DFI Retail Group Holdings Limited

Good morning, everyone. Thank you for attending the DFI Retail Group 2025 full-year results presentation. I'm Karen Chan, Strategy and Investor Relations Director. Joining us today is Scott Price, Group Chief Executive, and Tom Vander Lee, Group Chief Financial Officer, who will be providing remarks on our full-year results, followed by a Q&A session. Today's presentation is being webcast in its entirety. In addition, the full text of our results announcement and slide presentation are uploaded onto our IR website. And before we start, I would like to remind you of the following regarding 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 imply for any dealings in any securities. There may be forward-looking statements mentioned in the presentation materials, which include statements regarding our intent, belief, expectation with respect to DFI retail group businesses, operations, market conditions, et cetera. We expressly advise 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. Scott, please.

Good morning, everyone. Thank you, Karen. Pleasure to be here talking about our full year of 2025 results and also sharing with you some of the insights that we gleaned from the second half of the year versus the last time we gathered here. We're seeing a more confident customer in the second half of 2025. They're still careful. They're still not going back to, I think, the spending pre-COVID. But we are seeing customers willing to invest in convenience, invest in their own wellness, and also fun, which has been quite interesting. So some of the headlines, we're now up to about 115,000 daily e-commerce orders. So again, that focus upon convenience, a lot of that is coming from our 7-Eleven China business. a significant increase in what we would call the wellness category within health and beauty, where customers in particular around derma, supplements, are interested in functional value. In particular, a younger customer that I think are more focused upon wellness than particularly previous generations. Collectibles and characters across, I think, not only our 7-Eleven, but also our own brand. Cute always works, and we're seeing it as an opportunity for us to grow. I think that we had good, strong, like-with-like growth. I'll talk about that in a couple of minutes. Good progress overall in the business, and I think from a financial viewpoint, very pleased with the strength of our balance sheet now as we have paid down debt and are in a net cash position. As we look forward to 2026, I think, as Tom will share towards the end, our overall guidance. I think that we're having now an opportunity to benefit from really 18 months of hard work, pivoting our business to far more of this customer-centric value plus, again, areas where they're willing to spend a bit of money. We obviously have to focus upon becoming a modern retailer, which means the digital and the role of digital within our business is critical. We'll share some of the statistics there. We are very much focused upon financial returns, the TSR, our return on capital employed. So a key metric that we're using is increasing our revenue and profit per square foot across the business. which is a great metric within retail to really test how you're doing. And continuing to invest in our digital ecosystem, which I'll describe in a little bit more detail. In terms of overall results, which had been released, revenue from our core operating subsidiaries of 0.5%. Now that was a 0.8% in the second half. So again, we're seeing this recovery across the total portfolio. after a couple of years of challenging revenue. Underlying profit up 34.7%. We have absolutely focused upon everyday low cost across the entirety of the business, which has continued to drive a much higher growth in profit than revenue. I mentioned net cash position at 538 to 70. That is after paying a very significant special dividend of $600 million. So a 58.3%, we announced a full year dividend of 10.7% after approval from our board of directors yesterday. Overall, we're seeing some interesting trends. High value tourists are coming back to Hong Kong. We see now in many of our tourist stores, great growth. I'll talk a little bit about that in particular health and beauty. So tourist locations versus the previous tourists who prided themselves on coming to Hong Kong and spending nothing, bring their own water, their own food. We're now seeing a return of high value tourists, which is a great sign. Good mix now from cigarettes to ready to eat. A little bit more detail in that shortly. Food growth benefited from the Singapore consumption. The government... Prior to the elections, gave each citizen 600 Singapore dollars, and that obviously benefited the food, as we saw in our performance there. Great progress in IKEA. We'll talk about that in a few minutes. Mentioned the doubling of our e-commerce transactions, and, again, the total shareholder return for the year was 93%. So I'm going to turn it over to Tom for a little bit more detail.

