CK Hutchison Holdings Limited

Good afternoon, and good morning. Welcome to the live webcast of CK Hutchison 2021 Final Results Presentation.

Today, our speakers are Mr. Victor Li, our Chairman and Group Managing Director; Mr.

Canning Fok, Group Managing Director; Mr. Frank Sixt, Group Finance Director and Deputy Managing Director; Mr.

Dominic Lai, Deputy Managing Director and Group Managing Director of A.S. Watson Group; and Malina Ngai, CEO of Asia and Europe of A.S.

Watson and Group COO of A.S. Watson Group.

During the presentation, please feel free to raise your question in the chat box, which is at the lower right-hand side of your screen. The Q&A session will follow the presentation.

Before I hand over to Frank, please also pay attention to our disclaimer, which you can find on Page 2 of the presentation. We can start now.

Frank?

Okay. Well, welcome, everybody.

I'll take you straight away to Page 4 of the presentation, which is the summary of our financial highlights. They pretty well speak for themselves with a healthy growth in revenues, healthy growth in EBITDA, healthy growth in earnings before interest and tax, healthy growth in net earnings.

Of course, we have benefited during 2021, among other things, from fair wins in terms of currency fluctuations. And so you see that the numbers are still good in local currencies but just a little bit lower.

That's led us to a 15% increase in earnings per share, and that's reflected in a final dividend of $1.86 per share, which takes the total dividend for the year to $2.66, right, which is a 15% increase and the same payout ratio as we've applied for the last several years. Our net debt to net total capital ratio improved over the course of the year by 1.9 percentage points.

And of course, for net debt ratios because -- and we'll go through this in more detail later on, but because we have a higher proportion of euro-denominated and sterling-denominated debt than we do euro and sterling cash and liquid assets, basically favorable currency wins on the earnings side go against us on the net side -- the net debt side, and that is already reversing itself as we're into the first 2 months of 2022, particularly with the declines in the euro that we've seen recently. If we can go to the next page, right, which is a focus on EBITDA, just a reminder that all of the numbers that we use are on a pre-IFRS basis because we think that gives you a better proxy for real underlying performance, not distorted by the difference between cash and accounting -- lease accounting.

So EBITDA, up a healthy 15% reported, 10% in local currencies. The attribution, both in terms of geographies and sectors is in the 2 circles on the left-hand side.

And just to recall, the inner circle gives you the recurring picture. The outer circle gives you the reported picture.

And they are once again different as they have been for a number of periods because of the movements associated with the major, what you have to call one-offs, which we'll be going through in a few minutes. But that include things like the Cenovus and Husky noncash write-downs, a noncash write-down in Italy and of course, all the cash proceeds and the earnings impact on the towerco sales.

So not really much to observe in terms of geographic spread. The only thing that I would say is that our earnings in Hong Kong and in the Mainland have been a little lower in proportionate terms than in prior years.

And I think that will be explained when we go through the divisional reporting, it's a fairly natural consequence of trends in the Ports and Retail divisions. If we go over to the right-hand side, which basically just looks at year-on-year changes by division.

You start by taking out the one-off component in 2020, so that you get to an underlying 2020 EBITDA of HKD 95.2 billion. As you can see, the contributors on the upside, obviously, ports, a very healthy contribution year-on-year.

Retail, also a very healthy growth year-on-year. You've got CKI showing a decline year-on-year.

That is essentially because of the way that we are accounting for EBITDA, our share. Of course, if you remember, when CKI announced their results, they made it perfectly clear that if you exclude the one-time proceeds from the sale of Iberwind Portuguese wind assets last year and you take out the noncash deferred tax effects in both years, actually their profit increased by 22%.

And what they look at, which is funds from operations, which is probably the most relevant metric in their business, which is essentially the cash from operating activities plus the dividends that they get from their associated companies plus the dividends that they get from their joint ventures, that was up to a record $8.4 billion and up 8% on the year. Turning then to CKH Group Telecom.

As you can see on the EBITDA level, there's a relatively minor year-on-year decline, and we'll be talking about operating performance in detail. But suffice it to say that broadly speaking, the U.K.

was up in terms of its EBITDA contribution. Italy, as we all know was soft in terms of its EBITDA contribution.

And when you adjust year-on-year for the impacts of towerco contributions and the costs as towerco transactions have closed, of paying towerco lease payments, you end up with a relatively modest reported impact year-on-year. HAT, I think there's really not a lot to say there.

The real underlying story is, of course, the merger in Indonesia and its impacts and we'll be speaking to that later on in the presentation. And of course, the net one-offs this year, some pretty big moving pieces.

The gains reported from the towerco sales that were completed in 2021 are HKD 25.3 billion. We took an impairment of HKD 15.5 billion on the carrying value.

Of course, that's a noncash impairment, but it is reflected in EBITDA. And we recorded the Husky exchange reserves loss as a result of the merger that took place on January 1 with Cenovus.

And then, of course, as Canning -- I'm sorry, and we also recognized our share of a write-down that Cenovus took in 2021 in relation to their refining assets. But in the U.S., our share of that was HKD 1.5 billion.

If we can go to the next slide. As usual, we drill down on operating cash flow.

And here, what we're looking at is stripped of any exceptional or onetime items. So we're trying to look at a real operating cash flow and real spending in the businesses.

As you can see, the balance of $35.3 billion is $4.5 billion down from last year. But of course, the actual cash generation at $69.9 billion, which is the second bar on the right, is higher than it was in 2020, but that was offset by higher CapEx and investment to the tune of just under HKD 5 billion.

And of course, we incurred $7.5 billion more in license costs in the telecoms businesses, primarily in the U.K. and in Hong Kong in 2021 than we did in 2020.

