CK Hutchison Holdings Limited (1) Earnings Call Transcript & Summary

Good afternoon. Welcome to the live webcast of CK Hutchison 2022 Final Results Presentation. Today, our speakers are Mr. Victor Li, our Chairman and Group Co-Managing Director; Mr. Canning Fok, Group Co-Managing Director; Mr. Frank Sixt, Group Finance Director and Deputy Managing Director; Mr. Dominic Lai, Deputy Managing Director of CK Hutchison and Group Managing Director of A.S. Watson Group; and Malina Ngai, CEO of Asia and Europe of A.S. Watson and Group COO of A.S. Watson Group. The Chairman, Canning and Dominic, are still in the media presentation. So Mr. Frank Sixt will be our first speaker. [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.

Hello, everybody, and I'm happy to be pinch hitting at this stage for the Chairman and the co-managing directors. So I think if we can go straight to the slides that are in front of you, starting with slide -- whatever this is, 3. We talked in the Chairman's statement about the developing headwinds that started to really come into play in the second half of last year and are continuing into the first half of this year. And I think it's important to understand how the group is positioned because they are reasonably significant. The first, of course, right, is inflation and the corollary to that, the inflation, particularly in energy prices and particularly in Europe. I think it's fair to say that the business is most impacted by inflation or the telecom operations, somewhat imports. And businesses have varying degrees of ability to, in effect, pass inflationary cost increases through in terms of price increases. Just to give you a sense of what the price pressures look like, if you look at wage price inflation for 2023, we're looking in Europe, in the U.K. and in Europe at wage settlements which are ranging from effectively a low of about 8.5% up to a high as high as 18% in some environments. So it's not a insignificant amount. Having said that, I mean, across the settled and expected universe in ports and in A.S. Watson so far -- that basically means a cost increase of, give or take, HKD 250 million, HKD 300 million. So it's not -- it's not helpful in terms of margin management, but it's not the end of the world. In terms of energy prices, in 2022, we were not terrifically impacted because we were basically 70% to -- to 90% hedged in most of our major telecom markets. That is not the case in 2023. We have some hedging in place, and we have some places where we don't. So we have more exposure to energy prices in 2023. But having said that, I think it's very important to remember that, in effect, our significant but noncontrolling interest in Cenovus Energy acts as a rather massive hedge against energy price inflation. So again, this is something which is difficult for our businesses to swallow, certainly kicks them into heavy energy conservation mode at every possible opportunity, which is probably not a bad thing. But in terms of the company as a whole, whether it's hedged directly or indirectly, it should not have an overwhelmingly adverse impact on us as we go through the year. The knock-on effects, obviously, have been a -- the U.S. dollar at a -- 20-year high, and the steepest, fastest rises in base rates all around the world in the last 40 years. So on the interest rate front, we're in a good position to weather the storm. Obviously, we've been repaying gross debt. We'll be dealing with that a little bit later on. And we've been reducing net debt overall. So we're down closer to 16% today than to the 16.7% that we were at the end of 2022. Our cost of debt remains low. So it ticked up a little bit, but it's still -- for 2022, it was still on average, the cost of debt capital was 2%. And the average duration of our maturities, right, was still 4.8 years. So you combine that with the fact that 73% right? -- of the group's debt exposure is in fixed rates, right? Contributing to that duration and that average cost, so we've got, in a sense, quite a bit of cushion to deal with the rising rates environment. And you've seen us dealing with that as we went through in 2022 with the reductions in gross debt and so on that we'll be talking about. And we'll continue to manage it very closely as we go forward. But interest rates are not going to pose a huge threat in the near future to us. And on a foreign exchange, I mean, there's been a stabilization, the U.S. dollar is well off of its high as registered in the fourth quarter. And it's good to remember that we actually have quite a strong internal hedge, right? Basically because we have a lot of our borrowings denominated in euros and a lot of our earnings denominated in euros, and so that cushions the impact quite meaningfully for us. So all in all, the headwinds are there, but we believe in and of themselves they'll be manageable. On the next slide, Slide 4, what are our key strategic directions, I'm not going to dwell on them because I think for each of the divisions, Canning will be talking about them. They're not changing much, but they are progressing. I think I'll just move from there on to the next slide, which is Slide 6, and get into the results announcement. So you'll see right away the impact of currency movements over 2022. So our revenues are up 3%. If you'd measured them in local currencies, they would have been up 10%. Our earnings at $36.7 billion or up 10%. If you'd measure them in local currencies, they would have been up 15%. Our EPS, the same 10%, obviously. And our dividend that we've just announced that will be increased by the same 10%. That is consistent with the promises that we made in 2015 to maintain our payout ratio steady and to have dividends increase as earnings increase and also the corollary. But fortunately, for 2022, we had a very healthy increase of earnings and an increase in dividends. And I hope that stands us in good stead because I'm not sure that there are a lot of companies in Hong Kong that will be increasing their dividends at this juncture. If I go to the next page, you start to get a sense of some of the pressures that we've been under. So our EBITDA rough proxy for cash on a pre-IFRS 16 basis. So that's without taking -- it's essentially EBITDA after leases, if you think of it that way. So we're not taking account of the lease accounting inflation that hits the EBITDA line, even though it's not generating cash. That was up 7%. It would have been up 14% if you were measuring it in local currencies. Operating free cash flow is a little bit down, and we'll drill down on that. It was down 6% compared to last year. And the reason for that lies entirely in our subsidiary universe, and we have less EBITDA from subsidiaries, and we have more -- quite a bit more from associated companies. And we'll get to it in a detailed slide, but they kind of come pretty close to balancing each other off. And of course, we had another very, very strong cash-generative year, so that was able to reduce our net debt to net total capital ratio by 3.6 points from year-end 2021. And that, I think, is a good thing in that direction of travel has been continuing as we've been reducing gross debt at a fairly aggressive rate, given the change in direction of travel in interest rates. So if we look at how EBITDA -- and again, using the pre-IFRS 16 EBITDA as a rough proxy for cash -- what does it look like both in terms of the geographic and by sector splits? I would focus you -- because we had large incomings in the telecoms division from completion of the Cellnex transactions in the U.K., so I would focus you on the inner rings, which tell you more about the relative normalized operating contributions right? Of the