CK Hutchison Holdings Limited

Welcome. Thank you very much to attend the live webcast of CK Hutchison 2023 Interim Results Presentation.

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

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

Mr. Dominic Lai, Deputy Managing Director of CK Hutchison and Group Managing Director of A.S.

Watson Group; and Molina Ngai, CEO of Asia and Europe of A.S. Watson and Group COO of A.S.

Watson Group. [Operator Instructions] Before I hand over to Canning, please also pay attention to our disclaimer, which you can find on Page 2 of the presentation.

We can start now.

Okay. Good afternoon or Good morning for those in Europe.

And so welcome to our presentation for the first half of 2023. And it has been not an easy year.

And you just see that in the first half of the year, we are doing -- we'll follow those make onetime earnings. So that as a result, it shows we have a reduction of net profit.

If you look at the revenue point of view, but on operation, it is quite balanced. If you look at the revenue, it's minus 3% on a reporting basis.

But if you look at the local currency without the exchange and then it is plus 1% in local currency. And the net earnings HKD 11.2 billion versus HKD 19.1 billion last year, less 41%.

Basically, last year, we have a HKD 6.2 billion of extraordinary income, which we don't have today. If you take that away, and then it is minus 13% and it basically reflected the energy cost and a lot of the cost increase, especially in Europe and where the revenue is -- there's a timing difference for the revenue to catch up.

And earnings per share is HKD 2.93 versus HKD 4.98 a 41% reduced because of the -- there was lack of extraordinary onetime income as compared to 2022. And dividend minus 10%, HKD 0.756 versus HKD 0.84.

And I think this reflected the Board's confidence in the company and also because later on, and Frank will present the cash situation, it's the strong financial situation of the group so that -- and then we look at the business as a whole. And then we feel that the pressure about 10% on the ordinary business.

This is why the [indiscernible] conclusion. They do not pay attention to the lack of extraordinary income.

And -- but reduce the dividend by only 10%. That is Page 3 of the presentation.

Moving on. So if you look at Page 4, and this is the Pre-IFRS.

It is only looked at our P&L on a pre-IFRS 16 basis that is [indiscernible]. And then you can see that the EBITDA in local currency is minus 14% and then the underlying is only under 3%.

And then the EBIT is minus 20%. The underlying is minus 4%.

And of course, if you move forward to the right-hand side, the operating cash flow is plus 26%, and the debt is plus -- is less 3.5% versus first half of 2022. So that the financial position of the group is very, very strong.

And then the ordinary earnings of the group is actually -- no is quite okay. If you go to Page 5, if you look at the EBITDA on a our pre-IFRS basis is HKD 49.9 billion, almost HKD 50 billion, minus 14% in the reporting purpose and then if you look at in the local currency, it's minus 11%.

And then geographically, it comes most almost 47% from Europe and 23% from Asia and the rest of the world and then 20% from the financial income side. And then China and Hong Kong only represent 5% and 3%, respectively.

That's reflected the recovery is not as strong as in Europe in both places. And then if you look at the business side and of course, infrastructure produced 29% of EBITDA and then followed by the telecom.

And then actually, the head office division is still [indiscernible] 20% and then followed by retail and the port. If you go to the right-hand side of the chart, you can see that the water flow of the EBITDA, and then, of course, this famous one-off from last year, that is -- that basically is the income from the earnings that came from Indonesia.

And this is not happening this year. So the growth from the last year's first half to accepting that the third part, the first half underlying EBITDA is HKD 53 billion.

And then if you go across the page, you see port. And then basically, there's 1.7 billion difference is there, basically is about HKD 0.7 billion is the reduction of the storage income after they were -- and then, of course -- and there was a HKD 1.1 billion reduction from investment in an associated company, which is a shipping company.

And then the profit of that associate company dropped by more than [ 7% to 20% ]. And then it is a -- on a e-accounting basis, we have a reduction of income from there.

And then retail, and everything is good. And then I think Dominic will explain that.

Every cylinder is firing. And even China is doing better than last year.

It's just not as good as our expectation, but it is doing well. And infrastructure, on an EBITDA basis, they are doing quite well.

Actually, every cylinder is firing again. They can even cover the disposal of the 25% in [indiscernible] and then the disposal of the interest in, which account for HKD 500 million and actually the operation is very solid in the infrastructure side.

And of course, you come to the Telecom division, its show HKD 2.2 billion reduction. And actually, it looks much higher than it really is.

Let me explain to you what was the HKD 2.2 billion reduction, HKD 1 billion is basically come from FX and foreign exchange. Now basically, there's HKD 0.7 billion of this HKD 1 billion is actually an accounting issue, not a business issue because we have find ourselves in a situation where U.S.

dollar is sitting on the European book. So when they close the -- when they close their accounting and then reflects the HKD 100 billion difference between this year.

