Annual Report 2017
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Our Goal :
“To give
our customers
across Asia a store
they TRUST,
delivering QUALITY,
SERVICE and VALUE”
Dairy Farm International Holdings Limited is incorporated in
Bermuda and has a standard listing on the London Stock Exchange,
with secondary listings in Bermuda and Singapore. The Group’s
businesses are managed from Hong Kong by Dairy Farm
Management Services Limited through its regional offices.
Dairy Farm is a member of the Jardine Matheson Group.
A member of the Jardine Matheson Group
Contents
2 Corporate Information
3 Dairy Farm At-a-Glance
4 Highlights
6 Chairman’s Statement
8 Group Chief Executive’s Review
12 Feature Stories
16 Business Review
16 Food
22 Health and Beauty
26 Home Furnishings
30 Restaurants
34 Financial Review
37 Directors’ Profiles
39 Our Leadership
42 Financial Statements
100 Independent Auditors’ Report
108 Five Year Summary
109 Responsibility Statement
110 Corporate Governance
117 Principal Risks and Uncertainties
119 Shareholder Information
120 Retail Outlets Summary
121 Management and Offices
Annual Report 2017
1
Corporate Information
Directors
Ben Keswick
Chairman and Managing Director
Dairy Farm Management
Services Limited
Ian McLeod
Group Chief Executive
Neil Galloway
Mark Greenberg
George J. Ho
Adam Keswick
Sir Henry Keswick
Simon Keswick
Michael Kok
Dr George C.G. Koo
Anthony Nightingale
Y.K. Pang
Jeremy Parr
Lord Sassoon, Kt
Percy Weatherall
John Witt
Directors
Ben Keswick
Chairman
Ian McLeod
Group Chief Executive
Neil Galloway
Group Finance Director
Choo Peng Chee
Regional Director, North Asia (Food)
Gordon Farquhar
Group Director, Health and Beauty
Martin Lindström
Group Director, IKEA
Michael Wu
Chairman and Managing Director, Maxim’s
Mark Greenberg
Y.K. Pang
Jeremy Parr
John Witt
Company Secretary
Neil M. McNamara
Corporate Secretary
Neil M. McNamara
Registered Office
Jardine House
33-35 Reid Street
Hamilton
Bermuda
2
Dairy Farm International Holdings Limited Dairy Farm At-a-Glance
Network Span
Total Own Brands
Store Network †
10,000+ SKU*
7,181 outlets
* Stock keeping units.
† Including associates and joint ventures.
11
Asian
countries
and
territories
Geographical Locations
Supermarkets and Hypermarkets
Convenience Stores
Health and Beauty
Home Furnishings
Restaurants
Thailand
Maxim’s
Vietnam
Guardian
Maxim’s
Macau
San Miu
7-Eleven
Mannings
IKEA
Maxim’s
Singapore
Cold Storage
MarketPlace
Jasons
7-Eleven
Guardian
Maxim’s
Cambodia
Lucky
Giant
Guardian
Maxim’s
Malaysia
Giant
Cold Storage
Jasons
Guardian
Mainland China
Yonghui
7-Eleven
Mannings
Maxim’s
Hong Kong
Wellcome
MarketPlace
7-Eleven
Mannings
GNC
IKEA
Maxim’s
Indonesia
Hero
Giant
Guardian
IKEA
Taiwan
Wellcome
Jasons
IKEA
The Philippines
Shopwise
Wellcome
Rustan’s
Rose Pharmacy
Brunei
Giant
Guardian
Annual Report 2017
3
Highlights
Underlying profit 13% lower at US$403 million, after US$64 million
of business change costs
Poor operating results from Southeast Asia Food
Strong trading performances from Health and Beauty, IKEA, Maxim’s
and Yonghui
Results
Sales
– subsidiaries
– including associates and joint ventures*
EBITDA†
Underlying profit attributable to shareholders‡
Profit attributable to shareholders
Net debt
Underlying earnings per share‡
Basic earnings per share
Dividends per share
Net asset value per share^
Store Network*
Food
– Supermarkets
– Hypermarkets
– Convenience Stores
Health and Beauty
Home Furnishings
Restaurants
2017
US$m
11,289
21,827
589
403
404
599
US¢
29.77
29.83
21.00
124.96
2017
4,217
1,450
467
2,300
1,744
10
1,210
7,181
2016
US$m
11,201
20,424
672
460
469
641
US¢
34.03
34.69
21.00
111.32
Change
%
1
7
(12)
(13)
(14)
(7)
%
(13)
(14)
–
12
2016
Net change
3,839
1,137
471
2,231
1,715
9
985
6,548
+378
+313
-4
+69
+29
+1
+225
+633
* On a 100% basis.
† EBITDA represents operating profit before depreciation and amortization.
‡ The Group uses ‘underlying profit’ in its internal financial reporting to distinguish between ongoing business performance and non-trading items, as more fully
described in note 1 to the financial statements. Management considers this to be a key measure which provides additional information to enhance understanding
of the Group’s underlying business performance.
^ Net asset value per share is based on the book value of shareholders’ funds.
4
Dairy Farm International Holdings Limited Total Sales*
Underlying Profit
Profit Attributable to Shareholders
7%
13%
14%
Number of Net New Stores*
Number of Employees*
633
some 200,000 people
Total Sales*
Underlying Profit Attributable
to Shareholders
US$b
24
21
18
15
12
9
6
3
0
US¢
40
35
30
25
20
15
10
5
0
US$m
500
400
300
200
100
0
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Supermarkets and Hypermarkets
Health and Beauty
Convenience Stores
Home Furnishings
Restaurants
Underlying Earnings per Share
Ordinary Dividends per Share
US¢
24
21
18
15
12
9
6
3
0
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Interim dividend
Final dividend
Annual Report 2017
5
Chairman’s Statement
“After a disappointing year in 2017 for our Food businesses in Southeast Asia,
actions are being taken to improve their long-term performance. All of the
Group’s other formats and markets are trading well . . . With our established
market positions in a range of retail formats, our strong balance sheet and
our determination to adapt to meet our customers’ needs, we are well
placed to benefit from the growth prospects in the region.”
Overview
Dairy Farm’s result in 2017 was disappointing as positive
performances in most of the Group’s formats and key
associates were offset by weakness in the Supermarket
and Hypermarket businesses, largely in Southeast Asia.
In addition, the Group recognized US$64 million of
business change costs, principally relating to the closure of
underperforming stores and stock clearance in the Food
Division. Recognizing the challenges being faced, a
strategic review is underway to determine the actions
necessary to re-establish the competitive positions of
these businesses and turn around their financial
performance.
Operating performance
Sales for the year by the Group’s subsidiaries of
US$11.3 billion were largely unchanged from the
US$11.2 billion seen in 2016. Total sales, including 100%
of associates and joint ventures, of US$21.8 billion were
7% higher, reflecting strong growth at both Yonghui
and Maxim’s.
Lower operating profit for Dairy Farm’s owned businesses,
after recognizing US$64 million of business change costs,
was partly offset by increased contributions from both
Yonghui and Maxim’s. The resulting underlying profit
attributable to shareholders was US$403 million, down
13% from 2016. Excluding business change costs,
underlying profit would have been 1% higher. Underlying
earnings per share of US¢29.77 were down 13%.
The Group generated an improved net cash flow from
operating activities of US$671 million, compared with
US$543 million in 2016. The improvement was driven by
better working capital management. Net debt at the end
of 2017 was US$599 million, compared to US$641 million
at the prior year end.
The Board is recommending an unchanged final dividend
of US¢14.50 per share, giving a total dividend of US¢21.00
per share for the year.
In the Food Division, sales were down and profits were
significantly lower than in 2016, primarily due to poor
performances in the Supermarket and Hypermarket
businesses in Malaysia, Singapore and Indonesia. A
number of underperforming stores are being closed and
prices lowered to clear or write off discontinued and slow
moving stock. In Hong Kong, sales were more resilient,
although profits were marginally down due to increasing
rents and labour costs. Positive sales growth seen in the
Philippines reflected the ongoing investments being made
to improve the business.
The Convenience Store format produced increased sales
and profit overall for 7-Eleven in the markets where the
Group operates. In part, this reflected a consumer shift
to more convenient retail formats, as well as a positive
reception to the service and range enhancements
introduced for customers.
In the Health and Beauty Division, sales and profit were
higher, principally due to strong performances in Hong
Kong, Macau and Indonesia, together with improvements
in mainland China. An increasing focus on the beauty
category and the continued development of the Division’s
Own Brand range have helped to drive growth.
The Home Furnishings Division recorded higher sales
and trading profit, but the reported profit declined mainly
due to costs associated with the opening of the fourth
IKEA store in Hong Kong in October 2017. Taiwan and
Indonesia produced strong sales and profit increases.
There has also been encouraging growth in IKEA’s
e-commerce channels.
6
Dairy Farm International Holdings Limited 8%
5%
15%
19%
2017
Sales Mix*
54%
11%
2017
Profit Mix†
14%
32%
29%
13%
Supermarkets and Hypermarkets
Convenience Stores
Health and Beauty
Home Furnishings
Restaurants
* Including share of associates and joint ventures.
† Based on operating profit and share of results
of associates and joint ventures, excluding store
support centre costs, business change costs
and non-trading items.
Maxim’s enjoyed good sales growth and profit expansion
during the year, in large part due to strong performances
from its branded products, particularly mooncakes, and
its business in mainland China.
The Group’s 19.99% owned associate in mainland China,
Yonghui Superstores, opened a net 292 new stores in 2017,
which underpinned a 19% growth in revenue. Ongoing
supply chain optimization and shrinkage improvement
resulted in improved margins, which together with better
capital utilization, led to a 45% growth in profit.
Business developments
Each Group business is committed to enhancing the
shopping experience of its customers and to serving their
evolving needs as efficiently as possible. This greater
attention to understanding and responding to changing
consumer behaviour will be a central driver of Dairy Farm’s
future success. Investment is also continuing to enable
the Group to compete effectively in a challenging and
changing retail landscape.
Increasing convenience through expansion and
enhancement of the store network remains a priority, and
new smaller store formats are being piloted in certain
markets. The Group continued to develop its e-commerce
presence in 2017 with a number of initiatives in its Home
Furnishings, Food, and Health and Beauty operations.
Initiatives in all Divisions on range enhancement were also
progressed, resulting in an increased fresh food offering,
higher ready-to-eat participation and a broader Own
Brand range offering.
The Group, including associates and joint ventures, added
a net 633 stores in 2017. At 31st December 2017, the
Group had 7,181 stores in operation in 11 countries and
territories, including its interest in 779 Yonghui stores in
mainland China and 1,210 Maxim’s stores.
trading well, and this year will introduce an American
casual restaurant format, Shake Shack, to Hong Kong
and Macau.
In the Philippines, Rustan became a wholly-owned
subsidiary following the acquisition of the remaining
34% interest from the Group’s joint venture partner.
People
Despite challenging markets, there has been substantial
progress in delivering against existing strategic initiatives,
and on behalf of the Board, I would like to thank our
colleagues for their efforts in driving the Group forward
and wish them well for the year ahead.
Graham Allan stepped down as Group Chief Executive on
31st August 2017 after five years of leading the business.
We would like to thank him for his contribution. His
successor, Ian McLeod, joined the Board as Group Chief
Executive on 18th September and brings over 30 years of
international retailing experience. Dr George Koo will step
down from the Board at the forthcoming Annual General
Meeting and will not seek re-election. We would like to
thank him for his contribution to the Company. We are
very pleased that Dr Delman Lee, President of TAL Apparel
Limited, has been invited to join the Board with effect
from 9th May 2018.
Prospects
After a disappointing year in 2017 for our Food businesses
in Southeast Asia, actions are being taken to improve their
long-term performance. All of the Group's other formats
and markets are trading well and growth opportunities
are being pursued, in mainland China and elsewhere.
With our established market positions in a range of retail
formats, our strong balance sheet and our determination
to adapt to meet our customers’ needs, we are well placed
to benefit from the growth prospects in the region.
Corporate developments
During 2017, Maxim’s acquired the existing businesses
and franchises of Genki Sushi in Singapore and Malaysia,
and of Starbucks in Singapore. Maxim’s opened its first The
Cheesecake Factory in Hong Kong in May 2017, which is
Ben Keswick
Chairman
8th March 2018
Annual Report 2017
7
Group Chief Executive’s Review
“
The Group will focus on key
priorities; growing our major
markets, improving profitability in
our Southeast Asia Food business,
identifying further growth
opportunities and improving
our digital capability.”
In 2017, Dairy Farm’s overall performance has been
disappointing. While there was good performance from
most divisions and in particular our key associates, Maxim’s
and Yonghui, our overall results have been significantly
held back by the weak performance in the majority of our
Southeast Asia Food businesses. Action was taken in the
fourth quarter to close a series of loss-making stores in
Indonesia, Singapore and Malaysia and a major clearance
exercise was undertaken across Southeast Asia to liquidate
excess old stock, predominantly in general merchandise.
This resulted in the booking of significant business
change costs.
It is clear that we need a different approach to our Food
proposition in most Southeast Asian markets to turn
around our performances in these markets. This will not
be a short-term fix and an end-to-end review in each of
these markets is already underway.
Strategic review
Since joining the Group as Chief Executive in September
2017, I have spent time in each market seeking to
understand first-hand the environment and competitive
landscape in which we operate, while visiting our stores
and meeting with our team members. A priority has been
to understand how we are currently perceived by our
customers and can serve them better by both addressing
our existing challenges as well as identifying opportunities
for future growth.
Despite these very real challenges, we nonetheless
have a strong foundation with several market leading
businesses, with well-established brands and passionate,
committed team members, which provides a robust
platform for sustaining our current strength while building
improvement where underperformance currently exists.
8
Dairy Farm International Holdings Limited 2%
17%
2%
9%
7%
Total Employees:
some 200,000
people*
63%
5%
3%
4%
2%
Total Gross
Trading Area:
over 70 million
sq. ft*
86%
Supermarkets and Hypermarkets
Convenience Stores
Health and Beauty
Home Furnishings
Restaurants
Store Support Centre and Shared Services
* Including 100% of associates and joint ventures.
We are facing intensifying and changing competition in
many markets, both online and offline, as well as greater
demands from increasingly well-informed customers.
Retail markets are evolving and we need to be alive to
these changes, which will require us to embrace business
change and develop new ways of working to improve
future performance.
The current strategic review across the Group is to identify
a series of opportunities, be they operational, competitive
or strategic, to address our underlying performance
issues in our existing businesses along with the necessary
actions required to address them and improve financial
performance over time, while setting a direction for
the business for the next five years. To improve our
effectiveness, it will be essential that we enable much
closer collaboration across the Group and increase
standardization to leverage our overall scale.
The initial stages of the review confirmed the strength of
and opportunities for our businesses in North Asia, and we
will continue to build on these. However, it also identified
the challenges with several loss-making Supermarket and
Hypermarket stores across Southeast Asia, particularly in
Malaysia, Singapore and Indonesia, where we believe that
performance was unlikely to improve materially and took
the decision to close these. In some of our larger stores,
there had also been a build-up of slow moving stock,
particularly in the general merchandise category, and
we have taken action to clear this through mark-down
sales or have written it off. Additional controls have been
put in place to reduce the risk of rebuying stock that is
not meeting customer needs.
In general, we have not responded fast enough to new
competition and changing consumer preferences across
many of our markets, and need to improve the shopping
experience for our customers, as well as addressing gaps
in our range and becoming more price competitive.
It is increasingly clear that customer buying behaviours
are changing with regard to both how people shop and
preferences within certain retail categories. As part of our
change programme, we will be undertaking a series of
range reviews across our businesses to ensure we are
providing ranges relevant to our customers’ needs in a
more tailored way. In addition, we are conducting greater
customer insight surveys to provide specific feedback on
our store proposition, as well as the overall shopping
experience.
With more focus on delivering the right range for
customers, we need to ensure that we are competitive on
price and making investments in the right areas to deliver
this. The acceleration of our Own Brand range will be part
of the effort to deliver differentiated, quality products at
attractive prices.
We are continuing to invest in both infrastructure and
stores to provide an even better shopping experience.
New fresh distribution centres in key markets will support
an imperative to deliver better quality fresh food to
our stores.
Our overall ambition is to give our customers across Asia
a store they can trust, delivering quality, service and value.
Annual Report 2017
9
Group Chief Executive’s Review
2017 performance
In 2017, four of our five formats – Convenience Stores,
Health and Beauty, Home Furnishings and Restaurants –
performed well, as did our key Food associate, Yonghui,
in mainland China. The Group results were held back by
the Supermarkets and Hypermarkets format, particularly
sales and profit declines in Southeast Asia, while our
largest business in Hong Kong was resilient. We have
challenges in specific areas, but many of our businesses
are performing strongly with clear growth trajectories.
In our Food Division, overall sales were 2% behind 2016.
The trading environment in the Supermarkets and
Hypermarkets sector continues to be challenging
with intensifying and changing competition. Sales in
Hong Kong were flat and profit marginally down, and
both sales and profit were lower in Taiwan. Our key
markets in Southeast Asia of Malaysia, Singapore and
Indonesia, experienced declining sales and significantly
lower profit, although with different issues in each market.
Consumer spending generally in Malaysia is weak,
independent discount retailers and e-commerce are
emerging competition in Singapore, and the mini-mart
operators continue to take market share in Indonesia,
while consumers are highly sensitive to pricing in
all markets. The Philippines, in contrast, saw strong
like-for-like sales growth in both its upscale and mass
market formats and was only held back by the unplanned
closure of a hypermarket.
The Group’s Convenience Store businesses have fared
much better. Both Hong Kong and mainland China
enjoyed good sales growth, while Macau sales were
impacted by a higher cigarette tax and Singapore had
store closures on the back of the loss of a franchise
operating Shell’s petrol station outlets. All four
convenience store businesses reported increased profit.
Operating profit from the Food Division dropped 18%
to US$220 million before business change costs.
Sales in our Health and Beauty Division were up by 7%.
There was strong growth in Hong Kong, Macau, mainland
China and Indonesia, partly offset by muted sales growth
in Malaysia and lower sales in Singapore. Operating profit
increased 20% to US$210 million due mainly to strong
performance in Hong Kong and Macau, attributable to
increased mainland China visitors. Encouraging progress
in Mannings China and margin improvements in Rose
Pharmacy in the Philippines were promising
developments for the Division.
In our Home Furnishings Division, sales were up
by 9% but operating profit was 4% lower mainly due to
pre-opening expenses and higher costs related to our
fourth Hong Kong store which was opened in October
2017. Sales and profit gains were strong in both Taiwan
and Indonesia, with positive progress on new store
developments in both these markets.
Dairy Farm’s Restaurants Division, Maxim’s, delivered
another year of good results. A very successful mooncake
programme during the Chinese Mid-Autumn Festival
bolstered its sales and profit performance. Operations in
mainland China also reported good improvements while
regional expansion continued with Starbucks in Vietnam
and Cambodia. During the year, Maxim’s completed the
acquisitions of Starbucks in Singapore and Genki Sushi in
Singapore and Malaysia.
Our 19.99% owned associate, Yonghui, opened a net 292
new stores in mainland China underpinning a 19% growth
in revenue. Improvements in margins led to year-on-year
profit increasing 45%.
10
Dairy Farm International Holdings Limited embrace new technologies and different ways of working.
However, we have a well-established presence and long
track record serving customers in all the markets we
operate, which should allow us to leverage our unique
Asian footprint for future success.
With our strong cash generation, solid balance sheet and
enthusiastic team, we are in a good position to meet these
challenges. The Group will focus on key priorities; growing
our major markets, improving profitability in our Southeast
Asia Food business, identifying further growth
opportunities and improving our digital capability. With
the depth of our Asian know-how and the breadth of our
retail formats, we are well placed to benefit from the
growth prospects in the region.
The passion and commitment of our people are key to
our performance and future growth. I would like to thank
them for their contribution and look forward to working
more closely with team members over the coming year as
we build for the future.
Ian McLeod
Group Chief Executive
8th March 2018
Business developments
During the year we have undertaken a number of pilot
initiatives to understand better the impact of changing
consumer behaviour. For example, in mainland China,
our 7-Eleven business has partnered with Meituan,
a leading delivery service, on food delivery. Similar
initiatives are under trial with Happy Fresh in Malaysia
and Go-Jek in Indonesia. We expect to take learnings
from these partnerships back into our operations to
improve the offer for customers.
IKEA has continued to invest in e-commerce and now has
nationwide capability in all our franchise markets.
We have also been refining a small format grocery concept
in both Malaysia and Indonesia in recognition of the
increasing popularity of more convenient shopping and
the growing challenges facing the hypermarket format.
In mainland China, Yonghui has also been expanding
more rapidly into smaller retail stores.
We have separately completed the buy-out of the
remaining minority investment in Rustan, such that it is
now wholly-owned, and Maxim’s has expanded further
into Southeast Asia through a couple of acquisitions. We
will continue to look out for non-organic investment
opportunities that can accelerate our growth.
The year ahead
Retailers everywhere are facing rapid and unprecedented
change from new business models, as well as the changing
lifestyles and increased expectations of consumers. These
developments necessitate greater urgency in everything
we do and a much closer relationship with and deeper
understanding of our customers, as well as a need to
Annual Report 2017
11
Own Brands –
creating trusted value
We have a passion for building a portfolio of profitable Own Brands that have quality
and customer needs at their heart. Exceptional Own Brands for Asian Consumers.
Over the last year in numerous focus groups, over
40,000 customers in Asia have tested our Own
Brand products giving us some important insights
into their needs and preferences. By listening to
our customers and using those insights, we’ve
made innovative improvements to our current
products, while ensuring our new ones are well
developed and thoughtfully delivered.
We’re already making successful enhancements
in our Food and Non-Food categories. For
example, our customer-focused approach
identified a need for an Italian pasta sauce in a
convenient sachet size for smaller families. We
launched a dermatologically-tested range of our
FeatherSoft paper and introduced Nanopower –
a first in our markets – which is a complete
laundry solution based on the latest deep-clean
nano-technology.
In fact, in 2017 we developed and launched over
770 new Food and Non-Food products, all ‘chosen’
by our customers. With strict quality standards,
we will continue to develop and drive Own Brand
products that are relevant, appreciated and
trusted by our customers.
12
Dairy Farm International Holdings Limited customers with sensitive skin in body care
products, a new Own Brand called Derma 365 was
developed and launched.
Responding to customers’ requests for healthy
snack options, we developed our Nature’s Heart
range, which provides a healthy selection of nuts
and dried fruits. Available in Hong Kong, mainland
China, Singapore and Malaysia, it has been well
received by customers.
To provide more choice and better value to our
customers in mainland China, we introduced
Oriental Herbs, a new skin care brand that uses
traditional Chinese ingredients in a modern way.
It targets 20-30 years old women looking for
hydration and brightening beauty products with
natural ingredients at an affordable price.
Celebrity of KissHop Colour Cosmetics: L.I.K.E (Chinese popular artists)
In 2017, we entered the fast-growing colour
cosmetic market with Kiss Hop, our fun Korean-
inspired beauty brand. A young and innovative
range of face, lips, eyes and nails cosmetic
products were developed and successfully
launched. With the great response from our
customers, Kiss Hop has the potential to be a star
performer in this category.
Annual Report 2017
13
On the Health and Beauty side, we’ve achieved
strong sales growth in 2017 and increased market
penetration. Momentum was particularly good
in the second half of the year with double-digit
growth and record sales performance.
Innovation and brand building activation marked
the last year, with 875 new Health and Beauty
products introduced.
Growth has been particularly strong in Hong
Kong and Macau which experienced record sales
and double-digit growth. Emerging markets
– Vietnam, Indonesia, the Philippines, Cambodia
and Brunei – showed an impressive 41% growth
and strong potential for further growth. Our
‘Power Brands’ – our best-selling portfolio of
brands – delivered a 25% growth in 2017. Their
presence has been extended into more markets
and visibility in-stores have increased, allowing us
to reach even more customers.
Botaneco Garden, our natural hair and body care
brand, saw strong growth in 2017 driven by the
launch of new lines, implementation of branded
counters in several stores, and marketing events
that promoted environmental protection. Crystal
Moist, our skin care brand formulated with deep
ocean water and minerals, expanded across Asia
in 2017 with its launch into four new markets.
Happy Mask, a new Own Brand launched in 2017,
offers a complete and innovative range of facial
masks that targets 18-25 years old customers.
Addressing the specific and growing needs of
Big hearts bring
big change
Giving back to local communities where we work and live is a big focus
for Dairy Farm. We know we have the responsibility and ability to make
a difference to lives of our customers and to those who are less fortunate
and in need across the region, so our teams have been hard at work helping
those around them to get more from life. Here are some of their stories…
Dairy Farm Continues to Support Mental Health –
Hong Kong and Singapore
With the theme of ‘Connecting Minds’, Dairy Farm joined in the
annual Walk Up Jardine House event to raise money to support
Mindset, a charity established by the Jardine Matheson Group,
aimed at changing people’s attitudes by raising awareness and
education on mental health issues. Over US$24,000 was raised
and donated to Mindset by 13 participating teams from Dairy Farm.
US$24,000
donated to Mindset by 13 participating
teams from Dairy Farm
estimated to reduce
15,000kg
of CO2 emissions a year
7-Eleven Southern China Goes Green with
Innovative ‘Plastic’ Bags
In 2017, our 7-Eleven stores in Southern
China made the switch from plastic bags
to innovative biodegradable ‘plastic’ bags,
taking a significant step to help reduce waste.
920 stores have made the change, which is
estimated to help reduce approximately
15,000 kg of CO2 emissions a year, not to
mention reduce the number of plastic bags
that end up in landfills for decades to come.
The bag decomposes into ash and costs even
less to produce than an average plastic bag.
It’s a win-win for our business – and the
environment.
14
Dairy Farm International Holdings Limited In Singapore, Dairy Farm launched the first ever
donation box programme, called ‘Dairy Farm
Cares’, in support of two charities – Mindset
and Care Community Services Society (CCSS),
a non-profit voluntary, charitable organization
which aims to provide assistance, education,
training, counselling and therapy to the needy
and strengthen the family unit. A major launch
event attended by key senior management teams
from the charities and Dairy Farm, and Mr S Iswaran,
Singapore’s Minister for Trade and Industry,
saw the rollout of over 1,000 donation boxes in
Dairy Farm’s 650 stores across Singapore. This
coincided with the Group’s annual family day,
where beneficiaries from the two charities came
together for a fun-filled day at Singapore Zoo,
alongside our 2,500 employees and their families.
Giant Shows its Big Heart in Malaysia
On 4th November 2017, heavy rains fell in
Pengang, Malaysia, causing an 18-hour storm
that inundated the city with up to four metres of
water, forcing the evacuation of more than 5,500
people, damaged roads and infrastructure and
led to significant flooding. As one of Malaysia’s
largest retailers with 141 stores, it was clear that
Giant, could play a key role in providing much
needed assistance to the affected people. That
began with making sure all team members and
customers at its 141 stores were safe and
accounted for, before ensuring the food storage
equipment was working, so that the food and
water people consumed in the aftermath of the
disaster were safe.
After that, it was time to help the local
community and those worst affected by the
flood. Joining forces with the National Disaster
Management Agency (NaDMA), employees at five
Giant hypermarket stores in Seberang Prai, Bayan
Baru, Kulim, Alor Setar and Sg. Petani worked to
get relief packages of food supplies, baby food,
mattresses and personal hygiene products to
over 2,000 flood-stricken victims, all in the space
of 36 hours.
