TIDMDFI TIDMJAR TIDMJDS
RNS Number : 9366R
Dairy Farm International Hldgs Ltd
11 March 2021
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$276 million, down 14%
-- Substantial sales and profit growth in Grocery Retail
-- Solid trading in Home Furnishings
-- Health and Beauty, Convenience and Maxim's significantly impacted by COVID-19
"2020 was a challenging year for Dairy Farm, with the COVID-19
pandemic impacting the Group's operations and, as a result, its
financial results. Continued progress in implementing the Group's
transformation programme, however, helped the business adapt to the
rapidly changing environment, while the diversity of the Group's
businesses, coupled with the impact of ongoing efficiency
improvement programmes, supported the Group's overall financial
performance."
Ben Keswick
Chairman
Results
Year ended 31st December
2020 2019 Change
US$m US$m %
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
USc USc %
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 USc11.50 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 F A RM INTERNATIONAL HOLDINGS LIMITED
PRELIMI NA R Y ANNOUNCEMENT OF RE SU LT S
FOR THE YEARED 31ST DECEMBER 2020
O V ER V IEW
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.
OPER A TI N G 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 USc20.38 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 USc11.50 per
share, giving a total dividend of USc16.50 per share for the year,
a 21% reduction compared to 2019.
F oo d - Gr oce r y R e ta il
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.
H o m e 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
T he 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
Chair m an
GRO U P 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) Gr owth 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 S tr e n g th in Hong K o n g
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) R evi ta lising 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) D r ivi n g Digital Inn ov at io n
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. D uring 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 Non- Underlying Non-
business trading business trading
performance items Total performance items Total
US$m US$m US$m US$m US$m US$m
Sales (note 2) 10,268.5 - 10,268.5 11,192.3 - 11,192.3
Cost of sales (7,077.7) - (7,077.7) (7,658.5) - (7,658.5)
----------- ------- --------- ----------- ------- ---------
Gross margin 3,190.8 - 3,190.8 3,533.8 - 3,533.8
Other operating
income (note 3) 355.4 75.2 430.6 189.8 19.3 209.1
Selling and
distribution (2, 700.7 (2, 700.7
costs (2,575.8) - (2,575.8) ) - )
Administration
and other
operating ( 586.4 ( 30.2 (616 .6
expenses (558.8) (98.7) (657.5) ) ) )
----------- ------- --------- ----------- ------- ---------
Operating profit ( 10.9
(note 4) 411.6 (23.5) 388.1 436.5 ) 425.6
( 164.9 ( 164.9
Financing charges (145.1) - (145.1) ) - )
Financing income 2.4 - 2.4 6.7 - 6.7
Net financing
charges ( 158.2 ( 158.2
(note 5) (142.7) - (142.7) ) - )
Share of results
of associates and
joint ventures
(note 6) 76.0 8.9 84.9 114.9 11.4 126.3
----------- ------- --------- ----------- ------- ---------
Profit before tax 344.9 (14.6) 330.3 393.2 0.5 393.7
Tax (note 7) (74.2) 0.4 (73.8) (69.5) 0.8 (68.7)
----------- ------- --------- ----------- ------- ---------
Profit after tax 270.7 (14.2) 256.5 323.7 1.3 325.0
----------- ------- --------- ----------- ------- ---------
Attributable to:
Shareholders of
the Company 275.7 (4.7) 271.0 320.9 2.9 323.8
Non-controlling
interests (5.0) (9.5) (14.5) 2.8 (1.6) 1.2
----------- ------- --------- ----------- ------- ---------
270.7 (14.2) 256.5 323.7 1.3 325.0
----------- ------- --------- ----------- ------- ---------
US c US c US c US c
Earnings per
share
(note 8)
* basic 20.38 20.03 23.72 23.93
* diluted 20.37 20.03 23.71 23.92
----------- --------- ----------- ---------
Dairy Farm International Holdings Limited
Consolidated Statement of Comprehensive Income
for the year ended 31st December 2020
2020 US$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$m
Total equity
Share capital 75.1 75.1
Share premium and capital reserves 59.6 59.2
Revenue and other reserves 1,187.6 1,074.9
Shareholders' funds 1,322.3 1,209.2
Non-controlling interests 13.6 30.3
--------- ---------
1,335.9 1,239.5
Dairy Farm International Holdings Limited
Consolidated Statement of Changes in Equity