businesses. And what you see right away, and it's a theme that -- will be recurring as we go through this presentation, is that the major changes from 2021 in terms of sector contribution is the telecoms contribution reduced from 33% to 27% Right? And the finance and investment contribution increased from 10% to 18%. Finance and investment is where -- because it is a strategic but noncontrolling interest. It's where we hold our 16.6% of -- what's Cenovus Energy. And not surprisingly, Cenovus made -- had very good cash flow during the year, so made a significant contribution to our EBITDA reported as an associated company. So I think if you go through on the right, you kind of see the attribution moving from 2021, reported EBITDA through to 2022 EBITDA. Of course, the one-off net gains Right? Coming out of 2021, the underlying for 2021 being a HKD 106,400 billion. Ports lifted their contribution by $1.2 billion. Retail was only a snick of -- retail, much more challenging in terms of earnings, all right, than actually in terms of cash generation, which is a very -- bit of very good news. Infrastructure made a better contribution. The significant negative is in CKH Group Telecom. And again, we will be talking about that, but that has to do with some year-on-year corporate stuff and some year-on-year real operational adversity, particularly -- well, actually, mainly -- but in Italy, not unexpected and something that we think is leveling off. Then you move on, I mean, HAT, obviously, with the -- moving from our single interest in Indonesia to the merged interest into Indosat Ooredoo Hutchison suddenly becomes a positive lifter of our EBITDA on a consolidated basis. finance investments and others, again, that is essentially the share of the Cenovus contribution. And then moving to the right of the underlying EBITDA for 2022, you have the adverse hit coming from exchange translations, not insignificant. It's almost USD 1 billion. But a very significant one-off net gain that we realized because of completing the Cellnex transactions. And I think that probably also includes the merger gains in Indonesia. So -- correct me? That's right. So all in all, leading us to a year where EBITDA is up 7% on a reported basis and would have been up 14% if you were looking at local currencies. So now let's take a look at operating free cash flow. Now operating free cash flow is essentially right? The EBITDA of our subsidiaries and the dividends that we receive from our associates as opposed to the EBITDA contribution, right? From our associates, minus CapEx, minus investments. And so again, you see that right away that the difference is essentially all in the EBITDA of subsidiaries line. And cutting right through it for the company -- and its subsidiaries, there's a $9 billion shortfall year-on-year that's coming mainly from CKHGT, from the CKH Group Telecoms from Hutchison Asia Telecoms because it moved from being a subsidiary in Indonesia to being an associated company in Indonesia. So no concerning operating decline there, and a very, very modest reduction in A.S. Watsons. I think that it's important to understand that the -- decline, right, particularly in CKHGT, is probably half attributable to an actual operating decline and probably half of it is attributable to year-on-year corporate comparables, right? And so -- again, that's something we're going to do in more detail later on in the presentation. The slightly happier picture is when you go to the next page, it's what happened to free cash flow. Of course, free cash flow starts with operating cash flow, but then deals with all of the things like the proceeds that we received from our towers, but also our interest payments, which were modestly but not -- concerning at all Right? Year-on-Year. Working capital changes, very positive Right? And favorable movements -- sorry, and movements on 5G license payments, which we'll talk about when we get to the telecom section. But one way or another, they all added up to $47.7 billion, which is a whopping 44% increase in free cash flow compared to 2021. Now the walk from 2021 free cash flow through to 2022 free cash flow is on the right, and it's pretty easy to understand. It's the -- as we discussed, Right? The declines Right? From the EBITDA of subsidiaries -- in and of themselves and the EBITDA subsidiaries resulting from foreign currency movements. Right? But on the positive side, Right? The actual dividends that we received from our associates increased. Most importantly, if you go across towards the right, working capital changes were very positive. And a lot of that has to do with really the most world-class working capital management I think I've ever experienced coming from our retail group, among others. So again, a very, very good movement there. Plus you'll recall that last year, there was -- an unusual adversity in working capital simply because we -- in the context of the merger in Indonesia, replayed -- repaid some very, very large Huawei accounts that had been sitting in payables relating to Hutchison 3 Indonesia so that we could proceed with the merger. So that -- this is a kind of more normalized picture than last year in relation to that single large item. CapEx, I'm happy to report was down meaningfully in comparison. Right? And that obviously helps free cash flow, and we spent less on telecoms licenses by a considerable amount in 2022 than we had in 2021. So you put all of that together and you had a very healthy free cash flow profile for the year as a whole. Healthy free cash flow profiles tend to translate as they do on Slide 11 into pretty healthy financial profiles. And -- so -- the first and most obvious positive movement was the very significant reduction Right? In our net debt to net total capital position, which I've talked about -- but I haven't talked about how much gross debt was reduced, and that goes to the impact of rising interest risks, right? And it also goes to -- managing refinancing risks and so on. So we actually reduced gross debt by $41.7 billion while reducing net debt by $35 billion. So the -- this is a year the reduction in the gross debt exposure, I think, matters. So that $284.6 billion is literally $41.7 billion less than it was at the end of 2021. As I mentioned before, our average maturity profile. And you can see the maturity profile in -- that section on the lower left-hand side, is still 4.8 years remaining. And that was the same in 2021, which reflects kind of the management of what we've been repaying and how we've been repaying it. Our liquidity is very high. Yes, a little bit lower because we use some to repay debt. But as a practical matter, it's a very, very large pool of liquid assets. No change, by the way, at all in the quality there. A change in terms of the yield, in particular, a portion of it, which is basically deposits and fixed income securities, we had a pickup of 147 basis points overall, right? In terms of the return. And needless to say, we also had a reduction right? In terms of the average balance in those categories during the year. I think 2% cost of debt speaks for itself. The fact that 73% of it Right? After swaps Right? Is in fixed rates -- means that there is not a lot of risk. I mean, you kind of you do the -- quick math and 100 basis point rise in short-term rates doesn't really get us all that hard on the interest expense line. And I think that's -- a good place to be. And so -- I think that's pretty well all that I wanted to say about our cash and financial profile and overall results. But we're going to wait for Canning and Victor to get here to go through ports, I think. But Dominic, are you on the line? Okay. Is Dominic on the line?