In the weeks that followed, Giant continued its
efforts to support relief centres in aid of flood
victims in Penang, Kedah and Perak, all the while
making sure their stores stayed open and had
adequate food and water stock for their loyal
customers. This ongoing CSR commitment is at
the heart of the company’s practices in Malaysia.
Annual Report 2017
15
Business Review
Food
16
Dairy Farm International Holdings Limited Weakness in Southeast Asia resulted in
lower sales and profits.
Food (excluding Yonghui) reported US$8.0 billion in sales, 1% lower than last year in
constant currency.^ Operating profit decreased 18% to US$220 million, excluding
business change costs, driven by weak performance from the Supermarket and
Hypermarket businesses, particularly in Southeast Asia. In contrast to Supermarkets
and Hypermarkets, the Convenience Store format performed well across all markets,
mitigating the weaker performance in the Food Division overall.
^ All commentary in the Business Review section is in constant currency.
68% of
Group Sales*
54%
42% of
Group Profit†
14%
29%
13%
Supermarkets and Hypermarkets
Convenience Stores
* Including share of associates and joint ventures.
† Based on operating profit and share of results of associates and
joint ventures, excluding store support centre costs, business
change costs and non-trading items.
Mainland China
Macau
Hong Kong
Taiwan
Cambodia
The Philippines
Malaysia
Brunei
Singapore
Indonesia
Supermarkets and Hypermarkets
Convenience Stores
Total Sales‡ (US$)
16.1 billion
Operating Profit (US$)
220 million
Store Network‡
4,217 stores
‡ Including 100% of associates and
joint ventures.
Annual Report 2017
17
Food – Supermarkets and
Hypermarkets
Sales of US$6.0 billion from our Supermarkets and
Hypermarkets were 3% lower than last year in
constant currency, while operating profit fell by
30% to US$135 million. Like-for-like sales were
generally weak or negative, other than in the
Philippines where we saw good growth. While
Hong Kong was resilient, our Southeast Asian
businesses suffered from intensifying competition
and changes in consumer behaviour with lower
sales and significantly reduced profits.
Hong Kong
Despite a difficult operating environment and
stiff price competition, sales were largely in line
with last year. With more sites secured in key
new locations, we continue to bolster our store
network in Hong Kong while also refining our
e-commerce offer to improve digital engagement
with our customers. Operating profit fell slightly
with higher labour and rental costs, despite
implementing a number of productivity
initiatives. Several key stores were renovated
during the year with the disruption further
impacting performance.
Macau
Sales were ahead while profits were in line with
last year due to refurbishment works in our
flagship store. During the year, a new dry
distribution centre was commissioned to sustain
San Miu’s growth and improve our stores’
assortment and range availability.
Taiwan
A decline in mainland Chinese tourist arrivals
and weaker consumer spending created a tough
operating environment in 2017, resulting in
a decline in sales. However, the impact on
profitability was mitigated by disciplined cost
control, such that operating profit was only
slightly behind last year. Our flagship Jasons
store at Taipei 101 was fully revamped and
relaunched during the year.
Indonesia
Alongside a limited recovery in consumer
confidence, the intensifying competition from
smaller format mini-mart operators resulted in
another challenging year for our Food businesses
in Indonesia, with sales and profits both
substantially lower than last year. Attention is
being given to a review of our range to ensure it
is relevant for our customers while also ensuring
that we are competitive on price and service.
Our upscale Hero brand has fared better than
our mass market brand, Giant, and promisingly,
our newly refurbished stores are proving popular
with customers.
18
Business ReviewDairy Farm International Holdings Limited Malaysia
The Philippines
Sales were ahead of prior year driven by like-for-
like growth and new store openings, partially
held back by the unplanned closure of a large
hypermarket. Our upscale brand, Rustan’s,
performed extremely well and continues to
lead the market with customers in this segment.
The acquisition of a further 34% interest in Rustan
was completed in the third quarter, making the
business a wholly-owned subsidiary of Dairy
Farm. Significant improvements in our supply
chain are being made – a new, purpose-built
fresh distribution centre was opened during
the year and we expect to move to a new dry
distribution centre in 2019.
Sales were slightly lower than prior year but
profits were significantly behind reflecting lower
margins in another challenging year. Falling
household income and lower government
subsidies have contributed to subdued consumer
sentiment, with strong competition amongst
retailers further intensifying pricing pressure. To
remain competitive, investment is being made in
our stores to improve the customer experience
and we have opened a new flagship Cold Storage
store in KLCC in the centre of Kuala Lumpur. Our
new merchandising system was implemented
during the year and we expect to open our new,
purpose-built fresh distribution centre in the first
half of 2018, which will improve our fresh food
capability. Several small format pilot stores have
been opened and initial results are encouraging.
A range of cost saving measures, including a
reduction in headcount, were implemented
during the year.
Annual Report 2017
19
Singapore
Cambodia
Sales and profit were in line with last year in
Cambodia despite being held back by store
renovations. Looking ahead, we aim to
improve sales mix with higher fresh and
Own Brand penetration.
Sales were down and profit was significantly
below prior year with lower margins and higher
costs. There was increasing competition in the
market from the growth of independent discount
retailers and e-commerce players, resulting
in intense price competition. Cold Storage
undertook a detailed range review during
the year, refreshing the offer across several
categories. Early signs are that this is resonating
with customers and work is continuing to
drive improvements.
20
Business ReviewDairy Farm International Holdings Limited Food – Convenience Stores
Mainland China
Convenience Stores reported US$2.0 billion in
sales, an increase of 4% over last year in constant
currency. Operating profit increased by 16% to
US$85 million.
Hong Kong Macau
7-Eleven Hong Kong recorded another year of
excellent results, building on the market share
gains from last year. Like-for-like sales growth
was good, aided by exclusive product launches,
assortment improvement and a gain in consumer
spending in certain categories from other retail
formats. We also introduced new customer
service initiatives, such as e-commerce delivery
pick-up and a self-service laundromat concept,
in addition to expanding payment options. In
Macau, sales were impacted negatively by an
increase in the cigarette tax, although profit
remained flat with higher margin contribution
from ready-to-eat food.
In mainland China, 7-Eleven increased both sales
and profit, driven by both strong like-for-like sales
and 92 net new store openings to end the year
with 920 stores. During the year, we introduced
the Meituan delivery service and WeChat
self-checkout as part of our drive to provide more
convenient access to our products and services.
Meituan, one of China’s largest online delivery
platforms, now covers 330 of our stores.
Singapore
Like-for-like sales were ahead of prior year
supported by continued cooperation with
7-Eleven Japan delivering advances in ready-to-
eat and 7-Eleven’s private label range. Overall
sales declined slightly due to the termination of
a multi-site agreement with Shell to service their
petrol stations across the city. Notwithstanding
this, profitability improved during the year and
progress is being made to replace the lost stores
with new sites.
7-Eleven: Adding value to customers’ lives
Knowing how time-starved people are, we’re always on the lookout
for time-saving solutions to help our customers. 7-Eleven’s in-store
value-added service sets us apart from our competitors.
From paying utility bills, returning and picking up online shopping
from key online partners such as Zalora and Taobao, to accessing
laundromat services and buying stamps, our 7-Eleven stores
continually look for new services to provide greater convenience
to our customers.
In 2017, we introduced several new value-added services including:
• Partnering with SingTel to allow customers to top-up their Dash
app at any 7-Eleven store in Singapore, allowing them to transfer
money overseas more easily to their friends and family.
• Our 7-Eleven stores in mainland China partnered with Meituan, to offer food delivery services in eight cities.
One of our Shenzhen stores in the World Trade Centre Square, has completed 6,185 orders in just five months.
In achieving our goal of providing value and great service to our customers, the focus on finding new ways
to make our customers’ lives easier will be at the heart of our continued success.
Annual Report 2017
21
Business Review
Health
and Beauty
22
Dairy Farm International Holdings Limited Health and Beauty achieved US$2.8 billion in total sales,
an increase of 7% in constant currency, while operating
profit increased 20% with better performance across
most markets.
We continue to roll out our Health and Beauty business concept across the region
through well-established brands – Mannings, Guardian and Rose Pharmacy. Serving the
needs of Asia’s increasingly health-conscious population, Dairy Farm’s Health and Beauty
business now spans ten countries and territories.
19%
19% of
Group Sales*
32% of
Group Profit†
32%
* Including share of associates and joint ventures.
† Based on operating profit and share of results of associates and
joint ventures, excluding store support centre costs, business
change costs and non-trading items.
Mainland China
Macau
Hong Kong
Cambodia
Vietnam
The Philippines
Malaysia
Brunei
Singapore
Indonesia
Health and Beauty
Total Sales‡ (US$)
2.8 billion
Operating Profit (US$)
210 million
Store Network‡
1,744 stores
‡ Including 100% of associates and
joint ventures.
Annual Report 2017
23
Hong Kong Macau
Singapore
Mannings Hong Kong recorded strong growth
in both sales and profit, driven by higher local
consumption and a recovery in tourist arrivals
and spending. Like-for-like sales strengthened
throughout the year, particularly in the last
quarter. Range selection was reviewed to better
serve both local and tourist customer needs,
while the introduction of new mobile payment
options and more relevant promotions
were successful.
The recovery in Macau tourism supported a
growth in sales and profit ahead of last year,
despite severe disruption to several stores caused
by Typhoon Hato. During the year there were
improvements in range selection, particularly in
skin care, and a new flagship store was opened
in the Venetian Hotel to capture tourist
sales opportunities.
Mainland China
Mannings China’s performance was very
encouraging with strong like-for-like sales as
well as a continued rollout of physical stores and
expansion of e-commerce initiatives. There has
been more focus on differentiation across several
product categories with new face mask centres
proving especially popular. In addition, there has
been an increased focus on the beauty segment
and several new stores have been opened giving
greater prominence to this category with
promising initial results. Our Own Brand range
continues to prove especially popular with
our customers.
Despite fierce price competition, the growth
of both discount retailers and e-commerce and
the closure of some stores, sales were in line with
last year in Singapore. However, profitability
declined, with margins impacted by aggressive
sales promotions as well as increased operating
costs. As with other markets, greater attention
was given to our customers’ beauty care needs,
and a new beauty focused store concept was
opened in October featuring new ranges
including exclusive and Own Brand products.
Malaysia
After a challenging year in 2016, Guardian
Malaysia recorded sales growth during 2017
with positive like-for-like sales driven by a
strong performance in beauty care. However,
pricing remains very competitive in Malaysia,
which together with higher costs related to
strengthening the team and the implementation
of a new merchandising system in the first half
of the year, led to a decline in profit.
Indonesia
Guardian Indonesia delivered significant growth
in both sales and profit. Strong like-for-like sales
growth was driven primarily by beauty care
where range enhancements proved to be popular
with customers. Having closed loss-making
stores in 2016, and with positive results from the
range review, the business began to expand
again with new stores added during the year.
24
Business ReviewDairy Farm International Holdings Limited Vietnam
The Philippines
Guardian Vietnam continued to deliver strong
like-for-like sales growth driven by higher
customer footfall. Store openings also boosted
sales and the 50th store milestone was passed
during the year. Own Brand penetration
remained strong, with the launch of our premium
skincare brand, Crystal Moist, in October being
well received by our customers.
Cambodia
Good progress continued in Cambodia with
encouraging sales growth, particularly in the
Guardian Own Brand range.
Sales fell slightly at Rose Pharmacy as a result
of the closure of a number of underperforming
stores, although like-for-like sales were positive.
Operating results improved driven by cost
controls and a better sales mix. Sales of Guardian
Own Brand items increased significantly
during the year with additional healthcare
products being added to the personal care
and beauty categories.
Enhancing beauty
As a leading health and beauty player across Asia, one of our
goals is to offer our customers the very best quality and choice
in holistic beauty – whether that’s specialist derma skincare or
the ultimate beauty regimen with our range of colour cosmetics.
With beauty increasingly accelerating our growth, we’ve
embraced consumer trends and given our store experience
its very own ‘makeover’– our customers can now explore,
experiment and play with make-up in store, with our trusted
beauty advisors on hand to offer professional yet friendly advice
and tips in a non-pressurized environment.
One of the most exciting areas in our beauty strategy is colour
cosmetics. The new colour cosmetics zone in selected stores
include dedicated stations for lips, face and eyes, with expert
make-up artists on hand to offer quick five-minute makeovers
or full make-up consultations for special occasions.
Annual Report 2017
25
Business Review
Home
Furnishings
26
Dairy Farm International Holdings Limited IKEA achieved record sales again in 2017, bolstered by
the opening of a new store in Hong Kong and strong
performances in Taiwan and Indonesia. In constant
currency, sales rose by 7% to US$653 million, although
operating profit fell slightly to US$68 million, after
absorbing new store pre-opening costs totalling
US$9 million.
Well-established in Hong Kong and Taiwan, and now with a presence in Indonesia, IKEA
provides a comprehensive range of affordable and attractive home furnishing products.
5%
5% of
Group Sales*
11%
11% of
Group Profit†
* Including share of associates and joint ventures.
† Based on operating profit and share of results of associates and
joint ventures, excluding store support centre costs, business
change costs and non-trading items.
Taiwan
Macau
Hong Kong
Indonesia
Home Furnishings
Total Sales (US$)
653 million
Operating Profit (US$)
68 million
Store Network
10 stores
Annual Report 2017
27
Hong Kong Taiwan Indonesia
All markets recorded sales growth, with Taiwan
and Indonesia achieving strong like-for-like
growth and increased profit. Profit in Hong Kong
was lower largely due to the pre-opening costs
and additional costs of the new store which also
resulted in lower overall profit for the Division.
In 2017, we fully launched e-commerce and now
have the capability for nationwide delivery across
all our markets, making IKEA more accessible to
‘the many people’. Our Taichung store in Taiwan
was selected as one of the Top 5 stores in the
global IKEA network, reflecting the dedicated
efforts of our team members in serving our
customers.
We are also aggressively pursuing physical
expansion in all markets. A fourth IKEA store
was opened in Tsuen Wan, Hong Kong in October
and is already trading well. Some progress was
made on a second store in Indonesia with the
acquisition of a second site in Jakarta and
although licensing approvals are taking longer
than planned, development pace is expected to
pick up in 2018. Our rollout of distribution points
in Jakarta and Surabaya in Indonesia enhanced
accessibility further. In Taiwan, we have secured
new sites in Taoyuan and South Taipei, with
these stores expected to open in 2019 and
2021 respectively.
In the coming year, we aim to boost our business
as we look to accelerate the growth of our store
network while developing new online platforms,
including a presence on selective marketplace
sites. In addition, we will continue to improve
affordability and service to bring better value to
‘the many people’.
28
Business ReviewDairy Farm International Holdings Limited Four is a magic number
In late 2017, IKEA returned to Tsuen Wan,
Hong Kong in style. The new four-storey store
is easily accessible to residents of the New
Territories and West Kowloon areas and offers
a relaxing shopping experience for customers,
who can browse more than 7,500 products
with ease.
This enables IKEA to improve accessibility
for ‘the many people’ in Hong Kong, offering
stylish and affordable home furnishing ideas
and practical solutions for all. And because
IKEA products are for everyday living, all
in-store home sets are based on real-life public
housing estates, Home Ownership Scheme
flats and private housing in nearby areas.
There’s something for everyone, and that’s
what matters most to IKEA Hong Kong.
Annual Report 2017
29
Business Review
Restaurants
30
Dairy Farm International Holdings Limited Maxim’s reported another record year, with US$2.2 billion
in total sales, an increase of 11% over the previous year in
constant currency, while profit contribution increased by
9%. The business had a particularly strong performance
in both its mainland China operations and branded
products division, while actively expanding through
acquisitions into new markets. Maxim’s also celebrated
the opening of its 1,000th store – the Symphony by Jade
in Hong Kong.
Dairy Farm’s restaurant associate, Maxim’s, is known for its passion for excellence,
innovative approach to cuisine, and superior service. With operations in Hong Kong,
Macau, mainland China, Singapore, Vietnam, Cambodia and Thailand, Maxim’s offers a
diverse mix of Chinese, Asian and Western restaurants in addition to fast food and coffee
outlets and cake shops.
8%
15%
8% of
Group Sales*
15% of
Group Profit†
* Including share of associates and joint ventures.
† Based on operating profit and share of results of associates and
joint ventures, excluding store support centre costs, business
change costs and non-trading items.
Mainland China
Macau
Hong Kong
Thailand
Cambodia
Vietnam
Singapore
Restaurants
Total Sales‡ (US$)
2.2 billion
Share of Results (US$)
95 million
Store Network‡
1,210 stores
‡ Including 100% of associates and
joint ventures.
Annual Report 2017
31
In Hong Kong, the business achieved healthy
sales and profit growth and enjoyed the first full
year of operation of COVA. Maxim’s mooncakes
achieved another year of record high sales, driven
by the popularity of its Lava Custard Mooncake.
2017 also saw the creation of new concepts and
the award and launch of new franchises, with the
first The Cheesecake Factory opening in Hong
Kong during the year.
In mainland China, all formats performed ahead
of last year as Maxim’s continued to expand,
launching new brands in Beijing and Hangzhou
and moving into Nanning in the southwest of the
country. In Beijing, there were two major brand
launches during the year, Café Landmark and
Jade Garden, with The Cheesecake Factory set to
open in early 2018.
Maxim’s underlined its growing regional
ambitions with the acquisition of the existing
business and Starbucks franchise in Singapore
and the Genki Sushi franchises in Singapore and
Malaysia in September 2017.
32
Business ReviewDairy Farm International Holdings Limited Maxim’s mooncakes spreading
joy around the world
In 2005, Maxim’s launched their first
mooncakes. Since then, it has become the
best-selling, most popular brand for
mooncakes in Hong Kong. The launch of the
ground-breaking Lava Custard Mooncakes in
2014 solidified its winning status, taking Hong
Kong by storm. Delivered by experienced
chefs, the Lava Custard Mooncake gets its
molten inside through a double-baking
technique, which keeps the custard suitably
magma-like, even at room temperature.
Because of their hit-popularity and success
across Asia, Maxim’s mooncakes are now
distributed globally, offering delicious festive
fare to over 80 cities. Not only are they assured
by the Hong Kong Q-Mark stamp of approval,
but their White Lotus Seed Paste Mooncake
with double Egg Yolks gained international
recognition when it received the prestigious
Grand Gold Medal of Monde Selection.
Annual Report 2017
33
Financial Review
32%
2017
Sales Mix*
68%
6%
2017
Profit Mix†
94%
North Asia
Southeast Asia
North Asia
Southeast Asia
* Including share of associates and joint ventures.
† Based on operating profit and share of results of associates and
joint ventures, excluding store support centre costs, business
change costs and non-trading items.
“
Excluding . . . business change
costs the adjusted underlying
operating profit for Group
would have been US$440 million
for the full year, down 3% on
prior year.”
Accounting policies
The accounting policies are consistent with those
of the previous year. The Directors continue to
review the appropriateness of the accounting
policies adopted by the Group with regard to
developments in International Financial
Reporting Standards.
Results
Sales, excluding those of associates and joint
ventures, at US$11.3 billion, were flat on last year.
With the inclusion of 100% of associates and
joint ventures, total sales were US$21.8 billion,
an increase of 7% over 2016, principally driven
by growth in key associates, Yonghui and Maxim’s.
Underlying operating profit at US$367 million,
was 19% lower than 2016 principally due to
weaker trading in the Supermarket and
Hypermarket operations in Southeast Asia,
including significant one-off business change
costs for store closure and stock write off and
clearance. Excluding these business change costs
the adjusted underlying operating profit for
Group would have been US$440 million for the
full year, down 3% on prior year.
34
Dairy Farm International Holdings Limited EBITDA
Net Asset Value per Share
US$m
800
700
600
500
400
300
200
100
0
US¢
140
120
100
80
60
40
20
0
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
The Group’s share of results of associates and
joint ventures increased 22% to US$144 million
from 2016 which reflected significantly better
performance from Yonghui and consistent good
performance from Maxim’s.
North Asia, including the proportionate
contribution from both Yonghui and Maxims,
accounted for 68% of proportionate Group sales
of US$14.1 billion and 94% of proportionate
operating profit. Southeast Asia contributed 32%
and 6% of proportionate sales and operating
profit respectively. Based on this metric
mainland China has become our second most
important market after Hong Kong in terms of
both sales and profit contribution and growth.
14%
16%
2017
Normal Capital
Expenditure:
US$279m
44%
14%
12%
Supermarkets and Hypermarkets
Health and Beauty
IT and Supply Chain
Home Furnishings
Convenience Stores
The tax charge for 2017 was US$93 million, 9%
higher than 2016, mainly due to the change of
profit contribution mix from different territories.
Underlying net profit was US$403 million,
a decrease of 13% versus 2016. There was
a net non-trading gain of US$1 million in 2017,
principally from the profit on disposal of certain
properties, and share of profit on disposal of
an investment by Yonghui. Consequently the
reported net profit was US$404 million, 14%
lower than prior year. Adjusting for the business
change costs, adjusted underlying net profit
would have been US$467 million for 2017, 1%
higher than prior year.
Underlying earnings per share were US¢29.77,
also 13% behind 2016. Adjusted underlying
earnings per share would have been US¢34.54.
Cash flow
The Group generated a net inflow of
US$671 million operating cash flow, compared
to the previous year’s US$543 million. The
improvement was mainly better working
capital management and higher dividends from
associates which more than offset a decline in
EBITDA from US$672 million in prior year to
US$589 million in 2017, as a result of weaker
performance from the Food Division.
35
Annual Report 2017 Financial Review
Capital expenditure was higher at US$279 million
(2016: US$245 million), principally due to
an increase in new store expansion and
refurbishment of the existing estate. The
Group’s businesses, including associates and
joint ventures, added a net 633 outlets in 2017,
ending the year with 7,181 stores across all
formats in 11 markets, which included its interest
in 779 Yonghui stores and 1,210 Maxim’s stores.
During the year, the Group completed the
acquisition of the remaining 34% interest in
Rustan for US$60 million to become a wholly-
owned subsidiary of the Group.
Balance sheet
Total assets, excluding cash and bank balances,
of US$5.1 billion were 7% higher than 2016,
mainly reflecting the capital expenditure for new
and refurbished stores. Inventory was down by
3% to US$950 million reflecting the effort to
manage inventory more tightly and clear poor
quality stocks, while trade creditors were broadly
flat. Net operating assets were US$1.8 billion at
the end of 2017, an 11% increase versus the
previous year.
The Group ended the year with net debt of
US$599 million, US$42 million lower as compared
to US$641 million at 31st December 2016.
Dividend
The Board is recommending an unchanged final
dividend of US¢14.50 per share, bringing the total
dividend in respect of 2017 to US¢21.00 per
share, the same as prior year.
Financing
Where required, and typically for working capital
purposes, borrowings are normally taken out
in local currencies by the Group’s operating
subsidiaries to fund daily operations. Borrowings
to fund any strategic expansion of the Group
are managed centrally and typically funded in
US dollars and Hong Kong dollars, with hedging
of foreign exchange and interest rate risk as
may be appropriate depending on the particular
investment. The Group, excluding associates and
joint ventures, had gross debt of US$935 million
at the year end, a decrease of US$30 million
from 2016. Total committed banking facilities
at the year end totalled US$1.2 billion with
US$749 million drawn at year end, and had an
average life to maturity of 1.9 years. Net financing
charges increased slightly from US$22 million in
2016 to US$26 million in 2017, in part reflecting
the drawdown of facilities to fund the purchase
of the additional investment in Rustan.
Financial risk management
A comprehensive discussion of the Group’s
financial risk management policies is included
in note 2 to the financial statements. The Group
manages its exposure to financial risk using
a variety of techniques and instruments.
The main objectives are to limit exchange and
interest rate risks and to provide a degree of
certainty about costs. As a matter of policy,
the Group does not enter into speculative
transactions in derivatives. The investment of
the Group’s cash resources is managed so as to
minimize risk while seeking to enhance yield.
Overall, the Group’s funding arrangements
are designed to keep an appropriate balance
between equity and debt (short and long term),
to maximize flexibility for the future development
of the business.
Principal risks and uncertainties
A review of the principal risks and uncertainties
facing the Group is set out on pages 117 and 118.
Neil Galloway
Group Finance Director
8th March 2018
36
Dairy Farm International Holdings Limited Directors’ Profiles
Ben Keswick *
Chairman and
Managing Director
Ian McLeod *
Group Chief Executive
Neil Galloway *
Group Finance Director
Mark Greenberg
George J. Ho
Adam Keswick
Mr Ben Keswick joined the Board as Managing Director in 2012 and became Chairman
in 2013. He has held a number of executive positions since joining the Jardine Matheson
group in 1998, including finance director and then chief executive officer of Jardine
Pacific between 2003 and 2007 and, thereafter, group managing director of Jardine
Cycle & Carriage until 2012. He has an MBA from INSEAD. Mr Keswick is chairman of
Jardine Matheson Limited and Jardine Cycle & Carriage and a commissioner of Astra.
He is also chairman and managing director of Hongkong Land and Mandarin Oriental,
managing director of Jardine Matheson and Jardine Strategic, and a director of Jardine
Pacific and Jardine Motors.
Mr McLeod joined the Board as Group Chief Executive in September 2017. He has
extensive experience in the retail sector, and was previously chief executive of
Southeastern Grocers in the United States before which he was managing director
of Coles in Australia. He is also a director of Yonghui Superstores and a commissioner
of Hero.
Mr Galloway joined the Board as Group Finance Director in 2013. He was previously
finance director and chief financial officer of The Hongkong and Shanghai Hotels
from 2008. Mr Galloway began his career in investment banking and he held a range
of senior positions in Hong Kong and the United Kingdom. He is also a commissioner
of Hero.
Mr Greenberg joined the Board in 2006. He is group strategy director of Jardine
Matheson. He had previously spent 16 years in investment banking with Dresdner
Kleinwort Wasserstein in London. He is also a director of Jardine Matheson Limited,
Hongkong Land, Jardine Cycle & Carriage and Mandarin Oriental, and a commissioner
of Astra and Bank Permata.
Mr Ho joined the Board in 1998. He was previously engaged in private law practice in
San Francisco and is currently engaged in the broadcasting and multi-media industries.
Mr Ho is also chairman of Hong Kong Commercial Broadcasting Company.
Mr Adam Keswick joined the Board in 2012. Having joined Jardine Matheson in 2001,
he was appointed to the board in 2007 and was deputy managing director from 2012
to 2016. Mr Keswick is also deputy chairman of Jardine Lloyd Thompson and a director
of Hongkong Land, Jardine Strategic and Mandarin Oriental. He is also a director of
Ferrari, and a supervisory board member of Rothschild & Co.
Sir Henry Keswick
Sir Henry joined the Board in 1988. He is chairman of Jardine Matheson, having first
joined the group in 1961, and is also chairman of Jardine Strategic. He is a director of
Hongkong Land and Mandarin Oriental. He is also vice chairman of the Hong Kong
Association.
Simon Keswick
Mr Simon Keswick joined the Board in 1986 and was Chairman of the Company
from 1986 to 2013. He joined the Jardine Matheson group in 1962 and is a director
of Hongkong Land, Jardine Matheson, Jardine Strategic and Mandarin Oriental.
* Executive Director
37
Annual Report 2017 Michael Kok
Mr Kok was Group Chief Executive from 2007, when he first joined the Board, until
he retired from executive office in 2012. He began his career in Dairy Farm in 1987 and
has extensive experience in the retail industry in Asia. He is also a director of Jardine
Cycle & Carriage, Mapletree Greater China Commercial Trust Management and SATS.
