Analogue Holdings Limited (1977) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thank you for joining the 2022 Interim Results Investor Virtual Meeting of Analogue Holdings Limited. Today's meeting will be conducted in English. First, we will have the presentation by the management, followed by Q&A. We would like to invite you to turn on your camera so that our management can greet you face-to-face. Before we start, let me introduce Analogue's management team to you. They are: Dr. Kin Mak, Deputy Chairman and Nonexecutive Director; Mr. Victor Law, Executive Director; Mr. Raymond Chan, Executive Director; and Mr. Peter Cheng, Chief Financial Officer. Now, may I invite Dr. Mak to give you an overview of Analogue's results. Dr. Mak, please?

Thank you. Good morning, everyone. Thank you for joining our investor presentation today. I'm going to share with you our company overview. Other members of the team will then walk you through our financials and operations for the first half of 2022, followed by highlights of our outlook and growth strategies. Let me provide a quick recap of our company for new participants joining us for the first time today. Analogue is a leading electrical and mechanical engineering service provider headquartered in Hong Kong. This year marks our 45th anniversary of establishment. Analogue provides comprehensive electrical and mechanical engineering services across 4 major segments, namely: building services, environmental engineering, information communications and building technologies, ICBT in short, and lifts and escalators. Our customer portfolio is extensive, covering both the private and public sectors in different countries and regions around the globe. We continue to strive for excellence in our innovative capability, as this sets us apart from our peers. Over the years, we have obtained 60 patents and designs internationally. Despite the challenges we have faced over the years, we have been able to ride on the strong foundation of our core businesses to maintain healthy and sustainable growth, and ensure the continuous growth of the value of our contracts in hand. Our commitment to environmental, social and governance initiatives, strives to create value for our shareholders and the community. Our recent initiative of obtaining the first Green Loan instrument is further testament to our long-term commitment to ESG. In the first half of 2020, we continue to make remarkable achievements in a number of areas. In terms of technologies, we continued our digital transformation while accelerating the development of proprietary engineering and technical technologies. We advanced our proprietary Digital Twin technology, and rolled out our latest innovative solutions such as long range, to add value for our customers. We're also committed to fostering an innovative culture to deliver artificial intelligence, robotic solutions, energy optimization, energy storage, renewable energy, digitalization and innovative environmental solutions for wastewater treatment and other applications that will benefit customers and the communities. In addition to applying modular integrated construction, MiC, and we also have various technologies like MiMEP and BIM for enhancing project management and construction efficiency. We widely adopted ATAL Building Services Prefabrication and Modularization construction technology, and Predictive Maintenance & Remote Monitoring System in our projects. It is worth noting that these efforts have allowed us to gain recognition from the market, fortifying our leading position in the industry. Regarding market expansion, we have tapped the U.S. market through an alliance with TEI, and established our first foothold in the U.K. We are actively exploring business opportunities in the Greater Bay Area, One Belt, One Road, Oceania, the U.S. and the European markets. We reached a milestone through our acquisition of Toppy Tower last year. It is now undergoing revitalization. The new headquarters are expected to become operational in the first quarter of 2024, and will improve our group's overall organization efficiency by enhancing productivity and creating synergy among different working teams. Our CFO, Peter will now present to you the group's financial performance in the first half of 2022. Peter?

