DFI Retail Group Holdings Limited (D01) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the DFI Retail Group Holdings 2023 Full Year Results Briefing Conference Call. [Operator Instructions] I would now like to hand the conference over to your host today, Mr. Scott Price, Group Chief Executive of DFI Retail Group; and Mr. Clem Constantine, Group Chief Financial Officer and Property Director of DFI Retail Group. Thank you. Please go ahead, gentlemen.

Good morning, and welcome to our 2023 full year results presentation. I'm Scott Price, Group Chief Executive of DFI Retail Group since August 1, 2023, Clem and I this morning will be presenting on behalf of the Group today. Before I hand it over to Clem, I'd like to share some highlights from 2023. So our subsidiaries' sales were in line with last year. From a format perspective, we exited the Malaysia Food business. And on a like-for-like, then our total sales were plus 5%, excluding that divestment. As already reported, underlying profit improved significantly in the year. We did see some changes in post-COVID behavior as dine-in moved to dine-out. So there was a Food impact, but we were quite encouraged by the second half improvement in trend. Very strong performance in our Health and Beauty formats across the countries with profit more than doubling. Convenience stores, again, very strong performance with growth across all 3 core markets. We do see the high interest rate having an impact on home furnishings with reduced demand, and we'll address that a little bit later in the presentation. I'd now like to hand over to Clem.

Thank you, Scott. Good morning, everyone. Let me take you through the results of DFI for the year ended December 2023. Let's start with revenue and underlying profit. Our total revenue, including associates and JVs was at $26.471 billion, marginally down 4% year-on-year, primarily driven by lower sales in Yonghui. If we exclude Yonghui, total revenue for the group was plus 6% year-on-year. Our total subsidiaries' revenue was at $9.170 billion, in line with last year but 5% up if we exclude our Malaysian grocery business, which we divested in March of this year. Subsidiaries' underlying profit was at $212 million, up 59%, underpinned by strong profit growth in Convenience and Health and Beauty. Now after deducting tax, accounting and finance charges, our subsidiaries' underlying profit was at $112 million, up 75%. Our share of Associates and JVs' underlying profit was $43 million, up $78 million on last year, primarily driven by a significant profit recovery from Maxim's and reduced losses at Yonghui. Underlying profit attributable to shareholders was, therefore, $155 million, up 437%, an encouraging $126 million positive profit swing compared with last year. Net non-trading items were minus $123 million. And these were mainly driven by $103 million combined noncash goodwill impairments with San Miu and Giant Singapore; and secondly, a $54 million reported loss on the sale of our Malaysian grocery business, driven primarily by the crystallization of foreign exchange losses. However, this was partly offset by gains in property sales. Our reported profit attributable to shareholders was $32 million. Our underlying EPS was $0.1149 and our total dividend per share for the year was $0.08, up 167%, demonstrating our commitment to driving improved shareholder returns as well as confidence in the underlying strength of the business. Now turning to sales. Our total subsidiary sales remained in line with last year, highlighting a well balanced and hedged portfolio of businesses. A strong sales recovery in Health and Beauty and Convenience