Dr George C.G. Koo
Dr Koo, a Fellow of the Royal College of Surgeons, was appointed as a Director in 1990.
He is also a director of Jardine Strategic.
Anthony Nightingale
Y.K. Pang
Jeremy Parr
Lord Sassoon, Kt
Percy Weatherall
John Witt
38
Mr Nightingale joined the Board in 2006 and was Managing Director of the Company
from 2006 to 2012. He is also a director of Hongkong Land, Jardine Cycle & Carriage,
Jardine Matheson, Jardine Strategic, Mandarin Oriental, Prudential, Schindler, Shui On
Land and Vitasoy, and a commissioner of Astra. He is chairman of The Sailors Home and
Missions to Seamen in Hong Kong.
Mr Pang joined the Board in 2016. He is deputy managing director of Jardine Matheson,
chairman of Jardine Pacific, and chairman and chief executive of Jardine Motors. He
previously held a number of senior executive positions in the Jardine Matheson group,
which he joined in 1984, including chief executive of Hongkong Land between 2007
and 2016. Mr Pang is also deputy chairman of Jardine Matheson Limited, and a director
of Hongkong Land, Jardine Matheson (China), Jardine Strategic, Mandarin Oriental,
Yonghui Superstores and Zhongsheng. He is chairman of the General Committee of
the Employers’ Federation of Hong Kong and a past chairman of the Hong Kong
General Chamber of Commerce.
Mr Parr joined the Board in 2015. He is general counsel of the Jardine Matheson group.
He was previously a senior corporate partner with Linklaters, where he was the global
head of the firm’s corporate division, based in London. Mr Parr is also a director of
Jardine Matheson Limited, Jardine Matheson and Mandarin Oriental.
Lord Sassoon joined the Board in 2013. He began his career at KPMG, before joining
SG Warburg (later UBS Warburg) in 1985. From 2002 to 2006 he was in the United
Kingdom Treasury as a civil servant, where he had responsibility for financial services
and enterprise policy. Following this, he chaired the Financial Action Task Force; and
conducted a review of the UK’s system of financial regulation. From 2010 to 2013
Lord Sassoon was the first Commercial Secretary to the Treasury and acted as the
Government’s Front Bench Treasury spokesman in the House of Lords. He is a director
of Hongkong Land, Jardine Lloyd Thompson, Jardine Matheson and Mandarin Oriental.
He is also chairman of the China-Britain Business Council.
Mr Weatherall joined the Board in 2000 and was Managing Director from 2000 to 2006.
He first joined the Jardine Matheson group in 1976 and retired from executive office in
2006. He is also a director of Hongkong Land, Jardine Matheson, Jardine Strategic and
Mandarin Oriental. He is chairman of Corney & Barrow and the Nith District Salmon
Fishery Board.
Mr Witt joined the Board in 2016, following his appointment as group finance director
of Jardine Matheson. He is a Chartered Accountant and has an MBA from INSEAD. He
has been with the Jardine Matheson group since 1993 during which time he has held a
number of senior finance positions, most recently chief financial officer of Hongkong
Land. He is also a director of Jardine Matheson Limited and a commissioner of Astra.
Dairy Farm International Holdings LimitedDirectors’ Profiles Our Leadership
Ian McLeod
Group Chief Executive
Mr McLeod was named Group Chief Executive of Dairy Farm in September 2017,
having spent the previous two years as CEO of Southeastern Grocers, the fifth
largest supermarket chain in the United States. With over 30 year’s retail experience,
Mr McLeod began his career with Asda (subsequently Wal-Mart) in 1981, where he
spent 20 years working in the United Kingdom and Germany. Following this, he moved
to Halfords where he became CEO in 2005. In 2008, he moved to Australia as Managing
Director of Coles, overseeing 2,200 outlets and 100,000 employees. Whilst there he
oversaw fundamental improvements in product quality and value as well as customer
service. This resulted in Coles producing substantial increases in both turnover and
profits, as well as significant market outperformance.
Mr McLeod attended the Harvard Business School Advanced Management Program
in 1999 and was awarded an Honorary Doctorate in his native Scotland in 2010 for
services to Business and Retail.
Neil Galloway
Group Finance Director
Mr Galloway joined the Board as Group Finance Director in 2013. He was previously
Finance Director and Chief Financial Officer of The Hongkong and Shanghai Hotels
from 2008.
Tongwen Zhao
Group Human Resources
Director
Suzanne Wong
Group Commercial Director
Mr Galloway began his career in investment banking and he has held a range of senior
positions in Hong Kong and the United Kingdom. He is also a commissioner of Hero.
Ms Zhao was appointed Group Human Resources Director of the Dairy Farm Group
in July 2013. Prior to her appointment, she lived and worked in Singapore as Regional
HR Director, Asia Pacific for Rentokil Initial. Ms Zhao began her career with Unilever in
1992 where she worked within Research & Development and Supply Chain functions.
Following her career transition to Human Resources within Unilever, she had held
several leadership roles in China, Thailand as well as Singapore.
Ms Zhao holds a Bachelor degree in Polymer Engineering from Tongji University in
Shanghai, and an MBA from China Europe International Business School. She is also
a supervisor of Yonghui Superstores.
Ms Wong was named the Group Commercial Director in May 2016 responsible for
the Group’s Own Brand, Quality Assurance, Fresh, General Merchandise and Non-trade
Procurement functions. Ms Wong previously served as Group Corporate Brand Director
responsible for the Group’s Own Brand strategy, including product and brand
development, marketing, group sourcing, quality assurance for Own Brand products
across the Group from May 2009. Prior to joining Dairy Farm, Ms Wong lived and
worked in Shanghai as the Vice President, Asia for the US sales and marketing
consulting firm Daymon Worldwide covering mainland China, Asia, Korea and Japan;
working with retail customers like Lotte, Mandai, the CP Group, Lianhua and Dairy Farm.
Ms Wong began her career in Mars in the United Kingdom and has worked and lived
in Asia with the company where she held senior roles in Regional Brand Management,
Marketing, Sales and Business Development.
Ms Wong brings more than 20 years of brand marketing, product development and
sourcing experience to her role. Born and educated in Singapore, Ms Wong holds
a Bachelor’s degree in Science in Economics from the University of Singapore.
39
Annual Report 2017 Our Leadership
Sam Oh
Group CIO
Charlie Wood
Group Counsel
Gordon Farquhar
Group Director,
Health and Beauty
Pierre-Olivier Deplanck
CEO, Malaysia and Brunei
(Food)
Mr Oh joined Dairy Farm as the Group Chief Information Officer in 2015. Mr Oh has
over 25 years of IT management experience in the retail industry. Mr Oh has led
and built a number of global, sustainable, and transformational IT capabilities for
multi-national organizations including Tesco, Fujitsu, and Lotus. Mr Oh has lived and
worked in Shanghai, Hong Kong, Bangkok and the US. Mr Oh also founded and led
a number of non-profit organizations to serve communities around the globe.
Mr Oh holds a Bachelor’s degree in Mathematics and Computer Science from University
of California, San Diego and completed the Executive Management Academy from
University of California, Los Angeles.
Mr Wood was appointed Group Counsel in January 2007. He was initially recruited
in September 1999 to set up a legal department for Dairy Farm in Hong Kong, and
subsequently became responsible for the legal affairs of Dairy Farm in North Asia
before assuming his current role.
Mr Wood qualified as a solicitor in England and worked in private practice in London
for three years before moving to Vietnam in 1995 to work for an international law firm.
Mr Farquhar was appointed Group Director, Health and Beauty in November 2016.
Prior to joining Dairy Farm, Mr Farquhar was Regional Managing Director for Europe
and the Middle East of Walgreens Boots Alliance. He was previously based in New York
as Managing Director of Boots Retail USA where he led Boots retail programmes
following the integration of Walgreens and Alliance Boots. His career at Boots (over
two separate periods) has spanned 25 years having begun as a store manager and
newly qualified pharmacist 30 years ago.
Mr Farquhar holds a Bachelor degree in Pharmacy with honours from the University
of Strathclyde and an MBA from the University of Nottingham.
Mr Deplanck was appointed Chief Executive Officer of Malaysia and Brunei (Food) in
August 2016, responsible for the Group’s food retail operations in Malaysia and Brunei.
Prior to the appointment, Mr Deplanck was Chief Executive Officer of Rustan
Supercenters, Inc., leading the Group’s food retail operations in the Philippines. He was
initially recruited as Merchandise Director for Giant Singapore in 2007 and became
Chief Executive Officer of Guardian Singapore in 2011.
Mr Deplanck has more than 25 years of retail experience in food and non-food retail,
starting in France and developed most of his career over the last 20 years in Asia.
Choo Peng Chee
Regional Director, North Asia
(Food)
Mr Choo was appointed Regional Director, North Asia (Food) in January 2013,
covering all food related business units in Hong Kong, Macau, China and Taiwan.
Mr Choo previously served as Chief Executive Officer for Wellcome Hong Kong from
May 2010. Prior to that, he was Chief Executive Officer of Cold Storage, Market Place
and Shop N Save in Singapore. Mr Choo joined the Dairy Farm Group in 2000.
Mr Choo brings more than 30 years of retail experience to his role and holds an MBA
in Retailing from the University of Stirling, Scotland.
40
Dairy Farm International Holdings Limited Irwin Lee
CEO, RSCI
Mr Lee joined in September 2016 as Chief Executive Officer of Rustan Supercenters, Inc.
(RSCI). Prior to this, he served as a board director at Wm Morrison Supermarkets Plc
and a senior advisor at McKinsey & Co.
Stéphane Deutsch
President Director, PT Hero
Mr Lee started his career at Procter & Gamble (P&G) in the Philippines and rose
to become Chief Financial Officer in Indonesia, Japan/Korea and Greater China.
He then held General Manager and Managing Director roles in China and UK/Ireland,
culminating as Regional CEO for P&G Northern Europe.
Mr Lee graduated Summa Cum Laude with an Accountancy degree from De La Salle
University, and completed Executive Education program at IESE Business School,
University of Navarra.
Mr Deutsch was appointed President Director of PT Hero in July 2014. Mr Deutsch
moved into the role from his prior position as Chief Executive Officer of Dairy Farm’s
operations in Vietnam, which he has held since August 2013. Prior to joining Dairy
Farm, Mr Deutsch worked for Carrefour for 23 years in various Chief Financial Officer
roles and as Chief Operating Officer for Carrefour South China. In 2010, Mr Deutsch
became Chief Executive Officer of Carrefour Malaysia and Singapore. He is a French
citizen with more than 25 years of experience in retail operations and finance roles
across China, Malaysia, Singapore, Korea, Vietnam, Portugal and France.
Mr Deutsch has executive training from ESCP Paris.
Mark Herbert
CEO, Singapore and Cambodia
(Food)
Mr Herbert was appointed Chief Executive Officer, Singapore (Food) in September
2015. He oversees the Dairy Farm Group’s food related retail operations in Singapore
and Cambodia, covering the Cold Storage, MarketPlace, Jasons’s, Giant, 7-Eleven and
Lucky supermarket and convenience banners.
Prior to joining Dairy Farm, Mr Herbert was Chief Executive of Jardine Motors Group’s
UK business where he successfully grew the business both via acquisition and
organically through the implementation of a new operating strategy.
With an extensive experience in business transformation and integration, Mr Herbert
joined the Jardine Matheson Group in 1997. Since then, he has held various senior
management positions in different operations, including Cycle & Carriage in New
Zealand, Jardine Pacific, Jardine Aviation and Gammon Construction in Hong Kong
and PT United Tractors Tbk in Jakarta, Indonesia. Mr Herbert began his professional
career in Corporate Recovery in New Zealand followed by the UK.
Martin Lindström
Group Director, IKEA
Mr Lindström was appointed Group Director, IKEA in January 2013 with responsibilities
for the Group’s IKEA operations in Taiwan, Hong Kong and Indonesia. Prior to that, he
was General Manager of IKEA Taiwan in 2007 and subsequently CEO of the Dairy Farm
IKEA business in 2010.
Mr Lindström has more than 20 years’ experience in a variety of senior positions with
the IKEA business in Europe, Eastern Europe and more than nine years in the Asia
Pacific region.
41
Annual Report 2017 Consolidated Profit and Loss Account
for the year ended 31st December 2017
Underlying
business
performance
Note
US$m
2017
Non-
trading
items
US$m
4
5
6
7
8
Sales
Cost of sales
Gross margin
Other operating income
Selling and
distribution costs
Administration and
other operating
expenses
Operating profit
Financing charges
Financing income
Net financing charges
Share of results of
associates and
joint ventures
Profit before tax
Tax
Profit after tax
Attributable to:
Shareholders of
the Company
Non-controlling interests
Earnings per share
9
– basic
– diluted
11,288.7
(7,856.1)
3,432.6
182.4
(2,714.1)
(533.5)
367.4
(28.0)
1.7
(26.3)
143.4
484.5
(92.5)
392.0
402.6
(10.6)
392.0
US¢
29.77
29.76
–
–
–
0.5
–
–
0.5
–
–
–
0.8
1.3
(0.4)
0.9
0.9
–
0.9
Underlying
business
performance
US$m
11,200.7
(7,815.2)
3,385.5
171.8
Total
US$m
11,288.7
(7,856.1)
3,432.6
182.9
2016
Non-
trading
items
US$m
–
–
–
6.2
Total
US$m
11,200.7
(7,815.2)
3,385.5
178.0
(2,714.1)
(2,634.9)
–
(2,634.9)
(533.5)
367.9
(28.0)
1.7
(26.3)
144.2
485.8
(92.9)
392.9
403.5
(10.6)
392.9
US¢
29.83
29.82
(469.8)
452.6
(23.3)
1.5
(21.8)
114.5
545.3
(85.1)
460.2
460.2
–
460.2
US¢
34.03
34.02
–
6.2
–
–
–
3.7
9.9
–
9.9
8.8
1.1
9.9
(469.8)
458.8
(23.3)
1.5
(21.8)
118.2
555.2
(85.1)
470.1
469.0
1.1
470.1
US¢
34.69
34.68
42
Dairy Farm International Holdings Limited
Consolidated Statement of Comprehensive Income
for the year ended 31st December 2017
Profit for the year
Other comprehensive income/(expense)
Items that will not be reclassified to profit or loss:
Remeasurements of defined benefit plans
Tax relating to items that will not be reclassified
Share of other comprehensive income/(expense) of
associates and joint ventures
Items that may be reclassified subsequently to profit or loss:
Net exchange translation differences
– net gain/(loss) arising during the year
Revaluation of other investments
– gain/(loss) arising during the year
Cash flow hedges
– net (loss)/gain arising during the year
– transfer to profit and loss
Tax relating to items that may be reclassified
Share of other comprehensive income/(expense) of
associates and joint ventures
Other comprehensive income/(expense) for the year, net of tax
Total comprehensive income for the year
Attributable to:
Shareholders of the Company
Non-controlling interests
Note
21
14
2017
US$m
2016
US$m
392.9
470.1
19.2
(2.6)
16.6
5.4
22.0
38.0
1.0
(1.8)
0.2
(1.6)
0.1
68.6
106.1
128.1
521.0
532.8
(11.8)
521.0
20.9
(4.4)
16.5
(1.1)
15.4
(7.3)
(0.9)
2.0
(0.4)
1.6
(0.1)
(76.4)
(83.1)
(67.7)
402.4
398.0
4.4
402.4
43
Annual Report 2017 Consolidated Balance Sheet
at 31st December 2017
Net operating assets
Intangible assets
Tangible assets
Associates and joint ventures
Other investments
Non-current debtors
Deferred tax assets
Non-current assets
Stocks
Current debtors
Current tax assets
Bank balances and other liquid funds
Assets classified as held for sale
Current assets
Current creditors
Current borrowings
Current tax liabilities
Current provisions
Liabilities directly associated with assets classified as held for sale
Current liabilities
Net current liabilities
Long-term borrowings
Deferred tax liabilities
Pension liabilities
Non-current creditors
Non-current provisions
Non-current liabilities
Total equity
Share capital
Share premium and capital reserves
Revenue and other reserves
Shareholders’ funds
Non-controlling interests
Approved by the Board of Directors
Ben Keswick
Ian McLeod
Directors
8th March 2018
44
Note
11
12
13
14
15
16
15
17
18
19
20
19
16
21
18
20
22
24
2017
US$m
814.7
1,184.2
1,601.0
6.9
162.6
26.4
3,795.8
950.0
350.7
27.1
332.4
1,660.2
11.2
1,671.4
(2,469.5)
(412.7)
(71.6)
(52.5)
(3,006.3)
(6.2)
(3,012.5)
2016
US$m
765.1
1,099.5
1,461.8
5.9
150.8
29.0
3,512.1
983.1
290.5
16.8
323.8
1,614.2
2.6
1,616.8
(2,327.9)
(369.6)
(58.6)
(14.8)
(2,770.9)
–
(2,770.9)
(1,341.1)
(1,154.1)
(522.0)
(62.7)
(34.2)
(42.7)
(37.4)
(699.0)
1,755.7
75.1
57.9
1,557.0
1,690.0
65.7
1,755.7
(595.0)
(56.6)
(52.4)
(42.9)
(31.7)
(778.6)
1,579.4
75.1
59.4
1,370.8
1,505.3
74.1
1,579.4
Dairy Farm International Holdings Limited Consolidated Statement of Changes in Equity
for the year ended 31st December 2017
Attributable to shareholders of the Company
Share
capital
US$m
Share
premium
Capital
reserves
Revenue
and other
reserves
US$m
US$m
US$m
Attributable to
non-
controlling
interests
Total
equity
US$m
US$m
Total
US$m
75.1
31.1
28.3
1,370.8
1,505.3
74.1
1,579.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.6
–
–
532.8
532.8
(11.8)
521.0
(284.0)
(284.0)
–
(284.0)
–
0.6
–
–
0.6
1.6
(0.5)
(0.5)
–
–
0.6
1.6
(66.4)
(66.4)
6.3
(60.1)
0.1
0.1
–
0.1
–
–
75.1
–
2.0
33.1
–
(5.1)
24.8
–
3.1
1,557.0
–
–
1,690.0
(2.4)
–
65.7
(2.4)
–
1,755.7
75.1
31.1
30.2
1,239.4
1,375.8
79.4
1,455.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
75.1
–
–
31.1
–
–
–
–
1.3
–
–
(3.2)
28.3
398.0
398.0
(270.4)
(270.4)
–
0.6
–
–
–
0.6
1.3
–
4.4
–
402.4
(270.4)
(3.1)
(3.1)
–
–
0.6
1.3
(2.2)
(2.2)
–
3.2
1,370.8
–
–
1,505.3
(4.4)
–
74.1
(4.4)
–
1,579.4
2017
At 1st January
Total comprehensive
income
Dividends paid by
the Company
Dividends paid to
non-controlling
interests
Unclaimed dividends
forfeited
Employee share
option schemes
Change in interests
in subsidiaries
Change in interests
in associates and
joint ventures
Capital repayment
to non-controlling
interests
Transfer
At 31st December
2016
At 1st January
Total comprehensive
income
Dividends paid by
the Company
Dividends paid to
non-controlling
interests
Unclaimed dividends
forfeited
Employee share
option schemes
Change in interest
in a subsidiary
Capital repayment
to non-controlling
interests
Transfer
At 31st December
Total comprehensive income included in revenue reserves comprises profit attributable to shareholders of the Company of
US$403.5 million (2016: US$469.0 million) and net fair value loss on other investments of US$0.9 million (2016: US$0.6 million).
Cumulative net fair value gain on other investments amounted to US$3.9 million (2016: US$4.8 million).
45
Annual Report 2017
Consolidated Cash Flow Statement
for the year ended 31st December 2017
Note
5
28(a)
28(b)
28(c)
28(d)
28(e)
28(f)
19
19
19
25
Operating activities
Operating profit
Depreciation and amortization
Other non-cash items
Decrease/(increase) in working capital
Interest received
Interest and other financing charges paid
Tax paid
Dividends from associates and joint ventures
Cash flows from operating activities
Investing activities
Purchase of associates and joint ventures
Purchase of intangible assets
Purchase of tangible assets
Sale of convenience stores in Indonesia and restaurants in Cambodia
Sale of properties
Sale of tangible assets
Cash flows from investing activities
Financing activities
Change in interests in subsidiaries
Capital repayment to non-controlling interests
Drawdown of borrowings
Repayment of borrowings
Net increase in other short-term borrowings
Dividends paid by the Company
Dividends paid to non-controlling interests
Cash flows from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at 1st January
Effect of exchange rate changes
Cash and cash equivalents at 31st December
28(g)
2017
US$m
2016
US$m
367.9
221.0
16.1
92.1
1.6
(28.0)
(84.3)
586.4
84.9
671.3
(5.8)
(60.9)
(218.4)
–
3.2
1.3
458.8
212.8
8.4
(97.1)
1.3
(22.0)
(85.3)
476.9
66.0
542.9
(197.0)
(32.1)
(212.5)
5.1
7.2
1.3
(280.6)
(428.0)
(60.1)
(2.4)
851.0
(1,014.2)
122.3
(284.0)
(0.5)
(387.9)
2.8
322.6
9.1
334.5
(2.2)
(4.4)
1,769.7
(1,660.6)
128.5
(270.4)
(3.1)
(42.5)
72.4
256.7
(6.5)
322.6
46
Dairy Farm International Holdings Limited Notes to the Financial Statements
1. Principal Accounting Policies
Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’),
including International Accounting Standards (‘IAS’) and Interpretations adopted by the International Accounting
Standards Board. The financial statements have been prepared on a going concern basis and under the historical cost
convention except as disclosed in the accounting policies below.
There are no new standards or amendments, which are effective in 2017 and relevant to the Group’s operations, that have
a material impact on the Group’s accounting policies and disclosures.
New standards and amendments effective after 2017 which are relevant to the Group’s operations and yet to be adopted:
A number of new standards and amendments, which are effective for accounting periods beginning after 2017, have
been published and will be adopted by the Group from their effective dates. The Group’s assessment of the impact of
these standards and amendments is set out below.
IFRS 9 Financial Instruments (effective from 1st January 2018)
The standard replaces IAS 39 ‘Financial Instruments: Recognition and Measurement’, addresses the classification,
measurement and derecognition of financial assets and liabilities, and includes a new expected credit losses model for
financial assets that replaces the incurred loss impairment model used today. A substantially-reformed approach to
hedging accounting is introduced.
The Group does not expect the new guidance to have a significant impact on the classification and measurement of its
financial assets and financial liabilities. At 31st December 2017, the Group had investment in club debentures classified
as non-current available-for-sale financial assets with a fair value of US$6.9 million. Under IFRS 9, the gains and losses
arising from changes in fair value of these investments will be recognized in profit and loss, instead of through other
comprehensive income. Such fair value gains or losses on revaluation of these investments will be classified as non-
trading items. The above change will not have any impact on the Group’s underlying profit attributable to shareholders
and shareholders’ funds. Based on the assessment undertaken to date, the impact to the Group’s earnings is expected to
be insignificant. The new loan impairment model will also have no impact to the Group as the sales to customers are
made in cash or by major credit cards.
The accounting for hedging instruments under the new hedge accounting rules will be closely aligned with the Group’s
risk management practices.
IFRS 15 Revenue from Contracts with Customers (effective from 1st January 2018)
The standard establishes a comprehensive framework for the recognition of revenue. It replaces IAS 11 ‘Construction
Contracts’ and IAS 18 ‘Revenue’ which covers contracts for goods and services. The core principle in the framework is that
revenue is recognized when control of a good or service transfers to a customer. The Group recognizes the revenue when
the goods are transferred to customers and when the services are performed at a point in time. Based on the Group’s
assessment, the impact of IFRS 15 on the Group’s financial statements will be insignificant.
47
Annual Report 2017 1. Principal Accounting Policies continued
Basis of preparation continued
IFRS 16 Leases (effective from 1st January 2019)
The standard replaces IAS 17 ‘Leases’ and related interpretations. It will result in lessees bringing almost all of their leases
onto the balance sheet as the distinction between operating leases and finance leases is removed. The model requires
a lessee to recognize a right-of-use asset and a lease liability, except for leases with a term of less than 12 months or
with low-value. IFRS 16 will affect primarily the accounting for the Group’s operating leases. As at 31st December 2017,
the Group had total commitments under operating leases of US$2,903.7 million (note 30). The accounting for lessors will
not change significantly.
The Group is currently finalizing the detailed assessment on its lease portfolio and at the date of this report, it is therefore
not yet possible to estimate the amount of right-of-use assets and lease liabilities that will have to be recognized on
adoption of the new standard and how this may affect the Group’s profit or loss and classification of cash flows going
forward.
Apart from the above, there are no other standards or amendments that are not yet effective and that would be expected
to have a material impact to the Group.
The principal operating subsidiaries, associates and joint ventures have different functional currencies in line with the
economic environments of the locations in which they operate. The functional currency of the Company is United States
dollars. The consolidated financial statements are presented in United States dollars.
The Group’s reportable segments are set out in notes 4, 5 and 7 and are described on page 63.
Basis of consolidation
(i)
The consolidated financial statements include the financial statements of the Company, its subsidiaries, and the
Group’s interests in associates and joint ventures.
(ii) A subsidiary is an entity over which the Group has control. The Group controls an entity when the Group is exposed
to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns
through its power over the entity.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of
an acquisition includes the fair value at the acquisition date of any contingent consideration. The Group recognizes
the non-controlling interest’s proportionate share of the recognized identifiable net assets of the acquired
subsidiary. In a business combination achieved in stages, the Group remeasures its previously held interest in
the acquiree at its acquisition-date fair value and recognizes the resulting gain or loss in profit and loss. Changes
in a parent’s ownership interest in a subsidiary that do not result in the loss of control are accounted for as equity
transactions. When control over a previous subsidiary is lost, any remaining interest in the entity is remeasured
at fair value and the resulting gain or loss is recognized in profit and loss.
All material intercompany transactions, balances and unrealized surpluses and deficits on transactions between
Group companies have been eliminated.
48
Dairy Farm International Holdings LimitedNotes to the Financial Statements
1. Principal Accounting Policies continued
Basis of consolidation continued
(iii) An associate is an entity, not being a subsidiary or joint venture, over which the Group exercises significant influence.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement
have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of
an arrangement, which exists only when decisions about the relevant activities require unanimous consent of
the parties sharing control.
Associates and joint ventures are included on the equity basis of accounting.
Profits and losses resulting from upstream and downstream transactions between the Group and its associates
and joint ventures are recognized in the consolidated financial statements only to the extent of unrelated investor’s
interests in the associates and joint ventures.
(iv) Non-controlling interests represent the proportion of the results and net assets of subsidiaries and their associates
and joint ventures not attributable to the Group.
(v) The results of subsidiaries, associates and joint ventures are included or excluded from their effective dates of
acquisition or disposal, respectively. The results of entities other than subsidiaries, associates and joint ventures
are included to the extent of dividends received when the right to receive such dividend is established.
Foreign currencies
Transactions in foreign currencies are accounted for at the exchange rates ruling at the transaction dates.
Assets and liabilities of subsidiaries, associates and joint ventures, together with all other monetary assets and liabilities
expressed in foreign currencies, are translated into United States dollars at the rates of exchange ruling at the year end.
Results expressed in foreign currencies are translated into United States dollars at the average rates of exchange ruling
during the year, which approximate the exchange rates at the dates of the transactions.
