1H 2025 Half-Year Results Presentation

Everyone, and thank you for attending the DFI Retail Group 2025 half-year results presentation. I'm Karen Chan, investor relations director. Joining us today is Mr. Scott Price, Group Chief Executive and Mr. Tom Van der Lee, Group Chief Financial Officer, who will be providing remarks on our half-year results followed by a Q&A session. Today's presentation will be in webcast in its entirety. In addition, the food tax of our results announcement and slide presentation have been uploaded onto the investor relations section of our website. Before we start, I would like to remind you of the following regarding the information to be provided during the presentation. The information about to be presented is for information purposes only and is not intended to be investment advice for any person. There's no intention to invite for any dealings in any securities. There may be forward-looking statements mentioned in the presentation materials which include statements regarding our intent, believe, or current expectations with respect to DFI retail groups, businesses, and operations, conditions, etc. You are expressly advised not to rely on these forward-looking statements

as they are subjective views which are subject to risks and uncertainties. And with that, I'll pass it over to Scott. Good morning everyone and thank you for joining DFI Retail Group's first half 2025 results presentation. I would like to start this morning by covering off some key highlights that we're seeing in the business in the first half of the year. In general, in my 30-some-plus years experience in Asia, this is the first time that we have seen such a broad-based negative consumer sentiment. I think that there is overall now both North Asia as well as Southeast Asia, a very value-focused, price-focused customer. We spent the last year really preparing to be able to provide those consumers who have this flight to value with the greatest source and across really all five of our formats. And we'll uncover that quite a bit of detail in the remainder of the presentation. What we see is accelerating growth potential

for the business overall in health and beauty, as well as we think about franchising and have announced that for our Indonesia business, building on a pretty strong store-owned portfolio that exists in the core cities in Indonesia. We're continuing to drive a very much convenience RTE proposition, offsetting some of the impact, in particular in Hong Kong, as tobacco sales decrease through our outlets as a result of a regulatory action on taxes. We see very much in our Hong Kong food value coming from price investments that we've made, as we have pivoted our sourcing strategy to bring greater value to our customers. And also, very much being able to, I think, protect our margin in gross profit as a result of not only resetting our sourcing, but also the value of our own brand, which I'll talk about

a little bit in some coming slides. Importantly, we've reached a milestone where our e-commerce transactions are now profitable in our business. That is part of our overall strategy as we balance between our own platform versus third party platforms, but importantly, see a path to a creative digital ecosystem, which is both e-commerce plus our retail media. And we'll speak in a little bit more detail in a few slides. Ongoing portfolio optimization, I think, as you know, we have divested Yung Way, received those proceeds. Divested Robinsons have received those proceeds. announced the sale which we'll execute in Q4 of this year. At that point we'll have proceeds as well. The divestments and those proceeds have as a result given us the ability to not only keep some flexibility in our balance sheet and our cash position for some inorganic growth but allow us to announce a special

dividend of 44.3 cents per share on top of our normal regular dividend. The scale of that 44.3 obviously substantial but we believe appropriate at this time. So with that I'm going to turn it over to Tom who's going to go through just a bit more detail on the financial results. Thank you Scott. Let me take it to the key financial highlights for the first half. The underlying profit is $105 million, a 39% increase year-over-year. The improvement is driven by associates following the investment of Yoon Hui, Max Simms, but also better results for Robinsons. In addition to that, we have strong results for HMB, food and home furnishing combined with lower interest costs. This was partially offset by lower resulting convenience and higher SG&A cost in the first half due to reversals in the first half of last year. The reported profit though is a loss and that's because of a translation impact after we completed the

investment of both Yung Way and Robinson. We see life for life sales stabilizing so it's excluding investments and cigarette sales. Last year life for life growth was negative 1.5. In Q1 it was negative 0.3 and in Q2 we see a positive Life-for-life growth at 0.9%. So the 20s is positive. Health and beauty deliver strong sales and profit growth. Life-for-life sales were up 4% and profit up 8% driven by a higher basket size. The convenience profit has been impacted by a one-off windfall gain from cigarettes in 2024. So we had a The windfall gained over $12 million in the first half of last year as we purchased cigarettes ahead of a tax increase, excluding which the convenience profit is up 9% year over year.

We see strong profit growth in food, disciplined by cost control and the turnaround of our food business in Singapore. Investment in price in Hong Kong have resulted in increased foodfall and items per basket that is funded by lower cost prices as we have improved our sourcing for our business in Hong Kong. We see resilience in IKEA Taiwan and effective cost savings to support underlying earnings recovery of home furniture. Growing e-commerce penetration from 3.6% in the first half of 2024 to 4.8% in the first half of 2025. Our daily orders in e-commerce reach 96,000 per day, an 85% year-on-year increase. And as Scott said, e-commerce is now profitable. We also see strong momentum on retail media, as you call it, the Req, with 165 ad campaigns done in the first half of this year,

compared to only 12 in the first half of last year. The net cash position of $442 million, that follows the proceeds from Yung Hui and Robinson Retail. And we therefore raise our full year underlying profit guidance to be between 250 to 270 on the back of much stronger returns and much stronger margins for most of our businesses. And the entry return was $647 million to shareholders for a special dividend and an interim dividend. And that underscores our confidence in our long-term strategy, discipline capital allocation, and focus on TSR. We move on to the revenue and underlying profits. The total revenue on the first half of this year on a restated basis is 7.6 billion, roughly in line with last year. The same for subsidiaries, 4.387 billion total sales in line with last year.