Losses between this and last year's and then although in the holding company, we repointing Hong Kong/U.S. dollar.

But however, we are not allowed to reverse that entry so there's quite a peculiar accounting situation. So there is -- and that is HKD 1 billion.

And then we received the tower money for U.K. in the last quarter of last year.

Of course, this year, we got to pay tower fee, which is about HKD 0.6 billion. And then this year, we see a huge escalation, especially in first 3 months of energy cost in Europe that account for another HKD 0.6.

So that roughly account for this HKD 6.6 -- HKD 2.2 billion of differences. So the operation actually later when it comes to the session, you will show that the operation is quite encouraging actually.

So we will deal with that. And then HAT, which is the Asian telecom division, actually, basically, is Indonesia, they have shown a much, much improved in operation in the basic business -- in the ordinary business.

The difference is only the last year, they have -- they sold their data center and recognized a huge profit. And this year, they only have to sell some towers.

The property is very small compared to the data center. Actually, the operation is good and then the profit is -- ordinary profit is 7x what they do in last year.

So that -- and you'll see that this business is doing well. And of course, we go to the Finance and Investment division, this first half year, we witnessed a decline against last year, quite a material significance in the Cenovus performance, and this is all offset by some trading profit and other by the -- and also by interest income from -- and also from our China division, the medical company.

So that this -- so that is a quite an effort to reach that HKD 1.9 billion positive against last year. And of course, you saw the foreign exchange impact is HKD 1.6 billion against last year.

So I think this summarizes the operations on Page 5. So on the next page, it's about operating free cash flow, I will invite the Group CFO, Mr.

Frank Sixt, to take us through.

Thank you, Mr. Fok.

Well, I think the picture on operating free cash flow, and we'll get to the picture as well on free cash flow in a couple of pages, is reasonably good simply because, of course, strong cash generation contribution coming from retail, but quite a bit of spending discipline but a significant reduction in spending in CKH Group Telecom, HAT, not spending as much as it did last year. Remember, last year when we did the merger in Indonesia, we invested additional funds to get to an equalization situation there.

And then in finance and investments, we just went through the EBITDA side. But interestingly, the interest income that we generate, right, in the end is significantly higher then the incremental interest expense cost that we're paying due to rate changes, and we'll get into that in a little bit more detail.

So operating free cash flow on the left-hand side, you'll notice a couple of things. I mean one is that the contribution from ports and the contribution from infrastructure.

Ports significantly down from where it was, infrastructure, also down from where it was last year. Everything else about the same, same, right?

And the reason why the finance investment and others looks better than it does on the previous slide just on the EBITDA basis, right, is, of course, that the share of EBITDA of Cenovus is not what we take into account from a cash flow point of view. What we take into account is the dividend is distributed to us, which have been going up.

And of course, the warrant sale, which was in effect the return of capital were also. So with all of that, finance and investment was able to, from a cash flow point of view, significantly offset at any of the adversities relative to the first half of last year.

I don't think I'm going to go through it in detail. I can certainly answer any questions.

If you look on the right-hand side, as usual, you have a graphic illustration what the divisions are killing and what they're eating. So what is their real operating cash flow profile right after CapEx and investments?

And you see right away the lower profile ports this year. That's coming from 2 reasons.

I mean one is that ports is actually spending quite a bit more by way of CapEx this year than it has in prior years and certainly in the first half of last year, and that's because of the investment phase that we are in, in Egypt, which no doubt Canning will be talking more about retail, huge contribution to operating free cash flow. Infrastructure, likewise, quite solid.

CKH Group Telecom. I think we've basically that talked about and we'll be talking about in greater detail later.

HAT, as I say, better, but simply because it's not spending as much as we did in the first half of last year and financial investments, we have basically covered. So if we go to the next page, which takes you from operating free cash flow down to free cash flow.

But the first thing that you find is, obviously, you take away from the operating free cash flow interest and taxes, right? The interest was about HKD 4.4 billion.

The taxes were about HKD 1.8 billion out of that HKD 6.2 billion. Working capital changes, this is kind of interesting.

But basically, working capital was quite stable, right, all around the group. There was one major movement relating to some net equity hedges in CKI, which were in the money in the first half of last year and out of the money in the first half of this year.

So these are things that affect cash flow because you post collateral against the hedges or you release collateral from the hedges but at the end of the day, it's all just mark-to-market stuff. It's not real cash going one way or the other.

Similarly, the tower asset disposal via key settlement was not a surprise. We had actually received that money from the buyers, from Cellnex in Q4.

