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

Good morning, everyone. Thank you for attending the DFI Retail Group 2025 Full Year Results Presentation. I'm Karen Chan, Strategy and Investor Relations Director. Joining us today is Scott Price, Group Chief Executive; and Tom Wendel, Group Chief Financial Officer, who will be providing remarks on our full year results, followed by a Q&A session. Today's presentation is being webcast in its entirety. In addition, the full text of our results announcement and slide presentation are uploaded on to our IR website. And before we start, I would like to remind you of the following regarding information to be provided during the presentation. The information about to be presented is for information purposes only and is not intended to be investment advice for any person. There's no intention to imply for any billings in any securities. There may be forward-looking statements mentioned in the presentation materials, which include statements regarding our intent, believe, expectation with respect to DFI Retail Group businesses, operations, market conditions, et cetera. You're expressly advised not to rely on these forward-looking statements as they are subjective views, which are subject to risks and uncertainties. And with that, I'll pass it over to Scott. Scott, please.

Good morning, everyone. Thank you, Karen. Pleasure to be here talking about our full year of 2025 results and also sharing with you some of the insights that we glean from the second half of the year versus the last time we gathered here. We're seeing a more confident customer in the second half of 2025. They're still careful. They're still not going back to, I think, the spending pre-COVID. But we are seeing customers willing to invest in convenience, invest in their own wellness and also fun, which has been quite interesting. So some of the headlines, we're now up to about 115,000 daily e-commerce orders. So again, that focus upon convenience. A lot of that is coming from our 7-Eleven China business. A significant increase in what we would call the wellness category within health and beauty, where customers, in particular, around derma, supplements are interested in functional value, in particular, a younger customer that I think are more focused upon wellness than particularly previous generations. Collectibles and characters across, I think, not only our 7-Eleven, but also our own brand. cute always works. And we're seeing it as an opportunity for us to grow. I think that we had good strong like with light growth. I'll talk about that in a couple of minutes. Good progress overall in the business. And I think from a financial viewpoint, very pleased with the strength of our balance sheet now as we have paid down debt and are in a net cash position. As we look forward to 2026, I think, as Tom will share towards the end, our overall guidance. I think that we're having now an opportunity to benefit from really 18 months of hard work pivoting our business to far more of this customer-centric value plus, again, areas where they're willing to spend a bit money. We obviously have to focus upon becoming a modern retailer, which means the digital and the role of digital within our business is critical. We'll share some of the statistics there. We are very much focused upon financial returns, the TSR, our return on capital employed. So a key metric that we're using is increasing our revenue and profit per square foot across the business,which is a great metric within retail to really test how you're doing and continuing to invest in our digital ecosystem, which I'll describe in a little bit more detail. In terms of overall results, which had been released revenue from our core operating subsidiaries of 0.5%. Now that was a 0.8% in the second half. So again, we're seeing this recovery across the total portfolio after a couple of years of challenging revenue. Underlying profit up 34.7%. We have absolutely focused upon everyday low cost across the entirety of the business, which has continued to drive a much higher growth in profit than revenue. I mentioned net cash position at $5.38 to $5.70. That is after paying a very significant special dividend of $600 million. So a 58.3% -- we announced a full year dividend of 10.7% after approval from our Board of Directors yesterday. Overall, we're seeing some interesting trends. High-value tourists are coming back to Hong Kong. We see now in many of our tourist stores, great growth. I'll talk a little bit about that, in particular, health and beauty. So tourist locations versus the previous tourists who prided themselves on coming to Hong Kong and spending nothing, bring their own water, their own food. We're now seeing a return of high-value tourist, which is a great sign. Good mix now from cigarettes to ready to eat. A little bit more detail on that shortly. Food growth benefited from the Singapore consumption, the government prior to the elections, Gabe Citizen SGD 600, and that obviously benefited the food as we saw in our performance there. Great progress in IKEA. We'll talk about that in a few minutes. I mentioned the doubling of our e-commerce transactions. And again, the total shareholder return for the year was 93%. So I'm going to turn it over to Tom for a little bit more detail.