Thank you, Kin. I'll just take a moment to discuss and talk about the financial performance of the group for the first 6 months of 2022. I think it's important that we highlight that we achieved a solid performance for the 6 months ended 30th of June 2022, despite the continued impact of the pandemic and other global uncertainties. The solid performance was highlighted by a strong growth of nearly 30% in revenue to just over HKD 3 billion in the first 6 months of this year. In addition, our order intake has surged by nearly double to about $4.6 billion in the first 6 months of this year. And then it gives -- in result, our contract in hand reached record high HKD 12.9 billion as at the end of June 30th, 2022. The consolidated net profit, excluding the provisions for potential litigation liabilities, was HKD 119.2 million, up by nearly 6% from the same period of last year. The group maintained a solid financial position with cash and bank balances amounting to over HKD 1 billion and a low gearing ratio of 13.6%. We are committed to rewarding our shareholders with our dividend payout ratio maintained at a high level of 50% based on the consolidated net profit of HKD 119.2 million. The following slide, we'll talk about some of the key financial data, which I will just quickly recap. I think the revenue we talked about is we reported $ 3 billion in the first 6 months of 2022, nearly 30% growth from the same period. And then, if I may then highlight is that the gross profit margin has gone from 13.8% in 2021 and to 15.1% in first half of 2022. And then lastly, more -- the most important is that the share -- the dividend per share for the period of first half 2022, the first interim dividend, we are recurring HKD 0.0427 per share, an increase of 6% from the same period last year. Our business segments sustained their revenue in the first half of the year. We talked about that as a group, we increased by 30%. Building Services is the -- contribute the biggest increase in this -- in the revenue. In fact, Building Services has increased up by about over 40% year-on-year for the same period. And my colleagues, Mr. Law, will talk about the -- all the big projects that contributed to this increase of revenue in Building Services, later. In terms of project nature, revenue from contracting works grew significantly by 40%. Both operations and maintenance service contributed a significant share of total revenue, with only a slight decline, reflecting the hard work and professionalism of our teams in these 2 areas. So, with regards to the group's balance sheet and other key financial ratios, I will go through one by one. But I think the main point I want to highlight is that the bank balances and cash, as of the end of 31st of December 2021 is HKD 800 million. And at the end of June, we've grown the cash and bank balances on hand back to HKD $1 billion -- just over $1 billion. And our gearing ratio is -- as reported, is only a slight change, is, 13.7% in December 2021 to 13.6% at the end of June 2022. As mentioned, we are committed to rewarding our shareholders with a dividend payout ratio of no less than 50%. And hence, we are declaring the interim dividends for the first half of 2022 will be HKD 0.0427 per share, a growth of 6% from previous year of -- just over HKD 0.04 per share. I'd like to -- just a quick summary is that, despite all the environment and the circumstances we find ourselves in as a group, we have delivered a very strong business performance with increased -- with doubling our order intake for the same period of time comparing to last year. Our order -- on hand is at record high. We have then turned this order on hand in hand into revenue, and increased revenue by 30%, and the net profit year-on-year -- consolidated net profit year-on-year has grown by 6%. Thank you very much. So I'll now pass it on to Victor for talking about some of the business sectors.

Thank you, Peter. First, I would like to go through the performance of our Building Services segment during the period. This segment we made the group's largest revenue contributor in the first half of 2022. We have contracts in hand worth around $6.4 billion as at the end of June this year, up 24.4% year-on-year. Total value of new contract awards received during the first half of the year was almost tripled at $3.5 billion. Revenue surged by around 44% year-on-year, amounting to more than $2 billion. Our building services segment provide one-stop E&M engineering service with clients from institutional, industrial, healthcare, infrastructure, data center, residential and commercial sectors. Currently, over 50% of our Building Services projects have adopted building information modeling in coordination and project management. We are expanding our multi-trade integrated mechanical electrical pumping facilities and developing our proprietary ABSPM ATAL Building Service Prefabrication and Modularization construction technology, which significantly improves the quality, safety, cost and project management. Thanks to our emphasis on new technology, we have completed a public mortuary project by mobilization teams of workers at very short notice to help expanding the urgent need of capacity to meet the surge in demand due to the increasing in mortality rates during the 5th wave for COVID-19 epidemic during the period. On the market front, we are also actively exploring opportunities in [ Mainland ] and China and Macau. And in particular, Macau is undergoing a transformation into a global leisure and tourism hub under the Vector Bay Area footprint, presenting great opportunities for us. Data centers are also providing huge potential as Hong Kong forged ahead with digitization. Core area of data center is expected to double in the next 5 years with a CAGR of around 11%. As a leader in this field, we are confident that we are well positioned to capture the emerging opportunities. It is also worth mentioned that we have secured maintenance contract worth more than $127 million from both the private and public sectors. This slides show some of our signature projects of building service segment in progress in the first Q of 2022. There'll be provisioning of Fu Shan Public Mortuary, is the government's had project in the adoption of building information modeling from design to construction with a contract sum of more than $230 million. The project was completed successfully in the first half of the year to meet the surging demand during the 5th wave of pandemic. The commercial development at New Kowloon Inland Lot #6557 is a proposed commercial project in Kai Tak Develoment earlier with construction of over $860 million. The photo in the middle shows the design of a major department store presented as Twin Towers, which is set to become a new landmark in Kai Tak district. AIRSIDE in Kai Tak is also -- is our first commercial development project in Hong Kong to be awarded 5 green building acquisitions at their highest level. That is also our first commercial mall project with full-scale building information modeling deployment. The construction of this project amounts to over $700 million. We also see great opportunities in the infrastructure and healthcare service sectors. Current projects including E&M engineering works for public hospitals and clinics within Hong Kong West hospital clusters with a contract sum of over $360 million. We are also engaged in the development of the North Runway Modification Works of the Hong Kong International Airport 3 runway system project, which is expected to be completed in 2024. The contract sum of this project amounts to more than $740 million. As a leading data center infrastructure service provider, we are also exploring related opportunity project, and hence include the Construction of the Government Data Center Context in Cheung Sha Wan as well as the data center for a large local colocation company, with a contract sum of over $900 million and $300 million, respectively. In addition to construction, we are also providing maintenance services to a data center for a financial institution in Hong Kong. In addition to those in Hong Kong, we also see attractive opportunities in Greater Bay Area, and are therefore looking to increase our involvement there. Our Mainland teams participate in the Hong Kong Jockey Club Conghua Racecourse project located in Guangzhou with a contract sum of over RMB 170 million. We have also worked hard on the Galaxy Hotel Lot 4 projects in Macau, the new contract sum we have secure in the first quarter of 2022 amount over MOP 1 billion. I will now hand over to Raymond, who will share with you the performance of other building segments. Thank you.

