Earnings Transcript for 0019.HK - Q4 Fiscal Year 2020

Operator: Good afternoon, everyone. Welcome to the live webcast of the Swire Pacific 2020 Final Results Analyst Briefing. We apologize that Mr. Merlin Swire, Chairman of Swire Pacific, is not physically present here today. He's self-isolating at home out of the abundance of caution as he has been in contact with the potential closed contact of a confirmed COVID case. Instead, he has dialed-in for this session. Also attending the briefing today is Ms. Michelle Low, Finance Director of Swire Pacific. Merlin and Michelle will first take us through a detailed look at our results for 2020. Over to you, Merlin and Michelle.

Merlin Swire: Okay. Well, thank you, and welcome, everybody. I'm going to start just with a brief review of what's been a pretty turbulent year for us as for others, and then talk a little bit more about how we're executing on our strategy of focusing on Greater China. Michelle will then talk about the financials in a bit more detail. We'll briefly cover the divisional performance, and then we'll be ready to go for questions. Next slide, please. So as you can see, we had an underlying loss for the year of almost HKD 4 billion, a big swing from the prior year, where we've had a number of one-off gains on disposal. On a recurring basis, we were also marginally loss-making. Next slide, please. So on the dividend, despite this challenging year and the losses we've made, we are committed to continue paying a dividend, and you can see we're planning to pay HKD 1.70. That is a big reduction on where we had recovered to last year. We know that's painful for shareholders. But I would say that insofar as our dividend policy says that we will pay out approximately half of our underlying profits over the cycle, you can see that taking the 5-year average of dividend payouts, with the dividend that we're paying this year, that average is 59%, i.e., we are paying out ahead of our policy through what is a difficult period. Next slide, please. We've seen this slide before, not a happy story. Return on equity for the year, negative 4.1%. Almost all of that comes in either the noncash or nonrecurring items, and I'll break that down later for you. But the effect is to take our 5-year average return on equity down to 4.7%, which is obviously an unsatisfactory position. Next slide, please. So I'm just going to spend a little time on this because I think it tells the story of the year as clearly as we can. Left hand bar is shareholders' funds at the start of the year and the right-hand bar shareholders' funds at the end of the year. And just focusing first on the the return on equity element that leads to the minus 4.1%. On the left section there, recurring profits, you can see that the resilient performance of Swire Properties and the robust performance of Swire Coca-Cola was more than offset by Marine Services and by the Cathay Pacific losses such that our recurring profit was mildly negative. We then had, in the aviation sector, on top a number of restructuring costs and asset impairments. That's a big chunky figure. And in Marine Services, another very big impairment on the fleet after a big setback to the market earlier on in the year. On the property valuations, again, there's been quite a lot going on here. You can see that statutory gain of HKD 1.3 billion on disposal of Cityplaza One and then some losses in our Hong Kong Property portfolio's valuation, that HKD 4.2 billion splits broadly evenly as between our office portfolio in Pacific Place, which has been under pressure, and our retail portfolio across Hong Kong, which has been also under pressure. In the Chinese Mainland, we saw some positive valuation gains despite the troubles that COVID brought, and there've be 1 or 2 other small adjustments there, too. So that's where the 4.1% comes from. If you look at the translation differences line, I mean, this is a relatively encouraging story, it reflects the strengthening of the renminbi through the year, and it reflects the growing size of our Mainland Chinese portfolio, both on the property side, from which the majority of these figures come, but also on beverages and other businesses that we have in the Chinese Mainland. So if you put all that together, before the payment to shareholder of dividends, the the total reduction in shareholders' equity was 2.6% for the year, which clearly is disappointing. But I think given the exceptional nature of the year, it is far from disastrous, and personally, I think it's a creditable performance in the circumstances. I should say that the core operating cash flows of the Swire Pacific group have remained very resilient through the year. Next slide, please. So I think you saw the Cathay results yesterday and a lot of details provided there, which I won't repeat here. Just to say that the refinancing that was put together was very substantial, HKD 39 billion from the Hong Kong government. HKD 39 billion as a refinancing in June, which included the Hong Kong government's investment in preferred shares. HKD 6.7 billion earlier this year in the way of convertible bonds. And that has put Cathay in a very strong liquidity position to weather the storm. And Swire Pacific's contribution, along with other shareholders, we contributed HKD 5.3 billion to the rights issue. I should say that the preference shares came with warrants and the convertible bonds also have a convertible element evidently. If all of those convertible elements do convert, then the dilution effect for Swire, which wouldn't take effect for 5 years, would be to reduce our shareholding from 45% to 38% and for our partners, Air China, their shareholding will reduce from 30% to 25%. So that's the financing picture. And I think Cathay has put itself in a strong position as it could in the circumstances. The restructuring that was done last year was very painful. But it has led to a position where Cathay's cost base is considerably lower than it was. And I think it's in a good position to come out strongly when the market allows it to with a streamlined business built around a 2-brand strategy, Cathay Pacific as the premium carrier, Hong Kong Express as a low cost carrier. And we certainly remain confident in prospects for the business in the medium to long term. Next slide, please. Well, this is one of our core principles, which we state every year, and I only report