The subsidiary underlying operating profit is up 2% year over year. He received strong growth of profit in HMB and food, which have been partially offset by convenience, as I mentioned earlier, due to cigarette tax impact. The subsidiary underlying profit of $75 million is up 3%. He received lower financing costs being offset by higher SG&A costs due to this one off reversal in 2024. Share of associates and joint ventures, $30 million, up $27 million in the half. That's because we have divested Yong Hui. We had two additional months of pickup of Robinsons and better results of maxims. Even without those two months of Robinsons, it's still up year on year on Robinsons. We told underlying profits for shares, $105 million, as you can see here. And then the net non-trading items, $143 million negative of that $146 million results to the

divestment of Yong Hui and Robinson's just translation losses going to the balance sheet and EP now. That leaves reported that profit of minus $38 million. At the bottom you can see the total dividend per share, $0.47 cents 80 and that's the combination of the interim dividend as well as the special dividends we have. And again this underscores our confidence in our long-term growth focused on discipline, capital allocation and TFR. But then move on to the revenue summary. If you look at the like for like column on the right, the restated like for like, the total like for like on the restated basis excluding cigarettes is flat or 0.3% in the first half. Again the first quarter was negative and the second quarter is positive 0.9%. On the key formats, health and beauty, there we see a positive LFL growth of 4% and even

with Hong Kong itself doing 6% life for life growth in the first half. Our strategy for health and beauty is to focus on the growing brand equity as trusted advisors in health and wellness. We see initial results in growing basket sizes across our markets. accelerate revenue growth by franchising guardian brand in selected markets and franchising is highly successful in our 7-Eleven markets and is both accredited to both profit as well as a low-key. Convenience, that's down 3% year-over-year, mainly due to the lower stake rate of volumes in Hong Kong following a tax hike in last year Q1. We remain optimistic on the long-term prospects for convenience because the higher margin RTE category is growing fast and will offset the decline in cigarette volumes. This in addition to store growth in China in 7-11. Food is lifelike negative down 1%. In

Hong Kong I said earlier we are investing in price to address the GBA competitive trends. This is important for the medium and long-term returns of our food formats. We fund these investments with lower sourcing costs. We're going to source more direct to the suppliers. The initial zeros are very promising. You see the items in the basket are up. We said transaction volumes are up and our volume share is up. So it's early days but the initial signs are very positive for food in Hong Kong. Then home furnishing is down 6%, mainly due to a change in basket which in Indonesia and in Hong Kong despite resilience in Taiwan. Also here in Hong Kong we will invest in price to get our prices down to be able to compete better with the China online mainland players. Those price investments again funded by lower cost prices. Maxims flat year-on-year we see a strong growth

in Southeast Asia for maxims offset by slightly weaker performance in restaurants in Hong Kong and in mainland China. Now Robinsons you see here an increase of 39% that's because we picked up two additional months in the half compared to last year. Even without those two additional months Robinson was still up 5% here. Then move on to the operating and underlying profit by by format. I compared here against the half year 124 we stated column as we discussed in our last earning calls our own brand and e-commerce cost under HMB and food are weak classified under the corresponding formats in the beginning of second half 2024. So therefore we stated the first have last year to make the numbers comparable. Home health and beauty you see eight million dollars increase or eight percent on profit that's driven by very

strong growth as mentioned earlier in Hong Kong but also in Southeast Asia. Convenience we see here a drop of nine million dollars in the operating profit that's because we had a windfall gain last year for cigarettes of twelve $12 million, excluding wages to convenience profit is up by 9%. In a cigarette tax impact annualized, we expect the profit to continue to grow in the second half compared to last year. The food improvement from $24 million this year to $21 million last year, that's because of turnaround in Singapore. Home furnishing, despite the lower sales, we see a very strong focus on cost, lower cost Indonesia, lower cost in Hong Kong and that drives a turnaround in profit for the home furnishing division. SG&A I mentioned it earlier it's up five million dollars because last year had a one-off reversal of our LTIP if you removed one-off reversal actually cost your year at down on SG&A. The move to

the operating profit under $75 million dollars 4% up 20 basis points back on last year. And then we see the total subsidiary underlying profit being $75 million, up to $9.00 on last year. Cash flow statements, our free cash flow in the first half is $18 million, $28 million better than last year. As you can see here that's on the back of lower CapEx. We expect CapEx to normalize in the second half, but again on CapEx we are very disciplined on allocation. It's all about making sure we get return on the gap we invested. So the second half will be higher than what we see here. The underlying messages we focus on disciplined allocation of cash in our business. The investments resulted in $912 million of inflow and therefore the net cash flow is $910 million for the first half. That leaves with a net cash position of $442

