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Edited Transcript of D01.SI earnings conference call or presentation 2-Aug-19 10:59am GMT

Half Year 2019 Dairy Farm International Holdings Ltd Earnings Presentation

Quarry Bay Aug 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Dairy Farm International Holdings Ltd earnings conference call or presentation Friday, August 2, 2019 at 10:59:00am GMT

TEXT version of Transcript


Corporate Participants


* Clem Constantine

Dairy Farm International Holdings Limited - Group Property Director

* Ian James Winward McLeod

Dairy Farm International Holdings Limited - Group Chief Executive & Director




Ian James Winward McLeod, Dairy Farm International Holdings Limited - Group Chief Executive & Director [1]


Apologies for the climate condition. We just thought we'd demonstrate our cost-conscious approach to keep you guys quite happy. We'll try and do better next time.

So first, I would like to introduce Clem Constantine, who is our new Group Finance and Property Director. Clem joined us probably about a year ago, probably feels like it was 10 years ago.


Clem Constantine, Dairy Farm International Holdings Limited - Group Property Director [2]


20 years ago.


Ian James Winward McLeod, Dairy Farm International Holdings Limited - Group Chief Executive & Director [3]


20 years ago. So Clem has actually got a very strong background skills both in finance and property, more laterally in property. And he's doing a very good job for us, pulling together our property strategy across the business. And with Neil choosing to leave last year, I thought it's a great opportunity to give Clem the role because of his experience both with the Arcadia Group in the U.K. and also Marks & Spencer, [proving] that he is a senior position both in finance and property (inaudible). So he's a strong retail finance professional, so it's great to have him onboard. So he'll be going through the numbers later on. And then I'll provide with an update on strategy.

So just in terms of the initial overview. Total sales are actually up 13%. And subsidiary sales were slightly down, actually 1% down on constant currency following portfolio changes. And what we mean by that is we've deconsolidated Rustan. And also with the space optimization plan that we put in place in Southeast Asia, these are 2 main contributing factors for that sort of sales position.

The sales lift in total terms is the result primarily of strength through Yonghui, where we've opened almost 500 stores in the first half. And also, we've got the benefit of our investment in the Robinsons Group, where we integrated our Rustan's business into that through the back end of last year.

Underlying profit was up 5%. Again, good contributions coming through from Robinsons. And also, we have seen a benefit from the reaction they've taken particularly in relation to the deconsolidation of the Yunchuang technology business.

Within our subsidiaries, we're still seeing continued positive sales growth in 4 out of 5 divisions. So there are still challenges with Food, but one of the encouraging things here is we're seeing improving trends now coming through in Southeast Asia in an underlying perspective both in Food but also continued growth in Health and Beauty, which is encouraging in those markets.

So there's a lot to be done still. We're starting to make some early progress [in support of this], but we always want more to be done pretty quickly. In our view, transformation is going to be a multiyear transformation plan, but we believe it's on track.

So I'll now hand it over to Clem, who will take you through some of the financial results for [Q2 '19].


Clem Constantine, Dairy Farm International Holdings Limited - Group Property Director [4]


Thank you, Ian, and thank you for the introduction. I'm looking forward to meeting you all actually over the next few months. So I'll come around and see you all in the coming months. In turn I'm going to take you through the numbers.

In terms of the numbers, sales -- total sales are up to $13.781 billion, plus 13% on the year. And we had the benefit there of 5 months of Robinsons, so we put Robinsons in for November and December and the first quarter of this year.

Sales in our subsidiaries are at $5.761 billion, down 3%. And as Ian has said, they're broadly level in terms of constant currency. And there, what we see is the impact of our space optimization program and the deconsolidation of Rustan. So they're the 2 things that have impacted that number.

In terms of our subsidiary underlying operating profit, we're at $234 million, down 5%. And that reflects the heavy investments that we're making in IKEA, which we'll come on to later. And we have incorporated IFRS 16 into that number.

Share of associates and JVs have moved from $52 million to $72 million. And the 2 main things that happened there were, firstly, Robinsons. 5 months of Robinsons have come into our numbers. And secondly, Yonghui deconsolidating Yunchuang. So negative business, they did consolidate it. It's impacted our profitability positively.

