DFI Retail : Half-Year Results for the Six Months Ended 30th June 2022

Announcement

28th July 2022

The following announcement was issued today to a Regulatory Information Service approved by the Financial Conduct Authority in the United Kingdom.

DFI RETAIL GROUP HOLDINGS LIMITED

HALF-YEAR RESULTS FOR THE SIX MONTHS ENDED 30TH JUNE 2022

Highlights

• Underlying loss of US$52 million, including US$60 million loss from associates
• Subsidiaries delivered underlying operating profit of US$76 million, 51% lower than prior year
• Strong profit growth for Health and Beauty
• Grocery Retail and Convenience profits impacted by pandemic and inflation
• Increased investments in digital to drive long-term sustainable growth
• Interim dividend of US¢1.00 per share declared

"The pandemic has continued to have a significant adverse effect on all of the Group's businesses, with the first quarter particularly difficult on the Chinese mainland and in Hong Kong. Profits are also being impacted by supply chain and inflationary pressures. As a result, the Group's profits for the full year are expected to be materially lower than those of 2021. The Group remains confident, however, in the strengths of the Group's banners and believes that the additional investment being made to advance digital capabilities, and improve stores and the Group's operating standards, will deliver sustainable growth for the Group, as the impact of the pandemic recedes."

Ben Keswick

Chairman

Results

	(unaudited)
	Six months ended 30th June	Change
	2022	2021
	US$m	US$m	%
Combined total sales including 100% of	14,028	13,950	+1
associates and joint ventures
Sales	4,483	4,537	−1
Underlying (loss)/profit attributable to	(52)	32	n/a
shareholders*
(Loss)/profit attributable to shareholders	(58)	17	n/a
	US¢	US¢	%
Underlying (loss)/earnings per share*	(3.81)	2.38	n/a
(Loss)/earnings per share	(4.25)	1.24	n/a
Interim dividend per share	1.00	3.00	−67

• the Group uses 'underlying (loss)/profit' in its internal financial reporting to distinguish between ongoing business performance and non-trading items, as more fully described in note 8 to the condensed financial statements. Management considers this to be a key measure which provides additional information to enhance understanding of the Group's underlying business performance.

The interim dividend of US¢1.00 per share will be payable on 12th October 2022 to shareholders on the register of members at the close of business on 19th August 2022.

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DFI RETAIL GROUP HOLDINGS LIMITED

HALF-YEAR RESULTS FOR THE SIX MONTHS ENDED 30TH JUNE 2022

The Group's performance in the first half of 2022 was impacted by a number of challenges. Within the Group's subsidiaries, strong Health and Beauty profit growth and an increased contribution from IKEA were offset by reduced profit contributions from Grocery Retail and Convenience, which faced a combination of inflation and continuing customer behaviour shifts driven by the pandemic, with the latter leading to reduced levels of eating-at-home. The Group increased investments in digital capacity and capability during the period. While these reduced profit in the period, they are necessary to meet customers' evolving needs for on- and off-line service and are made with a view to driving long-term sustainable growth and value.

The Group's overall financial performance was impacted materially by the performance of key associates in the period. Results were particularly impacted by the substantial loss incurred by Yonghui for the fourth quarter of 2021. Maxim's performance was also significantly adversely impacted by the surge in COVID-19 cases within Hong Kong and resulting Government- imposed restrictions on dining.

RESULTS

Total first half sales for the Group, including 100% of associates and joint ventures, increased by 1% to US$14 billion. Reported subsidiary sales reduced by 1% to US$4.5 billion. However, underlying subsidiary sales, excluding the impact of the Giant Indonesia restructuring in the second half of 2021, increased by 2%. Strong revenue growth in Health and Beauty and the contribution from new IKEA store openings were partially offset by lower sales within the Grocery Retail division, primarily driven by the easing of movement restrictions in Southeast Asia, which led to a reduction in eating-at-home by customers, and store renovation disruptions in Singapore.

The Group reported an underlying loss of US$52 million for the first half, with US$60 million loss attributable to associates. The Group's share of Yonghui's underlying results included US$64 million of loss arising from Yonghui's performance in the fourth quarter of 2021. In addition, key associate Maxim's contributed an underlying loss of US$26 million to the Group's results in the first half, due to the impact of movement restrictions imposed in Hong Kong.

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Within the Group's subsidiaries, the profitability of the Health and Beauty division increased significantly as a result of a strong recovery in revenue across both North Asia and Southeast Asia. Overall subsidiary underlying operating profit was, however, US$76 million for the period, a reduction of US$78 million over the prior comparable period, as strong profit growth within Health and Beauty and an increased contribution from IKEA were offset by reduced profit contributions from Grocery Retail and Convenience, as well as operating expense investments to enhance digital capacity and marketing.