And it's just that we paint it out, right, in Q1. So again, that's not really as adverse as it looks.

We did buy some telecom licenses. We bought licenses in Ireland which I'm sure Canning will go through with you, but that was basically accounts for the $1 billion odd of cash flow movement on telecoms licenses.

And then we received proceeds of around EUR 300 million, which is the HKD 2.6 billion when we formed the joint venture in Italy with Iliad. So if you look at the year-on-year changes, generally, we have a little bit more EBITDA from our subsidiaries.

We have a little bit less dividends coming up from associates and so on. But our interest bill, right, as I say, was higher, but it is less than the interest income contribution on our treasury assets, which is very pleasing.

We are benefiting from a period of some immunity against rate hikes, right, because of the way the books balanced, working capital changes, as I say, most of the group totally under control, some impact coming from the derivative settlements, well, the collateral requirements right in CKI mark-to-market movements. CapEx overall, right, less than in the first half of last year.

But the big number on investment in associates and joint ventures is basically coming from the fact that we paid last year. Some $3 billion odd to equalize with Ooredoo.

Our interests in Indonesia, in the telecoms business in Indonesia. The telecoms licenses we've talked about, that's effectively all.

Ireland, the proceeds we've talked about, that was on the Iliad joint venture and the VAT settlement. We've talked about.

But in the others, we also got a significant loan repayment USD 200-some-odd million from IOH from the Indonesian telecom subsidiary. But now we have set up though a receivable for the Cenovus warrant proceeds, which will be coming in, in the second half.

We're at the latest in Q1 2024. And finally, if you put all of that together and we go to the next slide, our financial profile looks pretty attractive.

I'll just give you a few data points. Obviously, on the top, the net debt improvement relative to the first half is a modest deterioration relative to the second half, but that is entirely because of volatility, right, particularly in the euro and sterling exchange rates.

Remember that from a net debt point of view, our debt is weighted towards euros, whereas our cash is weighted towards U.S. dollars.

So at June 30, the number worked out to 17% last week, given the favorable movements on the U.S. dollar between June 30 and last week, we were at 16.7%.

So the currency volatility gets reflected in here and the sensitivities, you'll find spelled out in the statement of liquidity and that's attached to the results announcement. In terms of our treasury operations, as I said, we really did benefit quite a bit from the increase in rates.

So on our managed funds, which include slightly longer duration treasury portfolio, we had a return of 2.45% versus 1.07% in the first half of last year. On, of course, our deposit base, which is much larger than the managed fund base, we had a 4.73% return versus 0.7% in 2020 -- in the first half of 2022.

So all in, we had a very significant yield pickup on our liquidity portfolios which is good to see. In terms of debt maturity, not much to say.

We've been refinancing on a fairly routine basis. It is ticking up our average cost of debt, which was 1.8% at June 30 last year, 2% at the end of last year.

That is now 2.9%. And our maturity is relatively steady.

It was 4.8 years at the end of December '22. The average maturity now is 4.2 years.

Our liquid assets not much to comment on there, rating is stable. So -- and I think we're again, we will feel the impact of increased rates and really over time as we refinance per the maturity profile that you're looking at on the left.

But for now, we are still 70% in fixed rates and 30% in floating rates. So the impact is gradual.

And I would say we have something of a safe harbor to deal with the rising rates environment. And with that, I'd give it back to Canning to discuss ports.

Well, pause in the first half year, you are witnessing. The overstocking of inventory of the well situation.

As a result, the container movement actually have recorded a 7% downward movement from last year to 39.3 million TEU. And if you look at the top left chart, you will see that everything is quite negative, except for the box in China, and basically, that reflects the situation in China in the first half of last year were in Shanghai, in the Shanghai part, where the whole Shanghai was almost stopped for 2 months.

So that actually, the continued movement in the first half is actually quite 7% low against last year. And of course, you see the EBITDA part is HKD 6.5 billion and a 21% reduction from last year and 20% is rate fluctuation.

But again, the EBITDA mostly come from Europe and Asia, and then both the HPH trust and the China side make up only 9% and 5%. So let's move to the right-hand side to see the water flow actually is all negative.

Basically, it's based on 2 things this year. This year, the TEU movement, although it's negative, but however, we witnessed an increase in tariff.

There is a [indiscernible] on the container part. It doesn't really have -- except for the Trust, this doesn't really affect the business so much.

If you go to the water chart on the Trust side, you saw the EBITDA changes of HKD 199 million share of it. On that, basically, storage income comes to play a lot -- about 60% of that is storage income and 40% is on the traffic.

And on the mainland side, it's almost the same because the improvement come from Shanghai. So that you can see almost the same as last year in the Mainland China side.