[indiscernible].

Okay. Well, then I think what I'll do is just offer up some brief comments on the stuff that don't require a lot of comments. For example, the infrastructure slide, which is Slide 14, very, very -- keep going, 14. Very good contribution again from CKI. And of course, they reported -- I think, yesterday, they reported. So their contribution up -- to $7.7 billion to us up 3%, right? For the year. Right? Their EBITDA marginally lower than last year in terms of contribution to us, but would have been up 5% in local currencies. And I think the important thing is that from an earnings point of view, again, and they will explain this at their presentation, but actually, if you take out the corporate items that don't have anything to do with the underlying earnings and cash generation of the actual operating infrastructure assets right? Then you would have been looking at earnings that would have been up by 7% right? In reported currency, and would have been up by 16% if you reported them year-on-year in their local currencies. So CKI is doing well -- pretty well, which we'd expect it to do, which is just behaving like an anchor for the group -- but an anchor that keeps us stable in, however, turbulent the season may be. And that's set to go on as we look into this year. There are no resets under any of the major [ rev ] assets in 2022. No reason to expect the net debt ratio either on a see-through basis or on a company basis to move particularly adversely during the course of the year. So a very very solid company, generating very good cash. Right? And I have to say with a -- measure of inherent protection against inflationary pressures just because of the nature of the regulated asset bases and businesses. So -- a strong cash position, low gearing, very good rating. So I think CKI will continue to be a good anchor for our businesses as we go forward. Again, I'll skip over to the telecommunications businesses and just go to Slide 18, where I can say a little bit about Cenovus' contribution. It is obviously not at all insignificant. Cenovus contributed $6.6 billion, if I remember right, to our earnings in the year. Yes, that's on Slide 18. They also increased, right? Their dividends, both their base dividends, and they announced a variable dividend program in addition to their stock buyback program, which is going to be quite important to us because -- as they reach and exceed Right? Their targeted debt profile, which is basically to get their debt to below CAD 4 billion, they have announced that they will follow a rigid excess free cash flow regime -- or excess free cash flow will be 100% distributed from that point on in a mix of share buybacks depending on the accretion opportunity that's available to the company in that category and otherwise, by way of variable dividends, which means that for 2023, I think it's quite reasonable, all things considered, to expect a performance, right? That is better in terms of cash flow contribution and probably similar, if not better, in terms of earnings contribution. A couple of things are happening at Cenovus that are I think, quite good news. One is they've increased the scale right? Of their refining assets and transportation assets quite significantly over the course of last year through -- completion of the superior refinery, which they, I believe, announced and also through the acquisition of BP's interest in the Toledo refinery. All of that basically reduces exposure to heavy-light differentials when you get right down to it because it increases the extent to which -- what you're really selling to third-party customers -- is either products going through refining assets or products that you're able to move into different markets, including the Gulf market right? In the U.S. So I think that is good news. If you just looked at heavy-light differentials comparing the first half of last year to where we've been in the second half and where we are today, you could get a little bit discouraged. But there are 2 things that mitigate that in terms of contribution to our group. One was that in the first half, unfortunately, some of that heavy price action that they were seeing in the [ WCS Crude -- ] was given up in the form of hedging losses, and they no longer have a base hedging program at all on fundamental commodity price risk at this point. This is all stuff that Cenovus have announced themselves. Right? And so that makes a -- difference in terms of the contribution profile right? That -- we can expect. And of course, the -- mix of their exposure is significantly lower this year basically because what they're really selling is refined products. And if you look at what's been happening to refine product margins, right? That's been much more favorable than what's been happening to heavy oil and light oil differentials. So -- all in all, we're expecting, as I say, something like a same, same or maybe slightly better performance from an earnings contribution point of view, but we are hopeful that we'll also be seeing from a dividend contribution point of view -- a meaningful uplift year-on-year.

Frank? Frank, Canning has joined us already and -- should we -- Canning do you want to -- couple of pages that we have reset for you.

Frank, you do it very well. You want to continue to take back...

Let's backup to ports.

Page 4 is the strategy piece. We haven't talked about that one. And then we can follow up with port.

Yes. So -- basically, this result -- clear strategy going forward -- I have -- I think I will do the creative long-term value and geography business and frank, what -- have you done the sustainability and financial?

No. But -- well I've done all of the financial stuff. But -- so -- I haven't covered ports. I haven't covered retail. I haven't covered telecom.

Okay.

And I haven't covered sustainability. So...

