards eating-at-home, greater focus on fresh quality, strong in-store execution and enhanced pricing.  Profitability increased significantly due to a combination of strong sales growth and the benefits accrued from the improvement programmes which have been implemented as part of the Group's multi-year transformation. 

 

However, disruption caused by the pandemic has adversely impacted performance for other banners in Hong Kong, particularly Mannings and 7-Eleven.  The virtual elimination of tourist traffic through border closures has had a significant impact on Mannings' sales and profitability, and the business has focused strongly on investment in value to maximise appeal to the Hong Kong customers.  Performance has been encouraging so far, with the price initiative underpinning relative improvement in both volume and profitability.  7-Eleven's performance was also adversely impacted by reduced local foot traffic, particularly in MTR locations following business and government advice to encourage employees to work from home.

 

IKEA's Hong Kong sales performance was also impacted by COVID-19 in the first quarter.  However, IKEA reported improving sales performance over the course of the year, driven by both strong e-commerce growth and improving offline sales growth.

 

A key area of focus has been and will continue to be driving value for customers across Hong Kong.  In addition to Mannings' price reinvestment campaign launched in June, Wellcome launched its own Lower Price Locked campaign in the second half, with encouraging sales to date.  The successful launch of Meadows Own Brand products, supported by a combination of international sourcing credentials, competitive shelf price, strong product quality and packaging, will continue to strengthen the Group's customer value proposition in Hong Kong.

 

In July, the Group launched the Yuu Rewards programme, Hong Kong's biggest rewards club.  The programme links more than ten household brand names, including affiliate partners such as Hang Seng Bank and other businesses in the wider Jardine Matheson Group such as Pizza Hut and KFC, across over 2,000 locations in Hong Kong.  For the first time, a CRM programme is allowing Dairy Farm to leverage the scale of all its banners in Hong Kong.  The programme is both an important pillar supporting digital transformation within Dairy Farm and a means of maintaining Dairy Farm's strength in Hong Kong.

 

3) Revitalising Southeast Asia

Profitability in the Group's Southeast Asian Grocery Retail business improved significantly in the year, due to a combination of the initiatives implemented as part of the Group's multi-year transformation programme and strong like-for-like sales growth.

 

Despite delays caused by COVID-19 lockdown restrictions, the team successfully relaunched all Giant Singapore stores in 2020.  This programme involved detailed research, combined with in-depth sales and merchandise analysis, a detailed plan to reapportion space, and investment in new equipment where required.  All stores have now either been refreshed or refitted with a major brand facelift and space reallocation.  There has also been a significant shift in emphasis onto Own Brand within Giant stores, and results have been encouraging.  The repositioning of the Giant brand has been underpinned by a programme to re-establish price trust and to invest in lower prices on hundreds of frequently purchased items across fresh, grocery and chilled categories.  Strong marketing execution was also implemented to support the brand repositioning.  Whilst still early, these steps have led to an improved sales performance, with underlying like-for-like sales growing at their strongest rate since 2013.

 

Performance of our upscale Grocery Retail stores continues to show good progress.  Improvements in range, availability and freshness are supporting improved sales performance.  In addition, our new concept pilot stores, with much stronger emphasis on fresh food, international products, organic, health and wellness ranges, have performed very strongly.  New concept stores have now been introduced in Malaysia and Singapore, in addition to those introduced in Hong Kong.

 

Our Guardian Health and Beauty business remains a significant growth opportunity for the Group.  However, like-for-like sales performance and profitability have been impacted by government restrictions on movement in each of the markets in which we operate.  Despite the challenging environment, the team continues to focus on improving key areas of the business, including product range, value, store and sales channel development.  Guardian Singapore relaunched its e-commerce platform in February, which supported around 40% growth in the year.  In addition, new shop-in-shop concepts were executed in over 50 Giant stores in 2020.  Guardian Malaysia reported triple-digit e-commerce growth in the year.  Across our key geographies in Southeast Asia, localised versions of price reinvestment campaigns were also launched to enhance Guardian's customer offering.  New health and beauty concept stores have also been developed and will be rolled out in a disciplined manner in 2021.  Within Guardian Health and Beauty, growth in Own Brand is an area of focus, with the team working on a number of initiatives to create scale and differentiation.  In 2020, one highlight in this area was the Group's new partnership with CP All to roll out Guardian products into around 12,000 7-Eleven stores across Thailand. 