was offset by lower sales in Food and Home Furnishings. Food sales were at $3.285 billion, down 15%. Excluding the Malaysian Food business, sales were down 5%. And if we also take into consideration the high sales base in Q1 of 2022, driven by COVID, sales were effectively down 2%. We are, however, encouraged to see LFL trends improving in Food in the second half across our North Asia and Southeast Asia markets. Furthermore, we continued to gain market share in our key food markets. In terms of convenience, our sales were $2.441 billion, up 8%, with encouraging LFL sales growth across all our Convenience markets. Health and Beauty sales were at $2.445 billion, up 21%, underpinned by a strong traffic recovery as borders reopened, led by our home market here in Hong Kong. And Furnishings sales were at $794 million, down 5%, impacted by a slowdown in the property market, but we still saw positive market share growth in all our markets. In terms of our key associates, Maxim's were at $3.109 billion, up 23%, underpinned by a rebound of dining-out activities in Hong Kong as COVID restrictions were removed. China and Southeast Asia also saw positive year-on-year trends compared to last year. Yonghui sales were at $10.697 billion, down 16%. Sales were lower as spending normalized post COVID. Despite lower sales, the underlying loss was reduced as the business closed loss-making stores and reduced costs, and we're partnering with Yonghui and its management team to develop a growth plan going forward, and we remain confident in Yonghui's underlying future strength. Finally, Robinsons were at $3.416 billion, steady progress at 9%. Moving to subsidiaries' operating profit, our Food profit was $45 million, down $46 million on the year. Food was essentially impacted by 2 things: firstly, rising cost concerns and a poor economic outlook led to cautious consumer spending and hence, lower sales in Southeast Asia. And secondly, in North Asia, the annualization of COVID Wave 5 in Q1 of 2022 impacted the comparative performance in 2023. Our Convenience profit was $88 million, up 74% on the year driven by a strong recovery of foot traffic in all markets, together with margin improvements. Our Health and Beauty profit was at $213 million, up 127%, again supported by sales uplift, margin improvements and operating leverage benefits. Home Furnishings profit was at $19 million, down $27 million, mainly impacted by a sales shortfall. SG&A costs are broadly in line with last year, but again include our digital investment costs. And overall, SG&A costs remain tightly controlled. Operating profit was at $212 million, up 59%, a very encouraging profit performance overall. And operating profit post IFRS 16 was at $294 million, up $85 million or 40%. Finally, moving to cash flow. Operating cash flow reported a significant improvement from $279 million last year to $419 million this year, mainly driven by stronger trading performance across the board and improved working capital. The group remains disciplined with respect to CapEx, $197 million was invested this year lower than the 2022 level. Free cash flow was therefore $222 million, up from $35 million last year. And our net cash flow after taking account of investments and dividends was at $247 million. Group net debt as a result, was managed down to $618 million, a very encouraging performance given the high interest rate environment we're now in. So in summary, the results were a significant improvement on last year, and I'm particularly encouraged with our reduction in net debt. Thank you, and I'll now pass you back to Scott to cover our strategy and a business update.

