Good afternoon and good morning. Welcome to the live webcast of CK Hutchison 2021 final results presentation. Today our speakers are Mr. Victor Li, our Chairman and Group Co-Managing Director, Mr. Kin Ning Fok, Group Co-Managing Director, Mr. Frank Sixt, Group Finance Director and Deputy Managing Director, Mr. Dominic Lai, Deputy Managing Director 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. During the presentation, please feel free to raise your question in the chat box, which is at the lower right-hand side of your screen. The Q&A session will follow the presentation. 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, Frank.
Well, welcome everybody. I'll take you straight away to page 4 of the presentation, which is the summary of our financial highlights. They pretty well speak for themselves with a healthy growth in revenues, healthy growth in EBITDA, healthy growth in earnings before interest and tax, healthy growth in net earnings. Of course, we have benefited during 2021, among other things, from fair winds in terms of currency fluctuations. You see that the numbers are still good in local currencies, but just a little bit lower. That's led us to a 15% increase in earnings per share, and that's reflected in a final dividend of HKD 1.86 per share, which takes the total dividend for the year to HKD 2.66.
Which is a 15% increase and the same payout ratio as we've applied for the last several years. Our net debt to net total capital ratio improved over the course of the year by 1.9 percentage points. Of course, for net debt ratios, because, and we'll go through this in more detail later on. But because we have a higher proportion of euro-denominated and sterling-denominated debt than we do euro and sterling cash and liquid assets, basically favorable currency wins on the earnings side go against us on the net side, the net debt side. That is already reversing itself as we're into the first two months of 2022, particularly with the declines in the euro that we've seen recently.
If we can go to the next page, which is focused on EBITDA. Just a reminder that all of the numbers that we use are on a pre-IFRS basis because we think that gives you a better proxy for real underlying performance, not distorted by the difference between cash and lease accounting. EBITDA up a healthy 15%, but reported 10% in local currencies. The attribution, both in terms of geographies and sectors, is in the two circles on the left-hand side. Just to recall that the inner circle gives you the recurring picture, the outer circle gives you the reported picture.
They are, once again, different, as they have been for a number of periods because of the movements associated with major, what you have to call one-offs, w hich we'll be going through in a few minutes, that include things like the Cenovus and Husky non-cash write-downs, the non-cash write-down in Italy, and of course, all the cash proceeds , and the earnings impacts from the TowerCo sales. Not really much to observe in terms of geographic spread. The only thing that I would say is that our earnings in Hong Kong and in the Mainland have been a little lower in proportionate terms than in prior years.
I think that will be explained when we go through the divisional reporting. It's a fairly natural consequence of trends in the ports and retail division. If we go over to the right-hand side, which basically just looks at year-on-year changes by division. You start by taking out the one-off component in 2020 so that you get to an underlying 2020 EBITDA of HKD 95.2 billion. As you can see, the contributors on the upside, obviously ports, a very healthy contribution year-on-year. Retail, also a very healthy growth year-on-year. You've got CKI showing a decline year-on-year. That is essentially because of the way that we're accounting for EBITDA, our share.
Of course, if you remember when CKI announced their results, they made it perfectly clear that if you exclude the one-time proceeds from the sale of Iberwind, Portuguese wind assets last year, and you take out the non-cash deferred tax effects in both years, actually, their profit increased by 22%. What they look at, which is funds from operations, which is probably the most relevant metric in their business, which is essentially the cash from operating activities plus the dividends that they get from their associated companies, plus the dividends that they get from their joint ventures. That was up to a record HKD 8.4 billion and up 8% right on the year. Turning then to CKH Group Telecom.
As you can see on the EBITDA level, there's a relatively minor year-on-year decline, and we'll be talking about operating performance in detail. Suffice it to say that broadly speaking, the UK was up in terms of its EBITDA contribution. Italy, as we all know, was soft in terms of its EBITDA contribution. When you adjust year-on-year for the impacts of TowerCo contributions and the costs as TowerCo transactions have closed of paying TowerCo lease payments, you end up with a relatively modest reported impact year-on-year. HAT, I think there's really not a lot to say there. The real underlying story is, of course, the merger in Indonesia and its impacts, and we'll be speaking to that later on in the presentation.
