CK Hutchison Holdings Limited

Welcome, thank you very much to attend the live webcast of C.K. Hutchison's 2023 Income Results Dissertation. Today our speakers are Mr. Victor Lee, our Chairman and Group Co-Managing Director, Mr. Kenning Fock, Group Co-Managing Director, Mr. Francis, Group Finance Director, and Deputy Managing Director. Mr. Dominic Lai, Deputy Managing Director of C.K. Hutchison and Group Managing Director of A.S. Watson Group and Melina Ai, CEO of Asia and Europe of A.S. Watson and Group COO of A.S. Watson Group. During the presentation, please feel free to put down your question in the chat box. The Q&A session will follow the presentation. Before I hand over to Kenny, please also pay attention to our disclaimer, which you can find on page two of the presentation. We can start now.

Okay, good afternoon or good morning for those in Europe. And so welcome to our presentations for the first half of 2023. And it has been not an easy year. And you can just see that in the first half of the year, we are doing without those mega one-time earnings. So that as a result, you know, it shows that we have a reduction of net profit. If you look at the revenue point of view, you know, but on operation, it is quite significant. balance if if you look at the revenue is minus three percent on a reporting basis but if you look at the local currency without the exchange and then it is plus one in local currency and the net earning um 11.2 billion versus 19.1 billion last year less 41%. Basically, last year, we have 6.2 billion of extraordinary income, which we don't have today. If you take that away, and then it is a minus 13%. And it basically reflected the energy costs and a lot of the costs increased, especially in Europe. and where the revenue is is there's a timing difference for the revenue to catch up and earning per share is 2.93 cents versus 4.98 and 41 percent reduced because of the you know there was lack of extraordinary one-time income as compared to 2022 and dividend minus 10%, 0.756 cents versus 0.84. And I think this reflected the bot's confidence in the company. And also because later on, and then Frank will present the cash situation, is the strong financial situation of the group. So that, you know, and then we look at the business as a whole, and then we feel that, you know, there are pressure about 10% on the ordinary business. This is why the board comes to a conclusion. They do not pay attention to the lack of extraordinary income, but, you know, reduce the dividend by only 10%. that is page three of the presentation. Move on. So if you look at page four, and this is the pre-IFRS, it is only look at our P&L on a pre-IFRS 16 basis. That is that, you know. And then you can see that The EBITDA in local currency is minus 14%. And then the underlying is only under 3%. And then the EBIT is minus 20%. The underlying is minus 40%. And of course, if you move forward to the right-hand side, the operating cash flow is plus 26%. And the debt is plus... is uh is less three and a half percent versus uh first half of 2022 so that the financial position of the group is very very strong and then the the ordinary earning of the group is actually you know it's quite okay if you go to page five uh if you look at the EBITDA on a pre-IRR IFRS basis is 49.9 billion, almost 50 billion, minus 14% in the reporting package. And then if you look at in the local currency, it's minus 11%. And then geographically, it comes almost 47% from Europe and 23% from Asia and the rest of the world. and then the 20% from the financial income side. And China and Hong Kong only represent 5% and 3% respectively. That's reflected the recovery is not as strong as in Europe, in both places. And then if you look at the business side, and of course you know infrastructure produce 29% of our EBITDA and then followed by the telecom and then actually this you know the head office division is doing not too bad 20% and then followed by retail and the port if you go to the right hand side of the chart you can see that the waterfall of the EBITDA and then of course you know this famous one off from last year that is the basically is the income from the earning that we came from Indonesia and this is not happening this year so you go from last year's first half to accepting that to the third bar, the first half underlying EBITDA is 53 billion. And then if you go across the page, you see port. And then basically, you know, there's a 1.7 billion differences there. Basically, it's about 0.7 billion is the reduction of the storage income. and then of course there was a $1.1 billion reduction from investment in an associate company which is a shipping company and then the profit of that associate company dropped by more than 70% and then it is a on equity accounting basis we have a reduction of income from there and then retail and everything is good and then I think Dominic will explain that every cylinder is firing and even China is doing better than last year it's just that not as good as our expectation but it is doing well and infrastructure on the EBITDA basis they are doing quite well actually every cylinder is firing again they can even cover the disposal of the 25% in Northumbria and then the disposal of the interest in the U.S. which account for $500 million and actually the operation is very solid