Welcome to Duty Free International Limited Group of Companies

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* Extracted from Annual Report 2018

Dear Shareholders,

On behalf of the Board of Directors of Duty Free International Limited (“DFI” or “Company”, and together with its subsidiaries, the “Group”), I am pleased to present to you our annual report for the financial year ended 28 February 2018 (“FY2018”).

FY2018 was another challenging year for the Group, as it continued to deal with currency fluctuations against the Ringgit Malaysia, inflationary cost increases and consumers' cautious purchasing sentiment. However, according to Bank Negara Malaysia, the Malaysian economy is expected to grow at a faster pace than forecast earlier in part due to improving global demand but warned of risks from monetary tightening in advanced nations and heightened trade protectionism1. Malaysia is expected to have its gross domestic product grow by 5.5% to 6.0% this year, benefiting in the short-term from robust trade growth and resilient domestic demand, a product of a pro-consumer Budget and higher investment2.

The Group's FY2018 turnover was relatively stable at RM620.1 million as compared to RM632.6 million for the financial year ended 28 February 2017 (“FY2017”). Earnings before interest, tax, depreciation and amortisation (“EBITDA”) was at RM74.8 million in FY2018 due to unrealised foreign exchange loss of RM19.5 million coupled with lower revenue compared to RM104.6 million in FY2017. For FY2018, profit after tax was significantly impacted by net foreign exchange loss of RM17.8 million, as compared to a net foreign exchange gain of RM9.9 million in FY2017. The last quarter of FY2018 logged the best performing period for the year, when it saw a 27.9% increase in revenue quarter-on-quarter.

BONUS WARRANTS AND DIVIDENDS

As informed last year, to show our appreciation to our shareholders, on 16 May 2017, DFI made a bonus issue of 491,400,042 warrants on the basis of two bonus warrants for every five existing ordinary shares in the capital of the Company held by the shareholders of the Company. The number of warrants outstanding amounted to 491,400,042 as at 28 February 2018.

The Group continued to reward its shareholders for their trust and support and has declared a total dividend payout of RM68.8 million (approximately S$22.6 million) in FY2018 which represents approximately S$0.0185 per ordinary share. This translates to a dividend yield of approximately 6.85% based on the closing share price of S$0.27 as at 28 February 2018.

HEINEMANN ASIA PACIFIC'S SECOND TRANCHE CALL OPTION

Pursuant to the sale and purchase agreement between Heinemann Asia Pacific Pte. Ltd. (“HAP”) and DFI, dated 17 March 2016, HAP exercised the Second Tranche Call Option on 30 November 2017 in which 5% of the issued and paid-up share capital of DFZ Capital Sdn Bhd (“DFZ”) was sold to HAP for a total amount of EUR9.85 million. Following the exercise of the Second Tranche Call Option as mentioned above, HAP's total equity interest in DFZ as at to-date is now 15% plus one share.

OUTLOOK AND STRATEGY

Over the years, DFI Group has grown to be a major player in Malaysia's travel retail industry. This was a result of the geographical and multi-channel diversification of our duty free and duty paid retailing outlets at all entry and exit points of Malaysia.

Our reputation as a duty free and non-dutiable retailer fortified when our strategic business and equity partner, HAP exercised the Second Tranche Call Option to take up more equity stake in the DFZ. This shows their commitment and confidence in the Group.

Apart from improving our key targeted areas behind the scenes, on the frontline, we will continue to focus on creating a better experience for customers visiting our outlets. This initiative will set the benchmark across all our outlets and will be executed through constant improvement in our outlets' aesthetic appearance, marketing, promotions and world class customer service.

Moving forward, the Group is expected to grow both organically and inorganically. In Malaysia, we are anticipating growth in average footfall to our outlets especially from our border outlets. Furthermore, despite the saturation in Malaysia's duty free industry, we will continue to seek for any opportunities to grow through additional retail spaces. With the Group's strong financial standing and brand name, the Group will continue to explore expansion through acquisition opportunities with synergistic businesses within the region.

However, for the short term, with the rising inflationary cost and consumers' cautious purchasing sentiment, the Group expects the business environment in which the Group operates, to remain challenging. The Group will reinforce measures to mitigate the business risks surrounding the operating environment by focusing on strengthening customer bases and distribution channels whilst improving operational efficiency and cost management in order to remain competitive.

IN APPRECIATION

On behalf of the Board of Directors, I wish to convey my heartfelt appreciation to our bankers, suppliers, business associates, customers and the various government agencies who have provided much needed support to the Group. I would also like to thank the Board of Directors and all our staff, who have dedicated themselves to the Group. It is through their commitment, perseverance and hard work that have been the cornerstone of the Group's many successes.

To our shareholders, we appreciate your unwavering support and confidence in DFI. We are committed to ensure that we will have enduring sustainable growth and will seek potential opportunities to create value and long term returns to all our stakeholders.

Thank you.

Adam Sani Abdullah
Non-Executive Chairman

1. http://www.businesstimes.com.sg/government-economy/malaysias-economy-to-get-boost-from-exports-consumption-in-2018

2. http://www.bnm.gov.my/files/publication/ar/en/2017/ar2017_book.pdf