Earnings Transcript for CKHUY - Q3 Fiscal Year 2021

Operator: 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 Co-Managing Director; Mr. Kin Ning Fok, Group Co-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.

Frank Sixt: Okay. Well, welcome, everybody. I will take you straight away to Page 4 of the presentation, which shows the summary of our financial highlights. They pretty well speak for themselves, with the 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 Fairwinds, in terms of currency fluctuations. And so, you see that the numbers are still good in local currencies, but are just a little bit lower. That's lead us to a 15% increase in earnings per share, and that's reflected in a final dividend of 186 per share, which takes the total dividend for the year to 266, which is a 15% increase. And the same payout ratio has been 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 this on the net debt side, and that is already reversing itself as we're into the first two months of 2022, particularly with the declines in the euro that we've seen recently. If we can go to the next page, which is focused 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 on lease accounting. So EBITDA up a healthy 15%, reported 10% in local currencies. The attribution rules in terms of geographies and sectors is in the two circles on the left-hand side. Just to recall, the inner circle gives you the recurring picture, the outer circle gives you the reported picture when they are once again different as they have been for a number of periods because of the movements associated with major what you have to call one-offs, which will be going through in a few minutes. But that include things like, the Cenovus and Husky non-cash write-downs, the non-cash write-down in Italy. And of course, a little bit cash proceeds within the earnings impacts from the Tower Co 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 Mainland, have been a little lower in proportionate terms than in prior years. I think, that will be explained when we go through the visual reporting. It's fairly natural consequences trends in the Ports and Retail Division. 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 HK$95.2 billion. As you can see, the contributors on the upside of these ports are very healthy contribution year-on-year. Our Retail, also a very healthy growth by year-on-year. We'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 excluded the one-time proceeds from the sale of Portuguese wind assets last year and you take out the non-cash deferred tax effects in both years, actually, their profit increased by 22%. What they look at, which is funds from operations, which is probably the most relevant metric in their business essentially the cash from operating activities, plus the dividends they get from their associated companies plus the dividends they get from their joint ventures, that was up to a record $8.4 billion, up by 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 will be talking about operating performance in detail. But suffice it to say that broadly speaking, the UK 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 the year-on-year for the impacts of Tower Co. contributions and the costs as Tower Co. transactions are closed of paying Tower Co. lease payments, you end up with a relatively modest reported impact year-on-year. HAT, I think there is 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 Tower Co. sales that were completed in 2021 are $25.3 billion Hong Kong dollars. We took an impairment of $15.5 billion Hong Kong dollars on the carrying value, of course that's a non-cash 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 1st with Cenovus, and then of course, as [Indiscernible]. 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 only $0.5 billion Hong Kong dollars. If we can go to the next slide. as usual, but we drill down on operating cash flow. And here, what we're looking at is stripped of any exceptional or one-time items. So we're trying to look at real operating cash flow and real spending in 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 $5 billion HKD. And of course we incurred 7.5 billion more in license costs in the telecoms businesses, primarily in the U.K. and 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 significantly enhanced foresight comparison to 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 from division, the EBITDA minus share of associates EBITDA, adds back dividends, but subtracts CapEx and subtracts the investments, and then ultimately, also subtracts the license -- telecoms license investments. So if we go very quickly by division, it's interesting. I mean, ports spend CapEx more than twice the rate in 2020. So that's three 63 O have been seen 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, and I'm sure Malina and Dominic and the team will be talking about that. But [Indiscernible] of investment, technology and [Indiscernible]. But nevertheless, the operating free cash flow advanced by 10% to the [Indiscernible] number. [Indiscernible] for retail. Infrastructure, I think we've already talked about. Again, I will go back to funds from operations, which I think is the most important number for them. And then, 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 we've got a decline in operating free cash flow for the year, that's against CapEx spending that was up by 15% and licensed spending that was 9.5x, what it was last year. So it's not really surprising that we have a roughly 16% decline in operating free cash flow in CKH Group Telecom. As I say, in HAT the numbers here is partly reflective of, as we lead into the merger in Indonesia, the group was very careful not to spend particularly on network CapEx that would be redundant in the assumption if the merger went ahead. And so, the improvement is largely driven by the reduction in capital spending in Indonesia. And then of course, lastly, the finance and investments performance as a lot of things moving in it. But most of finance 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 they're operating free cash flow but the movement looks less attractive than the EBITDA movement. But apart from that, I don't think any significant observations and all those numbers sum up to the ones that we had on the previous page. Looking then from operating free cash flows to real free cash flow on the next slide, you start with our 35 to 60 from last the 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. Your takeout an adverse working capital movement that reflects some concession extensions in our ports division. And it also reflects clearing out some payables, particularly in 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 as we go over to the right, I think, I pretty well explained all of the major variances. The $33.1 billion, the sum on the left. And the Illuminator and waterfall on the right, I think are self-explanatory. So we go 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, caching with assets at a strong level of $161.4 billion, 9% of that is held in euros and 4% of it was held in GDP. And the last and most part are -- 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 where interest rates has been over the course of the year. So we're 67 basis points behind on the return on the liquidity but I'll go straight across the bottom on right where we gained 10 basis points in terms of the average cost of our debt as well. So spread in between the two, although in slightly adverse period, certainly not anything to cause us concern. Turning to the total debt at HK$336.4 billion, again there 47% of that is denominated in euros, 5% is denominated in sterling, which is why in net debt terms the decline in euros gives us favorable profile. So I know that will already have improved as we sit here among other things is because of that from the 23% levels that it was at the end of 2021. Maybe not a bad idea to remind but before we go there, in terms of mix, we've been continuing to move more towards fixed rate. So we ended the year 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 de -risk in terms of 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 $3.1 billion HKD will result in an earnings reduction in net profit after-tax, $1 billion sold in a reduction in net data of $1 billion HKD, which represents 0.9%. Again, those are all sensitivities that assume that the recurring cash flow and earnings profile from 2021 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 improvements from year-end of 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 in licensed spends in the second half. And I can tell -- I can assure you that that is, today, stands at a significantly lower absolute amounts and ratio amount. Other than that, no change in our credit ratings, average maturity profiles moved from eight years. Just a [Indiscernible] longer than it was last year. The run-off of that on the left, is self-explanatory, I think it's quite relevant to note that, in terms of the near-term maturities there, they are largely weighted, in terms of bank maturities -- bank market maturities, other 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 Kin Ning have joined us?