Thanks, Clem. So before I dive into the strategy and business update, I just like -- I would like to share a few initial thoughts on my view of the business as I reflect upon my first initial months of onboarding. First, in terms of strengths, I believe we do have an excellent format portfolio, which appeals to mass market customers, an important segment as we look at the macroeconomic environment. We have great brand awareness, great brand equity measured by trust in our core format banners across the markets. A powerful loyalty program through yuu in Hong Kong and believe we are emerging in the same position in Singapore. And an excellent leadership team post the restructure with a good mix of retail, digital and market experience. In terms of opportunities, I believe, first and foremost, addressing performance gaps in specific markets and formats, changing a bit the culture to put the customer first in all decisions like our assortment, own brand, pricing, store design, et cetera, fixing our digital go-to-market strategy and execution, continuing to improve our capital and resource allocation, reviewing the existing portfolio in terms of capital investment in holding and then, of course, improving our stock price. So the assessment really led to a rethink as to how we wanted to articulate our strategy moving forward. This framework has now been embedded across the organization as we drive a broad understanding across the organization, in particular individuals who make decisions on customers and allocation of our resources. I'll go through each one in detail a little bit later. But you'll see here very clear customer first, people-led, shareholder-driven as a simple allocation of how we think about both our human as well our financial capital moving forward. I'm very optimistic about the business and this leadership team. Our portfolio results and returns, I think will continue to prove to the market the DFI retailer is the best balanced mechanism to invest broadly in Asia retail with good confidence in shareholder return. So with that, let me just talk a little bit in more detail. So first, customer first. And I'm not going to unpack all of these in detail, but would call out some of those that I think reflect the megatrend areas. So the first data-driven assortment, pricing and promotion. Our yuu Rewards data is helping us to accelerate, I think, wise decision making across these areas, which will result in bigger baskets, higher traffic. And of course, it has great margin value. I'd call out the third, which is the retail primary health care service we see across our markets and aging population, creating a focus on healthy aging. We see through our assortments and through services of our Health and Beauty to be able to really leverage growth in this particular area at very strong returns. Finally, I talk about ready-to-eat at 7-Eleven. The traditional assortment for CBS did rely a bit on products such as tobacco. We are nicely offsetting those with quick service meals, coffee revenue at an equal revenue but a significantly more attractive margin. At the bottom, the digital reset, we have completed a rethink of our approach combining not only the yuu data to drive more accretive revenue that helps balance the monetization of those resources and assets to pay for generally a more dilutive transaction online, which is, I think, an emerging trend of modern retail across the world. On the second people led, it's important here that this is somewhat internally focused, but retail success is dependent on a motivated frontline team member and a management that supports the frontline. I believe with this focus, we'll see lower turnover, better customer experience and thus value to the P&L. I'd call out the second lean overhead with a focus on reducing SG&A. We continue to drive that through best practices and technology. And I would call out the value of becoming an employer of choice as we continue to progress and compete for talent across all of our markets. Moving on, shareholder-driven, most important to those who joined the call today. I mentioned previously focused on improving the stock price performance. I see that as an enormous opportunity. And we will do this through value-focused capital allocation priorities. In more detail, investing in organic growth where it matters. We will prioritize investments of growth with those formats with much higher return on capital employed, or ROCE, an important part of our model moving forward. Clem mentioned, our approach to disciplined CapEx. We will balance maintaining the current state in terms of refurbs and maintenance. We'll ensure that our technology and sustainability are world class, but as well invest in new stores with the highest returns for the business. Debt reduction, continued progress made in 2023. We are focused upon reducing further our debt burden as we move forward, a sustained dividend growth. Portfolio management. We want to ensure our capital is invested in businesses that generate reasonable shareholder return that will also include a review of strategic divestment potentially of businesses or properties that can be released for capital recycling. Returning cash to shareholders through special dividends and share buybacks where it makes sense. And finally, I would say our leadership team truly is committed to driving growth within these principles, but a focus upon margin. So let me quickly review with you examples of the format actions already taken or are in progress across the formats, aligns to our customer-first people-led shareholder-driven strategy. On food, Clem talked quite a bit at a high level. I won't detail each. But I would say that despite the like-with-like COVID disruption, and I hope this is the last call I ever have to use the word COVID. We did see market share gains in Hong Kong by over 300 basis points. A challenge in a mature market in Hong Kong is to not focus upon taking share in the measured modern market, but in fact, focus on the fact that 40% of food in Hong Kong is still sold in the informal market, we believe we can gain share in a growing market. The third, again, the refined digital proposition, less dilutive margin to our business that reset is underway. Very pleased to see some of the initial results, including the newly launched Welcome app that win to the market. Down at the bottom partnerships with Foodpanda, I believe that a best-in-class platform is a better approach than last mile independence and certainly more accretive to the bottom line. And then finally, our own brand reset. We