Dfi Retail Intl Regulatory News (DFI)

To: Business Editor 5th March 2020

For immediate release

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

DAIRY FARM INTERNATIONAL HOLDINGS LIMITED

2019 PRELIMINARY ANNOUNCEMENT OF RESULTS

Highlights

· Multi-year transformation making progress

· Underlying profit impacted by social unrest in Hong Kong

· Improvement in Southeast Asia Grocery Retail and Health and Beauty

"While difficult market conditions in Hong Kong impacted the Group's financial performance during the year, the multi-year transformation of the Dairy Farm Group continued to gain momentum during 2019, with signs of progress across our businesses. The Group's space optimisation plan, new store formats and improvement programmes together generated greater efficiencies and started to deliver tangible results. We expect this progress to continue in 2020, although the Group's results are being materially impacted by the ongoing COVID-19 outbreak. Performance for the remainder of the year will depend on the duration, geographic extent and impact of the outbreak and the measures taken to control it."

Ben Keswick

Chairman

Results

The final dividend of US¢14.50 per share will be payable on 13th May 2020, subject to approval at the Annual General Meeting to be held on 6th May 2020, to shareholders on the register of members at the close of business on 20th March 2020.

DAIRY FARM INTERNATIONAL HOLDINGS LIMITED

PRELIMINARY ANNOUNCEMENT OF RESULTS

FOR THE YEAR ENDED 31ST DECEMBER 2019

OVERVIEW

The Dairy Farm Group's multi-year transformation programme to reshape and reorganise the business, adapting to the changing needs of customers, continued to gain momentum during 2019. Opportunities are being unlocked across the Group as the business seeks to leverage its scale effectively and develop a more coherent approach to improving its customer proposition, both by banner and at a country level.

While the Group began to see some early benefits from its transformation programme, profitability was impacted by market conditions in Hong Kong in the second half of the year caused by social unrest. The ongoing COVID-19 outbreak has added extra complexity for the Group's businesses and the Group's results are being significantly impacted by it. Performance for the remainder of the year will depend on the duration, geographic extent and impact of the outbreak and the measures taken to control it. The Group's diverse retail portfolio does, however, provide some insulation against market uncertainties and Dairy Farm remains firmly focused on the successful delivery of its transformation.

OPERATING PERFORMANCE

Sales of US$11.2 billion for the year by the Group's subsidiaries were 5% behind those of 2018. Total sales of US$27.7 billion, including 100% of associates and joint ventures, were 26% higher, reflecting the investment in Robinsons Retail in the prior year.

The underlying operating profit of the Group's subsidiaries was US$437 million, 14% lower than 2018, primarily due to social unrest in Hong Kong which disrupted trading at some of the Group's banners in the second half of the year. Among the Group's subsidiaries, the impact was greatest for Mannings, because of the significant reduction in the number of visitors from the Chinese mainland to Hong Kong. Ongoing investments in the IKEA store network in the year also reduced Group profitability. Offsetting these impacts was a significant improvement in profitability in our Southeast Asia Grocery Retail business, as the space optimisation plan took effect. The businesses also benefitted from transformation and improvement programmes.

Underlying profit attributable to shareholders was US$321 million, down 10% from US$358 million last year. Underlying earnings per share of US¢23.72 were also down 10%. 

The Group maintained solid net cash flows from operating activities of US$1,288 million. Net debt at the end of 2019 was US$821 million, an increase from US$744 million last year.

The Board is recommending an unchanged final dividend of US¢14.50 per share, giving a total dividend of US¢21.00 per share for the year, which is in line with 2018.

Food - Grocery Retail

The divestment of the Rustan Supercenters business, as well as the execution of the Group's space optimisation plan in Southeast Asia, led to overall sales for the Grocery Retail business reducing by 12% to US$5.2 billion. Sales in Hong Kong and Macau Grocery Retail rose in 2019.