But then on Europe, and you see a HKD 317 million negative against last year EBITDA. Basically, this is due to storage income.

The traffic is actually quite -- the income from the TEU, although it's lower, but it's because of the increase in tariffs. So that is quite okay.

And -- but then because the storage income which comprise of 10% of our revenue, saw a 28% drop and if you move to Asia, Australia and then what you see is that Mexico continues to do well. They have a lot of landside income, although the traffic did drop a little bit, but the landside income covered and they have a good year and better than last year.

But however, it is offset by the reduction of business in Australia and also, we exist in Tanzania. We finished our concession, and we are not able to renew it.

And also, we saw some storage income from Panama and all those parts a little bit less, not that much, but a little bit. So all in all, you see that this division should be HKD 236 million negative.

And then not the least in the corporate cost, and that's reflected our share of EBITDA in an associated company, which we invested in, of course, that particular company is a shipping company and you witnessed that the [indiscernible] of shipping company dropped in a big way. Of course, it's reflected in the EBITDA and that therefore it reflected in our financial.

So this division is doing quite well. We still have [indiscernible] in 52 parts.

And then we will have new facilities in Egypt and then we will be open. So no.

It is forecasted that we feel that a little bit more optimistic in the first quarter. We would hope to see that the TEU will continue to pick up and you will see better results in the second half.

And then let's go to the retail session, and I will ask Dominic to report on this.

Okay. Well, thank you.

Thank you, Canning. We are on Slide 10, retail, we talk about the store numbers.

So our store numbers stood at 16,164 at the end of June, 1% decrease year-on-year and flat versus end of December 2022. We continue to open new stores in good and specific locations and close those nonperforming stores with our future upon lease expiry.

So this is our store rationalization strategy, which has go on for a number of years now. For the first 6 months of this year, we have opened 282 new stores while closing 260.

The store network split between Asia and Europe is about 50-50. And the average payback period of the new store open is around 11 months.

So it's a very quick payback versus average lease length of, say, 5 to 8 years. On EBITDA, EBITDA for the first 6 months is reported at HKD 7.06 billion representing an increase of 17% in reported currency or 20% in local currency.

And that the EBITDA split is 38% from Asia and 62% from Europe. Now let's move to the EBITDA water flow chart on the right, which shows the year-on-year EBITDA change of each division in Hong Kong dollars.

First, for Health and Beauty China, Here, we see $185 million or 30% increase, which represents a good recovery from the Pandemic restrictions in China. Next, for Health and Beauty Asia, the increase of 27% or HKD 372 million mainly comes from Thailand, Philippines and Malaysia.

These businesses are doing well in terms of footfall and all the operational metrics. For Health and Beauty Western Europe, this increase is 19% or HKD 529 million.

This has mainly come from U.K. Rossmann, Germany as well as [indiscernible] in the Netherlands.

So it's mainly from U.K., Germany and the Netherlands. For Health & Beauty Eastern Europe, the 16% or HKD 152 million increase mainly comes from good trading results in Rosman, Poland.

Overall, so the Health and Beauty business is growing nicely with EBITDA growth of 22% in local currencies for the first half of this year. For other retail, we see a drop of HKD 38 million, which represent a very challenging half year PARKnSHOP the supermarket business versus last year when people last year dined at home and worked from home because of the 5th wave of the COVID.

Nevertheless, the EBITDA drop in PARKnSHOP was partially offset by a strong recovery in our China beverage businesses. So the first half underlying EBITDA is HKD 7.23 billion, a 20% increase over the same period of last year.

However, for the strong Hong Kong dollar, which Canning also mentioned, we recorded a foreign currency translation loss, not a cash loss, translation loss of HKD 174 million, resulting in a reported EBITDA of HKD 7.056 billion, a 17% increase over first half of last year. As for the outlook for the rest of the year, Health and Beauty Asia is expected to show strong growth while Health and Beauty China will continue its recovery.

Health and Beauty Europe is expected to continue delivering strong performance. So meanwhile, we continue to drive our 3 important strategic pillars, namely O+O, enhancement of our CRM programs and also increase exclusive sales, i.e., our own brand products as well as exclusive products we want to increase its sales participation.

So now I pass the general picture on retail, and I'll pass to Frank to talk about our infrastructure business.

Yes, there's obviously not much to say about infrastructure solid as a rock, and you see that in the performance on Slide 11. Honestly, the variances in terms of reported NPAT, reported EBITDA are marginal, and I'm sure will have been covered in the results announcement.

I think the 2 important messages were that the major regulatory resets were completed in 2023. So the regulatory certainty for coming years is very high and that means that inflation benefits both on the revenue side and also on the asset base side under the regulatory schemes that have now been reset.

