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

Good morning, 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 is being webcast in its entirety. In addition, the full text of our results announcement and slide presentation have been uploaded on to 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 Group's businesses and operations, market conditions, et cetera. You are expressly advised not to rely on these forward-looking statements as they are subject to 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 customers, those consumers who have this flight to value with a great assortment across really all 5 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 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 and 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 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 accretive 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 Yonghui, 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. On 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 $0.443 per share on top of our normal regular dividend. The scale of that $0.443, 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 you through 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 divestment of Yonghui, Maxim's, but also better results for Robinsons. In addition to that, we have strong results for H&B, Food and Home Furnishing, combined with lower interest costs. This was partially offset by lower results in Convenience and higher SG&A costs 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 the translation impact after we completed the divestment of both Yonghui and Robinsons. We see like-for-like sales stabilizing. So that's excluding divestments and cigarette sales. Last year, like-for-like growth was negative 1.5%. In Q1, it was negative 0.3%. And in Q2, we see a positive like-for-like growth of 0.9%. So the trend is positive. Health and Beauty delivered strong sales and profit growth. Like-for-like 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 windfall gain of about $12 million in the first half last year as we purchased cigarettes ahead of the tax increase. Excluding which, the Convenience profit is up 9% year-over-year. We see a strong profit growth in Food, this is driven by cost control and the turnaround of our food business in Singapore. Investments in price in Hong Kong have resulted in increased footfall 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 furnishing. Growing e-commerce penetration from 3.6% in the first half of 2024 to 4.8% in the first half 2025. Our daily orders in e-commerce reached 96,000 per day, an 85% year-on-year increase. And as Scott said, e-commerce is now profitable. We also see a strong momentum on Retail Media, as you call DFIQ, 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 Yonghui and Robinsons Retail. And we, therefore, raised our full year underlying profit guidance to be between $250 million to $270 million on the back of much stronger returns and much stronger margins for most of our businesses. In the end, we returned about $647 million to shareholders via special dividend and an interim dividend. And that underscores our confidence in our long-term strategy, disciplined capital allocation and focus on TSR. If I move on to the revenue and underlying profit. 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. Here, we see a strong growth of profit in H&B and Food, which are partially offset by Convenience, as I mentioned earlier, due to the cigarette tax impact. The subsidiary underlying profit of $75 million is up 3%. Here, we see 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 Yonghui. We had 2 additional months of pickup of Robinsons and better result of Maxim's. Even without those 2 months of Robinsons, it's still up year-on-year on Robinsons. The total underlying profit for shareholders is $105 million, as you can see here. And in the net nontrading items, $143 million negative. Of that, $146 million results to the divestment of Yonghui and Robinsons suggest translation losses going to the balance sheet and the P&L. That leaves a reported net profit of minus $38 million. At the bottom, you can see the total dividend per share, $00.4780, 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, focus on disciplined capital allocation and TFR. We 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 a 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 doing 6% like-for-like growth in the first half. Our strategy for Health and Beauty is to focus on the growing brand equity as trusted advisers in health and wellness. We see initial results in growing basket sizes across our markets. We'll accelerate revenue growth by franchising Guardian brand in selected markets and franchising is highly successful in our 7-Eleven markets and is both -- is accretive to both profit as well as ROCE. Convenience, that's down 3% year-over-year, mainly due to the lower cigarette volumes in Hong Kong following the 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-Eleven. Food. Food is like-for-like negative, down 1%. In Hong Kong, as I said earlier, we are investing in price to address the GVA competitive threat. This is important for the medium and long-term returns of our food format. We fund these investments with lower sourcing costs. We're going to source more direct to the suppliers. The initial results are very promising. We see the items per basket are up. We see 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 are again funded by