in the infrastructure side and of course you come to the telecom division, you show a $2.2 billion reduction. And actually, you know, it looks much higher than it really is. Let me explain to you. How was the $2.2 billion reduction? $1 billion is basically come from FX, foreign exchange. Now, basically, there's $0.7 billion of this $1 billion is actually an accounting issue, not a business issue, because we have found ourselves in a situation where U.S. dollar is sitting on the European book. So when they close their accounting, and then we reflect $700 billion difference between this year, losses between this year and last year's, and then although in the holding company, we report in US dollar, Hong Kong slash US dollar, but however, we are not allowed to reverse that entry. So there's quite a peculiar accounting situation. So that is, and then that is 1 billion. And then we received the tower money for UK in the last quarter of last year. Of course, this year we got to pay tower fee, which is about 0.6 billion. And then this year we see a huge escalation, especially in the first three months of energy costs in Europe that account for another 0.6. So that roughly account for this 6.6 billion. 2.2 billion dollar of differences so the operation you know actually later when you come to that session you will show that the operation is quite encouraging actually so we will deal with that and then you know HAT which is the Asia Telecom Division actually you know uh basically is indonesia they have shown a much much improved you know in in operation uh in their basic business in the ordinary business the difference is only the last year uh they have you know they they sold the data center and recognized a huge profit and this year you know they they only have a sell some towers the property is very small compared to the data center actually the operation is good and then the profit is all you know ordinary profit is seven seven times uh uh what they do in last year so that this you know and and you will see that you know this business is doing well and um Of course, we go to the finance and investment divisions. This first half year, we witnessed that at the You know, I declined again last year, quite a material significant, you know, the Synovus performance, and it is all offset by some trading profit and also by interest income and also from China, the medical company. So that, you know, this so that is a quite an effort to reach that 1.1 billion positive against last year and of course you saw the foreign exchange impact is 1.6 billion at the worst so I think this summarized the operations on page five so on the next page it's about operating free cash flow I will invite Group CSO, Mr. Frank Six, to take us through.

Thank you, Mr. Falk. Well, I think the picture on operating free cash flow, and we'll get to the picture as well on free cash flow in a couple of pages, is reasonably good simply because of, of course, strong cash generation contribution coming from retail. but quite a bit of spending discipline, significant reduction in spending in CKH Group Telecom, HAT, not spending as much as it did last year. Remember last year when we did the merger in Indonesia, we invested additional funds to get to an equalization situation. And then in finance investments, we just went through the EBITDA side. But interestingly, the interest income that we generate, right, in the end is significantly higher. than the incremental interest expense costs that we're paying due to rates changes. And we'll get into that in a little bit more detail. So operating free cash flow on the left-hand side, right, you'll notice a couple of things. I mean, one is that the contribution from ports, right, and the contribution from infrastructure, right, ports significantly down from where it was, infrastructure also down from where it was last year. Everything else about same-same, right? And the reason why the finance investment in others looks better than it does, right, on the previous slide, just on the EBITDA basis, right, is, of course, that the share of EBITDA of Synovus is not what we take into account from a cash flow point of view. What we take into account is the dividends distributed to us, which have been going up. And, of course, The warrant sale, which was in effect the return of capital, right, also. So with all of that, finance and investment was able to, from a cash flow point of view, significantly offset, right, any of the adversities, right, relative to the first half of last year. I don't think I'm going to go through it in detail. I can certainly answer any questions. If you look on the right-hand side, as usual, right, you know, you have the graphic illustration of the What the divisions are killing and what they're eating. So what is their real operating cash flow profile right after CapEx and investments? And you see right away the lower profile ports this year. That's coming from two reasons. I mean, one is that ports is actually spending quite a bit more by way of CapEx this year than it has in prior years and certainly in the first half of last year. And that's because of the investment phase that we are in Egypt, which no doubt Canning will be talking more about. Retail, huge contribution to operating free cash flow. Infrastructure, likewise, quite solid. CKH Group