So expect good stability from the existing base of the assets. And I think the key message was the continued increase in dividend that was announced with CKI's results.

I think that says everything right about the confidence that we'll have in this business. So I'll pass it back to Canning to talk about telecommunications.

Well, on the telecommunication, you witnessed a first half year is basically a runoff cost increase, 1st of January, you witnessed that the human resource cost increase, [indiscernible] cost increase. And then because of inflation, you've got a lot of rental increase on other sites and others.

So it's a change between a cost increase happened right from the 1st of January versus all the repricing effort we put in, try to catch up with the costing. And if you see that as a result, the revenue, actually, we saw that it is a 1% increase in local currency in the operations.

And then if you take into foreign exchange account is minus 2%. And then the EBITDA is HKD 10.26 billion and which is 12% less than last year and 10% in the local currency.

So if you go to the water flow chart, basically, the first item is contribution from tower asset because we sold the tower last year. So in order to make a comparison, we take away the tower expanse we pay in U.K., which is not existing in last year to make it comparable.

That is extra HKD 613 million of expenses. And then if you look at all across and then it is basically a change of revenue versus expense because this year, you witnessed inflation in the first time, especially in Western Europe that the inflation will go, especially in energy.

And then you are talking about going up several times in several months. So that in U.K., actually in the next -- you will see that in the U.K., the revenue actually go up quite nicely.

But however, the cost of inflation actually starts right from the beginning of the year so that our pricing efforts actually come in, in April, which you will see in a later page. So the same thing happened to Italy.

You saw that Italy even make a slight increase because the base is doing very well. The repricing is doing well.

And then, of course, we have to overcome. Actually, Italy is a different problem.

The problem is that our marketing income so far is the roaming income from Elliot continues to reduce. And then we have to make that up and then catch up with the roaming.

However, Italy has a strong year -- strong half year, and then they recorded a positive EBITDA growth. And Sweden is the same thing.

And it's growing quite strongly, and then you saw a positive there. And then, of course, on Denmark and Austria and Ireland, you saw that the repricing effort come later in the first half, and it cannot cover the cost increase.

and they show the negative EBITDA. And of course, there's a translation loss of HKD 200 million in foreign currency exchange.

Okay. And then let's go to Page 13.

So you see the active customer is still progressing well against last year but 0.5% increase. And then on this year, -- I think the important part is the middle column.

And on this year, we see it because of inflation, because of energy prices, so that propose a huge cost increase to us and then one of the main things we do is to do the repricing on our base. And so that we have a revenue increase to offset those causing and then if you can see that U.K., we do it in April.

In Italy, we have been -- we started in February and end in April. And then in Sweden, we increased the price on the handset.

On Denmark then Austria and Ireland, we started new pricing. But you can see the time lag at region what we can do on price increasing versus the energy versus the cost increase.

And in this column to explain to you the story of the first sample to telecom. Of course, we continue to build out 5G, and you will see that actually, the 5G has slowed down, and then it administered the CapEx on the next page is being lower than last year.

So let's go to Page 14. It's the whole chart a lot of figures.

And then I just want to highlight several lines for you. And then on the EBITDA line, you saw that there's a decrease in U.K.

and then decrease in Denmark. And although you can see that as we described last year.

Actually, there are some good things happening. And if you look at the margin line.

Actually, you saw a good increase in the U.K. from GBP 743 in last year to GBP 808.

Actually, 60% of the increase has come from repricing from rate increase, which is very, very happy about that. In Italy, you saw a reduction in margins by about EUR 30 million.

Actually, this is mostly due to a reduction of income from Elliot, okay? And then it's to the extent of about EUR 40-ish million, but it was made up by some repricing and then some -- we are working very hard on the basis to produce other income.

And if you go across the line and then Sweden, you saw a nice increase in margin. And then in Denmark, show that there is some nice things happening.

And then, of course, the thing that I am quite happy about is because of reported D&A ,last CapEx line, is sort of -- it is a positive, okay? And then we have been trying to work towards that CapEx towards depreciation.

I think this is the first time for a long while that we can contain our envelope within the depreciation figure. And of course, if you go down the next line, EBITDA less CapEx is a positive figure, okay?

So with that, I will go to Page 15. So I will cover the telephone side, and then I'll let Frank cover the energy and then HutchMed side.

And then I think Hutchison already do -- in those assets already to Hutchison, very good things happening, the synergies happening well. And then this year, profit is not as high as last year because of onetime item.

You take away the onetime item. The profit is actually 7x what we have last year.

And the gearing is getting lower and actually continues to pay a dividend to us. So the dividend is similar level to last year, which is very good.