Thank you, Scott. Let me take you to the financials for 2025. Starting with the income statement. We closed 2025 with underlying profit of $270 million, up 35% year-on-year. And with this, we delivered the top end of our guidance. This performance is driven by consistent like-for-like recovery, margin improvement across most formats and decisive portfolio actions, notably the divestment of Yonghui, Robinsons and Singapore food. For clarity and comparability, we present 2 additional views here. first, a restated 2024 base, reflecting only the comparable periods for the vessel businesses. Second, a recent 2025 view achieving full year deconsolidation of Singapore Food and Robinson Retail. And this provides a clearer picture of our going-forward earnings profile. On revenues. Revenue from subsidiary was $8.9 billion, up 0.5% year-on-year on an organic basis, excluding the vessel businesses for the comparable period. Maxim's revenue, our associate up 0.4% on improved mooncake sales and Southeast Asia Western performance, offset by weaker sales in Hong Kong and Mainland China. Subsidiaries underlying profit, $183 million, up 19% on a comparable basis. All forwards improved their operating margin with exception of convenience due to reduced cigarette volumes. Our financing costs reduced as we paid down almost all our debt. The share of underlying profit maximums up 9% due to stronger sales and lower costs. And the underlying profit is 270, 35% up year-on-year or 18% up year-on-year on a restated comparable basis, excluding the loss-making Hong way in 2024. The nontrading items, $36 million, they primarily reflect the losses of the divestment of Yonghui and Robinson Retail, partially offset by the disposal gain on Singapore Food -- these items are all nonrecurring. The ordinary dividend per share to $0.14 here, that's based on our new dividend policy, which we announced last year of 70%. The special dividend, $0.4430 we paid out last year. I think overall, full year 2025 represents a clear inflection point for the group. We transitioned from a portfolio-driven structure to a much more focused operating company with stronger earnings quality, lower leverage and the greater strategic flexibility heading into this year 2026. Going to the sales summary. As outlined in our Investor Day, growth, margins and returns are the key building blocks for us driving TSR. Turning to sales on this page. We continue to see a sales recovery across the format in 2025, reflecting improving execution and early signs of demand recovery. Overall, consistent like-for-like recovery, reaching 2% in the second half of 2025. Turning on to the formats. On H&B, we saw almost 7% growth, driven by continued share gains in wellness, stronger tourist traffic in Hong Kong and the growing e-commerce presence in Southeast Asia. Convenience, the total sales declined 1.5% due to cigarette volume reduction following a tax increase in Hong Kong in February 2024. Excluding cigarettes, sales increased 1% as we focus on growing higher-margin non-cig categories with RTE being the main focus. Food sales were broadly flat, excluding divested businesses as price reinvestments support volume and transaction amid value-focused consumer environment. Home Furnishing, although sales declined 3.5%, a clear improvement from a decline of 12% in 2024. And that's driven by price resets, range rationalizations and accelerated digital penetration. And as I said, Maxim grew 0.4% due to stronger Moonka performance in Southeast Asia restaurants. Breaking this down a bit more detail into half year numbers. So you can see the trends here better. Sales and like-for-like trends continue to improve throughout 2025, with a clear step-up in the second half across all formats, reflecting strong execution and stabilized demand conditions. On health and beauty, help deliver sustained like-for-like growth, supported by continued share gains in wellness and the growth of tourist arrival in Hong Kong as well as this e-commerce I mentioned earlier, in Southeast Asia. Particularly Indonesia and Vietnam, so a double-digit like-for-like sales growth in 2025, a very strong performance in digital markets. On convenience, sales remain pressured by cigarette volumes declined for the tax hikes, although a clear improvement here is seen in the second half of 2025. And that's driven by continued growth in higher-margin non-cigarette categories, particularly RTE. In South China, like-for-like sales were impacted by the intense subsidy competition from food delivery platforms, particularly in the first half of 2025. As we continue and grow RTE with margins about 4x as much as cigarettes, we expect the financial impact from cigarette sales decline to moderate from 2026 onwards as we anniversary the full year cycle of the tax increase. On food, stable like-for-like despite a challenging trading environment. In Hong Kong, pricing reinvestment in the core basket items drove volume up 2%. Singapore Food, as Scott commented, benefit from the government consumption vouchers, which were only redeemable at supermarkets and hake centers, and Cambodia delivered a very strong like-for-like, both in sales and also improved underlying margins. In home furnishing, you can see also here a clear improvement compared to 2024 and also the second half is much better. that reflects all our efforts on price reductions, better entry price range options and we rationalized the noncore items throughout the portfolio. As a result, you can see that the volumes in the second half are growing. Sales might not grow yet, but to volumes, underlying volumes in the second half for IKEA has been growing. If we then turn on to the operating profit by a format. And you can see also quite strong results and also a good recovery in the second half. Starting with health and beauty. The operating profit here reached $228 million, up 9% year-on-year, driven by strong performance on sales across all our markets, and the margin improved 20 basis points to 8.7%. Convenience, operating profit of $97 million, although down 6% due to the low reported cigarette sales, although the second half here also returned to profit growth driven by the favorable mix towards higher-margin RTE categories. Food operating profit reached $62 million, a 15% year-on-year increase, driven by earnings recovery mainly in Singapore Food following the distribution of the government consumption vouchers, we led to higher sales. And again, here, Hong Kong pricing investment drove volume growth but did not impact our margin because we offset the lower prices, but better sourcing in our business. And last home furnishing, Here, we can see improved margins year-on-year despite slightly lower sales. And that's because of significant cost optimization across labor, supply chain and rent across most of our markets. As a result of that, we had a $10 million uplift in profit for IKEA or home furnishing in 2025. Turning to the total subsidiary operating profit and the underlying profits. Starting with the subsidiary operating profit. The operating profit is post IFRS increased 7% year-on-year, driven by broad-based improvements in subsidiary profitability with operating margins now 4.2%, up 30 basis points. The underlying profit, as mentioned earlier, is up 35% to $270 million, supported by a stronger subsidiary earnings, as you see above, lower financing costs. We moved from a net debt to a net cash and a higher contribution of associates following the investment of the loss-making one. The reported SG&A costs are slightly up -- but on a like-for-like basis, they are down. There are a few one-offs, which are not recurring, and you will see this year that costs are coming down on the SG&A line. Turning to cash flow. Strong cash flow, $430 million cash -- operating cash flow, up almost 30% year-on-year. And our free cash flow grew 78% in to $281 million in 2025, both because of underlying profit improvements, improved working capital efficiency and the interest savings, which I highlighted earlier. CapEx. Our CapEx was clearly below our guidance and then at $149 million. Of the CapEx spend, 50% of the CapEx is spent on stores and refurbs. 30% on digital and IT the remaining supply chain salability and maintenance. We, however, remain committed, as you will see later in the guidance, to invest $200 million to $220 million per year, again, focus on store, store renewals and technology. particularly AI, as we will highlight later. Following the $1 billion of divestment proceeds, we moved from a net debt to a net cash even after returning $600 million to shareholders via special dividend. And that move to the return to shareholders, as you can see here, -- our total ordinary dividend is USD 0.14 in 2025, up 33%, and that reflects the stronger earnings, but also the increased payout from 60% guidance to 70% policy. We returned $740 million to shareholders, including $600 million special difference, while we strengthened the balance sheet. We delivered a total shareholder return of 93% in 2025. driven by earnings recovery, portfolio simplification and disciplined capital deployment. And with this, we've outperformed our retail peers and major global indices. And last, the ROIC improved 9.4% with a clear pathway to 15% by 2028 as we announced during our Investor Day. And with that, I would like to turn it to Scott for strategy and business updates.