Thanks, Victor. Hello, everyone. I'm going to walk through the other 3 business segments, namely Environmental Engineering, ICBT, and Lifts and Escalators. For the Environmental Engineering segment, we have contract-in-hand worth more than $4.9 billion up to end of June 2022. Revenue maintained at a similar level of $500 million. The Environmental Engineering segment provides the total services coupling the design, build, operate and maintenance of environmental engineering facilities, including water, wastewater, solid waste and gas treatment. We continue to develop advance technologies and innovative environmental solutions such as Digital Twins technology, to optimize operation efficiency and water and wastewater treatment plants, as well as breakthrough technologies like AMSFS 3, which is a Containerised Multi-Stages Magnetic Flocculation & Sedimentation Process. A new process, Aerobic Granular Sludge, which was adopted in one of our wastewater treatment plant in Hong Kong. For overseas market, we are exploring opportunities in places such as Kaliwa and Wawa in Philippines for water treatment works. We are also seeking appropriate business ventures and opportunities for equity partnerships such as PPP for One Belt, One Road projects in Mainland China and Southeast Asia, as focusing us to deliver projects in more effective and sustainable manner. Moreover, the Green funding that we have previously obtained, and our capability in manufacturing of sales, developed environmental products will also help realize our reason of delivering environmental solution for wastewater treatment and other applications for betterment of the community. We continue to increase our engagement in wide range of projects that bring social and economic benefit to the city, including the Hong Kong CSD icon project to upgrade the existing sewage treatment works in Yuen Long to create an effluent polishing plant with a contract sum of more than $1.2 billion. The project will ultimately expand the treatment capacity from 70,000 to 150,000 cubic meter per day in order to meet the future development needs. The New Leachate Treatment Plant in North East New Territories Landfill Extension with a contract sum of over $200 million. Other signature projects include the upgrading of Cheung Chau Sewage Treatment Work and disposal facilities with a contract sum of over $300 million. Another signature project is the maintenance works in Castle Peak Power Station and Black Point Power Station. That contract sum was over $100 million. Our signature projects also include the second Food Waste Pre-treatment Facilities at Sha Tin Sewage Treatment Works with a contract sum of over $110 million. This project, we mixed the Food Waste and sludge from Sha Tin Sewage Treatment Work to combine what we call is a codigestion to generate more methane gas and then generate more electricity. Our term contract for the Stonecutters Island Sewage Treatment plant with a contract sum of over $410 million. This wastewater treatment plant, it treats 2/3 of the total sewage generate from Hong Kong. The other segment, ICBT, our contract in hand amounted to over $1 billion in the first half of 2022, representing an increase of 13% year-on-year. Revenue from contract work, maintenance and sales of goods, all [indiscernible] and increased with the total revenue amounting to around $303 million, up by around 34.1% year-on-year. Our ICBT segment offers green and intelligent building solutions with integrated ICT and building energy and management technologies to facilitate Hong Kong's transforming into a Smart City, supported by smart mobility, smart living, smart environment, smart people and smart economic initiatives. As the smart initiatives fall ahead, we are committed to assisting these opportunities and expanding our business into new markets by leveraging our in-house research and development abilities and collaborating with market-leading hardware and software partners, university and research [ institutes ], where we have realized the development and application of numbers technologies such as AI energy management platform, IoT applications and video analytics technology and more. Also, we have adopted a subscription base under the Software as a Service, what we call a SaaS, model for our energy and technology business. We also offer green and intelligent building solutions and have deployed digital technologies and provide ongoing energy consultancy service to strengthen maintenance service capabilities. During the year, ICBT segment worked on a number of new achievements. For example, we have secured a contract for a comprehensive solution of AI energy management platform, IoT applications, video analytics and Digital Twin Technology, for a proposed world-class smart office building in [indiscernible]. This is 2 Murray road projects with a contract sum around $90 million. Our BMS IoT and energy system will be installed in a series of Fortune's shopping malls, with a contract sum around $20 million. Other selected projects include an IoT-based Smart Hotel Solution with IT solutions for the new Hong Kong University student residents, which is an MiC project, with a contract sum more than $30 million. A Multi-functional Smart Lampposts Pilot plan with a contract sum of around $10 million. Now we come to our lifts and escalator segment. Our contract in hand, which is more than $500 million in the first half of 2022 with revenue increased by 2.1% to $183 million. Our lifts and escalator segment provide one-stop solution for the design, manufacture, sales, installation, maintenance and modernization of lifts and escalator. Our Anlev brand is proof of our outstanding safety and quality departments. It continued to be a major profit contributor for this segment by offering one-stop solution to various transportation system in Asia, U.S. and Europe. On the new technology front, we launched the Predictive Maintenance and Remote Monitoring System for our lift and escalator, and also, the first commercial puzzle stacking automatic parking system in Hong Kong and the machine-room-less MRL lift. In terms of new markets, we serve millions of users in Asia, America and Europe. Based on our global expansion plan, we continue to seek new distributors in United States, Europe and Southeast Asia. One of the signature project we participate in is the Central-Mid-Levels Escalator and Walkway System of a contract sum of around $150 million. The project was successfully completed in April this year. It is worth looking that this project also won the first place in Elevator Worlds 2021 project of the year, contract under the escalator modernization category. Anlev was the only Asian company among the winners, highlighting our industry-leading expertise in this segment. We also completed construction of the first puzzle-stacking automated parking system in Hong Kong. This system adopts innovative technology to provide 30% to 100% more parking space. Following the project's success, Anlev was also awarded a further contract to provide a automatic parking system for the new government building in Kai Tak development area. We also secured contract for universal accessibility facilities at foot pitch, Elevator walkway and subway in Hong Kong with a contract sum of over $20 million. In terms of overseas market, Anlev serves millions of users across Asia, U.S. and Europe. We are accelerating our global expansion through our alliance with TEI, and also subsidiary in U.K., representing our first foothold in the Europe market. Our Anlev subsidiary has also obtained ISO 9001, 14001 and 45001 UK certifications, which is a testimonial to our safe and high-quality products and services. We have also established a presence in mass transportation in Brazil and also hotel industry in Mexico. To further strengthen our operations, we have invested RMB 60 million in enhancing our production capacity. The expansion of Anlev's manufacturing plant in Nanjing is expected to be completed by end of this year. Our maintenance service cover all 4 business segments and serve the public and private sectors, including the public railway operation, water supply department, drainage service department and also EMSD and also the private commercial complex. We have made efforts to enhance the recurring revenue from our maintenance business. As a result, a contribution to the group total revenue was 15.2% in the first half 2022. Looking ahead, we plan to put more efforts into growing our maintenance service business so we will contribute stronger, stable and recurring income to the group. That's all for my part in today's presentation. I will now invite Kin to conclude our presentation with the group's market opportunities and growth strategy. Thank you.