Kin Ning Fok: Yes. I have been listening.

Frank Sixt: Thank God because you are on deck to do ports.

Kin Ning Fok: [Indiscernible] come here a little bit too early because then you can finish it. Okay. Now, the port has a [Indiscernible] story. Okay. And then, just to remind [Indiscernible] total asset is 12.6 billion, 291 [Indiscernible], 52 [Indiscernible] six countries. In July 2021, actually, there was a -- we handled 88 million containers and there was an increase of 5% and non EBITDA was very, very pleasing, 15.157 million, 15 billion, and a 35 -- 39% increase in EBITDA of cost [Indiscernible]. We have a huge help from the currency. If you look at local currency, is 35%, which is very well pleasing. If you go to the right-hand side of the chart, everything is going on. The [Indiscernible] the red one, is the Mainland China and Hong Kong, and basically, it's more or less the same, actually still better than last year. But because we have -- last year, we sold 20% of our Shanghai 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 only have 30% in Shanghai port. The Trust is doing well and then they have their reporting. Again, [Indiscernible] is doing well. Hong Kong is okay. And then, Europe is very pleasing. [Indiscernible] and Rotterdam and Barcelona, they all did very, very good, increase on EBITDA, and of course, in Asia, Australia, and America they are doing very well basically. Mexico, Indonesia, Thailand, they are all leading the charge. And then, on the corporate side, we made an investment in the shipping company and that they are doing so well, so they give us good income. So you can see that everything is going up, and of course, the foreign exchange also gives us a push. Actually, this is a wonderful business spending. I just explained in the press conference, and when there is disruption, of course, the [Indiscernible] works lower, and then the box doesn't move as fast. But [Indiscernible] then we collect quite a 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 quarter in 2021 was very, very pleasing. Go to the retail one, I think retail is responsible by Dominic, maybe Dominic should take through this page.

