Performance

Dairy Farm International Holdings Limited today announced that good performances were achieved by its principal retail operations despite difficult market conditions in the Asia-Pacific Region. The reported results were enhanced by the profit on disposal of its European operations, although this was partly offset by exchange rate movements and translation differences.

Sales from continuing activities for the six months ended 30th June 1998 were US$2,889 million, a 10% decrease from the same period in 1997. Sales in underlying currencies increased by 2%, but this was more than offset by exchange rate movements, in particular in the weaker Australian and New Zealand Dollars.

The consolidated net profit, after taxation, minority interests and preference dividends, was US$87 million, an increase of 118% over the first half of 1997. Some US$40 million profit arose in respect of the disposal of Simago and the Company’s shareholding in Somerfield after the reversal of US$72 million translation differences previously booked to reserves. This reversal had no impact on the Group’s cash flow or Shareholders’ funds.

Net profit from continuing activities of US$47 million was 6% above last year. The strong underlying performance of the key retail businesses in Australia, Hong Kong and New Zealand and higher interest income were offset in part by adverse exchange rate movements, higher corporate overheads and a reduced contribution from Maxim’s.

Earnings per ordinary share for the first half were US¢4.74 compared with US¢2.26 in the first half of 1997. Earnings per ordinary share from continuing activities of US¢2.57 were 2% ahead of last year.

The Directors have declared an unchanged interim dividend of US¢1.65 per ordinary share, payable in cash. In view of the current strong cash position, the Board has decided not to offer a scrip dividend alternative.

Turning to the operations, the Chairman, Simon Keswick, said that the Group’s energies are focussed on growing its retail businesses in the Asia-Pacific Region, and the disposal of operations in Spain and the United Kingdom were in line with that strategy. The Group has strengthened its investment in organisational structure and core competencies, and is confident that the resulting increased central costs will deliver benefits in the foreseeable future.

The improved operating performance at Franklins in Australia continues. This reflects the programme of converting "No Frills" stores into the "Fresh" formats, which now represent some 50% of Franklins’ total sales area, and the upgrading of business and merchandising systems. Woolworths in New Zealand also produced improved sales and profit. At the Group level, however, the results of both Australia and New Zealand were adversely affected by the significant weakening of the local currencies.

In Hong Kong, all of the Group’s retail businesses improved their contributions in the first half, although Sims Trading was affected by the more difficult economic conditions in the wholesale sector. Wellcome and Mannings increased their sales, while those at 7-Eleven remained in line with last year. The Fresh Food Processing Centre, which will greatly enhance the Group’s fresh food offer, will open in October. The Group is consolidating its retail businesses in Hong Kong under a single management structure which will reduce costs and add value through the sharing of common services and through joint procurement and logistics. Results at Maxim’s, the Group’s 50% restaurant associate, were significantly affected by the economic slowdown in Hong Kong, but the company increased its share of the Hong Kong restaurant market. Dairy Farm’s retail businesses in Mainland China continued to expand at a measured pace.

Sales at Wellcome in Taiwan declined as the performance of this business continued to be affected by competition from hypermarkets. The Group’s own hypermarket joint venture with Casino S.A. is scheduled to open its first Géant store in December. The closure of the Mannings drugstore chain in Taiwan has been completed within the expected cost, and the exit from Wellsave in Japan should be completed during the second half of the year within existing provisions.

In Singapore, the Cold Storage supermarkets and 7-Eleven businesses have again performed steadily, although the Guardian drugstore business has been disappointing.

In Indonesia, the Company completed the acquisition of a 32% effective interest in P.T. Hero Supermarket in February and, while businesses in that country were disrupted by the social unrest in the first half of the year, the effects have not significantly impacted performance. The Company remains confident that Hero, as the leading supermarket chain in Indonesia, is well positioned to benefit from any market improvement, although clearly the future will be influenced by economic and political developments.

In view of its strong balance sheet and cash position, the Group redeemed its outstanding convertible preference shares at a total cost of US$208 million in July.

As reported in the 1997 Annual Report, the Group has a process in place to address its exposure to the Year 2000 issue. Work is progressing to ensure that millennium compliance is achieved for all business critical activities, and the Board continues to monitor progress on a regular basis. Costs are expensed as incurred and were some US$2 million in the first half. The total costs associated with this programme are currently estimated to be some US$30 million to US$40 million.

Outlook

In conclusion, Simon Keswick said, "The quality of our major businesses in Hong Kong, Australia and New Zealand continues to improve. With our strong balance sheet, the Group is well placed to take advantage of new investment opportunities in the more difficult economic conditions in Asia Pacific, and we will continue to support our existing businesses by investing in procurement, systems and people."