So not last but not the least, the share price actually increased quite well after we -- when we came together, it's about [ 5,000 to 6,000 now it's about 9,000 ] Indonesian money. So it is working the merger, the magic of merging is happening.

And then on TPG, I think it is a company, again, it's doing quite well, continues to pay dividend. And of course, they have an announcement recently about -- we have some approach from a fund above our fixed line -- our fiber-based business.

And then we are still studying that. So that all these 2 companies after March has been very successful from a loss situation to a profit situation and then loaned more cash and get dividend and the business improving, okay?

And Frank, can you take..

Sure. Well, I mean, obviously, both HutchMed and Cenovus report their own results.

So I'm not going to dwell on them. I think significant events in HutchMed was a successful out-licensing for optimum cash proceeds of USD 400 million of an exclusive license for the fruquintinib discovery drug, which they licensed for sale outside of China, and that closed in March of this year.

I think that was a very, very good news. I think they're very much on a plan to becoming a self-sustaining business as opposed to a business that's always looking for the next round of capital raise in one form or another or whatever nondiluted capital is available.

And I think that's also good news. So I think they're being well run and have shown good success and are on the way to developing as a fully self-sustaining business.

For Cenovus, of course, you'll recall, Cenovus had a bad quarter at the end of last year, and those travails persisted through the first half. Nothing significant to note, right, in the upstream or prices were just way below what they were last year, but some significant issues which they've reported on in terms of their downstream assets, including delays and bringing on the superior refinery, some unfortunate operating issues and need fatalities at the Toledo facility, turnaround issues earlier on in the year at the other facility, Lima in Ohio and then to add [indiscernible] in the operated refineries.

There were also some issues. I think the good news there is that as far as we can see, next certainly taken the view that those issues in the downstream are pretty well behind them at this point.

So we can have a reasonable, I think, expectation that the refining complex will be running at its nameplate capacity in the second half which should give us a significant boost. I mean year-on-year, Cenovus' contribution to our earnings, it was reduced by HKD 2.5 billion that, I think by the time we look at it at the end of the year should be significantly less.

Of course, they have increased their base dividend which we're very pleased with. We had a return on capital on the sale of the Cenovus warrants to Cenovus during the first half.

And in addition to that, they look on track as well, and I think they've announced this to reach their debt threshold to reduce their net debt to HKD 4 billion by the end of the year. And that being the case, that will open the door for variable dividends as well as share buybacks going forward.

So hopefully, we are through the worst of it there, and we get a better contribution from an earnings point of view and an opportunity to continue to get better contributions from a cash flow point of view. I'll move on very quickly to Slide 17, which is our efforts on sustainability.

I think you've all seen that we have announced our commitments in terms of greenhouse gas emissions reductions. The one thing that I would say is that every thing that we announced is backed by plans that make us believe that it is imminently achievable, and we are definitely on track as at this out to meet that commitment.

So reducing Scope 1 and 2 emissions by 50% by 2035 against our 2020 base? And over time, we believe that we will be able to find the right path to a net 0 target.

The rest of our sustainability efforts, I think, are going really very, very well in a circular economy, good places to work, et cetera. And indeed, we got an upgrade from MSCI, in July.

We kept our BBB rating and they moved us up from a score 4.4% to 5.4%. So I think everything in terms of the company's efforts on sustainability is on the right track and unfortunately being recognized, just by way of reference, we -- during 2022 full year, we spent over $1 billion on stuff that qualifies green spend.

A lot of that in CKI, of course, a lot of it in the Ports division where everything that moves in the ports that get replaced gets replaced by something electric or better. And that will be the case for the foreseeable future.

So that's all I would say on the sustainability front. I think that takes us to the Q&A session.

Our chairman has joined us. So Victor, can you take over?

Yes. Thank you.

We will now begin the Q&A session. Once again, please feel free to put down your questions in the chat box.

The first question is as follows: there was a lot of hope for business as the world emerges from the pandemic restrictions, but geopolitical tensions and inflationary pressures have persisted for quite an extended period. How is the growth dealing with such adverse situations?

Our group is actually built for dealing with such adversity and volatility because of the diversity of our portfolio actually allows us to ride out such turbulences. Business diversification enables us to maintain a more stable financial performance during cyclical times.

It is actually a basic investment principle to not put all your eggs in one basket. While the Group is vigilant in managing the short terms issue with diligence and perfectionism.

We're also maintaining our long-term objective of pursuing value accretive transactions for our shareholders. But these transactions take time.

And because of the group's stability and strength, we can and will continue to pursue such initiatives. In local currencies, actually most of our business units are performing well.

They are making healthy year-on-year progress while managing volatile commodity prices and inflationary pressures. For instance, we expect revenue increases from pricing initiatives in the Telecom division in Europe and quite robust performance in the Retail division are expected to contribute to better recurring operational results in the second half.