Dominic Lai: Okay. Thank you, Kin Ning. Retail, recently good story. While 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 vote in member base of a 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. And next, is the exclusive sales participation, what we called H&B, which include our own brands and exclusive product from [Indiscernible] Brands. It has the sales participation has reached a record high of 36%, with China being the highest at almost 50%. Still creating strong differentiation and uniqueness for the business. So customers can only get these products to our own network only. Our O+O business model, it has been proven to be very effective in increasing the customer lifetime value and sales growth. So what is O+O? Why is it so important and unique? Let me elaborate in simple language, is very important and core strategy. O+O as the name implies is, Offline + Online. we want our customers to shop with us both offline and online, not either, but both because our CRM data shows that an 0 plus 0 customers spend up to three times as much as our customers who shopped with us only in our physical stores. So this data and observations forms the basis of our core open-source strategy. But the implementation of these open-source strategy is very sophisticated. In short, we have to create a worldly unique, digitally enable, integrated offline and online ecosystem that allows customers to shop seamlessly across any channel anytime, and anywhere. There's a lot of technology involved. If you would like to have more details, our Chief Operating Officer and I will be happy to explain to you. Now, let's move on to the center of the year. So I have 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 as reported at $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 border for 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 heightened national movement restrictions which negatively affected our customer’s portfolio. So as a result, the EBITDA for the full-year increased 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, [Indiscernible] due to 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 Lawson's Hong Kong, because the tourist doesn't come anymore in the Hong Kong. So it was fairly hit in the year 2020. But 2021, the loss has been reduced significantly. And as a result, the year-on-year EBITDA growth is a $138 million or 6% and held up due to Asia. Next, for Western Europe, I'm happy to report that all the Western Europe business units did well and reported increase in EBITDA and EBIT. Especially in the Benelux countries and Germany, where stores remained open during the lock down period. So remained open and then, non-essentials they have to close. So as a result, EBITDA of this divisions, Western Europe, increased by close to HK$2 billion, an increase of 36% in local currency. So very good achievement in Western Europe. similarly, for Eastern Europe, EBITDA increased $367 million or 19% predominantly because of Rosman Poland, where the trend is strong and the trading has been good. The next pull off 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 pennant 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 with our EBITDA 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 and 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 Kenny to talk about infrastructure.

Kin Ning Fok: Well, I think better pass to Frank.

Dominic Lai: Oh, Frank. Okay. Yes. Sorry.