Alright. So lets look -- just -- actually, our main strategy is through -- we try to progress to a lot more M&A transactions and particularly in the telecom market, what we have still -- things that -- try to do -- try to find more value from the telecom business, like what we did in the tower transactions. and also -- do much -- do more -- we still have 3 countries that we haven't done in market consolidation. The first one is -- the first one in U.K. where -- we are in deep discussion with Vodafone. And then also in Nordic, we are also exploring opportunity. And these are the key focus that we will focus and of course -- and then the asset-light strategy that we -- which you have seen that we have done at the tower deal and also we have done a network sharing in Italy, which we have announced. And then hopefully, there will be more of these kind of transactions that we can announce. So this will be our main strategy. And of course, on the operating side, we continues to digitalize our business and use IT investment to reduce our costs. For example, the engine in the port business, we have done -- more and more costs that -- we are rolling out on engines. The main thing is to using technology to reduce costs. And of course, last but not the least, our share is so cheap, so that share buys back -- we will continue using the buy back. So this is -- operating [ indiscernible] is not easy, but these are the things that we will continue to do. Okay. And on the -- another strategy, I think we have struck off here in -- business diversity, what have -- you already have seen that our business has [ rendered ] receiving in difficult time, right? Port and retail, we are actually able to do very good business. And the geography actually help us because, for example, in the retail, when China is -- is having difficulties, it's ready, they have a huge lockdown until june '22. But again, but it was -- the other side of the equation, actually the rest of the world, is actually come -- perform quite well to overcome it -- this -- so that -- and then also -- you'll find out that in the telecom industry that we are suffering with -- power costs and all those. And then about our investment in Cenovus actually gave us some relief on that. So that -- this model, it is -- and has been helping us run nicely, okay? And then going in the future, we -- we will visit this model from time to time. And then on the sustainability, I think Frank -- can you do this and also on the financials?

Yes. Sure. And there's a slide later on where we will go into sustainability a little bit more. But it has become right? An important focus for us, not just because it is very much the right thing to do and very much a necessary thing to be involved in, but basically, the sensible sustainability agenda is something that is required. It's required by our customers. It's required by the people who work for us. It's required by our shareholders. It's required by our bankers and our bondholders. And at the end of the day, it's required by regulators. And so we've been looking at it as an opportunity to improve the organizations, among other things, that improve the attractiveness of the organizations to the best and the most talented people. And as we just announced, we have adopted some targets, which I'll be talking about later, both in terms of short-term decarbonization targets and longer term pathway towards net zero. But we'll get to that when we discuss the slide. But this is an area that I think we see as presenting more opportunity than risk as long as we handle it right. And then in terms of the maintenance of a robust financial profile, Canning, I've gone through the finance slides and the operating free cash flow -- free cash flow and financial profile slides. So I think the only thing that I would add is -- so long as the current management team, Chairman, Canning, myself as everybody who works with us are around, it aint going to change. And so that financial -- robust financial profile, that it is a pillar that you can rely on right? To see us through times, however turbulent they may be. So I think with that, Canning, you -- we would probably go to the ports slide would be the next one that hasn't been covered. So that's Slide 12.

So this is a very, very interesting page because that -- and you've seen that EBITDA actually went up 8%, okay? But -- however, in the local currency and then 4% -- and 4% in reported currency, but how that -- if you look at the throughput, we actually went down by 4%. It mostly comes from come from -- China and Hong Kong. You notice that the Trust actually -- the TEU is reduced by 7%. Actually, 2/3 of them comes from Hong Kong and 1/3 is from Yantian and the China part do better than the Hong Kong part because they are in the -- very place where the cargo is whereas in Hong Kong, it's difficult for the cargo to come down to Hong Kong. And then in the China business is affected by the -- there was 2 months of lockdown in Shanghai, Otherwise, the China business was doing quite okay. Other than that, the other are very small differences so that if you see that there is some in TEU and -- then how come the EBITDA actually went up? One of the reasons then the EBITDA went up is that because what -- which -- are we going -- is staying in our part was -- because of our logistics program is staying into our part much longer. And actually, this year, we recorded a 34% increase in storage income, so that as a result, so that the total EBITDA actually went up by 8% in local currency. Now if you look at the water flow chart and start from -- in the middle -- start from 221 million -- the Trust is reduced by $210 million, basically almost 50-50 from Hong Kong and [Yantian]. So that is still due to the traffic is being reduced. And the main name is almost similar to last year, basically is -- Shanghai and -- because of the 2 months lockdown and then also -- but the other costs do better. So that giving quite almost a breakeven result. And for Europe and the increase is mainly due to storage income. And that the throughput is not -- is a little bit reduced, but the storage income is wonderful, especially in Barcelona and in Rotterdam and also in [indiscernible]. So that quite a pleasing performance. And of course, in Asia and Australia, actually, the increase is not coming from Asia and Australia, it's come to Mexico. Mexico is doing very, very well. And Mexico and Pakistan is doing very well, whereas the others are so-so. But again, because of the strong performance of Mexico, and so they -- they gives a huge uplift to this division. And then on the consolidation on the corporate side and then it is basically due to the OCL had a good performance. So -- but however, all these good things that have some bad things happen is the foreign exchange, we gave for HKD 500 million, almost HKD 600 million. The end result we get is 4% increase in EBITDA. So going forward -- and then I think the good thing about the storage income may be not as good as this year, but we hope that -- especially -- the [SKU should pick up] but however, we haven't seen it in the first 2 months, but normally, the wellness inventory when it is slow in the first few months and it should be -- it should pick up in the rest of the year so that we are still looking for good growth in the second half of 2023. And then we will also have some new facilities in Egypt, in Thailand, and in Middle East. And it will be open, that will be some -- it will give us more growth in those areas. So I think I have no more to add to this part of business.

So the next page should be retail.

Retail, is Dominic there?

Yes, I'm here.

Can you continue?

