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Dairy Farm FY2019 underlying net profit falls 10%

PAN-ASIAN supermarket and convenience store operator Dairy Farm's underlying net profit fell 10 per cent to US$321 million in 2019 as social unrest in Hong Kong disrupted operations in its home market during the second half of the year.

After taking into account one-off business restructuring costs incurred in 2018, net profit rose 282 per cent to US$324 million in 2019, up from a restated US$85 million in 2018.

Revenue in the 12 months ended Dec 31, 2019 fell 5 per cent to US$11.2 billion, the group said on Thursday.

The Hong Kong turmoil had the greatest impact on Mannings because of the significant reduction in the number of visitors from the Chinese mainland to Hong Kong, said Dairy Farm, which is part of the Jardine Matheson Group.

It added: "Ongoing investments in the IKEA store network in the year also reduced group profitability. Offsetting these impacts was a significant improvement in profitability in our South-east Asia grocery retail business, as the space optimisation plan took effect."

Operating profit for the group's grocery retail business jumped from US$22 million in 2018 to US$63 million in 2019, despite a fall in sales. The group is executing a multi-year transformation plan for its South-east Asian grocery retail business, it said, adding: "While the turnaround remains at an early stage, there are encouraging signs."

In Hong Kong, Dairy Farm benefited "to some extent" from the diversified mix of its businesses. It said: "While there was disruption to stores, a clear trend towards more eating at home supported solid like-for-like sales growth for Wellcome Hong Kong.

"Performance for our convenience format was pleasing with sales and profit ahead of last year. This is despite challenging conditions in the second half.  In order to continue to build store traffic and brand differentiation, aggressive development of ready-to-eat and the Own Brand range was a key focus. This will continue in 2020."

Full-year underlying earnings per share was 23.72 US cents in 2019, down 10 per cent from 26.48 US cents in 2018.

Full-year earnings per share was 23.93 US cents in 2019, up 282 per cent from 6.27 US cents in 2018.

A final dividend of 14.50 US cents per share was declared, giving a total dividend of 21 US cents per share for 2019, which is in line with 2018. The final dividend is payable on May 13.

Chairman Ben Keswick said: "While difficult market conditions in Hong Kong impacted the group's financial performance during the year, the multi-year transformation of the Dairy Farm Group continued to gain momentum during 2019, with signs of progress across our businesses. 

"The group's space optimisation plan, new store formats and improvement programmes together generated greater efficiencies and started to deliver tangible results.  We expect this progress to continue in 2020, although the group's results are being materially impacted by the ongoing Covid-19 outbreak. Performance for the remainder of the year will depend on the duration, geographic extent and impact of the outbreak and the measures taken to control it." 

Separately, Dairy Farm said on Thursday that the roles of chairman and managing director, which are currently held on a combined basis by Mr Keswick, will be separated with effect from June 15. Mr Keswick will remain as chairman, and John Witt will take on the role of managing director.

Dairy Farm shares fell seven US cents or 1.45 per cent to US$4.75 on Thursday before results were released after market close.