Michelle Low: Thank you, Merlin. And I want to draw to your attention to the revenue number, which, for this year, we have reported a 7% decrease. But the bright spot is beverages. It has recorded a 4% increase. And it's very encouraging. And at the same time, the cash generated from operation remained relatively resilient at HKD 15 billion. This is a snapshot of the results by division, and we'll go through the divisions 1 by 1 later on. As Merlin said, we have a good liquidity position and financing position. The net debt at the end of the year was reduced down to HKD 39 billion, representing 12.2% gearing, one of the lowest since 2006, and we are very pleased with this status. And also, the note that the cost -- average cost of debt has shown an improvement, given that there's a good -- sorry, some good arrangement which we have done. Relating to the balance sheet strength, we have HKD 62 billion headroom at the end of the year, of which HKD 33 billion relating to Swire Properties and the head office and other divisions remain very resilient and strong in terms of its headroom. And this is very important from our perspective to maintain such a strong liquidity position because we will be ready to invest when the right opportunities come. And in terms of the profile, maturity profile, it's relatively well spread. That said, we are still in process with the discussion with banks to extend some of the tenure for the facilities. A very quick snapshot of the commitments that we have had at the end of the year, in total, is HKD 27 billion. And as property is always our sort of biggest spender of our capital commitment is accounting for 70% of the commitment. And you'll note that there's a HKD 9.2 billion new commitments relating to the INDIGO project, which Merlin has mentioned. And HAECO has also included in the capital commitment. Commitments to spend relating to the new airports in Xiamen. And also beverages, there's continuing investment in terms of property assets for the logistic infrastructure, merchandising equipment and also digital capabilities. We thought this is very important to continue to drive their business for beverages. A very quick overview for the properties. In fact Swire Properties has announced their results, and they also have a very thorough analyst briefing. Just a few highlights