After accounting for special dividends, this still leaves with sufficient financial bandwidth for inorganic growth should there be shareholder-accretive investments of a unit of rise while maintaining a healthy balance sheet and equity. So let me hand over to Scott to take you to the strategy update. So as I mentioned, very much a pivot in our customer base. We're a mass retailer across all 7,500 of our stores, but we've spent now a little bit more than a year pivoting our assortment and our proposition to being a mass value-based customer with areas across the assortment of premium where customers we see willing to invest, like in the health and beauty. Our strategy has not changed. Our strategy statement, customer first, people led, shareholder driven is evergreen. You have to have the customers, your team members, and your shareholders in support. We have identified five deliverables.

So the first is just retail excellence. I think that as I walk our stores across the markets, we have done an outstanding job of beginning to execute in a way that, to me, is world-class. And we see it across all of our formats. The second is growing our store base. That'll both be owned stores in markets, where we see TSR-accretive investments, but also through capital-like franchise. We have great franchise experience in our convenience, 7-Eleven. We see an opportunity of taking that model across into health and beauty, in particular in Southeast Asia. The third is just pivoting towards the digital and data ecosystem, our omnichannel op proposition. We have to be where our customers want us to be, relative to how they shop, which means that we both have to have outstanding stores, but also a great user experience in our digital ecosystem. Finally, a lean and agile operating model.

Big believer in everyday low cost in order to be able to deliver everyday low price. We have continued to take steps to reduce our overall cost base moving forward, while also pivoting ourselves from a portfolio company with many minority positions to a core operating retailer, the ability, I believe, much stronger to deliver continued shareholder value. Just unpacking a little bit across our formats, health and beauty, and very interesting to see very much the customers who are pivoting down value, in particular into own brand, where we have a great price, great quality, equal to national brands, but a better proposition on commodities. For example, sort of soaps and other aspects of their proposition. I'll talk a little bit more about what we're seeing in own brand. But importantly, they're investing in some premium. It's been quite interesting as we position ourself as a wellness, a wellness not only in terms

of overall health through supplements, but also in the areas of beauty, whether it be Derm, et cetera. So we're seeing an increase in value per item overall in health and beauty, which has been pleasantly surprising. So even that value-focused concerned customer is willing to invest to take care of themselves. Profit up 8% on that 4% light for like. Mannings, we're starting to see some return to tourists opening up their wallets. We had some really solid performance in the first half of the year in our tourist cluster stores, which is roughly a third of our health and beauty revenue in Hong Kong. We're seeing an increased basket size across Southeast Asian markets. Again, part of the pivot to value. When there's great promotional pricing, customers will stock up on the pantry a little bit, reducing their need for visits as they rebalance how often they shop in our stores.

Accelerating that growth, as I mentioned, in Indonesia. Our overall store number growth in the first half was modest. We focused upon value pivot, but see very much in the coming years, a heavy growth across this franchise model. Own brand resets now done in health and beauty. I'll talk a bit about that in a few slides. 24 new stores, which again is trialing as we begin to build. I would see substantial opportunity there. And then finally, that strong e-commerce growth, which in addition to just allowing a convenient e-commerce transaction, also beginning to build that personalization through our YUU program here in Hong Kong, but also an opportunity to get great deals across the rest of our markets. Moving on to convenience stores, like for like sales, let me put a little bit of color around the cigarettes. Roughly 260,000 packs of cigarettes

were sold in our stores every day in 2022. gets dropped to 108,000, which means that we see a very substantial decrease in terms of penetration. 50% of our sales now, roughly 38% of our sales. That's a lot of traffic. Now, that meant 94,000 visits a day in Hong Kong were to buy those cigarettes. But we've replaced that with 60,000 non-cigarette RTE visits a day. So still slightly negative, but the point is that there is a 4x quality of margin between cigarettes and RTE. So we're cycling out that dependency on cigarettes as behaviors change, as the regulator increases traffic, with a higher quality margin stream moving forward, which is why we see really strong profits. Positive momentum overall. Again, second quarter was an important point across all our formats.

After four quarters of investing and pricing, which is traffic was slightly up, but the price per basket down meant that like for like same store sales were negative. We now see that the balance of incremental traffic into our stores with that price investment means that in that second quarter, we saw a positive growth in like for like store sales. That decline uncovered or unpacked a little bit by Tom in terms of that one timer of the 12 million, again, as we cycle out of that tobacco dependency Hong Kong being replaced with that very good high-quality margin RTE. RTE penetration increased 400 basis points as we brought in that traffic. Again it's part of that decline. We see less formal dining out and much more moving towards takeaway type of meals and the RTE assortment that has been built out of our 7-11, very much based upon Japanese tastes. It seems that every second person

across our markets has been to Japan twice in the last year and a half. They see what good quality Japanese RTE looks like and we're duplicating that across our markets. We've extended that proposition with a large food bar rollout in South China. A bit of a battle going on relative to we see obviously Alibaba and JD versus Métouin trying to win in the quick commerce food. We're a little bit more of a store proposition than necessarily a restaurant so we've not seen some of the gains but very comfortable long-term. We've got a really strong position in southern China. Network expansion with another 119 stores now to a total of 1,860. See a lot more upside there in terms of store numbers at some point when we hold an investors conference. We'll talk a little bit more detail. And then that better franchise proposition, improving pretty strong, rosy return on capital employed growth across the totality of our business.