Exchange differences arising from the retranslation of the net investment in foreign subsidiaries, associates and joint
ventures, and of financial instruments which are designated as hedges of such investments, are recognized in other
comprehensive income and accumulated in equity under exchange reserves. On the disposal of these investments,
such exchange differences are recognized in profit and loss. Exchange differences on available-for-sale investments
are recognized in other comprehensive income as part of the gains and losses arising from changes in their fair value.
Exchange differences relating to changes in the amortized cost of monetary securities classified as available-for-sale
and all other exchange differences are recognized in profit and loss.
Goodwill and fair value adjustments arising on acquisition of a foreign entity after 1st January 2003 are treated as assets
and liabilities of the foreign entity and translated into United States dollars at the rate of exchange ruling at the year end.
49
Annual Report 2017
1. Principal Accounting Policies continued
Impairment of non-financial assets
Assets that have indefinite useful lives are not subject to amortization and are tested for impairment annually and
whenever there is an indication that the assets may be impaired. Assets that are subject to amortization are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
For the purpose of assessing impairment, assets are grouped at the lowest level for which there is a separately identifiable
cash flow. Cash-generating units or groups of cash-generating units to which goodwill has been allocated are tested
for impairment annually and whenever there is an indication that the units may be impaired. An impairment loss is
recognized for the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the
higher of an asset’s fair value less costs to sell and value in use. Non-financial assets other than goodwill that suffered
an impairment are reviewed for possible reversal of the impairment annually.
Intangible assets
(i) Goodwill represents the excess of the sum of the consideration transferred, the amount of any non-controlling
interests in the acquiree, and the acquisition-date fair value of any previously held equity interest in the acquiree
over the acquisition-date fair value of the Group’s share of the net identifiable assets acquired. Non-controlling
interests are measured at their proportionate share of the net identifiable assets at the acquisition date. If the cost
of acquisition is less than the fair value of the net assets acquired, the difference is recognized directly in profit
and loss. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of
associates and joint ventures is included in investment in associates and joint ventures. Goodwill is allocated
to cash-generating units or groups of cash-generating units for the purpose of impairment testing and is carried
at cost less accumulated impairment loss.
The profit or loss on disposal of subsidiaries, associates and joint ventures is stated after deducting the carrying
amount of goodwill relating to the entity sold.
(ii) Leasehold land represents payments to third parties to acquire short-term interests in property. These payments are
stated at cost and are amortized over the useful life of the lease which includes the renewal period if the lease can
be renewed by the Group without significant cost.
(iii) Other intangible assets, consist of trademarks and computer software, are stated at cost less accumulated
amortization. Amortization is calculated on the straight line basis to allocate the cost of intangible assets over
their estimated useful lives. Trademarks with indefinite useful lives are not subject to amortization.
Tangible fixed assets and depreciation
Freehold land and buildings, and the building component of owner-occupied leasehold properties are stated at cost
less any accumulated depreciation and impairment. Long-term interests in leasehold land are classified as finance leases
and grouped under tangible assets if substantially all risks and rewards relating to the land have been transferred to
the Group, and are amortized over the useful life of the lease. Grants related to tangible assets are deducted in arriving
at the carrying amount of the assets. Other tangible fixed assets are stated at cost less amounts provided for
depreciation.
50
Dairy Farm International Holdings LimitedNotes to the Financial Statements
1. Principal Accounting Policies continued
Tangible fixed assets and depreciation continued
Depreciation of tangible fixed assets is calculated on the straight line basis to allocate the cost of each asset to its residual
value over its estimated useful life. The residual values and useful lives are reviewed at each balance sheet date. The
estimated useful lives are as follows:
Freehold properties
Leasehold properties
Leasehold improvements
Leasehold land
Plant and machinery
Furniture, equipment and motor vehicles
25 – 40 years
Shorter of the lease term or useful life
Shorter of unexpired lease term or useful life
Over period of the lease
3 – 15 years
3 – 7 years
No depreciation is provided on freehold land as it is deemed to have an indefinite life.
Where the carrying amount of a tangible fixed asset is greater than its estimated recoverable amount, it is written down
immediately to its recoverable amount.
The profit or loss on disposal of tangible fixed assets is recognized by reference to their carrying amount.
Investments
(i) Available-for-sale investments are shown at fair value. Gains and losses arising from changes in fair value are
recognized in other comprehensive income and accumulated in equity. On the disposal of an investment or when
an investment is determined to be impaired, the cumulative gain or loss previously deferred in equity is recognized
in profit and loss. Investments are classified under non-current assets unless they are expected to be realized within
12 months after the balance sheet date.
(ii) At each balance sheet date, the Group assesses whether there is objective evidence that an investment is impaired.
(iii) All purchases and sales of investments are recognized on the trade date, which is the date that the Group commits
to purchase or sell the investment.
Leases
Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as operating leases.
Payments made under operating leases (net of any incentives received from the lessor) are charged to profit and loss
on a straight line basis over the period of the lease. When a lease is terminated before the lease period has expired,
any payment required to be made to the lessor by way of penalty is recognized as an expense in the year in which
termination takes place.
Stocks
Stocks, which principally comprise goods held for resale, are stated at the lower of cost and net realizable value. Cost is
determined on a weighted average cost basis or by the first-in, first-out method and comprises purchase price less rebates.
A stock provision is booked for cases where the realizable value from sale of the stock is estimated to be lower than the
carrying value.
51
Annual Report 2017 1. Principal Accounting Policies continued
Debtors
Trade and other debtors, excluding derivative financial instruments, are measured at amortized cost except where the
effect of discounting would be immaterial. Provision for impairment is established when there is objective evidence that
the outstanding amounts will not be collected. Significant financial difficulties of the debtor, probability that the debtor
will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that
the debtor is impaired. The carrying amount of the asset is reduced through the use of an allowance account and the
amount of the loss is recognized in arriving at operating profit. When a debtor is uncollectible, it is written off against
the allowance account. Subsequent recoveries of amount previously written off are credited to profit and loss.
Debtors with maturities greater than 12 months after the balance sheet date are classified under non-current assets.
Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise deposits with banks, and bank and cash
balances, net of bank overdrafts. In the balance sheet, bank overdrafts are included in current borrowings.
Provisions
Provisions are recognized when the Group has present legal or constructive obligations as a result of past events, it is
probable that an outflow of resources embodying economic benefits will be required to settle the obligations, and
a reliable estimate of the amount of the obligations can be made.
Borrowings and borrowing costs
Borrowings are initially recognized at fair value, net of transaction costs incurred. In subsequent periods, borrowings are
stated at amortized cost using the effective interest method. All borrowing costs are expensed as incurred.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the
liability for at least 12 months after the balance sheet date.
Current and deferred tax
The tax expense for the year comprises current and deferred tax. Tax is recognized in profit and loss, except to the extent
that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also
recognized in other comprehensive income or directly in equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance
sheet date in the countries where the Group operates and generates taxable income. Management periodically evaluates
positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation.
It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred tax is provided, using the liability method, for all temporary differences arising between the tax bases of assets
and liabilities and their carrying values. Deferred tax is determined using tax rates and laws that have been enacted or
substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realized
or the deferred tax liability is settled.
52
Dairy Farm International Holdings LimitedNotes to the Financial Statements 1. Principal Accounting Policies continued
Current and deferred tax continued
Provision for deferred tax is made on the revaluation of certain non-current assets and, in relation to acquisitions, on
the difference between the fair value of the net assets acquired and their tax base. Deferred tax is provided on temporary
differences associated with investments in subsidiaries, associates and joint ventures, except where the Group is able to
control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the
foreseeable future. Deferred tax assets relating to the carry forward of unused tax losses are recognized to the extent that
it is probable that future taxable profit will be available against which the unused tax losses can be utilized.
Employee benefits
(i) Pension obligations
The Group operates a number of defined benefit and defined contribution plans, the assets of which are held in trustee
administered funds.
Pension accounting costs for defined benefit plans are assessed using the projected unit credit method. Under this
method, the costs of providing pensions are charged to profit and loss spreading the regular cost over the service lives of
employees in accordance with the advice of qualified actuaries, who carry out a full valuation of major plans every year.
The pension obligations are measured as the present value of the estimated future cash outflows by reference to market
yields on high quality corporate bonds which have terms to maturity approximating the terms of the related liability.
Plan assets are measured at fair value.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in
other comprehensive income in the year in which they occur.
Past service costs are recognized immediately in profit and loss.
The Group’s total contributions relating to the defined contribution plans are charged to profit and loss in the year to
which they relate.
(ii) Share-based compensation
The Company operates a number of equity-settled employee share option schemes. The fair value of the employee
services received in exchange for the grant of the options in respect of options granted after 7th November 2002 is
recognized as an expense. The total amount to be expensed over the vesting period is determined by reference to
the fair value of the options granted as determined on the grant date. At each balance sheet date, the entity revises
its estimates of the number of options that are expected to become exercisable. The impact of the revision of original
estimates, if any, is recognized in profit and loss.
Non-current assets and disposal group held for sale
Non-current assets and disposal group are classified as held for sale and stated at the lower of carrying amount and
fair value less costs to sell if their carrying amounts are expected to be recovered principally through a sale transaction
rather than through continuing use. Once classified as held for sale, the assets are no longer amortized or depreciated.
53
Annual Report 2017 1. Principal Accounting Policies continued
Derivative financial instruments
The Group only enters into derivative financial instruments in order to hedge underlying exposures. Derivative financial
instruments are initially recognized at fair value on the date a derivative contract is entered into and are subsequently
remeasured at their fair value. The method of recognizing the resulting gain or loss is dependent on the nature of the
item being hedged. The Group designates certain derivatives as a hedge of the fair value of a recognized asset or liability
(‘fair value hedge’), or a hedge of a forecasted transaction or of the foreign currency risk on a firm commitment (‘cash flow
hedge’), or a hedge of a net investment in a foreign entity.
Changes in the fair value of derivatives that are designated and qualified as fair value hedges and that are highly
effective, are recognized in profit and loss, along with any changes in the fair value of the hedged asset or liability that
is attributable to the hedged risk. When a hedging instrument expires or is sold, or when a hedge no longer meets
the criteria for hedge accounting, the cumulative adjustment to the carrying amount of a hedged item for which the
effective interest method is used is amortized to profit and loss over the residual period to maturity.
Changes in the fair value of derivatives that are designated and qualified as cash flow hedges and that are highly
effective, are recognized in other comprehensive income and accumulated in equity under hedging reserves. Changes
in the fair value relating to the ineffective portion are recognized immediately in profit and loss. Where the forecasted
transaction or firm commitment results in the recognition of a non-financial asset or of a non-financial liability, the gains
and losses previously deferred in hedging reserves are transferred from hedging reserves and included in the initial
measurement of the cost of the asset or liability. Otherwise, amounts deferred in hedging reserves are transferred
to profit and loss in the same periods during which the hedged firm commitment or forecasted transaction affects
profit and loss. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge
accounting, any cumulative gain or loss existing in hedging reserves at that time remains in the hedging reserves
and is recognized when the committed or forecasted transaction ultimately is recognized in profit and loss. When
a committed or forecasted transaction is no longer expected to occur, the cumulative gain or loss that was reported
in hedging reserves is immediately transferred to profit and loss.
Certain derivative transactions, while providing effective economic hedges under the Group’s risk management policies,
do not qualify for hedge accounting under the specific rules in IAS 39. Changes in the fair value of any derivative
instruments that do not qualify for hedge accounting under IAS 39 are recognized immediately in profit and loss.
The fair value of derivatives which are designated and qualified as effective hedges is classified as non-current assets
or liabilities if the remaining maturities of the hedged assets or liabilities are greater than 12 months after the balance
sheet date.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally
enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset
and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must
be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company
or the counterparty.
Non-trading items
Non-trading items are separately identified to provide greater understanding of the Group’s underlying business
performance. Items classified as non-trading items include gains and losses arising from the sale of businesses,
investments and properties; impairment of non-depreciable intangible assets and other investments; provisions for the
closure of businesses; acquisition-related costs in business combinations; and other credits and charges of a non-
recurring nature that require inclusion in order to provide additional insight into underlying business performance.
54
Dairy Farm International Holdings LimitedNotes to the Financial Statements 1. Principal Accounting Policies continued
Earnings per share
Basic earnings per share are calculated on profit attributable to shareholders and on the weighted average number
of shares in issue during the year. The weighted average number excludes the shares held by the Trustee under the
Share-based Long-term Incentive Plans. For the purpose of calculating diluted earnings per share, profit attributable to
shareholders is adjusted for the effects of the conversion of dilutive potential ordinary shares, and the weighted average
number of shares is adjusted for the number of shares which are deemed to be issued for no consideration under the
share-based long-term incentive plans based on the average share price during the year.
Dividends
Dividends proposed or declared after the balance sheet date are not recognized as a liability at the balance sheet date.
Sales
Sales consist of the fair value of goods sold to customers, net of returns, discounts and sales related taxes. This does
not include sales generated by associates and joint ventures. Sale of goods is recognized at the point of sale, when
the significant risks and rewards of ownership of the goods have been transferred to customers, is recorded at the net
amount received from customers.
Buying income
Supplier incentives, rebates and discounts are collectively referred to as buying income. Buying income is recognized
when earned by the Group, which occurs when all obligations conditional for earning income have been discharged, and
the income can be measured reliably based on the terms of the contract.
The income is recognized as a credit within cost of sales. Where the income earned relates to stocks which are held by the
Group at period ends, the income is included within the cost of those stocks, and recognized in cost of sales upon sale of
those stocks. The accrued value at the reporting date is included in trade receivables or trade payables, depending on the
right of offset.
The key types of buying income which the Group receives include:
– Discounts and incentives relate to individual unit sales.
– Sales volume-based incentives based on achieving certain purchases on promotion for an event or a period.
– Conditional incentives subject to satisfaction of certain conditions by the Group.
– Fixed amounts agreed with suppliers for supporting in-store activity.
Other operating income
Other operating income primarily comprises income from concessions, service income and rental income. Concessions
and service income are based on the Group’s contractual commission. Rental income is accounted for as earned.
Pre-operating costs
Pre-operating costs are expensed as they are incurred.
55
Annual Report 2017 2. Financial Risk Management
Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and interest rate
risk), credit risk and liquidity risk.
The Group’s treasury function co-ordinates financial risk management policies and their implementation on a group-wide
basis. The Group’s treasury policies are designed to manage the financial impact of fluctuations in interest rates and
foreign exchange rates and to minimize the Group’s financial risks. The Group uses derivative financial instruments,
principally interest rate swaps, forward foreign exchange contracts and foreign currency options as appropriate
for hedging transactions and managing the Group’s assets and liabilities in accordance with the Group’s financial risk
management policies. Financial derivative contracts are executed between third party banks and the Group entity that
is directly exposed to the risk being hedged. Certain derivative transactions, while providing effective economic hedges
under the Group’s risk management policies, do not qualify for hedge accounting under the specific rules in IAS 39.
Changes in the fair value of any derivative instruments that do not qualify for hedge accounting under IAS 39 are
recognized immediately in the profit and loss account. It is the Group’s policy not to enter into derivative transactions
for speculative purposes. The notional amounts and fair values of derivative financial instruments at 31st December 2017
are disclosed in note 29.
(i) Market risk
Foreign exchange risk
Entities within the Group are exposed to foreign exchange risk arising from future commercial transactions, net
investments in foreign operations and net monetary assets and liabilities that are denominated in a currency that
is not the entity’s functional currency.
The Group uses forward foreign exchange contracts and foreign currency options in a consistent manner to hedge firm
and anticipated foreign exchange commitments and manage foreign exchange risk arising from future commercial
transactions. The purpose of these hedges is to mitigate the impact of movements in foreign exchange rates on assets
and liabilities and the profit and loss account of the Group.
Currency risks as defined by IFRS 7 arise on account of monetary assets and liabilities being denominated in
a currency that is not the functional currency. There are no significant monetary balances held by Group companies
at 31st December 2017 that are denominated in a non-functional currency. Differences resulting from the translation
of financial statements into the Group’s presentation currency are not taken into consideration.
Interest rate risk
The Group is exposed to interest rate risk through the impact of rate changes on interest bearing liabilities and assets.
These exposures are managed partly by using natural hedges that arise from offsetting interest rate sensitive assets
and liabilities, and partly through fixed rate borrowings and the use of derivative financial instruments including interest
rate swaps. The Group monitors interest rate exposure on a regular basis by currency and business unit, taking into
consideration proposed financing and hedging arrangements. The Group’s guideline is to maintain 40% to 60% of its
long-term non-working capital gross borrowings in fixed rate instruments. At 31st December 2017, the Group’s fixed rate
borrowings were 38% (2016: 32%) on long-term borrowings, with an average tenor of 1.2 years (2016: 2.2 years). The
interest rate profile of the Group’s borrowings after taking into account hedging transactions is set out in note 19.
56
Dairy Farm International Holdings LimitedNotes to the Financial Statements 2. Financial Risk Management continued
Financial risk factors continued
(i) Market risk continued
Interest rate risk continued
Cash flow interest rate risk is the risk that changes in market interest rates will impact cash flows arising from variable rate
financial instruments. Borrowings at floating rates therefore expose the Group to cash flow interest rate risk. The Group
manages this risk by entering into interest rate swaps for a maturity of up to five years. Interest rate swaps have the
economic effect of converting borrowings from floating rate to fixed rate.
At 31st December 2017, if interest rates had been 100 basis points higher/lower with all other variables held constant,
the Group’s profit after tax would have been US$5.0 million (2016: US$5.7 million) higher/lower, and hedging reserves
would have been US$2.0 million (2016: US$4.4 million) higher/lower, as a result of fair value changes to cash flow hedges.
The sensitivity analysis has been determined assuming that the change in interest rates had occurred at the balance
sheet date and had been applied to the exposure to interest rate risk for both derivative and non-derivative financial
instruments in existence at that date. The 100 basis point increase or decrease represents management’s assessment
of a reasonably possible change in those interest rates which have the most impact on the Group, specifically the United
States, Malaysian and Hong Kong rates, over the period until the next annual balance sheet date. Changes in market
interest rates affect the interest income or expense of non-derivative variable-interest financial instruments, the interest
payments of which are not designated as hedged items of cash flow hedges against interest rate risks. As a consequence,
they are included in the calculation of profit after tax sensitivities. Changes in the market interest rate of financial
instruments that were designated as hedging instruments in a cash flow hedge to hedge payment fluctuations resulting
from interest rate movements affect the hedging reserves and are therefore taken into consideration in the equity-related
sensitivity calculations.
(ii) Credit risk
The Group’s credit risk is primarily attributable to deposits with banks and credit exposures to derivative financial
instruments with a positive fair value. The Group has credit policies in place and the exposures to these credit risks are
monitored on an ongoing basis.
The Group manages its deposits with banks and transactions involving derivative financial instruments by monitoring
credit ratings and capital adequacy ratios of counterparties, and limiting the aggregate risk to any individual counterparty.
The utilization of credit limits is regularly monitored. At 31st December 2017, 88% (2016: 90%) of deposits and balances
with banks were made to institutions with credit ratings of no less than A- (Fitch). Similarly, transactions involving
derivative financial instruments are with banks with sound credit ratings and capital adequacy ratios. In developing
countries it may be necessary to deposit money with banks that have a lower credit rating, however the Group only
enters into derivative transactions with counterparties which have credit ratings of at least investment grade.
Management does not expect any counterparty to fail to meet its obligations.
Sales to customers are made in cash or by major credit cards. The maximum exposure to credit risk is represented by the
carrying amount of each financial asset in the balance sheet after deducting any impairment allowance.
57
Annual Report 2017 2. Financial Risk Management continued
Financial risk factors continued
(iii) Liquidity risk
Prudent liquidity risk management includes managing the profile of debt maturities and funding sources, maintaining
sufficient cash and ensuring the availability of funding from an adequate amount of committed credit facilities and
the ability to close out market positions. The Group’s ability to fund its existing and prospective debt requirements is
managed by maintaining diversified funding sources with adequate committed funding lines from high quality lenders,
and by monitoring rolling short-term forecasts of the Group’s cash and gross debt on the basis of expected cash flows.
Long-term cash flows are projected to assist with the Group’s long-term debt financing plans. In addition, the Group has
implemented a global liquidity cash pooling scheme since the end of 2015, which enables the Group to manage and
optimize its working capital funding requirement on a daily basis.
At 31st December 2017, total available borrowing facilities amounted to US$2,064.7 million (2016: US$1,914.5 million),
of which US$1,232.2 million (2016: US$1,249.4 million) are committed facilities. A total of US$934.7 million
(2016: US$964.6 million) from both committed and uncommitted facilities was drawn down. Undrawn committed
facilities, in the form of revolving credit facilities, totalled US$482.8 million (2016: US$388.4 million).
The following table analyzes the Group’s non-derivative financial liabilities, net-settled derivative financial liabilities and
gross-settled derivative financial instruments into relevant maturity groupings based on the remaining period at the
balance sheet date to the contractual maturity date. Derivative financial liabilities are included in the analysis if their
contractual maturities are essential for an understanding of the timing of the cash flows. The amounts disclosed in the
table are the contractual undiscounted cash flows.
Within
one year
Between
one and
two years
Between
two and
three
years
Between
three and
four years
Between
four and
five years
Beyond
five years
Total
undiscounted
cash flows
US$m
US$m
US$m
US$m
US$m
US$m
US$m
At 31st December 2017
Creditors
Borrowings
Net-settled derivative
financial instruments
Gross-settled derivative
financial instruments
– inflow
– outflow
At 31st December 2016
Creditors
Borrowings
Net-settled derivative
financial instruments
Gross-settled derivative
financial instruments
– inflow
– outflow
58
0.3
2.9
2,465.4
429.6
12.9
307.9
26.1
21.3
0.4
208.3
–
–
163.8
165.3
150.0
148.8
–
–
–
–
–
–
–
–
–
–
2,324.8
387.9
–
548.8
548.5
14.1
11.8
1.1
307.3
25.2
6.3
0.1
296.2
–
–
–
–
–
–
–
–
–
–
–
–
2,508.0
967.1
–
313.8
314.1
2,367.7
1,009.5
–
548.8
548.5
–
–
–
–
2.4
–
–
–
–
Dairy Farm International Holdings LimitedNotes to the Financial Statements
2. Financial Risk Management continued
Capital management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern whilst
seeking to maximize benefits to shareholders and other stakeholders. Capital is equity as shown in the consolidated
balance sheet plus net debt.
The Group regularly reviews its capital structure by taking into consideration the future capital requirements of the
Group. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to
shareholders, repurchase Company shares, return capital to shareholders, issue new shares or sell assets to reduce debt.
The Group monitors capital on the basis of the Group’s consolidated gearing ratio and consolidated interest cover.
The gearing ratio is calculated as net debt divided by total equity. Net debt is calculated as total borrowings less bank
balances and other liquid funds. Interest cover is calculated as underlying operating profit and share of results of
associates and joint ventures divided by net financing charges. The Group does not have a defined gearing or interest
cover benchmark or range.
The ratios at 31st December 2017 and 2016 are as follows:
Gearing ratio (%)
Interest cover (times)
Fair value estimation
(i) Financial instruments that are measured at fair value
2017
2016
34
19
41
26
For financial instruments that are measured at fair value in the balance sheet, the corresponding fair value measurements
are disclosed by level of the following fair value measurement hierarchy:
(a) Quoted prices (unadjusted) in active markets for identical assets or liabilities (‘quoted prices in active markets’)
The fair values of listed securities, which are classified as available-for-sale, are based on quoted prices in active
markets at the balance sheet date.
(b)
Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or
indirectly (‘observable current market transactions’)
The fair values of all interest rate swaps and forward foreign exchange contracts are determined using rates
quoted by the Group’s bankers at the balance sheet date which are calculated by reference to market interest
rates and foreign exchange rates.
The fair values of unlisted investments, which are classified as available-for-sale and mainly include club
debentures, are determined by market prices quoted by brokers at the balance sheet date.
59
Annual Report 2017
2. Financial Risk Management continued
Fair value estimation continued
(i) Financial instruments that are measured at fair value continued
(c)
Inputs for assets or liabilities that are not based on observable market data (‘unobservable inputs’)
The fair values of other unlisted securities, which are classified as available-for-sale, are determined using
valuation techniques by reference to observable current market transactions or the market prices of the
underlying investments with certain degree of entity specific estimates.
There were no changes in valuation techniques during the year.
The table below analyzes financial instruments carried at fair value measured by observable current market transactions.
Assets
Available-for-sale financial assets
– unlisted investments (note 14)
Derivatives designated at fair value (note 29)
– through other comprehensive income/(expense)
– through profit and loss
Liabilities
Derivatives designated at fair value (note 29)
– through other comprehensive income/(expense)
2017
US$m
2016
US$m
6.9
2.7
0.7
10.3
5.9
2.6
0.4
8.9
(2.3)
(2.3)
(0.6)
(0.6)
(ii) Financial instruments that are not measured at fair value
The fair values of current debtors, bank balances and other liquid funds, current creditors and current borrowings are
assumed to approximate their carrying amounts due to the short-term maturities of these assets and liabilities.
The fair values of long-term borrowings are based on market prices or are estimated using the expected future payments
discounted at market interest rates.
60
Dairy Farm International Holdings LimitedNotes to the Financial Statements
2. Financial Risk Management continued
Fair value estimation continued
Financial instruments by category
The carrying amounts of financial assets and financial liabilities at 31st December 2017 and 2016 are as follows:
Loans and
receivables
Derivatives
used for
hedging
Available-
for-sale
Other financial
instruments at
amortized cost
Other financial
instruments at
fair value
through profit
and loss
Total
carrying
amounts
US$m
US$m
US$m
US$m
US$m
US$m
2017
Assets
Other investments
Debtors
Bank balances and
other liquid funds
Liabilities
Borrowings
Trade and other
payables excluding
non-financial liabilities
2016
Assets
Other investments
Debtors
Bank balances and
other liquid funds
Liabilities
Borrowings
Trade and other
payables excluding
non-financial liabilities
–
161.3
332.4
493.7
–
–
–
–
125.3
323.8
449.1
–
–
–
–
2.7
–
2.7
–
(2.3)
(2.3)
–
2.6
–
2.6
–
(0.6)
(0.6)
6.9
–
–
6.9
–
–
–
5.9
–
–
5.9
–
–
–
–
–
–
–
(934.7)
(2,508.0)
(3,442.7)
–
–
–
–
(964.6)
(2,367.7)
(3,332.3)
–
0.7
–
0.7
–
–
–
–
0.4
–
0.4
–
–
–
6.9
164.7
332.4
504.0
(934.7)
(2,510.3)
(3,445.0)
5.9
128.3
323.8
458.0
(964.6)
(2,368.3)
(3,332.9)
The fair values of financial assets and financial liabilities approximate their carrying amounts.
61
Annual Report 2017 3. Critical Accounting Estimates and Judgements
Estimates and judgements used in preparing the financial statements are continually evaluated and are based on
historical experience and other factors, including expectations of future events that are believed to be reasonable.
The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and
assumptions that have a significant effect on the carrying amounts of assets and liabilities are discussed below.
Acquisition of subsidiaries, associates and joint ventures
The initial accounting on the acquisition of subsidiaries, associates and joint ventures involves identifying and
determining the fair values to be assigned to the identifiable assets, liabilities and contingent liabilities of the acquired
entities. The fair values of leasehold land and tangible assets are determined by independent valuers by reference to
market prices or present value of expected net cash flows from the assets. Any changes in the assumptions used and
estimates made in determining the fair values, and management’s ability to measure reliably the contingent liabilities
of the acquired entity will impact the carrying amount of these assets and liabilities.