Thank you, Tom. For those who attended our Investor Day, this framework was presented. And the strategic deliverables are really just the anchoring structure by which we focus our investments and as well the priorities for each one of our formats in the business. We talk about the key deliverables in 2025. retail excellence, being really good retailers. We have, I think, a portfolio that brings synergy across, but each one has a different assortment. We have thousands of products in each one of our stores. the reaction to the inflationary environment meant that we've really had to focus upon re-pivoting, so we had a good, I think, 12 to 18 months of really resetting our customer proposition and being really good retailers. In health and beauty, curating the range, moving out of commodities, much more into functional value product lines. We're seeing great progress there. On convenience, moving away again from tobacco into far more of the RTE ready to eat. Food really strengthened our proposition there as well the value to customers. and on home furnishing, enhancing the value of the product lines as well, accessibility by the way that we have gone to market, in particular, in South East Asia, Indonesia on platforms. Access to customers, we have targeted, I think, appropriately, if we focus on TSR and ROCE, the convenience and the health and beauty range there may be stores available in food, in Cambodia, 1 or 2 stores potentially in IKEA in Taiwan. But for the most part, the majority of our store growth will come from those smaller format high return and low CapEx because of the franchise model. Omni digital, more than 90 digital channels, that's apps, loyalty programs, the launch of our DFI Q vendor platform. All increasing the mechanisms by which we build a more powerful digital P&L moving forward. Good initial progress on media. So as you go through our stores, you'll see screens, you'll see advertising. Our proposition rather than going with Alphabet or Meta, we're going to have a higher purchase conversion because that new product launch is going to be right next to the product as opposed to seeing it late at night on your phone and trying to remember it the next morning. I think the retail media is quite a powerful opportunity for us as we presented in the Investor Day. And we continue to make progress. I think in terms of divestments, pretty comfortable with the portfolio as it stands today, now ensuring that we redeploy our capital moving forward into the highest value opportunities for shareholder return. We go through some of the formats in particular. I'm not going to go through each one of the aspects here. Tom unpacked the sales and the operating profit in detail. But overall, just this growing wellness focus upon, I think, the generation that traditionally has been the silver hair, they call it, I put myself in that category. But this next generation is far more health focused. And we are finding then an opportunity to pivot towards a younger generation on the health. We still have beauty, appropriate beauty, but it's functional beauty, hair care that has a far more beneficial derma as opposed to more traditional cosmetics. Hong Kong, Macau, again, tourists coming back, our tourist stores had a 9% revenue growth in 2025, the second half higher than the first half. So we see that as an improvement. We exited the stores in China. Return on capital invested being a huge driver of that and then focusing on the GBA strategy. A good increase in sales with Vietnam and Indonesia, a 10% and greater like-for-like growth across our stores. Own brand, a critical part of delivering value while also good functional I think, benefits to customers through our products, 35% improvement in the gross profit productivity. We did close the nonperforming stores. Any healthy retailer continually assesses things change relative to pattern competitive landscape -- at any given time, you're looking at a single-digit full percent of your store portfolio to ensure that you stay healthy, and a 38% growth across e-commerce in the health and beauty area. On convenience, it was a year of transition, I think. So first, a good portion of our sales traditionally came from tobacco, 31% of our sales were tobacco-related transactions. Generally, that's a one or maybe a 2-item basket, and we shared that in the Investor Day. They're low margin. So there's a huge opportunity to pivot to ready-to-eat and also, I think, collectibles, creating fund transactions for customers who come into our stores to buy something new and generally then a larger basket. The innovation that we look at for ready-to-eat, it seems like half the population of Hong Kong goes to Japan at least twice a year, if not more often. And so again, that Japanese themed ready-to-eat excellence, and that is one of the benefits of the franchisor -- our penetration now, excluding cigarettes at 33% of sales, ready-to-eat a substantially higher margin than traditional tobacco. Asians prefer hot food. And we see, in particular, in China. So across our stores, we're launching out food bars, which really is a small quick-service restaurant. The challenge that we had is with that proposition when you saw a bit of that platform battle that occurred, we were not part of that subsidy drive for the big players who apparently were trying to kill each other, and not making any money at it from what we can see. But we were excluded from that, but we were picked up by the platforms from August as a quick service restaurant. And we saw, obviously, the value in that, in particular, when it came to those e-commerce, click and collect, order online, as you gotten onto the train, pick up at the 7-Eleven New Year office, bring that breakfast for that lunch back into the office. We