for the year ended 31st December 2020
Attributable
Revenue Attributable to
Share Share Capital and other to shareholders non-controlling Total
capital premium reserves reserves of the Company interests equity
US$m US$m US$m US$m US$m US$m US$m
2020
At 1st January 75.1 34.1 25.1 1,074.9 1,209.2 30.3 1,239.5
Total
comprehensive
income - - - 373.9 373.9 (15.6) 358.3
Dividends paid by
the Company
(note 11) - - - (263.8) (263.8) - (263.8)
Unclaimed
dividends
forfeited - - - 0.5 0.5 - 0.5
Share-based
long-term
incentive plans - - 1.2 - 1.2 - 1.2
Change in
interest in a
subsidiary - - - (0.8) (0.8) (1.1) (1.9)
Change in
interests in
associates and
joint ventures - - - 2.1 2.1 - 2.1
Transfer - - (0.8) 0.8 - - -
At 31st December 75.1 34.1 25.5 1,187.6 1,322.3 13.6 1,335.9
2019
At 1st January 75.1 33.9 24.4 993.0 1,126.4 35.5 1,161.9
Total
comprehensive
income - - - 362.1 362.1 2.3 364.4
Dividends paid by
the Company
(note 11) - - - (284.0) (284.0) - (284.0)
Unclaimed
dividends
forfeited - - - 0.1 0.1 - 0.1
Share-based
long-term
incentive plans - - 0.9 - 0.9 - 0.9
Change in
interests in
subsidiaries - - - 0.8 0.8 (7.5) (6.7)
Change in
interests in
associates and
joint ventures - - - 2.9 2.9 - 2.9
Transfer - 0.2 (0.2) - - - -
-------- -------- --------- ---------- ---------------- ----------------- -------
At 31st December 75.1 34.1 25.1 1,074.9 1,209.2 30.3 1,239.5
-------- -------- --------- ---------- ---------------- ----------------- -------
Revenue and other reserves at 31st December 2020 comprised revenue reserves of US$1,417.5 million (2019:
US$1,388.5 million), hedging reserves of US$9.4 million loss (2019: US$0.7 million gain) and exchange
reserves of US$220.5 million loss (2019: US$314.3 million loss).
----------------------------------------------------------------------------------------------------------
Dairy Farm International Holdings Limited
Consolidated Cash Flow Statement
for the year ended 31st December 2020
2019
2020 US$m US$m
Operating activities
--------- ---------
Operating profit (note 4) 388.1 425.6
Depreciation and amortisation 983.4 1,002.2
Other non-cash items (16.6) 33.2
Increase in working capital (102.1) (76.7)
Interest received 3.5 7.1
Interest and other financing charges paid (146.3) (166.7)
Tax paid (110.4) (25.1)
--------- ---------
999.6 1,199.6
Dividends from associates and joint ventures 67.6 88.5
Cash flows from operating activities 1,067.2 1,288.1
Investing activities
--------- ---------
Purchase of subsidiaries (note 12(a)) (21.4) (2.6)
Purchase of associates and joint ventures
(note 12(b)) (18.3) (3.8)
Purchase of intangible assets (20.7) (53.2)
Purchase of tangible assets (227.2) (233.3)
Additions to right-of-use assets - (18.4)
Sale of subsidiaries (note 12(c)) 193.1 -
Sale of a property (note 12(d)) 2.8 22.6
Sale of tangible assets 5.3 5.7
Cash flows from investing activities (86.4) (283.0)
Financing activities
--------- ---------
Change in interest in a subsidiary (note
12(e)) (1.9) (6.7)
Drawdown of borrowings 1,115.9 1,778.4
Repayment of borrowings (918.5) (1,662.6)
Net decrease in other short-term borrowings (268.1) (42.4)
Principal elements of lease payments (706.5) (790.3)
Dividends paid by the Company (note 11) (263.8) (284.0)
Cash flows from financing activities (1,042.9) (1,007.6)
Net decrease in cash and cash equivalents (62.1) (2.5)
Cash and cash equivalents at 1st January 288.3 284.5
Effect of exchange rate changes 8.0 6.3
--------- ---------
Cash and cash equivalents at 31st December
(note 12(f)) 234.2 288.3
--------- ---------
Dairy Farm International Holdings Limited
Notes
1. Accounting Policies and Basis of Preparation
The financial information contained in this announcement has
been based on the audited results for the year ended 31st December
2020 which have been prepared in conformity with International
Financial Reporting Standards ('IFRS'), including International
Accounting Standards ('IAS') and Interpretations adopted by the
International Accounting Standards Board.
The Group has elected to early adopt the 'Interest Rate
Benchmark Reform - Phase 1: Amendments to IFRS 9, IAS 39 and IFRS
7' (effective 1st January 2020) in relation to hedge accounting for
the Group's annual reporting period commencing 1st January
2019.
The Group has adopted the following changes in relation to rent
concessions for the annual reporting period commencing 1st January
2020.
