Dairy Farm Intl's Q1 business 'seriously affected' despite grocery retail uplift

PAN-ASIAN supermarket and convenience-store operator Dairy Farm International's overall performance in the first quarter was "seriously affected" by the Covid-19 pandemic and deteriorating consumer sentiment, said the group in its interim management statement on Tuesday.

Dairy Farm International, part of the Jardine Matheson Group, operates Cold Storage, Market Place and Giant Hypermarket outlets in Singapore.

While grocery retail benefited, it was far outweighed by the first-quarter deterioration in the performance of health and beauty in North Asia, the group's 50 per cent-owned associate Maxim's, and the group's convenience business.

The government's directives restricting movement have resulted in a rise in the number of customers eating at home and building pantry reserves. As a result, the group's grocery retail businesses have recorded "strong profit growth", said Dairy Farm International. In South-east Asia, grocery retail "maintained its strong turnaround momentum" as the group continued to execute its multi-year transformation plan.

The group's convenience businesses, however, were significantly constrained during the period, as movement restrictions and physical distancing requirements led to store closures in China and reduced customer numbers in Hong Kong and Singapore.

The performance of the North Asia health and beauty business was also significantly impacted by the effects of the measures taken by governments to counter the pandemic, as well as the continuing lack of tourists - despite an initial surge in demand for personal protection products.

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In South-east Asia, where pandemic-related restrictions were initially less severe, the business continued to perform well in the period. However, government policies enforcing social distancing began to take effect towards the end of the quarter in Malaysia and Indonesia, which will adversely impact trading in the second quarter, said the group.

Sales in the home-furnishings business were higher than the corresponding period last year, as strong e-commerce growth and the annualisation impact of new stores opened in the prior year "more than compensated" for the impact of pandemic-related measures on customer visits, said the group. However, it said that the profitability improved in the quarter as a result of lower pre-opening expenses and improved gross margins resulting from lower cost of goods sold.

Maxim's was also significantly affected by a substantial reduction in restaurant customers and some temporary closures of its outlets.

In the coming period, the group said that the impact of Covid-19 and the measures to contain it will continue to affect its operations. It has taken a series of steps to control costs and preserve its cash position, including reviewing capital expenditure, implementing broader store efficiency initiatives, making productivity improvements and ensuring careful management of working capital.

The group "remains confident" in its overall financial position. As at March 31, the group's net debt was US$991 million, with US$456 million of liquidity, consisting of US$248 million in cash reserves and US$208 million in unused, committed debt facilities. In addition, the group has secured US$400 million of new committed banking facilities on longer tenors since the end of March. The group's facilities are not subject to any cash flow covenants.

"While the pandemic is currently impacting the group's operations and performance and there is an intense focus on addressing the immediate challenges faced by the group, Dairy Farm remains committed to its multi-year transformation, which is delivering sustainable improvements to the business over time, and it continues to pursue the strategic initiatives which will drive medium- to long-term growth," said the group.