CK Hutchison Holdings Limited

Ladies and gentlemen, welcome to the C.K. Hutchison's 2020 interim results presentation. Today, our speakers are Mr. Victor Lee, our chairman and group co-managing director, Mr. Kenning Fogg, group co-managing director, Mr. Francis, group finance director and deputy managing director, Mr. Dominic Lai, deputy managing director and group managing director of A.S. Watson, and Melina Ahn, CEO of Asia and Europe and group COO of A.S. Watson's. During the presentation, please feel free to put down 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 Kenneth, please also pay attention to our disclaimer page, which you can find on page two of the presentation. We can start now.

Okay. Good afternoon or good morning, wherever you are. This is the time to announce the half-year result. And for this first half in 2020 has been a very, I won't, very exciting year in a sense because we witnessed the huge drop and fluctuations in the oil price. And then we also witnessed the COVID-19 that affect initially Hong Kong and Asia, China and Hong Kong, then Asia, and then the rest of the world. And then the group has been working hard all these years, and then we delivered the forum itself. If you turn to page four of the presentation, you saw that revenue, $189.9 billion, down by 12% in the Hong Kong currency, but because we operate in 33 countries, operationally to take away the foreign exchange and then it's down by 9% in local currency and EBITDA went down 47 billion, went down 13% in reported currency in Hong Kong dollar, 10% reduction in local currency and EBITDA 26.7 billion, down 22%. But if you take away foreign exchange, it's 19%. And net earning, 13.2 billion, down 28%. And take away foreign exchange, it's 25% in local currency. So earning per share, 3.37%. and compared to the same period last year, down 29%. And as a result, we also have a reduction in dividend per share payout by 29%. It is 0.014 Hong Kong dollar. And although we witnessed a reduction in earning, The cash flow of the company, we have been putting very stringent control on pathways and working capital. As a result, compared to last year, the first half, we are 25.1% net debt ratio, which is 1.1% better than the same period last year. So, I would like to take you to page 5, which is the... We talked about the EBITDA of the company, 47 billion minus 13%, and if you take away the currency fluctuation, it's 10%. So you will notice that if you look at the way it happened, 55% of that is in euro, 8% in China and 4% in Hong Kong. It came up this year because the Hong Kong operation, Hong Kong Telecom and, of course, parking shop doesn't really affect by the COVID-19 in Hong Kong. And Asia is 19%. You will see a big figure of 21% at What you see is from the finance division that's basically reflected the earning that we recorded in Asia, which is used to, in Australia, which is used to offset the losses, which you see in the following chart. in the right side. So if you look at the composition of the EBITDA, you know, the biggest one is 34%. It comes from the telecom division, then 29%. It comes from infrastructure division. Of course, you know, and the other two contributors, to a certain extent, is affected by COVID-19. It's 10% for the retail and 12% for the port. So if you go to the right side of the screen, and you saw a chart, it's a waterfall chart from last year's EBITDA to this year's EBITDA. and then this year, unfortunately, because it is all affected by the oil company and also by the COVID-19. So if you look at the port business, you know, compared to last year, it is $688 million less and the detailed hour expended in the port division, which is about 11% less than last year, same period. And there's And then if you look at the retail, we took off two items. One is the one-time profit from last year, the 633, and the other is the regular income. It was by 22.766 billion, which is about 31% with just one profit. 31% reduction from the same period last year. And if you go to infrastructure, you know, this is more or less the same infrastructure doesn't really affected by the COVID-19 and by the rest of the world. So that it is the EBITDA wise is more or less the same. And then, of course, Husky Oil, which is affected very quickly. And for EBITDA-wise, we have 4.4 billion for ordinary, and then 3.1 billion for ordinary. And, of course, as I said earlier, we mix. Because of the merger, I demonstrate the VHA of 50% interest with TPG, a fixed line, and we caught a huge income which is $8.7 billion. Actually, the total income is about $10 billion, but we've got to take off some minority interest and also take up some provision. We put against it so that we caught $8.7 billion, which is very... is useful for us because to offset the Husky loss. And then the telephone division in the next two column is doing quite well, except for UK, which I will explain when it comes to the relevant section. All the other countries, Italy and Australia, Denmark, Sweden, Austria, and Ireland are also showing improvement in EBITDA and also in gross margin. So that, you know, businesses are doing well. But UK has its own problem, which we have talked about in the past. And then I will elaborate that in the later section. So that it talks about, you know, if you take away EBITDA, uh you know last year we have extraordinary item in italy and this you don't have so this is it's a one billion hong kong and if you take that away actually you know we are you know we are about one percent off last year uh in the in the ebitda and and then if you go to the asia shows an increase in EBITDA because basically it comes from Vietnam doing much better than last year. And then you have quite a reduction in F&I, and I will let Frank discuss that. So that, of course, foreign exchange took about $1.8 billion away from EBITDA. So this accounts for the $55.9 billion from last year to $46.9 billion this year. Okay, so I would like Frank, you know, because I said that the cash flow is better, and I would like Frank to talk about it for the next two pages about the cash flow situation.