Thank you, Raymond. Looking ahead, the outlook remains positive for the group in view of the favorable government policies and the increasing number of opportunities emerging around the world, in particular, the rapid development of infrastructure, the healthcare sector and data centers, as well as Hong Kong's evolution into a smart and sustainable city present tremendous opportunities for our group. In Hong Kong, significant investments in infrastructure are expected to drive the recovery of the economy and stimulate growth. The annual construction output in Hong Kong is expected to reach HKD 300 billion per annum across public and private housing and commercial development. In areas such as Tung Chung, Hung Shui Kiu and Kwu Tung North, there will be a strong pipeline of infrastructure projects. In addition, land development along new railway lines and infrastructure development in the Lok Ma Chau Loop will also present great opportunities. On the healthcare front, an expenditure of HKD 200 billion is expected as part of the 10-year hospital development plan, with a further HKD 300 billion to be invested in the second 10-year hospital development plan, with the aim of improving clinic and healthcare facilities. Besides, with Hong Kong being one of the most attractive data center locations in the APAC region, it is believed there will be increasing demand for the construction of new data centers and the upgrading of existing infrastructure, offering a robust development pipeline. We also see Hong Kong developing into a smart and sustainable city with next-generation connectivity across the territories, combining with strengthened capabilities in big data analytics, artificial intelligence and IoT enabling the evolution of digital-enabled urban applications. Going forward, we will strengthen our leading position by implementing the 3 pillars of our new technology, new markets and new business model strategy to capture future market opportunities. We'll continue with our efforts in the development and applications of new technologies and we'll continue our investment not only in IoT, AI and Digital Twin technology but also in areas like BIM, MiC and MiMEP construction technologies and robotic solutions, which will ultimately benefit our customers and the community by reducing costs, raising productivity and improving safety, quality and sustainability. Regarding new market, as our strategic alliance with TEI and business operations in the U.K. and Europe have started to bear fruit, coupled with our expertise in operating in Hong Kong, Macau and Mainland China, we will continue to leverage our competitive edge to explore overseas business opportunities and eventually accelerate growth. In terms of new business model, we will strengthen our operations and maintenance service capabilities with our recognized customer-centric approach to deploying intelligent automatic systems and our state-of-the-art Predictive Maintenance & Remote Monitoring systems, we are well positioned to be the preferred O&M service provider. We will identify appropriate synergistic business ventures and opportunities for equity partnership such as public private partnerships for the One Belt, One Road projects and to deliver projects more effectively and more sustainably. Last but not least, we will focus on the fundamentals and ensure we adopt the best practices across our businesses. We will provide technical and ethical training to retain and nurture our staff while also upholding the highest governance standards. This marks the end of our presentation. I will now pass on to the floor to our emcee for questions and answers. Thank you very much.

