Hong Kong-based retailer Dairy Farm International Holdings, Ltd. said it has completed the acquisition of Cebu-based drugstore chain Rose Pharmacy, but recorded a goodwill impairment in the transaction as profit fell in 2018 on the back of rising operating expenses.
Goodwill impairment occurs when a company pays more than the book value for an asset or set of assets, or when the value of the asset or set of assets has fallen below what the company paid for them.
In a statement issued on Thursday, February 28, 2019, in Hong Kong, Dairy Farm chairman Ben Keswick said they completed the acquisition of the remaining 51% of Rose Pharmacy from BRG Realty Corporation of the Lim family in December 2018.
Dairy Farm, through Dutch unit Mulgrave Corporation B.V., now owns 100% of Rose Pharmacy.
“This will allow Dairy Farm to drive the next phase of the development of the business,” Keswick said.
The statement did not specify the value of the acquisition nor the value of the 66-year-old Rose Pharmacy after the transaction.
Ian McLeod, Group chief executive, said he believes acquiring 100% ownership of the drugstore chain would give them better opportunity for accelerating the store’s growth.
McLeod noted in the same statement, which reported the results of the group’s 2018 operations across North and Southeast Asia, that “sales at Rose Pharmacy showed modest improvement, (but) this was offset by the increase in operating expenses, resulting in a slight fall in profit.”
“A continuous focus on cost saving measures is expected to help boost performance,” he added.
Rose Pharmacy, founded in 1952, currently operates 257 branches in the Philippines.
Dairy Farm acquired 49% of the pharmacy in November 2014. The acquisition of the remaining 51% was cleared by the Philippine Competition Commission in a decision issued on December 4, 2018.
Keswick said the impairment in the value of Rose Pharmacy offset the gain that Dairy Farm generated from the sale of Rustan Supercenters, Inc. to Robinsons Retail Holdings, Inc. in November 2018.
“Accordingly, the profit attributable to shareholders was US$92 million for the year, compared with US$402 million in 2017,” Keswick said.
Rustan Supercenters - which operates Rustan’s Supermarket, Shopwise and Wellcome - was sold in exchange for a 20% equity in Robinsons Retail.
Dairy Farm now occupies two seats on the Robinsons Board.
“This development will allow us a stronger opportunity to participate in the development of this 100 million people consumer market,” McLeod said.
The Dairy Farm Group, a unit of Jardine Matheson Ltd., operates supermarkets and hypermarkets, health and beauty stores, home furnishings stores, restaurants and convenience stores across north and southeast Asia.
Its brands include Maxim’s, Mannings, Guardian and Yonghui. It also operates 7-Eleven outlets, Starbucks coffee shops and IKEA stores in Asia.
The Lim family, meanwhile, still operates the Salon de Rose chain of beauty salons and barber shops and the Rose Institute of Cosmetology, among others. (Ventures Cebu)