 

Robinsons Retail continued to successfully integrate Rustan Supercenters in 2020.  However, its financial performance was impacted by restrictions on movement caused by COVID-19, particularly with respect to its discretionary retail businesses.  In October, Dairy Farm deepened its partnership with Robinsons Retail by combining its interests in Rose Pharmacy with Robinsons Retail's subsidiary Southstar Drug.  The combination creates a leading pharmacy chain in the Philippines.  The combined business will support greater competitiveness, create synergies and allow both Dairy Farm and Robinsons Retail to leverage scale.

 

4) Building Capability

The Group has balanced internal promotions with the introduction of external capability, and the change in leadership within the organisation has brought depth of experience and thinking to Dairy Farm.  It has also led to a cultural shift within the Group in terms of our ways of working.  In turn, this has supported the resilience of the business and our ability to adapt to rapidly evolving challenges posed by the pandemic, including different and changing approaches by governments in each of the regions in which we operate.  Decisive action was taken to ensure joint co-ordination of: resourcing to support fluctuations in trading hours; inventory procurement to ensure stability of supply; supply of health and hygiene products for all team members; and clear, regular, consistent communications updates to all team members.  One outcome of strong execution in this area has been that Dairy Farm has been at the forefront of ensuring our people's safety. 

 

As we move to the next phase of our transformation, we are seeking to nurture talent from within through the development of our own graduate recruitment programmes and through close co-operation with the wider Jardine Matheson Group. 

 

Our focus on building capability has not been limited to management positions above store level.  We have also invested in our systems and processes to enhance our team members' skills on the shop floor in an agile manner.  In 2020, we rolled out a new software system to train team members through mobile devices, which enables easy access to training on the shop floor and on the job.  Now accessible to over 50,000 team members across the Group, the system also enabled the training of 22,000 team members within three weeks to support the successful and smooth rollout of the Yuu Rewards programme.

 

5) Driving Digital Innovation

Dairy Farm is accelerating the pace of its digital change to adapt to the rapidly changing environment.

 

The Yuu Rewards programme launched in July has been highly successful and total membership has now reached over three million.  In 2020, the Yuu Rewards app was the most downloaded app on the Apple appstore in Hong Kong.  Over 50 billion points have been earned, highlighting a high level of member engagement.  We believe this is just the beginning, and we are excited to begin a deeper and more meaningful dialogue with our customers.

 

It has been well documented that the spread of the pandemic has led to a global surge in e-commerce growth.  Strong online sales growth has supported our Home Furnishings business, with e-commerce penetration over 10% in 2020.  We have also invested in infrastructure supporting e-commerce for Health and Beauty in Mannings businesses in both Hong Kong and the Chinese mainland, as well as cross-border e-commerce and Guardian in Southeast Asia.  An all-new Marketplace app was also launched in 2020, with enhanced service capability to support fulfilment.  E-commerce has been an area where Dairy Farm has historically lagged.  However, the Group is now treating this area as a strategic priority. 

 

In addition to growing e-commerce, the Group is investing significantly to enhance existing legacy IT systems to improve the digitisation of in-store operations.  As an example, 7-Eleven South China began a project to upgrade its legacy IT systems with a new end-to-end agile IT solution to support both an improved customer shopping experience and its future growth ambitions in 2020.  In Cambodia, Lucky stores have also begun introducing new IT systems to support their future store development plans, with a new point-of-sale system implemented in December across the entire store network.

 

LEVERAGING SCALE

The key objective of our transformation is to leverage our expertise and scale more effectively across our 
countries and banners by operating more effectively as one Group.  
While we fully recognise that there needs to be a localisation of the offer and proposition at both banner 
and country levels, we also believe there are significant opportunities for us to drive efficiency and lower 
costs 
through a more cohesive approach towards leveraging synergy and scale.