So -- yes, I will. See it on Slide 13, Retail. Let's start with the store number. With our store portfolio of over 16,100 stores, the retail division remains the world's largest international health and beauty retailer, operating in 28 markets under 12 retail brands and with a strong loyalty member base of 141 million. Our store numbers stood 16,142 at year-end, -- very exact, a decrease of 2%. But if we exclude Health and Beauty China, it is 1% increase. We continue to carry out our store optimization program, whereby we continue to open new stores in good and strategic locations and close those nonperforming stores without a future upon lease expiry. So during the last year, the division opened a total of 668 stores while closing 924 stores, mainly in Health and Beauty China and Ukraine and also our exit from the Russia in the middle of last year, thus bringing the total store network to 16,142 that you see on this slide. Total was -- the store split between Asia and Europe is about 50-50, so around 8,000 in Asia and 8,000 in Europe. And then for the new store opened, average payback period remains healthy at 13 months. So it's a very good payback, and it has been maintained at this level for a good number of years. So on EBITDA, which you see below the store number, EBITDA for the year is reported at $14.3 billion, representing a decrease of 11% in reported currency or 2% in local currency -- the EBITDA split is 33% from Asia and 67% from Europe. Historically, this ratio has been around 50-50, and this change in ratio last year is primarily attributed to the underperformance of Health and Beauty China. So that down to Asia ratio to become 33% versus 67% in Europe. If we exclude Health and Beauty China, the EBITDA decrease would have been only 1% in reported currency and indeed an increase of 9% in lower currency, given the strength of Hong Kong dollars. So reported currency, 1% decrease. Local currency, in fact, is an increase of 9%. Now let's move over to the EBITDA water flow chart on the right, which shows the year-on-year EBITDA change of each division in Hong Kong dollars. Starting with an EBITDA base of HKD 16.03 billion in 2021, that's on the left-hand side of the bar, the red bar, we saw a sharp decrease of HKD 1.527billion or 58%for Health and Beauty China, which was severely affected by the ongoing pandemic related restrictions and lockdown measures throughout last year. So at its peak, the Health and Beauty China had over 1,000 stores temporary closed in late November last year. The better news is that following the easing of the lockdown restrictions at the end of last year, i.e., December, the China operation has started to recover strongly. And our trading performance in January, February and up to now is quite encouraging. So a bad year, a tough year for China for 2022, and then they have a very robust start entering the 2023. So next bar chart is Health and Beauty Asia. With the relaxation of the pandemic restrictions in various countries in the second half of last year, EBITDA from the Health and Beauty Asia division increased 33% or HKD 838 million, notably in Malaysia, Thailand, Philippines and Turkey. We move next to Western Europe. For Western Europe, where trading has fully returned to normal in the second half of last year, the EBITDA for the year increased 5% or HKD 414 million, primarily from the United Kingdom and the luxury retail business, while the Benelux countries delivered more modest results because they had an exceptional strong year in 2021 because they stay open because of the essential nature of the stores. So that's why they had a very good base in 2021 and another 5% increase in 2022. For Health and Beauty Eastern Europe, the next block, we saw great trading, good trading results in Rossmann entities in Poland, Czech Republic and Hungary as well as the [indiscernible] business in Latvia, but partially offset by a trading loss in Watsons Ukraine. The net EBITDA growth still registered at 8% or HKD 194 million increase over 2021. So good performance in Rossmann and Fortress in last year, offset the trading loss in Watsons Ukraine and still register an 8% increase. So in summary, for our Health and Beauty businesses, which accounts for over 95% of the Retail division's EBITDA, this chart demonstrates that the significant EBITDA drop in Health and Beauty China has been fully compensated by EBITDA growth in other regions. Then excluding China, in fact, the EBITDA in other regions actually registered a 12% increase in local currency. So lastly, here and for other retail, we see a HKD 202 million decrease. In fact, our retail business in PARKnSHOP, the grocery business and Fortress, the Electrical, we're doing pretty well and reported good EBITDA growth. However, the decrease in EBITDA primarily attributed by the water and beverage business in China, where the [F&P] and outdoor activities were hampered by the COVID restrictions and serious lockdown to attract -- EBITDA down. Also included in this HKD 202 million number at a noncash onetime asset write-off in Ukraine and also of the closure costs associated with our exit from Russia in the middle of last year. And of course, some of the FX cannot be underestimated with a strong Hong Kong dollar, we recorded a HKD 1.44 billion FX translation loss thus resulting in a total EBITDA, the end block, of HKD 14.3 billion, an 11% decrease from 2021. So this is 2022. For the outlook for this year, we expect Health and Beauty China to continue to grow while Health and Beauty China will see a strong recovery. We are seeing it already in the first 2 months of the year. Health and Beauty Europe will continue to deliver robust performance, both in the Western Europe and also the Eastern Europe through Poland. In the meantime, still we'll continue to drive our strategic pillars, i.e., the GOBE, the own brand, and exclusive, the O+O, the off-line plus online strategy, and CRM to increase customer connectivity and customer lifetime value. So on this, I can pass to Frank to talk about our infrastructure business.

Thank you, Dominic. The next page should be telecom, Page 15.

Telecom, okay.

I already talked about infrastructure.