Kin Ning Fok: Okay. I can't see anyone else to pass it to. Anyway, I have not much to add, really, to CKI 's own results announcement. Starting with solids reported earnings, of course, just a reminder that if you take out the non-cash deferred tax impact in both years and you take out the [Indiscernible] 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 in the underlying associates and joint ventures, and we're very comfortable that they are prudent, given the high regulated asset value [Indiscernible] on a number of businesses, and of course, the borrowing recurring income profile of the non-regulated components portfolio. Again, EBITDA, this is what it looks like to us, including the share that we still have in six assets that we co-own with CKI. Reminder there, that the real story that CKI funds from our ratio stories, cash that is coming in from their own operations of cash that is coming up that way of dividends from their associates and the cash is coming out by their dividends or the joint ventures and that was a very healthy 7.8% up year-on-year. Just looking over to the far right, the regulatory reset timetable is very important. As you can see, it's pretty well spread out and pretty healthy, really. And we're looking at results in 2021 that absorbed the initial impact of a considerable number of resets are done for that year, which is the 2021 call tells you. And with that, I'll pass it over to Kin Ning who will talk about telecoms. Telecom has not an easy year this year. You saw that on the top left-hand side, the revenue went up by 1% and active customers stayed flat. And then, of course, the one thing good is that the ARPU -- the AMPU, the margin, this is obviously [Indiscernible] getting up on 2% is quite a lot and going up because of lockdown. And then, if you recall, and we are a new challenger, when we started our European [Indiscernible] business, and then, one of the thing that we are not as competitive as that other company who has been there for longer is our spectrum collection and ownership. And then, of course, also this year we have done various in Ireland, Austria, and Italy, we have done a lot of merger, and then also through the 5G auctions in UK. In UK, we're able to brought the companies that own a lot of 5G spectrum, show that we have most 5G spectrum in -- than anybody else in the UK. And then in Sweden, Denmark and we are able to still auction high enough spectrum so that our 5G spectrums are now competitive. And is not more than other people that will get -- take away one major disadvantage of our business. And then if you look at our network in Italy the 95% coverage in FDD and in UK as being -- UK, Ireland, and Austria being rated by Ookla as the fastest 5G network. And so then our disadvantage is eventually in just now disappeared. And because of the network situation, we did -- we do spending more CapEx in the last two years and then we spend $23 billion Hong Kong in CapEx. And approximately half of those -- 45% of those are 5G. And then I'd like to say to the market, this will be the top spending for our CapEx. Then you should go in and full [Indiscernible] this year and next year. And you will confirm [Indiscernible] And then, I think, in the not-too-distant-future, our goal of spending CapEx, we called it depreciation, we can achieve that. And if you look at the EBITDA line -- Okay. And then in 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 they now make a comparative, so that we make an adjustment. So that the 2020's EBITDA is at --in order to compare to 2021is in the third bar, 29934. And then after that, you see the up and down. I think, the one that was -- do you see the EBITDA is less than 2020 by 5% in local currency and then mostly come from Italy. A -- because there's two things actually happen. And 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 a little bit better not that much than the first-half. This is why we know we are bottom, and we can see that we are bottom out in Italy. And also another effect is that our wholesale income because one of the major customer is the co-operator [Indiscernible], they have been giving us a lot of income because they [Indiscernible] network, but as they view up the network and then the income reduced, so this is the two factor. And of course, we already see some saves money and to offset some milestone. So if you'll see in the chart, Italy recorded a $2 billion reduction, $ 2.1 billion reductions in EBITDA against 2020. So the other UK is pleasing because of the reduction is finally turn 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're start growing and then their postpaid basis, actually the net debt is the first and last one, seven or nine years. So we have half a million of net debt in contract. And then so and so that can see that EBITDA actually is better by almost HK$600 million, so this is very, very pleasing. So the other is all more or less percent, 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 two months, the basis actually settled down and started to increase in factory actually. So we will have to see and then if you look at the EBITDA margin, UK 36%, Italy 43%. So that -- if it's a little bit lower because it is -- we have to -- for some of the country like Italy, Sweden, Denmark and Australia, we have to adjust for the Tower Co to expand, which we didn't have. So nevertheless, we would continue to try to bring this back to 40% and let's see how it goes. in Page 14, is [Indiscernible] adjusting in detailed. And then, Page 15, I think Frank can do with these [Indiscernible]. Hello, Frank?

Frank Sixt: Sorry, I had the mute button on. But yeah, after almost two years of process with the CMA, we did finally approve -- obtain their conditional clearance, which clears the way for us to complete the transaction with Sanex, we believe in Q2 or Q3, which will bring in, as you can see on the slide, €3.7 billion of total proceeds and corresponding increase in earnings, either Q2 or Q3. As a reminder, that's against what we have collected already in 2021 and 2022, which is about €6.3 billion and proceeds and earnings of €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 packaging. Of course, clearance is based on an assumed revenue package, which is very realistic in all our circumstances, and so we don't [Indiscernible] 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, there's 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 under the $35 million -- euros, sorry of share buybacks. We're doing HK$21.7 million shares back in 2021 and also allowed us to save some money by the voluntary prepayment license we made in Italy in the first half. So with that I will go back to Kin, you're going to talk about our merger in Indonesia.

Kin Ning Fok: It's all financial figures. Frank, why don't you take it over?

Frank Sixt: 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 $6 billion U.S. dollars [Indiscernible] revenue was $3 billion U.S. dollars. The company has achieved BBB - investment grade rating from Fitch and from a local ratings agency, but with stable outlooks. We think that the realistic run rate of pretax synergies is between $300 million and $400 million U.S. dollars a year, and should be achieved between three years and not more than five 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 [Indiscernible] from Qatar. As you can see, we are basically 50-50 in the control block and our local partners we've broken 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 three years of hard work.

Dominic Lai: it's a long term process, but we finally get it over the line instead of Henry, I think. So we are so happy.