Our underlying profit is at $177 million, up 5%. Our reported profit is at $178 million, level with the year. And our underlying EPS is $0.1305, also 5% up on the year. The interim dividend remains unchanged at $0.065.

In terms of the subsidiary sales. Our Food business saw sales at $3.758 billion, down 8%. And within that, our Supers & Hypers were at $2.67 billion, down 13%. But as I said, that's exclusively down to our space optimization program and the deconsolidation of Rustan. Our 7-Eleven business had a strong -- had strong growth, up 5%. [It felt] strong in all markets particularly China, where we saw a double-digit growth. Health and Beauty was up 10% to $1.632 billion. And we saw good lifts in both Mannings and Guardian for the half. But our number is enhanced by the fact that we've consolidated Rose at 100%. IKEA has had strong growth, up 7% to $371 million. And again, all our markets are growing strongly in IKEA.

Now with respect to IKEA associates, Maxim's had a good half, up 7% to $1.23 billion. And they were enhanced by the acquisition of Starbucks in Thailand. So that adds another 380 stores to their portfolio. Yonghui also performed well, up 9% to $5.472 billion. And again, they've added around 480 stores in (inaudible). And as you can see, we've put Robinsons in. Our 20% share of Robinsons comes in at $1.3 billion.

Now in terms of our underlying subsidiaries operating profit. This slide, we pulled out IFRS 16 as a one liner here, so you can actually see the movements in the -- in our operating profit. In terms of our Food business, the Food -- our Food business is at $59 million, a touch down on last year from $60 million. And our Supers & Hypers business was at $26 million, flat with last year. And this is quite -- this to us is quite an encouraging performance in the midst of cost, price and competitive pressure. So -- and there's lots of change going on in the business, as you can imagine. And we are seeing some green shoots in terms of some of the transformation work that's being done. Our Health and Beauty business went from $152 million to $171 million, and that reflects strong growth in both Mannings and Guardian.

Turning to IKEA. IKEA's profits went from $34 million to $19 million. And this in effect reflects the investments that we're making in IKEA. We've had 10 stores for quite a while. We've opened one more store in Taipei in May. And we've actually currently got 5 stores coming out of the ground across our regions: 3 in Indonesia, 1 in Taiwan and 1 in Macau. So the preopening costs there are having a disproportionate effect on the profit.

When you look at share of general and admin, our costs here have moved from $40 million to $68 million. And they reflect investments in new capabilities, investments in IT and digital and business change costs. But it's worth saying that $68 million is comparable with our second half of last year.

Now in terms of IFRS 16, there's a positive benefit at this point in the P&L of $53 million from $41 million for last year. So in essence, the way IFRS 16 works is you effectively take the differential of the revenue you pay against this amortization of the right-to-use assets, which is discounted. That's a positive number. And then the interest charge as per IFRS 16 goes below the line, interest and tax. So what you see here, the underlying profit stage actually is positive. So that takes our underlying operating profit to $234 million, down 5%.

Now what we've also done is roll in IFRS 16 into the individual profit lines just to show you what the impact is if we were to put it this year into our individual numbers. And I'll just leave that for you to look at for a moment.

In terms of cash flow, it's a solid performance. We're at $757 million underlying EBITDAR, a $45 million reduction from the last half. But again, that does reflect the investments we're making in IT, new capabilities and business channels.

In terms of working capital, it's a touch higher than last year, but our stocks have come down from [$920 million to $840 million]. And we are hoping to see further reductions in our stock levels and our stock cover over the coming half.

Dividends received remain broadly in line with last year. And our operating cash flow is at $672 million. Our net cash flow then is $76 million lower. So it takes our net debt from $744 million to $820 million.

Now that concludes the finance summary. I'll now hand over back to Ian.


Ian James Winward McLeod, Dairy Farm International Holdings Limited - Group Chief Executive & Director [5]


Thank you, Clem. Okay. So if I can just remind you the strategic priorities that we set for ourselves. And the one thing about transformation programs, they do take time to execute.