If I can take you across to the right-hand side of the slide, not really much to note by way of operating free cash flow allocated as amongst various businesses. Except to note that the contribution from Retail is significantly enhanced, of course, by comparison to the 2020 performance.

If we then go to the next slide, Slide 7, I think it's worth spending a little bit of time on this because what it does is it looks at the same equation of operating free cash flow for each of the divisions. So it looks at the EBITDA for the division, the EBITDA minus share of associates EBITDA, adds back the dividends but it subtracts the CapEx, it subtracts the investments and ultimately also subtracts the license -- Telecom's license investments.

So if we go very quickly by division. It's interesting, I mean, Ports spent CapEx at more than twice the rate in 2020, so that's $3,630 million, which you can see there, but still showed a healthy increase, actually a 5% increase in operating free cash flow.

We go across to the Retail division. Again, CapEx and investments increased there.

I'm sure Malina and Dominic and the team will be talking about that. But quite a bit of investment in technology and [ so on ] and so on.

But nevertheless, the operating free cash flow advanced by 10% to the $7,503 million number that was the sum of the numbers that you're looking at for Retail. Infrastructure, I think we've already talked about.

Again, I would go back to funds from operations, which I think is the most important number for them. And you find the breakdown of that in Note 32 to CKI's financial statements released yesterday.

If we then go across the CKH Group Telecom, although you've got a decline in operating free cash flow for the year, that's against CapEx spending that was up by 15% and license spending that was 9.5x what it was last year. So not really surprising that you have roughly 16% decline in the operating free cash flow in CKH Group Telecom.

As I say, in HAT, the number here is partly reflective of -- as we led into the merger in Indonesia, the group was very careful not to spend, particularly on network CapEx that would be redundant when the assumption of the merger went ahead. And so the improvement is largely driven by the reduction in capital spending in Indonesia.

But -- and then, of course, lastly, the Finance & Investments performance has a lot of things moving in it. But most of finance and investments EBITDA improvement over the year came from the share of Cenovus Energy, which is, of course, not reflected in the dividends, which is why the operating free cash flow movement looks less attractive than the EBITDA movement.

But apart from that, I don't think any significant observations. And all of those numbers sum up to the ones that we had on the previous page.

Looking then from operating free cash flow to real free cash flow on the next slide. Yes, you start with our $35,260 million from the last slide.

Obviously, you take away the actual interest expense that we had in the year, which was an improvement year-on-year. You add in then the cash proceeds, which we received from the tower deals that closed during the course of the year.

You take out an adverse working capital movement, that reflects some concession extensions in their Ports division. And it also reflects clearing out some payables, particularly in the Hutchison Asia Telecom that related to Indonesia and that needed to be cleared before the merger, part of which has actually been replaced post-merger by some receivables from the merged company.

Other than that, I think if we go over to the right, I think I pretty well explained all of the major variances. The $33.1 billion is summed on the left.

And the elevator and waterfall on the right I think are self explanatory. So I'll leave those to questions if anybody has any later on.

Next slide, we take a look at our debt maturity and financial profile. I would start by saying still very healthy.

On the left side, cash and liquid assets at a strong level of $161.4 billion. 9% of that is held in euros and 4% of it is held in GDP and the rest for the most part is in U.S.

dollars and Hong Kong dollars. Going across to the -- well, the return on our cash and liquid assets was significantly lower than it was last year, not surprising in terms of where interest rates have been over the course of the year.

So we are 67 basis points behind on the return on liquidity. But I'll go straight across to the bottom on the right, where we gained 10 basis points in terms of the average cost of our debt as well.

So they're spread in between the 2, although in slightly adverse for the period and certainly not anything to cause us concern. Turning to the total debt at HKD 336.4 billion.

But again there, 47% of that is denominated in euros, 5% is denominated in sterling, which is why in net debt terms, a decline in euros gives us a favorable profile. So our debt will already have improved as we sit here, among other things, because of that, from the 20.3% level that it was at the end of 2021.

Maybe not a bad idea to remind about [ floating rate ] there. In terms of the mix, we've been continuing to move more towards fixed rate.

So we ended the year 25 -- 26% in fixed rate and 74% in floating rate, and that's as against 31% that was in floating rate at the end of 2020. So a little bit derisked in terms of a rising interest rate environment.

Maybe a good idea to just recap some sensitivities, which you'll find in the group liquidity section of our reports. But basically a 10% fluctuation in euros, in particular, will result in an EBITDA reduction of HKD 3.1 billion, will result in an earnings reduction in net profit after tax $1 billion, will resulted in a reduction in net debt of HKD 12.1 billion, which represents 0.9%.

Now again, those are all sensitivities that assume that the recurring cash flow and earnings profile from 2020 -- '21, sorry, is exactly the same in 2022. So the actual sensitivity will vary somewhat, but it is tested against the recurring earnings components.

In terms of net debt, I think it's fairly self-explanatory and an improvement from year-end in 2020. A little bit of a deterioration from the summer of 2021, but that is partially driven by currency and also partially driven by the CapEx and license expense in the second half.

And I can tell -- I can assure you that, that is today stands at a significantly lower absolute amount and ratio amount. Other than that, no change in our credit ratings, average maturity profile 4.8 years, so just a snip longer than it was last year.

The runoff of that on the left is self-explanatory. I think it's quite relevant to note that in terms of the near-term maturities, they are largely weighted in terms of bank maturities -- bank market maturities rather than capital market maturities, which means that there should be no particular issues around rolling those credits.

So I think I'm going to stop there and ask whether Canning has joined us.

Yes. I have been listening.

Thank God, because you are on deck to do Ports.

Well, you can't be a little bit too early because then you can finish it. Okay, now the Ports has a good story, okay?