Thank you, Scott. Let me take you to the financials for 2025. Starting with the income statement, we closed 2025 with the underlying profit of $270 million, up 35% year-on-year. And with this, we delivered the top end of our guidance. This performance was driven by consistent life-like recovery, margin improvement across most formats, and decisive portfolio actions, notably the divestment of Yonghui, Robinsons and Singapore Food. For clarity and comparability, we present two additional views here. First, a restated 2024 base, reflecting only the comparable periods for divested businesses. Second, a restated 2025 view, assuring full-year deconsolidation of Singapore Food and Robinson Retail. and this provides a clearer picture of our going-forward earnings profile. On revenues, revenue from subsidiaries was 8.9 million, up 0.5% year-on-year on an organic basis, excluding the vested businesses for a comparable period. Maximum revenue, our associate, up 0.4%, on improved mooncake sales and Southeast Asia restaurant performance, offset by weaker sales in Hong Kong and mainland China. Subsidiaries' underlying profit, $183 million, up 19% on a comparable basis. All formats improved their operating margin, with the exception of convenience, due to reduced cigarette volumes. Our financing costs reduced as we paid down almost all our debt. The share of underlying profit from Maxim's up 9% due to stronger sales and lower costs. And the underlying profit is $2.70, a set of 35% up year-on-year or 18% up year-on-year on a restated, comparable basis, excluding the loss-making Young Way in 2024. The non-training items, $36 million, they primarily reflect the losses of the divestment of Young Way and Robinson Retail, partially offset by the disposal gain on Singapore food. These items are all non-recurring. The ordinary dividend per share, the 14 cents here, that's based on our new dividend policy which we announced last year of 70%. The special dividend, 44 cents 30, we paid out last year. I think overall, full year 2025 represents a clear inflection point for the group. We transitioned from a portfolio-driven structure to a much more focused operating company. with stronger earnings quality, lower leverage, and a greater strategic flexibility heading into this year, 2026. Going to the sales summary. As outlined in our investor day, growth, margins, and returns are the key building blocks for us driving TSR. Turn to sales here on this page. We continue to see sales recovery across the format in 2025, reflecting improving execution and early signs of demand recovery. Overall, consistent life-life recovery, reaching 2% in the second half of 2025. Turning on to the formats, on HMB, we saw an almost 7% growth, driven by continued share gains in wellness, stronger tourist traffic in Hong Kong, and a growing e-commerce presence in Southeast Asia. Convenience, the total sales declined 1.5% due to cigarette volume reduction following a tax increase in Hong Kong in February 2024. Excluding cigarettes, sales increased 1% as we focus on growing higher-margin, non-sickle categories, with RTE being the main focus. Food sales were broadly flat, excluding the rest of the businesses, as price reinvestments supported volume and transaction amid a volume-value-focused consumer environment. Home furnishing, although sales declined 3.5%, a clear improvement from a decline of 12% in 2024. And that's driven by price resets, range rationalizations, and accelerated digital penetration. And a set maximum growth of 0.4% due to stronger mooncake performance in Southeast Asia restaurants. Breaking this down a bit more detail into half-year numbers so you can see the trends here better. Sales and life-to-life trends continue to improve throughout 2025, with a clear step-up in the second half across all formats, reflecting strong execution and stable in-demand conditions. On health and beauty, health and beauty delivers sustained life-to-life growth, supported by continued share gains in wellness and the growth of tourist arrivals in Hong Kong, as well as this e-commerce I mentioned earlier in Southeast Asia. Particularly Indonesia and Vietnam, So a double-digit life-for-life sales growth in 2025. Very strong performance in digital markets. On convenience, sales remain pressured by cigarette volumes declines following tax hikes, although a clear improvement here is seen in the second half of 2025. And that's driven by continued growth in higher-margin non-cigarette categories, particularly RTE. In South China, like-for-like sales were impacted by the intense subsidy competition from food delivery platforms, particularly in the first half of 2025. As we continue and grow RTE, with margins about four times as much as cigarettes, we expect the