There was a significant improvement in operating profit in the Group's Grocery Retail business, from US$22 million in 2018 to US$63 million in 2019. The improvement was driven by Southeast Asia, as the space optimisation plan took effect. The foundations for future growth by the business were also strengthened by the ongoing transformation and improvement programmes.

Profits in Hong Kong and Macau Grocery Retail were impacted by cost pressures and ongoing investments in people and capabilities, but the Group has started to see improving trends in underlying profit performance.

Convenience

Sales in the Convenience business increased by 4% to US$2.2 billion, driven by new store growth and strong like-for-like sales in the Chinese mainland in particular. Enhancements to range and services are proving popular with customers and the business continues to focus on brand differentiation to support sales growth. Profits for the year declined by US$6 million, however, as a result of pre-opening costs in respect of the expansion of the 7-Eleven store network in Guangdong, as a net total of over 200 new stores were opened in 2019. Profits in 2018 were also positively impacted by a number of one-off items.

Health and Beauty

Total sales for the Health and Beauty Division increased by 1% to US$3.1 billion, supported by the consolidation of Rose Pharmacy as well as strong growth in other Southeast Asian markets. Operating profit, however, declined by 11% to US$296 million, as the business was impacted by the social unrest in Hong Kong. The Group has been addressing these challenging conditions by appropriate management of costs.

Weakness in North Asia Health and Beauty was partially offset by strong revenue and like-for-like sales growth in Southeast Asia, particularly in Indonesia and Malaysia. Guardian in Southeast Asia delivered a strong performance during the year, with improvements in operating standards, service and product availability, and it benefitted from a growing middle-class customer base in Indonesia, Malaysia, and Vietnam.

Home Furnishings

In Home Furnishings, sales for IKEA were up 6% in the year. Operating margins were, however, adversely affected through a combination of currency movements, cost of goods changes and pre-opening costs in support of strong store expansion.

Associates

The contribution from key associate Maxim's declined to US$82 million from US$105 million in the prior year, as the business was impacted by the ongoing social unrest in Hong Kong. Despite the challenging market conditions in the second half, however, Maxim reported a 4% growth in sales overall for the year, as it saw the benefit of its acquisition of the Starbucks Thailand business.

Yonghui in the Chinese mainland reported strong sales growth and positive like-for-like sales. Our share of results in Yonghui grew from US$15 million in 2018 to US$23 million in 2019 and benefitted from the partial sell-down by Yonghui of their investment in the Yunchuang Technology business, which was announced in December 2018. The Group also benefitted from the contribution from its interest in Robinsons Retail, which it acquired in late 2018.

TRANSFORMATION

The Group's multi-year transformation programme to reshape and reorganise the business, adapting to the changing needs of customers, continued to gain momentum during 2019. Opportunities are being unlocked across the group as the business seeks to leverage its scale effectively and develop a more coherent approach to improving its customer proposition, both by banner and at a country level. The Group's space optimisation plan, new store formats and improvement programmes generated greater efficiencies and started to deliver tangible results in the year.

CORPORATE DEVELOPMENTS

In May, Maxim's acquired the Starbucks franchise in Thailand, with some 370 stores in operation, through a 64%-owned joint venture.

As at 31st December 2019, Dairy Farm, including associates and joint ventures, operated over 10,000 outlets across all formats, compared with some 9,700 at 31st December 2018.

PEOPLE

Undoubtedly 2019 was a challenging year for many of our businesses, however the hard work, resilience and determination of colleagues and their commitment to serve our customers every day has been outstanding. I would like to thank all the Group's employees for their efforts in moving the Group towards becoming a truly modern-day retailer that puts our customers first.

Neil Galloway stepped down as Group Finance Director at the end of March 2019. The Board would like to express its gratitude for the significant contribution Neil made to the Group over a number of years. Clem Constantine showed strong leadership during his time as interim Chief Financial Officer following Neil's departure, and the Board confirmed his appointment to the role permanently in November 2019.