Frank Sixt: [Indiscernible] So we go to Slide 18, just an update on where we are. The slide focuses on accelerating actually employment change, but that's really just one of the objectives here. Reminder, excluding what we spent on 5G networks, which does have a very positive environmental impact overall. We've -- over the course of the last three years, totaled USD2.1 billion around the group, roughly split between CKHH as subsidiaries other than CKI and CKI itself, and those are spending on renewable energy, climate. Jason, energy efficiency, sustainable transportation, and the circular economy. So we have been and continue to be doing a lot in all aspects of sustainability of what the chart is showing you is where we are in terms of key goals in dealing with action in climate change, which is setting science-based targets, developing a pathway to net zero and developing and understanding our scope three footprint. Very pleasing as you can see all three of those that have been completed in telecoms, and we're at an advanced stage of progress in all of the other divisions, in particular the retail division, which is already scoped out its three initiatives target. So all of this, has actually been recognized by the sustainability ratings agencies. So we've got a significant improvement from sustained analytics. We went from their very high-risk category, a score of 48.5 into their medium risk category, it is 429.2, 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 is the 11th best globally, for people who fall into the [Indiscernible] 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 we -- what they call our raw score, improving very substantially. Our own view of this, will be played out over the course of the next couple of months. We think that we are entitled to a too much improvement in our rating, we got BBB from them. The other thing that we did, during the course of last year, was the issue in our first green bond, which also was a validation for us €500 million principal, ensuring 12 years and at an all interest rate of 1%. So that's the brief [Indiscernible] tablet on sustainability. And then Kin Ning, I think, you're going to cover our 2020 outlook.

Kin Ning Fok: This is a very tricky page because then I want to write them off but not allowed because I need not to focus too much in the figures. But basically, 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 60% of the EBITDA and are 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 returns -- shareholder return. And then as mentioned by the Chairman Mr. Lee in the press conference, we will -- after we finalize the [Indiscernible] we'll receive the rest the money and part of the money will be used for share buyback. And the last one, not the least telecom market is a very own item. We are not selling but then we were looking for in-market consolidation especially in the UK when the [Indiscernible] give a easier signal about consolidation. These are main thing that we want to do. And then how to do it, I just say it very quickly. On the port side, you have seen that either we can earn income before mostly on [Indiscernible]. And then in last year, we have almost 10% income of our revenue comes from storage income. And then we would like to see this as a plan of our business going forward. And of course, expanding capacity where it's needed is also important to us in Australia, Thailand, Indonesia, where there was [Indiscernible]. Okay. And then on the CKI side, [Indiscernible] thing [Indiscernible]. There will be no more -- no resetting towards '22, so that we will have a very predictable '22. And then yesterday, they increase interest rates, 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 then, you have seen that the European business during 2021, and Asia and China assemble as well as the European business actually arise, and then fill in the void. So that in this year, we will see especially in the Asia side in January, February, they are doing very well. And then, I hope that the China, now there's another lock down in China. This will get over very quickly, because they forecast a 7-day, one week lock down. Hopefully, they can stick to the program and their country can reopen again, and then the business will perform. And then of course, the O+O platform is one of the key driver. And then, at -- this, we will continues to work on it and also our exclusive and owned brand sales is one of the success of this company. And EBITDA already went up to 36% and then our target, our original target is 40%. I think, we can reset in no time. And last but not the least, we said a lot about telecoms. So that you can see that UK, they are on EBITDA growth now, but they are still not on EBIT growth, but then I think UK in 2022 will start making good EBIT. Now, going back to EBIT, because then the EBITDA growth will overcome the depreciation expand, because of our investments in network and Italy. And then, you have seen that we [Indiscernible]. We started the second brand [Indiscernible] and then already 1.4 million customers, and of course, in January, we do the repricing. You'll see that Italy; we have started action. And then, of course, we have a good network, the B2B business side, as [Indiscernible] last year will accelerate this year. And last but not the least, and then I said it before, our spectrum has been forthcoming through various mergers, and we are able to get together full spectrum in Italy, Ireland, and Austria. And then in UK, we're able to buy from [Indiscernible] company. There is a lot of spectrum in UK, the 5G spectrum we're the most. And also in Sweden and Denmark, we are able through the auction [Indiscernible] 5G spectrum now is at least competitive, so that's a good thing. I think all of this will give us the foundation of getting into a good 2022 result. And then, of course, we should look beyond 2022 and what is our target. And, of course, you see our performance in Hutchinson's has been both on recurring income and M&A income. We derived a lot of profit from deals [Indiscernible] reduce during my career in [Indiscernible]. So our team will continue put a special emphasis on recurring solid and net profit. And then that will be our emphasis. And then of course, cash flow is always on top of our mind. You saw that -- I hope that after we collect -- close the deal with Cellnex and then our debt ratio will go below 17%, which is something that we're shooting for. And last one not the least I know that all the shareholders have been asking us for more shareholder return. Why? This is a decision from the board but what I can say that we have good business and good balance sheet, the board will support a good shareholder return. Thank you very much. I think this is our near-term outlook.