[Operator Instructions] Now we received a question from [ Eron ] of [ Cigna ]. The first question is revenue and profit from Building Services increased significantly. What contributed to such increase? And how can the group further stimulate the margin? This question is about the building services segment.

I think, the main reasons of high revenue in the first quarter is, thanks to the huge order intake in the past years, and this order turned into revenue in the first quarter of the year. And also the group have actively adopted the advanced cutting-edge building technology such as BIM, MiMEP and DFMA and this also -- this technology also contributed to the increasing revenue in the first quarter of the year. And also the data center. Data center is also a [ Hills ] mark, and then we secured quite a number of data center project in the past year. And so it also contribute high revenue of building segment in the first quarter of 2022.

So the next question comes from Mr. [ David Webb ], and we will now unmute your channel.

So -- well, first of all, congratulations on a good set of results. I'm sure that many investors are, however, concerned about the ongoing competition commission case. The company has said very little about this publicly. And the market value of the company has dropped by about $500 million or so since this was announced from around $1.80 to $1, what is it now, $1.40 per share -- that's $0.40 times 1.4 billion shares. Yes, that's about $560 million. If I understand correctly, the maximum fine would be the 10% called the Hong Kong turnover of the group because they lift the corporate sale or the highest 3 years of turnover in the pending period. Now that's a worst-case scenario, that could mean something like $900 million, if I got the numbers right. We've only provided for $60 million. And the market seems to have provided for about more than 50% of that worst-case scenario. I would hope that the company is closely cooperating with ComCom and ringfencing as much as they can in terms of demonstrating that only the individuals named in the ComCom notice were involved. If that's the case, [ Eric sir ] Ka-Wei and Ms. [ Cheng Zhung ], senior engineers, are those 2 individuals still with the group? Or are they no longer with the group? That's the first question on that. Secondly, what are you doing to negotiate a settlement in the order of magnitude that you've indicated in your results of around $60 million or even better? Or what basis do you have for reaching that $60 million figure rather than the potential worst case?