Moving on to food, although we had a light for light sales margin decline, excluding the hero divestment in Indonesia, we have very, very, very aggressively invested in terms of price. We are moving to greater brain area when we look at our Hong Kong. We see, I think, a more porous border in terms of part of our assortment and proposition, the digital players establishing themselves. We believe that we can prevent Hong Kong from becoming a food desert by changing our sourcing. We have moved from pre-COVID to say roughly 20-some countries from an origin. We're now 54 countries overall across all of DFI. A big part of that also coming from food, to be able to hedge and chase value and pass that value, not only to our customers through pricing, but also protecting gross profit in improving our bottom line. A good part of our fresh is coming from the DDL partnership

that we have established, which is an exclusive in our ability to bring fantastic, in particular leafy green vegetables to our customers at better than wet market pricing. Increase the footfall and item per basket. We see accelerating growth where we're seeing quite a bit of transaction growth in May, June, continuing into July. Again, we're starting to see that payoff, believe that we're really at a position to accelerate this growth. Good profit growth of 14%, as I said, in addition to gross profit being protected and still investing in price, we have the ability to pass returns onto our shareholder. volume nearly doubled. Again, with this overall approach to Omni Channel in our digital ecosystem, that's profitable growth in our e-commerce transaction. And then this own brand SKU productivity sales profit growth, this program overall is just powering on and I will have a slide in a few minutes to talk through that. And as we mentioned before, by the end of this year we'll have finished the

Singapore food divestment and those proceeds will move to our cash account. Home furnishing has been tough. Overall, I think Asia is probably similar to the globe where people are just being very careful. Customers are careful. They're not doing home renovations. They're not doing kitchens. They're not doing bathrooms. They're not investing heavily across furniture. But what they're doing is they're moving more toward feeling good about their apartments, their homes, where they live. So we see a lot of our marketplace items across say bedding or or home decoration, kitchen, et cetera. We are moving aggressively to be able to drive our ability to gain share across those particular categories through investment and pricing. If you were to walk in the IKEA's across our markets, you see very much that value focus delivered with great prices. Hong Kong, through sourcing and operating cost reduction, we're able to again fund that, protecting, fund those investments,

while also delivering to shareholders. Taiwan, great continued resilience. It's a bit of a protected market versus other parts of the world, and therefore, very happy with that 10% P-bit margin. Indonesia, we're relatively new in terms of the category into Indonesia. 200 plus million citizens, we see an opportunity in the long term. But rather than investing in more stores, we're moving much more towards a digital presence and driving awareness of IKEA outside core markets in Indonesia through marketing. Overall, Underlining earns recovering, driven by our team in IKEA. We've got, I think, range optimization and local relevancy. There's aspects in daily life in our markets that are unique. And we are getting great support to ensure that our assortment includes relevant items that help our customers in the markets in which we operate

choose IKEA over other options. And then importantly, food range. Interestingly, we're seeing a pretty substantial increase in food. You would not see IKEA as a standard outlet for which to get food, but you'll see that one, we've got great food bars, but also in restaurants, in select stores, but importantly, an assortment of food that I think is world class. I mentioned the digital presence. Our latest asset portfolio to the right, you see across all of our core formats and our core markets, we now have an e-commerce option. But we also are partnering with platforms, again, meeting our customer wherever they want to. You see the result in terms of growth in 24 and 25, overall penetration. We are focusing very much on ensuring that we have fair share of market. Each one of our markets have very different digital penetrations in terms of retail. So we, on a weighted average, I would hope in the next,

say, 4 to 8 quarters are exactly equal to what I would say is the fair share after a bit of a slow start. Retail media is the way for us to ensure that we go from not only equal to but accretive margins by format. We're increasing the format margins over the next period of time. We're also then moving forward in terms of ensuring that we've got the ability to have a creative margin by having not only profitable e-commerce transactions, but also then adding retail media, not only on the apps, but also on our screens across stores, selling that to global national brands, and capturing a better conversion for them because we're the point of purchase, as opposed to other optionality of where they may put their retail media dollars. I mentioned own brand, a substantial reset happening with the last, I'd say, six quarters of effort.