Operator: Thank you. We can now begin the Q&A session. Please feel free to raise you’re on the chat box which is at the lower right-hand side of your screen. The first question is about capital allocation. What is the hierarchy of the company's allocations? Will CKHH continue to buy back its own shares to avoid EPS dilution on power sales?

Dominic Lai: I think the top priorities must be engaging in the earnings and cash flow accretive businesses. For example, like telecom in-market consolidation, new retail stores with quick payback periods, all of the new projects under CKI, in terms of new infrastructure investments. But with the completion of the Tower sale, we also allocate some of the capital for debt repayment and share buyback to avoid earning per share dilution from the Tower sales. Thank you.

Operator: Thank you. The next question, what is the outlook of the UK? And will it resume EBIT growth in 2022?

Dominic Lai: Maybe Kin Ning you can answer that.

Kin Ning Fok: I think I have explained here briefly in UK, the first-half [Indiscernible] the first-half was basically flat. But then the second-half and then as the current situations, I think as the freedom started, and actually we saw a good performance by the UK business. And then the EBITDA growth is above 10% year-on-year in the second-half. And also the most significant thing on 2021, the net debt we have the best net debt in the UK market that is the gross net and minus trends, and then actually for us, it's the best in nine years. So we add about 561,000 customers in 2021 in the contract. A contract that which we never seen before. And so then our network is doing better, and then our operations execution is doing better. You'll see that we would expect us to go back to EBITDA growth again because the growth sign of UK business is good. So that we have quite positive on UK.

Operator: Thank you. Our next question, is still on [Indiscernible] on Italy. What initially give, will in-trade in demand to reverse the earnings big time?

Victor Li: Hello?

Operator: I will repeat the question.

Victor Li: Sorry, I lost you for a second.

Operator: Yes. I will repeat the question. What initiatives will in-trade implement to reverse the earnings decline?

Victor Li: Okay. Kin Ning, your question.

Kin Ning Fok: So basically now, there are two 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 off the entry-level of. 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 were well -- we will -- the progress on the P2P side has been very good in the second half. And also, we have started the second brand called Berry and then that has been very successful only about a little bit more than a year. We have 1.4 million customers and that can be able to compete on the lower side or lower [Indiscernible] of the business. And then last but 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, I feel we start on the good basis. And then, I'm confident that the industry will be much better this year than last year.

Operator: 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 [Indiscernible] to reverse the EBITDA decline?

Dominic Lai: Yeah. Okay. Yeah. As I said in the early part of the presentation, our first-half is quite encouraging but second-half was affected by this recent outbreak of COVID and also the national or nationwide movement restrictions. So that affect the customer footfall. So the main reason for the drop in second-half is the top 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 protected by the Chinese government or the national statistic, actually fell real short. So Q4, particularly last year was barely hit it. But on the other hand, we have been doing a lot of actions in China to really going to save cart as much as possible. We continue to recruit new members, in fact, we have been successful in recruiting members and also turning to members into O+O. As I said, the O+O members, i.e. customers shopping with us online and offline actually got a 2.8 times multiple, i.e. they spend 2.8 times more than customers that shop with us only on the physical stores. So that's their strategy. And also to report 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, of course, 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 under-penetrated. So these are the online, the O+O, and also store network expansion. Thank you.

Operator: Thank you. The same investor has a follow-up question on retail. Will you consider structural change of China Health and Beauty industry and [Indiscernible] China's store [Indiscernible] in China is saturated?

Dominic Lai: Well, in fact, the shift -- yeah. No, no. Please, Dominic, continue. In fact, the shift has started. Sorry, chairman.

Frank Sixt: No, no. Go ahead. Go ahead.

Dominic Lai: 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 open source platform, so that -- and also the physical store network expansion. Actually, [Indiscernible] payback period even now with lower sales performance is less than two 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. Yeah, so [Indiscernible] and quality service and network expansion. Thank you.