We set ourselves 5 strategic priorities. And I know I have shown you this slide before, but I'd like to give you an update on the progress on what we've been making (inaudible). And underpinning it are also improvement programs we're putting in place, which are seeking to drive out further levels of efficiency and lowering of costs within the business over time.

So moving into growing in China, we see there's a major opportunity there. We see opportunity in our 3 key brands operating in China. In the 7-Eleven and in -- certainly in 7-Eleven, we're actually seeing some very encouraging performances coming through (inaudible) our store opening program there. We've actually got double-digit sales growth out of that particular [segment] of our 7-Eleven business. They're developing their ranges (inaudible) development taking place. And they're quite aggressive in terms of going after additional space. So we've got a very strong [seal] in that area. And we've got ambition to grow it further. So there's going to be improvement in sales and improvement in profitability. We've now got over 1,150 stores -- sorry, 1,150 stores or thereabouts now open. And we're going to see that grow further because (inaudible) rest this year and a detour over the next 2, 3 years as well.

Mannings' performance is proving a bit more challenging. Mannings' essentially is in Guangdong primarily because they have stores in Shanghai and Beijing. We're looking at our overall property portfolio in terms of some of the decisions that were made previously. And we've identified about 9 different types of store profile that we have in place at the moment, and probably half of them work well and the others less so.

So we're readdressing our portfolio. We're adjusting it over time as part of our overall space optimization plan there in order to make sure that we accelerate growth in the profiles that work as opposed to those that are more compromised. So we still believe that there is a future in there that is going to require (inaudible) underlying strategy in order to bring that to fruition.

We are seeing some good growth coming through in e-commerce both in terms of domestic e-commerce, which has more than doubled, and also across-the-board e-commerce, which is even stronger than that. And we do see that as an opportunity for future growth within the brand and also in the brand Mannings itself, which actually is very strong, known and trusted. So there are opportunities, but there's a number of work to do.

In Yonghui, strong sales growth has come through in Yonghui and exceptional profit growth for the reasons that Clem mentioned. And they've also been quite aggressive in opening new stores particularly in their convenience format. And that's how they booked the sales and indeed to the profitability.

When it comes to Hong Kong, we've seen positive like-for-like sales growth in Hong Kong during the half for Wellcome both in their Mannings stores and indeed the premium sector as well, which actually is performing even better. So we're pretty encouraged by the underlying sales performance and the resilience of the brand -- the Wellcome brand in Hong Kong. We still do have the cost pressures that we mentioned previously both in terms of in-store costs but also in terms of rental raises. But the -- what we're now seeing on rent is that actually it's starting to moderate. We're still getting increases but at a lower rate. So that's quite encouraging. And I think we've even seen some rental decreases in 1 or 2 instances. So we're seeing moderation there. And we're aiming to ensure that some of the efficiency programs we put in will offset some of those cost increases over time.

Taiwan is becoming an intensely competitive market. We've (inaudible) with some of the internal players emerging in that market. And therefore, we launched a new price campaign to combat that by lowering the prices over 1,000 products. It's early days. It's only been going sort of 3 or 4 weeks with some innovative market campaigns underneath it. And the results are actually proving quite encouraging in terms of improving the relative performance of that particular business, but it is proving challenging as well.

Sales growth in 7-Eleven, not just in China but also here. I mean essentially, Hong Kong is a (inaudible) market. But 7-Eleven is a strong brand here. We get very strong penetration, renowned brand. And we've actually developed higher levels of NPD trying to broaden the portfolio in the stores and particularly in relation to RTE products, ready-to-eat. And there's been new product launches in there in things like dim sum and chicken products. Now it's actually proving very successful with the customer. So there's more goes into how the 7-Eleven team are doing a good job in terms of managing and optimizing the space plan within that banner as well.