Merlin Swire: Yes. Sure, Michelle, thank you. Look, I don't think I'll add to what I've said already on Cathay and what was said yesterday, but just to talk briefly about the HAECO Group. I mean, clearly, HAECO has been heavily affected Cathay by the decline in aviation demand. You can see revenues for HAECO down 28%. The business still made an attributable profit of HKD 96 million despite some impairments on some of its assets and some of its spare parts. But if we move to the next slide, we can see more of a breakdown on the recurring profit, you see that figure of HKD 370 million. Now clearly, all of the businesses in the HAECO Group showed declines over prior year of 1 type or another. HAECO Hong Kong, HAECO Americas were both loss-making. And indeed, in those cases, the losses would have been considerably greater had it not been for government support in both Hong Kong and the U.S., which totaled HKD 600 million in 2020. And of that, for the HAECO Group in Hong Kong, there was HKD 324 million of support under the ESS. And in the U.S., HKD 284 million under the CARES scheme. So that was a great help in 2020. We don't expect to see that again in 2021 in Hong Kong, although in the U.S., there is further government subsidy for the aviation industry from which we will benefit. Next slide, please. Again, I think I'll pass on this because we've kind of covered most of this already. If we can move on to beverages. I mean this has really been the most wonderful story in 2020. Despite all the chaos around the world, the business is powered ahead. Profits up 22% in the Chinese Mainland, 26% in the U.S. and in the smaller markets, Taiwan has been a wonderful story. And even in Hong Kong, we managed to increase profit marginally. If we can move to the next slide, please. Well, I think there's really just 2 numbers. If we can go back? Yes. Thank you. Just 2 numbers here that I'd like to highlight. One, the attributable profit for the division reaching HKD 2 billion for the first time. But perhaps more relevant, if you look at the recurring EBITDA number, HKD 5 billion for the year, I think it's just an illustration of what a great cash generating business this is and how significant it is becoming within our operating cash flows. Next slide, please. So revenue growth by region has been variable, and I won't really go into the details and the reasons for that. But I would like to focus on the EBITDA margins, and you can see that in all regions, we've seen meaningful increases in EBITDA margin. And in the Chinese Mainland, which is our biggest, fastest-growing market, 2 percentage points improvements in EBITDA. And that's a virtuous combination of some product and pack mix changes that have improved profitability, good execution and some reduced input costs in 2020. But I think it does illustrate why this is a great business for us. It is possible for us, given how skillful we are now at executing in this business, to go on growing margins at the same time as growing top line. So we're very bullish about growth in this business. And indeed, it started 2021 very strongly. Okay. Moving on to Marine Services, which we're not so bullish about, this has been a long painful journey for our team. The business was on track and recovering as we hoped in the earlier part of last year. The oil price collapsed due to COVID in the second quarter. And we assessed that this has pushed the recovery in this industry back by 2 years, and that's reflected in the decline in rates and utilization in our core fleet in oil and gas. And it's reflected, of course, in the very big impairment we took again progressively to the oil and gas fleet. What I would say is that the carrying value of that fleet is now down to HKD 2.7 billion. And we've been continuing to do what we've been doing for a number of years, which is to manage costs aggressively, to reduce the size of the fleet and the business by selling old vessels where we can, and we sold 12 in 2020. And to try and make sure the business returns for cash positive position. And indeed, the oil and gas business is expected to be cash positive in 2021. And we await developments in the market and the industry to see what will come next for this business. Okay. Next slide. I think back to you, Michelle, for Trading & Industrial.

Michelle Low: Yes. Thank you, Merlin. We make the small profits for the Trading & Industrial division in 2020. Just like any other retail business, Swire Resources has been very severely hit by COVID-19, and it had incurred a loss of HKD 134 million. For the other companies, in fact, that they had all shown improvements of numbers compared to last year. Merlin, health care?

Merlin Swire: Okay. Yes, health care. Well, I might just talk about this for a little while because I know people are interested in this development for the group, which we do see as an exciting long-term direction for us. You saw earlier that we've invested HKD 1.1 billion so far in health care in these 2 investments. One was a minority stake in Colombia, China Healthcare, in Shanghai in the Yangtze River. And just last month, we made a further associate investment in a big hospital being developed in Shenzhen. And maybe to talk about why we're interested in this sector? Our strategic goal broadly is to look for opportunities that will increase our exposure to businesses that benefit directly from growth in consumer spending in China. And we think the health care services sector fits that bill, the rapidly growing middle class and an aging population. There's an increasing demand for quality health care services and a short supply of such services. And we think private health care will play an important role and that the government will support that important role for the sector. We also think it's a very good fit for Swire's capabilities. Health care is a business where quality, operational excellence, a commitment to good service and reputation and brand are key, and I think that plays to our strength. It's also a business where you need long-term investment horizons. You build a new hospital, and it will take 5 or 8 years to ramp up to full operating cash flow potential. So we're a good investor for this sector in a way that some others may not be. It's a business with barriers to entry. I mean clearly, it's highly regulated, and that may put off some investors, but we operate in several highly regulated businesses already, including in China. So we're confident of being able to navigate that. And it's also a business that is asset-based. And our property development and management experience will support our growth in this area. So in terms of direction, we're focused on investing in city clusters in the Chinese Mainland, where we already have a presence in terms of a property asset. And we're going to focus on certain specialties, OB/GYN, orthopedics and rehabilitation, oncology, renal, are areas that we see as being particularly attractive. And the goal over the next few years is to take significant minority stakes where we can play a meaningful role in management or indeed control investments in operating businesses. This is a period of learning, of building relationships and building partnerships, but it's not going to move the dial in the short term, and there's any for you who expect it to. We've invested HKD 1.1 billion. We've allocated several billion Hong Kong dollars to be invested in the next few years. And our expectation is that in doing that, we will build a platform by the middle of the decade, where we can accelerate growth and accelerate investments into the sector in the second half of the decade such that it becomes a meaningful business for us at Swire Pacific. Okay. Back to you, Michelle.

