CK Hutchison Holdings Limited (0001.HK) Earnings Call Transcript & Summary

Welcome to the live webcast of CK Hutchison 2025 Interim Results Presentation. Our speakers today are Mr. Frank Sixt, Group Co-Managing Director and Group Finance Director of utchison; Mr. Dominic Lai, Group Co-Managing Director of CH Hutchison and Chairman of Boston Group; and Mr. Kwan Then, Group Chief Financial Officer of CH Hutchison. [Operator Instructions] 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.

Good. Well, thank you, and welcome, everybody, to this interim results announcement. I'll go straight into it. We'll go to Slide 3. These are the high-level financial highlights. Of course, these are the reported numbers. So they are on a post-IFRS 16 basis as we get into the rest of the presentation, it's usually presented in pre-IFRS format, basically because we think that's a better view from management's point of view to through to the underlying performance of our businesses. So when I can start on the left, you see that revenues are up a healthy amount, HKD 8 billion plus. Having said that, fully HKD 1.3 billion of that is due to ForEx movements that were favorable, but it's still a good performance. If we go over to net earnings, right? That's the headline number is, of course, the strong growth in underlying net earnings. And again, I will we go through this point of why it's a very, very nice number for the first half. But when you look through it and you understand it and you correlate it to cash generation and so on, it's still a good number but it's not quite as terrific as double-digit growth would sort of imply. And then, of course, as we go through this whole presentation, you have to look at the reported number, which takes account of a rather complex noncash write-down impact -- or loss impact coming from the 3 UK merger, which [indiscernible] will be able to weigh better than us describe to you as we go through this. EPS, obviously, reflects on a reported basis and on an underlying basis exactly net earnings. And we've pitched the dividend at HKD 0.71 a share. That is an increase of 3.2%, which I hope you will agree with me is reasonably and rationally through a decision by our Board earlier on today by the time we get through this presentation. So if we can go to the next page, these financial highlights and the rest, as I say, are in pre-IFRS 16 view, which is why the numbers are bit different. You first look at EBITDA. And there, you've got a healthy underlying increase. It's around HKD 3.7 billion, but again, about 13% of that. So a couple of points on that. are due to ForEx movements, which were largely in our favor, largely from sterling and from euros during the period compared to the first half of last year. same observation for EBIT. And again, they're about 13% of the movement on an underlying basis is attributable to strong GDPs -- strong sterling and strong Euros. Operating free cash flow, you'll see is up by HKD 2.1 billion compared to the first half of last year, which is an 11% growth, but we will be passing operating free cash flow and free cash flow very closely in the coming slides, and you'll understand that what happened in the first half does not necessarily reflect what can be anticipated in the second half. And of course, we are taking as the Chairman statement outlook points out a very conservative and cautious approach to the second half given everything that's going on in the world. The good news is, of course, with the -- particularly with the cash inflow from the U.K. merger, our net debt ratio has declined quite a bit from 17% at the end of the first half last year down of 14.7%. It was 16.2% at year-end. So the ship is solid from a debt-to-capital point of view. If I move to the next page where we look at EBITDA, a couple of observations. I mean, first on the pie charts on the left, the I think the thing that stands out is the declining contribution from finance and investment compared to last year, right? But also the Hong Kong has shrunk from 3%, if you remember, the end of last year So Hong Kong and China combined 5%. The decline in Hong Kong, Dominic will be talking about [indiscernible], I think, is looking a little bit better, but we have had some travels with [indiscernible] and Dominic will be dealing with that later on. If you go now to the right-hand side where we build up from 2024 first half EBITDA to the results that we're announcing here, I mean, as you can see, first ports made a substantial incremental contribution. Happy to say that, that essentially all operations, and it's reflected in cash flow when we get to see that towards earnings delivery is matched by a very -- almost the same growth in terms of operating cash flow and including the dividends received from its associates. So ports is a very good news story in the first half. which we hope we'll see some continuity in the second half, but we will see, we live in an uncertain world. Retail, very, very, very good contribution. And again, that's almost remarkable performance from almost everything except the health and beauty business in the Mainland, which Dominic we'll be talking about in more detail. Tnfrastructure, again, good growth in EBITDA contribution coming from everything from power assets to U.K. power networks, to the new stuff that we acquired last -- in the second half of last year like Phoenix Energy and so on. And so that's good solid stuff. So we're very, very pleased. Obviously Infrastructure make their own announcements provided the market with quite a bit more detail than we have in this presentation. The CKH Group Telecom, again, I mean, looks very good. I mean, it looks like a roughly 9% gain before ForEx. So that's HKD 1 billion. The thing to bear in mind is that, that is a little bit skewed because it includes at the CKH Group Telecom group level, fairly hefty gains that we made in treasury. So basically, 60% of that is treasury gains. The rest is real, is improved operations in the U.K. to some extent, in Italy, in Sweden, in Denmark, in Ireland. In fact, everything is somewhat improved, except Austria, if I be [indiscernible]. But we shouldn't get carried away with the -- what looks like such a high growth rate in EBITDA contribution because you don't get to make a lot of profits buying back bonds every day and bought back the bonds would give us profit in the first half. The