believe that there's an opportunity to improve the own brand position, both in terms of value to customers, but importantly, margin to the business. On to Health and Beauty, I think our business is strong and well placed to capture revenue and margin from the megatrends that you see in Health and Beauty. Profit more than doubled, as Clem mentioned, we see that the health category is very, very strong in terms of growth, again, reflecting that megatrend of healthy aging focus. Our health as a category is now more than 50% of our sales in Hong Kong as an example. We will continue to expand the network. We opened 130 stores in 2023. Very pleased with the ROCE -- return on capital from this format, and we'll continue to highlight it as a key area of growth for us and then continue to invest in the e-commerce fair share mindset to ensure that we don't fall below, but that we do not have a dilutive transaction base that comes into the overall business performance. Moving on to 7-Eleven, very pleased and encouraged by our 7-Eleven performance. Underlying profit up over 60%. We invest heavily in innovation, 4,000 new products cycling through across all of 3 markets. And each one of the clusters in terms of the purpose that it plays, whether it's residential, entertainment, et cetera. A very strong ready-to-eat offering now with double-digit growth in those areas. 300 new stores opened across the market. We now have a very strong position on e-commerce in South China, where we hold the franchise for the Guangdong province, 24,000 orders a day with a very strong store pipeline. I would call out that we have balanced a bit better, I believe, moving forward, the profit and the capital by having a portion of our stores in South China franchise. And we collect a franchise fee as well the consolidated revenue, but we can get higher growth with lower capital expenditures. Moving on to IKEA. As I said, retail is cyclical, and it's no different in the home furnishings category. We see the high interest rate environment, paused moves, and those are an important part of our demand. Bedroom, I think, furniture as well kitchen, bathroom, but the team is pivoting, I think, quite nicely as we work our way through this cycle. So we are looking at small space -- small space, digitally enabled stores allows us to digitally portray the entire assortment an innovative room type of models, but at the same time, lower capital and a lot more of the sales in the, what we would call decorative, we call it marketplace, but pillows and decorations that are still a valuable margin to the business. The revenue per square meter in these stores significantly better than large stores. So we continue to look at this as an opportunity, quadrupled our touch points for the convenience of our customers. Great growth in e-commerce in Taiwan with our new fulfillment center, continuing to grow the assortment and the value of the food segment. And we see that as a very positive development. into the future, even when we see these move events coming back and overall growth in the more substantial investments in baskets that we see through kitchens and bathrooms. Omni experience, the in-store digitalization, which makes it much easier for our customers to shop. And then overall, I think just summarizing, I have a lot of confidence in this format for the long term, both in terms of revenue growth but margin. Let me quickly update you on the yuu Rewards program and our loyalty. Having seen loyalty programs around the world over my career, I certainly think this is probably one of the most globally if not the most globally successful from launch to achieve 76% of the adult population in a market. We now have 4.9 million users. We launched a number of new partners as well. We have more in the pipeline, looking at restaurants, insurance. We believe that there is a very significant opportunity to continue to build the participants in the yuu platform. Major values moving forward from the data we've alluded to it. But analytics from that data to help us improve our in-store, you should see an increasing revenue per square foot and margin management so that the food, in particular format continues to improve financially, monetizing insights with our suppliers, it helps them, helps us from a margin viewpoint, but also is more impactful to our customers, an ambitious retail media monetization plan, driving profitability as well towards the overall digital ecosystem. And then finally, as I mentioned, I see opportunity for Singapore to achieve the same level as Hong Kong. We now have over 1.5 million members that was launched a bit over a year ago, 30% of the adult population. Finally, I'd like to touch on our ESG. Shareholder-driven requires a sustained profit margin and growth, but that will not happen if we are not realistic of ensuring that we have a well framed and practical delivery of our ESG commitments. We made progress in 2023. And importantly, that was, I think, seen by the Morningstar Sustainalytics, where they improved amongst the retailers in the world, our position in terms of ESG rating from the top 50% to top 29% in the global food retail group. I think that the SBTi initiative that was launched in October 2023 is important in terms of an external party rating the value of our program moving forward as we continue to deliver on our commitments for 2030, which is a 50% reduction in Scope 1 and 2 emissions and a 25% reduction in Scope 3 emissions. We have, as again, I'd reiterate, committed by 2050, Zero Net score of Scope 1 and 2 emissions and to continue to drive other metrics such as the waste diversion, 80% target by 2030. We're already at 54% and then ensuring that our own brand products are achieving 100% recyclable by 2030. In conclusion, we see evolving customer behaviors. Those challenges macroeconomically will continue, but this is cyclical. And I believe, while we're now using the opportunity to balance the fundamentals, the midterm of this business is very, very, I think, positive. We've reset the strategic framework. Again, the customer-first, people-led and shareholder-driven to drive that sustained profitable growth. We have a new org structure that moves decision-making closer to our customer in our markets at a much lower SG&A cost. We are absolutely laser-focused on improving our shareholder returns from this business. I continue to be very confident in the short, medium and long term on the overall prospects of the business. With that, I'd like to turn it over to Clem to just take us through a bit of an outlook.