We now have a very strong product portfolio between food and our health and beauty. As you see, the sales per item are double digit growth. Again, H&B, that interesting proposition. Customers are pivoting down in terms of daily commodity, in terms of soaps and behavior in the shower or the bath. But then they're also increasing their investment in functionality and premiums through supplements, DERMA, et cetera. So very pleased not only with the SKU, but then importantly, protecting both our ability to invest in price and bring it to the bottom line. Now a pretty substantial, healthy, double digit growth in terms of the gross profit per SKU that we're bringing into the business. With that, I'm going to turn it over to Tom to talk about the business outlook. Thank you, Scott. On the full year outlook, we continue to execute in accordance with our strategy and margin expansion initiatives, including price reinvestment, better sourcing, omnichannel, and retail media.

We restate our organic revenue growth to be a range between 0.5% to 1%. And this reflects the broader economic uncertainties and a sharper than expected decline in cigarette sales. Despite the more cautious revenue outlook, we expect to deliver stronger profitability to enhance operational efficiency, including lower interest cost and lower overhead cost. Whilst we've lowered our financing costs by deploying part of our investment proceeds in debt pay down, we are still early on our journey on cost optimization. As such, we update our full year guidance to 270 million of underlying profit. That's a growth of 30% on the midpoint. Our capital allocation purge remains clear. We maintain a healthy balance sheet. Invest drives subsidiary business growth, both organic and inorganic, should there be good opportunities.

And of course, grow our dividends as we grow our profits. And with that, we can move on to the Q&A session. Thank you. Thank you, Scott and Tom. With that, we'll open up the floor for Q&A. If you have that question, please raise your hand and we will have someone to assist you. We kindly ask you to please indicate your name and the company you're representing. And for those participating online, you may submit your question on the platform and we will direct them to our speakers. First question from Brian of Citi. Hello. Yeah, thank you for all opportunity to ask questions. This is Brian from Citigroup. I have actually a lot of questions, but I'll just ask the group level ones and circle back if I have another chance. The first one is that we are very happy to see that such a sizable special dividend, but according to the first half-cash position that we are maybe 100 million short in that and how are we going to fund the dividend? And it's also that from the result announcement

and also your presentation you said that we are also seeking both organic and inorganic growth. So I just wonder how the dividend is gonna affect our long-term strategy now that all the cash is gone. That's first question. My second question is on the profit margin improvement across all divisions on a life-to-life basis. Because we saw that it has been improving in the first half, and do we have a short term and a medium term target on the margins for each division? That's second question. My final question would be, can you give us an update on July today, overall performance and the buy division and the maximum as well. Thank you. Right, so on the first, Tom, why don't you cover off the funding of the special dividend and our cash position by the end of the year? So our net cash is about $440 million and a half. Normally, our second half of the year is much stronger than the first half of the year, profit-wise.

And we expect the proceeds to come in for our investments for Singapore food. That in addition with sufficient credits, we are able to pay our dividends. That still leaves us with enough headroom to do any inorganic investments if there's a good opportunity arising. So we're confident that we can pay that for our ongoing cash flows. And if we want to expand, we've got enough credit to tap into. Are you willing to talk about a general range net cash position on 1231. We expect to be quite just above zero so it will be net cash positive. With a balance sheet with lots of headroom for inorganic. In terms of your point on profit margin we are I would say still navigating a really fast-moving market where as I said changing our supply chain we still

think there's opportunity in the supply chain. Right now, gross profit is with a investment level in pricing that we think still needs some room. We're focused upon continuing to build the shareholder proposition while also making ourselves the best place to get value. I'd suggest by probably Q4 we'd be comfortable to talk about in this environment that I think is going to last a while, a short term as well a midterm margin position. So not really ready to talk about it today other than just, I'm very confident we're balancing this flight to value with profitable growth in our business. In terms of July month to date, I'm going to look at Karen and see if she yells at me.

We see continued improvement. I'm optimistic around our guidance in terms of being able to continue to deliver a higher guidance on the bottom line and a positive growth. To end it as 0.5% to 1% revenue growth totality for the year, second half's going to have to be pretty good as we look across the formats in the markets. I think the work that's been done over the last year and a half are going to pay out the ability to ensure that July, what we're seeing continue progress, continues through the rest of the year, including into the holiday season across Asia. Karthik from Indus Capital. So firstly, compliments on the special dividend. Definitely a welcome decision.

I have three questions. First is on the convenience stores. Even if I were to strip out cigarettes, given the kind of headway we've made, even in RTE, the LFL still seems a bit underwhelming. So I'm just curious to understand what are the headwinds to that LFL? What is actually pulling it down? And coupled with that, despite an improved product mix, we are still sub 4% operating margin. So again, what are the headwinds to both the margins and the LFL in the CVS business? That's question number one. Question number two is if you look at the foods business, do you think it's operationally feasible for us to hit a 3% operating, or 2 1 half 3% operating margin without revenue growth? The context in which I ask this question is I know we consider the wet markets as the dam and where we have to take share from. So we want to be everyday low prices. That might deflate our revenue a bit,

but I'm just trying to see whether putting are sourcing and are cost savings into play, can we get to a 2.53% margin? Or do we absolutely need some level of revenue growth to get to that kind of margin? That's the second question. The third question is, despite all the improvements that we seem to be making on the cost side or on the sourcing side, our operating cash flow is still not growing at a healthy rate. I mean, it's still growing maybe in single digits or so. So, what are the constraints or what is holding back a much stronger growth in operating cash flow. Thank you. Great. Thanks, Carter. I'll cover the first two in hand, the last over to Tom. So in terms of convenience, it's a bit of a volatile market right now that we're grappling with. And so let me talk a little bit about the short term versus my view in the midterm. We have two things happening. So I've unpacked quite a bit on the Hong Kong side why you would see a like for like that's still negative.