also see, again, franchisee penetration is a great way for us to drive our ROCE with a lower CapEx intensity in terms of revenue growth. We've got, I think, good progress by the team. I think always want more, faster, broader, bigger our 7-Eleven team is looking very nervous right now. But I'm pleased with the progress and looking forward to more. Moving on to food. Food was a huge year of pivot. The news last year, everyone going north to buy their groceries. And to me, that was a substantial risk. I see a huge opportunity for us based upon the deep knowledge of our food team and the experiences they bring to drive basically affordable food in Hong Kong. We should not become the food dessert that you see in many capital cities around the world. Hong Kong, I think, is unique in that way. So we have embarked upon pretty substantial investment in re-sourcing our product line to be able to eliminate traders, middlemen, all the ones who were adding an incremental margin and go direct across many of the product lines. We strategically identified 3 to 4 competitors in Shenzhen. We identified the 200 most common items in the basket. We shop that basket and then we came here to Hong Kong. It was 18% more expensive at the beginning of last year. We achieved a 1% difference during Chinese New Year. As a result, with increased profit we now are able to really, I think, bring forward quite a very powerful proposition in terms of the confidence that Hong Kong customers can shop here. They're not going to get a better deal in Shenzhen as well. We saw that in the volume growth. So we had a 2% volume growth as a result of all these efforts. And a good solid start to the year during Chinese New Year, which tells me we are on the right path moving forward. Those strategic price investments, et cetera, while protecting margin we've seen in the results, again, second half better than the first half. Tom mentioned the Singapore government vouchers. We also, I think, have a unique opportunity in Cambodia, a business that was pretty small, not really doing much, all of a sudden became very interesting to us as part of the portfolio. And we now plan 50 new stores, has a very good margin and a very good return on capital employed. So an interesting business. And we completed the Singapore divestment. Frankly, I think we divested at the right time. I think, ex those Singapore vouchers from the government. The business will not be, I think, as attractive and similar to Hong Kong to Shenzhen the same challenges between Singapore and Johor bar, in particular, as we open in the train lines and ease up on the border, you're going to see a lot of those baskets going north. So I think our timing was very good. On home furnishing, excellent progress. Look, all of our formats were challenged by this change in customers. But I'd say IKEA was the most challenged by the macroeconomics. The fact that we do not have a high level of real estate transactions in 2025. Look, when people don't move, then they don't do home renovation and they don't buy heavy furniture, which meant that a good part of our portfolio assortment was challenged in 2024 and 2025. But we've made really good progress focusing on what matters. And so sensible, I think, investments for customers coming in, particularly our marketplace area. But with that understanding of a different economic relative to the basket and the margins for the businesses, the team did an outstanding job of really cutting costs, which meant that despite challenged revenue we delivered, I think, quite a strong profit position. Taiwan continues to be a very good market for us with greater than 10% profit margins. We are quite unique in Indonesia, IKEA, the franchisor has only approved 2 markets around the world to test platforms. So we have mainly Jakarta-based Indonesia IKEA business with 1 store in Bali. We went on to shopping in Indonesia and now are able to offer a good relevant part of our assortment to the entire country of Indonesia, which, of course, is in our Capella 200-plus islands with 200-plus million consumers. So find that as an interesting opportunity moving forward. Again, those are more those sensible splurges around portable items. No one is ordering a leather sofa online. So it's an appropriate assortment. And then scaling our food business, everyone loves a good Swedish meat ball. We now, through research, we now know that 45% of our customers visit IKEA for food. And so you'll see that we have increased the overall proposition as well, importantly, reset the stores to make it more convenient to engage in our food assortment. On our digital, great progress on the digital ecosystem you see across here in terms of driving our online penetration, driving launches. As a result, we had outstanding economic results. So our retail media grew 400%. A 1,000 new in-store digital screens, which we are now making available to our vendors to invest in a media present. We now have 13 million active users. We now have 100 million-plus visits to our store each month. So that's, in essence, 20 million transactions a week now across the DFI portfolio. which is a very powerful data source and now 33 million loyalty members across all of our programs in the markets in which we operate. Why are you continuing to expand cost platforms. We're now on foodpanda with access to the data, which is very important as you think about when you interact with the overall platform. So this is another area where the media -- the digital media team and the data team know that we can do so much more. And I'm looking at them. And so we want to move faster, bigger, harder, yes, you shake his head, yes, which is a good thing. So with that, I'm going to turn it over to Tom to review our business outlook.