Mannings, again, a very encouraging performance. You'll recall we had a very exceptional year in Mannings last year. And that has given us quite a hill to climb as far as the first half of this year is concerned and gaining sales and profit growth against those strong comparators. I actually think our Mannings team has done a very good job there. But it's actually was underpinned by quite a smart space strategy. We can see the change in terms of the rail and road linkages into Hong Kong. And therefore, we proactively sought out property areas where we can actually capture a disproportionate share of that traffic coming through. And that's proved to be a very successful strategy for us.

Maxim's, again, good performance in Maxim's, continued positive performance overall. Really encouraging performances from some of the franchises that have come in particularly in Shake Shack, which is going extremely well both in Hong Kong and in China. And in May -- and I'm so glad that we've got our release of our fifth Starbucks franchise in a fit market by securing the franchise in Thailand where we've got now 382 stores. That's almost doubled our Starbucks outlets across the Maxim's business. So again, that's going to have opportunities for further growth. So it's great to secure that.

IKEA, positive sales growth both in Hong Kong and Taiwan. And IKEA we see as a significant opportunity for the group both in the medium to long term. And therefore, we're taking a far more sort of aggressive position in terms of expanding and growing our brand. I think it's probably worth looking at IKEA just a little bit more details in terms of why we think that's the case.

We're gaining from a franchise overview. That's the fastest-growing franchise globally. We've got sales growth from each of the market segments that we're in, whether it be Hong Kong, Taiwan or Indonesia, but particularly in the region we don't have one store and we're (inaudible) more. And we've also been (inaudible) in terms of developing e-commerce. We've landed a new website both in Indonesia and Hong Kong and then a website [opportunity] in Taiwan later this year. And that's actually adding in effect collectively another store to the total sales for IKEA.

There's an aggressive space expansion underway. We've had the IKEA franchise, I think, for over 40 years, and we've got 10 stores. We have to take that from 10 stores up to 17 within the next 2. That means a considerable effort. We've got a new store opened in Taipei in May, which actually opened about 4 months early. And we've got another 5 new stores that are under construction as we speak. We've got 3 further stores in Indonesia. We've got one -- another one in Taiwan and one in Macau, which opens in the early part of next year. This is the scale of change in IKEA that this business (inaudible). We're pretty excited about the opportunity, and we want to pursue it aggressively.

And essentially, I think this is sort of a reaffirmation of what we're trying to do as a business (inaudible). Dairy Farm is operating a wide basically a dynamic space optimization plan. We have businesses in multiple countries in multiple sectors, and we look at that in total terms. We're also a portfolio retailer as well. We have some areas where we managed to control the businesses ourselves and others where we made strategic investments. That gives us opportunities with the diversity that we have to look at opportunities for the future in each of these business segments and sectors and seek to kind of contract in some areas and grow and expand in others or reposition and reinvent in other areas. And while you're doing reinvention in one area, it gives you an opportunity to push and accelerate in others at the same time.

So this is multifaceted. It can't be sequential. It's got to be multifaceted, which is why these transformation programs take time. We have to identify where the opportunities are and seek to exploit them. And if you could address where the underlying challenges lie (inaudible) which you can improve upon. All these things are happening simultaneously, but we do see a major opportunity in IKEA.

When it comes to Southeast Asia, there's been some challenges for some time. So the revitalization of Southeast Asia has been important (inaudible) Food, Health and Beauty and IKEA.

And so when we talk about Food, our portfolio optimization plan is underway and also our space optimization plan as well in terms of portfolio. We've acquired Rustan's or a share of Rustan's in -- about 5 years ago. And we acquired in 2017 the rest of that particular business. What we saw was an opportunity to integrate our businesses that we had in the Philippines Food -- with the Rustan's brand and integrate it into Robinsons Retail Holdings. That has proved to be a very successful and continuing to prove to be an even better and more successful strategic investment. And we're seeing the benefit of that coming through in our combined sales line, which you saw (inaudible) .

When it comes to our space optimization plan, we're looking at reformatting of our hypermarkets and our supermarkets. And we've got a new mini-mart (inaudible) as well. This is about repositioning our space, optimizing space as an individual micro market and looking within each individual store about category optimization as well.