But it's a healthier volume and traffic than where we were reliant upon so much low margin tobacco. We're going to have to wait out this process. It still is 38%. But as I think about the sales per square foot quality, when we strip out cigarettes, we see gain. And we see, therefore, an opportunity for margin improvement. There is another aspect in southern China that we saw in the first half, which is there is this battle by the platforms to gain share. This too shall pass. At some point, economic rationality is going to have to come in, whether it's because they, I think, are prompted by the government or they decide that at some point there isn't a return on capital. But when they subsidize, and again, you know, you broad base, we're on all three platforms. But for the most part, CVS is seen as a store, not a food outlet. So when they're trying to win in the bubble tea or the coffee or whatever it is, we're not the first stop

that the JD, the mate twans, or the Alibaba's are choosing to subsidize. Basically, a $2 coffee US for $0.25 delivered in 30 minutes. Again, not sustainable. So we had reasonably healthy like for like, but it's been moderated by this sort of nonsense. So our click and collect business in southern China was double digit growth for quite a good period of time, that slowed as a result that people, why would you click and collect a great coffee from 7-Eleven if you'll get it delivered to your office for practical free? This too will pass. So I'm very confident that like for likes and convenience, especially as we continue to grow stores, but also improve the RTE will improve. With that then, I would see margin expansion. not ready yet to guide on what we would say as a target for market expansion. Again, maybe by Q4.

We'll think about an investor's conference to unpack that. In terms of food, in particular in Hong Kong, we have roughly 19% share of the market here. When you look at not only the modern trade, the traditional trade, but as well wet markets. Out of that 18% share, we do well. we over index across some particular categories. Fresh is where we think we have a huge opportunity to differentiate ourselves. So as we think about the ability to grow the business, we think that the sourcing strategy and this diversity in our model will allow us to not only bring great prices to the Hong Kong customer, to be able to demotivate a shopping basket across the border in the north, but also continue to improve margin at the bottom. Similar to the point on CVS, not ready to guide on a midterm target for our net margin in the food business.

By about Q4, I think the team would be ready to talk about that. But do you think margin expansion is possible without? Absolutely. Without a lot of revenue? I would say I'm looking at Curtis, who actually has to deliver whatever I say. So I'm trying to be a little thoughtful. But much like H&B, we'd be happy with a two to one relationship between growth in sales and growth in the bottom line, which means by nature of that, you could see margin expansion even with lower revenue growth. Oh, good. He said yes. So we're covered off. In terms of the third question, in terms of cash flow versus cost, Tom? Yeah, thank you. Thanks, Karthik, for the question. So to grow our operating cash flow, first of all, grow our profit. We spoke about how we're going to grow our profits. Secondly, we're going to lower our financing cost. If you see that coming through, we have less debt, so that will flow through, especially in the second half this year,

because we pay down in the first. We have focus on working capital. So bring inventory down. So we're now deploying also AI tools to optimize our inventory, while also optimizing our stock level in the stores and making sure our stocks are going down. So we've seen year-on-year improvements in underlying working capital in inventory and credit today. So those are the key ones. And the last one is on CapEx. So if you look at our growth, growth in HMB will a lot be franchising. If we franchise, that is a very CapEx-like model, the same as we do deploy in 7.11 in South China. So we'll see CapEx levels not growing and maybe even coming down as we grow via franchising. And those actions should lead us to deliver better operating cash flow going forward. Hi, I'm Meg from CGS. Thank you so much for the presentation. A couple of questions from Mayan. The first is on the guidance.

So regarding your KAPX guidance, you haven't changed that. You've retained that. So that implies more than double KAPX in second half versus what you've done in first half. So can you probably provide more color on where you expect to allocate this K-PEX in the second half. And in terms of the revenue guidance of 0.5% to 1% organic revenue growth, could you remind us what exactly this excludes, apart from, I think, Indonesia sales and the secret sales, maybe just color on what organic revenue growth means? And in terms of second question is on the health and beauty side, where there's a lot of great things happening with increased basket sizes, manning growth, than own brand growth with a lot of higher margin products growing. But then at the end of the day, your overall margin, operating margin in health and beauty still fell year on year. So can we understand what was driving that? And third is on maxims, maybe some color