disappointment, of course, is finance and investments, and we'll be going through that in more detail when we look at operating free cash flow and free cash flow. But the main drivers are, of course, Synovus was a major underperformer in the first half compared to the first half of last year, and that correlates to their own reported results, commodity prices and the amount of downtime that they had and an even number of their upstream and downstream facilities relating to turnaround legitimate maintenance, right, but it's still a bit into the first half for [indiscernible]. We also are continuing to bear some losses out of things like the Mariano Group, even TPG in Australia, although in Australian dollars, it probably look better at the Australian figures. But when you look at our figures, it looks partly worse because of the decline in the Australian dollar over the period. So TPG was a lesser contributor from our point of view. We did have one gain in there from the disposition by [indiscernible] China Division of an interest in an asset that HUTCHMED had Shanghai Pharmaceuticals, right? So that's kind of it's recurring in 1 sense, but it's also all in the first half, not spread into the second half. So you're starting to see some of the reasons why I think we need to be cautious about the outlook for the second half against the strength we perform the first half. If we move to operating free cash flow, again, same thing, a wonderful headline, HKD 21.8 billion, up 11%. You find right away that look at cash flow, finance and investment is way down, down 7 points, right? It was 14% of the group's cash flow in the first quarter, half of last year, and this year, it's 7%. And the pickups are in infrastructure and in telecoms. And one thing that you'll see as we go through the equation to the right is that, that it's a $2.1 billion increase, right, over the first half of last year. Almost all of that correlates to lower CapEx and investment, and that's in CKH Group Telecom where CapEx was significantly down. And it's also in the investment side because CKI made the investment in Phoenix Energy -- sorry, in the first half of last year, I think I misspoke before and put it in the second half, but it was in the first half. So other than that, operating free cash flow overall is a bit [indiscernible]. If you go through it, [indiscernible] is great. The performance in cash terms and operating cash flow terms definitely matches whether you're looking at the contribution in subsidiaries or you're looking at the dividends received from associates, it matches the underlying operating performance, which was very, very strong. And CapEx was about line ball with last year. When you look at Retail, again, I mean, it is fundamentally operating performance, a little bit less in terms of dividends from associated companies, but very strong nonetheless and a very, very conservative CapEx, so less than in the first half of last year Again, if you look at infrastructure, I really already talked about it, but the big swing factor is the difference in investments. So Phoenix Energy in the first last year, nothing similar in the first half of this year. You look at CKH Group Telecom, and I think we'll be going through that in much more detail. But again, I point out that we shouldn't be confused by the headline number, but some of it regardless of the fact that it's recurring because it's the treasury operations, nevertheless stacked into the first half and will probably recur in the second half. Lastly, finance and investment, as I said, really quite burdened from an EBITDA point of view, and [indiscernible] will take you through this interest income, which was lower than first half of 2024. The [indiscernible] loss was quite a bit higher than the first half of last year. And then, of course, with [indiscernible], a much lower contribution. TPG, also a little bit lower. IOH, we're missing the dividend. So it looks worse than it is. The dividend actually will be -- I think it was paid in July -- that's right -- so this will look a little bit better in the second half because we roll the dividend into that. Moving on from operating free cash flow to free cash flow, you can see a very, very heavy number of $31 billion. But as you go down the graph on the left, you start with the operating free cash flow, subtract the interest and taxes paid, but not too much to report there. They almost -- increase in interest received is almost exactly offset by the increase in taxes paid and cash taxes. So not much to report there. On the other hand, when you get to working capital, right, that positive movement is very important to understand, and we'll go into that when we look at the waterfall diagram on the right. But it does include a very substantial element of exchange impact. One of the things that major ForEx movements do if you have a lot of assets, for example, as we do in sterling and euros, and they're in businesses that lots of inventories or have lots of receivables, the share movement of foreign exchange that will result in a very, very significant positive movement in terms of working capital. And of course, it's unsafe to assume that you have that same kind of movement by a comparison to last year when we start looking at the second half when we look at the full year. So if we go to the diagram on the right, as you can see, although we got down to $16.1 billion this year of recurring earnings, but it's smack in the middle, you can see the year-on-year exchange impact on working capital. That was about $5 billion positive this year and at about $2 billion negative. So that's where that $7 billion comes up. So you'll understand right away that if you don't assume fair winds or following on a ForEx point of view in the second half, you're not going to look like 16.1% versus 8.9%, you're going to look modestly up, of course. But because the underlying working capital changes at [ 7.95 ] just reflect very good capital management, which I think the group continues to stay focused on doing a good job on, but nevertheless, you should not expect it to be has dramatically improved. And then, of course, you add to that the incoming proceeds from the U.K. merger, and you have a very, very nice free cash flow profile for the half. So with that, I'm going to turn you over to Ken, who's going to take you through how that all adds into our financial profile.