Operating cash flow, after lease payments, for the period was a net inflow of US$76 million, compared with US$97 million in the first half of 2021. As at 30th June 2022, the Group's net debt was US$995 million, compared with US$844 million at 31st December 2021.

Given the loss incurred in the first half of the year and the Group's commitment to maintaining a strong balance sheet position while supporting ongoing investments in business and digital transformation, the Board has reduced the interim dividend for 2022 to US¢1.00 per share.

OPERATING PERFORMANCE

Like-for-like sales for the Group's Grocery Retail division in the first half were slightly behind the prior year. Good like-for-like growth in North Asia was driven by pantry-stocking behaviour and strong in-store execution in the face of challenging external conditions and supply chain constraints, particularly in the first quarter. Sales performance in Southeast Asia was impacted by the easing of movement restrictions, which led to a reduction in eating-at- home, store renovation disruptions in Singapore and stock availability issues in Malaysia. Overall profitability, however, was behind the comparable period last year, due to a combination of inflation impacting cost of goods sold, operating cost pressures (particularly electricity and labour costs) and e-commerce investment costs.

The Group's Convenience business saw varying operating performance across regions in the first half. In Singapore, a relaxation of movement restrictions led to strong sales and profit recovery. Within North Asia, disruption caused by rising COVID-19 cases significantly impacted both like-for-like sales and profitability. In Hong Kong, the fifth COVID wave in the first quarter significantly impacted customer traffic. On the Chinese mainland, ongoing COVID-19 disruptions continued to have a significant impact on like-for-like sales.

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The Health and Beauty division reported strong sales recovery in the first half. Mannings Hong Kong's like-for-like sales were supported by effective in-store execution and a surge in demand for COVID-19 related products and over-the-counter medicines. Guardian reported double- digit like-for-like growth across key geographies, driven by a combination of recovery in mall and tourist locations, strong demand for COVID-19 related products and effective store-level execution. Profitability also grew strongly in the first half, driven by a combination of strong sales recovery, effective promotion management and cost control.

Revenue for the Home Furnishings division increased relative to the corresponding period in 2021 due to the annualisation impact of newly-opened stores in the prior year and strong e-commerce sales. Like-for-like sales were adversely impacted in the first quarter as the pandemic continued to disrupt store operating capacity and there was significantly reduced stock availability. Despite the ongoing challenges faced by IKEA during the first half, profitability was ahead of the same period last year, with like-for-like sales improving in the second quarter.

The performance of Maxim's, the Group's 50%-owned associate, was severely impacted by Government-imposed dining restrictions in Hong Kong, as well as temporary lockdowns on the Chinese mainland. Like-for-like sales, however, recovered in Hong Kong over the course of the second quarter as restrictions eased.

The Group's share of Yonghui's underlying loss for the six months ended March 2022 was US$38 million. Encouragingly, Yonghui reported improvements in like-for-like sales and a return to profitability in the first quarter of 2022. In addition, Robinsons Retail reported solid sales and profit growth contribution for the first half. Robinsons Retail reported in the first quarter of 2022 that its drugstores, department stores and specialty segments delivered strong sales recovery reflecting increased economic activity as restrictions in the Philippines started to ease in February 2022.

BUSINESS DEVELOPMENTS

Driving digital innovation remains a key strategic priority for DFI Retail Group. In July 2020, DFI launched its yuu coalition loyalty programme, a critical milestone in driving DFI's modernisation and digital transformation. Since its launch, yuu has exceeded expectations and has now welcomed over four million members. The yuu-niverse has grown to include Maxim's

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restaurants, insurance partners and, most recently, a fuel partner. In May 2022, yuu-to-me was officially launched, offering customers an integrated one-stop online shopping experience and home delivery to customers across leading Hong Kong brands on one yuu mobile app. Initial performance has been encouraging. Digital remains a key priority for the Group, and the Group expects to continue investing to drive long-term value for shareholders.

PEOPLE

The first quarter was a particularly challenging period in our core market of Hong Kong, with a significant surge in COVID-19 cases and consequent constraints on the supply chain and labour shortages. We express deep gratitude to our team members across the Group for their continuing dedication and resolve to putting our customers first during these challenging times.

OUTLOOK

The pandemic has continued to have a significant adverse effect on all of the Group's businesses, with the first quarter particularly difficult on the Chinese mainland and in Hong Kong. Profits are also being impacted by supply chain and inflationary pressures. As a result, the Group's profits for the full year are expected to be materially lower than those of 2021. The Group remains confident, however, in the strengths of the Group's banners and believes that the additional investment being made to advance digital capabilities, and improve stores and the Group's operating standards, will deliver sustainable growth for the Group, as the impact of the pandemic recedes.

Ben Keswick

Chairman

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