And then just to remind you, the total asset is $12.6 billion, 291 berths, 52 ports, 26 countries. And in 2021, actually, there was a -- we handled 88 million containers and there was an increase of 5%.

And EBITDA is very, very pleasing, $15.157 billion and 35 -- 39% increase in EBITDA across, you know, we have a huge help from the currency. If you look at local currency, it's 35%, which is very, very pleasing.

If you go to the right-hand side of the chart, everything is going up. So that only direct one is the Mainland China and Hong Kong.

And basically, it's more or less the same. Actually, it's doing better than last year.

But because we have last year, we sold 20% of our Shanghai port to our partners, so this is why we have a slight negative here. It's actually -- the ports are doing well because we only have 50%.

We sold 20%, we now we only have 30% in Shanghai port. So that the Trust is doing well and then they have the reporting.

Again, [ China ] is doing well, Hong Kong is okay. And then the Europe is very pleasing.

In Felixstowe and Rotterdam and Barcelona, they all give very good profit increase on EBITDA. And of course, in Australia and Asia -- Australia and America, they are doing very well basically.

Mexico, Indonesia, Thailand, they are all leading the charge. And then we -- and then on the corporate side, we made an investment in the shipping company, and they are doing so well.

So they gave us good income. So you can see that everything is going up.

And of course, the foreign exchange also give us a push. So I think -- and actually, this is a wonderful business.

One thing I just explained in the past conference. And when there is a disruption, of course, the [ pier side ] works slower and then the boxes don't move as fast.

But the thing because the box stays in our yard and then we collect quite meaningful storage income. The land, which we call the land side income, which is quite good for us.

So as a result, the performance of the Ports in 2021 was very, very pleasing. So we go to the Retail one.

I think retail is responsible by Dominic, maybe Dominic should paint this picture.

Okay. Thank you, Canning.

Retail, reasonably good story. Well, you have Slide 11.

With nearly 16,400 stores, the Retail division remains the world's largest international Health and Beauty retailer, operating in 28 markets under 12 retail banners and with a strong loyalty member base of 142 million worldwide and member sales participation high as 65%. That means 65% of the total sales came from loyalty members, indicating the strength and attractiveness of our loyalty programs.

Next is the exclusive sales participation, what we call [ O+O ], which include our own brands and exclusive product from 8 brands. It has -- the sales participation has reached a record high of 36% with China being the highest at almost 50%.

So creating strong differentiation and uniqueness for the business. So customers can only get these products through our own network only.

Our O+O business model has been proven to be very effective in increasing the customer lifetime value and sales growth. So what is O+O?

Why is O+O so important and unique? Let me elaborate in simple language this very important and core strategy.

O+O, as the name implies is offline plus online. We want our customers to shop with us both offline and online, not either, but both because our CRM data shows that an O+O customer spends up to 3x as much as the customers who shop with us only in our physical stores.

So this data and observation forms the basis of our core O+O strategy. But the implementation of this O+O strategy is very sophisticated.

In short, we have to create a really unique, digitally enabled, integrated offline and online ecosystem that allows customers to shop seamlessly across any channel, anytime and anywhere. So there's a lot of technology involved.

If you would like to have more details, our Chief Operating Officer, Malina, and I will be happy to explain to you. Now let's move on the center of the slide, our store numbers.

We ended the year with 16,398 stores, a mere 1% increase on the surface. But in fact, we have opened 882 stores -- new stores during the year.

But we have also actively closed 651 underperforming stores, resulting in a net increase of 231 or 1%. The new stores, mostly of them in Asia and China have an estimated average payback period of less than 15 months.

So fast payback, particularly in Asia and China. And the split of these 16,400 stores is 50-50 between Europe and Asia.

Now on EBITDA. EBITDA is reported as $16.034 billion, representing an increase of 11% in reported currency or 9% in local currency and then EBITDA split is 60% -- 62% in Europe and 38% in Asia.

Now let's go right. The waterfall EBITDA growth chart shows the EBITDA growth of each division in local currencies.

For Health and Beauty, which accounts for 94% of the division's EBITDA, it grew 17% year-on-year. So Health and Beauty, the core business, grew 17% year-on-year.

Now let me go through these blocks briefly one by one. For -- on the left for Health and Beauty China.

China has delivered a very encouraging performance in the first half of last year when the pandemic conditions were relatively stable. However, in the second half of 2021, the business was significantly affected by regional outbreaks and tightened national movement restrictions, which negatively affected our customers' footfall.

So as a result, the EBITDA for the full year decreased by $291 million, as you can see on the slide, or 11%. So a very good first half, but the second half was impacted severely by the COVID and the movement restrictions.

Now move to Asia, Health and Beauty Asia, despite the movement controls in the region, countries like Malaysia and the Philippines managed to deliver EBITDA increases. These, together with the significant reduction of losses in Watsons Hong Kong because the tourist doesn't come any more to Hong Kong, so it was badly hit in the year 2020.

But 2021, the loss has been reduced significantly. And as a result, the year-on-year EBITDA growth is $138 million or 6% in Health and Beauty Asia.

Next, for Western Europe, I'm happy to report that all the Western European business units did well and reported increase in EBITDA and EBIT, especially in the Benelux countries and Germany where stores remained open during the lockdown period. So we remained open and the nonessentials they have to close.

So as a result, EBITDA of this division in Western Europe increased by close to HKD 2 billion, an increase of 36% in local currency, so a very good achievement in Western Europe. Similarly, for Eastern Europe, EBITDA increased $367 million or 19% predominantly because of Rossmann, Poland, where the brand is strong and the trading has been good.

The next block that you see as a negative, there's other retail. Here, we see a drop of $887 million.

This is mainly because of the fact that the super normal trading in 2020 in our supermarket division or supermarket operation in Hong Kong due to the panic buying by customers has returned to normal in 2021. So in 2020, super normal trading and then in 2021, back to normal.