Thank you, Scott. Thank you again. As Scott mentioned, led by a new strategic framework of customer-first, people-led and shareholder-driven, we're moving towards more transparent investor communications. Following best practice by the global leading retailers, we believe that it's appropriate to share with you how we think about our company outlook in a more concrete and quantitative way and we expect to keep up with this best practice in two years. In terms of subsidiary revenue, we're looking at flat to low single-digit growth. In terms of underlying profit attributable to shareholders, we're looking at a range of between $180 million and $220 million for this year. CapEx should be in the range of $200 million to $240 million and we'll continue to prioritize reducing net debt. In terms of dividends, we are focused on absolute dividend growth. With that, I'd just like to thank you again. We'll now move over to Q&A. Jean, please go ahead and open the lines for questions. Thank you.

Thank you, Scott and Clem. [Operator Instructions] Our first question comes from Jeff Kiang from CLSA.

Can you hear me?

Yes, Jeff.

Thanks very much for the presentation. I think it's very interesting. So on the -- my first question is on the strategic framework. So we'd just love to check if there's any time line or any expected time frame for the entire framework that you would love us to understand? And also, I would love to learn where do we stand in terms of lowering the SG&A, how much cost we can be cutting for this item? So my second question will be really about the dividend growth for 2024. So when we talk about the absolute dividend growth for the current year, does this seem, this will be the bold mindset as we think about the dividend growth ahead rather than looking at a certain payout ratio?

Thanks, Jeff. I'll cover the first item and pass to Clem for the second. We've set an initial 3-year target for our overall approach to the strategy and the capital allocation and growth model, we, of course, have a 5-year North Star relative to what we believe to be a fair, I think valuation of this business when it is, I think, properly restructured for maturity. We're not ready to give details on that. When I think we are comfortable that we have control of all the levers and our comfortable guiding, we'll hold and maybe an analyst conference. On SG&A, it will be a part of all of the business. The P&L of a retail business, it's not only revenue growth, but it's also gross profit. It is SG&A. But I believe that there is an opportunity to continue to reduce SG&A above store over the next few years while also ensuring that we serve our customers with innovation and opportunities. Clem, do you want to touch on the dividend?

Yes. I mean in terms of dividends, as you know, dividends are a function of earnings. And as we expect earnings to grow, we also expect to increase our dividend to shareholders in absolute terms. But it's just worth thinking about kind of capital allocation in terms of what -- where we're heading going forward. And if we prioritize capital allocation, we think of investing in organic growth, as Scott said, in our existing businesses, debt reduction is clearly key, sustaining dividend growth is absolutely key, and then portfolio management and optimization and then returning cash to shareholders. So dividend is clearly important to us, and it's one of the things we're looking at. But as we increase and improve our earnings, we will absolutely look at increasing dividends.

[Operator Instructions] Your second question comes from Adrian Loh from UOB.

My question centers around Yonghui. It's not been a great performer for you guys, to say the least. I'm just wondering what is the forward plan for this business? And do you guys see any situation whereby you would look to exit this given that it's been quite an arbitrage around the DFI neck?