lower cost prices. Maxim's, flat year-on-year. We see a strong growth in Southeast Asia for Maxim's, offset by a 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 2 additional months in the half compared to last year. Even without those 2 additional months, Robinsons was still up 5% year-on-year. We then move on to the operating and underlying profit by format. I compare here against the half year 1 '24 restated column. As we discussed in our last earnings calls, our Own Brand and e-commerce costs under H&B and Food are reclassified under the corresponding format in the beginning of second half of 2024. So we therefore, restated the first half of last year to make the numbers comparable. On Health and Beauty, you see $8 million increase or 8% 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 $9 million in the operating profit. That's because we had a windfall gain last year for cigarettes of $12 million, excluding which the Convenience profit is up by 9%. And as cigarette tax impact annualized, we expect the profit to continue to grow in the second half compared to last year. The Food improvement from $26 million to $24 million this year, $21 million last year, that's because of the turnaround in Singapore. Home Furnishing, despite the lower sales, we see a very strong focus on cost, lower cost in Indonesia, lower cost in Hong Kong, and that drives a turnaround to profit for the Home Furnishing division. SG&A, I mentioned it earlier, it's up $5 million because last year, we had a one-off reversal of our LTIP. If you remove one-off reversal, actually costs year-on-year are down on SG&A. Then moving to the operating profit, $175 million, 4%, up 20 basis points from last year. And then we see the total subsidiary underlying profit being $75 million, up $2 million from last year. Cash flow statement. Our free cash flow in the first half is $89 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 a return on the CapEx we invested. So the second half will be higher than what we see here, the underlying measures we focus on disciplined allocation of cash in our business. Divestments 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 million. After accounting for special dividends, this still leaves us sufficient financial bandwidth for inorganic growth should there be shareholder accretive investment opportunities arise, while maintaining a healthy balance sheet and equity. So let me hand over to Scott to take you through 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 and support. We have identified 5 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 will both be owned stores in markets where we see TSR accretive investments, but also through capital-light 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 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, been 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 ourselves as 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% like-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 1/3 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. That's 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 4 quarters of investing in 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 in 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-Eleven, very much based upon Japanese taste. It seems that every second person across our markets has been to Japan twice in the last 1.5 years. They see what good quality Japanese RTE looks like, and we're duplicating that across our markets. We've expanded that proposition with a large food bar rollout in South China bit of a battle going on relative to -- we see, obviously, Alibaba and JD versus Meituan 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 ROCE return on capital employed growth across the totality of our business. Moving on to Food. Although we had a like-for-like 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 Bay 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 and 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 pay off, believe that we're really in 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 on to our shareholder. E-commerce volume nearly doubled. Again, with this overall approach to omnichannel 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 to feeling good about their apartments, their homes where they live. So we see a lot of our marketplace items across, say, bedding 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 in pricing. If you were to walk in the IKEAs 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% PBIT 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, underlying earnings 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 in 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 accretive 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, 6 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 and 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 through enhanced operational efficiency, including lower interest cost and lower overhead costs. Whilst we have lowered our financing costs by deploying part of our divestment proceeds in debt paydown, we are still early on our journey on cost optimization. As such, we update our full year guidance to $250 million to $270 million of underlying profit. That's a growth of 30% on the midpoint. Our capital allocation priorities remain clear. We maintain a healthy balance sheet, invest to drive 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. [Operator Instructions] First question from Brian of Citi.