COVID-19 Related Rent Concessions: Amendment to IFRS 16
Leases
The Group has early adopted the Amendment, which is effective
1st June 2020. Where the Group is a lessee, the practical expedient
is applied to account for the change in lease payments resulting
from rent concessions granted as a direct consequence of the
COVID-19 pandemic and elects not to assess these concessions as
lease modifications when all of the following conditions are
met:
(i) the revised lease payments are substantially the same as, or
less than, the consideration for the lease immediately preceding
the change;
(ii) reduction in lease payments relates to payment due on or before 30th June 2021; and
(iii) there is no substantive change to the other terms and conditions of the lease.
Rent concessions fulfilling the above conditions are recognised
in the profit and loss over the period in which they cover.
Apart from the above, there are no other amendments which are
effective in 2020 and relevant to the Group's operations, that have
a significant impact on the Group's results, financial position and
accounting policies.
The Group has not early adopted any other standards,
interpretations or amendments that have been issued but not yet
effective.
The principal operating subsidiaries, associates and joint
ventures have different functional currencies in line with the
economic environments of the locations in which they operate. The
functional currency of the Company is United States dollars. The
consolidated financial statements are presented in United States
dollars
2. Sales
Including associates
and joint ventures Subsidiaries
---------------------- ------------------
2020 2019 2020 2019
US$m US$m US$m US$m
Analysis by operating
segment:
Food 22,106.2 19,907.3 7,447.2 7,375.6
- Grocery retail 19,900.5 17,603.4 5,347.5 5,190.2
- Convenience stores 2,205.7 2,303.9 2,099.7 2,185.4
Health and Beauty 2,400.8 3,400.8 1,989.7 3,051.0
Home Furnishings 831.6 765.7 831.6 765.7
Restaurants 2,064.2 2,701.2 - -
Other Retailing 756.3 890.0 - -
28,159.1 27,665.0 10,268.5 11,192.3
---------- ---------- -------- --------
Sales including associates and joint ventures comprise 100% of
sales from associates and joint ventures.
Operating segments are identified on the basis of internal
reports about components of the Group that are regularly reviewed
by the Board for the purpose of resource allocation and performance
assessment. Dairy Farm operates in five segments: Food, Health and
Beauty, Home Furnishings, Restaurants and Other Retailing. Food
comprises grocery retail and convenience store businesses
(including the Group's associate, Yonghui, a leading grocery
retailer in mainland China). Health and Beauty comprises the health
and beauty businesses. Home Furnishings is the Group's IKEA
businesses. Restaurants is the Group's food and beverage associate,
Maxim's, a leading Hong Kong restaurant chain. Other Retailing
represents the department stores, specialty and Do-It-Yourself
('DIY') stores of the Group's Philippines associate, Robinsons
Retail.
Sales and share of results of Yonghui represent 12 months from
October 2019 to September 2020 (2019: October 2018 to September
2019) and that of Robinsons Retail represent 12 months from October
2019 to September 2020 (2019: 11 months from date of acquisition,
November 2018 to September 2019), based on their latest published
announcements (note 6).
Set out below is an analysis of the Group's sales by
geographical locations:
Including associates
and joint ventures Subsidiaries
---------------------- ------------------
2020 2019 2020 2019
US$m US$m US$m US$m
Analysis by geographical
area:
North Asia 21,122.6 20,560.3 6,802.9 7,339.5
Southeast Asia 7,036.5 7,104.7 3,465.6 3,852.8
---------- ---------- -------- --------
28,159.1 27,665.0 10,268.5 11,192.3
---------- ---------- -------- --------
The geographical areas covering North Asia and Southeast Asia,
are determined by the geographical location of customers. North
Asia comprises Hong Kong, mainland China, Macau and Taiwan.
Southeast Asia comprises Singapore, Cambodia, the Philippines,
Thailand, Malaysia, Indonesia, Vietnam and Brunei.
3. Other Operating Income
2020 US$m 2019 US$m
Concession and service income 126.8 159.3
Rental income from properties 12.3 23.3
Profit on sale of businesses 75.2 -
Profit on sale of a property - 15.7
Government grants and rent concessions 207.2 -
Adjustment to deferred consideration
for acquisition of
a subsidiary - 3.6
Net foreign exchange gains and others 9.1 7.2
--------- ---------
430.6 209.1
--------- ---------
In relation to the COVID-19 pandemic, the Group had received
government grants of US$138.7 million, the majority of which were
in support of employee retention, and rent concessions of US$68.5
million for the year ended 31st December 2020.