On initial acquisition or acquisition of further interests in an entity, an assessment of the level of control or influence
exercised by the Group is required. For entities where the Group has a shareholding of less than 50%, an assessment
of the Group’s level of voting rights, board representation and other indicators of influence is performed to consider
whether the Group has de facto control, requiring consolidation of that entity, or significant influence, requiring
classification as an associate.
Impairment of assets
The Group tests annually whether goodwill and other assets that have indefinite useful lives suffered any impairment.
Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of the asset exceeds its recoverable amount. The recoverable amount of an asset or a cash generating unit
is determined based on the higher of its fair value less costs to sell and its value in use, calculated on the basis of
management’s assumptions and estimates. Changing the key assumptions, including the discount rates or the growth
rate assumptions in the cash flow projections, could materially affect the value-in-use calculations.
Income taxes
The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining
the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax
determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is
different from the amounts that were initially recorded, such differences will impact the current and deferred tax
provisions in the period in which such determination is made.
Provision of deferred tax follows the way management expects to recover or settle the carrying amount of the related
assets or liabilities, which the management may expect to recover through use, sale or combination of both. Accordingly,
deferred tax will be calculated at income tax rate, capital gains tax rate or combination of both.
Recognition of deferred tax assets, which principally relate to tax losses, depends on the management’s expectation
of future taxable profit that will be available against which the tax losses can be utilized. The outcome of their actual
utilization may be different.
62
Dairy Farm International Holdings LimitedNotes to the Financial Statements 3. Critical Accounting Estimates and Judgements continued
Buying income
The Group receives supplier incentives, rebates and discounts (buying income) which are deducted from cost of sales on
an accrual basis. Management is required to make estimates in determining the expected entitlement which has been
earned up to the balance sheet date for each relevant supplier contract and the timing of recognition.
There is limited estimation involved in recognizing income for fixed amounts agreed with suppliers.
4. Sales
Analysis by operating segment:
Food
– Supermarkets/hypermarkets
– Convenience stores
Health and Beauty
Home Furnishings
Restaurants
Including associates
and joint ventures
2017
US$m
2016
US$m
16,148.7
14,128.7
2,020.0
2,787.2
653.0
2,238.1
15,174.7
13,224.1
1,950.6
2,632.8
596.9
2,019.2
Subsidiaries
2017
US$m
2016
US$m
8,038.3
6,018.3
2,020.0
2,597.4
653.0
–
8,167.9
6,217.3
1,950.6
2,435.9
596.9
–
21,827.0
20,423.6
11,288.7
11,200.7
Sales including associates and joint ventures comprise 100% of sales from associates and joint ventures.
Operating segments are identified on the basis of internal reports about components of the Group that are regularly
reviewed by the Board for the purpose of resource allocation and performance assessment. Dairy Farm operates in four
segments: Food, Health and Beauty, Home Furnishings and Restaurants. Food comprises supermarket, hypermarket and
convenience store businesses (including the Group’s associate, Yonghui, a leading supermarket/hypermarket retailer in
mainland China). Health and Beauty comprises the health and beauty businesses. Home Furnishings is the Group’s IKEA
businesses. Restaurants is the Group’s catering associate, Maxim’s, a leading Hong Kong restaurant chain.
Set out below is an analysis of the Group’s sales by geographical locations:
Analysis by geographical area:
North Asia
Southeast Asia
Including associates
and joint ventures
2017
US$m
2016
US$m
Subsidiaries
2017
US$m
2016
US$m
17,153.6
15,601.1
4,673.4
4,822.5
6,870.9
4,417.8
6,594.2
4,606.5
21,827.0
20,423.6
11,288.7
11,200.7
The geographical areas covering North Asia and Southeast Asia, are determined by the geographical location of
customers. North Asia comprises Hong Kong, mainland China, Macau and Taiwan. Southeast Asia comprises Singapore,
Cambodia, the Philippines, Malaysia, Indonesia, Vietnam and Brunei.
63
Annual Report 2017 5. Operating Profit
Analysis by operating segment:
Food
– Supermarkets/hypermarkets
– Convenience stores
Health and Beauty
Home Furnishings
Store support centre
Business change costs
Non-trading items:
– profit on sale of properties
– net closure costs reversal for convenience stores in Indonesia
– profit on sale of restaurants in Cambodia
2017
US$m
2016
US$m
220.0
135.1
84.9
209.9
68.0
497.9
(57.7)
440.2
(72.8)
367.4
0.5
–
–
267.2
193.7
73.5
175.5
70.6
513.3
(60.7)
452.6
–
452.6
3.0
2.2
1.0
367.9
458.8
Business change costs
In order to provide shareholders with further information on the performance of the business, underlying operating
profit and underlying profit attributable to shareholders are further analyzed below:
As reported
Business change costs
Adjusted profit
Underlying operating
profit
Underlying profit
attributable to
shareholders
2017
US$m
367.4
72.8
440.2
2016
US$m
452.6
–
452.6
2017
US$m
402.6
64.5
467.1
2016
US$m
460.2
–
460.2
Following a review of the Food businesses in Southeast Asia, management took the decision to exit various stores and
stock categories, a charge of US$61.1 million was recognized in the profit and loss. In addition, a restructuring cost of
US$11.7 million for the Group was also recognized in the profit and loss.
64
Dairy Farm International Holdings LimitedNotes to the Financial Statements 5. Operating Profit continued
Set out below is an analysis of the Group’s operating profit by geographical locations:
Analysis by geographical area:
North Asia
Southeast Asia
Store support centre
Adjusted underlying operating profit
The following items have been (charged)/credited in arriving at operating profit:
Cost of stocks recognized as expense
Amortization of intangible assets (note 11)
Depreciation of tangible assets (note 12)
Write down of stocks
Reversal of write down of stocks
Employee benefit expense
– salaries and benefits in kind
– share options granted (note 24)
– defined benefit pension plans (note 21)
– defined contribution pension plans
Operating lease expenses
– minimum lease payments
– contingent rents
– subleases
Auditors’ remuneration
– audit
– non-audit services
Concession and service income
Rental income from properties
Net foreign exchange gains
Loss on sale of tangible and intangible assets
2017
US$m
2016
US$m
457.7
40.2
497.9
(57.7)
440.2
416.4
96.9
513.3
(60.7)
452.6
2017
US$m
2016
US$m
(7,818.1)
(7,787.6)
(21.7)
(199.3)
(9.4)
6.7
(16.8)
(196.0)
(1.2)
2.5
(1,065.4)
(1,022.1)
(1.6)
(19.5)
(51.4)
(1.3)
(25.2)
(49.3)
(1,137.9)
(1,097.9)
(932.1)
(901.8)
(35.0)
39.8
(29.9)
47.8
(927.3)
(883.9)
(3.4)
(1.3)
(4.7)
145.4
27.9
4.7
(10.1)
(4.0)
(1.1)
(5.1)
139.8
27.8
0.7
(9.9)
65
Annual Report 2017 6. Net Financing Charges
Interest expense – bank loans and advances
Commitment and other fees
Financing charges
Financing income
7. Share of Results of Associates and Joint Ventures
Analysis by operating segment:
Food – Supermarkets/hypermarkets
Health and Beauty
Restaurants
2017
US$m
(23.7)
(4.3)
(28.0)
1.7
(26.3)
2016
US$m
(19.0)
(4.3)
(23.3)
1.5
(21.8)
2017
US$m
2016
US$m
54.0
(5.0)
95.2
35.6
(5.3)
87.9
144.2
118.2
Share of results of associates and joint ventures in 2017 included the share of a net gain of US$0.8 million on the
disposal of an investment by Yonghui Superstores Co., Ltd (‘Yonghui’), while in 2016, it included the share of a net gain
of US$3.7 million on the disposal of interest in an associate by Yonghui (note 10).
Results are shown after tax and non-controlling interests in the associates and joint ventures.
66
Dairy Farm International Holdings LimitedNotes to the Financial Statements 8. Tax
Tax charged to profit and loss is analyzed as follows:
Current tax
Deferred tax
Reconciliation between tax expense and tax at the applicable tax rate*:
Tax at applicable tax rate
Income not subject to tax
Expenses not deductible for tax purposes
Tax losses and temporary differences not recognized
Utilization of previously unrecognized tax losses
Utilization of previously unrecognized temporary differences
Deferred tax assets written off
Over provision in prior years
Withholding tax
Other
Tax relating to components of other comprehensive income/(expense) is
analyzed as follows:
Remeasurements of defined benefit plans
Revaluation of other investments
Cash flow hedges
2017
US$m
2016
US$m
(86.9)
(6.0)
(92.9)
(49.7)
4.9
(15.7)
(17.8)
0.1
0.2
–
3.0
(16.5)
(1.4)
(92.9)
(2.6)
(0.2)
0.3
(2.5)
(82.0)
(3.1)
(85.1)
(67.9)
6.2
(12.9)
(4.1)
1.2
–
(1.7)
1.9
(8.1)
0.3
(85.1)
(4.4)
0.2
(0.3)
(4.5)
Share of tax charge of associates and joint ventures of US$32.0 million (2016: US$29.4 million) is included in share of results
of associates and joint ventures.
* The applicable tax rate for the year was 14.5% (2016: 15.5%) and represents the weighted average of the rates of taxation prevailing in the territories in which the
Group operates. The decrease in applicable tax rate was mainly attributable to a change in the geographic mix of the Group’s profit.
67
Annual Report 2017 9. Earnings per Share
Basic earnings per share are calculated on profit attributable to shareholders of US$403.5 million (2016: US$469.0 million),
and on the weighted average number of 1,352.4 million (2016: 1,352.2 million) shares in issue during the year.
Diluted earnings per share are calculated on profit attributable to shareholders of US$403.5 million (2016: US$469.0 million),
and on the weighted average number of shares in issue after adjusting for the number of shares which are deemed to
be issued for no consideration under the share-based long-term incentive plans based on the average share price during
the year.
The weighted average number of shares is arrived at as follows:
Ordinary shares in millions
2017
2016
Weighted average number of shares for basic earnings per share calculation
1,352.4
1,352.2
Adjustment for shares deemed to be issued for no consideration under
the share-based long-term incentive plans
0.6
0.3
Weighted average number of shares for diluted earnings per share calculation
1,353.0
1,352.5
Additional basic and diluted earnings per share are also calculated based on underlying profit attributable to
shareholders. A reconciliation of earnings is set out below:
2017
Basic
earnings
per share
Diluted
earnings
per share
2016
Basic
earnings
per share
Diluted
earnings
per share
US$m
US¢
US¢
US$m
US¢
US¢
403.5
(0.9)
29.83
29.82
469.0
(8.8)
34.69
34.68
Profit attributable to
shareholders
Non-trading items (note 10)
Underlying profit attributable
to shareholders
402.6
29.77
29.76
460.2
34.03
34.02
10. Non-trading Items
An analysis of non-trading items after interest, tax and non-controlling interests is set out below:
Profit on sale of properties
Net closure costs reversal for convenience stores in Indonesia
Profit on sale of restaurants in Cambodia
Share of net gain from disposal of an investment/an associate by Yonghui
2017
US$m
2016
US$m
0.1
–
–
0.8
0.9
2.5
1.9
0.7
3.7
8.8
68
Dairy Farm International Holdings LimitedNotes to the Financial Statements
11. Intangible Assets
2017
Cost
Amortization and impairment
Net book value at 1st January
Exchange differences
Additions
Disposals
Amortization
Impairment charge
Reclassified to assets held for sale
Net book value at 31st December
Cost
Amortization and impairment
2016
Cost
Amortization and impairment
Net book value at 1st January
Exchange differences
Additions
Disposals
Amortization
Net book value at 31st December
Cost
Amortization and impairment
Goodwill
Leasehold
land
Computer
software
US$m
US$m
US$m
Other
US$m
Total
US$m
562.6
(0.3)
562.3
8.2
–
–
–
–
(1.7)
568.8
569.1
(0.3)
568.8
571.2
(0.3)
570.9
(8.6)
–
–
–
562.3
562.6
(0.3)
562.3
95.6
(9.2)
86.4
(0.9)
23.7
–
(2.4)
–
–
134.2
(48.8)
85.4
2.1
40.9
(0.2)
(16.0)
(0.4)
–
44.0
(13.0)
31.0
(0.4)
–
–
(3.3)
–
–
836.4
(71.3)
765.1
9.0
64.6
(0.2)
(21.7)
(0.4)
(1.7)
106.8
111.8
27.3
814.7
118.3
(11.5)
106.8
96.7
(7.2)
89.5
2.5
0.7
(4.3)
(2.0)
86.4
95.6
(9.2)
86.4
178.4
(66.6)
111.8
107.4
(39.1)
68.3
(0.9)
31.6
(0.4)
(13.2)
85.4
134.2
(48.8)
85.4
43.7
(16.4)
27.3
21.8
(6.1)
15.7
(0.4)
17.3
–
(1.6)
31.0
44.0
(13.0)
31.0
909.5
(94.8)
814.7
797.1
(52.7)
744.4
(7.4)
49.6
(4.7)
(16.8)
765.1
836.4
(71.3)
765.1
69
Annual Report 2017 11. Intangible Assets continued
Goodwill is allocated to groups of cash-generating units identified by banners or group of stores acquired in each
territory. Cash flow projections for impairment reviews are based on budgets prepared on the basis of assumptions
reflective of the prevailing market conditions, and are discounted appropriately. Key assumptions used for value-in-use
calculations for significant balances of goodwill in 2017 include budgeted gross margins between 21% and 30% and
average growth rates between 2% and 4% to project cash flows, which vary across the Group’s business segments and
geographical locations, over a five-year period and thereafter, and are based on management expectations for the market
development; and pre-tax discount rates of between 5% and 13% applied to the cash flow projections. The discount
rates used reflect business specific risks relating to the relevant industry, business life-cycle and geographical location.
On the basis of these reviews, management concluded that no impairment exists.
Other intangible assets comprise mainly trademarks, right-to-use trademark and assets under a lease agreement.
There were no intangible assets pledged as security for borrowings at 31st December 2017 and 2016.
The amortization charges are all recognized in arriving at operating profit and are included in selling and distribution
costs and administration expenses.
The remaining amortization periods for intangible assets are as follows:
Leasehold land
Computer software
Trademarks and others
up to 57 years
up to 7 years
up to 17 years
70
Dairy Farm International Holdings LimitedNotes to the Financial Statements 12. Tangible Assets
2017
Cost
Depreciation and impairment
Net book value at 1st January
Exchange differences
Additions
Disposals
Depreciation charge
Impairment charge
Reclassified to assets held
for sale
Net book value at
31st December
Cost
Depreciation and impairment
2016
Cost
Depreciation and impairment
Net book value at 1st January
Exchange differences
Additions
Disposals
Transfers
Depreciation charge
Reversal of impairment charge
Reclassified to assets held
for sale
Net book value at
31st December
Cost
Depreciation and impairment
Freehold
properties
Leasehold
properties
Leasehold
improvements
Plant &
machinery
Furniture,
equipment
& motor
vehicles
US$m
US$m
US$m
US$m
US$m
Total
US$m
115.8
(4.6)
111.2
11.5
13.4
–
(1.2)
–
–
511.6
(100.0)
411.6
17.7
16.7
(0.9)
(16.8)
–
(4.4)
756.5
(516.8)
239.7
8.9
104.8
(6.1)
(76.9)
(1.0)
620.2
(422.1)
198.1
8.6
94.5
(3.2)
(62.5)
(0.9)
518.1
2,522.2
(379.2)
(1,422.7)
138.9
1,099.5
1.6
25.4
(2.4)
(41.9)
(0.1)
48.3
254.8
(12.6)
(199.3)
(2.0)
–
(0.1)
–
(4.5)
134.9
423.9
269.4
234.5
121.5
1,184.2
141.2
(6.3)
134.9
119.8
(3.6)
116.2
(3.4)
1.7
–
–
(1.2)
–
(2.1)
543.0
(119.1)
423.9
487.7
(85.5)
402.2
(5.7)
28.6
(0.1)
2.5
(15.9)
–
–
860.2
(590.8)
269.4
607.4
(407.0)
200.4
(5.1)
63.9
(5.1)
46.0
(60.5)
0.1
–
718.3
(483.8)
234.5
563.8
(381.0)
182.8
(3.7)
63.2
(3.0)
16.4
(57.6)
–
–
525.8
2,788.5
(404.3)
(1,604.3)
121.5
1,184.2
712.6
2,491.3
(473.4)
(1,350.5)
239.2
2.1
31.0
(7.7)
(64.9)
(60.8)
–
–
1,140.8
(15.8)
188.4
(15.9)
–
(196.0)
0.1
(2.1)
111.2
411.6
239.7
198.1
138.9
1,099.5
115.8
(4.6)
111.2
511.6
(100.0)
411.6
756.5
(516.8)
239.7
620.2
(422.1)
198.1
518.1
2,522.2
(379.2)
(1,422.7)
138.9
1,099.5
71
Annual Report 2017
12. Tangible Assets continued
Net book value of leasehold properties acquired under finance leases amounted to US$87.9 million (2016: US$82.9 million).
Rental income from properties amounted to US$27.9 million (2016: US$27.8 million) including contingent rents of
US$2.9 million (2016: US$2.7 million).
Future minimum rental payments receivable under non-cancellable leases are as follows:
Within one year
Between one and two years
Between two and five years
Beyond five years
2017
US$m
13.9
8.6
7.6
1.9
32.0
There were no tangible assets pledged as security for borrowings at 31st December 2017 and 2016.
13. Associates and Joint Ventures
2016
US$m
13.4
10.1
10.9
1.8
36.2
2016
US$m
634.9
343.5
978.4
388.4
1,366.8
19.1
75.9
95.0
2017
US$m
696.0
396.9
1,092.9
413.6
1,506.5
19.3
75.2
94.5
1,601.0
1,461.8
Listed associate
Unlisted associate
Share of attributable net assets
Goodwill on acquisition
Unlisted joint ventures
Goodwill on acquisition
72
Dairy Farm International Holdings LimitedNotes to the Financial Statements 13. Associates and Joint Ventures continued
Movements of associates and joint ventures
during the year:
At 1st January
Share of results after tax and non-controlling interests
Share of other comprehensive income/(expense)
after tax and non-controlling interests
Dividends received
Capital injections
Fair value adjustment
Other
At 31st December
Associates
Joint ventures
2017
US$m
2016
US$m
2017
US$m
2016
US$m
1,366.8
150.3
1,192.4
124.7
74.2
(84.9)
–
–
0.1
(72.5)
(66.0)
190.2
(2.0)
–
95.0
(6.1)
(0.2)
–
5.8
–
–
99.7
(6.5)
(5.0)
–
6.8
–
–
1,506.5
1,366.8
94.5
95.0
Fair value of a listed associate
2,962.5
1,352.5
(a) Investment in associates
The material associates of the Group are listed below. These associates have share capital consisting solely of ordinary
shares, which are held directly by the Group. The country of incorporation or registration is also their principal place of
business, and the proportion of ownership interest is the same as the proportion of voting rights held.
Nature of investments in material associates in 2017 and 2016:
Name of entity
Nature of business
% of ownership interest
Country of incorporation/
place of listing
2017
2016
Maxim’s Caterers Limited
Restaurants
Hong Kong/Unlisted
50
50
(‘Maxim’s’)
Yonghui Superstores Co., Ltd
(‘Yonghui’)
Supermarkets and
hypermarkets
Mainland China/Shanghai
19.99
19.99
At 31st December 2017, the fair value of the Group’s interest in Yonghui based on the closing share price was
US$2,962.5 million (2016: US$1,352.5 million) and the carrying amount of the Group’s interest was US$1,109.6 million
(2016: US$1,023.3 million).
In August 2016, the Group subscribed a further 286.9 million new shares in Yonghui, amounting to US$190.2 million,
as part of capital injection involving two other investors. The Group’s interest in Yonghui remained at 19.99% upon
the completion.
73
Annual Report 2017
13. Associates and Joint Ventures continued
(a) Investment in associates continued
Summarized financial information for material associates
Summarized balance sheets at 31st December (unless otherwise indicated):
Non-current assets
1,082.5
856.9
2,195.3
1,969.1
Maxim’s
Yonghui
2017
US$m
2016
US$m
2017*
US$m
2016*
US$m
Current assets
Cash and cash equivalents
Other current assets
Total current assets
Non-current liabilities
Financial liabilities †
Other non-current liabilities
Total non-current liabilities
Current liabilities
Financial liabilities †
Other current liabilities
Total current liabilities
Non-controlling interests
Net assets
192.6
182.7
375.3
(154.8)
(43.5)
(198.3)
(323.7)
(128.2)
(451.9)
(13.7)
793.9
170.9
143.9
314.8
(57.4)
(44.9)
(102.3)
(259.8)
(108.7)
(368.5)
(13.9)
687.0
850.1
2,032.2
2,882.3
1,704.5
1,153.3
2,857.8
–
(20.3)
(20.3)
–
(21.2)
(21.2)
(60.8)
(1,646.5)
(1,707.3)
(68.1)
(1,486.8)
(1,554.9)
(67.4)
(9.3)
3,282.6
3,241.5
* Based on unaudited summarized balance sheet at 30th September 2017 and 2016.
† Excluding trade and other payables, which are presented under other current and non-current liabilities.
74
Dairy Farm International Holdings LimitedNotes to the Financial Statements 13. Associates and Joint Ventures continued
(a) Investment in associates continued
Summarized statements of comprehensive income for the year ended 31st December (unless otherwise indicated):
Sales
Depreciation and amortization
Interest income
Interest expense
Profit from underlying business performance
Income tax expense
Profit after tax from underlying business performance
Profit after tax from non-trading items
Profit after tax
Non-controlling interests
Profit after tax and non-controlling interests
Other comprehensive income/(expense)
Total comprehensive income
Maxim’s
Yonghui
2017
US$m
2,238.1
(101.6)
1.6
(0.4)
235.2
(42.0)
193.2
–
193.2
(2.7)
190.5
19.1
209.6
2016
US$m
2,019.2
(85.5)
1.4
(0.1)
215.2
(37.5)
177.7
–
177.7
(1.8)
175.9
(15.3)
160.6
2017*
US$m
8,148.2
(151.6)
50.6
(26.8)
289.8
(57.6)
232.2
22.4
254.6
14.3
268.9
(2.0)
266.9
Dividends received from associates
51.3
47.7
33.6
* Based on unaudited summarized statement of comprehensive income for the 12 months ended 30th September 2017 and 2016.
2016*
US$m
7,291.6
(197.0)
20.0
(11.8)
168.4
(45.3)
123.1
–
123.1
2.0
125.1
0.7
125.8
18.3
The information contained in the summarized balance sheets and statements of comprehensive income reflect the
amounts presented in the financial statements of the associates adjusted for differences in accounting policies between
the Group and the associates, and fair value of the associates at the time of acquisition.
Reconciliation of the summarized financial information
Reconciliation of the summarized financial information presented to the carrying amount of the Group’s interests in its
material associates for the year ended 31st December:
Maxim’s
Yonghui
Total
2017
US$m
2016
US$m
2017
US$m
2016
US$m
2017
US$m
2016
US$m
Net assets
793.9
687.0
3,282.6†
3,241.5†
Interest in associates (%)
50
50
19.99
19.99
Group’s share of net
assets in associates
Goodwill
Other reconciling items
396.9
343.5
–
–
–
–
656.2
413.6
39.8
648.0
388.4
(13.1)
1,053.1
413.6
39.8
991.5
388.4
(13.1)
Carrying value
396.9
343.5
1,109.6
1,023.3
1,506.5
1,366.8
† Based on unaudited summarized balance sheet at 30th September 2017 and 2016.
There were no contingent liabilities relating to the Group’s interests in associates at 31st December 2017 and 2016.
75
Annual Report 2017 13. Associates and Joint Ventures continued
(b) Investment in joint ventures
The Group has interests in a number of unlisted joint ventures. In the opinion of the Directors, no joint ventures are
considered material.
Commitments and contingent liabilities in respect of joint ventures
The Group has the following commitments relating to its joint ventures at 31st December:
Commitment to provide funding
2017
US$m
2016
US$m
–
12.2
There were no contingent liabilities relating to the Group’s interest in joint ventures at 31st December 2017 and 2016.
14. Other Investments
Movements during the year:
At 1st January
Change in fair value
At 31st December
2017
US$m
2016
US$m
5.9
1.0
6.9
6.8
(0.9)
5.9
Other investments are unlisted non-current available-for-sale financial assets. The fair value is based on observable
current market transactions.
15. Debtors
Trade debtors
Third parties
Joint ventures
Less: provision for impairment
Other debtors
Third parties
Less: provision for impairment
Non-current
Current
76
2017
US$m
2016
US$m
139.7
1.1
140.8
(3.9)
136.9
379.0
(2.6)
376.4
513.3
162.6
350.7
513.3
110.8
0.5
111.3
(2.7)
108.6
335.1
(2.4)
332.7
441.3
150.8
290.5
441.3
Dairy Farm International Holdings LimitedNotes to the Financial Statements 15. Debtors continued
Trade and other debtors excluding derivative financial instruments are stated at amortized cost. The fair values of these
debtors approximate their carrying amounts. Derivative financial instruments are stated at fair value.
Trade and other debtors
Sales to customers are mainly made in cash or by major credit cards. The average credit period on sale of goods and
services varies among Group businesses and is normally not more than 30 days. The maximum exposure to credit risk
is represented by the carrying amount of trade debtors after deducting the impairment allowance.
Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization,
and default or delinquency in payment are considered indicators that the debtor is impaired. An allowance for
impairment of trade and other debtors is made based on the estimated irrecoverable amount.
At 31st December 2017, trade debtors of US$3.9 million (2016: US$2.7 million) and other debtors of US$2.6 million
(2016: US$2.4 million) were impaired, which have been fully provided for in both years. The ageing analysis of these
debtors is as follows:
Between 61 and 90 days
Over 90 days
Trade debtors
Other debtors
2017
US$m
2016
US$m
2017
US$m
2016
US$m
–
3.9
3.9
–
2.7
2.7
0.1
2.5
2.6
0.1
2.3
2.4
At 31st December 2017, trade debtors of US$5.2 million (2016: US$0.6 million) and other debtors of US$4.4 million
(2016: US$3.2 million), respectively, were past due but not impaired. The ageing analysis of these debtors is as follows:
Trade debtors
Other debtors
2017
US$m
2016
US$m
2017
US$m
2016
US$m
1.2
1.1
2.7
0.2
5.2
0.4
–
–
0.2
0.6
2.0
1.3
0.5
0.6
4.4
2.1
0.8
0.1
0.2
3.2
Below 30 days
Between 31 and 60 days
Between 61 and 90 days
Over 90 days
Most of the balances have been settled subsequent to year end.
77
Annual Report 2017 15. Debtors continued
Other debtors
Other debtors are further analyzed as follows:
Derivative financial instruments
Other receivables
Financial assets
Rental and other deposits
Prepayments
Other
Movements in the provision for impairment are as follows:
At 1st January
Exchange differences
Additional provisions
Unused amounts reversed
Amounts written off
At 31st December
2017
US$m
3.4
24.4
27.8
175.1
82.5
91.0
376.4
2016
US$m
3.0
16.7
19.7
155.6
79.3
78.1
332.7
Trade debtors
Other debtors
2017
US$m
2016
US$m
2017
US$m
2016
US$m
(2.7)
(0.1)
(1.3)
0.1
0.1
(3.9)
(2.2)
–
(0.7)
–
0.2
(2.7)
(2.4)
(0.1)
(0.9)
–
0.8
(2.6)
(2.3)
0.1
(0.8)
0.3
0.3
(2.4)
There were no debtors pledged as security for borrowings at 31st December 2017 and 2016.