financial impact from cigarette sale decline to moderate from 2026 onwards as we anniversary the full year cycle of the sick tax increase. On food, stable like-for-like despite a challenging trading environment. In Hong Kong, pricing reinvestment in the core basket items drove volume up by 2%. Singapore food, as Scott commented, benefited from the government consumption vouchers, which were only redeemable at supermarkets and hawker centres. And Cambodia delivered a very strong like-for-like both in sales and also improved underlying margins. Home furnishing, you can see also here a clear improvement compared to the time during the fall, and also the second half is much better. That reflects all our efforts on price reductions, better entry price range options, and we rationalized the non-core items throughout the portfolio. As a result, you can see that the volumes in the second half are growing. Sales might not grow yet, but the volumes, the underlying volumes in the second half for IKEA have been growing. We then turn on to the operating profit by format, and you can see here also quite strong results and also good recovery in the second half. Starting with health and beauty, the operating profit here reached $228 million, up 9% year-on-year, driven by strong performance on sales across all our markets, and the margin improved 20 basis points to 8.7%. Convenience, operating profit of $97 million, although down 6% due to the low reported cigarette sales, although the second half here also returned to profit growth, driven by the favorable mix towards higher margin RTE categories. Food, operating profit reached $62 million, a 15% year-on-year increase, driven by earnings recovery mainly in Singapore food, following the distribution of the government consumption vouchers, which led to higher sales. Again here, Hong Kong pricing investment drove volume growth, but did not impact our margin because we offset the lower prices with better sourcing in our business. And last, home furnishing. Here we can see improved margins year on year, despite slightly lower sales. And that's because of significant cost optimization across labor, supply chain, and rent across most of our markets. As a result of that, we had a $10 million uplift in profit for IKEA or Home Furnishing in 2025. Turning to the total subsidiary operating profit and the underlying profits. Starting with the subsidiary operating profit. The operating profit, that is post IRS, increased 7% year-on-year, driven by broad-based improvements in subsidiary profitability, with operating margins now 4.2%, up 30 basis points. The underlying profit, as mentioned earlier, is up 35% to $270 million. Supported by strongest subsidiary earnings, as you see above, lower financing costs, we move from a net debt to a net cash, and a higher contribution of associates for the investment of the loss-making young way. The reported LGMA costs are slightly up. But on a like-for-like basis, they are down. There are a few one-offs which are not recurring, and you will see this year that costs are coming down on the SG&A line. Turn to cash flow. Strong cash flow, $430 million operating cash flow, up almost 30% year-on-year. And our free cash flow grew 78% to $281 million in 2025. both because of underlying profit improvements, improved working capital efficiency, and the interest savings, which I highlighted earlier. CapEx. Our CapEx was clearly below our guidance, another $149 million. Of the CapEx we spent, 50% of the CapEx was spent on stores and refurbs, 30% on digital and IT, and the remainder on supply chain, sustainability, and maintenance. We however remain committed, as you will see later in the guidance, to invest $200 to $220 million per year, again focused on store, store renewables and technology, particularly AI, as we will highlight later. Following the $1 billion of investment proceeds, we moved from a net debt to a net cash, even after returning $600 million to shareholders via a special dividend. And that moves to the return to shareholders, as you can see here. Our total ordinary dividends is 14 cents in 2025, up 33%, and that reflects the stronger earnings, but also the increased payout from 60% guidance to 70% policy. We returned $740 million of shareholders, including $600 million of special dividends, while we strengthened the balance sheet. We delivered a total shareholder return of 93% in 2025, driven by earnings recovery, portfolio simplification, and disciplined capital deployment. And with this, we've outperformed our retail peers and major global indices. And last, the ROIC improved by 9.4%, with a clear pathway to 15% by 2028, as we announced during our investor day. And with that, I would like to turn it to Scott for strategy and business updates.