4. Operating Profit
2020 US$m 2019 US$m
Analysis by operating segment:
Food 324.2 145.1
- Grocery retail 267.4 63.1
- Convenience stores 56.8 82.0
Health and Beauty 65.7 295.5
Home Furnishings 70.5 42.7
--------- ---------
460.4 483.3
Selling, general and administrative expenses (119.8) (143.4)
Underlying operating profit before IFRS
16 (*) 340.6 339.9
IFRS 16 adjustment (^) 71.0 96.6
Underlying operating profit 411.6 436.5
Non-trading items:
- business restructuring costs (58.8) (15.6)
- impairment of intangible assets (38.6) -
- profit on sale of businesses 75.2 -
- (loss)/profit on sale of a property (0.5) 15.7
- loss on reclassification of a joint
venture as a subsidiary - (13.9)
* adjustment to deferred consideration for acquisition
of a subsidiary - 3.6
* fair value loss on equity investments (0.8) (0.7)
388.1 425.6
--------- ---------
Set out below is an analysis of the Group's underlying operating
profit by geographical locations:
2020 US$m 2019 US$m
Analysis by geographical area:
North Asia 388.5 443.4
Southeast Asia 71.9 39.9
--------- ---------
460.4 483.3
Selling, general and administrative expenses (119.8) (143.4)
Underlying operating profit before IFRS
16 (*) 340.6 339.9
IFRS 16 adjustment (^) 71.0 96.6
Underlying operating profit 411.6 436.5
--------- ---------
(*) Property lease payments and depreciation of reinstatement
costs under the lease contracts were included in the Group's
analysis of operating and geographical segments' results.
(^) Represented the reversal of lease payments which were
accounted for on a straight-line basis, adjusted by the lease
contracts recognised under IFRS 16 'Leases', primarily for the
depreciation charge on right-of-use assets.
5. Net Financing Charges
2020 US$m 2019 US$m
Interest expense
- bank loans and advances (28.3) (41.8)
- lease liabilities (111.0) (119.2)
- other loans (0.8) -
(140.1) (161.0)
Commitment and other fees (5.0) (3.9)
--------- ---------
Financing charges (145.1) (164.9)
Financing income 2.4 6.7
(142.7) (158.2)
--------- ---------
6. Share of Results of Associates and Joint Ventures
2020 US$m *2019 US$m *
Analysis by operating segment:
Food 46.7 40.9
- Grocery retail 47.5 40.7
- Convenience stores (0.8) 0.2
Health and Beauty 1.3 (1.4)
Restaurants 36.4 82.1
Other Retailing 0.5 4.7
--------- ---------
84.9 126.3
--------- ---------
Share of results of associates and joint ventures included the
following gains/(losses) from non-trading items (note 9):
2020 US$m *2019 US$m *
Change in fair value of Yonghui's equity
investments 0.6 (0.4)
Change in fair value of Robinsons Retail's
equity investments 0.3 -
Net gains from divestment of an investment/partial
divestment of a subsidiary by Yonghui 7.8 11.8
Net gain from divestment of a subsidiary
by
Robinsons Retail 0.2 -
--------- ---------
8.9 11.4
--------- ---------
Results are shown after tax and non-controlling interests in the
associates and joint ventures.
In relation to the COVID-19 pandemic, included in share of
results of associates and joint ventures were the Group's share of
the government grants of US$76.1 million, the majority of which
were in support of employee retention, and rent concessions of
US$28.6 million for the year ended 31st December 2020.
* Included Yonghui's 12 months results from October 2019 to
September 2020 (2019: October 2018 to September 2019) and Robinsons
Retail's 12 months results from October 2019 to September 2020
(2019: 11 months results from November 2018 to September 2019)
(note 2).
7. Tax
2020 US$m 2019 US$m
Tax charged to profit and loss is analysed
as follows:
Current tax (64.4) (76.7)
Deferred tax (9.4) 8.0
--------- ---------
(73.8) (68.7)
--------- ---------
Tax relating to components of other comprehensive
income is analysed as follows:
Remeasurements of defined benefit plans (2.7) (2.4)
Cash flow hedges 1.8 1.6
--------- ---------
(0.9) (0.8)
--------- ---------
Tax on profits has been calculated at rates of taxation
prevailing in the territories in which the Group operates. Share of
tax charge of associates and joint ventures of US$9.9 million
(2019: US$30.7 million) is included in share of results of
associates and joint ventures.
8. Earnings per Share
Basic earnings per share are calculated on profit attributable
to shareholders of US$271.0 million (2019: US$323.8 million), and
on the weighted average number of 1,352.7 million (2019: 1,352.7
million) shares in issue during the year.
Diluted earnings per share are calculated on profit attributable
to shareholders of US $271.0 million (2019: US$323.8 million) , and
on the weighted average number of 1,353.3 million (2019: 1,353.4
million) shares in issue after adjusting for 0.6 million (2019: 0.7
million) shares which are deemed to be issued for no consideration
under the share-based long-term incentive plans based on the
average share price during the year.
Additional basic and diluted earnings per share are also
calculated based on underlying profit attributable to shareholders.