So lastly, and of course, now, with an FX gain of $322 million, the total EBITDA of the retail division increased as I mentioned 11% to $16.034 billion. So if you look at the bottom, to finish the slide, the Health and Beauty EBITDA margin chart.

For China, the EBITDA margin remains double digit at 12%. Asia stable at 9%.

Western Europe increased to 10% from 8% previous year. And Health & Beauty Eastern Europe highest at 13%.

Resulting in an overall EBITDA margin of 10% for the Retail division, same level as previous year. So reasonably good story, and I pass it back to Canning to talk about infrastructure.

Well, I think better pass to Frank.

Frank, okay. Yes, sorry.

Okay. I can't see anyone else to pass.

Anyway, I have not much to add really to CKI's own results announcement, starting with solid reported earnings. Of course, just a reminder that if you take out the noncash deferred tax impact in both years and you take out the gain from the sale of the Portuguese wind assets in 2020, our earnings were actually up 22% for the year.

Very healthy net debt ratio, as you can see. And I can tell you that we all obviously look through that and look to the leverage levels from the underlying associates and joint ventures, and we're very comfortable that they are prudent given the high regulated asset value component of a number of businesses.

And of course, the sort of boring recurring income profile of the nonregulated components of the portfolio. Again, EBITDA, this is what it looks like to us, including the share that we still have in 6 assets that we co-own with CKI.

And a reminder there that the real story of the CKI funds from operations story is cash that is coming in from their own operations, with cash that's coming up by way of dividends from their associates and the cash that's coming up by way of dividends from the joint ventures. And that was a very healthy 7.8% top year-on-year.

Just looking over to the far right. The regulatory reset timetable is very important.

And as you can see, it's pretty well spread out and pretty healthy, really. And we're looking at results in 2021 that absorb the initial impacts of a considerable number of resets that were done in and before that year, which is what the 2021 column tells you.

And with that, I'll pass it over to Canning to talk about telecoms.

Telecom has been not an easy year this year. You saw that on the top left-hand side, revenue went up by 1%, and customer -- active customers stayed flat.

And then, of course, the one thing good is that the ARPU -- the AMPU, the margin, this is always looked at, is actually even up by 2%. Usage is quite a lot going up because of lockdown.

And then if you recall, our -- we are a new challenger when we started our European 3 business. And then one of the things that we are not as competitive as the other company who has been there for longer in terms of spectrum -- is our spectrum collection and ownership.

And then of course, all throughout this year, we have done various in Ireland, Austria and Italy, we have done -- and we have done a lot of merger and then also through the 5G auctions in U.K. In the U.K., we are able to partner the companies that own a lot of 5G spectrum, so that we have more 5G spectrum than anybody else in the U.K.

And then in Sweden, Denmark and we are able to still auction quite enough spectrum so that our 5G spectrums are now competitive and it's not more than other people. That will give -- take away one major disadvantage of our business.

And then if you look at the -- and our network in Italy, we are 95% coverage in FDD. And in U.K.

as we've been in U.K., Ireland and Austria being rated by Ookla as the fastest 5G network. So then our disadvantage is eventually and is now disappear.

And because of the network situation, we did -- do spend more CapEx in the last 2 years and then expand to HKD 23 billion in CapEx and approximately half of those, 45% of those are 5G. And then this -- I would like to say to the market, this will be the top spending for our CapEx.

And if you go on the 2022 this year and next year, it will continue to come down. And then I think in the not-too-distant future, our goal of spending CapEx including depreciation, we can achieve that.

And if you look at the EBITDA line, okay, and in the middle of the chart. And you go from 2020 to 2021.

Actually, you see that because we have done and we have sold the tower business, so that in order to make it comparative, so that we make an adjustment so that the 2020's EBITDA is in order to compare to 2021 is after is in the third bar $29,934 million. And then after it, you see the up and down.

I think the one that was -- you see that the EBITDA is less than 2020 by 5% in local currency. And that mostly come from Italy, a, because there's 2 things actually happen.

And, a, is that it was a very competitive market. Our base actually not performed well in the first half.

But I'm happy to report that on the second half, actually, we are keeping -- doing better than -- a little bit better, not that much than the first half. This is why we are bottom -- now we can see that we have bottomed out in Italy.

And also another effect is that our wholesale income, because one of the major customer is the fourth operator called Elliott, it has been giving us a lot of income because they run on our network. But as they build up their network and then the income reduced.

So this is the 2 factors. And of course, we always save some -- saves money to offset some of those.

So if you see that in the chart, Italy, record a $2 billion reduction, $2.1 billion reduction in EBITDA against 2020. So the other is U.K.

is pleasing because the reduction is finally turning around. And then you see that the new management team is doing well.

And then in fact, if you look at the second half, and then we start growing and then their [ network ] base is, actually, the net add is the best in the last 7 or 9 years. So we are $0.5 million of net debt in our contract.

And so that you can see the EBITDA actually is better by almost HKD 600 million. So this is very, very pleasing.

So the other is all more or less the same because sometimes affected by COVID, some -- so that all in all, I think the business is reasonable. And then I'm hoping for -- I think in 2022, we see that even in Italy in the first 2 months, the base is actually settled down and started to increase in February, actually.

So we will have to see. And then if you look at the EBITDA margin, U.K.

36%, Italy, 43%. So that it is a little bit lower because it is -- we have to -- for some -- we have some of the country like Italy, Sweden, Denmark and Austria, we have to adjust for the towerco, the expense which we don't have.

So -- but nevertheless, we were continues to try to bring this back to 40% and let's see how it goes. On Page 14 is just the detail -- in the detailed figures, okay?

Okay. So and then on Page 15, I think, Frank, it is -- can you describe this?

