CK Hutchison Holdings Limited

Welcome to attend the live webcast of C.K. Hutchison's 2023 final results presentation. Today, our speakers are Mr. Victor Lee, our Chairman and Group Co-Managing Director, Mr. Kenning Falk, Group Co-Managing Director, Mr. Francis, Group Finance Director and Deputy Managing Director, and Mr. Dominic Mai, Deputy Managing Director of C.K. Hutchison and Group Managing Director of A.S. Watson Group. During the presentation, please feel free to put down your question in the chat box. The Q&A section will follow the presentation. Before I hand over to Ken Lin, please also pay attention to our disclaimer, which you can find on page two of the presentation. We can start now.

Okay. Hello, everybody. And this is Ken Lin. We are here to give you the details of the 2023 results. Let's turn to page 4. Page 4 is the 2023 financial highlights. And you saw that the revenue at 2023 is $461.6 billion. Compared to 2022, it's a 1% increase. And And then the profit, the net earning is 23.5. And compared to 2022, if you take away the exceptional profit, if we make one-time profit in 2022, the regular profit is minus 9%. But if you inclusive total profit versus total profit, it's minus 36%. because in 2003, there was no one-time profit. We have several transactions, but there is no completion, no closing in 2023. Earning per share, same thing. Minus 9% on the regular earnings. $6.14 in 2023 versus $9.57 in 2022. And then the dividend in 2023 is $2.53 and $2.531, a reduction of 13.5% from 2022. So this is a take into account a reduction of 36% in total profit. However, regular profit is only 9%. And then also take into account of the dividend payout ratio. So the payout ratio now is quite an improvement from 2022, stand at 41% versus 31%. So this is the financial result of 2023. And if you... page 5 and then we talk about the operation the EBITDA if you on the 2003 is $104.9 billion and then in 2003 versus $119 billion in 2022 so you see that the shaded line represented one time EBITDA and then so that, you know, it become a minus 1% on a regular operating level, but it has a total of what we have done and it's minus 12%. And earning per share is the same, minus 2% on a regular basis, but minus 20% on a total basis. And an operating cash flow, because it's defined as only for regular business, is actually quite encouraging. It's plus 20%. and then the debt ratio, as a result, 2023 is 16.1% versus 2022, 16.7%. So if you turn to page six, okay, and then it's the EBITDA chart, and well, $104.105 billion pre-IFRS basis. You can see that this year, similar geographically, 49% come from Europe, and then 23% come from Asia. If you say that in Hong Kong, it's only 3%. On the business-wide, it's quite evenly spread. Infrastructure is producing 28% of EBITDA, followed by the telecom business. If you see where the changes of EBITDA from last year to this year, we go to the waterfall chart, you can see that if you take away the one-off, The 142 will become the 106. Okay? The 142 is the IFRS 16 impact. We are talking about pre-199 to 106 and then the 12 one. The 12 is represented by the one-time profit. We're talking last year from the tower from the tower from the Tao business, which is UK, and then from the Indonesia merger. And then, so that we are comparing on an operating basis, you know, it's the underlying EBITDA to the 23, and then you can see the waterfall chart. And then POTS, The retail service is basically, you see that in the pot business, we will see it in the later time, is that there was a drop of storage income, but to a large extent, offsetted by the increase in the throughput income. And then, of course, the one that we cannot reproduce is that we have invested in the shipping line, and this year, shipping line profits dropped. and say that the $2 billion is solely come from the part. And then retail business is doing very well. And you saw that Europe and Asia is doing very well. However, Hong Kong is not doing well. And also China is quite stagnant. and so that but then we have a very very good improvement in both Europe and Asia. Infrastructure business is is a very very good result you know because last year they have a one one time income this year they don't and not only that they overcome the one-time income last year is 1 billion so that the improvements to take away this 1.7 billion it comes in it mostly come from operation and also from interest income which they have so well well done on the infrastructure group on the And then on the telephone side, you saw that there's a retreat of $2.3 billion. Of course, actually, basically, the revenue side is doing quite well. Actually, you know, it's almost offsetting the cost increase, normal cost increase. But however, you know, out of the $2.3 billion, there's a $1.1 billion come from the tower sales. You know, because last year when UK sell the town, we recognized 1.1 billion profit over there. And also, and then in 2023, you are witnessing a huge, gigantic inflation. You saw that both in UK and Italy and other places. Actually, the revenue increase is quite good, but it's not enough to cover the increase in inflation. Actually, you know, just the energy inflation itself is 1.2 billion Hong Kong. So that actually, I can just very simply say that, you know, The revenue is able to cover the cost increase, normal cost increase, but not able to cover the energy increase. And of course, there's a non-recurring item on the tower sale. And actually, you know, Hutchison Asia Telecom has a good year. Now it has a reduction because from Indonesia, they have a one-time profit in 2022 to the extent of almost a billion, which is non-recurring this year. So that otherwise, the business work, I just said in the press conference, extremely well, enough synergy, and then profit increase, EBITDA increase, dividends two years or even a little bit more dividend this year and also they are able to finance their own network build out their network and then at that level actually come down so that is a very very good result from Indonesia and then lastly come back to the head office so this year you win more interest income from the head office However, you know, Sanova does not perform as well as last year. For some extent, it is overcome by our sales of the Warren. But, you know, actually the deficit is quite big from operations, from year on year, you know. but then covered to a certain extent by the Warren but still there's however the interest income and also the income from Hutchison China China produced a quite good profit so that we're able to produce a positive variance against last year in the head office so that there are very small foreign exchange movement so that you can see that you know The EBITDA on the real business is go from 106 to 104. The light blue color is the post, ILF is 16. Now go to page 7. I ask, this is Castro at MoneySign. I will ask Frank to talk about Frank, please.