Michael Kok stepped down from the Board on 8th May 2019 and Simon Keswick retired as a Director with effect from 1st January 2020. It was announced on 20th January 2020 that Lord Sassoon will retire from the Board on 9th April 2020. The Board would like to express its gratitude for the significant contribution all three Directors have made to the Group over many years. Clive Schlee will join the Board with effect from 6th May 2020.

As separately announced on 5th March 2020, with effect from 15th June 2020 the roles of Chairman and Managing Director, which are currently held on a combined basis by Ben Keswick, will be separated. Ben Keswick will remain as Chairman and John Witt will take on the role of Managing Director of the Company.

PROSPECTS

Dairy Farm is undergoing transformation across all areas of its business and this scale of change will take time to execute successfully. However, good progress is being made in implementing the Group's customer-focused and market-driven strategy and Dairy Farm is well-placed to achieve long-term sustainable growth. Performance for the remainder of the year will depend on the duration, geographic extent and impact of the outbreak and the measures taken to control it.

Ben Keswick

Chairman

GROUP CHIEF EXECUTIVE'S REVIEW

INTRODUCTION

Overall, the Group continued to make progress in 2019 in improving the fundamentals underpinning our businesses as part of our multi-year transformation. While we still have work to do to complete phase one of our transformation plan which entails building a strong retail foundation, we are pleased with the progress so far and are turning attention to some areas of phase two with the objective of delivering well consistently across all facets of our business.

The Group's Grocery Retail profits increased significantly in the year, driven by an improvement in Southeast Asia Grocery Retail as the space optimisation plan delivered enhanced quality and operating standards. While the turnaround of the Southeast Asian businesses remains at an early stage, there are encouraging signs of improvement.

Underlying performance for our Convenience format was pleasing. We continued to invest in mainland China, with the network having now grown to almost 1,300 stores. We also continued to invest in IKEA, with two additional stores opened in 2019. E-commerce growth was also strong for IKEA as improvements were made to website functionality across the region.

The Group's investments in Yonghui and Robinsons Retail delivered good returns. Underlying profit growth in Yonghui was strong as it benefitted from the partial sell-down of their investment in the Yunchuang Technology business, which was announced in December 2018. Robinsons Retail successfully integrated the Rustan acquisition in 2019.

The diversity of the Group's business mix from the perspective of both direct and indirectly managed businesses, formats and geography did provide some insulation from unprecedented market challenges. In particular, the social unrest in Hong Kong materially impacted the performance of the Group's Health and Beauty division, as well as Maxim's.

FIVE STRATEGIC IMPERATIVES

1) Grow in China

7-Eleven delivered strong growth, with almost 1,300 stores now opened, and we are pleased with the underlying performance of the business with strong like-for-like sales growth throughout the year. Strong focus has been put on the development of the ready-to-eat offering, which has resulted in higher day time traffic and converted consumer behaviour to encourage eating at 7-Eleven. On-top of this, digital and other services - such as facial recognition payment - continue to be one of the key drivers in China. There remains significant opportunity for growth in the longer-term with Guangdong province the home to over 100 million people. In the short-term, however, competition for site rentals has intensified and we will remain disciplined in our property growth strategy.

Mannings China reported good like-for-like sales growth in the second half due to strong O2O e-commerce growth as well as encouraging results from new format designs. We have also developed a revised cross-border e-commerce platform for Mannings, with an upgraded and integrated supply chain to support fulfilment and accessibility. Our scale of growth in Mannings China has not fulfilled its potential historically, but we see opportunities for further space development through a realignment program which aims to identify the optimal store format and size. There will be a stronger focus on the Greater Bay Area where Mannings has strong brand awareness and where the business can leverage the existing scale of 7-Eleven in the region.

We continue to develop a strong and growing relationship with Yonghui. Projects to leverage the scale of both companies are beginning to bear fruit with partnerships in procurement enhancing efficiency and reducing costs. In addition, Mannings branded products have been introduced into almost 450 Yonghui stores. We anticipate further shared learning and idea generation between the two businesses going forward. We also continue to develop relationships with China's technology companies, with a series of trials taking place to better understand the changes in customer expectations as regards the use of technology in this market and beyond.