Telecom, I think we've basically talked about and we'll be talking about in greater detail later. HAT, as I say, better, but simply because it's not spending as much as we and Finance and Investments we have basically covered. So if we go to the next page, which takes you from operating free cash flow down to free cash flow, the first thing that you find is obviously you take away from the operating free cash flow interest in taxes. The interest was about 4.4 billion. The taxes were about 1.8 billion out of that 6.2 billion. Working capital changes. This is kind of interesting. Basically, working capital was quite stable all around the group. There was one major movement relating to some net equity hedges in CKI, which were in the money in the first half of last year and out of the money in the first half of this year. So these are things that affect cash flow because you post collateral against the hedges. or you release collateral from the hedges, but at the end of the day, it's all just mark-to-market stuff. It's not, you know, real cash going one way or the other. Similarly, the tower asset disposal VAT settlement, you know, was not a surprise. We had actually received that money, right, from the buyers, from Celnex in Q4, right? and it's just that we paid it out, right, in Q1. So, again, you know, that's not really as adverse as it looks. We did buy some telecom licenses. We bought licenses in Ireland, right, which I'm sure Kenny will go through with you, but that was basically accounts for the billion-odd dollars of cash flow movement on Tonecom's licenses. And then we received proceeds of around 300 million euros, which is the 2.6 billion, right, when we formed the joint venture in Italy with Iliad. So if you look at the year-on-year changes, generally we have a little bit more EBITDA from our subsidiaries. We have a little bit less dividends coming up from associates and so on. Our interest bill, as I say, was higher, but it is less than the interest income contribution on our treasury assets, which is very pleasing. We are benefiting more. from a period of some immunity against rate hikes because of the way the books balance. Working capital changes, as I say, most of the group totally under control, some impact coming from the derivative Settlements, well, the collateral requirements, right, in CKI, mark-to-market movements. CapEx overall, right, less than in the first half of last year, right. The big number on investment in associates and joint ventures is basically coming, right, from the fact that we paid last year, right, some $3 billion-odd to equalize, right, with in Indonesia, in the telecoms business in Indonesia, the telecoms licenses we've talked about, that's effectively all Ireland, the proceeds we've talked about, that was on the Iliad joint venture, and the VAT settlement we've talked about. In the others, we also got a significant loan repayment, 200-some-odd million U.S. dollars from IOH, from the Indonesian telecom subsidiary. Now we have set up, though, a receivable for the Synovus warrant proceeds, which will be coming in in the second half or at the latest in Q1 of 2024. And finally, if you put all of that together and we go to the next slide, our financial profile looks pretty attractive. I'll just give you a few data points. Obviously, on the top, the net debt improvement relative to the first half is a modest deterioration relative to the is the second half, but that is entirely because of volatility, particularly in euro and sterling exchange rates. Remember that from a net debt point of view, our debt is weighted towards euros, whereas our cash is weighted towards US dollars. at June 30th, the number worked out to 17%. Last week, given the favorable movements on the US dollar between June 30th and last week, we were at 16.7%. So the currency volatility gets reflected in here and the sensitivities you'll find spelled out in the statement of liquidity and that's attached to the results announcement. In terms of our treasury operations, as I said, we really did benefit quite a bit from the increasing rates. So on our managed funds, which include slightly longer duration treasury portfolio, we had a return of 2.45% versus 1.07% in the first half of last year. on, of course, our deposit base, which is much larger than the managed fund base. We had a 4.73% return versus 0.7% in the first half of 2022. So all in, a very significant yield pickup on our liquidity portfolios, which is good to see. In terms of debt maturity, Right. You know, not much to say. We've been refinancing on a fairly routine basis. It is ticking up our average cost of debt, which was 1.8% at June 30th last year, 2% at the end of last year, and is now 2.9%. And our maturity is relatively steady. It was 4.8 years at the end of December last year. The average maturity now is 4.2 years. Our liquid assets, not much to comment on there. Ratings stable. So, and I think we're, again, we will feel the impact of increased rates gradually over time as we refinance per the maturity profile that you're looking at right on the left. But for now, we are still 70% in fixed rates and 30% in floating rates. So the impact is gradual. And I would say we have something of a safe harbor to deal with the rising rates environment. And with that, I'd give it back to Canning to discuss ports.