 

Improvement programmes have remained a key area of focus in 2020.  We are continuing to make progress in improving efficiency and utilising economies of scale to lower costs in areas such as Procurement, Category Management, People Development, Store Productivity, 
Supply Chain Optimisation and Business Process Re-engineering.  Some examples of our progress this year include:

·    Continued improvement in upstream fresh food procurement, with 60% of fresh produce volumes now jointly sourced across all Dairy Farm food businesses.

·    Completion of a thorough and detailed work measurement study across banners and stores to understand precisely how long it takes team members to perform tasks, which will support future opportunities to enhance and improve roster planning.

·    The consolidation of facilities management which has paved the way to the effective implementation of best practice energy controls, yielding energy cost savings of over US$8 million in 2020. 

We continue to see further opportunities for enhanced efficiencies in 2021.

 

The Group has continued to make strong progress with respect to a more consistent Own Brand approach.  Following its soft launch at the end of 2019, the Meadows brand was launched across our Grocery Retail banners in Hong Kong, Singapore and Malaysia.  The number of SKUs in the range has now expanded to over 600, and where appropriate we have introduced Own Brand in other banners such as 7-Eleven and Mannings.  A combination of international sourcing credentials, cost price, shelf price, quality, packaging, in-store presentation and marketing, together with a high degree of store team launch engagement, has enabled a high profile and successful full launch in 2020.  Since launch, customer feedback has been very positive with strong customer recall and high quality and value perception.  Sales performance has been very encouraging, and in the space of 12 months:

·    Meadows potato chips are the number one brand in their category.

·    Meadows nuts are the number one nut brand across the Hong Kong market.

·    Meadows is now the overall number one brand in Dairy Farm supermarkets.

 

We remain very optimistic about the future prospects of Meadows and look forward to sharing exciting developments.

 

CARING FOR TEAM MEMBERS AND SUPPORTING OUR COMMUNITY

A key priority of the leadership team is to ensure the safety and well-being of our team members throughout this pandemic.  While lockdowns, social distancing and stay at home orders have been in place, our businesses across the region have generally been regarded as essential services and remained open.  Our team members are therefore placing themselves at risk every day and the Group continues investing significantly in a number of initiatives to ensure the health, safety and well-being of each team member. 

 

Recognising the hardship faced by all members of the community during these challenging times, we responded by providing increased support to the communities that we serve.  Some examples include Wellcome's significant 'Give Back' programme which involves the distribution of over two million cash and meal vouchers to the most in need groups in Hong Kong; Mannings' partnership with the Hong Kong Hospital Authority to provide medication collection services to local residents to reduce the risk of infection from hospital visits; and company matching of Yuu Rewards points donated by customers.  In addition, we have introduced price investment programmes across our banners and geographies to drive value for customers.

 

In total, the Group has made over US$50 million of direct investments in supporting the health, safety and well-being of our team members as well as in supporting our communities as a result of COVID-19 in 2020.  The Group will continue to invest to support our team members and community given the gravity of the impact of the pandemic. 

 

I would also like to express my deep gratitude for the continuing dedication and resolve of team members in putting customers first during these difficult times.

 

BUSINESS REVIEW

 

FOOD

FOOD - GROCERY RETAIL

Total Grocery Retail sales increased by 3% to US$5.3 billion.  This performance was driven by strong double-digit like-for-like sales growth, partially offset by the annualisation impact of the Group's space optimisation programme, which was executed in 2019.  The strong like-for-like sales performance was driven by a combination of a shift in customer behaviour towards eating-at-home and operational improvements to our range, quality and pricing.  Operating profit increased from US$63 million to US$267 million, primarily driven by strong sales performance and cost benefits from our improvement programmes.

 

Sales in Hong Kong and Macau were significantly ahead of the prior year, with strong double-digit like-for-like sales growth.  Reported profitability was supported by strong sales growth, the ongoing execution of improvement programmes as well as government subsidies. 