Michelle Low: Thank you. I'll just very briefly cover some of the highlights of -- relating to sustainability. In fact, on the ground, there are many sustainability initiatives that the group companies are working on. And the one I pull up here just a sort of a snapshot. The SwireTHRIVE, we have expanded SwireTHRIVE to include social issues, being people and community in addition to climate, water and waste. And on the green financing front, we have done our first sustainability-linked loan facility. And following that, in fact, most of the loan facilities that we are right now in discussion with the bank are essentially green-related. And also very proudly, we have launched this TrustTomorrow, which is a new community initiative and the funding program. And in 2020, most of the funding are related to COVID-19 relief in the community.

Merlin Swire: Thank you, Michelle. So on the outlook, I mean, the papers you have in hand give quite detailed as of projections by division, and I'm not going to repeat those here. But simply to say that, I mean, clearly, the COVID challenges are not over, particularly in aviation, and we're expecting a tough 2021. And as I said, we're expecting to incur a recurring loss in the first half. But I'm very encouraged by the way our management teams responded to the challenges in 2020. There was great team work. And they've proven very resilient in operating our businesses under extremely difficult conditions. So I think that's a great sign. It's a great testament to the teams. And we're still strong, fresh and ready for whatever this year has to throw at us. Looking forward, we are very clear that our focus is on Greater China. In Hong Kong, we really believe Hong Kong's best year as an international financial center lie ahead. The demand for what Hong Kong has to offer from the Chinese Mainland is growing by the year. The depth and breadth of financial services that Hong Kong offers is increasing, and we expect this to be a very strong period for Hong Kong financial services and a strong decade, therefore, for the Hong Kong office market and indeed for aviation once COVID is behind us. And in the Chinese Mainland, we're extremely bullish on Chinese domestic consumption. I mean this year has shown, more than any other, what happens when Chinese consumers stay in the country and spend their money at home. There's an awful lot of spending power there, and we're finding ways to put ourselves in the path of that spending power. So I think we're not in bad shape. The balance sheet is looking very strong. And clearly, the last year or so, for various reasons, has been a relatively quiet time in terms of committing to new projects. It hasn't been easy to get things over the line because of COVID. But I think we're feeling more and more optimistic about the deliverability of our pipeline, and you should start to see faster redeployment of capital in the year and years ahead.

Michelle Low: Thank you, Merlin. I would like to show you a short video now, highlighting Swire Pacific's key developments and achievements in 2020. We hope you enjoy the video. [Presentation]

Operator: That concludes our analyst briefing. Thank you once again for joining us.

Unidentified Company Representative: Good afternoon, everyone. Welcome to the Q&A session of the Swire Pacific 2020 final results analyst briefing. We apologize for not being able to bring you the live webcast of our 2020 results briefing yesterday due to a technical issue. Nevertheless, a video recording of the results briefing has been uploaded on our website for your viewing. Attending the session today are Mr. Merlin Swire, Chairman of Swire Pacific; and Ms. Michelle Low, Finance Director of Swire Pacific. [Operator Instructions] Before we begin the Q&A session, we'll pass on to Merlin to say a few words. Over to you, please, Merlin.