Of course, the net one-offs this year are some pretty big moving pieces. The gains reported from the TowerCo sales that were completed in 2021 are HKD 25.3 billion. We took an impairment of HKD fifteen and a half billion on the carrying value. Of course, that's a non-cash impairment, but it is reflected in EBITDA, and we recorded the Husky exchange reserves loss as a result of the merger that took place on January 1st with Cenovus. We also recognized our share of a write-down that Cenovus took in 2021 in relation to their refining assets. In the U.S., our share of that was HKD 1.5 billion.
If we can go to the next slide. As usual, we drill down on operating cash flow. Here what we're looking at is stripped of any exceptional or one-time items. We're trying to look at real operating cash flow and real spending in the businesses. As you can see, the balance of HKD 35.3 billion is HKD 4.5 billion down from last year. Of course, the actual cash generation at HKD 69.9 billion, which is the second bar on the right, is higher than it was in 2020, but that was offset by higher CapEx and investment to the tune of just under HKD 5 billion.
Of course, we incurred HKD 7.5 billion more in license costs in the telecoms businesses, primarily in the U.K. and in Hong Kong in 2021 than we did in 2020. If I can take you across to the right-hand side of the slide. Not really much to note by way of operating free cash flow allocated as among the various businesses, except to note that the contribution from retail is significantly enhanced, of course, by comparison to the 2020 performance. If we go to the next slide, Slide 7. I think it's worth spending a little bit of time on this, because what it does is it looks at the same equation of operating free cash flow for each of the divisions.
It looks at the EBITDA for the division. The EBITDA minus share of associates EBITDA adds back the dividends, but it subtracts the CapEx, it subtracts the investments, and ultimately also subtracts the telecom license investments. If we go very quickly by division, it is interesting. P orts spent CapEx at more than twice the rate in 2020, that's 3,630, as you can see there. It showed a healthy increase, actually a 5% increase in operating free cash flow. We go across to the retail division. Again, CapEx and investments increased there. I am sure Malina and Dominic and the team will be talking about that.
Quite a bit of investment in technology and so on and so on. Nevertheless, the operating free cash flow advanced by 10% to the HKD 7,753 number. That is the sum of the numbers which we're looking at for retail. Infrastructure, I think we've already talked about. Again, I would go back to funds from operations, which I think is the most important number for them. You'll find the breakdown of that in note 32 to CKI's financial statements released yesterday.
If we then go across to CK Hutchison Group Telecom, although you've got a decline in operating free cash flow for the year, that's against CapEx spending that was up by 15% and license spending that was 9.5 times what it was last year. Not really surprising that you have a roughly 16% decline in the operating free cash flow in CK Hutchison Group Telecom. As I say in HAT, the number here is partly reflective of as we led into the merger in Indonesia, the group was very careful not to spend particularly on network CapEx that would be redundant on the assumption that the merger went ahead. The improvement is largely driven by the reduction in capital spending in Indonesia.
Of course, lastly, the finance and investments performance has a lot of things moving in it, but most of finance and investments EBITDA improvement over the year came from the share of Cenovus Energy, which is of course not reflected in the dividends, which is why the operating free cash flow movement looks less attractive than the EBITDA movement. But apart from that, I don't think any significant observations and all of those numbers sum up to the ones that we had on the previous page. Looking from operating free cash flow to real free cash flow on the next slide. Yes, you start with our 35-60 from the last slide.
Obviously, you take away the actual interest expense that we had in the year, which was an improvement year on year. You add in then the cash proceeds which we received from the Tower deals that closed during the course of the year. You take out an adverse working capital movement that reflects some concession extensions in the Ports division, and it also reflects clearing out some payables, particularly in Hutchison Asia Telecom, that related to Indonesia and that needed to be cleared before the merger. Part of which has actually been replaced post-merger by some receivables from the merged company.
Other than that, I think if we go over to the right, I think I pretty well explained all of the major variances. The HKD 33.1 billion is summed on the left, right, and the elevator and waterfall on the right I think are self-explanatory, so I'll leave those to questions if anybody has any later on. Next slide, we take a look at our debt maturity and financial profile. I would start by saying still very healthy. On the left side, cash and liquid assets at a strong level of HKD 161.4 billion.
9% of that is held in euros, and 4% of it is held in GBP, and the rest, for the most part, is in US dollars, and Hong Kong dollars. Going across to the return on our cash and liquid assets was significantly lower than it was last year. Not surprising in terms of where interest rates have been over the course of the year. We're 67 basis points behind on the return on liquidity. But I'll go straight across to the bottom on the right, where we gain 10 basis points in terms of the average cost of our debt as well. The spread between the two, although in slightly adverse period, and certainly not anything to cause us concern.