Sorry, I had the mute button on. Yes, after almost 2 years of process with the CMA, we did finally approve -- obtained their conditional clearance, which clears the way for us to complete the transaction with Cellnex, we believe, in Q2 or Q3 which will bring in, as you can see on the slide, EUR 3.7 billion of total proceeds and corresponding increase in earnings either in Q2 or Q3.

As a reminder, that's as against what we have collected already in 2021 and in 2022, which is about EUR 6.3 billion in proceeds and earnings of EUR 4.3 billion. The approval is conditional and does require the completion of process between the CMA and Cellnex as to the implementation of the remedy package.

But, of course, clearance is based on an assumed remedy package, which is very realistic in all of the circumstances. And so we don't think that that's going to stand in the way, but it does affect the timing, which is why it's still Q2 or Q3 in terms of the actual closing of the transaction.

In terms of what we've done with the proceeds that we already received, obviously, we had a significant debt reduction at CKH Group Telecom distribution, and that's after distribution from CKH Group Telecom to CKH, which reduced debt at CKH and also funded $135 million -- EUR 135 million, sorry, of share buybacks. We've grown to 21.7 million CKH shares that we bought back in 2021 and also allowed us to save some money by the voluntary prepayment of the license we made in Italy in the first half.

So with that, I'll go back to Canning, you're going to talk about our merger in Indonesia.

Well, it's all financial figures, Frank, why don't you take it over?

I think we've gone through this a good many times. The left-hand side shows you how the shareholder structure looks post merger.

The implied enterprise value on the merger was about USD 6 billion, pro forma combined annual revenue was USD 3 billion. The company has achieved a BBB- investment grade rating from Fitch and from a local ratings agency, both with stable outlooks.

We think that the realistic run rate of pretax synergies is between USD 300 million and USD 400 million a year and should be achieved between 3 years and not more than 5 years from the start of the merger, which was at the beginning of this year. So really a night and day picture, I think, in terms of the position that we had in Indonesia before the merger and the position that CK Hutchison has post merger.

A very good partnership, very strong partnership with Ooredoo from Qatar. As you can see, we're basically 50-50 in the control block.

And our local partners are 24.7%, which gives us an additional indirect potential equity interest as well. So overall, it was great to get this done after, again, at least 3 years of hard work.

It's a long-term process, but we finally get it over the line in 3rd of January, I think. So we are so happy.

So sustainability. Frank, you are working hard today.

So we'll go to Slide 18, just an update on where we are. The slide focuses on accelerating action on climate change, but that's really just one of the objectives here.

Reminder, excluding what we spent on 5G networks, which does have a fairly positive environmental impact overall, over the course of the last 3 years, spent a total of USD 2.1 billion around the group, roughly split between CKHH subsidiaries other than CKI and CKI itself. And those are spends on renewable energy, climate adaptations, energy efficiency, sustainable transportation and the circular economy.

So we have been and continue to be doing a lot in all aspects of sustainability. But what the chart is showing you is where we are in terms of the key goals in dealing with action on climate change, which is setting science-based targets, developing a pathway to net zero and developing and understanding our Scope 3 footprints.

Very pleasingly, as you can see, all 3 of those have been completed in Telecoms. And we're at an advanced stage of progress on -- in all of the other divisions, in particular, the Retail division, which has already scoped out its Scope 3 emissions target.

So all of this has actually been recognized by the sustainability ratings agencies. So we got a significant improvement from Sustainalytics.

We went from their very high-risk category at a score of 48.5 into their medium risk category at a score of 29.2, which doesn't sound all that great except that it is the second best rating in all of APAC that they've given, and it's the 11th best globally for people who fall into the conglomerates category. So really good progress from where we started with those folks.

MSCI still has what we think is an outrageous B rating outstanding against us. We have been working with them.

We are seeing what they call our raw score improving very substantially. And our own view of this will be played out over the course of the next couple of months, but we think that we are entitled to a 2-notch improvement in our rating to BBB from them.

And the other thing that we did during the course of last year was to issue our first green bond, which also was a validation for us, EUR 500 million principal maturing 12 years and at an all-in interest rate of 1%. So that's the brief tour de table on sustainability.

And then Canning, I think you're going to cover our 2022 outlook.

Well, this is a very tricky page because I want to write more but not allowed because then we cannot forecast too much in the figures. But basically, if you look at the top of the page for this until 2022, we want to achieve balanced growth in every business.

So that because what we've seen -- hope to see, especially in Europe, which is almost -- more 60% of our EBITDA. And you -- supported by the economic growth and also we see the trade outlook is still very favorable.

And then, of course, I know that the shareholders are looking for return, shareholder return. And then as mentioned by Chairman Victor Li in the press conference, after we finalized the Cellnex deal, receive the rest of the money.

And of course, part of the money will be used for share buyback. And the last but not the least, the telecom market, it's a red hot item.

We are not selling, but then we were looking for in-market consolidation, especially in the U.K. when the Ofcom gives an easier signal about consolidation.

So these are the main things that we want to do. And then how to do it, I just say it very quickly.

On the Ports side, you have seen that either we can earn income before mostly on the [ pier side ]. And then now in last year, we had almost 10% income of our revenue coming from storage income.

And then we would like to see this as a part of the business going forward. And of course, expanding capacity where it is needed is also important to us, like in Australia, Thailand, Indonesia, where there is growth, okay?

And then on the CKI side, I think the good thing in 2022, there will be no reset in 2022. So that will have very predictable 2022.

And then yesterday, the increased interest rate so that we can see inflation -- higher inflation will come in and then that is good for our business. And of course, CKI always look for opportunity.

And then on the Health and Beauty side, and you have seen the European business during 2021 and Asia and China doesn't work as well, but the European business actually arrive and then fill in the void. So that -- and in this year, we will see that especially in the Asia side in January, February, and they are doing very well.