Merlin Swire: Okay. Thank you. Good afternoon, everybody, and sorry again for taking up so much of your time previously -- yesterday afternoon. I hope most of you have had a chance to either read our statements or look at the briefing that we put online last night. But I'll just, in a couple of minutes, try to summarize that presentation. I mean first up, clearly, 2020 was a very unusual and tough year for the business and we recorded our first loss in modern history. But despite all of that, from my perspective, the fact that the reduction in shareholders' funds before payment of dividends was 2.6% rather than a much larger figure was, of course, disappointing, but it's far from disastrous. And again, notwithstanding the underlying loss we reported, we did pay what we consider to be a fair dividend, consistent with our desire to be as current as we can with ordinary dividends. I mean of all of our businesses, as we all know, Cathay was particularly hard hit. But from a Swire Pacific perspective, what I would say is that the recapitalization of the business, which in total last year and this year has now seen HKD 46 billion of fresh capital will go on to the Cathay balance sheet, Swire Pac had contributed HKD 5.3 billion of that and that has allowed us to reserve capital elsewhere for other things. The outlook for Cathay remains pretty uncertain. But they are in a very, very strong liquidity position and I'm certainly confident that they can navigate their way through the next 18 months from here as the market recovers. I mean in terms of the big positives for us for the year, I think we were very encouraged by the progress of our property business in China, particularly the retail side there. Retail sales in our malls in the second half were up 29% year-on-year. And we really feel that those malls are beginning to mature and show their worth and that they are winning in the cities in which they are located. And secondly, Beverages was kind of winning on all fronts. Well, there are different operating conditions in the U.S. as compared to China, but the business grew strongly. And EBITDA for that business was up 18% and is now above $5 billion per annum. It's a very strong cash-generating business. In terms of other positives or reduced negatives perhaps, the recurring losses at SPO were somewhat reduced and we continue to find ways to both shrink the business in terms of selling vessels and cutting costs. And we expect SPO, certainly the oil and gas business, to be cash positive in 2021. I mean turning to the balance sheet and our pipeline, you will have seen we continued with capital recycling last year, particularly with the sale of Cityplaza One for about HKD 10 billion. We felt that was a very good price at a good time in the cycle, and it's brought our gearing at year-end down to 12.2%, which is a solid position, and I think in line with many of our peers in Hong Kong and it's put us in a good position to invest. And we have now effectively sold through a number of aging office assets in Hong Kong and are looking to reinvest. Some of you know, in Quarry Bay, we are -- we built Taikoo Place One (sic) [ One Taikoo Place ]. We're halfway through building Taikoo Place Two and we have plans for Taikoo Place Three. And in Beijing, we committed early this year to INDIGO Two, which is a big extension of our retail and office project there and that's going to create a wonderful new decentralized zone in Beijing. And as we look forward, I mean, on the Property side, there are clearly opportunities coming up in the Admiralty area over the next 12 to 18 months for us to try and fortify Pacific Place. And in China, what we're doing there is really focusing on very high-quality, usually retail-led projects. Those often take a long time to come to fruition. COVID has slowed things up a bit. But we're feeling really bullish and excited about what we can do in China in the coming period. Beyond that, and I spoke a little bit about this yesterday, we've taken our first steps into health care services, invested just over HKD 1 billion. We plan to invest several billion more in the next few years with a view to building knowledge and relationships and a platform that could allow for more accelerated growth in the middle part of the decade. So I'll pause there, and Michelle and I will be happy to take any questions.

A - Unidentified Company Representative: Thank you, Merlin. We shall move on to the Q&A session. The first question is from Jonathan Galligan from CLSA. His question is, "First off, thank you, Michelle, for all your hard work over the years and good luck in retirement." "Second, Michelle, can you talk a little bit about your balance sheet strength and how you plan to deploy that over the coming years? Will this go mainly to health care? Or are you looking at other investment opportunities, both organic and inorganic?"

Merlin Swire: Michelle, do you want to take that question or should I give it a go?

Michelle Low: Yes, Merlin. Thank you. Perhaps I'll just start an overview of our balance sheet. Thank you, firstly, Jonathan Galligan. And in terms of our gearing, we had the lowest gearing since 2006 at 12.2%. And in terms of our liquidity number, in fact, we have been lining up quite some facilities and we have some of the highest liquidity for some years, standing at $62 billion, of which $33 billion relating to Swire Properties. And as the Chairman has mentioned, the low gearing also arose from some of the proceeds that we have been getting from their disposal in the past few years and that is for purposes of capital recycling. And in fact, we have a lot of plans ahead of us. And perhaps I'll have Merlin highlighting some of the big plans that we have.