Operator: Thank you. The next question is on CKI. The question is will that increased emphasis on ESG have negative impacts on CKI earnings?

Dominic Lai: Okay. Maybe, I'll take this question myself. The quick answer is, no. Because the majority of CKI 's are probably contributors. Such as, power distribution networks, gas distribution networks, household infrastructure, and water utilities. They're not really significant carbon producers. In our view, the transition risks of these assets are relatively low. These businesses have also developed net zero targets and business transition plans. Let me see, for example, our guests that works the leading the way in Hydrogen transmission -- transition and CKI only has a very small portion of this profit from power generation business. And they are also switching from coal to gas fired generation, as low as renewables and green hydrogen. So I'm not too concerned about that. Actually, we can benefit from this, because a lot of these asset will benefit from this transition. They help our customers -- as they help the customers meet these goals, and we 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. We expect to be possibly investing in helping our P&L in this area. Thank you.

Operator: Thank your chairman and this questions is on the retail society. Can you elaborate on the attributes of your openness or model? Dominic you can continue on what [Indiscernible] there's a lot questions in O and O.

Dominic Lai: O+O that's easy to say, but very sophisticated in implementation. As I say it, O+O the platform has to connect the O+O the online together with the offline. So it's an innovation rather than just a connection. So it's unique, in fact we -- if you look around, we are the only health and beauty retailer and they world who is adopting, investing, and implementing this O+O platform. And because some of the -- fact that the O+O customers buy to almost up to three times more 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 integrating. 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 15000 beauty advisors. So everything has to be integrated and to enable a very smooth and similar swapping 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. And it's working out fine. And then, there's a whole potential to have more sales and a portion of profit because our O+O sales participation for the group is only 20% -- about 20%. So there's a lot of headwinds of both. Thank you.

Operator: Thank you, Dominic. This question still on the Retail side. What is the outlook of [Indiscernible] in 2022? That's a big question for Dominic, continue please.

Dominic Lai: Okay. Well, in fact, of course, no, we're not out of the COVID yet worldwide. But I think we have been seeing good year-on-year growth in the first two months. For example, we had talked about 9% year-on-year growth on sales. But at the same time, if you look at the EBITDA, I must caution our analysts friends that because as the last year and the year before, we have been receiving from the government support to help us doing this difficult trading times. So in the year 2020, we got HK$1.6 billion, and then '21, we've got 600 to 1 billion reduction, and this year, zero. That impact the EBITDA, but we are still projecting a modest EBITDA growth this year.

Victor Li: Before you move on to other questions, maybe I can offer our analyst friends my view on Watsons. We've just gone through possibly the biggest challenge for the retail industry in recent human history with COVID Most retailers have major drops in profit. I think what A.S. Watson have shown is amazing resilience. The sector wherein health and beauty show that during COVID, when we're facing store closures, manpower shortages, and customer challenges, they still maintain a reasonable profit. At the same time as soon as the COVID measures are slightly relax, the company start 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 two factors showed that in a way, I use the word to men from the boys. So A.S. Watson sense definitely demonstrated that they're amazing resilience. And the fact that it's a quality asset of CKHH. Thank you. Thank you.

Operator: The next question is as follows, Cenovus [Indiscernible] an impairment in Q4 last year. How do you [Indiscernible] the return of the investment in this company?

Victor Li: Maybe I can give an overview first. And then Frank, you can help me with the numbers to the [Indiscernible]. 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 one of the three biggest producers in Canada. So Frank, maybe you can help me with the numbers?

Frank Sixt: Yeah. 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 HK $ [Indiscernible]. 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 $1.2 billion Canadian dollars a year in synergies that drops straight through in two ways. One, in terms of balance sheet repair. I think you've seen continuous progress with Cenovus becoming investment grade and continuing to build one of the strongest balance sheets in the business, but also in a very well-positioned as you look forward to continue to enhance shareholder returns and I think they have telegraphed that very well. So from CKHH 's point of view, the outlet 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. 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 4.5 times 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 start from a value perspective, but it has been an extremely successful merger.

Operator: Thank you.

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

Frank Sixt: Yes.

Victor Li: So it's an important exit for the group in general. I referred to group as CK group together with our personal holdings.