And then I hope that China, now there's a lot of lockdown in China, this will get over very quickly because the forecast 7 days, 1 week lockdown. Hopefully, they can stick to the program and the country can reopen again and then the business will perform.

And then of course, the O+O platform is one of the key drivers. And then this we will continue to work on it and also our exclusive and own brand sales is one of the success of this company, and we already went up to 36%.

And then our target, our regional target is 40%. I think we can reach that in no time.

And last but not at all the least, we said a lot about Telecoms so that -- and you can see that U.K. they are on EBITDA growth now, but they are still not on EBIT growth, but then I think U.K.

in June '22, will start making good EBIT -- going back to EBIT because the EBITDA growth will overcome the depreciation expense because of our investments in network. And Italy, and then you have seen that we have taken active steps.

We started the second brand, [ Bari ]. And then already 1.4 million customers.

And of course, in January, we do the repricing. Here we see that Italy, we have solid action.

And then, of course, we have a good network of -- the B2B business side has good growth -- which has good growth last year will accelerate this year. And last but not the least, and then I said it before, our spectrum has been on shortcoming.

Through various merger and we are able to get together full spectrum in Italy, Ireland and Austria. And then in the U.K., we are able to buy from various company.

There's a lot of spectrum in U.K., the 5G spectrum, we are the most and also in Sweden and -- in Sweden and Denmark, we are able through auction, so that our 5G spectrum now is -- at least competitive against our competitor. So that's a good thing.

So then I think all this will give us the foundation to get into a good 2022 result. And then of course, we don't -- we should look beyond 2022 and what is our target.

And of course, you see that our performance has been -- Hutchison has been both recurring income and M&A income. We derive a lot of profits to induce -- during my career in Hutchison.

So that effect will continue, but then we put a special emphasis on recurring solid net profit. And then that will be our emphasis.

And then, of course, cash flow is always on top of our mind. So that I hope that after we collect the -- close the deal with Cellnex and then our debt ratio will go to -- from a debt ratio will go below 17%, which is something that we are shooting for.

And last but not the least, I know that all the shareholders have been asking us for more shareholder return. While this is a decision from the Board, but what I can say that if we have a good business and good balance sheet, the Board will support a good shareholder return.

So thank you very much. I think this is our near-term outlook.

[Operator Instructions] The first question is about capital allocation. What is the priority of the company's allocation?

Will CKHH continue to buy back its own shares to our EPS dilution from tower sales?

I think the top priorities must be engaging in earnings and cash flow accretive businesses. For example, like telecom in-market consolidation, new retail stores with quick payback periods or the new projects under CKI in terms of new infrastructure investments.

But with the completion of the tower sale, we'll also allocate some of the capital for debt repayment and share buyback to avoid earnings per share dilution from the tower sales.

Thank you. The next question.

What is the outlook of the U.K., and will it resume EBIT growth in 2022?

Maybe Canning, you can answer that?

Okay. I think I have explained it briefly.

In U.K., the first half, first half was basically flat. But then the second half and then as the COVID situations, I think it's the freedom started.

And actually, we saw a good performance by the U.K. business.

And then the EBITDA growth is about 10% year-on-year in the second half. And also the most significant thing on 2021, the net add is -- we have the best net add in the U.K.

market. That is the gross debt minus churn.

And then actually for us, it's the best in 9 years. And so we add about 561,000 customer in 2021 in the contract -- in the contract business, which we've never seen before.

And so that our network is doing better. And then our operating execution is doing better.

You will see that we would expect that to go back to EBIT growth again because that -- the sign of -- the growth sign of U.K. business is good.

So that we are quite positive on U.K.

Thank you. The next question is still on telecom.

This time is on Italy. What initiatives will in-trade implement to reverse the earnings decline?

Okay. Canning, your question.

So basically, now there are 2 sides of the business. One is the base.

And then the base has not been doing well, especially in the first half. But in the second half, is the ordinary level.

And what we did is that -- what we have in Italy is that now we have the best network in Italy. So that what we are concentrating to do is that we will -- we have -- the progress on the B2B side has been very good in the second half.

And also, we have started the second brand, called [ Bari ]. And then that has been very successful and only about a little bit more than a year, we have 1.4 million customers, and that can -- will be able to compete on the lower side of -- lower ARPU side of the business.

And last not the least in January, we started a repricing exercise which we think we see the signals are good. And then I think this year, [ free ] will start on a good basis and then confident that Wind Tre will be much better this year than last year.

Thank you. The next question is on the retail side.

What was the reason for the EBITDA decline of Health and Beauty in China in the second half of 2021? And what are the steps to CKHH will do to reverse the EBITDA decline?

Dominic?

Yes. Okay.

Well, yes, as I said in the early part of the presentation, first half is quite encouraging, but second half was affected by this regional outbreak of COVID and also the national or nationwide movement restrictions. So that affects the customer footfall.

So the main reason for the drop in the second half is the drop in customer footfalls because of these pandemic measures. So particularly in Q4 of last year, in fact, it was the most serious quarter that we have seen statistically because we see the growth rate projected by the Chinese government or the national statistics actually fell real short.

So Q4, particularly last year was badly hit. But on the other hand, we have been doing a lot of actions in China to really to safeguard as much as possible.

We continue to recruit new members. In fact, we have been successful in recruiting members and also turning the members into O+O.

As I said, the O+O members, i.e., customers shopping with us online and offline actually got a 2.8x multiple, i.e., they spend 2.8x more than the customers that shop with us only on the physical stores. So that's the strategy.

And also to report in number terms because our O+O sales participation in China has now reached over 50%. So 50% of our sales comes from O+O.