Merlin Swire: Okay. Thanks, Michelle. I think the reality is in terms of things that are going to really move the dial forward, the Property business as ever is the place that will absorb significant amounts of, well, opportunity for capital deployment. We see good opportunities in Hong Kong to reinforce our existing office centers. We are interested, and you've seen some steps in this area, to rebuild a pipeline in residential trading in Hong Kong. And we will continue to do that in a way that is perhaps not hugely significant for our Property Division, but in terms of scale relative to other divisions, not insignificant. And in China, we see fantastic opportunities both to reinforce our existing assets by building on to them and to find new projects. So I think that will be the core of it. Clearly, the Beverage business is one we're very excited about. And that's a franchise model. If there was an opportunity to acquire new franchises in Asia from The Coca-Cola Company, we would, of course, be very keen to do that and we think it's a business we do very well. And the partnership with Coca-Cola is very strong. I mean to smaller areas of investments, and these really are areas where I'm afraid we shouldn't expect it to move the dial, health care. There's going to be quite a lot of activity, but the numbers will be relatively small. And if there is to be a major deployment of capital that moves the dial on health care, I wouldn't expect to see that for another 3, 4, 5 years and only if we gain confidence that we can find opportunities that make sense for us of greater scale. But we're certainly committed to being in health care services for the long term, and we want to build a real platform and a real business there. Beyond that, I mean, you will have seen that we've announced a joint venture with ALBA, a German recycling company, and we're looking hard with them to build plastic recycling plants in ASEAN and perhaps in China in the future. And that will be a nice business as an adjunct primarily to our Beverages business. I think I'll pause there.

Unidentified Company Representative: Thank you, Merlin. The next question is from [Francis Lung] of Mizuho. There are 2 parts to his questions. "Can you provide guidance on your dividend policy going forward? And shall we take reference of 5-year historical average?"

Merlin Swire: Well, I mean, our dividend policy is clearly stated that our goal is to be able to have a sustainably growing dividend over time and to pay out approximately half of our underlying profits in dividend. And if you look at the last 5 years, we will have paid out 59% rather than 50%. And again, that's consistent with our desire to, in a sense, be shareholder-friendly on this. We do have a conservative balance sheet, which means that in difficult times, we can afford to slowly overpay relative to our policy, and thus, minimize the reductions in dividends that come during hard times. So we are in a very abnormal period. And clearly, the Aviation business is -- has a big effect in terms of earnings per share and thus dividend per share. But we're very committed to the policy. As the business recovers, you should expect the dividend to recover alongside that. And we feel we have a balance sheet now that can both fund the long-term high-growth investment opportunities that we see and continue to have a progressive dividend policy.

Unidentified Company Representative: Thank you, Merlin. Here are 2 more follow-up questions. "What are the competitive advantages of Swire entering into the health care sector apart from your ability to commit long term capital? Also, will you be open to assets other than hospitals and anything outside China?"

Merlin Swire: Okay. Well, thank you. Look, I mean, obviously, long-term capital helps in this game. But this is also a business where the consumers are interested in quality. They're interested in the quality of service, commitment to service. Operational excellence makes a difference. And the reputation is absolutely key to the trust that customers place. And I think we have all those skills within our group from a management perspective. But I think also our brand is relevant here. And our brand in China, particularly driven by our property business currently is getting stronger and stronger every year [indiscernible] quite transferable to the health care sector. We also think that insofar as some aspects of health care services do involve visible real estate and the sort of lived experience in physical space, that our property development and management experience can help. I mean beyond that, the -- one of the critical competitive advantages that we see is a feature of health care services, is an ability to attract and retain and manage a large number of doctors. And we think we're good at managing people. And I think you'll see as we roll out our strategy that our intention will be to go relatively deep into subregions rather than trying to spread ourselves broadly across the country. And that's, in essence, because if you could have a number of assets within a small region, it makes it easier to deploy doctors across those assets. A single asset in 20 different cities doesn't get you very far. The focus will be on hospitals and particularly specialist hospitals, but I think there's also an opportunity here for clinics, i.e., more community-based clinics, maybe clinics in shopping malls, ourselves and others. And we're genuinely interested in the elderly care home sector. So those are the range of things that we might invest in. We've looked at investing in medical equipment or pharma or other aspects of the sector and decided not to go there because we don't get to use our skills. The focus will very much be China, but we don't rule out investments in ASEAN if the right opportunity arises. And we think the health care sector in Vietnam is quite interesting and we're looking carefully at that at the moment. Thank you.