Thanks, Frank, and financial profile remains very strong and definitely improved and benefited from the net proceeds received on the U.K. merger. As the orders we see our liquidity improved with total legal assets as of June totaling HKD 147 billion, in up against the same period last year and also against the year-end. Net debt has reduced to HKD 119 billion and net debt to net total capital reduced to 14 point-some percent, a very low number. You can see also from the table that the group's debt maturity profile is very well added, with no significant refinancing requirement needed in the remainder of 2025. The group's average cost of debt for the 6 months has reduced to 3.4%, directly in line with the drop in interest rates. And the group's financial profile, as I said, remains very robust. So without further ado, I shall hand over to Dominic to talk about quarter. Okay. Well, now you have heard from Frank and Juan on the financial highlights, our financial profile and the overall financial position of the group. Now I would like to start by going into the individual businesses. So first, on Slide 9, we look at the ports division. As Frank said, they are doing very well. In fact, the port division has delivered a very solid first half. Throughput increased 4% to 44 million TEUs and the throughput growth was supported by a 7% increase in HPH Trust, 3% growth in Mainland China and other Hong Kong, a stable Europe and a 5% increase in Asia and Australia. So the throughput into 44 million TEUs. On EBITDA, you see in the middle, EBITDA increased 10% in reported currency or 8% in local currency to HKD 8.72 billion with major contribution of 26% from euro and 57% from Asia, Australia and others, as you can see in the pie chart. So let's go into the lower chart, EBITDA year-on-year change. You can see the following. Starting from the left, HBS Trust at 6% or $38 million increase, mainly attributed to good performance at our [indiscernible] port, where throughput increased 13%. Next, for Mainland China and other Hong Kong, we see a HKD 29 million or 8% decrease, and this is due to mainly a nonrecurring onetime insurance claim in last year 2024, which doesn't occur or recur this year. If we move further on the right, for Europe, EBITDA increased 20% or HKD 375 million. This is mainly due to the increase in storage income in the U.K., Rotterdam and Barcelona. So storage income now play, I would say, a very meaningful role in our ports P&L. Now for Asia, Australia and others, EBITDA increased 12% of HKD 514 million. This is mainly attributed as I mentioned, increase in storage income in Mexico and, of course, good underlying performance in Pakistan, Panama, Thailand and Middle East port. So all the ports are doing actually quite well operationally and also income-wise. For the corporate cost and other port-related services, we see a decrease of HKD 2 million to HKD 4 million, HKD 224 million, predominantly due to, again, the nonrecurring one-off item in 2024. And of course, we are seeing increase in efficiency in operation. So that's why it will bring down the corporate cost and other port-related service costs down. Looking ahead in the second half, despite volatile global trade and consumer demand, the ports division is expected to deliver good earnings growth in 2025 as a whole through organic growth, contribution from expanded facilities because we have, for example, in Egypt, we have expanded facilities there. And of course, last but not least, cost efficiencies. So let's go to the next slide, Slide 10, and Retail, okay? The Retail division also like ports have a solid first half, as Frank mentioned, and I'm going to share with you some numbers as you can see on the chart. First, on store number. The Retail division continues to carry out the store expansion program whereby, in the first half, they opened 450 new stores and closed 355 underperforming stores. So as a result of a net gain and then the store number increased 2% over last year and stood at 16,935 stores at the end of June, as you can see on the store number chart there. The portfolio, the store portfolio split is about 51, 49 between Asia and Europe. It used to be 50-50. And then now it's just a way just 1% point. On EBITDA, as you can see on the center right, first half is about HKD 8 billion, a 12% increase over last year in reported currency. The EBITDA split is 27% from Asia and 73% from Europe, as you can see on the chart. Again, now let's move to the EBITDA waterfall chart below, which shows the year-on-year EBITDA change of each subsidation. First, the health and beauty China. This division, health and beauty China is under a lot of pressure as a result of subdued consumer spending and business investing profit margin to promote sales. So that has an impact on the profitability and as measured by EBITDA. So you can see that in health and beauty China, we see a decrease of 13% and a hefty 53% decrease versus same period last year. Next, Asia, [indiscernible] Asia. EBITDA increased HKD 163 million or 9%. And then this growth is primarily driven by good trading performance, particularly in the Philippines and Malaysia. For Western Europe, health and beauty Western Europe, EBITDA increased HKD 174 million or 5%, as you can see, if we go from left to right. And then the increase in EBITDA in Western Europe is driven by good sales growth in the U.K. represented by [indiscernible] and savers brand and also the Benelux countries under the [indiscernible] brand. If you move right into the health and beauty to Eastern Europe, the EBITDA increased by 25% or HKD 334 million. The growth is predominantly attributed due to good trading performance in Rossmann, Poland, which actually make up the big proportion of the earnings in Eastern Europe. For other retail, which comprises our supermarket and electrical retail business in Hong Kong as well as our manufacturing division, the EBITDA combined has increased by 63%. So as Frank said, the supermarket business in Hong Kong is still under a lot of pressure because of competition because of people moving on north to do the growth rate. But I think the business has done a lot of things in terms of optimizing the store portfolio and reducing costs. So at least we can be competitive in some major items versus that's available in the Mainland. Electrical business under the fortunate thing, they are doing well and then reported good growth and then also manufacturing. So all in all, the underlying EBITDA of the retail division increased 8% to HKD 7.69 billion and with a favorable FX translation impact of inthITDA for the first half is about HKD 8 billion. Looking into the second half of this year, like the port in the retail side, we expect the operation in Health & Beauty Europe and Health & Beauty in Asia to maintain the growth momentum despite economic headwinds. At the same time, various initiatives are being implemented to improve the performance of Health & Beauty China and also Health & Beauty Hong Kong. We will also focus on expanding and nurturing our 175 million loyalty member base. And at the same time, we would continue to expand our physical store network portfolio, which has a very short CapEx payback period of less than 11 months. So the CapEx break back is fast, and then that we have plans to continue the store expansion programs. So from here, I think I'll pass it back to Frank to talk about the structure.