And also the growth of this O+O sales is also over 55%. So basically, the O+O platform, that across the group and especially in China is working.

And also, we are expanding very selectively on our store network especially in the lower-tier cities where we have underpenetrated. So these are the online, the O+O and also store network expansion.

The same investor have a follow-up question on retail. Do you consider there is a structural change from China Health and Beauty retail industry and Watsons China store network in China is saturated?"

Well, in fact, the shift has...

No, please, Dominic, continue.

Yes. Sorry chairman, in fact, as we mentioned a number of years ago, the shift has started from the physical stores to online.

The consumers want more premium products. So all along, we invested in technology.

We launched a very powerful O+O platform. So that -- and also the physical store network expansion actually get a payback period even now with the lower sales performance is less than 2 years.

So we are doing, following the market, following the consumers and then offer them a 24/7 shopping experience and also expanding our store network. So O+O and quality service and network expansion.

Thank you. Next question is on CKI.

The question is, will that increased emphasis on ESG have negative impacts on CKI earnings?

Okay. Maybe I'll take this question myself.

The quick answer is no because majority of CKI's profit contributors, such as how distribution networks, gas distributor networks, household infrastructure and water utilities, they're not really significant carbon producers. In our view, the transition risk of these assets are relatively low.

These businesses have also developed net zero targets and business transition plans. Let me see, for example, our gas networks are leading the way in hydrogen transmission -- transition.

And CKI only has a very small portion of its profit from power generation business. And they are also switching from coal to gas-fired generation as well as renewables and green hydrogen.

So I'm not too concerned about that. Actually, we can benefit from this because a lot of this -- our assets will benefit from this transition, they help our customers.

As they help the customers meet these goals, and will be the enabler in renewable energy and in connecting various smart solutions. So I look at this as an opportunity rather than a cost.

So we expect to be possibly investing in helping our P&L in this area. Thank you.

Thank you, Chairman. The next question is on the retail side again.

Can you elaborate on the attributes of your O+O model?

Dominic, you can continue on Watsons. There's a lot of questions on O+O.

Yes, O+O. Yes, it's easy to say, but very sophisticated in implementation.

As I said, O+O, the platform has to connect the O+O, the online together with offline. So it's an integration rather than just a connection.

So it's unique. In fact, we -- if we look around, we are the only health and beauty retailer in the world who is adopting, investing and implementing this O+O platform.

And because of the mere fact that the O+O customers buy to almost up to 3x more of products from us. So basically, this is a very common sense, common commercial sense strategy.

And on the O+O, it's quite sophisticated. It's not just connecting them, but we have to integrate them.

What are we integrating? Let me tell you just in essence, okay?

The -- we put in this ecosystem, what we call ecosystem is our 16,000 physical stores, 120 online stores, our global 89 warehouses, our 142 million loyal customers, our [ 130 ] social media fans, our 15,000 beauty advisers. So everything has to be integrated and to enable a very smooth and seamless shopping journey for the customers 24/7.

So we want longer trading hours, 24/7 happy experience for the customers. So it is a very sophisticated and well-thought out integration that we are unique.

So -- and it's working out fine. And then there's a whole potential to have more sales and, of course, the profit because our O+O sales participation for the group is only 20% -- above 20%.

So there's a lot of headroom to grow. Thank you.

Thank you, Dominic. The next question is still on the Retail side.

What is the outlook of A.S. Watson in 2022?

That's a big question for Dominic. Continue, please.

Okay. Well, in fact, it -- of course, we are not out of the COVID yet worldwide.

But I think we have been seeing good year-on-year growth in the first 2 months. For example, we are talking about 9% year-on-year growth on the sales.

But at the same time, if you look at the EBITDA -- I must caution our analysts spent that because as last year and the year before, we have been receiving from the government support to help us during these difficult trading times. So in the year 2020, we got HKD 1.6 billion.

And then '21, we got $600 million to $1 billion reduction and this year 0. So that impact part -- that impacted EBITDA, but we are still projecting a modest EBITDA growth this year.

Before we move on to other questions, maybe I can offer our analyst friends my view on Watsons. We have just gone through possibly the biggest challenge for the retail industry in recent human history with COVID.

Most retailers have majorly dropped in profit. I think what A.S.

Watsons have shown is amazing resilience. The sector we're in, Health and Beauty show that during COVID, when we're facing store closures, manpower shortages and customer challenges, they still maintained a reasonable profit.

At the same time, as soon as the COVID measures are slightly relaxed, the company started to bounce back and show growth in profit. That shows that Watsons is a major quality asset for CKHH.

The fact that we operate and so many of our own brands, and contributing such a big portion of our profit through the O+O platform plus our own products, these 2 factors show that in a way, I use the word, show the men from the boys. So A.S.

Watsons has definitely demonstrated that. That their amazing resilience and the fact that it's a quality asset of CKHH.

Thank you.

Thank you, Chairman.

The next question is as follows. Cenovus made an impairment in Q4 last year.

How do you view the return of your investment in this company?

Maybe I can give an overview first and then, Frank, you can help me with the numbers to the analysts. I think the merger of Cenovus and Husky is a success.

I think it unlocks a lot of synergistic opportunities, both in value, in revenue and in cost reduction. Even if we take away the recent rise in oil prices, the merger is a success.

So today, it's producing about 800,000 barrels of oil a day and is 1 of the 3 biggest producers in Canada. So Frank, maybe you can help me with the numbers.

Yes. I mean, I think when we did the merger, we expected, first of all, that we would see an enhanced earnings contribution.

And we did see that, even after the write-off of their U.S. refining assets for which our share of the write off is HKD 1.4 billion.

We still had a good earnings contribution from Cenovus for the year. But it's not just about earnings.