2) Maintain Strength in Hong Kong

The social unrest in Hong Kong negatively impacted our operations in our home market last year. Reduction in tourist traffic has had the greatest impact on Mannings within our portfolio. Disruptions to stores have also impacted our key associate Maxim's. IKEA's Hong Kong operations were also disrupted by the social unrest.

However, even within Hong Kong, we benefitted to some extent from the diversified mix of our businesses. While there was disruption to stores, a clear trend towards more eating at home supported solid like-for-like sales growth for Wellcome Hong Kong. A combination of improvement programmes and a more disciplined approach to store space saw an improving trend in underlying profit performance. We remain confident about the future growth potential of our Grocery Retail business in Hong Kong.

Performance for our Convenience format was pleasing with sales and profit ahead of last year. This is despite challenging conditions in the second half. In order to continue to build store traffic and brand differentiation, aggressive development of ready-to-eat and the Own Brand range was a key focus. This will continue in 2020.

Faced with the current challenges, the Group is adopting a prudent approach to cost control. The challenges in Hong Kong were also difficult for our team members but their commitment towards putting customers first was nevertheless unwavering and I would like to thank all of them for their hard work and dedication.

3) Revitalise Southeast Asia

Profitability in our Southeast Asian Grocery Retail business improved significantly in 2019 as we execute our multi-year transformation plan. Greater efficiencies generated from improvement programmes as well as our space optimisation plan supported the strong growth in profits. While the turnaround remains at an early stage, there are encouraging signs.

Our upscale stores continue to show signs of recovery as we raise operating standards of quality, freshness, availability and range. Remodelled pilot stores have been developed and initial performance has been encouraging.

We continue to re-engineer our food offering within Giant to focus on improving the customer proposition and optimising space. A detailed plan is being executed and we are expecting to see continued progress in 2020.

We are taking a holistic view towards space optimisation, of which the conversion of a Giant hypermarket to an IKEA store in Sentul, Indonesia is a good example. The store was opened in November, only five months after handover and was the fastest IKEA store opening in history.

Our Guardian Health and Beauty business remains a significant opportunity for us in Southeast Asia. Over 1,000 stores have now been opened across the region, with the business achieving strong like-for-like sales growth overall in the region. Profits in Singapore, Malaysia and Indonesia each achieved double-digit percentage growth. Indonesia grew particularly strongly, driven by strong retail execution as we introduced better, more relevant range into stores and invested in store fitout in a cost-effective manner.

Guardian is leveraging its strong brand name in the region both from the perspective of Own Brand, as well as innovative partnerships. Guardian Own Brand performance for products introduced into Rose Pharmacy has been strong. Guardian Singapore also entered into an exclusive partnership in 2019 with leading Korean Health and Beauty retailer Olive Young to enhance its range in the K-beauty segment.

We are continuing to invest in growth of the IKEA network across the Group, but in particular in Indonesia. While this will have some short-term impact on profits due to new store startup costs and pre-opening expenses, we remain confident about our underlying profitability for IKEA and its growth potential in the markets where we operate the franchise.

Robinsons Retail made a positive contribution in 2019. The adoption of the new lease accounting standard, IFRS 16, led to Robinsons Retail reporting a decline in profits.

4) Build Capability

Since the start of 2018, we have significantly changed the leadership team to assemble a group of people who have strong track records in the Retail and Consumer industries. In addition to the senior leadership team, we have also built management depth within the business. There have been close to 200 middle-management new hires since 2018. In addition, over 80% of senior managers have taken new or expanded responsibilities.

The result of the strengthening of our capabilities has driven a significantly different way of working and seen a significant improvement in our ability to collaborate across functions, banners and regions, which has led to successful execution of a number of improvement programmes. We plan to change our Store Support Centre to an open plan environment to facilitate better collaboration.