Thank you, Scott. On to the full year 2026 outlook. Starting with the revenue, excluding Singapore Food, which we deconsolidated last year, December, we expect to grow our top line organically by 2% to 3%, as we continue to gain market share across our formats. The underlying profit expects that to go to between $270 million to $300 million. And that implies a 13% to 25% growth, excluding the discontinued Singapore Food and Robinson. So we go from 230 restated last year basis to $270 million to $300 million. CapEx we are firm that we're going to spend about $200 million to $210 million this year, half again on new stores and store refurbs, about 25% to 30% on digital and IT. And split on formats about 65% on health and beauty and on convenience, the remainder on food and IKEA. The dividend payout, the policy enhanced last year, 70% payout and our return on capital employed will go from 9.4% to between 11% to 13% for 2026. And with this, I hand over to Karen for the Q&A.

Thank you, Scott. Thank you, Tom. And with that, we'll open up the floor for Q&A. If you wish to ask a question, please raise your hand, and we'll have someone to assist you. We kindly ask you to please indicate your name and the company you're representing. And for those participating online, you may submit your question on the platform, and we'll direct them to the speakers. First question, Jeff.

I'm Jeff from CLSA. So my first question would be regarding the organic revenue guidance 2% to 3% for 2026. Presumably, we exited 2025 over similar momentum. So can you walk us through maybe year-to-date, what you are seeing across different formats on the revenue momentum? And my second Question would be on the guidance for -- sorry, CapEx for 2025. So it is quite meaningfully below the previous guidance we've received. So I just want to understand, was there some timing difference? Or was it some something that happened that makes the CapEx has been low. Just anything would be helpful on that front.

So I'm going to cover the first one. And Tom, who knows my view on the second one, we'll cover our performance on CapEx because I'm not a happy camper. But in any event, we had a solid start to the year across all formats and saw positive total and positive like-for-like consistently. I really do think 2025 was a very important year for us relative to the change in proposition much more value-based, much more attuned to the customers relative to what they're willing to spend their money on. So very pleased in line with guidance is what I would say. And I think we can do more. Collectively, we gained share across most of the banners in 2025. I would like to see that continue into 2026. Tom, how do we feel about CapEx?

Let me try to answer this. I think the first 1 is a bit impact across Singapore food. So we divest Singapore Food -- and as we announced the divestment, we stopped most of our CapEx, there's no point to invest. But still, even without that, we're still materially below our guidance. And here, I think we have to significantly improve our planning. There is still a culture of holding on to your budget to the last minute and then realizing you can't spend it. So we have to improve planning. We have to make sure that if we give you a guidance that we are going to spend it because the spend is not just for spend sakes is to make sure we drive revenue and drive profits. So that has to improve this year so that we get back to our guidance to $20 million because we don't want to miss opportunities to get the top line and bottom and approved.