Thanks, Adrian, for the question. And just to clarify. So if you look at our results, those results include the 12 months ending through September 2023 for Yonghui. Their sales were lower. Of course, I think Mainland China had quite a bit of COVID disruption. And so as you move from a 100% dine-in world, clearly, you're going to see calories consumed shifting to dining out. And certainly, that was a trend seen globally, a little bit delayed in China and thus the impact to Yonghui. We did close some loss-making stores in China, which is, I think, very, very positive. But we are aware of the underperformance of Yonghui shares. And it has a bearing on the DFI share price. It's an extremely competitive market in China and have participated in China grocery retailer, myself for 15 years. You have to stay on top of the evolving environment, in particular, on customers to succeed. I think the competition will moderate a bit as I think a number of big players rethink their proposition in terms of brick-and-mortar stores. We are the largest investor in Yonghui and believe that we have a voice. We have a role on the Board, I sit on the Board. So believe that we can support the management strategically to think about the business, maybe from more of an outside-in perspective, so that we can continue to enhance the underlying proposition, help them rethink the portfolio and invest in people development. But the reality is that as we focus on our shareholder driven, we will have to constantly evaluate the DFI investments in those subsidiaries and associates. We will continue to assess the portfolio to ensure the capital is invested in the businesses that generate reasonable shareholder return. And if we are confident that there is a midterm plan to do so, then of course, we'll evaluate our options.

I'd just like to add, Adrian, that the Yonghui loss, our share of the Yonghui loss went from $80 million to $36 million this year. So there is an improving profit trend as they deal with loss-making stores. And one of the things we will do, as I said, is we will become more involved in supporting them to try to improve performance. So we are fully aware of the situation with Yonghui. And yes, absolutely, they are negative to us at the moment, and we're looking to work with them to improve the situation.

[Operator Instructions] Your next question comes from Andy Sim from DBS.

I have one question with respect to your outlook in terms of the underlying profit. Thank you for providing that range. Maybe could you help unpack in terms of where do you think the -- how do you derive at this number? And maybe on a longer-term basis, do you think that that's actually optimal? And where -- what sort of level beyond that, can we expect going forward?

Well, Andy, in terms of how we devise the number, obviously, we have our own internal plans. And what we've given you is essentially a range around -- built around our internal plan. But we're very conscious of the fact that consumer behavior is evolving and we do have macroeconomic challenges and they still remain. We know -- as you know, there are issues at the moment with the China economy. We've got a large outflow of people into Shenzhen, into China from Hong Kong. So there's lots of things going on that impact our performance, hence, the range that we've given you. But our plans, we tend to plan on a 3-year basis and our plans take account of what we know today. And obviously, our intention is to achieve the guidance that we're giving you and then build on that for future years.

Maybe I would add that as we reset the overall strategy, by about Q3 of this year, we'll be able to decide and communicate when a format range from a PBIT margin might be something that we could set targets longer term. Understand it's hard to value the total without an understanding of the sum of parts. But as we optimize what we believe to be the best-in-class performance of each format, we're just not really yet to fully unpack what that means from a PBIT margin in year 2, 3 and 4 of the strategy.

Okay, understand. I think there's a lot [indiscernible] but there's certainly helpful in terms of sharing [indiscernible] My second question is with respect to digital and yuu Rewards accountability I think the announcement in terms of splitting the account [indiscernible], can you maybe help us explain or rather explain the significance of [ splitting it through? ] And what kind of benefits actually will it bring in terms of this -- not quite sure when I read the announcement or rather when sharing the commentary that we get the intended benefit of the outcome.

Yes. Thanks, Andy, and I appreciate the question around clarity. If I were to step back and describe our previous strategy, our model was really focused as a pure-play digital e-commerce and thus, the responsibility, the end-to-end P&L accountability, the decision-making with centralized almost as if a vertical P&L. And that vertical P&L, I believe, was suboptimal for a number of reasons. The first is that it ignored the omnichannel customer. Those customers who shop both online but offline. They shop in our stores, and therefore, suboptimal by not having our banners involved. The second is that we really focused on an assortment that was probably more competitive to a full e-com player as opposed to maximizing the value of what we know around our customers and what they want to buy from our formats. And the third really was the dilutive nature of those transactions because they did not find the leverage nor was, I think, the yuu loyalty program fully optimized. So the new structure means that we have a shared shadow P&L to ensure that we are comfortable for the shareholder that we are achieving fair market share in each one of our formats so that we're not losing future share, but also that we are achieving a neutral P&L position. We do that by first ensuring that the market and the format owns the transaction. We will get far better interaction with our customers digitally. If our Food team understands the assortment of the food and picks the food, Health and Beauty, et cetera, IKEA is already very substantial. They already have a double-digit proposition, and they do very well. The second is having a digital expert who ensures that the UX or user experience in terms of our apps and our overall customer experience online is best-in-class. And then third, the yuu being independent as a loyalty program. They should be focused on growing the partnership, growing the potential to earn points, burn those in our retail and ensure the economics of the data that comes from all of our point-of-sale transaction gathered under yuu is monetized fully to create that neutral P&L impact relative to achieving the like margin that exists in stores. So it moved quite quickly in terms of the internal organizations acceptance of the structure and we're not really ready to talk about the independent economics of e-com, but very pleased with the Q4 performance and the forecast for 2024 in terms of how that strategy is beginning to be seen in the P&L.