Okay. On the telecom side, I think -- 2022 is a story of 2 sides, okay? On one side is very happy that we are able to complete the tower transaction in the U.K. not only that -- we are able to get the green light from the -- competition side, and -- then -- that will be -- we have received -- EUR 3 billion -- almost EUR 4 billion -- EUR 3 plus billion from that transaction, which underpin the financial performance of the Telecom -- trans -- divisions, and that is a good sign. And then the tough side is that -- so far -- because of exchange rate and then -- because of cost escalation and then we see a -- tough -- performance on the EBITDA side. If you see that on the left-hand corner, HKD 23.8 billion, and that it represents a 20% decrease in EBITDA. But even if you take the foreign exchange away, that is 11% in local. And that just -- and then the water flow chart will explain to you where the -- concern is. Of course, if you will go from the second column HKD 728 Million -- of course, when you receive cash and then you've got to give away something and that is the tower rental so that -- in order to make a comparison, we take up the tower rental separately so that the equipment normalize -- this is the HKD 728 million is the amount that we paid in 2022 delta to 2021. Okay. And then they become HKD 29 billion. And if you want -- all the other operations is all more or less the same. U.K. is more or less the same and a little bit better. U.K. actually did very good -- good in the marketing, and then we get good -- one of the better increase in subscriber base for it. So the financial performance is quite good, HKD 119 million. And then if you look at Sweden, is recovering very well under the current management. And another good year in Denmark. More or less the same in Austria. Very good performance in Ireland. The increase in revenue is not able to -- not able to overcome the cost. And then the big figure is Italy, [HKD 2.8 billion ], where did it come from? Actually, it is a sign of 2 story. One -- one is the revenue side. And as I say that as our competitors, [ Elliot ], continues to build up their network and they utilize a network [in us enough less and less, and as a result, that is a [ HKD 1.4 billion ] reduction. Out of the [ HKD 2.8 billion ], [ HKD 1.4 billion ] is the reduction in net margin from the revenue. If you look at our base, actually, our base is doing quite well, and we're able to maintain our base actually increases a little bit. And then actually -- compared to last year, our base is doing better by -- about 1% [ HKD 100 million ]. But then the wholesale business, which include [ Elliott ] roaming in our network, actually take another hundred -- I think, it's about EUR 150 million will drop -- come -- about 70% come from earlier. So that, as I say, we are in between strategy where we took all the income from earlier in the previous year, now they are moving away, we have to rely on our own. So that -- and then on the OpEx side, our OpEx, it's about [ HKD 1.44 billion ]. But however, [ HKD 400 million ] is -- there was a cost -- there was some other income which was added into the cost last year, which doesn't happen this year. So that it will differ is HKD 1 billion in cost. Basically, HKD 400 million comes from a higher spectrum fee, which only occurred in 2022 and not occur, I mean 2021. And of course, -- and the inflation side on energy cost costs about [ HKD 300 million ] and other high OpEx, higher OpEx on inflation [ HKD 300 million ], [ HKD 400 million ] and then totally account for the HKD 1 billion of that. So going forward, what do we do on operation? And then actually, we will continue to see pressure in the energy cost and in inflationary costs. But however, if you look at all our operations, we are doing a lot of pricing in our base. So that -- we are hopeful that this will give some revenue -- some margin on to overcome portfolio to offset the cost increase in terms of energy and inflation. And then the CapEx side, I think we will continue to reduce CapEx in 2023 to get more cash in. And of course, the -- as I said rather often that in-market consolidation in U.K., our merging with Vodafone, and then the asset light strategy continues to go. I mean, we have seen that we have an announcement in January about our sharing network in Italy as we said earlier, and with that, we can move to the next page, Page 16. So this is actually a repeat what I'm saying. The 5G coverage, we are going to speed and doing 5G in U.K., Italy and all those. And then the pricing initiative, we have actually started doing a lot of repricing as we have stated here in U.K., Italy, Sweden, Denmark and Austria, everywhere we are doing a price increase. Of course, we have a lot of -- now get our P&L performing better and synergies -- we have a lot of initiatives this [ indiscernible] what we are doing. Okay? Page 17, it's basically a detailed summary of what I just described in the bar chart. I think if you look at -- I think the main thing to look at is Italy. And then Italy, we got the revenue decrease under [ HKD 15 million ], okay? And then as I said, that [ HKD 130 million ] comes from earlier. And then this is -- and then actually the base is continues to form. We are looking forward for the base. The strategy is that happen -- that we have the base to perform so that we can overcome these transfers on the wholesale side. And of course, on the cost side, we saw underrated cost on the energy side. And also, we have been trying to extract cost on the licensing, which is not present. And the thing that I would like to help you to look at is the middle column. Started with CapEx -- remember, we -- I keep on want to focus on my team to make sure that the CapEx on incumbent is basically equal to depreciation. If you look at the total column [ HKD 18 billion ] CapEx that we spent and then depreciation is [ HKD 14 billion ]. The equivalent depreciation [ HKD 14 billion ]. We are still [ HKD 4 billion ] away from it. If you look at where is the [ CapEx ], it's still the U.K. because -- U.K. we're still catching up more so that -- and then U.K. actually going forward, just hopefully this [ HKD 336 million ] over [ depletion ] will be much less. And then also, if you go to look at Sweden and Denmark, those 2, they actually incur CapEx more than depletion, basically because they have to replace the Huawei equipment with [ Ericsson ] equipment so that this is actually ordinary -- not in the ordinary under their business within the guideline. So that I think that we are approaching where we want to be in terms of controlling CapEx. So I think going forward in 2023, is basically a story of controlling our cost, especially the energy costs, so that we can actually try to minimize that cost increase. And of course, we are now -- we are focus -- focus is to pricing. And that's -- that will give extra revenue to overcome the cost decrease. So 2023 will be a difficult year. But -- having said that, we are working very hard on the [ Vodafone ] merger. That will be very accretive to us. The synergy is huge and then Ofcom stated that they do not -- think -- insist -- fix -- fixations on the spot player market. They will look at the 3 player market provided competition [ lending ], I think that gives us a lot of hope in the U.K. the merger can be successful. We are on the final stage of negotiation with Vodafone. and then both sides want to deal. And hopefully, we can announce shortly that we have reached commercial agreement. Okay. And then on the Nordic side, Nordic is doing very well by itself. But of course, if we can merge. It will do even better, and we are talking to -- direct to the other -- competitors to see what has opportunity. And then I think that -- I think the other part is also recognize that it's accretive to each other when we do that. So the conversation is going on. But this is not as close as in the U.K. And then on the asset-light strategy, we have seen 2 in action already which is the tower deal and also the network sharing deal in Italy. [ indiscernible]. And then we are -- there could be some others that happened, but no -- I cannot mention it today. So -- but we are very active on operational and also on deals so that we can make things happen, good sort of company. Thank you.