78
Dairy Farm International Holdings LimitedNotes to the Financial Statements 16. Deferred Tax Assets/(Liabilities)
Accelerated
tax
depreciation
Fair value
gains/
losses
Employee
benefits
Provisions
and other
temporary
differences
US$m
US$m
US$m
US$m
(45.1)
(1.2)
(4.4)
–
(50.7)
1.1
(51.8)
(50.7)
(41.9)
0.3
(3.5)
–
(45.1)
1.1
(46.2)
(45.1)
(3.3)
–
–
0.1
(3.2)
0.4
(3.6)
(3.2)
(3.4)
–
0.2
(0.1)
(3.3)
0.1
(3.4)
(3.3)
9.0
–
–
(2.6)
6.4
6.4
–
6.4
13.2
0.1
0.1
(4.4)
9.0
9.0
–
9.0
11.8
1.0
(1.6)
–
11.2
18.5
(7.3)
11.2
11.8
(0.1)
0.1
–
11.8
18.8
(7.0)
11.8
Total
US$m
(27.6)
(0.2)
(6.0)
(2.5)
(36.3)
26.4
(62.7)
(36.3)
(20.3)
0.3
(3.1)
(4.5)
(27.6)
29.0
(56.6)
(27.6)
2017
At 1st January
Exchange differences
Charged to profit and loss
Credited/(charged) to other comprehensive
income
At 31st December
Deferred tax assets
Deferred tax liabilities
2016
At 1st January
Exchange differences
(Charged)/credited to profit and loss
Charged to other comprehensive expense
At 31st December
Deferred tax assets
Deferred tax liabilities
Deferred tax balances predominantly comprise non-current items. Deferred tax assets and liabilities are netted when
the taxes relate to the same taxation authority and where offsetting is allowed.
Deferred tax assets of US$28.0 million (2016: US$23.4 million) arising from unused tax losses of US$115.8 million
(2016: US$93.3 million) have not been recognized in the financial statements. Included in the unused tax losses,
US$42.4 million have no expiry date and the balance will expire at various dates up to and including 2027.
Deferred tax liabilities of US$14.9 million (2016: US$17.0 million) arising on temporary differences associated with
investment in subsidiaries of US$149.2 million (2016: US$170.0 million) have not been recognized as there is no current
intention of remitting the retained earnings of these subsidiaries to the holding companies in the foreseeable future.
79
Annual Report 2017
17. Bank Balances and Other Liquid Funds
Deposits with banks
Bank balances
Cash balances
The weighted average interest rate on deposits with banks is 0.4% (2016: 0.4%) per annum.
18. Creditors
Trade creditors
– third parties
– associates
Accruals
Rental and other refundable deposits
Deferred consideration for acquisition of a subsidiary
Derivative financial instruments
Other creditors
Financial liabilities
Rental and other income received in advance
Non-current
Current
2017
US$m
95.8
88.4
148.2
332.4
2016
US$m
70.7
149.6
103.5
323.8
2017
US$m
2016
US$m
1,548.6
1,515.5
3.6
1,552.2
890.5
27.3
24.8
2.3
13.2
2.5
1,518.0
787.7
25.4
25.0
0.6
11.6
2,510.3
2,368.3
1.9
2.5
2,512.2
2,370.8
42.7
2,469.5
2,512.2
42.9
2,327.9
2,370.8
Derivative financial instruments are stated at fair value. Other creditors are stated at amortized cost. The fair values of
these creditors approximate their carrying amounts.
80
Dairy Farm International Holdings LimitedNotes to the Financial Statements 19. Borrowings
Current
– bank overdrafts
– other bank advances
Current portion of long-term bank borrowings
Long-term bank borrowings
2017
US$m
2016
US$m
1.1
411.6
412.7
–
522.0
934.7
1.2
346.1
347.3
22.3
595.0
964.6
All borrowings are unsecured. The fair values of borrowings are not materially different from their carrying amounts.
The Group’s borrowings are further summarized as follows:
By currency
2017
Hong Kong dollar
Malaysian ringgit
United States dollar
2016
Hong Kong dollar
Malaysian ringgit
New Taiwan dollar
Philippine peso
United States dollar
Fixed rate borrowings
Weighted
average
interest
rates
Weighted
average
period
outstanding
Floating
rate
borrowings
%
Years
US$m
US$m
1.9
4.3
2.1
1.2
4.3
1.4
3.1
1.8
–
–
1.2
–
–
–
–
2.2
–
–
200.0
200.0
–
–
–
–
200.0
200.0
278.5
149.0
307.2
734.7
157.8
136.1
3.3
72.4
395.0
764.6
Total
US$m
278.5
149.0
507.2
934.7
157.8
136.1
3.3
72.4
595.0
964.6
The weighted average interest rates and period of fixed rate borrowings are stated after taking into account hedging
transactions.
81
Annual Report 2017 19. Borrowings continued
The exposure of the Group’s borrowings to interest rate changes and the contractual repricing dates at 31st December
after taking into account hedging transactions are as follows:
Within one year
The movements in borrowings are as follows:
2017
At 1st January
Exchange differences
Change in bank overdrafts
Drawdown of borrowings
Repayment of borrowings
Net increase in other short-term borrowings
2016
At 1st January
Exchange differences
Transfer
Change in bank overdrafts
Drawdown of borrowings
Repayment of borrowings
Net increase in other short-term borrowings
2017
US$m
2016
US$m
734.7
764.6
Bank
overdrafts
Short-term
borrowings
Long-term
borrowings
US$m
US$m
US$m
Total
US$m
1.2
0.1
(0.2)
–
–
–
1.1
1.8
(0.1)
–
(0.5)
–
–
–
1.2
368.4
10.3
–
674.8
(764.2)
122.3
411.6
727.8
(13.0)
16.9
–
992.7
(1,484.5)
128.5
368.4
595.0
964.6
0.8
–
11.2
(0.2)
176.2
851.0
(250.0)
(1,014.2)
–
522.0
122.3
934.7
10.6
0.4
(16.9)
–
777.0
(176.1)
–
595.0
740.2
(12.7)
–
(0.5)
1,769.7
(1,660.6)
128.5
964.6
Net increase in other short-term borrowings represents the aggregated net drawdown and repayment movement under
the Group’s global liquidity cash pooling scheme, which is implemented for enhancing the daily cash flow management.
82
Dairy Farm International Holdings LimitedNotes to the Financial Statements 20. Provisions
2017
At 1st January
Exchange differences
Additional provisions
Unused amounts reversed
Utilized
Reclassified to liabilities directly associated with assets
held for sale
At 31st December
Non-current
Current
2016
At 1st January
Exchange differences
Additional provisions
Unused amounts reversed
Utilized
At 31st December
Non-current
Current
Closure
cost
provisions
Obligations
under
onerous
leases
Reinstatement
and
restoration
costs
US$m
US$m
US$m
5.9
1.1
47.4
(2.8)
(4.1)
–
47.5
–
47.5
47.5
5.6
–
6.8
(2.7)
(3.8)
5.9
–
5.9
5.9
14.4
1.3
6.1
(9.3)
–
–
12.5
12.3
0.2
12.5
15.1
(0.7)
–
–
–
14.4
8.9
5.5
14.4
26.2
1.8
3.7
(0.6)
(1.1)
(0.1)
29.9
25.1
4.8
29.9
24.0
(0.8)
4.2
(0.1)
(1.1)
26.2
22.8
3.4
26.2
Total
US$m
46.5
4.2
57.2
(12.7)
(5.2)
(0.1)
89.9
37.4
52.5
89.9
44.7
(1.5)
11.0
(2.8)
(4.9)
46.5
31.7
14.8
46.5
Closure cost provisions are established when legal or constructive obligations arise on store closure or disposal of
businesses.
Provisions are made for obligations under onerous operating leases when the Group believes that the net costs of exiting
from the leases exceed the economic benefits expected to be received.
Reinstatement cost provisions comprise the estimated costs of dismantling and removing property, plant and equipment
and restoring the site on which the asset is located.
83
Annual Report 2017 21. Pension Plans
The Group operates defined benefit pension plans in Hong Kong, Indonesia, Taiwan and the Philippines, with the major
plan in Hong Kong. These plans are final salary defined benefits, calculated based on members’ lengths of service and
their salaries in the final years leading up to retirement. All pension benefits are paid in one lump sum. With the
exception of certain plans, all the defined benefit plans are closed to new members. In addition, all plans are impacted by
discount rate while liabilities are driven by salary growth.
The Group’s defined benefit plans are either funded or unfunded, with the assets of the funded plans held independently
of the Group’s assets in separate trustee administered funds. Plan assets held in trusts are governed by local regulations
and practices in each country. Responsibility for governance of the plans, including investment decisions and contribution
schedules, lies jointly with the company and the boards of trustees. The Group’s major plans are valued by independent
actuaries annually using the projected unit credit method.
The amounts recognized in the consolidated balance sheet are as follows:
Fair value of plan assets
Present value of funded obligations
Present value of unfunded obligations
Net pension liabilities
Analysis of net pension liabilities:
Pension assets
Pension liabilities
2017
US$m
189.4
(216.5)
(27.1)
(7.1)
(34.2)
–
(34.2)
(34.2)
2016
US$m
195.2
(247.6)
(52.4)
–
(52.4)
–
(52.4)
(52.4)
84
Dairy Farm International Holdings LimitedNotes to the Financial Statements 21. Pension Plans continued
The movements in the net pension liabilities are as follows:
2017
At 1st January
Current service cost
Interest income/(expense)
Losses on settlements
Administration expenses
Exchange differences
Remeasurements
– return on plan assets, excluding amounts included in interest income
– change in financial assumptions
– experience losses
Contributions from employers
Benefit payments
Settlements
Transfer from/(to) other plans
At 31st December
2016
At 1st January
Current service cost
Interest income/(expense)
Administration expenses
Exchange differences
Remeasurements
– return on plan assets, excluding amounts included in interest income
– change in demographic assumptions
– change in financial assumptions
– experience losses
Contributions from employers
Benefit payments
Transfer from/(to) other plans
At 31st December
Fair value
of plan
assets
Present
value of
obligations
US$m
US$m
195.2
–
5.3
–
(0.2)
5.1
200.3
(0.7)
28.3
–
–
28.3
16.9
(21.1)
(34.4)
0.1
(247.6)
(15.7)
(6.7)
(2.2)
–
(24.6)
(272.2)
0.2
–
(7.6)
(1.5)
(9.1)
–
23.2
34.4
(0.1)
Total
US$m
(52.4)
(15.7)
(1.4)
(2.2)
(0.2)
(19.5)
(71.9)
(0.5)
28.3
(7.6)
(1.5)
19.2
16.9
2.1
–
–
189.4
(223.6)
(34.2)
191.9
–
8.1
(1.1)
7.0
198.9
0.7
2.9
–
–
–
2.9
22.0
(29.7)
0.4
195.2
(263.3)
(22.2)
(10.0)
–
(32.2)
(295.5)
(1.0)
–
(0.8)
18.0
0.8
18.0
–
31.3
(0.4)
(71.4)
(22.2)
(1.9)
(1.1)
(25.2)
(96.6)
(0.3)
2.9
(0.8)
18.0
0.8
20.9
22.0
1.6
–
(247.6)
(52.4)
85
Annual Report 2017 21. Pension Plans continued
The weighted average duration of the defined benefit obligations at 31st December 2017 is 7.9 years (2016: 8.4 years).
Expected maturity analysis of undiscounted pension benefits at 31st December is as follows:
Less than one year
Between one and two years
Between two and five years
Beyond five years
2017
US$m
18.5
17.1
65.9
428.2
529.7
2016
US$m
17.8
21.1
66.0
580.1
685.0
The principal actuarial assumptions used for accounting purposes at 31st December are as follows:
Hong Kong
Indonesia
Taiwan
The Philippines
2017
2016
2017
2016
2017
2016
2017
2016
%
2.9
4.8
%
3.3
4.8
%
7.0
4.0
%
8.1
0 to 4.0
%
1.5
2.1
%
1.2
1.9
%
4.9
3.5
%
5.3
4.0
Discount rate
Salary growth rate
The sensitivity of the defined benefit obligations to changes in the weighted principal assumptions is as follows:
Discount rate
Salary growth rate
(Increase)/decrease on
defined benefit
obligations
Change in
assumption
Increase in
assumption
Decrease in
assumption
%
1
1
US$m
US$m
(16.4)
19.5
18.7
(17.2)
The above sensitivity analyzes are based on a change in an assumption while holding all other assumptions constant.
In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the
sensitivity of the defined benefit obligations to significant actuarial assumptions, the same method (present value of the
defined benefit obligations calculated with the projected unit credit method at the end of the reporting period) has been
applied as when calculating the pension liability recognized within the balance sheet.
86
Dairy Farm International Holdings LimitedNotes to the Financial Statements 21. Pension Plans continued
The analysis of the fair value of plan assets at 31st December is as follows:
Asia
Pacific
US$m
Europe
US$m
North
America
US$m
Global
US$m
Total
US$m
2017
Quoted investments
Equity instruments
Debt instruments
− government
Investment funds
Unquoted investments
Investment funds
Total investments
Cash and cash equivalents
Benefits payable and other
2016
Quoted investments
Equity instruments
Debt instruments
− government
− corporate bonds
investment grade
Investment funds
Unquoted investments
Investment funds
Total investments
Cash and cash equivalents
Benefits payable and other
19.3
0.7
33.6
53.6
3.0
56.6
20.5
18.3
0.5
18.8
21.8
61.1
3.1
64.2
–
–
15.4
15.4
2.2
17.6
–
–
–
–
14.5
14.5
1.5
16.0
–
–
39.6
39.6
2.2
41.8
–
–
–
–
34.7
34.7
0.9
35.6
–
–
18.3
18.3
44.4
62.7
–
–
–
–
14.4
14.4
45.7
60.1
19.3
0.7
106.9
126.9
51.8
178.7
15.2
(4.5)
189.4
20.5
18.3
0.5
18.8
85.4
124.7
51.2
175.9
21.2
(1.9)
195.2
At 31st December 2017, the Hong Kong plans had assets of US$182.1 million (2016: US$154.5 million). These assets
were invested 69% and 31% in quoted and unquoted instruments respectively. In 2016, the split was 68% and 32%.
The high percentage of quoted instruments provides liquidity to the portfolio to fund drawdowns and benefit payments.
Within the quoted equity allocation, the plan is well diversified in terms of sectors, with the top three being financials,
technology and consumer goods with a combined fair value of US$14.1 million. In 2016, the top three sectors were
financials, technology and industrials, with a combined fair value of US$13.8 million.
87
Annual Report 2017
21. Pension Plans continued
The strategic asset allocation is derived from the asset-liability modeling (‘ALM’) review, done triennially to ensure
the plans can meet future funding and solvency requirements. The last ALM review was completed in 2015, with the
modified strategic asset allocation adopted in 2015. The next ALM review is scheduled for 2018.
Through its defined benefit pension plans, the Group is expected to be exposed to a number of risks such as asset
volatility, changes in bond yields, inflation risk and life expectancy, the most significant of which are detailed below:
Asset volatility
The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if plan assets
underperform this yield, this will create a deficit. The Group’s defined benefit plans hold a percentage of equities, which
are expected to outperform corporate bonds in the long-term, whilst generating volatility and risk in the short-term.
Changes in bond yields
A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in
the value of the plans’ bond holdings.
Inflation risk
All plan assets are unaffected by inflation.
Life expectancy
All plans provide for a lump-sum benefit payment at retirement, which are unaffected by the change in the longevity
assumptions.
The Group ensures that the investment positions are managed within an ALM framework that is developed to achieve
long-term returns that are in line with the obligations under the pension schemes. Within the ALM framework, the
Group’s objective is to match assets to the pension obligations by investing in a well-diversified portfolio that generates
sufficient risk-adjusted returns that match the benefit payments. The Group also actively monitors the duration and the
expected yield of the investments to ensure it matches the expected cash outflows arising from the pension obligations.
Investments across the plans are well diversified, such that the failure of any single investment would not have a material
impact on the overall level of assets.
The Group maintains an active and regular contribution schedule across all the plans. The contributions to all its plans
in 2017 were US$16.9 million and the estimated amounts of contributions expected to be paid to all its plans in 2018 are
US$15.2 million.
88
Dairy Farm International Holdings LimitedNotes to the Financial Statements 22. Share Capital
Authorized:
2,250,000,000 shares of US¢5 5/9 each
500,000 shares of US$800 each
Issued and fully paid:
Ordinary shares of US¢5 5/9 each
At 1st January
Issued under employee share option schemes
At 31st December
Ordinary shares in millions
2017
2016
1,352.2
1,352.2
0.3
–
1,352.5
1,352.2
2017
US$m
125.0
400.0
525.0
2017
US$m
75.1
–
75.1
2016
US$m
125.0
400.0
525.0
2016
US$m
75.1
–
75.1
23. Share-based Long-term Incentive Plans
Share-based long-term incentive plans (‘LTIP’) have been put in place to provide incentives for selected executives.
Awards take the form of share options to purchase ordinary shares in the Company with exercise prices based on the then
prevailing market prices, however, share awards which will vest free of payment may also be made. Awards normally vest
on or after the third anniversary of the date of grant and may be subject to the achievement of performance conditions.
The LTIP was adopted by the Company on 5th March 2015. During 2017, awards were granted in the form of options with
exercise prices based on the then prevailing market prices, and no free shares were granted. Prior to the adoption of the
LTIP, The Dairy Farm International Share Option Plan 2005 provided selected executives with options to purchase ordinary
shares in the Company.
The exercise prices of the options granted during 2017, and in prior years, were based on the average market prices for
the five trading days immediately preceding the dates of grant of the options. Options normally vest on the third
anniversary of the date of grant, and are exercisable for up to ten years following the date of grant.
Movements during the year:
2017
2016
Weighted
average
exercise
price
Options
Weighted
average
exercise
price
Options
US$
in millions
US$
in millions
8.2712
8.9060
6.1680
9.8772
8.0741
7.2
2.8
(1.2)
(3.4)
5.4
9.5447
5.9320
–
9.8528
8.2712
6.8
2.4
–
(2.0)
7.2
At 1st January
Granted
Exercised
Lapsed
At 31st December
The average share price during the year was US$8.18 (2016: US$6.69) per share.
89
Annual Report 2017
23. Share-based Long-term Incentive Plans continued
Outstanding at 31st December:
Expiry date
2018
2019
2020
2021
2022
2022
2023
2023
2024
2025
2026
2027
Total outstanding
of which exercisable
Exercise price
Options in millions
US$
2017
2016
4.6280
4.4640
6.2500
8.1940
10.2420
10.4925
12.1580
12.1300
9.7160
9.6000
5.9320
8.9060
–
–
–
–
–
–
0.2
–
0.3
0.7
2.0
2.2
5.4
0.6
0.2
0.2
0.5
0.3
0.2
0.3
0.5
0.4
1.1
1.3
2.2
–
7.2
2.6
The fair value of options granted during the year, determined using the trinomial valuation model, was US$4.2 million
(2016: US$2.3 million). The significant inputs into the model, based on the number of options issued, were share price of
US$8.95 (2016: US$6.12) at the grant date, exercise price shown above, expected volatility based on the last five years of
20.69% (2016: 21.91%), dividend yield of 2.31% (2016: 3.33%), option life disclosed above, and annual risk-free interest rate
of 2.00% (2016: 1.49%). Options are assumed to be exercised at the end of the fifth year following the date of grant.
24. Share Premium and Capital Reserves
2017
At 1st January
Employee share option schemes
– value of employee services
– share options lapsed
Transfer
At 31st December
2016
At 1st January
Employee share option schemes
– value of employee services
– share options lapsed
At 31st December
90
Share
premium
Capital
reserves
US$m
US$m
Total
US$m
31.1
28.3
59.4
–
–
2.0
33.1
1.6
(3.1)
(2.0)
24.8
1.6
(3.1)
–
57.9
31.1
30.2
61.3
–
–
31.1
1.3
(3.2)
28.3
1.3
(3.2)
59.4
Dairy Farm International Holdings LimitedNotes to the Financial Statements 24. Share Premium and Capital Reserves continued
Capital reserves comprise contributed surplus of US$20.1 million (2016: US$20.1 million) and other reserves of
US$4.7 million (2016: US$8.2 million), which represent the value of employee services under the Company’s share-based
long-term incentive plans. The contributed surplus principally arose from the conversion of convertible preference shares
in 1989 and, under the Bye-laws of the Company, is distributable.
25. Dividends
Final dividend in respect of 2016 of US¢14.50 (2015: US¢13.50) per share
Interim dividend in respect of 2017 of US¢6.50 (2016: US¢6.50) per share
2017
US$m
196.1
87.9
284.0
2016
US$m
182.5
87.9
270.4
A final dividend in respect of 2017 of US¢14.50 (2016: US¢14.50) per share amounting to a total of US$196.1 million
(2016: US$196.1 million) is proposed by the Board. The dividend proposed will not be accounted for until it has been
approved at the 2018 Annual General Meeting. This amount will be accounted for as an appropriation of revenue
reserves in the year ending 31st December 2018.
26. Non-controlling Interests
Summarized financial information on a subsidiary with material non-controlling interests
The following is the summarized financial information for PT Hero Supermarket Tbk (‘PT Hero’), a subsidiary with
non-controlling interests that is material to the Group.
Summarized balance sheet at 31st December:
Current
Assets
Liabilities
Total current net assets
Non-current
Assets
Liabilities
Total non-current net assets
Net assets
Non-controlling interests
2017
US$m
2016
US$m
187.8
(147.7)
40.1
333.6
(11.1)
322.5
362.6
226.2
(161.4)
64.8
329.8
(3.2)
326.6
391.4
(56.2)
(60.8)
91
Annual Report 2017 26. Non-controlling Interests continued
Summarized statement of comprehensive income for the year ended 31st December:
Sales
Underlying (loss)/profit after tax
Non-trading items, net of tax
(Loss)/profit after tax
Other comprehensive (expense)/income
Total comprehensive (expense)/income
Total comprehensive (expense)/income allocated to non-controlling interests
Dividends paid to non-controlling interests
Summarized cash flows for the year ended 31st December:
Cash generated from operations
Interest received
Interest and other financing charges paid
Tax paid
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at 1st January
Effect of exchange rate changes
Cash and cash equivalents at 31st December
The information above is the amount before inter-company eliminations.
2017
US$m
2016
US$m
972.7
1,028.9
(20.8)
–
(20.8)
(6.9)
(27.7)
(4.4)
–
3.3
5.3
8.6
20.2
28.8
4.4
–
2017
US$m
2016
US$m
47.2
0.2
(0.4)
(5.3)
41.7
(38.0)
–
3.7
13.2
(0.2)
16.7
36.5
0.2
(2.0)
(4.7)
30.0
(20.3)
(7.5)
2.2
10.7
0.3
13.2
92
Dairy Farm International Holdings LimitedNotes to the Financial Statements 27. Geographical Analysis of Non-current Assets
Set out below is an analysis of the Group’s non-current assets, excluding financial instruments, non-current debtors and
deferred tax assets, by geographical area:
North Asia
Southeast Asia
At 31st December
28. Notes to Consolidated Cash Flow Statement
(a) Depreciation and amortization
Food
– Supermarkets/hypermarkets
– Convenience stores
Health and Beauty
Home Furnishings
Store support centre
(b) Other non-cash items
By nature:
Profit on sale of restaurants in Cambodia
Loss on sale of tangible and intangible assets
Fair value gains on forward foreign exchange contracts not qualifying as hedges
Impairment/(reversal of impairment) of tangible and intangible assets
Write down of stocks
Reversal of write down of stocks
Options granted under employee share option schemes
(c) Decrease/(increase) in working capital
Decrease/(increase) in stocks
Increase in debtors
Increase in creditors
2017
US$m
2,184.4
1,415.5
3,599.9
2016
US$m
1,998.5
1,327.9
3,326.4
2017
US$m
2016
US$m
170.9
144.8
26.1
28.9
14.2
7.0
166.3
141.1
25.2
28.0
12.7
5.8
221.0
212.8
–
10.1
(0.7)
2.4
9.4
(6.7)
1.6
16.1
63.9
(58.6)
86.8
92.1
(1.0)
9.9
(0.4)
(0.1)
1.2
(2.5)
1.3
8.4
(58.6)
(62.3)
23.8
(97.1)
93
Annual Report 2017 28. Notes to Consolidated Cash Flow Statement continued
(d) Purchase of associates and joint ventures in 2017 mainly related to the Group’s capital injection of US$3.4 million
in the business in Vietnam and US$2.4 million in Rose Pharmacy, Inc. (‘Rose’) which operates a health and beauty business
in the Philippines.
Purchase in 2016 mainly related to the Group’s further investment in Yonghui, a supermarket and hypermarket operator
in mainland China, amounting to US$190.2 million and a capital injection of US$4.3 million in Rose and US$2.5 million in
the Group’s business in Vietnam.
(e) Sale of properties
Sale of properties in 2017 included sale of land in Malaysia and a property in Taiwan for a total cash consideration of
US$3.2 million.
Sale in 2016 included sale of properties in Indonesia for a total cash consideration of US$7.2 million.
(f) Change in interests in subsidiaries
In August 2017, the Group acquired a further 34% interest in Rustan Supercenters, Inc. in the Philippines for a total
consideration of US$59.9 million, such that it is now a wholly-owned subsidiary of the Group.
In October 2017, the Group acquired an additional 0.06% interest in PT Hero for a total consideration of US$0.2 million,
whereas in 2016, an additional 0.52% interest was acquired for US$2.2 million.
(g) Analysis of balances of cash and cash equivalents
Bank balances and other liquid funds (note 17)
Bank overdrafts (note 19)
Cash and bank balances included in assets held for sale
2017
US$m
2016
US$m
332.4
323.8
(1.1)
3.2
(1.2)
–
334.5
322.6
94
Dairy Farm International Holdings LimitedNotes to the Financial Statements 29. Derivative Financial Instruments
The fair values of derivative financial instruments at 31st December are as follows:
Designated as cash flow hedges
– forward foreign exchange contracts
– interest rate swaps
Non-qualifying as hedges
– forward foreign exchange contracts
2017
2016
Positive
fair value
Negative
fair value
Positive
fair value
Negative
fair value
US$m
US$m
US$m
US$m
0.5
2.2
2.7
0.7
0.7
2.3
–
2.3
–
–
0.4
2.2
2.6
0.4
0.4
0.6
–
0.6
–
–
Forward foreign exchange contracts
The contract amounts of the outstanding forward foreign exchange contracts at 31st December 2017 were US$513.6 million
(2016: US$548.8 million).
Interest rate swaps
The notional principal amounts of the outstanding interest rate swap contracts at 31st December 2017 were US$200.0 million
(2016: US$200.0 million) and the fixed interest rates relating to interest rate swaps vary from 0.9% to 1.0%
(2016: 0.9% to 1.0%) per annum.
The fair values of interest rate swaps are based on the estimated cash flows discounted at market rate of 1.6% (2016: 1.0%)
per annum.