Your next question comes from on Ong Khang Chuen from CGS International.

Thanks for the sharing on the latest strategic plan for DFI Group. I see that a lot of this strategy that we communicated is about fixing the core in terms of store productivity and enhancing margins. But can you also comment a bit more on Hong Kong specifically? Because I think in your remarks that there is some similarly strategic -- sorry, structural change in how Hong Kong [ residents ] changing through behavior in Hong Kong. So any more color on how you are planning to evolve your business in Hong Kong, I think that would be very helpful.

Thank you very much. So maybe I'll cover it off in three sort of perspectives in terms of the Hong Kong market. So the first is who is the customer. So obviously, that's changed relative to the pre-COVID, post-COVID. With the various lockdowns, we saw as the market reopened, less traders coming into Hong Kong to take assortment back into China. I think due to the border closure, more and more behavior in China changed to fuller confidence and ordering online as opposed to seeking necessarily basic fundamental products out of Hong Kong. The offset of that is the opportunity for us to serve tourists. We're seeing a different tourists coming to Hong Kong, still pretty substantial numbers, but what products they want, I think, are a bit different. So the customer profile has changed over the last few years, but we are pretty confident we know how we're going to create a proper position that's of compelling interest to them. The second is really around the market itself. As I mentioned, the normal sort of view of market tends to and something as mature as Hong Kong as a location be seen as modern trade. But the informal trade is still very substantial. So if I look at Food, I mentioned it earlier, 40% of Food through wet markets, through mom-and-pop shops is still, I think, a substantial way for us to grow the view as to what is the upside potential of revenue for our market. So in addition to gaining sale, it's growing the overall market as the #1 player with a greater than 50% market share, we believe that, that is obviously one of our responsibilities. I would say, in Health and Beauty, there is an opportunity to do the same thing, which is to grow the category through the fact that Health is becoming pretty substantial as a focus as more and more consumers and residents in Hong Kong look for healthy living. And many of our tourists come here looking for interesting products. I think I've already touched a bit on the continued innovation in 7-Eleven and the work that's being done in IKEA. The third is just around adapting our assortment, what we sell. Our customers right now are value-focused and obviously, are being a little bit more cautious with their dollar. So ensuring that as we think across our formats that we focus on value as an opportunity for those customers. So the idea that Hong Kong's growth is capped by inflation is probably not reflective of the opportunity for us to be able to grow the format category as a very large player and have continued ability to ensure that disposable income, not only for Hong Kong residents, but also for tourists can come through our doors. Thank you.

My second question is on the portfolio optimization. I think you mentioned you plan to shift more towards higher margin store formats or higher return performance. Will there also be potentially a rethink on geographical presence? I see that we have divested some of your businesses in Malaysia and Indonesia in the past, will this continue? And I noticed on your guidance -- CapEx guidance, this tends to be slightly high on a year-on-year basis. So can you share a bit more on where this will mainly be spent on?