Turning to the total debt at HKD 336.4 billion. Again, 47% of that is denominated in euros, 5% is denominated in sterling, which is why in net debt terms, a decline in euros gives us favorable profile. Our net debt will already have improved as we sit here, among other things, because of that from the 20.3% level that it was at at the end of 2021. Maybe not a bad idea to remind, before I go there, in terms of the mix, we've been continuing to move more towards fixed rate.
We ended the year 26% in fixed rate and 74% in floating rate, and that's as against 31% that was in floating rate at the end of 2020. A little bit de-risked in terms of a rising interest rate environment. Maybe a good idea to just recap some sensitivities which you'll find in the group liquidity section of our reports.
Basically, a 10% fluctuation in euros in particular will result in an EBITDA reduction of HKD 3.1 billion, will result in an earnings reduction in net profit after tax, HKD 1 billion, will result in a reduction in net debt of HKD 12.1 billion, which represents 0.9%. Now again, those are all sensitivities that assume that the recurring cash flow and earnings profile from 20 21 is exactly the same in 2022. The actual sensitivity will vary somewhat, but it is tested against the recurring earnings components. In terms of net debt, I think it's fairly self-explanatory. An improvement from year-end 2020.
A little bit of a deterioration from the summer of 2021. That is partially driven by currency and also partially driven by the CapEx and license spends in the second half. I can assure you that today stands at a significantly lower absolute amount and ratio amount. Other than that, no change in our credit ratings. Average maturity profile, 4.8 years. Just a smidge longer than it was last year. The runoff of that on the left is self-explanatory. I think it's quite relevant to note that in terms of the near term maturities, they are largely weighted in terms of bank maturities, bank market maturities rather than capital market maturities. Which means that there should be no particular issues around rolling those credits. I think I'm going to stop there and ask whether Kin Ning has joined us.
Yes. I have been listening.
Thank God, because you are on deck to do ports.
Well, come here a bit too early because then you can finish it. Now the port has a good story. Just to remind you, the total assets are HKD 12.6 billion, 291 versus 52.26 countries. In 2021, actually, we handled 88 million containers, and there was an increase of 5%. EBITDA is very, very pleasing. 15.157 billion. 39% increase in EBITDA of course, we have a huge help from the currency. If you look at local currency, it's 35%, which is very, very pleasing.
If you go to the right-hand side of the chart, everything is going up, so that only the red one is the Mainland China and Hong Kong. Basically, it's more or less the same. Actually, it's doing better than last year. Because last year, we sold 20% of our Shanghai port to our partners, so this is why we have a slight negative here. It's actually, the ports are doing well because we only have 50%, we sold 20%. We now only have 30% in Shanghai port. T he trust is doing well. Then they have the reporting. Again, Yantian is doing well, Hong Kong is okay.
Then Europe is very pleasing. Felixstowe and Rotterdam and Barcelona, they all give very good increase on EBITDA. Of course, in Australia and Asia, Australia and America, they are doing very well. Basically, Mexico, Indonesia, and Thailand, they are all leading the charge. Then on the corporate side, we make an investment in the shipping company, and they are doing so well, so they give us good income. You can see that everything is going up. Of course, the foreign exchange also give us a push. I think actually, this is a wonderful business.
One thing I just explained in the press conference. When there is a disruption, of course, the TSI works lower, and then the boxes don't move as fast. But the thing, because the box stay in our yard, and then we collect a quite meaningful storage income, the land which we call the land side income, which is quite good for us. As a result, the performance of the port in 2021 was very pleasing. We go to the retail one. I think retail is responsible by Dominic. Maybe Dominic should take through this page.
Okay. Well, thank you, Kin Ning. Retail, recently a good story. Well, you have Slide 11. With nearly 16,400 stores, the retail division remains the world's largest international health and beauty retailer. Operating in 28 markets under 12 retail banners and with a strong loyalty member base of 142 million worldwide, and member sales participation high at 65%. That means 65% of the total sales came from loyalty members, indicating the strength and effectiveness of our loyalty programs. Next is the exclusive sales participation, what we call FOBE, which include our own brands and exclusive products from A-brands. It has the sales participation has reached a record high of 36%, with China being the highest at almost 50%. Creating strong differentiation and uniqueness for the business.