Yes, the CapEx page is Page 15. Frank has touched upon Cenovus. So maybe you can talk about IO edge and TPG and then Frank can follow -- finish with the HUTCHMED.

Well, I think in those -- at Hutchison and TPG has similar. Story before we were putting cash in, we are incurring losses. And then our network is not as good as the other and then it is always relied on head office to put in money so that we can build a better network, but how much head office can support when the local business cannot generate enough money? So this is why we are always behind. With the merger, you can see that the EBITDA -- is the merger, the EBITDA is more than double, number one. And then there's a few synergies deliver. And also, they pay dividend in to us, the cash in to us instead of we're putting in cash and [indiscernible] because our profit in quarter is becoming loss. So actually, TPG and those have all achieve their goals, and I'm looking for better than from them 2023. Thank you.

Okay. And I guess I'm supposed to pick up on HUTCHMED. Just before I go there, just to finish off on Cenovus, obviously, I mentioned the outlook in terms of earnings contribution and cash contribution in the way of dividends. It's also good to bear in mind that in terms of value contribution, Cenovus has been steadily trading at between 4 and 5x what it was trading at when we did the merger in 2020. So obviously, in terms of value, right, this has been very, very accretive to CK Hutchison. Lastly, in terms of the other operations on HUTCHMED, which I still inclined to call Chi-Med, but it's now called HUTCHMED, you've seen quite a turn, right, in the course of the last couple of months. And that's because it's no secret that in terms of market performance, I mean the company hit some really serious headwinds with the issues around NASDAQ listings for China controlled companies and accounts and all the stuff that went with that. And also, it's not the easiest place for a company based in the Mainland to achieve distribution of scale for new drugs, new drug discoveries. And so I think they announced and have executed a change in strategy that has been quite salutary. They do a very significant nondilutive deal with Takeda which, at the end of the day, they are partnering so that their partner will take over the marketing and sales of all of the current discovery drugs in offshore markets, I believe in Europe and America and other markets. And that allows HUTCHMED to focus on, I think, what it really does best, which is creating a delivery pipeline of discovery drugs, right, which so far has been pretty world-class. So we own -- sorry, 38% of the company. It has a current market cap of [ HKD 2.6 billion ]. Over the past -- of course, of the last couple of months, it has beat its last 12-month average in terms of the share price. So the directional change, I think, has been very, very well received. And I think that the focus on drug discovery and development -- but -- and of course, on marketing, sales and distribution outside of Europe and the U.S. will serve them very well, and in particular, in the Mainland. So I think that the company is actually on a reasonable path towards profitability, which is good for any biopharma company. And in terms of its market perception, it is clearly on an improving trend. So if we go to Slide 20, I'll move very quickly on this, although it's a very important topic. It's where have we been on sustainability. And I think the important message is that for the first time, looking at all of our underlying decarbonization plans in all of the businesses and many of which, I mean, including everything in retail, everything in telecoms, and quite a bit of the stuff in CKI have already been validated under the science-based target initiative, we felt comfortable to announce for the whole group, right, that we do have a target to reduce Scope 1 and 2 emissions by 2035 by 50% as against a 2020 benchmark year. And I can tell you, I mean, we don't set targets like that unless we see very, very clear pathways to achieving them. I think that's a very important thing in the area of sustainability. There's been a lot of noise and a lot of unfortunate stuff around green washing and so on. You'll never get that from us. And that's the reason why we have not just gone out and put a net zero target or a net zero target date what we have said, and it's meaningful is that we are committed to continuing to pursue net zero before 2050 to be in line at least with the Paris Accord's direction of travel. Personally, I think that we will be able to do better than that, but we're not going to set ourselves the target unless behind that target we actually see all of the ways and means by which the target will be achieved and the timeline over which it will be achieved. So I'm hopeful that in future years, we'll be able to pull both of these targets in actually. But for today, this is the first time that we have announced targets. Next year will be an important year in terms of continuing to fulfill the plans that are behind those targets. And in terms of validating the targets for the divisions that have not yet been completely validated. Just a couple of things in terms of other progress during 2022 and our sustainability report is about 100 pages long and will be available at the same time as the annual report. And I really do encourage everybody to read it because I think you get a sense that it's actually a business opportunity for us as well as the right thing to do from the point of view of all of our stakeholders. So it's a very encouraging area overall and potentially one that will develop into a very meaningful new business for us. At any rate, in 2022, we did our first green bond report because we had issued a green bond in 2021. And that was validated as required by Sustainalytics, as I recall. We did our first TCFD report, so the test ocean climate-related financial disclosure requirements, which are becoming regulatory requirements in terms of our financial reporting, that was issued. We got an upgrade from MSCI from a horrible starting point to a not unreasonable, but still a BBB rating that we can continue to work to try to improve. And very recently, we got an upgrade from Sustainalytics to medium risk at 26.5. We started in 2020 with them at severe risk at 48.5. So it is a serious progress. Unfortunately, they view us as a conglomerate, which is probably correct. But in their Lexicon conglomerates can't get out of their medium risk category. So I do take some comfort though that we rank seventh out of the 114 conglomerates that they rank globally. So we are not seen even by the more aggressive sustainability ratings agencies as being in any way on the back foot compared to our peers, not just here, but all around the world. So I think very good progress in an area where we will continue to work very hard in the coming years. I think it's sufficient.

[Operator Instructions] Chairman, the first question is what is the priority of the company's capital allocation?

I think these earnings and cash flow accretive telecom in market consolidation. I think Canning has explained that quite well. And we're also -- we went into opening new retail stores with good feedback period and also new infrastructure projects through CKI and its OpCos. And with the completion of tower asset sales, some capital will be allocated for debt repayment and share buybacks.

Thank you, Chairman. Next question is on retail. What was the performance of Health and Beauty China and Retail as a whole in the first 2 months of 2023?