As I said to our Board of Directors yesterday, as God is my witness, we will spend and invest the midpoint of our CapEx guidance in 2026.

Next question, please. Brian?

This is Brian from Citi. So I have 2 questions. My first question is that I see that 2026 guidance is actually not far away -- I mean, not too far away from 2028 guidance. So I'm getting a feel that we are getting more optimistic on the overall performance in the midterm. So I just wanted to check how you feel about that. And are we revising any of our medium target that we released in December. That's the first question. The second question is that just looking at 2026 alone for each business format, is there any quantitative or qualitative the main target, main missions that you need to achieve in 2026?

Tom, why don't you cover the first one?

On guidance, we've laid out the guidance in our Investor Day in December. And we said we want to underpromise and over the liver, right? So we've seen good progress last year. This year, we expect also significant improvements on the back of improved underlying performance as well as lower cost. And on the back of that, we'll see how 2027 goes for that. But we are quite confident that we can at least meet and hopefully at some point, exceeds the guidance we've given you last year December.

In terms of the buy format Quanta, we were very thoughtful around how we positioned the Investor Day by format strategy. And again, in a customer-first environment that retail excellence and being laser-focused on a winning proposition for customers, communicating that and ensuring that we are modernizing our digital proposition. I think in 2026, to Tom's point, we want to under-promise and over-deliver, '26 based upon the first few months and the sense of renewed customer confidence gives me good hope. But look, we live in a challenging world. Who knows what oil prices are going to do, what that could do to energy costs, therefore, do we go back to a far more value-oriented customer some of that splurging may end. There is great strength in being a daily essential retailer, but it's not without its challenges relative to consumer confidence and people saying, you know what, I'm going to spend 10% less and save that or I need to paycheck to paycheck, put more into paying my electricity bill. So I'm cautiously optimistic, but it's way too early to change midterm guidance.

Any question? Ben?

This is Ben from UBS. So I have 2 questions from my side. So First 1 is it's been 2 months after the Investor Day. So just wondering if you could share some updates with us on the e-commerce penetration. And also the progress made on retail media, specifically 2 months into 2026. And then the second 1 would be regarding on in the Hong Kong market, you can -- you know that Chinese e-commerce platform has been aggressively penetrating the market with cost subsidies. So how long do you expect this to last? And what would be our strategy?

So on the -- again, it's been roughly 73 days. So a little early to change our minds in terms of, again, the midterm guidance. e-com penetration, we made great progress. I think it was 140 basis points up to [indiscernible] And look, we are after fair share. I'm not trying to win in the digital world. As you think about overall spend, what percent is e-commerce, we want to have a fair share of that. So we don't want to be left behind. The market interaction is wildly different. In Hong Kong, for example, it is some of the lowest e-commerce penetration in the world because there's 1 store every 20 meters, so why would you wait for someone else as well, there's a substantial for families, number of helpers who get sent out to do a lot of the shopping. Where I see us needing to focus is instant commerce. That will grow. You see this through the platforms. People forgot something. They want something quickly and as well, retail entertainment or retailing, I know that's not what it is. retail entertainment, there used to be a word for it. I have forgotten apologies. But people do shop online because it's interesting and it's an assortment that you can't necessarily get in the store. So I think we are in a good shape to continue to drive our e-commerce penetration relevant to the market share. It will grow because in markets like in Indonesia, it's very high. Access to goods in stores and brick-and-mortar is very limited. Same as I think in Vietnam, where we see much higher growth. We will keep up and focus on that fair share. not ready to change the environment. In terms of the platform battle that took place in the north, I think that is calming down a bit. We actually, other than really the Guangdong impact to our 7-Eleven business didn't necessarily see across the rest of our format portfolio, a significant impact. I don't think trying to get across the border. A lot of those products don't move very well through the approval process with some of the ingredients, et cetera, in particular, in health and beauty. What we see is actually a reverse opportunity, which is there is a very large amount of our product line here in Hong Kong that's very interesting. Certainly, we see it through the Mainland tourists to be able to now digitalize that and make that available in Guangdong. So we see the actually rather than necessarily a risk. We see there's an opportunity for us to be able to grow our business through some of those assortments being made available for purchase. We've expanded now the -- you loyalty program into Guangdong. So I think that is -- and then a first step in being able to create a digital ecosystem. That is far more in line with the retail porous border that's envisioned with the Greater Bay Area.