A reconciliation of earnings is set out below:
2020 2019
------------------------------ -----------------------------
Basic Diluted Basic Diluted
earnings earnings earnings earnings
p er share per share per share per share
US$m USc USc US$m USc USc
Profit attributable
to shareholders 271.0 20.03 20.03 323.8 23.93 23.92
Non-trading
items (note
9) 4.7 (2.9)
----- -----
Underlying
profit attributable
to shareholders 275.7 20.38 20.37 320.9 23.72 23.71
----- -----
9. Non-trading Items
Non-trading items are separately identified to provide greater
understanding of the Group's underlying business performance. Items
classified as non-trading items include fair value gains and losses
on equity investments which are measured at fair value through
profit and loss; gains and losses arising from the sale of
businesses, investments and properties; impairment of
non-depreciable intangible assets, associates and joint ventures,
and other investments; provisions for the closure of businesses;
acquisition-related costs in business combinations; and other
credits and charges of a non-recurring nature that require
inclusion in order to provide additional insight into underlying
business performance.
An analysis of non-trading items in operating profit and profit
attributable to shareholders is set out below:
Profit attributable
Operating profit to shareholders
2020 US$m 2019 US$m 2020 US$m 2019 US$m
Business restructuring costs
- impairment of right-of-use
assets (30.5) (1.9) (27.2) (1.9)
* (impairment)/reversal of impairment of tangible
assets (18.8) 4.4 (16.7) 4.4
- other (9.5) (18.1) (7.0) (15.7)
--------- --------- ---------- ---------
(58.8) (15.6) (50.9) (13.2)
Impairment of intangible assets (38.6) - (36.6) -
Profit on sale of businesses 75.2 - 75.2 -
(Loss)/profit on sale of a property (0.5) 15.7 (0.5) 15.7
Loss on reclassification of a
joint venture
as a subsidiary - (13.9) - (13.9)
Adjustment to deferred consideration
for acquisition of a subsidiary - 3.6 - 3.6
Share of net gains from divestment
of
an investment/partial divestment
of
a subsidiary by Yonghui - - 7.8 11.8
Share of net gain from divestment
of
a subsidiary by Robinsons Retail - - 0.2 -
Other (0.8) (0.7) 0.1 (1.1)
(23.5) (10.9) (4.7) 2.9
--------- --------- ---------- ---------
Following a store performance review of the Grocery Retail
business in Indonesia in late 2020, certain non-performing stores
have been identified for closure with restructuring costs of
US$34.5 million recorded, comprising of impairments against certain
tangible assets and right-of-use assets, rent compensation and the
expected payments to employees. Impairments of US$29.9 million were
recorded against other tangible assets and right-of-use assets as a
result of the review, whereby the carrying value of the assets were
not supported by their value-in-use.
In addition, certain balance of restructuring costs relating to
the Group's 2018 restructuring of its Southeast Asia Food business
was included in other restructuring cost in 2020 and 2019. There
were also costs related to exit of some stores in mainland China in
2019.
Impairment of intangible assets related to the impairment of
goodwill associated with PT Hero Supermarket Tbk ('PT Hero') after
the impairment review.
Profit on sale of businesses in 2020 comprised US$97.2 million
profit on disposal of 100% interest in Wellcome Taiwan Company
Limited ('Wellcome Taiwan') to a third party in December and
US$22.0 million loss on disposal of 100% interest in Rose Pharmacy,
Inc. ('Rose Pharmacy') to a subsidiary of Robinsons Retail, in
October (note 12(c)) .
In 2019, the Group acquired the remaining 70% shareholding in
Jutaria Gemilang Sdn. Bhd. ('Jutaria') which resulted in a loss on
deemed disposal of US$9.5 million. Following the acquisition, the
Group disposed of its 30% economic interest to a third party at no
consideration. Together with the full impairment charge on the
goodwill arising from acquisition of US$4.4 million, a loss on
reclassification of a joint venture as a subsidiary of US$13.9
million was recorded (note 12(a)).
10. Non-current Assets Held for Sale
At 31st December 2020, the non-current assets held for sale
represented six retail properties in Malaysia and three properties
in Taiwan. The sale of these properties is highly probable in 2021
at amounts not materially different from their carrying values.
11. Dividends
2020 US$m 2019 US$m
Final dividend in respect of 2019 of USc14.50
(2018: USc14.50) per share 196.1 196.1
Interim dividend in respect of 2020 of USc5.00
(2019: USc6.50) per share 67.7 87.9
--------- ---------
263.8 284.0
--------- ---------
A final dividend in respect of 2020 of USc11.50 (2019: USc14.50)
per share amounting to a total of US$155.6 million (2019: US$196.1
million) is proposed by the Board. The dividend proposed will not
be accounted for until it has been approved at the 2021 Annual
General Meeting. This amount will be accounted for as an
appropriation of revenue reserves in the year ending 31st December
2021.