95
Annual Report 2017 30. Commitments
Capital commitments
Authorized not contracted
Contracted not provided
– joint ventures
– other
Operating lease commitments
Total commitments under operating leases
– due within one year
– due between one and two years
– due between two and three years
– due between three and four years
– due between four and five years
– due beyond five years
2017
US$m
2016
US$m
298.7
223.1
–
40.0
338.7
822.6
561.5
350.8
217.1
161.1
790.6
12.2
62.8
298.1
764.3
545.0
265.2
136.6
101.8
225.5
2,903.7
2,038.4
Total future sublease payments receivable relating to the above operating leases amounted to US$35.4 million
(2016: US$41.4 million).
In addition, the Group has operating lease commitments with rentals determined in relation to sales. It is not possible to
quantify accurately future rentals payable under such leases.
31. Contingent Liabilities
Various Group companies are involved in litigation arising in the ordinary course of their respective businesses. Having
reviewed outstanding claims and taking into account legal advice received, the Directors are of the opinion that adequate
provisions have been made in the financial statements.
96
Dairy Farm International Holdings LimitedNotes to the Financial Statements 32. Related Party Transactions
The parent company of the Group is Jardine Strategic Holdings Limited and the ultimate parent company is Jardine
Matheson Holdings Limited (‘JMH’). Both companies are incorporated in Bermuda.
In the normal course of business the Group undertakes a variety of transactions with JMH and its subsidiaries, associates
and joint ventures. The more significant of such transactions are described below.
Under the terms of a Management Services Agreement, the Group paid a management fee of US$2.0 million
(2016: US$2.3 million) to Jardine Matheson Limited (‘JML’), a wholly-owned subsidiary of JMH, based on 0.5% of the
Group’s profit attributable to shareholders in consideration for certain management consultancy services provided by
JML. The Group also paid directors’ fees of US$0.5 million in 2017 (2016: US$0.5 million) to JML.
The Group rents properties from Hongkong Land Holdings Limited (‘HKL’), a subsidiary of JMH. The gross annual rentals
paid by the Group to HKL in 2017 were US$3.0 million (2016: US$2.8 million). The Group’s 50%-owned associate, Maxim’s,
also paid gross annual rentals of US$11.8 million (2016: US$11.2 million) to HKL in 2017.
The Group uses Jardine Lloyd Thompson Limited (‘JLT’), an associate of JMH, to place certain of its insurance policies.
Brokerage fees and commissions, net of rebates, paid by the Group to JLT in 2017 were US$2.0 million
(2016: US$2.1 million).
The Group sources information technology infrastructure and related services from Jardine Technology Holdings
Limited (‘JTH’), a subsidiary of JMH. The total fees paid by the Group to JTH in 2017 amounted to US$9.9 million
(2016: US$9.5 million). Maxim’s also paid total fees of US$3.5 million (2016: US$3.5 million) to JTH in 2017.
The Group also obtains repairs and maintenance services from Jardine Engineering Corporation (‘JEC’), a subsidiary of
JMH. The total fees paid by the Group to JEC in 2017 amounted to US$9.3 million (2016: US$5.6 million).
Maxim’s supplies ready-to-eat products at arm’s length to certain subsidiaries of the Group. In 2017, these amounted to
US$30.5 million (2016: US$27.6 million).
In addition, Gammon Construction, a joint venture of JMH, was engaged by Maxim’s to provide construction and
renovation works amounting to US$8.6 million (2016: US$24.4 million) in 2017.
Amounts of outstanding balances with associates and joint ventures are included in debtors and creditors, as appropriate.
Balances with group companies of JMH at 31st December 2017 and 2016 are immaterial, unsecured, and have no fixed
terms of repayment.
Details of Director’s remuneration (being key management personnel compensation) are shown on page 112 under the
heading of Directors’ Appointment, Retirement, Remuneration and Service Contracts.
97
Annual Report 2017 33. Summarized Balance Sheet of the Company
Included below is certain summarized balance sheet information of the Company disclosed in accordance with Bermuda
law.
Subsidiaries, at cost less provision*
Current assets
Current liabilities
Net operating assets
Share capital (note 22)
Share premium and capital reserves (note 24)
Revenue and other reserves
Shareholders’ funds
* Included intercompany balances due from/(to) subsidiaries.
34. Principal Subsidiaries
The Group’s principal subsidiaries at 31st December 2017 are set out below:
Company name
incorporation
Nature of business
Country of
Attributable
interests
2017
%
2016
%
100
100
100
100
100
100
Dairy Farm Management Limited†
Dairy Farm Management Services
Limited†
DFI Treasury Limited†
DFI (China) Commercial Investment
Holding Company Ltd
Guangdong Sai Yi Convenience
Stores Limited
Mannings Guangdong Retail
Company Limited
The Dairy Farm Company, Limited
Bermuda
Bermuda
Holding
Group management
British Virgin
Islands
Treasury
Mainland China
Investment holding
100
100
Mainland China
Convenience stores
65
65
Mainland China
Health and beauty stores
100
100
Hong Kong
100
100
Investment holding,
supermarkets,
convenience, health
and beauty and home
furnishings stores
Wellcome Company Limited
Hong Kong
Property and
100
100
food processing
San Miu Supermarket Limited
Macau
Supermarkets
100
100
98
2017
US$m
2016
US$m
645.0
930.1
–
(1.3)
643.7
75.1
57.9
510.7
643.7
0.1
(1.8)
928.4
75.1
59.4
793.9
928.4
Proportion of ordinary
shares and voting powers
at 31st December 2017
held by
non-
controlling
interests
%
the
Group
%
100
100
100
100
65
100
100
100
100
–
–
–
–
35
–
–
–
–
Dairy Farm International Holdings LimitedNotes to the Financial Statements
34. Principal Subsidiaries continued
Company name
incorporation
Nature of business
Country of
Wellcome Taiwan Company Limited
DFI Home Furnishings Taiwan Limited
GCH Retail (Malaysia) Sdn. Bhd.
Taiwan
Taiwan
Malaysia
Guardian Health & Beauty Sdn. Bhd.
PT Hero Supermarket Tbk
Malaysia
Indonesia
Giant TMC (B) Sdn. Bhd.
Brunei
Cold Storage Singapore (1983)
Pte Limited
Singapore
DFI Lucky Private Limited
Cambodia
Rustan Supercenters, Inc.
The Philippines
All subsidiaries are included in the consolidation.
Supermarkets
Home furnishings stores
Supermarkets and
hypermarkets
Health and beauty stores
Supermarkets,
hypermarkets, health
and beauty and home
furnishings stores
Hypermarket and health
and beauty stores
Supermarkets,
hypermarkets,
convenience and health
and beauty stores
Supermarkets and health
and beauty stores
Supermarkets and
hypermarkets
Proportion of ordinary
shares and voting powers
at 31st December 2017
held by
non-
controlling
interests
%
the
Group
%
100
100
70
100
84
100
100
70
100
–
–
30
–
16
–
–
30
–
Attributable
interests
2017
%
2016
%
100
100
85
100
84
100
100
85
100
84
100
100
100
100
70
100
70
66
Attributable interests represent the proportional holdings of the Company, held directly or through its subsidiaries, in the
issued share capitals of the respective companies, after the deduction of any shares held by the trustees of the employee
share option schemes of any such company and any shares in any such company owned by its wholly-owned
subsidiaries.
† Directly held by the Company.
99
Annual Report 2017
Independent Auditors’ Report
To the members of Dairy Farm International Holdings Limited
Report on the audit of the financial statements
Opinion
In our opinion, Dairy Farm International Holdings Limited’s Group financial statements (the ‘financial statements’):
•
•
•
give a true and fair view of the state of the Group’s affairs as at 31st December 2017 and of its profit and cash flows
for the year then ended;
have been properly prepared in accordance with International Financial Reporting Standards (‘IFRSs’) as issued by
the International Accounting Standards Board (‘IASB’); and
have been prepared in accordance with the requirements of The Companies Act 1981 (Bermuda).
What we have audited
We have audited the financial statements, included within the Annual Report, which comprise: the Consolidated Balance
Sheet as at 31st December 2017; the Consolidated Profit and Loss Account, the Consolidated Statement of
Comprehensive Income, the Consolidated Cash Flow Statement, and the Consolidated Statement of Changes in Equity
for the year then ended; and the notes to the financial statements, which include a description of the significant
accounting policies.
Certain required disclosures have been presented in the Corporate Governance section on page 112 rather than in the
notes to the consolidated financial statements. These disclosures are cross-referenced from the consolidated financial
statements and are identified as audited.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial
statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the Financial Reporting Council’s (‘FRC’s’) Ethical Standard as applicable
to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
100
Dairy Farm International Holdings Limited Our audit approach
Overview
Materiality
•
•
Overall Group materiality: US$27.7 million.
Based on 5% of profit before tax adding back certain items.
Audit scope
•
A full scope audit was performed on 18 entities including 15 subsidiaries, one associate, Maxim’s, and two joint
ventures. These entities accounted for 99% of the Group’s revenue and 83% of the Group’s profit before tax.
Key audit matters
•
•
•
•
Buying income.
Impairment of goodwill in subsidiaries and investments in associates and joint ventures.
Stocks valuation and provisioning.
IT environment.
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the Directors made subjective judgements, for example in respect of
significant accounting estimates that involved making assumptions and considering future events that are inherently
uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including
evaluating whether there was evidence of bias by the Directors that represented a risk of material misstatement due
to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit
of the financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters,
and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these
matters. This is not a complete list of all risks identified by our audit.
101
Annual Report 2017 How our audit addressed the key audit matter
We gained an understanding of the key controls in place
within the buying income process and tested those
controls in certain components of the business. We
performed detailed analytical review of buying income
by type and location to identify whether any unusual
trends were present.
On a sample basis, we traced the reconciliation of supplier
deductions or payments recognized in the income
statement to cash receipts or supplier contracts.
We selected, on a sample basis, amounts recognized
in debtors and creditors and agreed the amounts to
supporting documentation. Where amounts were offset
we assessed whether there is a right to offset, based on
the contractual terms with suppliers.
On a sample basis, we assessed whether the performance
criteria of the associated sample items had been met and
where buying income amounts were estimated, that there
was appropriate supporting evidence in determining
those estimates.
We assessed, on a sample basis, the appropriateness
of manual journal entries and adjustments associated
with buying income by tracing them to supporting
documentation.
Supplier dispute logs and management’s supplier
statement reconciliations were assessed, on a sample
basis, to determine whether material disputes or
disagreements with suppliers exist. Where material
disputes or disagreements existed we understood
the nature of these disputes through discussions with
management and obtained documentation to assess
whether the amounts recognized by management
were reasonable.
Based on our procedures performed, we found no
material exceptions.
Key audit matter
Buying income
Refer to note 1 (Principal Accounting Policies) and note 3
(Critical Accounting Estimates and Judgements) to the
financial statements.
The Group has arrangements with suppliers whereby
volume-based discounts and incentives, promotional
and marketing incentives and various other rebates and
discounts are earned in connection with the purchase of
goods for resale from those suppliers. As such, the Group
recognizes a net deduction from cost of sales as a result
of amounts receivable from suppliers.
The individual supplier arrangements in place across
the Group vary in nature. The majority of buying income is
driven by volume-based measures or event-driven
schemes, with the remainder being ad-hoc and
promotional buying income.
The level of judgement in each category of buying income
is noted below:
Volume-based income
Volume-based rebates are generally driven by achieving
purchase volume targets set with individual suppliers
for specific products over a pre-set period of time.
In instances where the rebate agreement does not fully
coincide with the period-end, the key judgement that
we focused on was the estimate of expected purchase
volumes in the period covered by the rebate agreement.
Ad-hoc and promotional income
The remainder of the Group’s buying income is associated
with ad-hoc and promotional income. The nature of this
income and the manner in which it is recognized varies
depending on the nature of the agreement reached with
the individual supplier. The income is earned as the
relevant performance criteria are met. Due to the significant
number of transactions, individual agreements and
potential for manual calculations associated with this type
of buying income, we focused a significant amount of effort
on assessing the appropriateness of amounts recognized.
Our focus is on the underlying agreements associated with
the income earned, and assessing whether the income
recorded is in accordance with those agreements.
Given the varied types of buying income arrangements
as well as various performance criteria which differ by
suppliers, and given the fact that buying income is
material to the financial statements, we identified buying
income as a key audit matter.
102
Dairy Farm International Holdings LimitedIndependent Auditors’ Report Key audit matter
How our audit addressed the key audit matter
Impairment of goodwill in subsidiaries and investments
in associates and joint ventures
Refer to note 3 (Critical Accounting Estimates and
Judgements), note 11 (Intangible Assets) and note 13
(Associates and Joint Ventures) to the financial statements.
As at 31st December 2017, goodwill held in subsidiaries
totalled US$568.8 million and investment in associates and
joint ventures totalled US$1,601.0 million.
Management undertook impairment assessments, as
required by accounting standards, noting certain cash
generating units (‘CGUs’) that were underperforming or
loss-making.
The determination of the recoverable amount of
CGUs requires significant judgements by management,
particularly management’s view on key internal inputs
and external market conditions which impact future cash
flows, the discount rates and long-term growth rates.
We have reviewed and understood management’s
impairment assessment process, including what indicators
of impairment had been noted and the appropriateness of
the valuation models used. We assessed management’s
determination of CGUs. Where we identified a risk of
impairment we performed the following procedures.
We benchmarked and challenged key assumptions in
management’s valuation models used to determine
recoverable amounts, including assumptions of projected
profit of businesses, long-term growth rates and discount
rates appropriate for the CGUs under review, using our
knowledge and experience.
We tested the discounted cash flow models used by
management in their assessments, re-performed the
calculations to check their accuracy, compared historical
budgeted performance to actual results and agreed the
figures used to the detailed management approved
budgets to assess the reasonableness of the cash flows
used in the model.
Our challenge focused particularly on the discount rates
and long-term growth rates used. With the support of our
valuations specialists, we compared the discount rates
used to the range of typical discount rates used in similar
businesses, considered whether management had
incorporated all relevant macro-economic and
country-specific factors, as well as those specific to
those CGUs, in determining their discount rates.
For the growth rate we assessed whether management
had considered macro-economic and country-specific
factors specific to the relevant businesses. We also
compared the rate used to the range of growth rates used
by similar businesses.
We tested management’s historical estimation accuracy by
comparing previous projected growth rates to the actual
growth achieved. Where differences were noted we
understood management’s rationale and the evidence,
such as actual recent performance, to support
management’s estimates.
We evaluated the sensitivity analysis performed by
management and performed our independent sensitivity
analysis on the key assumptions above and considered a
range of alternative outcomes to determine the sensitivity
of the valuation models to changes in assumptions.
Based on the work performed, we found that the
judgements made by management to determine the
discount rate, long-term growth rates and valuation
models are reasonable.
103
Annual Report 2017
Key audit matter
How our audit addressed the key audit matter
Stocks valuation and provisioning
Refer to note 1 (Principal Accounting Policies) and note 5
(Operating Profit) to the financial statements.
The Group carries stocks at the lower of cost and net
realizable value. As at 31st December 2017, the Group
held stocks of US$950.0 million.
We identified stocks provisioning as a key audit matter
because of the nature of the judgements made by
management when assessing the appropriate level of
provisioning to be recognized. Management assesses the
provision required for stocks with respect to the nature
and age of stock balances. This approach relies upon
assumptions made with respect to the estimate of
potential future sales within specific categories of stock.
The Group’s stocks are held over a large number of
locations and stores, which vary in size and quantity. Due
to these factors, the audit of stocks requires significant
time and audit effort.
We obtained an understanding of management’s stocks
provisioning policy. Based on this understanding we
evaluated and tested certain key controls within the
inventory cycle that the Group established with respect
to this policy.
In addition we attended stock counts during the year
on a sample basis across the Group’s business locations,
assessing the key controls as well as agreeing a sample of
stock to supporting records, and assessing the condition
of those stock samples selected.
We assessed management’s provisioning assumptions
with respect to the type and age of stocks based on both
historical and current sales records, representing the
utilization of stocks.
To assess whether stock is maintained at the lower of
cost and net realizable value, we performed testing on
a sample basis.
On a sample basis, we recalculated the level of
provisioning based on the stocks provisioning policy.
Based on the procedures performed and evidence
available, we considered the key assumptions used in
management’s stocks valuation and provisioning were
within a reasonable range.
104
Dairy Farm International Holdings LimitedIndependent Auditors’ Report Key audit matter
IT environment
Refer to page 118 (Principal Risks and Uncertainties) of
the Annual Report.
The IT systems across the Group are complex and there
are varying levels of standardization with respect to IT
systems, as well as integration between existing legacy IT
systems. The systems are vital to the ongoing operations
of the business and to the integrity of the financial
reporting process.
How our audit addressed the key audit matter
We updated our understanding of the IT environment
through discussions with management and walked-through
the key financial processes to understand the IT systems
which were integral to the Group’s controls over financial
reporting. These procedures allowed us to determine
which IT systems, processes and controls to rely upon.
We assessed the implementation of new systems within
the Group during the year over which we wanted to
place reliance.
Key controls over program changes made to key IT
systems over which we wanted to place reliance on during
our audit were assessed. In addition, we assessed key
controls over IT operations, including the level of access
provided to users regarding programs, data and IT systems
within the Group.
The key automated or processing controls operating
within key IT systems were assessed.
Where we noted deficiencies which affected applications
in certain territories within the scope of our audit, we
extended the scope of our substantive audit procedures.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed sufficient audit work to be able to give an opinion on the
financial statements as a whole, taking into account the geographic locations and structure of the Group, the accounting
processes and controls in place and the industry in which it operates.
The Group’s accounting processes are structured around finance functions, which are responsible for their own
accounting records and controls, which in turn report financial information to the Group’s finance function in Hong Kong
to enable them to prepare consolidated financial statements.
In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed by
members of the Group engagement team or by component auditors from within the PwC Network operating under our
instruction. Where the work was performed by component auditors, we determined the level of involvement we needed
to have in the audit work at those components to be able to conclude whether sufficient appropriate audit evidence had
been obtained as a basis for our opinion on the financial statements as a whole. The Group engagement team was
involved in the significant reporting entities in scope for Group reporting during the audit cycle through a combination of
meetings, visits and conference calls. The lead Group audit partner and other senior Group team members undertook
multiple visits to Hong Kong during the audit and were involved throughout the year in regular conference calls and
other forms of communication to direct and oversee the audit. Other senior team members visited a number of
countries, including Malaysia, Singapore, Indonesia, the Philippines and mainland China during the audit to review the
work of component teams with regular communication throughout the year.
105
Annual Report 2017 A full scope audit was performed on 18 entities including 15 subsidiaries, one associate, Maxim’s and two joint ventures.
These entities accounted for 99% of the Group’s revenue and 83% of the Group’s profit before tax. This, together with
procedures performed on central functions and at Group level (on the consolidation and other areas of significant
judgement), gave us the evidence we needed for our opinion on the financial statements as a whole.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the
nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and
in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall Group materiality
US$27.7 million.
How we determined it
5% of profit before tax excluding business change costs of US$72.8 million.
Rationale for benchmark applied
Profit before tax is the primary measure used in assessing the performance of
the Group which has been adjusted by adding back business change costs of
US$72.8 million incurred in 2017 as disclosed in note 5 to the financial
statements.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group
materiality. The range of materiality allocated across components was US$0.1 million to US$27.6 million.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above
US$1.4 million as well as misstatements below that amount that in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
In accordance with ISAs (UK) we are required to report if the Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is not appropriate or the Directors have not disclosed in the financial statements
any identified material uncertainties that may cast significant doubt about the Group’s ability to continue to adopt the
going concern basis of accounting for a period of at least twelve months from the date when the financial statements are
authorized for issue. We have nothing to report.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s
ability to continue as a going concern.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our
auditors’ report thereon. The Directors are responsible for the other information. Our opinion on the financial statements
does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent
otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the financial statements or our knowledge
obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency
or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement
106
Dairy Farm International Holdings LimitedIndependent Auditors’ Report of the financial statements or a material misstatement of the other information. If, based on the work we have performed,
we conclude that there is a material misstatement of this other information, we are required to report that fact. We have
nothing to report based on these responsibilities.
Responsibilities for the financial statements and the audit
Responsibilities of the Directors for the financial statements
As explained more fully in the Responsibility Statement set out on page 109, the Directors are responsible for the
preparation of the financial statements in accordance with the applicable framework and for being satisfied that they
give a true and fair view. The Directors are also responsible for such internal control as they determine is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s ability to continue as a going
concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless
the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance
with Section 90 of The Companies Act 1981 (Bermuda) and for no other purpose. We do not, in giving these opinions,
accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose
hands it may come save where expressly agreed by our prior consent in writing.
John Baker
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants
London
8th March 2018
a.
The maintenance and integrity of the Dairy Farm International Holdings Limited website is the responsibility of
the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly,
the auditors accept no responsibility for any changes that may have occurred to the financial statements since they
were initially presented on the website.
b.
Legislation in Bermuda governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
107
Annual Report 2017 Five Year Summary
2017
US$m
2016
US$m
2015
US$m
2014
US$m
2013
US$m
Profit and loss
Sales
Sales including associates and joint ventures
Profit attributable to shareholders
Underlying profit attributable to shareholders
Underlying earnings per share (US¢)
Basic earnings per share (US¢)
Dividends per share (US¢)
11,288.7
21,827.0
11,200.7
20,423.6
11,137.3
17,907.0
11,008.3
13,102.8
10,357.4
12,431.7
403.5
402.6*
29.77†
29.83
21.00
469.0
460.2
34.03
34.69
21.00
424.4
428.1
31.66
31.39
20.00
509.1
500.1
36.98
37.65
23.00
500.9
480.1
35.52
37.05
23.00
Balance sheet
Total assets
Total liabilities
5,467.2
5,128.9
4,820.9
4,316.3
3,963.5
(3,711.5)
(3,549.5)
(3,365.7)
(2,793.8)
(2,586.1)
Net operating assets
1,755.7
1,579.4
1,455.2
1,522.5
1,377.4
Shareholders’ funds
Non-controlling interests
Total equity
Net (debt)/cash
Net asset value per share (US¢)
Cash flow
Cash flows from operating activities
Cash flows from investing activities
Cash flows before financing activities
Cash flow per share from operating
activities (US¢)
1,690.0
1,505.3
1,375.8
1,428.7
1,281.0
65.7
74.1
79.4
93.8
96.4
1,755.7
1,579.4
1,455.2
1,522.5
1,377.4
(599.1)
124.96
(640.8)
111.32
(481.7)
101.75
474.8
105.66
637.6
94.74
671.3
(280.6)
390.7
542.9
(428.0)
114.9
699.8
(1,365.4)
(665.6)
675.9
(432.5)
243.4
682.9
(285.0)
397.9
49.64
40.15
51.75
49.99
50.52
* The adjusted underlying profit attributable to shareholders for 2017 was US$467.1 million.
† The adjusted underlying earnings per share for 2017 was US¢34.54.
108
Dairy Farm International Holdings Limited Responsibility Statement
The Directors of the Company confirm to the best of their knowledge that:
a.
b.
the consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards, including International Accounting Standards and Interpretations adopted by the International
Accounting Standards Board; and
the sections of this Report, including the Chairman’s Statement, Group Chief Executive’s Review, Business Review
and Principal Risks and Uncertainties, which constitute the management report include a fair review of all information
required to be disclosed by the Disclosure Guidance and Transparency Rules 4.1.8 to 4.1.11 issued by the Financial
Conduct Authority in the United Kingdom.
For and on behalf of the Board
Ian McLeod
Neil Galloway
Directors
8th March 2018
109
Annual Report 2017 Corporate Governance
Dairy Farm International Holdings Limited is incorporated in Bermuda. The Group’s retailing interests are entirely in Asia.
The Company’s equity shares have a standard listing on the Main Market of the London Stock Exchange, and secondary
listings in Bermuda and Singapore. The Disclosure Guidance and Transparency Rules (the ‘DTRs’) issued by the Financial
Conduct Authority in the United Kingdom (the ‘FCA’) require that this Report address all relevant information about the
corporate governance practices applied beyond the requirements under Bermuda law.
The Company attaches importance to the corporate stability and opportunities that result from it being part of the
Jardine Matheson Holdings Limited (‘Jardine Matheson’) group, which is considered to be fundamental to the Company’s
ability to pursue a long-term strategy in Asian markets. By coordinating objectives, establishing common values and
standards, and sharing experience, contacts and business relationships, the Jardine Matheson group companies aim to
optimize their opportunities across the Asian countries where they operate.
The Group is committed to high standards of governance. The system of governance it has adopted is based on a
well-tried approach to oversight and management that has been developed over many years by the members of the
Jardine Matheson group. It enables the Company to benefit from Jardine Matheson’s strategic guidance and professional
expertise, while at the same time the independence of the Board is respected and clear operational accountability rests
with the Company’s executive management teams.
The Management of the Group
The Company has its dedicated executive management under the Group Chief Executive. The Memorandum of
Association of the Company, however, provides for the chairman of Jardine Matheson to be, or to appoint, the Managing
Director of the Company. Reflecting this, and the Jardine Matheson group’s 78% interest in the Company’s share capital,
the Group Chief Executive and the Managing Director meet regularly. Similarly, the board of the Hong Kong-based Group
management company, Dairy Farm Management Services Limited (‘DFMS’), and its finance committee are chaired by the
Managing Director and include Group executives as well as Jardine Matheson’s deputy managing director, group finance
director, group strategy director and group general counsel.
The presence of Jardine Matheson representatives on the Board and on the board of DFMS, as well as on its audit
and finance committees, provides an added element of stability to the Company’s financial planning and supervision,
enhancing its ability to raise finance and take a long-term view of business development. It also eases the ability of
management to work effectively together in exploiting the full range of the Jardine Matheson group’s commercial
strengths.
The Directors of the Company retain full power to manage the business affairs of the Company, other than matters
reserved to be exercised by the Company in general meeting under Bermuda legislation or the Company’s Bye-laws.
Among the matters on which the Board decides are the Group’s business strategy, its annual budget, dividends and
major corporate activities.
The Board
The Company currently has a Board of 16 Directors. Their names and brief biographies appear on pages 37 and 38
of this Report. The Chairman has been appointed in accordance with the provisions of the Bye-laws of the Company,
which provide that the chairman of Jardine Matheson, or any Director nominated by him, shall be the Chairman of the
Company. The Board composition and operation helps to provide the Company with the necessary stability as it seeks
to grow its business.
110
Dairy Farm International Holdings Limited The Board continued
The role of the Chairman is to lead the Board as it oversees the Group’s strategic and financial direction, while the
principal role of the Managing Director is to act as chairman of DFMS and of its finance committee. Ben Keswick is
currently appointed to both positions. The responsibility for running the Group’s business and all the executive matters
affecting the Group rests with the Group Chief Executive, Ian McLeod. The implementation of the Group’s strategy
is delegated to the Company’s executive management, with decision-making authority within designated financial
parameters delegated to the DFMS finance committee.
The Board is scheduled to hold four meetings in 2018 and ad hoc procedures are adopted to deal with urgent matters.
In 2017 one meeting was held in Bermuda and three were held in Asia. The Board receives high quality, up to date
information for each of its meetings. In addition, certain Directors of the Company who do not serve on the board
of DFMS and who are based outside Asia regularly visit Asia and Bermuda to discuss the Group’s business, as well as
to participate in the four strategic reviews that precede the regular Board meetings. These Directors are not directly
involved in the operational management of the Group’s business activities, but their knowledge and close oversight
of the Group’s affairs reinforces the process by which business is reviewed before consideration at Board meetings.