 

Our price reinvestment campaign in Taiwan, as well as changing customer behaviours, supported strong sales growth for Wellcome Taiwan.  During the year, the Group announced that it had entered into an agreement with Carrefour for them to acquire 100% of Wellcome Taiwan.  By bringing these businesses together, team members and customers will benefit from being served by a larger group that can use its combined strength and scale to improve quality, service and price competition.  The transaction completed on 31st December 2020 and the combined entity now becomes the largest multi-format food retailer in Taiwan.

 

In Southeast Asia, strong like-for-like sales performance in Singapore and Malaysia was partially offset by challenging trading conditions in Indonesia.  Profitability for Southeast Asia was supported by strong sales performance, as well as key programmes implemented as part of the Group's multi-year transformation.  In particular, performance from the Group's store revitalisation and price reinvestment programmes has been encouraging.  Profitability in Indonesia, however, reduced significantly due to weak sales performance.

 

During the year, the Group launched price reinvestment campaigns across key regions to continue to support our customer value proposition.

 

FOOD - CONVENIENCE

Convenience sales were impacted by disruption caused by the COVID-19 pandemic, which significantly impacted traffic into stores.  Total sales reduced by 4% to US$2.1 billion, with reduced like-for-like sales partially offset by some new store growth in South China.  Operating profit reduced to US$57 million, driven by a combination of a shortfall in sales, store disruption and a product mix shift towards lower margin product categories.

 

We continue to invest in the growth of our 7-Eleven store network in Guangdong.  During the year, 7-Eleven South China began a project to significantly upgrade its legacy IT systems with a new end-to-end agile IT solution to support both an improved customer shopping experience and its future growth ambitions.  Upon implementation the system will support the business in scaling up both its company-owned and franchise store networks.

 

HEALTH AND BEAUTY

Sales for our Health and Beauty Division were impacted significantly by disruption caused by the COVID-19 pandemic.  The performance of Mannings in North Asia was impacted by reduced foot traffic from a lack of visitors into both Hong Kong and Macau.  Following strong like-for-like sales performance in the first quarter, Guardian's sales growth decelerated significantly due to government restrictions on movement for the remainder of the year.  Reported sales for the Health and Beauty Division were US$2.0 billion in 2020, 35% below the prior year.

 

Operating profit was US$66 million in 2020, a significant reduction relative to the US$296 million reported in the prior year.  The reduction in profitability was primarily due to a shortfall in sales, partially offset by government subsidies.

 

Faced with difficult trading conditions and a lack of tourist traffic, the Health and Beauty Division has focused on price investment to ensure relevance to our customers.  In addition, the Group believes investments in digital, store design, the Yuu Rewards programme and Own Brand development will support market share growth.

 

In October, the Group deepened its partnership with Robinsons Retail by combining its interests in Rose Pharmacy with Robinsons Retail's subsidiary Southstar Drug.  The combination creates a leading pharmacy chain in the Philippines.

 

HOME FURNISHINGS

Despite the challenges posed by COVID-19, we continued to invest in the future growth of our Home Furnishings business in 2020. Sales grew by 9% to a record US$832 million.  The contribution of new stores and strong e-commerce growth more than offset the negative effect on like-for-like sales from COVID-19 related impacts on traffic and operations.  Trading in Indonesia was most impacted by the pandemic due to operating capacity limitations and intermittent temporary store closures.  

 

The Home Furnishings business has been proactive in developing online capability and has been evolving its online template to build a new website proposition within each of our markets.  This initiative has facilitated strong growth in online penetration since 2017, with overall online penetration now over 10% of sales.

 

Operating profit was US$71 million for the year, a significant increase of US$28 million from the prior year.  The strong profit growth was driven by an incremental profit contribution from new stores opened, reduced cost of goods, strong operating cost control, lower pre-opening expenses for new store openings and some benefits from government subsidies.  Store trading disruption due to COVID-19 did partially impact profit performance, particularly in Indonesia.

 

During 2020, we opened one new store in Macau during the height of the pandemic, as well as a new larger replacement store in Taiwan, with performance for both stores encouraging.  The pandemic has impacted the timeline for our new planned store openings in Indonesia and we now expect two additional store openings in 2021.  By the end of 2021, we will have 15 stores opened across our markets against a base of 10 at the end of 2017.  This represents the fastest growth in IKEA in our 42 years of franchise ownership and will make Dairy Farm the second largest IKEA franchise globally.