12. Notes to Consolidated Cash Flow Statement
(a) Purchase of subsidiaries
Net cash outflow for purchase of a subsidiary of US$21.4 million
in 2020 represented the settlement of deferred consideration for
the Group's acquisition of the 100% interest in San Miu Supermarket
Limited, a supermarket chain in Macau, in 2015.
Net cash outflow in 2019 represented US$2.6 million for the
acquisition of the remaining 70% shareholding in Jutaria which
operates mini-marts in Malaysia (note 9).
The fair values of the identifiable assets and liabilities at
the acquisition date of the subsidiary acquired during 2019 were
provisional and finalised in 2020 with no change to the provisional
values.
(b) Purchase of associates and joint ventures in 2020 mainly
related to capital injections of US$15.0 million in a newly
established digital joint venture to support the Group's e-commerce
development and drive its digital innovation, and US$3.3 million in
the Group's newly set up health and beauty joint venture in
Thailand.
Purchase in 2019 mainly related to capital injection of US$3.8
million in the Group's business in Vietnam.
(c) Sale of subsidiaries
2020 US$m
Intangible assets 109.5
Tangible assets 31.1
Right-of-use assets 105.1
Non-current debtors 8.3
Deferred tax assets 2.6
Current assets 105.6
Current liabilities (111.2)
Non-current liabilities (94.5)
Net assets disposed of 156.5
Release of exchange reserves (16.9)
Profit on disposals 75.2
Net sale proceeds 214.8
Cash and cash equivalents of the subsidiaries
disposed of (35.1)
Costs payable 13.4
Net cash inflows 193.1
---------
In October 2020, the Group deepened its strategic partnership
with Robinsons Retail, an associate of the Group, by disposing of
its 100% interest in Rose Pharmacy, operating a health and beauty
chain in the Philippines, to a subsidiary of Robinsons Retail, for
a net cash inflow of US$83.8 million (note 9).
In December 2020, the Group disposed of its 100% interest in
Wellcome Taiwan, operating a supermarket chain in Taiwan, to a
third party, for a net cash inflow of US$109.3 million (note
9).
(d) Sale of a property
Sale of a property in 2020 and 2019 related to disposal of a
property in Malaysia and Singapore, respectively.
(e) Change in interest in a subsidiary
In 2020, the Group acquired an additional 0.8% interest in PT
Hero for a total consideration of US$1.9 million. In 2019, an
additional 2.75% interest was acquired for US$6.7 million.
(f) Analysis of balances of cash and cash equivalents
2020 US$m 2019 US$m
Cash and bank balances 277.6 301.4
Bank overdrafts (43.4) (13.1)
234.2 288.3
--------- ---------
13. Capital Commitments and Contingent Liabilities
Total capital commitments at 31st December 2020 amounted to
US$137.5 million (20 19 : US$338.8 million).
Various Group companies are involved in litigation arising in
the ordinary course of their respective businesses. Having reviewed
outstanding claims and taking into account legal advice received,
the Directors are of the opinion that adequate provisions have been
made in the financial statements.
14. Related Party Transactions
The parent company of the Group is Jardine Strategic Holdings
Limited and the ultimate parent company is Jardine Matheson
Holdings Limited ('JMH'). Both companies are incorporated in
Bermuda.
In the normal course of business the Group undertakes a variety
of transactions with JMH and certain of its subsidiaries,
associates and joint ventures. The more significant of such
transactions are described below.
Under the terms of a Management Services Agreement, the
management fee payable by the Group was US$1.4 million (2019:
US$1.6 million) to Jardine Matheson Limited ('JML'), a wholly-owned
subsidiary of JMH, based on 0.5% of the Group's profit attributable
to shareholders in consideration for certain management consultancy
services provided by JML. The Group also paid directors' fees of
US$0.4 million in 2020 (2019: US$0.5 million) to JML.
The Group rents properties from Hongkong Land Holdings Limited
('HKL'), a subsidiary of JMH. The lease payments paid by the Group
to HKL in 2020 were US$2.6 million (2019: US$3.3 million). The
Group's 50%-owned associate, Maxim's Caterers Limited ('Maxim's'),
also paid lease payments of US$10.2 million (2019: US$13.5 million)
to HKL in 2020.
The Group obtains repairs and maintenance services from Jardine
Engineering Corporation ('JEC'), a subsidiary of JMH. The total
fees paid by the Group to JEC in 2020 amounted to US$1.2 million
(2019: US$4.9 million).
Maxim's supplies ready-to-eat products at arm's length to
certain subsidiaries of the Group. In 2020, these amounted to
US$28.8 million (2019: US$32.4 million).
In October 2020, the Group disposed of its 100% interest in Rose
Pharmacy to its associate, Robinsons Retail, and a loss of US$22.0
million was recognised.