Okay. We'll move to online questions. Question from Jayden Vantarakis of Macquarie. He has 3 questions here. First, at the recent Investor Day, management provided clear segment and market targets for M&A. Are there any updates to share? Second, how is the progress on the franchising model for Guardian in Indonesia? And third question, margin improvement at IKEA is stronger than expected relative to what has been shared at the Investor Day. So what has gone well during second half of 2025? And is there more room for higher margins in 2026.

Tom, I'll leave the margin improvement to you. So on the M&A, we're very clear what we will and what we will not do on M&A. I think that what we divested relative to minority positions, we'll tell you very clearly what we don't want to do. We only want operating businesses that bring scale synergy to our existing business to allow us to continue to deliver on improved ROCE and improved TSR. This is a situation where we're in the market. We continue to look, I think, more strategically in the health and beauty and the convenience store area but would not say, I think, no to interesting affordable options in digital. The affordable piece is a little bit more challenging given the multiples on which many of the digital assets trade. So we will follow the policy. We will follow the procedure. M&A activity is episodic. And so we'll update you at the appropriate time. On Indonesia, we have 2 trial stores. You have to get the model right. You have to be able to ensure that a franchisee can make a living income and that this is a good return on investment for them. So you cannot go out with a proposition that has not been trialed and tested. So we trialed 2 stores. We're pleased with it. We'll do another 40 stores this year in terms of the Indonesia franchise stores. This is a model that you perfect over a couple of years before you really go after the substantial growth. So pleased with the pace, and it is as referenced in line with our commitment that we made during the Investor Day in December.

Absolutely Martine and team did a fantastic job last year. But if you look at 2025, the big improvement in underlying profit is because of lower cost -- so labor cost, rents, but all supply chains at significantly lower cost in IKEA. Part of the lower cost we have invest in lower pricing. So we saw that the volumes are picking up, although sales are still down last year. So we now need to make sure that sales are up. And if sales are up, we will expect better results, but that will take some time. Investing in margin, investing in price will take time before it turns into higher sales numbers. But the initial signs are positive. So hopefully, we'll get at least a revenue stabilization in 2026, and then we'll see higher profits in the following years.

Your next question comes from Mac Candy of CGS International. Congratulations on an exceptional year. Now with a strong foundation built looking forward into 2026. Can you give us some color of the levers you're tapping for further shareholder return from here onwards?

Tom?

On shareholder with, I think what we announced earlier is -- for us, the most important driver is top line growth, right? So growth, and you see in the first 2 months of this year, we are in line with our guidance, and hopefully, someone will exceed. So growth is a key driver. And we do that with the right pricing, the right ranging and the right stores. In addition to that, we started last year with a large cost optimization project. And we've seen the results in IKEA. But also across all our formats and also on our SG&A, our costs are coming down. So you can expect this year, the SG&A on group level is coming down. That's another lever where you can see profits to be increased. But in the long term, it's sales and margin. In the medium term, you'll see costs coming down.

And probably what I would add to that is there needs to be an incremental value to this portfolio versus the breakup value. Otherwise, what's the point of it? And where I see value is across 3 areas. First, it's cost optimization. We have relentlessly focused on being able to ensure that we are an everyday low-cost operator. As a result, we are able to, I think, operate at a lower overhead as a percent of revenue than any nearby competitor by format. So that's first and important. The second is the synergy of the digital ecosystem. It is -- would be very expensive for all of our individual formats to try and create their own ecosystem, which means the e-commerce platforms and the e-commerce transactional capability their own loyalty program, their own ability to drive retail media as well data monetization. And then the third is the value of the data holistically that we're able to bring through our loyalty programs. So we know customers better than anyone else. And the ability to partner with vendors and be able to say through purchase behavior in IKEA, we understand that this is a young family about to have a child that helps health and beauty personalize offers that are relevant to prenatal and then baby assortment moving forward. So the ecosystem to me, is going to be a huge driver of this TSR moving forward relative to investing in a competitor who does a single format only.

Thank you, Scott. Next question comes from Adrian Lo of UOB Khan. Congratulations on the strong set of results. For the convenience business, you had around 100 net new stores in South China 2025. What are your targets for this in the near to medium term? Second question. On the M&A front, is there any more divestment on the horizon or we're feeling more comfortable with the portfolio we are standing at right now?

Tom why don't you cover the CVS?

As we've shared in our Investor Day, the medium term 2028, our goal is about 2,400 stores by 2028 in Southern China. -- and overall by 4,000 stores for 7-Eleven as a whole for all our markets. We opened last year 100 stores net. We did close some stores to for loss-making. And we do always, we open more stores and we closed a few and making sure that the overall portfolio remains healthy.