Thank you, Kenny. So on slide six. This is the view of the decline in operating free cash flow, but that doesn't equate to the full free cash flow picture, which we'll get to in a couple of slides. and I would point out that the first half of 2019 had about 1.7 billion Hong Kong dollars of one-time occurring items in it, one of which Canning just mentioned in relation to Wintrae in Italy. Thank you for joining us. some in effect cash neutral non-cash capex which is driven by our telecoms division when we swap Right. Right. Right. in the cash flow statement that reflects that. So in reality, if you strip that out, CapEx was a little bit flat. So all in all, That takes you to $19.1 billion, and that's showed in the bars right in the middle. And then, of course, on the right-hand side, the split as to where does it come from, and not surprisingly, most of the operating cash flow comes out of The telecoms business, less than normal, comes out of the retail business, and I think the rest of the slide speaks for itself. So if I can take you to slide seven, this is the same numbers split up by division. And, you know, to cut very quickly to the chase, you know, you can see that basically everyone is living within their means, right, except for the net investment going into HAT, which is the bar that you see under HAT, which is higher, obviously, than the EBITDA bar. The other thing that I would say here is that, interestingly, if you look at the depreciation on a divisional basis, everybody is living within an envelope of capital spending, which is less than depreciation. And that's been a very rigid discipline that we've imposed. And again, with one exception, which is HAT, because of the amount that has been Spent on Accelerated Network Rollout in Indonesia this year. And it gets very interesting because we had some very, very significant savings. So if you go down the right, our operating free cash flow, you then deduct interest and taxes paid. Well, we paid close to $2 billion less in interest and just over $1 billion less in tax this year than we did in the first half of 2019. which is really quite a good news. We also had a superb working capital improvement which is shown in the next slide, that 4.2 of increase in working capital compares to a first-half increase last year, which was more than $8 billion more. So really a very, very good job of managing working capital on a very timely basis, particularly by our retail group. So as to offset in cash flow terms some of the adverse movements that you see on the bottom line on the attributable earnings line. So that took us to a first half free cash flow. before our dividend of $8.9 billion, and that was fully 51% better than the free cash flow performance in the first half of last year. So we're very pleased, needless to say, with that outcome because it essentially meant that our net debt relative to the first half – You can see this relative to the first half of last year actually declined by 1.1%. Whereas it did go up from the year-end number, which was 24.8%, we went up 25.1%. But that was only because of the weight of the dividends that we paid in the first half. Remember that we always pay the final dividend for the previous year in the first half. That accounts for 1.1% in and of itself. of the increase in net debt from the end of the year. So long story short, and those dividends, by the way, totaled $8.9 billion paid out to C.K. Hutchison shareholders and another $3.4 billion paid out to other minority interests around the group for a total of $12.3 billion of dividends paid out. So I think on balance, the financial profile held up much better than might be implied just from looking at the earnings profile. And that's, in some sense, is not that surprising because although the Husky results hit us very hard from an earnings point of view, in reality, they don't hit us very hard from a cash flow point of view because we begin to see that in a lower dividend rate, but you'll feel that more in the second half. and we did in the first half. So I think with that, I'll stop there and I'll turn it back to Canning and talk about our ports division.