It's about earnings prospects. And they have announced that they have achieved -- indeed overachieved their initial targets to achieve better than CAD 1.2 billion a year in synergies.

That drops straight through in 2 ways. One, in terms of balance sheet repair.

I think you've seen continuous progress with Cenovus becoming -- rebecoming investment-grade and continuing to build one of the strongest balance sheets in the business. But also very well positioned as you look forward to continue to enhance shareholder returns.

And I think they've telegraphed that very well. So from CKHH's point of view, the outlook should be for a healthy earnings contribution but also for a good cash contribution in terms of returns to shareholders as we look forward into the rest of 2022 and the ensuing years.

And the other thing was value creation. As a former Husky shareholder, essentially, if you look at the valuation of -- on a per Husky share basis that Cenovus implies today, it's already 4.5x more than it was at the time of the merger.

So the -- not just earnings contribution, moving in the right direction in terms of cash flow contribution and shareholder return contribution. But from a value perspective, it has been an extremely successful merger.

I think the market also would like to look at the fact that today, on the personal side, together with the CKHH, we own about 28% of Cenovus roughly.

Yes.

So it's an important asset for the group in general. I refer to group, as CK Group together with our personal holdings.

Thank you. Next question is on HUTCHMED.

HUTCHMED was reported to face [ delisted state ] by the U.S. SEC.

What are your views? How does the group see HUTCHMED's future?

I'm not a politician. So I'm not going to comment on the politics of it.

I'll focus on the business side of it. Let's get the facts right.

There are 200 -- over 200 companies on the list. And for HUTCHMED, it's listed first in London.

It's also listed in Hong Kong. So even in the scenario, if it's delisted in the U.S., there's still 2 markets that it will be traded.

For investors holding U.S. ADS, they have the flexibility to exchange their shares to London or Hong Kong.

So I don't know how to comment on these geopolitical issues. And actually, HUTCHMED has been doing -- having quite good progress over the several years.

And it has a deep and broad pipeline of new drugs and new innovations. The oncology drugs have been approved and marketed in Mainland China.

One of them, SULANDA, is now being reviewed for market authorization in the U.S. and EU.

So HUTCHMED, at the moment, has another 10 drug candidates in clinical studies around the world. So they will continue to invest in the R&D in the future and expand into global market.

So operation goes on.

There's one more point I want to add. There is a concern by the market that is the change of CEO, where the former CEO, Christian Hogg, retired to back to London, England.

And actually, I just want to...

We have a succession plan already.

Yes. I just want to emphasize that the new CEO that was selected has been with the company for 16 years, and he was the Chief Scientist that's responsible for developing all these successful drugs, 3 successful and then another 10 in the pipeline.

So he will be the most logical person to become the next CEO. And then it will be a seamless transition.

So I just wanted to say on the mind because...

That is part of the plan.

Thank you, Chairman. Thank you, Canning.

The next question is as follows. Did the supply chain disruption have any negative impact on CKHH [ post ] earnings?

Actually it's a positive impact. Maybe I'll take this question.

When there are supply chain disruptions, containers tend to stay in the yard longer. So it will generate higher storage income.

So we expect gradual easing of the supply chain disruption in the second half of 2022, but the ports' congestions and the high yard density, basically, containers at our container yard is likely to continue for some time and contribute positively to our earnings.

Thank you, Chairman. The next question is as follows.

What is the outlook of further growth in 2022? And do you expect any increase of container terminal handling fee?

If yes, what sort of increase do you expect?

Canning, do you want to make that projection -- prediction?

Well, we all expect our division to grow. They must gro,w, so that you will expect that the congestion should be less and then more business will come from the [ pier ] side.

And then I think in 2022, we will -- I would expect that it will be more volume-driven. So however, if the congestion is still there and then we still have storage income.

This is what we are expecting.

Okay. Thank you very much, Canning.

The next question is on Telecom. What is the outlook of pre-growth capacity in 2022 and will there be any spectrum auction this year?

Canning, Telecom, you continue.

Okay. So the CapEx in 2022 will be a significant decrease from 2021.

And on top of that, the spectrum auction will be less, which I think is only be in Austria and in Ireland. And in Ireland, it looks like that it may not happen this year.

So that on the cash side, on 2022, the CapEx -- for the CapEx for Telecom group will be much less for 2022 and the next.

Thank you, Canning. Due to the time constraint, maybe we will take 2 more questions.

The next question is, what are CKI's major focus with respect to sustainability? Are actively at net zero?

I thought we've answered that question earlier. First, it's not a problem for us, and we look at this as an opportunity.

A lot of our businesses are not carbon generators, and we are distributors, we're not generators. And so this movement will benefit us as we connect other alternatives and invest in accommodating them.

I look at it as opportunities because we have wind, we'll be looking at solar. We are already in waste-to-energy and there is an acquisition in the Netherlands, which is still subject to government approval.

But we're the only forerunners in that and we're enjoying it. So I look at it as a positive movement for us.

Thank you.

Thank you, Chairman. Okay.

This is our last question today. Our IR department will answer the remaining unanswered questions in the next few days.

The next question is, how do you build the current telecom migration environment towards in-market telecom consolidation?

Canning, you must be the person answering this finale question.

Okay. I think that in U.K., it seems to me that Ofcom migration can -- we are -- that's not final yet.

This looks like that they have a change of heart and then the number of players may not be as critical as they see before. So we welcome this.

So let's see what can happen because the in-market consolidation is our strategy. So we welcome that.

I don't think we can go on any further [ details ] than that.

Yes. Thank you, Canning.

Thank you, Chairman. We conclude our conference call today.

Thank you very much for joining our presentation.

Okay. Thank you.

I hope next year, we can see each other in person. My eyes are going dim, staring at this little screen.

Okay. Thank you.

Bye-bye. Bye-bye.