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 going to affect our long-term strategy now that all the cash is gone. That's the first question. My second question is on the profit margin improvements across all divisions on a like-for-like 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 the second question. My final question would be, can you give us an update on the July today overall performance and by division and Maxim as well?

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 in the 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 from our divestments 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 are confident that we can pay that from 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 of net cash position on 12/31?

We expect to be quite just above 0. So it will be net cash positive.

With the 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. We're, as I said, changing our supply chain. We still think there's opportunity in the supply chain. Right now, gross profit is with an 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 at the 0.5% to 1% revenue growth totality for the year. Second half is 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 1.5 years are going to pay out the ability to ensure that July, what we're seeing continued 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 3 questions. First is on the Convenience stores. Even if I were to strip out cigarettes, given the kind of headway we have 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 2.5%, 3% operating margin without revenue growth? The context in which I ask this question is, I know we consider the wet markets as the TAM 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 all our sourcing and our cost savings into play, can we get to a 2.5%, 3% 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?

Great. Thanks, Karthik. I'll cover the first 2 and 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 2 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's still 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, broad-based, we're on all 3 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 Meituans or the Alibabas are choosing to subsidize. Basically, USD 2 coffee for USD 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 in Convenience, especially as we continue to grow stores, but also improve the RTE will improve. With that then, I would see margin expansion. I'm not ready yet to guide on what we would say as a target for margin expansion, again, maybe by Q4 we'll think about an investors 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 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 2:1 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. good. He said yes. So we're covered off. In terms of the third question, in terms of cash flow versus cost, Tom?

Yes. 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 costs. If you see that coming through, we have less debt, so that will flow through, especially in the second half of this year because we pay down in the first -- we are focused on working capital. So bringing inventory down. So now deploying also AI tools to optimize our inventory whilst also optimizing our stock levels in the stores and making sure out of stocks are going down. So we have seen year-on-year improvements in underlying working capital in inventory and creditor days. Those are the key ones. And the last one is on CapEx. So if you look at our growth, we try -- growth in H&B will not be franchising. If we franchise, that's a very CapEx-light model, the same as we deploy in 7-Eleven 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.

I'm Meg from CGS. A couple of questions from my end. The first is on the guidance. So regarding your CapEx guidance, you haven't changed that. You've retained that. So that implies more than double CapEx 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 CapEx 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 cigarette 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 the increased basket sizes, Mannings growth and 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 Maxim's. Maybe some color on where you were able to capture cost savings and how much you think you can further drive cost savings there?

So Tom, why don't you cover off the first on CapEx and revenue guidance? I'll take the next 2.

So on CapEx. So the focus on CapEx for this year is on store growth. So the submarket store growth, a lot of store remodeling. So in H&B, we had 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 to 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 then the third one basically will be on supply chain, continuous 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 are driving for. If you look at the organic growth, organic growth excludes, for example, the divestments we've done, so like Hero. Also, we will -- once we have divested Singapore Food, once after the divestment, we'll make sure we compare on a like-for-like basis. And it will exclude the cigarettes for the year.

In terms of Health and Beauty, 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. And as you think about daily life, you go into every 1 of our 5 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 like-for-like growth versus profit growth. So our restated like-for-like 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 Maxim's, 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 time line. Most of these stores have got a 3-year time line 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 3-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, 0 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 Maxim's 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 Loh, UOB Kay Hian. Two questions here. Regarding sales momentum in Retail Media, can you talk about the targets that management have set, whether it's order, whether it's sales penetration, et cetera? Second question, we've seen a bit of a disposal over the past 12 months. What's management thoughts on current portfolio? Should we be expecting more actions down the road?

So on Retail Media, 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 4, 5 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. We're 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 dollars. So how do they put $1 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 ROCE 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. Bolt-on acquisitions across those formats, not interested in moving into any new formats and the ability to very quickly add accretive TSR progress across the growth in those formats. Thank you for the question, Adrian.

Thanks, Scott. Next question from John Lam of UBS. Recently, we've seen some quite aggressive move of Chinese online retailers 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, as 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 Hboka, New Jersey or in London, you might benchmark suburbs of London, slight premium for the center of town. So I think we're in a pretty good position even as 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 Selviana Aripin of HSBC. Can management talk about the Health and Beauty franchising strategy? Will you be operating franchise stores in your current market? Or 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?

Yes. 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 2 and Tier 3 cities. The value do we bring? Well, one, we have a scale of sourcing. We have access to brands that 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 accretive 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, Selviana.

Thank you. In the interest of time, we'll be taking the last question from Jayden of Macquarie. Can you share some updates on the yuu 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?

So the yuu 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 a souvenir bag of our Own Brand products across all 4 of our 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 seeing you again in our next analyst presentation.