 

RESTAURANTS

The global pandemic, which has led to government-imposed restrictions on movement and social distancing measures, has caused a significant reduction in customer visits to Maxim's restaurants, as well as leading to some temporary closures and adjusted operating hours.  Maxim's reported sales of US$2.1 billion in 2020, a 24% reduction compared to the prior year. 

 

Weak sales performance led to a significant reduction in profitability, with Dairy Farm's share of Maxim's profits reducing by US$46 million to US$36 million.  Maxim's profitability was supported by strong cost control, reduced rental expenses and government support in the year.

 

Whilst trading conditions were challenging, Maxim's remains committed to pursuing its multi-brand strategy.  During the year, Maxim's announced that it had expanded its partnership with Shake Shack across China.  The first Beijing store opened in the third quarter and there are plans to open more stores in South China including locations in Shenzhen, Guangzhou, Fuzhou and Xiamen.  Maxim's has also secured the Starbucks franchise in Laos, with the first store planned to be opened in 2021.  Maxim's has now secured the Starbucks franchise in seven markets. 

 

OTHER ASSOCIATES

Yonghui delivered significant sales growth in the first six months of 2020, driven by robust like-for-like sales growth and strong e-commerce growth.  Profitability also increased strongly over this period.  Tighter family disposable income as well as more intense competition, however, did contribute to a slowdown in sales performance in the third quarter of the year.

 

Robinsons Retail's financial performance in 2020 was impacted by government restrictions on movement due to the pandemic, particularly with respect to its discretionary formats.  Robinsons Retail's core supermarket format reported strong growth in sales and profitability driven by a combination of changing customer behaviours and the successful integration of Rustan Supercenters. 

 

YEAR AHEAD

Undoubtedly, 2020 was a challenging year.  The extent and duration of the impact of the pandemic in 2021 remains unclear, and this year is likely to remain challenging.  Despite the short-term impact from the pandemic, however, our team members remain motivated, determined and resolute in the continued execution of the Dairy Farm multi-year transformation plan.  We are halfway through that plan and there is much still to do.  Despite all adverse external influences, the transformation plan remains on track.  While financial results do not yet reflect the efforts made to date, we are confident that the actions being taken remain the right ones and the Company is in a far better shape now to face the challenges of the market going forward.

 

I would like to thank my Leadership Team, their teams and every team member in our stores who have worked tirelessly for Dairy Farm over the last three years to get us this far.  Our store teams do deserve a special mention.  In every country where lockdowns were put in place and populations were encouraged and even mandated to stay home for their safety, our store and supply chain teams turned up to do their jobs in genuinely dangerous circumstances.  I could not be more grateful for their support.

 

Ian McLeod

Group Chief Executive

 

 

 

Dairy Farm International Holdings Limited Consolidated Profit and Loss Account for the year ended 31st December 2020
							2020														2019
	Underlying business performance US$m						Non- trading  items US$m					Total US$m		Underlying business performance US$m							Non- trading  items US$m					Total US$m
Sales (note 2)			10,268.5				-					10,268.5					11,192.3				-					11,192.3
Cost of sales			(7,077.7)				-					(7,077.7)					(7,658.5)				-					(7,658.5)
Gross margin			3,190.8				-					3,190.8					3,533.8				-					3,533.8
Other operating income (note 3)			355.4				75.2					430.6					189.8				19.3					209.1
Selling and distribution costs			(2,575.8)				-					(2,575.8)					(2,700.7)				-					(2,700.7)
Administration and other operating expenses			(558.8)				(98.7)					(657.5)					(586.4)				(30.2)					(616.6)
Operating profit (note 4)			411.6				(23.5)					388.1					436.5				(10.9)					425.6
Financing charges			(145.1)				-					(145.1)					(164.9)				-					(164.9)
Financing income			2.4				-					2.4					6.7				-					6.7
Net financing charges (note 5)			(142.7)				-					(142.7)					(158.2)				-					(158.2)
Share of results of associates and joint ventures (note 6)			76.0				8.9					84.9					114.9				11.4					126.3
Profit before tax			344.9				(14.6)					330.3					393.2				0.5					393.7
Tax (note 7)			(74.2)				0.4					(73.8)					(69.5)				0.8					(68.7)
Profit after tax			270.7				(14.2)					256.5					323.7				1.3					325.0
Attributable to:
Shareholders of the Company			275.7				(4.7)					271.0					320.9				2.9					323.8
Non-controlling interests			(5.0)				(9.5)					(14.5)					2.8				(1.6)					1.2
			270.7				(14.2)					256.5					323.7				1.3					325.0
			US¢									US¢					US¢									US¢
Earnings per share    (note 8)
- basic			20.38									20.03					23.72									23.93
- diluted			20.37									20.03					23.71									23.92