Okay. I think we can move pretty quickly through Slide 11 because CKI announced their results yesterday. So most of this is already, to some extent, old news. You do notice on the upper left-hand side, net debt to total capital ratio did go up somewhat in the half that is going to come down in all likelihood in the second hand half as you see the completion of the sale of [indiscernible] U.K. rails, which in terms of enterprise value is around HKD 2-plus billion. So there's really no need to worry about debt increasing in CK infrastructure. In fact, the war chest is getting stronger. And most importantly, they talk about this we always reported the see-through net debt ratio. So if you go down to the asset level and you say how much leverage is there against the underlying infrastructure assets, most of which are held in associated companies. The short answer is 49%, which by any measure in infrastructure investing world is very low. That's why there's a A stable rating from S&P that remains very unchanged. Our regulatory resets this year have all been quite good, although in the water business, which is -- there are troubled waters in the water business in the U.K. I think that's still in front of testing the regulators determination. But overall, there are no adverse resets. And I think looking forward, we don't particularly expect any adversary sets. We've had a couple of quite reasonable ones in Australia, there's a couple more coming in Australia. So it's really steady on as it goes. And as you can see, the reported NPAT, which is on a post-IFRS 16 basis was up by 1%. And EBITDA was up about 6%, right, in local currencies, which is good. The result is that the company is very comfortable in maintaining its now a very long established tradition of always increasing the dividend, and this is probably the only company that I can think of, certainly in this part of the world that has increased its dividend in every period, right, for the last 18 years since it started in 2006. So on the next slide, I'm going to let Kuan who'll also be leading the CKH Group Telecom call later on this evening, take you through the fundamentals on telecoms.