To identify where these opportunities are, I'm looking at how we might be able to best exploit them over time. Those are things that are now taking place. We've got 4 months on the ground in each of these areas to try and refine and develop what might work for the customer in each of these markets. And that's going to begin to bear fruit because in 4 months we've actually seen quite encouraging performances, but it's very early days. These kind of changes on this kind of scale do take time.

Within Health and Beauty, we've got a very encouraging performance coming through from Guardian, a very strong team in there working hard to make sure we deliver great quality products. We've got growing brand penetration, trusted brands coming through, innovative promotion campaigns are going with it. So we've seen some very strong growth coming through particularly in areas like Malaysia and Indonesia and then you've Vietnam as well.

We're looking at improving our beauty participation. In both Guardian and in Mannings, we've got a very strong reputation for health. We're starting to take that and leverage it and build our trusted beauty categories as well, and we're starting to do that in a number of markets. In Malaysia particularly, we have done that. So they're developing their ranges. They're improving their pricing and also making sure that our ranges are relevant.

One of the key drivers of change in Indonesia, for example, has been they've actually put in halal cosmetics in Indonesia and they've gone extremely well. So by identifying a market need, by seeing a market gap that we have in our region and then developing the range and then merchandising it and marketing it in a very effective and compelling way in the store, the combination of those 3 factors has seen Indonesia move to double-digit growth.

And as you might recall, for some of you who have been following the business for some time, in Indonesia we actually rationalized some of this space in Indonesia about 2 or 3 years ago because the number of the space growth that we put in place probably was inappropriate. And although I wasn't party to that decision, I actually support it because now we're refining the opportunity in Indonesia to one that is more relevant both in terms of range, pricing and location for our customers, and it's paying dividends. So we're back to opening more stores. 62 stores opened in the first half. We've got in total 1,230 stores across the region in Health and Beauty. So this is a major opportunity for us here but also in Southeast Asia as well.

IKEA, I mentioned it more broadly. IKEA has been a great market for us in Indonesia since we went there in 2014, which is why we want to accelerate growth there. We had double-digit sales growth again in Alam Sutra where our one store is. But also, one of the 3 stores under construction is actually a giant hypermarket conversion. So back to my point about space optimization, this is about taking an opportunity in a market and seeing actually where we believe we can get a better proposition for a customer and a better return to the company by actually taking a hypermarket and converting it.

And that store -- I actually was in this store myself 2, 3 weeks ago and (inaudible) so amazing, how quickly I had done it. There was one supermarket trolley left, but it wasn't working very well. So that one is gone. And the rest of the store in (inaudible) is gone. It's a shell, and it's going to come back as an IKEA. And that will open before the end of the year. This store is obviously an important part of the mix now.

We have to recognize it, we've got to build not just our offline capability but our online capability as well. We're building a strong team, but we've got to think about the basics as well. We still have a number of our systems, legacy systems, that need conversion and change, and none more so than Singapore.

Singapore has 47 legacy systems. And therefore, we've integrated SAP across each of our Singapore businesses. That happened over the last couple of months, and we're just integrating it now. And that facilitates (inaudible) individual farmers within that market.

Strong e-commerce growth as I mentioned. The IKEA website is going to be launched. We've got over 200% growth in Mannings cross-border e-commerce. We developed that website program as well (inaudible). We actually introduced [a new CRM system] last month into China, which actually set off very important results.

Facial recognition, we know that we looked into China to see just very strong technology operating source. And we looked into China to ensure that we stay with that change in development. So facial recognition is now in 900 of our stores in China, both in 7-Eleven and a number of our Manning stores. Just to give an indication of just how relevant that is, in our highest-adoption store, 62% of sales are going through the facial recognition process. So this indicates how things have changed in that market and we have to respond to it.

We are still investing in talent. We've brought in some good talent. And the balance of the year is actually not (inaudible). We're trying to get (inaudible) making sure we maximize the opportunity to develop internal talent and local knowledge and blend that with external expertise in key business is what we're trying to do. And I think it'll prove to be successful.