There were no other related party transactions that might be
considered to have a material effect on the financial position or
performance of the Group that were entered into or changed during
the year.
Amounts of outstanding balances with associates and joint
ventures are included in debtors and creditors, as appropriate.
Dairy Farm International Holdings Limited
Principal Risks and Uncertainties
The Board has overall responsibility for risk management and
internal control. The process by which the Group identifies and
manages risk will be set out in more detail in the Corporate
Governance section of the Company's 2020 Annual Report (the
'Report'). The following are the principal risks and uncertainties
facing the Company as required to be disclosed pursuant to the
Disclosure Guidance and Transparency Rules issued by the Financial
Conduct Authority in the United Kingdom and are in addition to the
matters referred to in the Chairman's Statement, the Group Chief
Executive's Review and other parts of the Report.
Economic Risk
Most of the Group's businesses are exposed to the risk of
negative developments in global and regional economies and
financial markets, either directly or through the impact such
developments might have on the Group's joint venture partners,
associates, franchisors, bankers, suppliers or customers. These
developments could include recession, inflation, deflation,
currency fluctuations, restrictions in the availability of credit,
business failures, or increases in financing costs, oil prices, the
cost of raw materials or finished products. Such developments might
increase operating costs, reduce revenues, lower asset values or
result in some or all of the Group's businesses being unable to
meet their strategic objectives.
Commercial Risk and Financial Risk
Risks are an integral part of normal commercial activities, and
where practicable steps are taken to mitigate them. Risks can be
more pronounced when businesses are operating in volatile markets.
While the Group's regional diversification does help to mitigate
some risks, a significant portion of the Group revenues and profits
continue to be derived from our operations in Hong Kong.
A number of the Group's businesses make significant investment
decisions in respect of developments or projects and these are
subject to market risks. This is especially the case where projects
are longer-term in nature and take more time to deliver
returns.
The Group's businesses operate in areas that are highly
competitive, and failure to compete effectively, whether in terms
of price, product specification, technology, property site or
levels of service or to adapt to changing consumer behaviours,
including new shopping channels and formats, can have an adverse
effect on earnings. Significant competitive pressure may also lead
to reduced margins.
It is essential for the products and services provided by the
Group's businesses to meet appropriate quality and safety standards
and there is an associated risk if they do not, including the risk
of damage to brand equity or reputation, which might adversely
impact the ability to achieve acceptable revenues and profit
margins.
While social media presents significant opportunities for the
Group's businesses to connect with customers and the public, it
also creates a whole new set of potential risks for companies to
monitor, including damage to brand equity or reputation, which
could affect the Group's profitability.
The steps taken by the Group to manage its exposure to financial
risk will be set out in the Financial Review and in a note to the
Financial Statements in the Report.
Concessions, Franchises and Key Contracts
A number of the Group's businesses and projects are reliant on
concessions, franchises, management or other key contracts.
Cancellation, expiry or termination, or the renegotiation of any
such concessions, franchises, management or other key contracts,
could have an adverse effect on the financial condition and results
of operations of certain subsidiaries, associates and joint
ventures of the Group.
Regulatory and Political Risk
The Group's businesses are subject to a number of regulatory
regimes in the territories in which they operate. Changes in such
regimes, in relation to matters such as foreign ownership of assets
and businesses, exchange controls, licensing, imports, planning
controls, emission regulations, tax rules and employment
legislation, could have the potential to impact the operations and
profitability of the Group's businesses.
Changes in the political environment, including political or
social unrest, in the territories where the Group operates could
adversely affect the Group's businesses.
Terrorism, Pandemic and Natural Disasters
The Group's operations are vulnerable to the effects of
terrorism, either directly through the impact of an act of
terrorism or indirectly through the effect on the Group's
businesses of generally reduced economic activity in response to
the threat, or an actual act, of terrorism.
The Group businesses could be impacted by a global or regional
pandemic which seriously affects economic activity or the ability
of businesses to operate smoothly. In addition, many of the
territories in which the Group operates can experience from time to
time natural disasters such as earthquakes, volcanoes and
typhoons.
Technology Risk
The Group has invested significantly in and is heavily reliant
on its IT infrastructure and systems for the daily operation of its
business. Any major disruption to the Group's IT systems could have
a significant impact on operations. The ability to anticipate and
adapt to technology advancements or threats is an additional risk
that may also have an impact on the business.
Cybersecurity Risk
The Group faces increasing numbers of cyberattacks from groups
targeting both individuals and businesses. The privacy and security
of customer and corporate information is at risk of being
compromised through a breach of our or our suppliers' IT systems or
the unauthorised or inadvertent release of information, resulting
in brand damage, impaired competitiveness or regulatory action.