I'm sure you understand that in inflation, there's quite a bit of time lag between inflation effect on cost and the ability for us to charge more in revenue. There's usually about a 6-month to up to 1.5 years depending on the regulation on this time lag.

Going back to that question, moving back over the last couple of years, we have faced actually quite unprecedented business challenges. And I think we can say that we have weathered the storm well.

We have maintained a strong liquidity and financial profile, not even stronger and continue to make progress. Thank you.

Thank you, Chairman. The next question is on our capital allocation.

What are the focus area of the group's capital allocation is shareholders return one of the considerations?

We'll continue to explore long-term value-accretive transactions for our shareholders and deploy capital in the way they can enhance earnings per share and cash flow per share while maintaining our financial profile and liquidity. We did not have any major acquisition in the first half of 2023.

Capital was mainly allocated towards organic growth of the businesses, which provide accretive returns to the company. Examples are, we have extended our 5G population coverage but at the same time, CapEx was lower than last year.

We have spent higher CapEx for ports and retail as we're investing in new port in Egypt and opened about -- correct me if i'm wrong, Dominic, about 300 new retail stores globally. We're also closely monitor the macro-environment and making our investment decisions to determine the appropriate returns to our shareholders.

Thank you.

Thank you, Chairman. The next question is on retail.

What drives the strong double-digit EBITDA growth for Health and Beauty in Europe despite the cost of weaken prices?

I should let Dominic answer that.

Okay. Thank you, Chairman.

Yes, Europe is doing quite well. If you look at Europe, the consumer spending for our product lines remain very strong and the cost of living prices actually has benefited our own brand and exclusive sales.

For example, in the U.K., our own brand sales growth was more than 20% in the first half because we are a market leader, and we have a board range of mass health and beauty products, including our exclusive products, which are competitively priced, and nicely packaged to meet customer demand in this more challenging economic cycle. So all these initiatives led to a 10.3% store sales growth in Western Europe.

And at the same time, we drive productivity. We continue to drive margin improvement, leveraging our CRM programs accelerating our own brand development and sales and focus on productivity improvement across all area of the business because the inflation is with us.

So we have to manage the cost very carefully because it's not always that we can pass all the cost increases to the consumers, although we try to and so far successful. Thank you.

So Europe is doing well.

Thank you, Dominic. The next question, do you think that the recent EU court of [indiscernible] of the general cost announce decision on the three U.K.

O2 case will have adverse impact on the proposed three U.K. for the conversion?

Canning, do you mind taking that question?

Sure. Not at all, actually.

The joint venture between three U.K. and Vodafone is subject to approval by the U.K.

Competition and Markets Authority, which we call them CMA. Decision in Europe has no bearing on CMA's review of U.K.

Vodafone and is completely different transaction. The CMA will examine the transaction in light of current market circumstances.

We have changed substantial [indiscernible]. Actually, Ofcom's most recent public statement say that mergers should be examined in light of the specific circumstances and not the number of operators, and this is a total change of position from Ofcom.

So what do we do? We have begun to engage with the CMA on the transaction, and we are confident that they will see the benefit that this merger will deliver for our customers and for competition and for U.K.

as a whole. Thank you.

Thank you, Canning. Next question is the 19% decline in CapEx compared to first half of 2022 a good proceed for the full year spending?

Canning, maybe you can continue on the telecom questions?

Okay. Actually, as I said before, the 5G spending investment was peak in 2022 for some of our operations.

And then actually, with our asset-light strategy, this portion of the tower assets and real network sharing in Italy, we expect that the CapEx for 2023 will continue to reduce as compared to 2022.

The next question, CKI announced an increase of dividend, are you confident in the future of the infrastructure business?

Maybe I will take that question. I cannot do profit forecasts.

But in the age of high inflation and uncertainties, infrastructure assets with the steady income and cash flow are more valuable than ever.

The next question is on retail. How do you see the sales performance in China in the first half?

And do you consider that Watson's China store network is saturated in light of the current customer shopping [indiscernible].

Dominic, why don't you take all the questions on retail? You are the expert.

Okay. Okay.

Thank you, Chairman. Okay.

In the first half, there was a decline in footfall in China, understandably so, but offset by strong online sales leading to almost flat sales performance in local currency, which we reported. And our strategy regarding our sales online and off-line, we continue to grow online sales.

And at the same time, we need to provide excellent service in stores such as smart service in testing and all these services, which make us very unique in the eyes of the customer for the shopping experience. So as far as the network is concerned, we have almost 3,800 stores in China.