We are taking a proactive approach towards nurturing younger talent within the organisation and collaborating more closely with the Jardine Matheson Group. Graduates of the Jardine Executive Trainee programme have taken opportunities in key areas of the business including commercial operations, merchandising, digital and finance management. We are also working more closely with Jardines in developing a pipeline of junior talent and graduate trainees.

We now have the ability to drive considerable changes necessary to not only improve Dairy Farm's performance but to transform the business to a modern-day retailer focused on delivering what customers want, where and how they want it.

5) Driving Digital Innovation

Retail is rapidly changing and Dairy Farm has historically been slow to respond to the pace of digital change.

Since the appointment of our Chief Digital Officer and Chief Technology Officer in the fourth quarter of 2018, a significant review of the previous ad-hoc programmes has been undertaken. Focus and discipline in our IT investments has been enhanced and we are confident that returns on our IT investments will improve over the coming years.

We have now successfully consolidated our IT systems in Singapore by introducing SAP and removing a significant number of legacy systems.

We have invested in e-commerce across both our Home Furnishings and Health and Beauty businesses. Enhanced website functionality supported growth for IKEA. In addition, we have invested in e-commerce infrastructure to support the growth of online sales for our Health and Beauty businesses. E-commerce for Guardian Singapore was relaunched in early 2020 with significant improvement in the customer experience. We expect these investments to support online sales growth for Mannings Hong Kong later in 2020.

Significant investments have also been made to enhance the Group's own digital data analytics capabilities, which will support the future growth of our businesses. In addition, progress is also being made in our partnerships with technology companies, which will support our digital transformation.

LEVERAGING SCALE

The key objective of our transformation is to leverage our expertise and scale more effectively across our countries and banners. This will be achieved by operating more effectively as one company. While we fully recognise that there needs to be localisation of the offer and customer proposition at both a banner and a country level, we also believe there are significant opportunities for us to drive efficiency and lower costs through a more cohesive approach towards leveraging synergy and scale.

Improvement programmes have been a key area of focus to date and will continue to be in 2020 and beyond. We are continuing to make progress in improving consistency and lowering costs in areas such as Procurement, Category Management, People Development, Store Productivity, Supply Chain Optimisation and Business Process Re-engineering. At the store level, we have been working on a number of projects to improve the workflow for team members and remove unnecessary duplication of work. For example, auto-replenishment systems have been introduced into Mannings Hong Kong, which reduces the amount of manual labour required for store team members when re-ordering inventory. In addition, programmes to introduce new systems and processes to improve fresh food quality and lower waste are being implemented and have been introduced to over 300 stores across the company, which are also yielding significant cost savings. At the Store Support Centre level, we have also taken a more centralised approach across functions to leverage the scale of the organisation. As an example, we have taken a centralised approach to marketing by moving away from having different media agencies across each banner and country. This has yielded a 90% reduction in the number of agencies we use and considerable cost savings.

The Group is now adopting a more consistent approach to Own Brand. One example is with the launch of the Meadows brand in our Food businesses. The brand is common across markets and we are able to leverage its scale in common sourcing, as well as marketing. The number of SKUs brought to market has progressively increased with focus on increasing range over time. The value proposition is exceptional with high quality products introduced that are significantly cheaper than branded equivalent products, helping to support value-for-money in our store offer. In addition, customers can find Meadows branded products across multiple banners including our supermarkets and convenience stores. We are piloting other Own Brand development options across our Health and Beauty businesses and leveraging scale when opportunities arise.

IMPACTFUL GROWTH

As the business transforms there is a great opportunity to improve the Group's impact on the communities it serves, by demonstrating that Dairy Farm's business and commercial objectives are closely correlated with addressing societal challenges and by creating a consistent approach across our businesses to how they address those challenges. The Group is developing an enduring sustainable business architecture that is aligned with its corporate strategy and commercial ambitions. There is much work to do but the journey is underway to become a truly purpose-led business.