On the divestment side, I think that we have for the most part, eliminated the parts of the business that have been dilutive in terms of TSR and ROCE. It was not too many years ago. I think it was 2023. We had a 1.7% ROCE -- we're now up to 9. And as Tom said, we aim for a 15% by 2028. In general, I think we've got the right portfolio I think we have to keep a pulse changing customer behavior. If we see a substantial move away from stores into digital, we may rethink maybe some of our store commitments moving forward and pivot more towards revenue coming out of the e-commerce which we are on a good path to make neutral to accretive versus an in-store margin. So overall, I think we're in good shape, but we constantly evaluate. We've had a great year when it comes to TSR. We want to continue to maintain that great opportunity for the capital markets to use DFI as a mechanism to invest broadly in retail in Asia because we're multi -- multi-contry.

Your next question comes from Sylvian Aripin of Vic SBC -- could you share your thoughts around the impact of inflationary pressure, such as higher oil price on your guidance in 2026. And if you could share some thoughts around sensitivity to oil prices, that would be helpful.

Maybe, Tom, you add on. So just we've looked at it. We've actually looked at our supply chain. We've looked at our sourcing. We have modeled a 20% increase in oil prices. The reality is that is a large scale daily essential that as a percent of our net product is not substantial. We now have over 50 country of origins from which we source. We have the ability to pivot in terms of not only geographically where we source, but also I think through the right mix able to mute any impact on customer pricing. If it becomes substantial at any given time, clearly, there'll be an inflationary impact. I think we would like to be the last to raise prices as a strategy. I think there's other things that we can do to protect the bottom line while also being able to serve our customers.

I think to add on if we model a 20% increase in oil price for this year, we will still stay within our guidance. So it has an impact, and we'll do all we can to minimize the impact. But it will remain within the guidance.

Thank you, Scott and Tom. Your next question comes from Jiangong of DBS Bank. Congrats on the strong results. Two questions here. First, given the recent dingdong acquisition by Matton, is there any change to your Hong Kong Food strategy? Second question, in Malaysia is your second largest geography outside of Hong Kong. Your biggest competitor is planning a listing this year with a valuation as high as USD 5 billion, which could bolster the firepower for expansion. Can you share your views if that will affect, if at all, your overall competitive environment? In

terms of the DDL, we actually are involved and engaged and are very aware of what that transaction. We have an exclusive relationship here in Hong Kong. We have their commitments. Frankly, we are a valuable customer to them. They are not a direct competitor to us in Hong Kong. So we see no conflict nor issue from that. In terms of how we look at the listing of A.S. Watsons, I was raised in retail by Walmart. And it always was a bit perplexing to me, but now I appreciate this view that says you want a really strong competitor. It is to your value to keep you on your toes constantly looking as to how you can be better. So if a listing helps them become a stronger competitor, net -- I think we have an opportunity to one, have a benchmark, but also it just ups our game as well as we move forward. So I don't see that as really a threat -- we'll watch with interest, but we're focused on ensuring that we beat everyone, including those admirable competitors at serving our customers.

Thank you, Scott. Any questions from the floor?

I guess I have a follow-up question on the DFIQ. I know we are like 70 days after the presentation during Investor Day. But that we've launched the DFIQ portal, right? And for the DFIQ media, we also increased the revenue by fourfold. So are we like that serious about the 1% revenue contribution by 2028. And how do you see about the EBIT margin? Because if it's like more than 50%, then we have a meaningful contribution to the bottom line by 2028.

So as we think about our TSR model, I'm very well aware that an omnichannel retailer has far superior PE multiples than a traditional brick-and-mortar only. As we map our way forward, we are pioneers in this area. There is no substantial retail media player in the markets in which we operate today. DFIQ is a critical enabler for us to be able to create a seamless ability for vendors to go through DFIQ and access-specific screens in specific locations and health and beauty in certain markets. At some point, I'd call us Retail Media 1.0. 2.0 is also going to get to a time a day relative to traffic patterns, et cetera, et cetera. We believe, again, through conversion of immediacy, a much higher effective proposition for a very substantial above-the-line media budget, including digital penetration coming across to us. It's been 90 days. Internally, the team knows more and more and more and more. If I were to say what is the area where we would potentially relook at midterm guidance, it's going to be in this area. Because it is so new. I do think in the future, I'm talking 5 to 10 years from now, 15 years from now, my North Star would again be the progress that Walmart has made in this area. We will never have digital as a reporting operating unit. It's too complicated, and it's artificial. It's embedded across our formats. But speaking about what is the penetration of sales growth and profit growth from the digital proposition is an area that we're focused on as we progress forward. So I'd say watch this page too early to guide anything other than what we said in December.

Thank you, Scott. There are no further questions. This will conclude our session for today. Thank you very much for your participation, and we look forward to seeing you in our next analyst presentation.