Further investment in leadership capability is taking place in the last 6 months. We're growing our mid-tier talent to get strength and depth, not just at senior level as well. And so we're trying to make sure that we build for the future. We want to try and give opportunities for people to grow and develop internally as well. And therefore, we are pleased with the last sort of restructure we put in place. We actually have an opportunity to promote some internal talent, too.

We're also focusing on store-based training because people who think about talent and capability development tend to think of it from a central perspective. We are a retailer with hundreds of thousands of people working for us. We want to try and give people the opportunity to see coming into our businesses as not just a job but a career. And therefore, we want to give those opportunities to those people (inaudible) new building programs that allow them to do that. Certainly, when the business improvement programs start to come in, we're starting to build (inaudible). We have to put in place specialist training in order to ensure that happens in order to make sure that what we put in place (inaudible) on the ground and stays in a sustainable way.

And also communication is important. So not just understanding from the market and investors in terms of what we might be doing but also making sure that our people understand the changes that we're making and why we're making them. So we go out once or twice a year and talk to as many people as we can. And (inaudible) store managers after the last results announcement across the [10 days] in all the regions just to try and make sure they then understood, a, what size of business they're a part of; b, the change they are making; and c, how they're an important part of [the overall success rate].

When it comes to the improvement programs, which actually underpins the core strategies in terms of efficiency improvement, there are 4 key areas (inaudible) each of these 4 key areas now.

So fresh supply chain, labor productivity, assortment optimization and procurement centralization are 4. On fresh supply chain efficiency, this is about thinking end to end, looking at how we're sourcing product in the first place, identifying globally who the best suppliers might be, building relationships with them and collectively negotiating to make sure we've got the same product at the same quality going into each individual country in which we operate. That kind of central approach has [obviously] been taken before. And we're beginning to see some pursuit of that come to some success.

More importantly or as importantly is thinking about how we manage it in the stores. We're looking at what our space allocation is, looking at what our stock rotation plans are, looking at how we manage our product to make sure we're thinking about the date codes on products. These all sound simple stuff, but over time they can actually erode as processes. So we're putting back into place programs in these stores. And we're seeing some very significant improvements in our waste and (inaudible) as a result. So there's opportunities there. In the 200 stores, we're actually very encouraged by the results that we're getting.

And they then -- if you roll it out as programs over time, you cannot rush it. You can't just put it in a book with a picture in a manual and send it out and expect people to do it. You have to see what good looks like. And you have to be able to understand what needs to change. And it takes time to evolve on each individual store. And then you take the cascade effect over time. If you do it that way, in my experience you'll get sustainable success and results. And that will provide us with the opportunity to reduce our overall cost base and then look at how we might take that money and invest it further in improving the overall performance of the business.

Labor productivity is another one. Managing our -- this also includes managing our stock. We want to try and get our stock levels down. As Clem mentioned, we have our stock levels down. But we need to get better at managing the overall stores as well in terms of (inaudible) few days. By flowing the product (inaudible) into the store, the stores can operate more efficiently.

We want to develop programs and are working on developing programs. We have efficiency modeling in the store, (inaudible) scheduling coming in particularly on the (inaudible) back. And so if we look at our cashiers, if we look at our operations on the ground as well, trying to make sure operates to the flow of product and the service to the customers in the most efficient way possible, that's important that we try and deliver that. That will actually save us money, improve our service and improve our availability. But again, these things take time. They take time to develop. They take time to implement. And most importantly, they take time to sustain.

When it comes to assortment optimization, this again is something that we as a group haven't done before. We're actually looking at who our suppliers are, identifying product by product what our core cost prices are and then doing comparisons of our price position and our price -- cost price position for each individual product in each individual country for each individual supplier. That is a huge task. We've actually analyzed it and built a data cube, which I think has got like 2 billion lines of code on it. So I don't even know what that is. It's probably a big number and difficult. I used it on a piece of paper when I was a kid, but things have moved on since then.

So we've now got an opportunity to look across each of our products in each of our suppliers and see how much we're paying in each of our individual countries. And then we can go and talk to suppliers (inaudible) their strategic plans are for their business, how we can evolve through our business plans but also ensure that (inaudible) the country (inaudible) platform that we can believe in.