on where you were able to capture cost savings and how much you think you can further drive cost savings there. Thank you. So Tom, why don't you cover off the first on CapEx and revenue guidance? I'll take the next two. So on CapEx. So the focus on CapEx for this year is on store growth. So the stock market store growth, a lot of store remodeling. So in HMB, we've got a large program to remodel our stores. And the initial results of those remodeling are very positive. The same applies for 7-Eleven, where we are pivoting to RTE. And the pivot to RTE requires us to invest in the stores making sure we get the ranges in, so more fridges, more hot food counters. So the key focus there on store innovation. In addition to that, a lot of investment on IT, replacing our legacy IT systems, as well as the early steps on AI on investments. And the third one basically will be on supply chain, continues automation, optimization, to be able to drive efficiencies. That's the plan for

the year. A lot for us to catch up in the second half of the year, that's correct, But that's what we're driving for. If you look at the organic growth, organic growth excludes, for example, the divestments you've done, so like hero. Also, once we have divested Singapore food, once after the divestment, we'll make sure we compare on a life or life basis. And it will exclude the cigarettes for the year. In terms of health and beauty, I I think there's a couple of ways to look at this. I think the value of the DFI assortment is that we have a natural hedge in terms of our ability to have multi-market, multi-format around the mass of the daily wallet. As you think about daily life, you go into every one of five formats on a weekly basis. In terms of health and beauty, the numbers I focus on, relative to what is the margin potential moving forward,

is actual light for light growth versus profit growth. So a restated light for light when you remove some of the noise is a 4% growth. Our profit growth is 8%. Much like I said, food, much like I said on CVS, I see bottom line margin expansion potential, not ready in terms of, I think, midterm guidance until Q4. Look, this has been a rocky couple of times. You got tariffs floating around. You see a very nervous customer. People are potentially worried about losing their jobs. Inflation has taken a bite out of spending power. I think we're going to need to let a couple of more quarters of this to calm down for us to be able to be confident that our proposition, our structure, our approach moving forward is the winning market share in terms of the formats and the markets in which we compete. In terms of max seams, Michael Wu and that team do, I think, a very nice job of pivoting.

The interesting thing about what I would call the casual and fast food industry is the fact that it's generally on a very short commitment timeline. Most of these stores have got a three-year timeline on them. As a result, they're in a very, I think, strong position to be able to pivot. So for example, commercial rents are coming down in many of our markets. When you're on a three-year cycle, you're going in and saying, look, we're a traffic driver. Our business, overall traffic down slightly, we're not making enough money on this. And we're seeing significant reductions in rent. And in some instances, zero rent because of the ability for us to drive traffic for other tenants. So in terms of the overall rent as a percent of revenue, I think the team has done a very nice job. They're pivoting to value. They're doing the same thing we are in terms of looking at their sourcing. How do they protect gross profit while also investing in reduced customer pricing?

As we do capture, as people downgrade from formal dining into casual dining or fast food down into the RTE, I think that we're better set in terms of the banners in which we operate. And they're also looking at lean overhead and moving to a much more cost conscious. So I'm optimistic as well in terms of what the mass food aspect of Maxime will be able to do, which is why we saw improved profitability, again, in a pretty tough environment. In the interest of time, I'll move on to questions online. So a question from Adrian Lo, UOBK-HAN. Thank you, management, for the presentation. Two questions here regarding sales momentum in retail media. Can you talk about the targets that management have set, whether it's odor, whether it's cells, penetration, et cetera. Second question, we've seen a bit of a disbozo over the past 12 months. What's management thoughts on current portfolios?

Should we be expecting more actions down the road? Thank you. So on retail medium, Asia is probably a bit slow in general relative to more developed, like North America or Europe. We've looked at some benchmarks across those relative to retail media at a year four, five, as a percent of total revenue. It's still too early for us to make a commitment, but I would be happy with low single digits of our overall revenue coming from retail media. Where in the early days, we've really, I think, just professionalized the proposition. We have roughly 5,000 screens across our stores. We see that maximizing at around 10,000 screens. We're in the process of launching a very professional portal for our vendors to be able to not only buy, but upload content. We're leveraging our loyalty program

to personalize some of that on the app in terms of, again, everyone looking for more ROI on their promotional dollar. So how do they put a dollar into media and get more revenue in terms of the product. So I'd say that on a maturity curve, we're still crawling, getting ready to walk. We're not at sprinting yet. We've got a lot of smart people focused on this. And I think by the time we get to Q4, we'd be ready to guide with a little bit more detail. In terms of portfolio, we have now divested all minorities. I don't think in retail. you can really justify truly a portfolio approach where you are trying to influence through board seats minority performance. So all of our revenue streams are now majority. And I think that is a pretty healthy position. We then have to continue to look at our formats

and whether those are accretive to the TSR in the long term, our row seed target of a minimum of 10%. And we will continue to assess right now, quite comfortable with where we are and where we're projecting. I think the opportunity inorganic is on the acquisition. Bulletin acquisitions across those formats, not interested in moving into any new formats, and the ability to very quickly add a creative TSR progress across the growth in those formats. Thank you for the question, Adrienne. Thanks, Scott. Next question from John Lamb of UBS. Recently, we've seen some quite aggressive move of Chinese online retail lists, such as JD.com, moving into Hong Kong. How do you view the potential competition to your businesses? So again, this was predictable. The GBA strategy announced many, many years ago by the central government, I think, is a natural inevitability.