Okay. Thanks, Frank. This slide shows the Telecom Europe, which actually is only focusing on the European OpCos and doesn't include the head E.K. Hutchison Group telecoms. So you don't see the treasury gain that Frank mentioned in the numbers. So it's important to be a [indiscernible]. On a division basis, is the [indiscernible] Europe has delivered a very steady line EBITDA performance with a 4% growth for the division as a whole in local currency. The one-off item you see on the right, the negative HKD 774 million. It represents the fees and expenses relating to the merger of Free U.K. -- Vodafone U.K. completed end of May this year, which, of course, brought in, as mentioned earlier, a significant net process of GBP 1.3 billion. So the group and the team at [indiscernible], the new merged entity, is, of course, working very hard and very focused to execute the investment plan and to deliver the plan, OpEx and CapEx synergy target. So that's something which we'll be focusing on that we'll be reporting on as we developed along the way. But the rest of the free OpCo is not taken easy either and is undergoing a comprehensive review exercise to identify major opportunities to increase positivity and reduce costs over the next 5 years. Again, I hope to give you more update on that as this develops over the course. I can now turn over to the next page. This slide provides a lot more detailed information for each of the 3 OpCos. And for U.K., the number for 2025, represent 5 months of U.K. stand-alone results and 1 month of the group's share of the merged entities results. For U.K.'s underlying results, it is important to exclude the GBP 75 million of merger-related expenses that is shown there. And underlying EBITDA, you can note is actually 13% improvement year-on-year. I also like to highlight that the free Sweden's results benefited from a foreign currency gain of SEK 114 million on the translation of intercompany loan with free Denmark. So that's flattering the results a little bit. However, even excluding that, free Sweden is still delivering an improvement year-on-year. Another one to highlight, which is the 1 showing the level read for the period is free Austria which has -- with the competition there, the competitive landscape have been affected in this gross margin. And you can see total margin has taken a 5% drop. Free Austrian management team is working very hard on this, and we hope to see an improvement, hopefully, as soon as the second half of this year, but they see something that is work in progress. And on that, I shall now hand back to Frank.