So let me just touch on our portfolio view and hand over to CapEx on to Clem. So in terms of portfolio, I think we've already framed well enough that we are really looking hard at the current structure of the portfolio. We will continue to take actions. If we do not see a path towards an accretive growth, I don't want to be in the current post-COVID consumer behavior has gone a little ditch to ditch take, I think, unnecessarily quick decisions. What we do, as I say, have a 3-year view on what we would believe to be the right reflection in the market in terms of our overall market capitalization. And if we see over the next period of time, particular market banner combinations that don't seem to be working for us, then we will take action. So in terms of what those could be, not ready to speculate or talk through those, but we just say that with confidence, we are very keen to recover our stock price and know that some of those portfolio actions will assist in that process. Clem, on CapEx, please. .

In terms of CapEx, as Scott and I have both said really, we remain really disciplined when it comes to CapEx spend. And we've really got four areas that we're looking at in terms of spend for this year. We're going to continue, obviously, to invest in new stores and renovate our stores where appropriate. But in terms of new stores, we're only looking at markets where we think we can get an appropriate return. So you're aware we're growing in 7-Eleven China, Hong Kong, Health and Beauty in Hong Kong, Malaysia and Indonesia. So we're really focused on where we want to put our CapEx. We want to continue to fund our kind of net zero road map that delivers financial and sustainability benefits. So where we can, we're looking at upgrading fridges, changing the gas in fridges, rolling out smart air conditioning controls and energy efficiency projects across our portfolio. Thirdly, we kind of continue to upgrade our end-of-life IT systems, and that's something that's really important for us as a retailer. And lastly, we continue to kind of renovate our fresh food centers in our key markets. And we're also trialing automation where appropriate in terms of Food and 7-Eleven in particular. So those are the key categories where we're looking to spend our CapEx. Yes, slightly more than 2023. But as I said, it's within the range that we're guiding towards.

Thank you, Scott and Clem. Due to the interest of time, we will be taking the last question. You may e-mail us at [email protected] for further questions, and our team will get back to you later. Your last question comes from Adrian Loh from UOB.

My last two questions center around costs. What sort of -- obviously, inflation has been an issue. Do you still see that being an issue for DFI across its businesses and geographies? And the second question is on your Grocery business in terms of your own brand products. Are you still continuing to roll that out and do you continue to see that positively impacting your margin?

In terms of inflation, Adrian, inflation, yes, has been relatively high over the last year, particularly energy that certainly impacted our cost base across our core markets. But what we're finding is that it's beginning to normalize now and we're obviously factoring it into our future plans. So we're comfortable with where inflation is across our businesses at the moment.

Yes. And just philosophically, when it comes to this topic of inflation, I think every mass value-oriented retailers should be focused on ensuring that you are laser-focused on the ultimate price to customers. We are the advocates for our customers. We try to procure on their behalf and try to find options to blunt the impact of inflation on the basket and think we've succeeded pretty well and we'll continue to look at deflation across some categories of course to pass those savings on to our customers. In terms of own brands. I think philosophically, I believe own brands are just a critical part of the proposition in our assortment in terms of passing value to customers. I do not believe number of SKUs or a number of product lines is the right measure. We will no longer talk about how many own brand products we have. It's the wrong philosophy, I believe. A good own brand strategy, well implemented, ensures that you have an equal or better quality to the customer, you're able to -- sorry, to the competition in terms of the national brand that you can pass along at least a 10% price discount to your customers, but still make at least $0.01 more margin and that the supply chain in terms of the quantity ordered at a minimum does not to increase your working capital insufficiently. So we are relooking at our own brand assortment, and taking actions to ensure that every item that we sell complies to those four basic rules around own brand. So pleased that we will continue to have a strong program, but are not going to be marketing, how many of them are there. I don't think our customers care. Our customers care that we bring them value. Thank you, Adrian.

There are no further questions at this time. I would now like to hand the conference back to your host today, Scott and Clem.

Thank you again for joining the 2023 annual results. As I said, I'm very optimistic about this business. Very pleased to be working with this team. I believe, as I mentioned, that if you look across the broad scope of retail across Asia, DFI Retail is a great place to invest to be able to have a financial position, both across multiple formats in retail as well as the markets. It's up to us to bring you the returns. Thank you.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.