BUSINESS REVIEW

FOOD

FOOD - GROCERY RETAIL

Consistent with the Group's strategy of proactively managing our business portfolio, the Rustan Supercenters business was successfully integrated into Robinsons Retail in 2019. The Rustan deal as well as the execution of our store optimisation plan in Southeast Asia led to sales for the Grocery Retail unit reducing by 12% to US$5.2 billion. Operating profit, however, increased close to three-fold to US$63 million, compared to US$22 million reported in 2018. The improvement in performance was driven by Southeast Asia, as we continue to execute towards our multi-year transformation plan, with the space optimisation plan also yielding benefits.

Sales in Hong Kong and Macau were ahead of the prior year. While the social unrest in Hong Kong did disrupt trading, Wellcome's like-for-like sales grew as customers shifted towards eating at home. Underlying profitability improvements have been encouraging as we start to enhance efficiency across the business despite some cost pressures.

Reported profitability was impacted by ongoing investments in people and capabilities. Our price reinvestment campaign in Taiwan led to improved performance in the second half, despite the market backdrop of weak sentiment and fierce competition.

The divestment of the Rustan Supercenters business as well as the Southeast Asian space optimisation plan impacted our reported sales for Southeast Asia Grocery Retail.

However, the space optimisation initiatives as well as improvements in format and range are delivering some encouraging results, particularly in our upscale and smaller format stores. Ongoing success in executing against our transformation plan supported profit growth for the Southeast Asian grocery businesses in 2019.

FOOD - CONVENIENCE

Convenience sales increased 4% to US$2.2 billion, driven by new store growth and strong like-for-like sales in China. Underlying profit performance for the Division was pleasing. Investments into the growth of our China business, however, as well as the non-recurrence of some one-off factors which positively impacted profit in 2018 led to reported profits for the Division reducing by US$6 million to US$82 million.

HEALTH AND BEAUTY

Sales for our Health and Beauty Division benefitted from strong revenue and like-for-like sales growth in our Guardian business in Southeast Asia. Improvements in the customer range, particularly in the Beauty category, as well as investments in store fitout supported sales growth. Like-for-like sales for both China and Macau also improved over the course of the year as we continued to improve the customer offer. However, these positives were offset by the impact that the social unrest in Hong Kong has had on Mannings, with the business seeing decline in foot traffic both from visitors to Hong Kong and local customers.

Reported sales for our Health and Beauty Division were US$3.1 billion in 2019, ahead of 2018, supported by the consolidation of Rose Pharmacy.

Diversity in our business geography mix saw robust profit growth by Guardian Indonesia, Malaysia and Singapore partially offset challenging trading conditions which impacted Mannings Hong Kong. The good performance of our Southeast Asia business was driven by strong sales growth as well as better mark-down management. Overall, operating profit for the Division reduced 11% to US$296 million.

In the Philippines, Rose Pharmacy's profitability also improved materially. The acquisition of the remaining 51% interest in the business in late 2018 allowed the Group to accelerate growth in new stores as well as investment into Own Brands, with financial performance improving as a result.

We continued to improve the customer offer throughout the Health and Beauty Division. Some examples include the relaunched Mannings cross-border e-commerce offering through a WeChat mini program, with a significant increase in range and Guardian Singapore's exclusive partnership with leading Korean health and beauty retailer Olive Young.

We are also beginning to leverage the strong brands that we have within our Health and Beauty portfolio, with the introduction of Mannings Own Brand into almost 450 Yonghui stores across China, as well as Wellcome Taiwan stores.

HOME FURNISHINGS

We continued to invest in the future growth of our Home Furnishings business in 2019. Sales grew 6% to a record US$766 million. Taiwan and Indonesia both reported strong sales growth, with two new store openings. In addition, e-commerce growth was also strong across all markets with investments made to support website functionality. Like-for-like sales in Hong Kong, however, were impacted in the second half by the social unrest.