And so in some ways, if you were to think about that into other markets, whether it's I mentioned Central London, whether it be Manhattan in greater New York, whether it be the core of Paris surrounded by many of the suburbs, we've had in Hong Kong a bit of a protected border that I think has added a premium that is hard to justify when you start to remove some of the barriers to entry. If I think about the online players, I think it's only natural that that proposition is available in Hong Kong. But if you look at where the big players are, for the most part, they're bringing great value, great quality in categories in which we don't compete. We don't compete in electronics. We don't compete in general merchandise overall. We don't compete in terms of fashion, for example. So as we think about our formats in which we do compete,

we believe that the in-store experience is still superior. And as long as that pricing premium reflects cost of doing business in Hong Kong versus crossing the border, a minor premium, as it were, and we're benchmarking our premium versus, say, Shenzhen, much like in Manhattan, You would benchmark versus Hoboken, New Jersey, or in London. You might benchmark suburbs of London, slight premium for the center of town. So I think we're in pretty good position, even if some of these platforms start to put some brick and mortar networks into Hong Kong. They're competing in categories that, to me, are not that relevant to our overall business. We're looking to conversely create a GBA digital proposition and take our health and beauty proposition north of the border. We've got some great products that we think the average Chinese tourists, once they mainland come here and visit, are interested in ordering across the border

on a regular basis. So I see it as more of an opportunity to grow than necessarily a threat. Thank you, John. Thanks, Scott. Next question comes from Salviana Arapine of HSBC. Can management talk about the health and beauty franchising strategy? Will you be operating franchise stores in your current market? Is this only for new markets? And can you talk a little bit more about the uniqueness of guardian franchisee stores? What would that be? Thank you. So as I mentioned, I'm really confident that our experience with 7-Eleven is a very strong, balanced model. Importantly, you're trying to ensure your brand integrity, your assortment, your operating model is a great customer experience, whether it is an owned store or a franchise store. To me, that means you need to have a position of owned stores. So as I think about Southeast Asia, we're starting with Indonesia. We have a pretty substantial network

of stores across Greater Jakarta. You think about Bali. And we believe now that there is an opportunity to create a bit of a capital light for us, but still very attractive wage or living wage for franchisees across tier two and tier three cities. The value do we bring? Well, one, we have a scale of sourcing. We have access to brands. But generally, a traditional mom and pop shop aren't able to get their hands on. We can offer it at attractive prices. I think that this is a very powerful model as you see in markets, for example, in Indonesia, where you have an emerging middle class who want to engage with these products and engage with these brands, but want to do so in a way that is affordable. Overall, I think that we are in the early days we're ensuring that as we embark upon this, we start right from the beginning, which means that not only is it a creative to us,

but it delivers to the franchisee in terms of overall financial returns, because there's a number of opportunities out there to franchise. It's not just in the health and beauty. There's a lot of QSR franchise opportunities, other general merchandise opportunities. So we think we have a very competitive proposition and are quite confident that as we look at Guardian across Indonesia as our first key market of launch, we'll be in good shape. And we'll then step back and take a look at potentially other markets that we may enter with this proposition. Thank you, Santiam. Thank you. In the interest of time, we'll be taking the last question from Jayden of Macquarie. Thank you for the presentation. Can you share some updates on the YU platform? How much impact is it having on sales for the group, and how will the offering in Singapore pivot following the divestment of the food business? Thank you. So the YU platform continues to be a very, very valuable asset to DFI. In Hong Kong, we have 5 million users,

a very strong daily and regular user base. I think, to now, it has been a loyalty program and a traditional loyalty program. But with the advent of AI, our ability now to put a decision engine on top of that data not only will help us to personalize our proposition to broad customer base across the market, but allow us to begin to monetize that data by helping our vendors understand their customers better by purchasing insights. So I think once this decision engine, this AI engine, has matured, I think we're probably a few quarters away from maximizing that. YUU will continue to add value to our business. In Singapore, we're in the early days of that process. And again, data is what's critical. So whether it is a directly owned food business or it is a food partner, which is what we foresee through macro value being a part of the platform in terms

of that data, it's still a very valuable platform for us to be able to continue not only to create value to our customers through personalization to vendors in terms of better return on investment, but importantly to shareholders by great returns on a pretty low cost platform. Thank you. Thanks, Scott. Ladies and gentlemen, this would conclude our session for today as a token of appreciation we are pleased to offer all attendees present today as so many of that of our own brand products across all four or five formats. If you haven't already, please be sure to take one with you. Thank you very much for your participation and we look forward to see you again in our next analyst presentation.