Firstly, thank you very much for the reference to the good results. And it is evidenced by the resilience of our team and what would have been challenging circumstances. Now secondly, with reference to the Competition Commission, as you understand, there is an ongoing litigation process. So we're not in a position to make specific references to certain details. Nonetheless, what we can say is, firstly, it has always been the group's first priority to uphold integrity and professional ethics. It is our core value and has been for the past 45 years, now we have continuously been enhancing ethical training of our employees as well as seeking continuous improvement of our processes. Now this is to ensure that the thousands of engineers who work professionally can get on with the work. And this is evidenced by the value that the team has created in the first half of the year. I will ask Peter later on to talk specifically about the provisions, but we have taken all the professional precaution and advice in this regard. Now moving forward, I'm sure we will continue to uphold our company values and concentrate on delivering the business value to the community as well as shareholders. Peter?

Yes. Well, I will try to put some more color on the provision. I think here is that most importantly, as Kin has already mentioned that we are working very closely with all our advisers, legal finance, et cetera, to try to estimate what our potential litigation liability is. And that's how we come about on this particular provision. This is all based on all the information that we have on hand and all the advice that is provided by our various professional advisers. So that's how we come about this -- the provision that we have made.

Are the 2 - Can you answer the first question I asked, which is, are the 2 individuals still with the group, [ Eric sir ] and [ Cheng Zhung ]?

They are suspended.

So that's a yes?

They're suspended, yes.

Are they assisting you? Or are they working against you in this case now in providing everything?

As part of the legal due process, they are -- they are different respondents with -- they have their own solicitors, et cetera, for their representation and we have ours.

Would any of the directors of either the subsidiaries or the parent company, the listed company, have any knowledge of what was going on or allegedly going on?

Well, as I said earlier, since there's an ongoing process, we're not able to comment on the specific details of the process.

Is the Competition Commission's figure for the alleged contracts involved realistic? Or is it an exaggeration? I remember that they suggested that $2 billion of contracts were involved. Well just -- well, those are the ones you were tendering for or the ones you were actually awarded -- you and [ Shan Heng ]?

Well, I guess you would have to ask the competition commission on their estimate. But as Peter pointed out, we thought the best legal and professional advice in our estimate of potential liabilities, and we'll redefine that as a precaution.

You have been -- since the ComCom investigation began, you have been awarded quite a number of government-related contracts. So is it fair to say that this is not -- this ongoing case has not impeded your rights to participate in government tenders? Or has there been any impact on that?

The market has been active, and we have taken initiatives to participate in different tenders across all sectors, not only government but also other sectors as well. And the facts speak for themselves. And because each tender is merited on its consideration of technical capability, service and so on. And we're pleased to be able to report the good results.

I've not been excluded from any tenders on the basis of this case?

We have been active. We have no particular situations that you referred to. No.

Turning to the results. There are some quite large items on share-based payment expenses, 4,500 shares for every employee at a cost of $34.6 million of market purchases. And $27.8 million for directors remuneration, including Raymond Chan's, substantial 14 million share award. That's a big increase in directors pay in the half year by about $15 million. I assume that in Raymond Chan's case, that's going to be spread over a number of years as the shares vest according to your accounting policy. How about the employees? Is it a one-off immediate vesting or will we see further such charges in subsequent periods, Peter?

Well, let me perhaps give you a bit more background, and I'll ask Peter to address your specific question. Now we referenced the challenges in the first half of the year. In fact, everyone knows about the global challenges as well as ramifications in Hong Kong. Now these include fierce competition of talent because it's a shortage of manpower in many countries, and that includes Hong Kong. So the policy of the group has been to retain talent and to motivate the performance. Now remuneration, including one-off payments are recommended by the Remuneration Committee and to the performance.

So to say we understand the process, I'm just asking, the 45-day per employee is in the honor of the 45th anniversary of the company. And I understand also that it motivated them. It certainly motivates them more if there is a vesting period. Is there a vesting period on those shares?

Let me pass on to Peter, then. Peter?

Okay. There are vesting periods, but it's a short-term vesting period. So by September 15, we will be issuing our shares the 4,500 shares to all our employees. The announcement was made back in March for granting but this is a one-off exercise to celebrate our group 45th anniversary. I hope that answers.

Would you consider substituting some of the pay in future years, this way, 4,600 shares next year and 4,700 shares in the following year with market purchases instead of giving cash bonuses, for example, to build up more employee loyalty?

I'll ask Mr. Kin, who is on the RC, to answer a little bit more. But I think here is that all our employees also ask the same questions, et cetera. But currently, this is a one-off exercise. We will continue to review and consider the positions and especially the labor market situation as we see it in -- especially in Hong Kong.

Can I say as a shareholder, I'm in favor of share award schemes which don't involve new issue of shares, as you've done by them in the market. It wasn't very clear when that was happening because you haven't said who the trustees. Who is the trustee?