The IKEA team continues to innovate from the perspective of store format with the conversion of the Giant hypermarket in Sentul, Indonesia to an IKEA store, a good example of taking a holistic view to space optimisation. The store was opened in November, only five months after handover and was the fastest ever IKEA store opening in history and the first ever hypermarket conversion. Performance for the store since opening has been pleasing. IKEA also introduced a pick-up point format in Bandung, Indonesia in September 2019, a year ahead of the official store opening in 2020.

Our investments into new stores, higher cost of goods as well as currency fluctuations impacted operating profits in the short-term. However, we remain confident in the future prospects of IKEA across the region. Our first store in Macau will open in the first half of 2020. In addition to a new store opened in Southern Taipei in 2019, good progress has been made with new store projects in Taiwan as well as in Indonesia, which are anticipated to open in 2020. Our strategic plans to meet the demands of the growing middle-income consumer involve opening traditional and new IKEA formats.

RESTAURANTS

Maxim's reported 4% growth in sales to US$2.7 billion. The acquisition of Starbucks franchise in Thailand through a 64%-owned joint venture in May supported sales growth for the year. A portfolio of over 370 retail outlets was acquired as part of the deal. After this acquisition, Maxim's has now secured the Starbucks franchise in six markets.

Profitability, however, was impacted significantly by the social unrest in Hong Kong, with disruptions caused to restaurants and shops, as well as reduction in foot traffic. Mooncake sales performance did continue to grow in 2019.

It was another successful year for the introduction of new concepts, with expansion of the Shake Shack franchise into China. Shake Shack is expected to expand into Macau in 2020. Maxim's also launched The Cheesecake Factory in Macau in 2019, with one opening in the heart of the Cotai area.

In addition to the Starbucks Thailand acquisition, Maxim's continues to diversify its business in Southeast Asia, as well as growing its Starbucks business in the region. The Genki Sushi franchise is also being expanded in Thailand, Singapore and Malaysia.

OTHER ASSOCIATES

Yonghui delivered strong sales growth in the year, driven largely by store openings, while also achieving positive like-for-like sales. Underlying profit growth was strong due to the partial sell-down of the investment in the Yunchuang digital business as well as lower cost from employee share incentive expenses.

Reported profitability for Robinsons Retail in 2019 was also impacted by the adoption of IFRS 16 as its profits in 2018 were not adjusted for the new lease accounting standard. Underlying profit before interest, tax, depreciation and amortisation increased by double-digit percentage.

YEAR AHEAD

The Dairy Farm transformation remains on track. Our efforts over the past two years to enhance capability, change the way in which we operate, to address underlying business challenges previously neglected and to focus on consistently improving retail basics across our business are all combining to enhance Dairy Farm's prospects for the future. This cultural change to drive Standardisation, Synergy and Scale is now integrated into our way of working.

We also benefit from the diversity of our portfolio, not only in terms of retail sector, format and geographical spread, but also in the balance between Dairy Farm managed businesses and Dairy Farm invested businesses. While we have seen some businesses with a Hong Kong bias adversely impacted in their 2019 performance, others have seen performance improve, most notably in Southeast Asia where our turnaround plans are beginning to bear fruit. In addition, the integration of our Rustan business into Robinsons Retail has proved to be a successful financial investment decision in its first year.

We are not ignoring the current short-term challenges and have been pro-active in adapting to a changing operating environment, seeking to optimise our current trading position in difficult circumstances. However, the diversity of our portfolio does provide the Group with greater resilience when facing external market uncertainties such as the events of 2019 and the current COVID-19 challenges of 2020.

All sustainable business transformations take time to execute and we are still in the early stages of that transformation. Nonetheless, we are encouraged by our underlying progress to date, remain resolute in our confidence in our turnaround plan and are grateful for the determination and effort of all our team members across Dairy Farm in their personal hard work to make a sustainable performance difference over time, both for our shareholders and most importantly, our customers.

Ian McLeod

Group Chief Executive