Okay. It remains to cover what we call the other operations. This is all stuff that you find in finance and investment rather than in the sector columns where they operate. The first on the left-hand side is Synovus Energy, difficult first half, as I mentioned before, and they've reported it, and it's well absorbed by the marketing, but there both lower commodity pricing overall. And of course, as I said, significant maintenance and turnaround activity, which won't be repeated in the second half. So I think that commodity prices depending, they are set to hopefully do better in the second half than they did in the first half. The output of that from our point of view is that the dividends were subdued. There was obviously no excess cash flow dividend to be distributed. We were slightly better than last year, but relatively relatively small amounts and on a weaker Canadian dollar. So from a cash flow point of view, less of a contribution to CK Hutchison. Having said that though, we do have a program of selling Synovus stock to match the dilution or the accretion impact of their ordinary course share buyback program. If you know North American companies is very, very common that shareholder returns are structured in part in dividends, but part, particularly in the low price environment in share buybacks. It's very difficult for a major shareholder to participate in the share buyback by an [indiscernible] in Canada and the U.S. So the alternative is really just to match the sales to the buybacks, which is what we have been doing. So that brought in another HKD 926 million in proceeds in the first half. So I don't want to leave with the impression that Synovus is by any stretch of the imagination, not a good asset for us. It is a good asset. It improved its credit profile a bit by redeeming some preferred shares during the year. And as a result of that, it actually got a credit upgrade to be on in March of this year. And as I said, the outlook looks reasonably positive for the second half, and we'll see what happens. IOH, Indonesia, battling a very difficult market in the first quarter, very much intensified competition. And then, of course, from our point of view, also lower rupia, right, year-on-year. So you put all of that together, and it was a weaker contribution to us. Having said that, their average revenue per user and the [indiscernible] uses that they're seeing are all very solid. They have some extremely interesting initiatives in AI data centers in partnership with NVIDIA, which I think is very creative in terms of looking towards the future and not just towards the past as a telecom operator. And they have increased their dividend payout. As I said, that was not reflected in the first half because it got paid in July, but they've taken the payout ratio up to 55%. So this is, again, a very good associated company. There aren't all that many telecom companies or facilities-based telecoms operators that actually have profits and distribute dividends, and this is one of them. TPG in Australia, and it has really gone through, I think, a very transformational period. Again, you don't see it in the contribution to our financial performance, partly because of the weaker Australian dollar overhanging everything and partly because although revenues have been growing. They've also been absorbing some of the costs, right, of the expansions that they've been doing. So they are the most -- probably the most significant transaction they did last year was to get into a go-to-market arrangement, right, with Optus, which gives them essentially the same coverage in the outlying territories as Optus was significantly more than TPG had. So TPG does not have a coverage disadvantage at all anymore. And as a result, we're starting to see significant improvement in terms of both customer acquisition and pickups in revenues. It's just that you don't see that yet being reflected in earnings contributions because there's some costs associated with implementing that agreement. They've done a major brand refresh. And of course, most recently, they've announced a very, very important transaction with Vocus where they sold assets which I guess you would -- I guess, you would consider them as noncore to the ongoing TPG story and the ongoing TPG opportunity that brings in AUD 4.7 billion of net proceeds. A significant chunk of that they've, I think, already announced. It's planned to be returned to shareholders, which is good news because, obviously, the return on investment is going to look a lot better with the investment being materially lower. And they're also offering a very creative reinvestment program, which will only be taken up by minority shareholders or whoever they assign their rights to reinvest to. What that does is very important. It increases the liquidity in the stock because as by now 50-plus [indiscernible] is owned by Vodafone and ourselves and then you have the Jio family you had the small group as major shareholders the company has 2 small floats. So they used this opportunity, I think, very, very wisely start moving down the path of expanding the float, which basically means that they should trade better because it's one of the reasons that they have not treated as well as they could is simply because there wasn't enough shares to buy for significant players and institutional investors. Lastly, HUTCHMED. HUTCHMED made their own announcement a few weeks ago, and they did reset some guidance somewhat down from where it had been. That is not by any stretch of the imagination, a company disaster. Everybody knows, on the commercial side, pharmaceutical sales in China that the government has changed a lot of the rules, and that has resulted in a level of instability, which has resulted in a little bit less sales. It's not the end of the world. It will find its appropriate level. In the U.S., the U.S. government has insisted on lowering drug prices to, I think, public hospitals and a few of them. I'm not quite sure what programs. But again, that's impacted on sales into the U.S. And then they had one operations related issue with not getting out to market a drug that they manufacture, which was to start contributing in the second half and will be delayed by, I'm not quite sure, they announced it in their revised guidance. But on the plus side, I think this is one of the most cash-rich biopharma companies [indiscernible]. So it has the ability to continue to grow quite aggressively. And with USD 1.4 billion, right? So they're accelerating their own R&D, looking at potential complementary targets. And most interestingly, leading in terms of the antibody targeted therapy conjugates, which is really a mouthful. They're quite fascinating because those target cancer medicines specifically to the patient's cancer by riding in effect on the behavior of their antibodies. And the distinction with HUTCHMED that is quite fascinating is that HUTCHMED's cancer drugs are almost all small molecule drugs. So they're not battleships like chemotherapy usually is and so on. They're very, very precise. So the ability to get them even more precisely to the target cancers looks really quite promising. That's in preclinical trials now. I think they have announced that, and we would expect clinical trials to start following quite shortly. So again, not the best half for HUTCHMED, but by no means, is there anything to [indiscernible] about in terms of the solid underlying value of that company. I'll take you last to Slide 15, which is sustainability. I think in the interest of time, I will leave you to read it. The good news is we're just continuing to make progress, whether it is on emissions reductions. We're now in effect, Scope 1 and 2, 20% down right against our 2020 baseline. That's real stuff. Our disclosure processes have continued to move with the times. So whether it's the ESRD in Europe or whether it's the International Financial Reporting Standards, but we've done the work and we can meet them. You see that in our sustainability report, which I would urge you all to read. We talk about the allocation of the green bond proceeds that we -- from the bond that we issued in 2024 as a green bond. And you can see that we easily spend. In fact, I think our spend that would qualify as green spend this year overall is going to be in the area of USD 2 billion to USD 3 billion out of our total group spending. So we are not on the back foot by any stretch of imagination when it comes to sustainability. And that's reflected by and large, in reasonably good ratings. We got sustained analytics from when we started with them being a severe risk down to at least being a fairly steady medium risk. With MSCI, we're steady as of the reset in July at BB and that's goes from CCC to AAA. So it's not a bad place to be at all. With ISS, we're a C pluson a scale that goes from minus to A plus. On the Hang Seng Corporate Sustainability Index were at AA and that's a typical D to AAA index. So is good news as well. And on the carbon disclosure project, we are really quite on the front foot there and we have a B from them in a D2 rating system on climate. We have a C on forest and C on water security, which are their areas, and this is the first time participation. Those were issued in February of this year. So I think we'll stop there, and we'll move to questions and answers.