I think with the opening, especially in China, positive momentum is continuing from last year and the first 2 months of 2023. In particular, good growth in Western Europe, U.K. and Benelux and Eastern Europe, like Poland. And China is finally get a rebound from the very tough period in 2022.

Thank you, Chairman. The next question is on telecom. What do you think is the regulatory risk for the new [indiscernible] market consolidation?

I think, Canning, maybe can answer this better than I can.

Thank you, Chairman. I think I have explained it in my presentation. So -- and actually what in U.K. often has said in December, they do not have the fixation of a number of players. And the most important thing is if a merger occurred and then you got to be low competition so that -- and this is a [indiscernible] whereas before they insist on 4 players. And we feel that both the Vodafone and ourself coming together, the #3 and #4 player will be -- get together. We'll be similar size to #1 and #2. And then that will be -- that will enable us to build a network that can compete with #1, #2. And then they can -- so that there's a lot of things that we can and we can do that, therefore, we can provide better competition. So that I think -- we are in a good place on that front. So I'm much, much more hopeful that we can achieve a successful result.

Thank you, Mr. Fok. And next question is what was the throughput performance of business -- what was the throughput performance in the first 2 months of 2023 and what is the outlook for the full year?

Still going to be tough with the high inflation and high interest rates, growth and consumer demand in a lot of countries have weakened. And I think a lot of retailers still have an issue of overstocking their inventories in previous months. So I think the first 2 months of 2023 is still very similar to Q4 2022. But with the gradual easing of the supply chain traders and Mainland opening up even more -- I'm hopeful that they will be closed in the second half of 2023.

Thank you, Mr. Chairman. The next question in telecom. What is the expected increase of energy and salary costs for European telecoms in 2023? And do you expect tariff increment this year we will be able to offset this?

Canning, I thought you've answered that in earlier?

Yes, we have. Yes, we have.

I don't think we need to say that. Probably seeing similar questions. We don't need to answer it 3 times.

Understood. Okay. The next question is about HUD. Can you leverage on the plan for HUD to develop residential units at Tsing Yi?

It's a suggestion to the Hong Kong government. It's not approved yet. It's just that Hong Kong is always under pressure. We will produce more homes for people. So we respond to the government's request on finding more land, and HUD is 100% owned by CKH. On the land HUD owns, it has about -- it can build about -- over 10,000 units. And it's a -- on a [ product ] ratio that is similar to neighborhoods in that area of around [ 5 ]. The reason we mentioned the incorporating land to build another 5,000 units on the -- on a land owned by the government is because that piece of land has no land access right now. The only access the government land has is via HUD. The reason that piece of land was created with no public access is it's land that was created to help build the Tsing Ma Bridge. And it's below a cliff of Tsing Yi which means that it's not accessible from the northern side of Tsing Yi, whereas HUD is the last site that's accessible from the West -- or Southwestern side of Tsing Yi. So -- that's why the only way to unlock the potential of the government land is via the HUD redevelopment. If we continue to operate as a chip repair operation, then the road access to the government land would not be possible. But this is only a suggestion to the government. And if approved, we will have to find also alternative location for the continued maintenance of -- and chip repair operation.

Thank you Mr. Chairman. Maybe we will have the last 2 questions today. What -- the next question is what attributed to a 33% increase in EBITDA or Health and Beauty Asia and which countries were the main contributors?

Dominic, have we answered that already?

No, not exactly, but I think I can give a short answer. Basically, I think the 30% increase in EBITDA is in Health and Beauty Asia. And the countries that contribute to that is Malaysia, Thailand, Philippines and Turkey. Although this question was covered in the press conference, but not in the security meeting that we have right now. So the increase in EBITDA is a result of increased sales, increased traffic after the opening of these countries. And also through the trading mix, we have some better products with higher mix -- higher EBITDA margin. So that also contributes to the increase in EBITDA.

No. It's doing very well. And also if Philippines would open a [ one stop ] -- so it's been quite encouraging.

Okay. Thank you, Mr. Chairman. Yes, the last question today. What are the growth drivers for the company in the medium term?

It will be quite a balanced growth in our core business. [ Ports ], investing in new [ ports ] were needed and expanding handling capacity, enhancing cost development logistics and noncontainer terminal business. Our retail earnings growth will come from new store in high-growth markets with good payback derates and doing more of our own label, exclusive sales, while continuing on our own [ platform ] policy with loyal members, which has served us very well. For Infrastructure, we've always had organic growth. And inflation is actually very good for our Infrastructure business in the medium term. I want to highlight this that inflation is not so interesting in the year the inflation happens, but the way regulated assets are calculated, the principle, which is the -- we call it RAV, regulated asset value, is increased according to inflation for the year. But when the principle is increased, the expected return on that new principle will spread over all the future years. So a high inflation year is not exactly obvious benefit to the year the inflation happens, but a high inflation here is very good for the business starting from year 2 to year 3 after inflation happens. Now we've started to receive the cash -- additional cash flow because of inflation, but the P&L will be booked about 2 and 3 years later as you recognize it through the regulated asset system. For details, I think on the infrastructure business, some of you are also shareholders of CKI, and a conversation with [ Ivan Chan ] will be very beneficial. And lastly, for -- no, no, also for infrastructure, we have a new business in renewable energy. And the organic growth in infrastructure is quite, quite encouraging. But lastly, for telecom, I think revenue sources from 5G, including fixed wireless access, will increase EBITDA growth. And then we're hopeful about our in-market consolidation, but still a bit of a headwind on cost also. Any additional comments?

No. No, I think your comment is very comprehensive with that so that is not going to be an easy year this year. But then going forward, we have a lot of good things going.

Thank you. Thank you, everyone.

Okay. Thank you very much. Thank you very much speakers. This concludes our live webcast today, and thank you very much for joining our presentation.