Cyberattacks may also adversely affect our ability to manage our
business operations, or operate information technology and business
systems, resulting in business interruption, lost revenues, repair
or other costs.
Dairy Farm International Holdings Limited
Responsibility Statement
The Directors of the Company confirm to the best of their
knowledge that:
a. the consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards,
including International Accounting Standards and Interpretations
adopted by the International Accounting Standards Board; and
b. the sections of the Company's 2020 Annual Report, including
the Chairman's Statement, Group Chief Executive's Review, Business
Review and the Principal Risks and Uncertainties, which constitute
the management report, include a fair review of all information
required to be disclosed by the Disclosure Guidance and
Transparency Rules 4.1.8 to 4.1.11 issued by the Financial Conduct
Authority in the United Kingdom.
For and on behalf of the Board
Ian McLeod
Clem Constantine
Directors
Dairy Farm International Holdings Limited
Dividend Information for Shareholders
The final dividend of USc11.50 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. The shares will be quoted
ex-dividend on 25th March 2021, and the share registers will be
closed from 29th March to 2nd April 2021, inclusive.
Shareholders will receive their cash dividends in United States
Dollars, except when elections are made for alternate currencies in
the following circumstances.
Shareholders on the Jersey branch register
Shareholders registered on the Jersey branch register will have
the option to elect for their dividends to be paid in Sterling.
These shareholders may make new currency elections for the 2020
final dividend by notifying the United Kingdom transfer agent in
writing by 28th April 2021. The Sterling equivalent of dividends
declared in United States Dollars will be calculated by reference
to a rate prevailing on 3rd May 2021.
Shareholders holding their shares through CREST in the United
Kingdom will receive their cash dividends in Sterling only as
calculated above.
Shareholders on the Singapore branch register who hold their
shares through The Central Depository (Pte) Limited ('CDP')
Shareholders who are on CDP's Direct Crediting Service
('DCS')
For those shareholders who are on CDP's DCS, they will receive
their cash dividends in Singapore Dollars unless they opt out of
CDP Currency Conversion Service, through CDP, to receive United
States Dollars.
Shareholders who are not on CDP's DCS
For those shareholders who are not on CDP's DCS, they will
receive their cash dividends in United States Dollars unless they
elect, through CDP, to receive Singapore Dollars.
Shareholders on the Singapore branch register who wish to
deposit their shares into the CDP system by the dividend record
date, being 26th March 2021, must submit the relevant documents to
M & C Services Private Limited, the Singapore branch registrar,
by no later than 5.00 p.m. (local time) on 25th March 2021.
Dairy Farm International Holdings Limited
About Dairy Farm
Dairy Farm is a leading pan-Asian retailer. At 31st December
2020, the Group and its associates and joint ventures operated
around 10,000 outlets and employed some 220,000 people. The Group
had total annual sales in 2020 exceeding US$28 billion.
The Group provides quality and value to Asian consumers by
offering leading brands, a compelling retail experience and great
service; all delivered through a strong store network supported by
efficient supply chains.
The Group operates under a number of well-known brands across
five divisions. The principal brands are:
Food
-- Grocery retail - Wellcome in Hong Kong S.A.R.; Yonghui in
Chinese mainland; Cold Storage in Malaysia and Singapore; Giant in
Indonesia, Malaysia and Singapore; Hero in Indonesia; and Robinsons
in the Philippines.
-- Convenience stores - 7-Eleven in Hong Kong and Macau S.A.R., Singapore and Southern China.
Health and Beauty
-- Mannings in Greater China; Guardian in Brunei, Cambodia,
Indonesia, Malaysia, Singapore and Vietnam.
Home Furnishings
-- IKEA in Hong Kong and Macau S.A.R., Indonesia and Taiwan.
Restaurants
-- Hong Kong Maxim's Group in Cambodia, Chinese mainland, Hong
Kong and Macau S.A.R., Malaysia, Singapore, Thailand and Vietnam
(directly and via various joint ventures or franchises).
Other Retailing
-- Robinsons in the Philippines operating department stores, specialty and DIY stores.
Dairy Farm International Holdings Limited is incorporated in
Bermuda and has a standard listing on the London Stock Exchange,
with secondary listings in Bermuda and Singapore. The Group's
businesses are managed from Hong Kong by Dairy Farm Management
Services Limited through its regional offices. Dairy Farm is a
member of the Jardine Matheson Group.
- end -
For further information, please contact:
Dairy Farm Management Services Limited
Marjorie Law (852) 2299 1788
Sindy Wong (852) 2299 3011
Brunswick Group Limited
Sunitha Chalam (852) 3512 5050
Full text of the Preliminary Announcement of Results and the
Preliminary Financial Statements for the year ended 31st December
2020 can be accessed through the Internet at
www.dairyfarmgroup.com.
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