Dairy Farm International Holdings Limited today released interim 1999 report highlights.
Competitive pressures intensified in Australasia and Hong Kong
US$178 million Special Dividend to be paid to enhance the capital structure
Hong Kong Shared Services initiative delivers benefits ahead of schedule
Expansion in Malaysia with the acquisition of a 90% stake in Giant
Results(unaudited)Six months ended 30th June
US$m
Sales from continuing activities
1999 2,846
1998 2,877
Change% -1
Net profit excluding discontinued activities and exceptional items
1999 42
1998 50
Change% -16
Cash flow from operating activities
1999 105
1998 72
Change% +46
Recurring EBITDA to sales
1999 3.8%
1998 4.0%
Change% -0.2
US¢
Earnings per share excluding discontinued activities and exceptional items
1999 2.29
1998 2.73
Change% -16
Earnings per share
1999 1.77
1998 4.80
Change% -63
Interim dividend per share
1999 1.65
1998 1.65
Change% -
"We expect that it will take at least another year before Franklins adds economic value and the recent surge in competitive activity in Hong Kong's supermarket sector will also impact this year's results. The Group's focus will remain on improving fresh food sales, developing new formats and improving the efficiency of our businesses.
"We remain confident that Dairy Farm's strategy and its people will deliver our vision of becoming the leading food and drugstore retailer in the Asia-Pacific Region and will generate added value for our shareholders."
Simon Keswick, Chairman
13th September 1999
The interim dividend of US¢1.65 per share will be payable on 23rd November 1999 to shareholders on the register of members at the close of business on 8th October 1999. The ex-dividend date will be on 4th October 1999, and the share registers will be closed from 11th to 15th October 1999, inclusive.
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DAIRY FARM INTERNATIONAL HOLDINGS LIMITED
INTERIM REPORT 1999
PERFORMANCE
Dairy Farm International Holdings Limited today announced that as indicated at the Annual General Meeting in June, trading conditions for Dairy Farm's businesses have become more difficult in 1999 and this is reflected in the disappointing performance in the first half. Recurring trading profit of US$46 million is 28% down on the first half of 1998. The recovery at Franklins in Australia has been set back by intensified competition in that market and the Group's Hong Kong supermarket business has suffered from significant expansion in rival retail space and reduced consumer spending resulting from the economic recession.
Sales from continuing activities for the six months ended 30th June 1999 were
US$2,846 million, a 1% decline from the same period last year. The Group's retail sales in Hong Kong were 8% below last year and sales increases in underlying currencies in Australia, New Zealand and Singapore have been partly offset by exchange rate movements.
Net profit, excluding non-recurring items, of US$42 million was 16% behind last year. Poor sales performances combined with intense competition in Hong Kong, Australia and New Zealand have reduced net profit. The Group's Singapore businesses have all performed well and Hero has increased its profit and market share in the difficult Indonesian market. With two stores now open, start up losses in the Géant hypermarket joint venture in Taiwan have been greater than expected.
Without the exceptional profit on the 1998 disposal of the Group's European operations reported last year, and with non-recurring Year 2000 remediation costs of US$12 million this year, the consolidated net profit of US$33 million was 63% behind last year.
Earnings per share were US¢1.77 compared with US¢4.80 in the first half of 1998. Excluding non-recurring items, earnings per share of US¢2.29 were 16% behind last year.
The Directors have declared an unchanged interim dividend of US¢1.65 per share, payable in cash.
SPECIAL DIVIDEND AND SHARE CONSOLIDATION
Following a review of the Group's balance sheet and expected cash flow, the Directors have recommended a return of US$178 million to shareholders by way of a special dividend and a share consolidation. The Directors consider this to be the most equitable and efficient method of returning cash to shareholders, thereby realising value for shareholders and enhancing the efficiency of the balance sheet.
The special dividend will be US¢9.65 per share and will be payable to shareholders on the register of members at the close of business on 8th October 1999. The share consolidation, on the basis of 9 new shares for 10 old shares currently held, ensures comparability of the Company's earnings per share and continuity of the share price before and after the special dividend. This will be applied to all shares and therefore all shareholders' effective interest in the Company will be substantially unchanged. A circular is being sent to shareholders providing full details of the proposals.
OPERATIONS
Turning to the operations, the Chairman, Simon Keswick, said that the implementation of shared services in Hong Kong is ahead of schedule and within budget. This will deliver benefits sooner than expected and will contribute positively to the results for the year. This concept is now under review in the Group's Australian operations.
Despite the increasingly competitive Hong Kong market, the Group expects to improve its market share by opening 16 new supermarkets and refurbishing 20 stores during the second half of the year. At Franklins in Australia the Group will build profitability by acquiring new stores, by refining the format of the Fresh stores and by reducing the expenses of the business.
In August the Group agreed, subject to the necessary regulatory approvals, to acquire 90% of Giant TMC.BHd which operates seven supermarkets and hypermarkets in Malaysia. This acquisition, combined with an increased ownership of Guardian pharmacies, establishes Dairy Farm's position as the leading food and drug retailer in the market and provides the general merchandise expertise for the Group to operate hypermarkets in other Asian markets. The Group has also exercised an option to purchase a 49% interest in the 29-store Foodworld supermarket chain in India. These acquisitions and last year's investment in Hero in Indonesia have substantially broadened its scope in South Asia.
During the first half the Group continued to invest in its core businesses, opening 65 new stores and converting or refurbishing a further 185. Capital investment in the first half amounted to US$107 million and is expected to total US$400 million for the year.
YEAR 2000
The Year 2000 remediation process has been substantially completed and tested in all of the Group's businesses. The Group is confident that all business critical activities will be millennium ready and has been working with its key suppliers of products and services to ensure continuity of service but there is a risk that some suppliers may experience Year 2000 failures. The Group has developed business contingency plans, which will be in place before the end of the year, to mitigate these risks. Costs of US$12 million were expensed in the first half and the total cost of this programme is expected to be within the estimate of
US$40 million.
OUTLOOK
In conclusion, Simon Keswick said, "We expect that it will take at least another year before Franklins adds economic value and the recent surge in competitive activity in Hong Kong's supermarket sector will also impact this year's results. The Group's focus will remain on improving fresh food sales, developing new formats and improving the efficiency of our businesses.
"We remain confident that Dairy Farm's strategy and its people will deliver our vision of becoming the leading food and drugstore retailer in the Asia-Pacific Region and will generate added value for our shareholders."