[Operator Instructions] The first question, will future dividends be based on reported or recurring earnings?

Well, dividends are always a Board decision for the period. They do take into account underlying performance. They take into account financial fundamentals. So they take into account balance sheet cash flow debt ratios, credit ratings, et cetera, and shareholder returns. I think the one thing that I can say quite positively is that we will generally not take into account noncash accounting earnings losses. For the very simple reason that if you stop and think about it, when you have a enough noncash earnings loss basically because the cash was spent in some prior period, right, and is being carried on a balance sheet at a higher cost than what you're realizing or what you're valuing. So it would not make sense because basically, the cash effect has already been recognized in prior period results.

Thanks, Frank. The next question what are the strategic actions on store planning and product portfolio HMB China is taking in order to improve performance?

Well, we talked about the health and duty China business is under pressure for reasons that I mentioned. But at the same time, we are doing a lot of actions, taking a lot of actions and planning so that we can really improve the performance of this divisions. So we are transforming the business with a robust strategy that integrates our 3,600 stores across 500 cities with the dose of fulfillment centers. So these [indiscernible] fulfillment centers are those very simple structure, the small units, which helped to deliver at a very short notice, the good steps [indiscernible] online from the customer. And at the same time, our loyalty member base is [indiscernible] increasing with high retention, high loyalty among the customers, so that we are happy. The transition to [indiscernible], as I mentioned, has temporarily impacted margin because, as you know, the online sales model on takeaway platform is with a lower margin. So if we do more of that, that will affect the margin adversely. But this is strategic initiatives ensure remain aligned with the customers' expectations such as delivery within 30 minutes. This is almost a norm. We try to shorten it. And as our strategy applies, physical stores remain core to this strategy, which has been proven to effective and allow our stores to provide differentiated customer experience. So I think as the economy recovers, we are confident that this approach will drive long-term and position us as a leader in the retail industry.

Thanks, Dominic. The next question, it has been mentioned in the EGM circular in 2024 that the group is required to reclassify from equity to P&L [indiscernible] FX loss previously recognized and accumulated in other comprehensive income included in equity estimated to be HKD 8.6 billion upon completion of the U.K. merger. Why is the nature of the onetime loss different from previous disclosures?