Unidentified Company Representative: Thank you, Merlin. Since we're talking about health care, we might as well cover another health care-related question from Jonas Kan of Daiwa Capital Markets HK. He says, "Looks like health care could be a potential new growth driver for Swire Pacific. Wondering how much the group plans to deploy in this area? And what is the group as its main competitive edge is in this business?"

Merlin Swire: Well, I think I've kind of answered that question as best I can already. I mean, as I say, we -- what we're saying is that we're prepared to deploy several billions Hong Kong dollars in the near term. We do expect in the early days in this strategy, most of our investments to be minority positions with partners with expertise in this sector. And we may co-invest with various partners. Over time, because of the skills we think we have in management that fit nicely with health care, we would like to be in control positions. But we're not going to rush at that. We recognize we're new to the sector, and I think partnering with people who have longer experience than us is the right way to go for the near term. Thank you.

Unidentified Company Representative: Thank you, Merlin. The next question is from Kelvin Wong of Churchill Capital. There are 2 parts of questions. "Firstly, we're seeing across the board that conglomerates are reorganizing or simplifying their business structures. For instance, Wheelock in 2020 and recently Jardines in 2021. So are there any plans to change the structure of Swire and its subsidiaries? What is the thought process of the management team in this area?"

Merlin Swire: Okay. Well, thank you for the question. Obviously, we think about this from time to time. But we like the structure we have currently. We think having all our businesses under one umbrella, and it's a structure that we think is extremely transparent. Shareholders know what they're buying into. I think we're very clear about how the group is structured, how the cash flows around the group. So at the moment, we have no plans to do any significant restructuring.

Unidentified Company Representative: Thank you, Merlin. Next question is from [Janice Fung] of HSBC. Her question is, "Should the adverse impact from the pandemic prolong in 2021 on Cathay and your retail properties and hotels, what's your plan to maintain liquidity of the group?"

Merlin Swire: Could you repeat that question again? I missed the start of it.

Unidentified Company Representative: Yes. "Should the adverse impact from the pandemic prolong in 2021 on Cathay and your retail business, what's your plan to maintain liquidity of the group?"

Merlin Swire: Okay. Well, I mean, I think we're pretty happy with the liquidity position of the group. I mentioned Cathay's liquidity position earlier, which I think is very strong, and Cathay in a sense can take care of itself. I mean for the Swire Pacific Group and its subsidiaries, retail has been weak in Hong Kong, no doubt, and we've made a number of rental concessions here with some of our tenants and also in China in the early parts of last year. And I think in fact, this COVID experience has brought us closer to our tenants and to the big brands than we were before. So we feel quite good about that sort of partnership. Beyond that softness in retail, we've actually found cash flows to be relatively strong. If you look at our operating cash flows in 2020, which, of course, was the major year of the pandemic, they were pretty robust. So we feel quite comfortable with our liquidity position. We don't think we need to do anything to strengthen it.

Unidentified Company Representative: Next question is from Simon Cheung of Goldman Sachs. His question is, "Much capital has been recycled over the last few years. Are there any areas where you see potential for further noncore disposals? And in relation to this, what do you think about your Marine businesses and its long-term return profile?"