Thank you, Canning. So operating cash flow on slide seven for 2023 was really quite favorable. If you look at the upper left pie chart, the number one driver was coming out of finance and investments and others, which, as Canning described, includes things like interest income, includes some trading profits, includes some fair value gains last year, not this year. and, of course, includes a very good performance coming from China, China Mint, which we'll get into later on. The second biggest contributor was the retail group, and then the third was actually the reports group. Interestingly, what's happening, if you go down to the chart below, you see that there's been a very substantive growth in the EBITDA that's coming from subsidiaries as opposed to coming from associates. And so even though in something like ports, EBITDA is down for the year, actually the contribution from subsidiaries, so cash flow that we control, was significantly higher. And that's because the relative weakness, I think as Kenny described it, was in Hong Kong stocks. whereas the relative strengths were in places like Mexico and a few other places and so at the end of the day more controlled in subsidiaries and of course a very substantial reduction in capex across the board that Billion dollars less, right, and so you put that together, right, and you have a very healthy growth, right, in straight operating pre-cash flow from $33 billion to $39.5 billion. The attribution on all of that is on the charts to the right, where you look at all of the components and you look at CapEx, right, and investment, I think. You know, by and large, they're pretty self-explanatory, and they're stuff that we'll be talking about, right, as we go through the various core divisions. But, again, as I say, you know, solid performances in terms of cash flow. management really across the board. And we'll see that again on the next page, which is page eight, when we take operating cash flow down to free cash flow. So if you start on the left, you start with our 39.45% operating free cash flow, take away interest and taxes paid. That was a total of $13.5 billion. Interestingly enough, that is as much tax as it is incremental interest. So it's... The year-on-year, right, is not anywhere near as unfavorable as the lump sum would look. And then particularly when you remember that in operating free cash flow, you had the drive of additional interest income. The impact of higher interest rates on us is still happily fairly marginal. Obviously, working capital changes, that's quite interesting because that doesn't really have to do so much with operating working capital management, which was really, frankly, as solid and and the US dollar loan that was swapped into Aussie dollars that had to do with TPG Telecoms. And so we ended up taking the mark-to-market loss on the Aussie dollar Hutchison Holdings Limited Again, on the operating side of managing the plain vanilla working capital, it was really a pretty solid year, and in any event, a favorable year on year. Number three, obviously, we've talked about the tower asset disposal. There was a spillover, which is that we had a bill for BAP in the U.K. that we paid. That was $3.9 billion in Hong Kong dollars. We bought some telecoms licenses in Ireland and in Sweden. That was another $1.9 billion in total. Italy completed what's called the Zafaro joint venture with Iliad and received proceeds of $2.2 billion. 6 billion Hong Kong dollars, right? And then we received some loan repayments, right, from associated companies. Primarily, that was working capital loans that were repaid in 2023 that related to the terms of the merger with IOH. So there were major repayments coming from Indusat, Uridu. So if you go across to the chart at the right, and then you basically see the reported free cash flow for 22 stripping out the tower disposal proceeds of $28.5 billion. That took you to an underlying cash flow for 2022 of $19.3 billion. as we talked about EBITDA subsidiaries, we talked about dividends from associates, we talked about interest in taxes paid. As you can see, that's a $3 billion variance in total, about two-thirds interest, about one-third tax, if I remember right. CapEx was a huge improvement across the board of $2.5 billion. New investments in associates and JVs, significantly lower. the telecoms licenses that we've already talked about, the proceeds coming from the formation of the Italian JV, we've also already talked about, and the loan repayments we've talked about, other miscellany, and it takes you to a $21.5 million free cash flow for the year. So that, if we go to the next slide, leaves us with a very um healthy uh profile overall uh you know first of all uh our net debt uh on the chart on the upper left might continue to decline from 16.7 at the end of 2022 to 16.1 of global capital at the end of 2023 and i'm happy to say that that The trend is continuing as we look at the first couple of months of this year. So we are continuing to reduce the net debt. We're also continuing to reduce the gross debt, which is also quite important. In terms of our exposure to interest rates, well, we have an average, as you can see on the lower chart, five years maturity, which is actually a little bit longer than it was at the end of last year. We've only got a 22%. of our debt maturing this year. So although interest costs are, of course, going up, which we saw in the previous chart, so is interest income and our average cost of debt as a result is only going up by 1.2% to 3.2%. It'll continue to creep up a bit during the course of 2024. But again, you know, with only 22% of the debt repayable in 2024 and most of the fixed rate debt repayable in the second half, right, that's not going to have a huge effect, right, in terms of the average cost of debt. Bearing in mind, of course, that after interest rate swaps, 68% of our total debt today, sorry, at year end is in fixed rates. and only 32% is in floating rates. The other nice thing that we have going for us is that obviously with $143 billion of liquid assets in an inverted yield curve environment, we have an advantage in terms of the yield on cash as opposed to the cost of longer-term maturities and on another significant balance. So all in all, Hutchison Holdings Limited in the U.S. So I think that's all that I have to say on our financial profile. And it takes us to slide 10, which is the performance of the ports group. And I hand you back to Kenny.