We have appointed one of the international renowned trustee to manage our trust.

Can you say where it is?

I am bound by confidentiality clauses.

That's a bit unusual. Most companies announced this either HSBC or Bank of China or something like that. Are you going to publish the share award scheme details at some point with the full -- including the trustees name?

We will continue to comply with the Hong Kong Stock Exchange rules or shares team.

That's the minimum standard. I'm just asking. Obviously, it's had a supportive effect maybe the share price have dropped even further if you hadn't been buying the shares for the award scheme? Or did you do that before the bad news hit on the contagion commission. So was that 180 million and above? Or was it below that?

The shares was -- the repurchase of the share – sorry, that's not correct. We acquired the shares from the market since we announced the 4,500 share scheme for all our employees. So we've been purchasing on a regular basis since the announcement.

Is that finished now? Or are you still buying?

We finished the purchase for the 4,500 share scheme.

Turning to Nanjing Canatal. The results were helped by a disposal of 1%. As you know, I've urged in the past to -- sorry for the interruption I've urged you in the past to sell off that holding or distributed so that and listed in Hong Kong, so that it becomes a non-distracting element. It's a very big portion of the real value of the group. When you look at the market value of that holding, it's something like HKD 800 million from memory. Will you further sell down the stake given the recent strength in its share price. And if not, then why not?

First of all, the Canatal share price has -- there's been the fluctuation, mainly because they have issued 40% bonus shares and hence, the dilution. That's the first thing. And then we, as Analogue Group, we will continue to review the situations and of our holding in Canatal. And then when appropriate, then based on the discussions we have, we will take appropriate action.

You received any shares as well, though there. No doubt?

Yes, we did.

So I mean, are you just using it as a method to buffer your results or to offset provisions for competition commission and things like that? Or do you have a strategy to actually reduce your exposure to such a large asset in your balance sheet?

I think here is that -- I'll ask our colleagues to also answer. I think here is that, we continue to hold this as a interest in a company that will have a long-standing relationship with. And we have continued faith of the growth of this business going forward.

You don't need to own shares in it to have a good relationship. I mean you don't have shares in the government either. You have a very good relationship with them. So that's not any reason to it.

Historically, we had the share. So we will continue to review the situation. And then I -- we do have regular discussions internally regarding to this subject.

Well, I would encourage the Board, including the Chairman, who is apparently absent today, I don't know why -- but I would encourage the Board to ask yourselves this, if you had $800 million of cash available today, would you go out and buy the stake in Nanjing Canatal? Or would you do something more centric to your business or even distribute the surplus cash to shareholders? Because it's not obvious that this is a good use of corporate funds.

Well, thank you very much for your suggestion. I'm sure we'll take that into consideration as we review the business prospect of Canatal as well as other opportunities that the group is presented with.

So the next question -- this question comes from [ Martin ]. How has the fifth wave of COVID affected the group's operation in the first half of 2022? And maybe one by one?

No doubt, among the end February to among [ May ]due to the fifth wave of COVID-19, there was quite a few -- affecting our operations. I think -- in our operation, I think both -- we have over about -- over 600 staff have been infected and then have to take leave. And also on the project site, they are quite a lot of workers also infected. And so the site activity in a certain extent will be affected during that period, okay? Also, some close contact staff have -- also have to -- will work from home. It will -- surely will affect a certain extent to affect our activities, okay? And also regarding the material with logistics, because of the closing order policy from Mainland, China, there is a lot of them -- quite a few material build have been a bit deferred. And also, during the close of the -- closure of the Shanghai there the equipment also been affected delivery. And then in a certain extent, that will affect our project site activity, and also in affecting our revenue in that moment, okay? But our team of staff try every method to mitigate the impact and adopting some alternative way to mitigate the delay of the project. And also there are some fuel costs incurred due to the cost of preventive measure, for example, disinfection at facility, et cetera. But this -- all these costs are not that significant, okay? And the deferral of the revenue in a certain extent will be deferred. I think -- but amounting to our total revenue for the first half of the year, I think is not that significant. And then some deferral of revenue will be reflected in the second half of the 2022.

The next question is also from [ Martin ]. With the situation now is up, should we expect the operating performance to improve in the near future? Any opportunities that the group are on?

I think we -- I cannot forecast the second half year performance. But based on our existing order in hand, I think we have a record high in order intake. So I think in the coming years, based on this existing project in hand, we should have recover the result in the coming period.