The store network itself is a very important part of our O plus O strategy where we offer our customers a seamless experience of shopping across both off-line and online channels which also provide customers convenience of click and collect, i.e., buy online, collect in stores or delivered directly from our store network. So the physical store or the off-line stores are very important as part of the O plus O strategy and we budget to open over 300 stores this year.

We -- based on very stringent financial model payback and focusing on quality, not just quantity. Thank you.

Thank you, Dominic. The next question is on telecom.

What were the main drivers of the stabilization of Wind Tre's earnings?

Canning, can you take that question? Thank you.

Actually, in the first half, we witnessed a further decline of wholesale income, particularly from earlier. But however, which is quite significant.

But however, EBITDA remained at a similar level as last year. How does that happen?

It is because we have recorded an increase income from the customer base, not only that the base did not decrease but increase basically from customer value management and also from repricing exercise that we do. And of course, our joint venture announced in the beginning of the year with Elliot on the rural network, give us some cost savings and also the team has been working very, very diligent on cost.

So all this to get a contribute a 60% increase in Wind Tre's EBIT. Thank you.

The next question is on the port side. What is the outlook of container throughput performance in the second half of the year?

I mean the throughput declined in the first half was mainly due to the high inventory level in the U.S. and Europe, which was not cleared out as quickly as originally expected.

And also the very low manufacturing operating levels in China. We expect a high inventory situation will gradually ease and higher throughput grow possibly in Q4.

Overall, 2023 full year throughput, I think we expect it to be quite flattish compared to last year. Thank you.

.

Thank you, Chairman. We have several questions on the retail side, so I just put them together.

What was the sales participation of online sales in Health and Beauty China and ASW as a whole? How was the profit margin compared to offline sales?

And what is the expected growth store opening in 2023?

Yes, we have O plus O model. So we don't drive online separately from off-line.

So we drive them together so that they have a seamless interface. So we -- what we measure is the O plus O sales participation.

And in terms of Health and Beauty China, the sales, the O plus O sales participation exceeded 50%. And also talking about the margin with the increase -- online and off-line margin, we focus on the home brand and exclusive products so that the margin of our online sales is similar to that of off-line.

So online and offline are similar margin. So we also want to emphasize that we do manage our online margin whereas many other few online operators may focus on sales.

So we focus on top line and we focus on bottom line for our offline and online sales. So as far as the store opening plan this year because this year, we have returned to normality, so I will expect to return to our store growth momentum to pre-COVID levels.

We used to open around 1,000 new store growth per year. So this year, we expect to return to that level of new store opening.

Thank you.

The next question is what is the long-term plan of an open shares after the disposal of [indiscernible]?

To be very careful. I mean, CK Hutchison is not the operator of our oil and gas business in Cenovus.

Our investment in Cenovus was part of the diversification and provides us with a natural hedge for energy cost increases in other businesses. We're not planning to reduce our interest in Cenovus at this 5 minutes.

The lockup period which applies to our shares and did not apply to the warrant repurchase transaction will fully expire in January 2026. Thank you.

Thank you, Chairman. The next question why did the company not buyback the shares in the first half?

Well, we wanted to conserve more cash in view of the uncertain macro-environment. We may resume that in the second half.

The pace of the actual buyback is opportunistic and will depend on market conditions.

Due to the time constraint may be we just have 2 more questions. Okay.

Next one, how was the performance of storage income and container shipping line business in the first half?

Storage income dropped by 28% in the first half 2023 compared with the same period last year due to the easing of supply chain disruptions and worldwide port congestion but this is within our expectation. Large storage income is not a normal part of operation.

First half 2023 EBITDA contribution from the ports associated company in container shipping businesses dropped by 72% compared against the same period last year due to the sharp decline in freight rates, both of which were the reason for the reduction in performance. Thank you.

These should be -- this should be quite obvious in the numbers. Frank, correct me if I'm wrong, if I mention any of these numbers are different from our report.

The basic number should be with it in our earlier analysis. Thank you.

Yes. We will have our last question.

Our IR department will answer the remaining unanswered question shortly. The last question is, how are you progressing towards your current greenhouse gas emissions reduction targets?

Now this question I need Frank's help.

Thank you, Victor. Look, as I said before, our medium -- our announced target in terms of decarbonization is to reduce emissions by 50% by 2035 as a Game state 2020 baseline.

When we announce a target, it's basically because we have a plan that we believe to achieve it. Just for information for 2022, we reduced our emissions by 7% as against 2021 and 9% as against our 2020 baseline.

So I think we're progressing well and on track, and we are confident of the long-term trajectory of meeting our targets and indeed in due course, revising those targets favorably.

Thank you, and this concludes our live webcast today.

Thank you.

Thank you.