Operator: Thank you. Next question is on HUTCHMED. HUTCHMED was reported to face by the U.S. FTC. What are your views? How does the group see HUTCHMED? 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. There are two -- over 200 companies on the list. And for HUTCHMED, it's listed for us in London. It's also listed in Hong Kong. So even in the scenario it was de -listed in U.S. there are still two markets that it will be trading. For investors holding U.S. alias they have the flexibility to change their shares to London or Hong Kong. So I don't know how to comment on these political 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, [Indiscernible] is now being reviewed for market outside 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.

Kin Ning Fok: This one more point I want to add is that on ensuring by the market that is a change of CEO, where the pharmacy will [Indiscernible] in England. And actually you don't -- and I just want to --

Victor Li: We have a succession plan already.

Kin Ning Fok: I just want to emphasize that the new CEO that was selected has been with the company for 16 years. And he was achieved scientist and responsible for developing 40 successful drugs. Three successful, and then another 10 in the pipeline. So he will be the most logical person to continue next CEO and then it will be a seamless transition. So I just wanted to say that on the market because that is --

Victor Li: That is part of the plant.

Operator: Thank you, chairman. Thank you, Kin Ning. This question is as follow. Do the supplying chain disruptions have any lack of impact in CKHH earnings?

Victor Li: [Indiscernible] is a positive impact. Maybe I'll take this question. When there are supplying chain disruptions, containers tend to stay in the yard longer. So it will generate higher storage income. We expect [Indiscernible], easing of the supply chain disruption in the second half of 2022, but the ports ' congestions and a high yard density. Basically, containers are -- container yard is likely to continue for some time and contribute positive [Indiscernible] to our earnings.

Operator: Thank you, Chairman. The next question is as follows; what is the outlook of [Indiscernible] growth in 2022? And do you expect any [Indiscernible] of container [Indiscernible] [Indiscernible]? If yes, what sort of [Indiscernible] do you expect?

Victor Li: Kenny, do you want to make that a projection, prediction?

Kin Ning Fok: Well, we know we all expect our division to grow. They must grow. So then, you will expect that this congestion should be less. And then more business will come from the [Indiscernible]. And then I think in June '22, I would expect that it will be a more volume [Indiscernible]. However, the congestion is still there and then we still have storage incomes. And this is what we are expecting.

Operator: Thank you very much, Kin Ning. The next question is on EBITDA. What is the outlook of [Indiscernible] CapEx in 2022 and will there be any spectrum option this year?

Victor Li: Kin Ning, telecom, you continue.

Kin Ning Fok: Okay. So the CapEx in 2022 will be a significant increase from 2021. And on top of that, the spectrum option will be less. Which will -- I think, it's only be in Australia and in Ireland. And in Ireland, it looks like that it been happened this year. So that on the cash side on 2022, the CapEx on telecom will be much less. Because [Indiscernible]

Operator: Thank you Kin Ning. Due to the time constraint, maybe we will take two more questions. So this question is, what are CKI major focus with respect to sustainability, particularly [Indiscernible]?

Victor Li: We've answered that question earlier. First, it's not a problem for us and we look at this as opportunity. A lot of our business are not [Indiscernible] 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's an acquisition in the Netherlands, which is still subject to government approval. But we're the only foreigners in that, and we're enjoying it. So I look at it as a positive movement for us.

Operator: Thank you, Chairman.

Dominic Lai: Thank you.

Operator: This is our last question today. Our IR department will answer the remaining -- unanswered questions in the next two days. Our next question is; how do you view that current [Indiscernible] environment consolidation?

Victor Li: Chairman, you must be the person answering this question?

Kin Ning Fok: Okay. I think in U.K. it seems to me that they come off the chain. This is not final yet, it looks like that they have a change heart, and then the number of player may not be a critical as they see before. So we welcome this. So that's what can happen because in consolidation is our strategy. So we welcome that. Thank you.

Victor Li: I think we can't go on any further than that.

Operator: Thank you, Kin Ning. Thank you, Chairman. Thank you for coming today. Thank you very much for joining our presentation. Hey, thank you.

Victor Li: Thank you. I hope this year we can see each other is person. [Indiscernible] staring at this little screen. Okay.

Kin Ning Fok: Bye, bye.