Merlin Swire: Thank you. Well, I mean, broadly speaking, I think in terms of further disposals or further recycling of capital, I feel pretty happy with what we've done. I think we have sold things that are not core to our business and streamlined the group somewhat. And what we're left with is a much, on a weighted average basis, a much higher quality of asset. The Marine business, I mean this has been a long story for 5 or 6 years. It's been agony for everybody. And our goal has been to try and get that business into at least self-sufficient state. And given that the market has basically disappeared and that when it comes back, it's likely to be smaller than it was previously, we felt that shrinkage has been the way to go. So if you look at our oil and gas fleet, we've reduced it, I think, from 94 vessels at the peak down now to around 60. We've cut tremendous amounts of cost out of the business, and we are now looking to be cash positive in 2021. And whilst we don't expect a quick recovery in the market, we do think there's a chance that we have again reached the bottom. Beyond that, I think we'll just have to see what opportunities arise as the market starts to recover. I mean at the moment, this is not a sector that is attracting a great deal of external financing to facilitate dealmaking. But we're keeping an open mind and open ears, and we'll see where we go with that. I mean on separate aspect of the Marine business, where we have taken action because the capital markets have been there to facilitate, that action has been with our wind farm installation business, which is a business managed from Copenhagen and its activities, broadly speaking, are all in the North Sea and Northern European waters. And that's clearly a big growth industry. But it's not an industry where we want to dedicate a lot of capital because we see our growth primarily in Asia and specifically in Greater China. So we're able to list that business on the Oslo Stock Exchange this year. We took quite a lot of money out back to the center. We brought in a strong partner with -- in Bergesen Worldwide. And the business is now well placed to invest in new boats and the primary leader in the sector, and we're down to 47%, I think, currently in terms of shareholding. And we're assessing where we go from there. But the listing in a minor way has been a success. I think that we listed at about NOK 24, and it's now up to NOK 36 or something. So that's how we see Marine. It's tough, but we have been actively finding ways to retrieve value where we can and we'll keep looking at that.

Unidentified Company Representative: Another question from Simon Cheung of Goldman Sachs. "Outside of health care, what other areas would you have interest in?"

Merlin Swire: Well, I mean, in terms of new areas, health care is definitely our prime focus and we're going to be pushing hard on that. We are interested in green businesses and environmental businesses. Our partnership with ALBA in plastics recycling is a good example of that. And that has the potential over the next decade to become really quite a large business. We're also, again, partly because of our beverage heritage, interested in water and water purification and water management. But we'll have to see whether opportunities arise in that space. And we have a mild interest in food and food tech, if you like. And we took a very small convertible debt investment in Green Commons, working other things, which we think is a really fantastic company, well-run and with an exciting vision, and we'll see where that leads us. But I think you'll see more activity -- more visible activity in health care than anywhere else.

Unidentified Company Representative: Thank you, Merlin. We'll now take one final question from Jonas Kan of Daiwa Capital Markets in Hong Kong. The question is, "How does the group assess the pros and cons of share buyback as a way to deploy capital and reward shareholders?"

Merlin Swire: Well, I was waiting for that question. Look, we've said that -- we've been very clear about this. And I know that many investors will be frustrated that we haven't acted, but I don't think they should be terribly surprised. I've made it very clear that we intend to return back to shareholders primarily through the ordinary dividend and that is the case. And whilst we don't rule out buybacks in principle, if we can't think of better uses for the capital, we prefer to allocate capital towards long-term, high-growth investments in our core businesses. And share buybacks, we consider to be a very short-term use of capital. The issue is that in the industries we're in, many of the investments that we will be pursuing are, generally speaking, quite large, particularly in property, quite lumpy. They take a lot of time to put together and get to the start line and timing is very unpredictable. And so we need to ensure that capital is available to us when these opportunities arise, so that we can move quickly and be prepared to take on several things at once. And that's effectively our position. And today, we're in an unusual position because I would say 2019 and '20 were 2 years of particularly low investment by the group if you look back over a decade. And that's not because we didn't have the appetite or the confidence to invest, it's just that many of the things we were working on were taking time and COVID obviously didn't help. But I think we're now in a position where I do expect to see accelerated redeployment of capital in the coming year or so. And where we see these high growth, long-term investment opportunities, we'll take them.

Unidentified Company Representative: Thank you, Merlin, and thank you, Michelle. That concludes our Q&A session. Thank you very much all for joining us today. Thank you.

Merlin Swire: Thank you. Thanks, all. Have a nice weekend.