Dairy Farm International : 2016 Preliminary Announcement of Results

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To: Business Editor 2nd March 2017

For immediate release

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

• Modest sales growth achieved in challenging markets

• Underlying profit up 7% at US$460 million

• Food, Home Furnishings and Restaurants deliver higher profits

• Additional contribution from Yonghui Superstores

"Despite the uncertain economic outlook for 2017, the Group continues to strengthen its businesses. Investments are being made to enhance its competitive position, increase customer convenience and adapt to emerging consumer trends. These investments, coupled with the exposure of its market-leading retail brands to Asia's growth markets, will support Dairy Farm's long-term success."

Ben Keswick

Chairman

The final dividend of US¢14.50 per share will be payable on 11th May 2017, subject to approval at the Annual General Meeting to be held on 3rd May 2017, to shareholders on the register of members at the close of business on 17th March 2017.

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Dairy Farm achieved sound profit growth in 2016, its 130th anniversary year, despite soft consumer spending and intense pressure on pricing in most markets. Underlying net profit rose by 7% for the full year and by 11% in the second half compared with 2015. Improved operating margins in the Food Division and at IKEA, as well as strong contributions from Maxim's and Yonghui, underpinned the profit performance. The Group continued to make progress against its key strategic objectives and invested a further US$190 million in Yonghui Superstores to maintain its shareholding.

Sales for the year by the Group's subsidiaries of US$11.2 billion were 1% ahead of last year. Total sales, including 100% of associates and joint ventures, of US$20.4 billion were 14% higher than 2015, buoyed by stronger growth at Yonghui as well as an additional three months of contribution from Yonghui.

In the Food Division, sales were flat with the modest growth achieved in Hong Kong being offset by weaker sales in Southeast Asia, in part reflecting the Group's store rationalization programme. Operating profit in the Division improved, however, as the Group continued its initiatives to enhance gross margins and control costs.

In Health and Beauty, sales growth was achieved in difficult markets, but operating profit showed a modest decline principally due to lower gross margins and higher rents. In Home Furnishings, both sales and operating profit showed growth.

The operating margin gains together with increased contributions from Yonghui and Maxim's, partly offset by higher net financing charges, produced underlying profit attributable to shareholders up 7% at US$460 million and underlying earnings per share up 7% at US¢34.03.

The Group generated a net cash flow from operating activities of US$543 million, versus US$700 million in 2015. The reduction was due mainly to negative working capital movements from the timing of supplier payments and inventory accumulation for an earlier Chinese New Year in 2017. Net debt at the end of 2016 was US$641 million compared to US$482 million at the prior year end.

The Board recommends a final dividend of US¢14.50 per share, (up US¢1) for a total 2016 dividend of US¢21.00 per share, a 5% increase on the prior year.

The Group is transforming itself to compete aggressively in a changing retail landscape. Central to this are a strong focus on understanding changing consumer behaviour, growing market share, building digital engagement with customers and sharing know-how across the Group. Investment is being sustained in supply chain, IT infrastructure and systems, and the skills and expertise of our people to support this transformation. Each business is committed to optimizing the shopping experience of its customers and to serving their evolving needs as efficiently as possible.

Increasing convenience through expansion and enhancement of the store network remains a high priority, although when necessary, underperforming stores will be closed. The Group's continuing operations, including associates and joint ventures, added a net 114 stores in 2016. At 31st December 2016, the Group had 6,548 stores in operation in 11 countries and territories, including its interest in 487 Yonghui stores in mainland China.

The Group accelerated its e-commerce presence in 2016 with a number of initiatives in its Home Furnishings, Food and Health and Beauty operations. Strategic initiatives on range enhancement also progressed in all formats, such as with increased fresh food penetration, higher Ready-to-Eat participation and a broader corporate brand range. The Group is increasingly leveraging its scale to provide a more extensive international range at more attractive prices, while the consumer offer is advancing through better in-store experiences and further investment in quality assurance.

In March, the Group refinanced its short-term borrowings through new bank loan facilities totalling US$900 million. The new facilities were used in part to finance the US$190 million additional investment in Yonghui in August, which maintained the Group's 19.99% interest following a private placement by Yonghui of a 10% shareholding to JD.com.

In April, Maxim's completed the acquisition of the COVA patisserie and restaurant franchise in Hong Kong. Maxim's also opened its first The Cheesecake Factory restaurant in Shanghai Disney Town in June, and has launched a cakes and bakery joint venture in Thailand.

PT Hero completed the sale of its Starmart stores in Indonesia in September.

Dairy Farm's encouraging performance in 2016, in the face of challenging market conditions, reflects the resilience and resourcefulness of its people. On behalf of the Board, I would like to thank them for their efforts and wish them well for the year ahead.

James Riley stepped down as a Director on 31st March 2016, and was succeeded by John Witt on 1st April 2016. Y. K. Pang also joined the Board on 1st August 2016.

We were saddened by the death of Lord Leach in June 2016. He made a significant contribution to the Group and his wise counsel will be greatly missed.

Despite the uncertain economic outlook for 2017, the Group continues to strengthen its businesses. Investments are being made to enhance its competitive position, increase customer convenience and adapt to emerging consumer trends. These investments, coupled with the exposure of its market-leading retail brands to Asia's growth markets, will support Dairy Farm's long-term success.

Ben Keswick

Chairman