So any opportunities that the group would eye on?

Well, in terms of our overseas expansion, for example, in the area of lift and escalators, our strategy is to expand our footprint and the recognition of our brand around the world. And this is to be followed by participation in the maintenance of the hardware, which is a steady profit stream. And we will support our partners with the excellence service and safety records of our list and operator operations in Hong Kong. This is evidenced by the higher safety and the service performance rating that we have enjoyed continuously for a long period of time in Hong Kong. And we will also be pulling resources together across different geographies on R&D and product development. So I think the strategic alliance with TEI is already beginning to bear fruit and our established foothold in the U.K. is also moving into a new phase beyond accreditation of products. And so we anticipate that this will give us a good basis to move on.

This is also a question about where is the Chairman for now? Where is the Chairman for now why he is absent from this event? Just a question.

Challenges in general, or challenges.

The Chairman of Analogue. Our Chairman. Yes.

Okay. Mr. Poon is actually on the business trip.

Okay. So Dr. Mak has already shared the insight about the lift and escalator segment. There is a follow-up questions to have some more concrete idea on the overseas expansion plan. And how would the group benefit from the strategic alliance with TEI and present in U.K. in particular?

In fact, we are not just concentrate on U.S. and the U.K. In the present moment, the expansion of our business outside Hong Kong is our strategy. And in fact, in Philippines, in Greater Bay area, is also our target. And in the first half year, we also involved in tendering of the related tender in this area, and we try to expand our technology outside Hong Kong and Mainland, China with the Southeast Asia area.

If I may add to that, TEI is one of the largest independent lift and escalator operators in New York. And New York is obviously a prominent market. It's also a market of high value for lift and escalators. And TEI actually is good in service and in being customer-centric, which are also the values that any share. And furthermore, the synergy between TEI and ourselves have enabled us to nurture a wider base for technology sharing as well as product development. So in addition to the benefit of exposure to a high-value market, we obviously see intrinsic value in better global brand recognition, that will enable us to develop in the U.K. as well as Oceania and other markets, as Raymond has said.

Thank you. So may we check if there is any other questions from the floor. Okay. So does the management -- do you have any other matters to add or to share?

Well, thank you very much for joining us this morning. I guess, in conclusion, we are highly aware of the challenges in the world, and we have really been focused on the fundamentals of the business. And thanks to the resilience of the team, we're able to mitigate the effects of COVID and many other challenges that we can possibly expect. In fact, Victor led a dedicated team to address COVID and they're able to support the staff with quick measures and appropriate policy mitigation measures. So the result is evident in the performance of the group in the first half of the year. But going forward, we would really stay cautious in moving forward and also seize the opportunities as they arise.

And here is one more follow-up question from Mr. [ Webb ], is about ESS. I would like to know if it is all recognized already or will be some recognized in the second half of the year?

In the first half, we recognized roughly just less than half of the available ESS that we are claiming at the moment. There are still some -- one of our company is still being assessed at the moment. But we are confident that we should be able to get to our full claims on ESS.

Okay. There is one more questions from Bill [indiscernible] and we will open.

Just wondering -- some of the factors not quite clear. I think there's the share-based payment to the staff, right? This is total is $46.7 million. Is it you only provide 34.7% in the first half and the rest will be in the second half?

They will be some more relating to the share wars scheme in the second half yes.

So total is $46.7 million, is it?

I think here is that for this year, we are -- for the first half, we have already taken the cost for the 4,500 shares for all the employees.

I just want to just clarify, whether the second half we have any early others positioned for this?

In the second half, there will be further costs relating to the share scheme, yes, but it's not related to the 4,500 schemes.

Okay. Because I saw there is some numbers $46.7 million for share-based payment. And then in terms of results, I think the first half, I think in the annual expenses, right, that's $34.6 million in provider. So I was just wondering, the number is -- I assume that another $12 million will be provided in the second half this year?

I don't -- another part will be provided in the second half of this year, yes.

Okay. So it's about $12 million or some more?

I believe that should be the number, about $12 million. I don't have the exact figures in my head for that, but that should be about the numbers, yes.

So total share-based placement will be $46.7 million, right?

Correct.

So if there is no more questions, this concludes our investor presentation today. Thank you for your participation and support to Analogue. If you would like to get more information by the group, please visit the corporate website, atal.com. Thank you very much. You may now disconnect.

Thank you.

Thank you.

Thank you.