DAIRY FARM INTERNATIONAL HOLDINGS LIMITED

HALF-YEARLY RESULTS FOR THE SIX MONTHS ENDED 30TH JUNE 2015

OVERVIEW

Dairy Farm achieved modest like-for-like sales growth in most of its major markets with all divisions reporting improvements in sales in the first half of 2015.  Underlying profit, however, was down 14% largely due to margin pressures across our Food businesses and disappointing trading in Guardian in Malaysia.  Adverse exchange rates also affected the Group's results on translation into US dollars.  The investments in Yonghui in China, which completed earlier than expected in April, and San Miu in Macau, both contributed positively to the first half results.

RESULTS

Sales  for  the  period  including  100%  of  associates  and  joint  ventures  rose  27%  to US$8.0 billion, including contributions from Yonghui and San Miu from the dates of acquisition.  Sales for continuing businesses rose 3% to US$6.5 billion, while at constant rates of exchange the increase would have been 7%.  Underlying net profit at US$193 million was down 14%, while underlying earnings per share were also 14% lower at US¢14.25.  The underlying net profit reflected weaker operational performance, principally in Food, partially offset by the first contribution from Yonghui.  The profit attributable to shareholders of US$192 million was after a US$1 million non-trading acquisition expense, and compares with US$234 million in the same period last year.

Operating cash flow for the period remained sound with a net inflow of US$315 million, compared to US$313 million in the prior year.  The Group has increased its focus on  net  working  capital,  and  stock  was  3%  lower  at  US$984  million  compared  to US$1,011 million at the end of December 2014, despite the increased sales.

As at 30th June 2015 the Group had net debt of US$589 million, compared with net cash of US$475 million at the prior year end.  The increase in borrowings was principally to fund the RMB5.7 billion (US$909 million) investment in Yonghui.  The other significant cash outflows in the first half related to the 2014 final dividend of US$223 million, capital expenditure of US$147 million, and the investment in San Miu which completed in late March, partially offset by net proceeds from the sale of a minority equity interest in our Food business in Malaysia.

The Board has maintained an unchanged interim dividend of US¢6.50 per share.

PERFORMANCE

Despite solid sales growth, cost pressures and food price deflation on certain commodities combined to squeeze margins in the first six months for the Group's Food businesses.  In Hong Kong, there were higher rental and labour costs.  In Singapore profits were significantly lower due to competitive pressures, higher rents and a weaker Singapore dollar.  Sales were buoyant in Malaysia, but there was continued margin investment to attract customers.  There was good like-for-like sales growth in Indonesia, but profitability declined materially due to higher labour costs following a further increase in the minimum wage, a rise in shrinkage costs associated with greater fresh sales and more rigorous stock management, and store rationalization.  In the Philippines, the upscale and community supermarkets enjoyed sales growth, but the hypermarkets struggled.

The convenience store businesses in Hong Kong and Macau performed satisfactorily.  Sales in Singapore, however, were weaker due to a reduction in the number of stores and the impact of recently introduced regulations restricting late night sale of alcohol.

The Health and Beauty division produced higher sales.  Hong Kong and Macau performed well despite some impact from a decline in tourist arrivals.  In mainland China, there was further growth in the store base and an improvement in results.  In Malaysia, profitability was lower following the introduction of GST on 1st April.  In Indonesia, the results were impacted by wage and rent increases, while sales growth remained good.  In the Philippines progress was made on the integration of Rose Pharmacy.

In Home Furnishings, the IKEA stores in both Hong Kong and Taiwan traded well, and the new IKEA store in Indonesia continues to perform in line with expectations.

In the Restaurant division, Maxim's maintained its consistent performance with increased sales and profits in Hong Kong and mainland China. The group is growing its presence in mainland China and continuing to expand its Starbucks network in Vietnam.

BUSINESS DEVELOPMENTS

In February, Dairy Farm met the local regulatory requirements in Malaysia with the divestment of 30% of the ordinary shares in its food retail business, GCH Malaysia.

In March, the Group acquired the Macau-based supermarket chain, San Miu Supermarket Limited, which operates 15 stores.  The acquisition reinforces Dairy Farm's retail presence in Macau, complementing its existing well-established convenience store and health and beauty businesses.  In April, the Group completed the purchase of a 19.99% interest in Yonghui Superstores Company Limited in mainland China following receipt of the required regulatory approvals.  Both new businesses performed in line with expectations.

The Group established an on-line presence in Guardian Singapore, which is the first of several planned new moves into e-commerce.  New finance and merchandising systems are also being introduced in stages across the Group, and investment is continuing to be made in existing stores to enhance the shopping experience, in the supply chain, and in building the people capability needed to support the Company's growth objectives. 

At the end of June, Dairy Farm operated over 6,400 outlets across all formats, including the newly added San Miu and Yonghui stores, and employed in excess of 170,000 colleagues.

PEOPLE

Giles White will be retiring as a Director on 31st July 2015 and we would like to thank him for his significant contribution to the Board.  He will be succeeded by Jeremy Parr, formerly a senior partner of the international law firm Linklaters, who joins the Board on 1st August 2015.

PROSPECTS

While sales have been broadly positive across most businesses, margin pressures continue to impact the financial performance of the Food business.  The Group's results were impacted further by adverse exchange rate movements.  We are pleased to have completed the investments in Yonghui and in San Miu.  We are focusing on delivering a clear value proposition to our customers as part of our modern retail offering, and we remain well positioned to take advantage of our regional footprint, our competitive position in key markets and our strong financial position.

Ben Keswick

Chairman