That's such a simple accounting question. I think [indiscernible] will explain.

Thanks, Frank. Both the HKD 1.7 billion loss on disposal as well as the HKD 8.6 billion exchange loss just mentioned. So in the September 2024 circa, I saw a total loss of HKD 10.3 billion were based on information available at the time and inherently subsidy change. The difference was mainly due to the group's transition from Hong Kong FRS to international financial reporting standards, which impacted exchange reserves were recycled as well as the final valuation for the merged entity at today's value and actual exchange -- foreign exchange rate at the time of completion at the end of May. So all this came up to this different number.

Thanks, Juan. Next question. What is the group's investment strategy, especially if net debt comes down significantly? Given mature profile of the group's businesses, would the group invest in more new areas to jump start growth or return more capital to shareholders?

Yes. I think we'll continue to stick to our knitting, and I think the way that we're pretty well known for, we are interested in investing in growth in value-accretive transactions. We've, I think, done quite a bit of that over the years. And we've, I think, overall managed to deploy capital in ways that deliver good returns on invested capital, and we'll continue looking to do that. We will be staying close to our own businesses. I would say that most of the opportunities in new areas actually come out of our own businesses. If you look at the reinvestment profile going forward, right, for the infrastructure businesses, right, in the U.K. or in Australia or whatever, there's a tremendous opportunity at very returns to continue to deploy capital into the evolving needs. One of the reasons why the water industry is so contributed is, of course, because the infrastructure is old. There are more people. There's different weather patterns, things need investment, and those investments attract very attractive returns. You see that CKI is in the frame on many significant potential investments. I'm sure they were talking about that yesterday. From time to time, we also divested things that cash that strengthened the war chest. On balance, it's always the same. We will be looking for accretive growth opportunities largely emerging from our own businesses, but we'll always do it in a way that is consistent with our prudential financial profile and a cautious approach, both the CapEx and the new investment and rigorous cash flow to maintain the strong financial profile that underpins all of our businesses.

Thanks, Frank. The next question, is regulatory or antitrust approval from China required for the proposed ports transaction?

Sure. Look, a transaction of this scale, right, has implications for many states, many regulators, and that includes China and the U.S., but also the U.K., the EU and several other countries. When we made our insider information filing on the 28th of July, we reiterated that we will not proceed with any deal that doesn't have the approval of all of the relevant authorities. Of course, with exclusivity having expired on the 27th of July, we are into a new stage of our deal, and that includes, as we have said, discussions with major strategic Chinese investor. I believe that there is a reasonable chance that those discussions will lead to a deal that is good for all of the parties, ourselves included, and most importantly, that will be capable of being approved by all of the relevant authorities. Yes. it is taking much longer than we had expected when we announced in March. But frankly, that's not particularly troublesome. The ports group are having a very good year. They're generating stronger earnings and cash flow than we had expected when we set this year's budget. And in any case, you need to understand that with a deal of this size and complexity, closing, which is the time at which you actually transfer the sold assets and you receive the purchase price, right, would not, in any case, right, occur this year, even if binding arrangements are agreed this year. And frankly, even if they had been agreed in the first half of this year.

Okay. Well, since I think a lot of you are very interested and also it's a very important message that we want to pass to the market. So that I will repeat or translate what has been said in English so that our Chinese and [indiscernible] speaking audience will understand. [Foreign Language]

Frank and Dominic, what are the uses of the HKD 1.3 billion of cash that CKHGT received from the U.K. merger?

Well. Okay. Yes, Frank. Siachen Group Telecom actually use some of the proceeds to buy back GBP 485 million of its owned sterling bonds clearly, the balance has further strengthened CK Hutchison Group Telecom liquidity and financial profile. That offers flexibility for the group as well as for CK Hutchison Group Telecom to determine the best use of the liquidity to create the maximum value for both CK Hutchison as well as CK Hutchison Group Telecom, which clearly may include deleveraging by reducing the gross debt as CH Hutchison Group Telecom, keeping that as cash as a natural hedge for the outstanding sterling bonds, or repatriation for CK Hutchison subject to, of course, our own promise quite leverage ratio to the 2.5 for other corporate usage. So...