And we've also had to retrain our buyers to operate in a different way because they've never operated collectively before. So to do that across the entire group, not just in Food and Health and Beauty in different countries but across all of them, and do it in a consistent measured way is actually something that we're almost doing now. We're starting to make some good progress. We're seeing improvements in our trading terms coming through. And we're seeing an opportunity come through to actually work with key suppliers and preferred suppliers in order to make sure they win and we win.

So we're trying to do exactly the same thing with centralized procurement, things that we actually don't sell to the customer. So whether it be plastic bags or whether it be (inaudible) or whether it be utilities, how can we optimize our position by operating collectively as a group to kind of lower the cost price in these areas and drive that level of efficiency?

So all of that is coming into play here as well. Again, getting underneath the skin is actually what we're doing and how we're paying and the things that we're changing in each of these areas also takes time. Looking at something as simple as plastics and actually identifying it because as a business, we have 82 different specifications of plastic bags in our company. And that gives you an order of complexity that I would contend we don't need. So some might argue we don't even need plastic bags at all, but that's a different opportunity.

But whatever we do in terms of our procurement costs, we've got to try and make sure we optimize efficiency there. If we can work on these individual areas and try and deliver change across the business as a result, we've got a much better chance of having a broader level of investment opportunity to improve our performance in our stores and improve our costs but also therefore lower our prices for our customers, improve our quality to our customers and (inaudible) volume growth in each of our businesses over time.

So where does that take this so far? What we're trying to develop here is a dynamic portfolio and space optimization plan. By looking at our business more broadly as a retail portfolio business, some of the businesses that we control understand, others are (inaudible) investment. And [trying] to dial up or dial down those opportunities, as and when they arrive. That's why it's dynamic. We're looking at this now all the time.

This is the core of the transformation strategy, which is if we are a portfolio business across multiple segments, it does gives us the opportunity to take that diversity as an advantage and see in each of these individual areas why we might expand on some and where we might contract on others.

We've still got macro and competitive challenges in every single market in which we operate, and that isn't going to go away tomorrow. We're not operating in a bubble. We have to do it better and make clear and substantial changes in this business but still compete today as well. That isn't easy.

We're trying to address the underperformance, and we're seeing some improvement starting to emerge, which is giving us the encouragement that we're on the right track, but we are not there yet or anywhere near it. But we do have the opportunity now to actually see some green shoots of improvement. But it will take time to evolve the [outfit] further.

The market growth potential is about driving our space investment more effectively as well. Till we see advantages in the market, [to actually] exploit it. That's why we're driving hard on 7-Eleven because we see opportunity for growing 7-Eleven in China. That's why we're driving hard in IKEA because we see the IKEA brand as having a quite unique position. In each of the markets that we're operating, it's growing well.

That's why we see the opportunity in Health and Beauty in Southeast Asia because we've seen double-digit growth coming through in a number of the markets. And therefore, we see the opportunity to grow and develop. As those customers grow in middle class, we're starting to actually look at the (inaudible) look at the products and services that we provide.

The synergy and scale is driving portfolio change. And we can see the opportunity across the portfolio to work collectively. Or if we can integrate banners that we already have with other banners that exist in those markets and become bigger as a result, when we get 1 plus 1 equals 3, then that's a great result for us and for our potential partners.

Significant change is taking place across Dairy Farm, and it's being driven at pace. There's a lot to do. We're starting to make some good progress on things (inaudible) for their hard work and efforts at every level. But we're coming from a position of real challenges in some of our businesses and real challenges in some of our markets. But we definitely believe that we're on the right track.

We do believe that we're on track, but it's going to take time. That's one thing I'm going leave you guys with is it's tough. It's going to take time. And in case any of you ask it, there are no low-hanging fruit. There is no hanging fruit. I've never known any hanging fruit that evolved in any time I've been in the transformation (inaudible).

So it's going to take time. But we want to take our time to make sure we sustain what we do and deliver it successfully. So that's a quick counter to the strategy, where the opportunities lie. I also thank the managers (inaudible). Thank you.