Directors’ Appointment, Retirement, Remuneration and Service Contracts
Candidates for appointment as executive Directors of the Company, as executive directors of DFMS or as senior
executives elsewhere in the Group may be sourced internally, or from the Jardine Matheson group or externally, including
by using the services of specialist executive search firms. The aim is to appoint individuals who combine international
best practice with familiarity of or adaptability to Asian markets. When appointing non-executive Directors, the Board
pays particular attention to the Asian business experience and relationships that they can bring.
Each new Director is appointed by the Board and, in accordance with the Company’s Bye-laws, each new Director so
appointed is subject to retirement at the first annual general meeting after appointment. Thereafter, Directors are subject
to retirement by rotation under the Bye-laws whereby one-third of the Directors retire at the annual general meeting
each year. These provisions apply to both executive and non-executive Directors, but the requirement to retire by
rotation does not extend to the Chairman or Managing Director.
On 31st August 2017 Graham Allan stepped down as Group Chief Executive, and Ian McLeod joined the Board in his place
on 18th September 2017. At this year’s Annual General Meeting to be held on 9th May 2018, Dr George C.G. Koo is to
retire and will not seek re-election. It is proposed that Dr Delman Lee will join the Board following the Annual General
Meeting. In accordance with Bye-law 85, Mark Greenberg, Anthony Nightingale and Percy Weatherall retire by rotation
and, being eligible, offer themselves for re-election. In accordance with Bye-law 92, Ian McLeod will also retire and, being
eligible, offers himself for re-election. Ian McLeod has a service contract with a subsidiary of the Company that has a
notice period of six months. None of the other Directors proposed for re-election has a service contract with the
Company or its subsidiaries.
The Company’s policy is to offer competitive remuneration packages to its senior executives. It is recognized that,
due to the nature of the Group and its diverse geographic base, a number of its senior executives are required to be
offered international terms and the nature of the remuneration packages is designed to reflect this. Executive Directors
joining from outside the Group may be offered an initial fixed-term service contract to reflect any requirement for
them to relocate.
111
Annual Report 2017 Directors’ Appointment, Retirement, Remuneration and Service Contracts continued
Recommendations and decisions on remuneration and other benefits payable or made available to executive Directors
result from consultations between the Chairman and other Directors as he considers appropriate. Directors’ fees, which
are payable to all Directors other than the Group Chief Executive and the Group Finance Director, are decided upon by
shareholders in general meeting as provided for by the Company’s Bye-laws.
For the year ended 31st December 2017, the Directors received from the Group US$11.4 million (2016: US$6.6 million)
in Directors’ fees and employee benefits, being US$0.9 million (2016: US$0.8 million) in Directors’ fees, US$10.0 million
(2016: US$4.6 million) in short-term employee benefits including salary, bonuses, accommodation and deemed benefits in
kind, US$0.2 million (2016: US$0.3 million) in post-employment benefits and US$0.3 million (2016: US$0.9 million) in
share-based payments. The information set out in this paragraph forms part of the audited financial statements.
Share-based long-term incentive plans have also been established to provide incentives for executive Directors and
senior managers. Share options are granted by the scheme trustee after consultation between the Chairman and
the Group Chief Executive as well as other Directors as they consider appropriate. Share options are granted at the
then prevailing market prices and they normally vest after the third anniversary of the date of grant. Grants may be
made in a number of instalments and may be subject to performance conditions. Share options are not granted
to non-executive Directors.
The Company purchases insurance to cover its Directors against their costs in defending themselves in civil proceedings
taken against them in that capacity and in respect of damages resulting from the unsuccessful defence of any
proceedings. To the extent permitted by law, the Company also indemnifies its Directors. Neither the insurance nor
the indemnity provides cover where the Director has acted fraudulently or dishonestly.
Audit Committee
The Board has established within DFMS an audit committee (the ‘Audit Committee’), the current members of which are
Y.K. Pang, Mark Greenberg, Jeremy Parr and John Witt; they have extensive knowledge of the Group while at the same
time not being directly involved in operational management. The chairman, group chief executive and group finance
director of DFMS, together with representatives of the internal and external auditors, also attend the Audit Committee
meetings by invitation. The Audit Committee meets and reports to the Board semi-annually.
Prior to completion and announcement of the half-year and year-end results, a review of the financial information and of
any issues raised in connection with the preparation of the results, including the adoption of new accounting policies, is
undertaken by the Audit Committee with the executive management and a report is received from the external auditors.
The external auditors also have access to the full Board, in addition to the Group Chief Executive, Group Finance Director
and other senior executives.
The Audit Committee keeps under review the nature, scope and results of the audits conducted by the internal audit
function and the findings of the various Group audit committees. The Audit Committee’s responsibilities extend to
reviewing the effectiveness of both the internal and external audit functions; considering the independence and
objectivity of the external auditors; and reviewing and approving the level and nature of non-audit work performed
by the external auditors.
The terms of reference of the Audit Committee can be found on the Company’s website at www.dairyfarmgroup.com.
112
Dairy Farm International Holdings LimitedCorporate Governance Risk Management and Internal Control
The Board has overall responsibility for the Group’s systems of risk management and internal control. The Board has
delegated to the Audit Committee responsibility for providing oversight in respect of risk management activities.
The Audit Committee considers the Group’s principal risks and uncertainties and potential changes to the risk profile,
and reviews the operation and effectiveness of the Group’s systems of internal control and the procedures by which
these risks are monitored and mitigated. The Audit Committee considers the systems and procedures on a regular basis,
and reports to the Board semi-annually. The systems of internal control are designed to manage, rather than eliminate,
business risk; to help safeguard the Group’s assets against fraud and other irregularities; and to give reasonable, but not
absolute, assurance against material financial misstatement or loss.
Executive management is responsible for the implementation of the systems of internal control throughout the Group,
and a series of audit committees at an operational level and the internal audit function monitor the effectiveness of the
systems. The internal audit function also monitors the approach taken by the business units to risk. The internal audit
function is independent of the operating businesses and reports its findings, and recommendations for any corrective
action required, to the Audit Committee.
The Group has in place an organizational structure with defined lines of responsibility and delegation of authority. There
are established policies and procedures for financial planning and budgeting; for information and reporting systems;
for assessment of risk; and for monitoring the Group’s operations and performance. The information systems in place are
designed to ensure that the financial information reported is reliable and up to date.
The Company’s policy on commercial conduct underpins the Group’s internal control process, particularly in the area of
compliance. The policy is set out in the Group’s Code of Conduct, which is a set of guidelines to which every employee
must adhere, and is reinforced and monitored by an annual compliance certification process.
The Audit Committee has also been given the responsibility to oversee the effectiveness of the formal procedures for
employees to raise any matters of serious concern, and is required to review any reports made under those procedures
that are referred to it by the internal audit function.
The Group’s 50% associate, Maxim’s Caterers Limited (‘MCL’), has a separate board, audit committee, risk management
and internal audit structure. The Group is represented on the board of MCL, at which reviews of strategy, operations,
budgets and major investments are undertaken. The MCL board has delegated to the MCL group’s audit and risk
management committees and its audit department responsibility for reviewing areas of major risk and the effectiveness
of the internal control procedures.
The principal risks and uncertainties facing the Company are set out on pages 117 and 118.
Directors’ Responsibilities in respect of the Financial Statements
The Directors are required under the Bermuda Companies Act to prepare financial statements for each financial year
and to present them annually to the Company’s shareholders at the annual general meeting. The financial statements are
required to present fairly in accordance with International Financial Reporting Standards (‘IFRS’) the financial position of
the Group at the end of the year and the results of its operations and its cash flows for the year then ended. The Directors
consider that applicable accounting policies under IFRS, applied on a consistent basis and supported by prudent and
reasonable judgements and estimates, have been followed in preparing the financial statements. The financial
statements have been prepared on a going concern basis.
113
Annual Report 2017 Code of Conduct
The Group conducts business in a professional, ethical and even-handed manner. Its ethical standards are clearly set
out in its Code of Conduct, which is modelled on the Jardine Matheson group’s code of conduct. The Code of Conduct
requires that all Group companies comply with all laws of general application, all rules and regulations that are industry
specific and proper standards of business conduct. The Code of Conduct prohibits the giving or receiving of illicit
payments, and requires that all managers must be fully aware of their obligations under the Code of Conduct and
establish procedures to ensure compliance at all levels within their organizations.
The Code of Conduct also encourages inclusion and diversity, and requires all employees to be treated fairly, impartially
and with dignity and respect. As a multinational Group with a broad range of businesses operating across Asia, the Group
believes in promoting equal opportunities in recruiting, developing and rewarding its people regardless of race, gender,
nationality, religion, sexual orientation, disability, age or background. The scale and breadth of the Group’s businesses
necessitate that they seek the best people from the communities in which they operate most suited to their needs.
The Group has in place procedures by which employees can raise, in confidence, matters of serious concern in areas such
as financial reporting or compliance.
Directors’ Share Interests
The Directors of the Company in office on 8th March 2018 had interests (within the meaning of the EU Market Abuse
Regulation (‘MAR’), which applies to the Company as it is listed on the London Stock Exchange) as set out below in the
ordinary share capital of the Company. These interests include those notified to the Company in respect of the Directors’
closely associated persons (as that term is used under MAR).
George J. Ho
Michael Kok
Dr George C.G. Koo
Anthony Nightingale
Percy Weatherall
1,818,804
282,888
100,329
34,183
200,000
In addition, Neil Galloway held options in respect of 650,000 ordinary shares issued pursuant to the Company’s
share-based long-term incentive plans.
Substantial Shareholders
As a non-UK issuer, the Company is subject to the DTRs pursuant to which a person must in certain circumstances
notify the Company of the percentage of voting rights attaching to the share capital of the Company that he holds.
The obligation to notify arises if that person acquires or disposes of shares in the Company which results in the
percentage of voting rights which he holds reaching, exceeding, or falling below, 5%, 10%, 15%, 20%, 25%, 30%,
50% and 75%.
The Company has been informed of the following holdings of voting rights of 5% or more attaching to the Company’s
issued ordinary share capital: (i) Jardine Strategic Holdings Limited (‘Jardine Strategic’) and its subsidiary undertakings are
directly and indirectly interested in 1,049,589,171 ordinary shares carrying 77.60% of the voting rights and, by virtue
of its interest in Jardine Strategic, Jardine Matheson is also interested in the same ordinary shares; and (ii) Commonwealth
Bank of Australia and its controlled undertakings are directly and indirectly interested in 92,393,636 ordinary shares
carrying 6.83% of the voting rights. Apart from these shareholdings, the Company is not aware of any holders of voting
rights of 5% or more attaching to the issued ordinary share capital of the Company as at 8th March 2018.
There were no contracts of significance with corporate substantial shareholders during the year under review.
114
Dairy Farm International Holdings LimitedCorporate Governance
Governance Principles
The Company’s primary listing on the London Stock Exchange is a standard listing on the Main Market. Under a standard
listing, the Company is subject to the UK Listing Rules (other than those which apply only to companies with a premium
listing), the DTRs, the UK Prospectus Rules and MAR. The Company, therefore, is bound by the rules in relation to
continuous disclosure, periodic financial reporting, disclosure of interests in shares and market abuse, including the rules
governing insider dealing, market manipulation and the disclosure of inside information. The Company is also subject to
regulatory oversight from the FCA, as the Company’s principal securities regulator, and is required to comply with the
Admission and Disclosure Standards of the Main Market of the London Stock Exchange.
When shareholders approved the Company’s move to a standard listing from a premium listing in 2014, the Company
stated that it intended to maintain certain governance principles on the same basis as was then applicable to the
Company’s premium listing, as follows:
1. When assessing a significant transaction, being a larger transaction which would be classified as a class 1 transaction
under the provisions of the UK Listing Rules, the Company will engage an independent financial adviser to provide
a fairness opinion on the terms of the transaction.
2.
3.
In the event of a related party transaction, being a transaction with a related party which would require a sponsor
to provide a fair and reasonable opinion under the provisions of the UK Listing Rules, the Company will engage
an independent financial adviser to confirm that the terms of the transaction are fair and reasonable as far as the
shareholders of the Company are concerned.
Further, as soon as the terms of a significant transaction or a related party transaction are agreed, an announcement
will be issued by the Company providing such details of the transaction as are necessary for investors to evaluate
the effect of the transaction on the Company.
4. At each annual general meeting, the Company will seek shareholder approval to issue new shares on
a non-pre-emptive basis for up to 33% of the Company’s issued share capital, of which up to 5% can be
issued for cash consideration.
5.
The Company will continue to adhere to its Securities Dealing Rules. These rules, which were based on the UK Model
Code, have since been revised to follow the provisions of MAR with respect to market abuse and disclosure of
interests in shares.
6.
The Company will continue its policies and practices in respect of risk management and internal controls.
Related Party Transactions
Details of transactions with related parties entered into by the Company during the course of the year are included in
note 32 to the financial statements on page 97.
115
Annual Report 2017 Securities Purchase Arrangements
The Directors have the power under the Bermuda Companies Act and the Company’s Memorandum of Association to
purchase the Company’s shares. Any shares so purchased shall be treated as cancelled and, therefore, reduce the issued
share capital of the Company. When the Board reviews the possibility for share repurchases, it will take into consideration
the potential for the enhancement of earnings or asset values per share. When purchasing such shares, the Company is
subject to the provisions of MAR.
Takeover Code
The Company is subject to a Takeover Code, based on London’s City Code on Takeovers and Mergers. The Takeover Code
provides an orderly framework within which takeovers can be conducted and the interests of shareholders protected.
The Takeover Code has statutory backing, being established under the Acts of incorporation of the Company in Bermuda.
Annual General Meeting
The 2018 Annual General Meeting will be held on 9th May 2018. The full text of the resolutions and explanatory notes in
respect of the meeting are contained in the Notice of Meeting which accompanies this Report. A corporate website is
maintained containing a wide range of information of interest to investors at www.dairyfarmgroup.com.
Power to Amend Bye-laws
The Bye-laws of the Company can be amended by the shareholders by way of a special resolution at a general meeting
of the Company.
116
Dairy Farm International Holdings LimitedCorporate Governance Principal Risks and Uncertainties
The Board has overall responsibility for risk management and internal control. The process by which the Group identifies
and manages risk is set out in more detail on page 113 of the Corporate Governance section of this Report. The following
are the principal risks and uncertainties facing the Company as required to be disclosed pursuant to the Disclosure
Guidance and Transparency Rules issued by the Financial Conduct Authority in the United Kingdom and are in addition to
the matters referred to in the Chairman’s Statement and Group Chief Executive’s Review.
Economic Risk
Most of the Group’s businesses are exposed to the risk of negative developments in global and regional economies and
financial markets, either directly or through the impact on the Group’s joint venture partners, franchisors, bankers,
suppliers or customers. These developments can result in recession, inflation, deflation, currency fluctuations, restrictions
in the availability of credit, business failures, or increases in financing costs, oil prices and in the cost of raw materials and
finished products. Such developments might increase operating costs, reduce revenues, lower asset values or result in
the Group’s businesses being unable to meet in full their strategic objectives.
Commercial Risk and Financial Risk
Risks are an integral part of normal commercial practices, and where practicable steps are taken to mitigate such risks.
These risks are further pronounced when operating in volatile markets. While the Group’s regional diversification does
help to mitigate some risks, a significant portion of the Group revenues and profits continue to be derived from our
operations in Hong Kong.
A number of the Group’s businesses make significant investment decisions in respect of developments or projects that
take time to come to fruition and achieve the desired returns and are, therefore, subject to market risks.
The Group’s businesses operate in areas that are highly competitive, and failure to compete effectively in terms of price,
product specification, technology, property site or levels of service or to adapt to changing consumer behaviours,
including new shopping channels and formats, can have an adverse effect on earnings. Significant pressure from such
competition may also lead to reduced margins. The quality and safety of the products and services provided by the
Group’s businesses are also important and there is an associated risk if they are below standard, while any damage to
brand equity or reputation might adversely impact the ability to achieve acceptable revenues and profit margins.
The steps taken by the Group to manage its exposure to financial risk are set out in the Financial Review on page 36 and
note 2 to the financial statements on pages 56 to 61.
Concessions, Franchises and Key Contracts
A number of the Group’s businesses and projects are reliant on concessions, franchises, management or other key
contracts. Cancellation, expiry or termination, or the renegotiation of any such concessions, franchises, management
or other key contracts, could have an adverse effect on the financial condition and results of operations of certain
subsidiaries, associates and joint ventures of the Group.
117
Annual Report 2017 Regulatory and Political Risk
The Group’s businesses are subject to a number of regulatory environments in the territories in which they operate.
Changes in the regulatory approach to such matters as foreign ownership of assets and businesses, exchange controls,
licensing, imports, planning controls, emission regulations, tax rules and employment legislation have the potential to
impact the operations and profitability of the Group’s businesses. Changes in the political environment in such territories
can also affect the Group’s businesses.
Terrorism, Pandemic and Natural Disasters
A number of the Group’s operations are vulnerable to the effects of terrorism, either directly through the impact of an act
of terrorism or indirectly through the impact of generally reduced economic activity in response to the threat of or an
actual act of terrorism.
All Group businesses would be impacted by a global or regional pandemic which could be expected to seriously affect
economic activity and the ability of our businesses to operate smoothly. In addition, many of the territories in which the
Group operates can experience from time to time natural disasters such as earthquakes, volcanoes and typhoons.
Technology Risk
The Group has invested significantly in and is heavily reliant on its IT infrastructure and systems for the daily operation
of its business. Any major disruption to the Group’s IT systems could have a significant impact on operations. The ability
to anticipate and adapt to technology advancements or threats is an additional risk that may also have an impact on
the business.
118
Dairy Farm International Holdings LimitedPrincipal Risks and Uncertainties Shareholder Information
Financial Calendar
2017 full-year results announced
Shares quoted ex-dividend on the Singapore Exchange
Shares quoted ex-dividend on the London Stock Exchange
Share registers closed
Annual General Meeting to be held
2017 final dividend payable
2018 half-year results to be announced
Shares quoted ex-dividend on the Singapore Exchange
Shares quoted ex-dividend on the London Stock Exchange
Share registers to be closed
2018 interim dividend payable
* Subject to change
Dividends
8th March 2018
21st March 2018
22nd March 2018
26th to 30th March 2018
9th May 2018
16th May 2018
26th July 2018*
15th August 2018*
16th August 2018*
20th to 24th August 2018*
10th October 2018*
Shareholders will receive their cash dividends in United States dollars, unless they are registered on the Jersey branch
register where they will have the option to elect for sterling. These shareholders may make new currency elections for the
2017 final dividend by notifying the United Kingdom transfer agent in writing by 27th April 2018. The sterling equivalent
of dividends declared in United States dollars will be calculated by reference to a rate prevailing on 2nd May 2018.
Shareholders holding their shares through CREST in the United Kingdom will receive their cash dividends in sterling only.
Shareholders holding their shares through The Central Depository (Pte) Limited (‘CDP’) in Singapore will receive their cash
dividends in United States dollars unless they elect, through CDP, to receive Singapore dollars.
Registrars and Transfer Agent
Shareholders should address all correspondence with regard to their shareholdings or dividends to the appropriate
registrar or transfer agent.
Principal Registrar
Jardine Matheson International Services Limited
P.O. Box HM 1068
Hamilton HM EX
Bermuda
Jersey Branch Registrar
Link Market Services (Jersey) Limited
12 Castle Street
St Helier, Jersey JE2 3RT
Channel Islands
United Kingdom Transfer Agent
Link Asset Services
The Registry
34 Beckenham Road
Beckenham, Kent BR3 4TU
United Kingdom
Singapore Branch Registrar
M & C Services Private Limited
112 Robinson Road #05-01
Singapore 068902
Press releases and other financial information can be accessed through the internet at www.dairyfarmgroup.com.
119
Annual Report 2017 Retail Outlets Summary
Food
2017
Supermarkets Hypermarkets
Convenience
Stores
Health
and
Beauty
Home
Furnishings
Restaurants
355
18
238
118
250
425
21
–
251
60
8
–
1,744
29
Health
and
Beauty
355
17
228
126
245
425
21
–
246
47
5
–
1,715
(100)
4
–
–
–
1
–
–
5
–
–
–
–
10
1
774
14
232
141
–
–
–
–
–
33
8
8
1,210
225
Home
Furnishings
Restaurants
3
–
–
–
1
–
–
5
–
–
–
–
9
–
744
14
195
–
–
–
–
–
–
25
4
3
985
71
Net
addition
39
2
431
109
1
(9)
–
4
22
21
8
5
633
Net
addition
36
6
200
(55)
(78)
(14)
–
2
(4)
16
2
3
114
Total
2,400
98
2,169
766
449
566
22
258
324
94
27
8
7,181
633
Total
2,361
96
1,738
657
448
575
22
254
302
73
19
3
6,548
114
Hong Kong
Macau
Mainland China
Singapore
Indonesia
Malaysia
Brunei
Taiwan
The Philippines
Vietnam
Cambodia
Thailand
Total
Net change over 2016
329
17
472
106
140
61
–
253
61
–
11
–
1,450
313
–
–
307
8
58
80
1
–
12
1
–
–
467
(4)
938
49
920
393
–
–
–
–
–
–
–
–
2,300
69
2016
Supermarkets
Hypermarkets
Convenience
Stores
Food
322
16
176
106
147
68
–
249
43
–
10
–
1,137
64
–
–
311
8
55
82
1
–
13
1
–
–
471
33
937
49
828
417
–
–
–
–
–
–
–
–
2,231
46
6,434
6,548
7,181
Hong Kong
Macau
Mainland China
Singapore
Indonesia
Malaysia
Brunei
Taiwan
The Philippines
Vietnam
Cambodia
Thailand
Total
Net change over 2015
Store Network
Stores
7,500
6,000
5,568
5,956
4,500
3,000
1,500
0
2013
2014
2015
2016
2017
Note: Includes associates and joint ventures and excludes discontinued operations.
120
Restaurants
Home Furnishings
Health and Beauty
Convenience Stores
Supermarkets and
Hypermarkets
Dairy Farm International Holdings Limited Management and Offices
Leadership Team
Ian McLeod
Neil Galloway
Tongwen Zhao
Suzanne Wong
Sam Oh
Charlie Wood
Gordon Farquhar
Pierre-Olivier Deplanck
Choo Peng Chee
Irwin Lee
Stéphane Deutsch
Mark Herbert
Martin Lindström
Brunei
Giant TMC (B) Sdn Bhd
Giant Hypermarket Tasik Rimba
Lot 58865 Kampong Rimba
Mukim Gadong
Bandar Seri Begawan
BE 3119
Negara Brunei Darussalam
Tel : (673) 246 0820
Fax : (673) 246 0821
Cambodia
DFI Lucky Private Limited
#01, Street 55P
Sangkat Tuek Thla
Khan Sen Sok
Phnom Penh
Tel : (855 23) 885 722
Website: www.dfilucky.com
Hong Kong and Macau
The Dairy Farm Company, Ltd
5/F Devon House
Taikoo Place
979 King’s Road
Quarry Bay
Tel : (852) 2299 3888
Fax : (852) 2299 2888
Maxim’s Caterers Ltd *
18/F Maxim’s Centre
17 Cheung Shun Street
Cheung Sha Wan
Kowloon
Tel : (852) 2523 4107
Fax : (852) 2845 0715
Website: www.maxims.com.hk
Corporate Office
11/F Devon House, Taikoo Place
979 King’s Road, Quarry Bay
Hong Kong
P.O. Box 286, G.P.O.
Tel : (852) 2299 1888
Fax : (852) 2299 4888
Website : www.dairyfarmgroup.com
Group Chief Executive
Group Finance Director
Group Human Resources Director
Group Commercial Director
Group CIO
Group Counsel
Group Director, Health and Beauty
Chief Executive Officer, Malaysia and Brunei (Food)
Regional Director, North Asia (Food)
Chief Executive Officer, RSCI
President Director, PT Hero
Chief Executive Officer, Singapore and Cambodia (Food)
Group Director, IKEA
Indonesia
PT Hero Supermarket Tbk
Graha Hero
KO. Komersial CBD Bintaro
Sektor VII B.7/A.7, Pondok Jaya
Pondok Aren, Tangerang Selatan
Banten 15224
Tel : (62 21) 8378 8000
Website: www.hero.co.id
Mainland China
Guangdong Sai Yi Convenience
Stores Ltd
3/F Guangdong Mechanical
Sub-Building
185 Yue Hua Road
Yue Xiu District
Guangzhou 510030
Tel : (86 20) 8364 7118
Fax : (86 20) 8364 7436
Website: www.7-11.cn
Mannings Guangdong Retail
Company Ltd
2/F Guangdong Mechanical
Main-Building
185 Yue Hua Road
Yue Xiu District
Guangzhou 510030
Tel : (86 20) 8318 1388
Fax : (86 20) 8318 2388
Website: www.mannings.com.cn
Yonghui Superstores Co., Ltd *
436 W 2nd Ring Road
Fuzhou 350002
Tel : (86 591) 8376 2200
Fax : (86 591) 8376 2990
Website: www.yonghui.com.cn
Malaysia
GCH Retail (Malaysia) Sdn Bhd
Mezzanine Floor
Giant Hypermarket Shah Alam
Stadium
Lot 2, Persiaran Sukan, Seksyen 13
40100 Shah Alam
Selangor Darul Ehsan
Tel : (603) 5544 8888
Fax : (603) 5511 0164
Website: www.giant.com.my
Guardian Health and Beauty
Sdn Bhd
Mezzanine Floor
Giant Hypermarket Shah Alam
Stadium
Lot 2, Persiaran Sukan, Seksyen 13
40100 Shah Alam
Selangor Darul Ehsan
Tel : (603) 5544 8400
Fax : (603) 5518 1131
Website: www.guardian.com.my
The Philippines
Rustan Supercenters, Inc.
4/F to 6/F Morning Star Center
347 Sen. Gil Puyat Avenue
Makati City 1200
Tel : (63 2) 909 9000
Website: www.shopwise.com.ph
www.rustansfresh.com
Rose Pharmacy, Inc.*
3/F FLC Centre
888 Hernan Cortes Street
Subangdaku
Mandaue City 6014
Tel : (63 32) 230 5000
Fax : (63 32) 416 5882
Website: www.rosepharmacy.
com
Singapore
Cold Storage Singapore (1983)
Pte Ltd
21 Tampines North Drive 2
#03-01
Singapore 528765
Tel : (65) 6891 8000
Fax : (65) 6784 3623
Taiwan
Wellcome Taiwan Company Ltd
2/F 175 Hua Ling Street
Shi Lin
Taipei
Tel : (886 2) 2883 9489
Fax : (886 2) 2881 7050
Website: www.wellcome.com.tw
DFI Home Furnishings Taiwan Ltd
4/F 1 Zhong Zheng Road
XinZhuang District
New Taipei City 24243
Tel : (886 2) 8069 9005
Fax : (886 2) 2992 0586
Website: www.ikea.com.tw
Vietnam
Pan Asia Trading And
Investment One Member
Company Limited*
2/F Phuong Long Building
506 Nguyen Dinh Chieu Street
Ward 4, District 3
Ho Chi Minh City
Tel : (84 28) 3832 8272
Fax : (84 28) 3832 8448
Website: www.guardian.com.vn
* Associates or joint ventures
The ‘Dairy Farm’ trade and service marks are properties of the Nestlé, S.A. group
Annual Report 2017 121
www.dairyfarmgroup.com