 

 

Dairy Farm International Holdings Limited Consolidated Statement of Comprehensive Income for the year ended 31st December 2020
					2020 US$m						2019 US$m
Profit for the year					256.5						325.0
Other comprehensive income
Items that will not be reclassified to profit or loss:
Remeasurements of defined benefit plans					16.3						15.9
Tax relating to items that will not be reclassified					(2.7)						(2.4)
					13.6						13.5
Share of other comprehensive income of   associates and joint ventures					2.2						0.7
					15.8						14.2
Items that may be reclassified subsequently to profit or loss:
Net exchange translation differences
- net gain arising during the year					109.4						25.5
- transfer to profit and loss					(16.9)						3.4
					92.5						28.9
Cash flow hedges
- net loss arising during the year					(11.6)						(2.6)
- transfer to profit and loss					2.8						(5.5)
					(8.8)						(8.1)
Tax relating to items that may be reclassified					1.8						1.6
Share of other comprehensive income of   associates and joint ventures					0.5						2.8
					86.0						25.2
Other comprehensive income for the year,   net of tax					101.8						39.4
Total comprehensive income for the year					358.3						364.4
Attributable to:
Shareholders of the Company					373.9						362.1
Non-controlling interests					(15.6)						2.3
					358.3						364.4

 

Dairy Farm International Holdings Limited Consolidated Balance Sheet at 31st December 2020
							2020 US$m				2019 US$m
Net operating assets
Intangible assets							420.6				589.2
Tangible assets							771.9				820.2
Right-of-use assets							2,872.1				3,186.3
Associates and joint ventures							2,256.5				2,101.9
Other investments							6.0				6.8
Non-current debtors							114.8				142.4
Deferred tax assets							15.5				18.2
Non-current assets							6,457.4				6,865.0
Stocks							778.7				896.1
Current debtors							303.6				281.3
Current tax assets							28.0				26.1
Cash and bank balances							277.6				301.4
							1,387.9				1,504.9
Non-current assets held for sale (note 10)							55.2				-
Current assets							1,443.1				1,504.9
Current creditors							(2,060.5)				(2,315.4)
Current borrowings							(852.0)				(938.2)
Current lease liabilities							(684.1)				(728.3)
Current tax liabilities							(84.7)				(126.5)
Current provisions							(43.8)				(56.0)
Current liabilities							(3,725.1)				(4,164.4)
Net current liabilities							(2,282.0)				(2,659.5)
Long-term borrowings							(242.3)				(184.0)
Non-current lease liabilities							(2,386.3)				(2,577.5)
Deferred tax liabilities							(44.3)				(34.9)
Pension liabilities							(13.4)				(31.3)
Non-current creditors							(43.2)				(13.2)
Non-current provisions							(110.0)				(125.1)
Non-current liabilities							(2,839.5)				(2,966.0)
							1,335.9				1,239.5
							2020 US$m				2019 US$m
Total equity
Share capital							75.1				75.1
Share premium and capital reserves							59.6				59.2
Revenue and other reserves							1,187.6				1,074.9
Shareholders' funds							1,322.3				1,209.2
Non-controlling interests							13.6				30.3
							1,335.9				1,239.5