Customers can only get these products through our own network only. Our O+O business model has been proven to be very effective in increasing the customer lifetime value and sales growth. What is O+O? Why is O so important and unique? Let me elaborate in simple language, this very important and core strategy. O+O, as the name implies, is offline plus online. We want our customers to shop with us both offline and online. Not either, but both. Because our CRM data shows that an O+O customer spends up to three times as much as customers who shop with us only in our physical stores. This data and observation forms the basis of our core O+O strategy. The implementation of this O+O strategy is very sophisticated.
In short, we have to create a worldly unique, digitally enabled, integrated offline and online ecosystem that allows customers to shop seamlessly across any channel, anytime and anywhere. There's a lot of technology involved. If you would like to have more details, our Chief Operating Officer, Malina Ngai, will be happy to explain to you. Now, let's move to the center of the slide. Store numbers. We ended the year with 16,398 stores, a mere 1% increase on the surface. In fact, we have opened 882 new stores during the year. We have also actively closed 651 underperforming stores, resulting in a net increase of 231 or 1%.
The new stores, most of them in Asia and China, have an estimated average payback period of less than 15 months. Fast payback, particularly in Asia and China. The split of these 16,400 stores is 50/50 between Europe and Asia. Now on EBITDA. EBITDA is reported at HKD 16.034 billion, representing an increase of 11% in reported currency or 9% in local currency. Then EBITDA split is 60%, 62% in Europe and 38% in Asia. Now let's go right. The waterfall EBITDA growth chart shows the EBITDA growth of each division in local currencies. For Health and Beauty, which accounts for 94% of the division's EBITDA, it grew 17% year-on-year. Health and Beauty, the core business, grew 17% year-on-year.
Now, let me go through these blocks briefly, one by one. On the left, for Health and Beauty China. China has delivered a very encouraging performance in the first half of last year, when the pandemic conditions were relatively stable. However, in the second half of 2021, the business was significantly affected by regional outbreaks and tightened national movement restrictions, which negatively affected our customers' footfall. As a result, the EBITDA for the full year decreased by HKD 291 million, as you can see on the slide, or 11%. A very good first half, but the second half was impacted severely by the COVID and the movement restrictions. Now move to Asia, Health and Beauty Asia. Despite the movement controls in the region, countries like Malaysia and the Philippines managed to deliver EBITDA increases.
This together with the significant reduction of losses in Watson, Hong Kong, because the tourists doesn't come anymore to Hong Kong. It was badly hit in the year 2020. 20 21, the loss has been reduced significantly. As a result, the year-on-year EBITDA growth is HKD 138 million or 6% in Health and Beauty Asia. Next, for Western Europe, I'm happy to report that all the Western European business units did well and reported increase in EBITDA and EBIT, especially in the Benelux countries and Germany, where stores remain open during the lockdown period and the non-essentials, they have to close.
As a result, EBITDA of this division, Western Europe, increased by close to HKD 2 billion, an increase of 36% in local currency. A very good achievement in Western Europe. Similarly, for Eastern Europe, EBITDA increased HKD 367 million or 19%, predominantly because of Rossmann Poland, where the brand is strong and the trading has been good. The next block that you see as a negative, there is other retail. Here we see a drop of HKD 887 million. This is mainly because of the fact that the supernormal trading
In 2020, in our supermarket division or supermarket operation in Hong Kong, due to the panic buying by customers, has returned to normal in 2021. In 2020, supernormal trading, and then in 2021, back to normal. Lastly, and of course, with our FX gain of HKD 322 million, the total EBITDA of the retail division increased, as I mentioned, 11% to HKD 16.034 billion. If you look at the bottom to finish the slide, the health and beauty EBITDA margin chart. For China, the EBITDA margin remains double digit at 12%. Asia, stable at 9%. Western Europe increased to 10% from 8% previous year. Health and beauty, Eastern Europe, highest at 13%, resulting in an overall EBITDA margin of 10% for the retail division, same level as previous ye ar. Reasonably good story. I pass it back to Kin Ning to talk about infrastructure.
Well, I think it's better to pass to Frank.
Frank ? Okay. S orry.
Okay. I can't see anyone else to pass to. Anyway, I've not much to add really to CKI's own results announcement. S tarting with solid reported earnings. Of course, just a reminder that if you take out the non-cash deferred tax impact in both years, and you take out the gain from the sale of the Portuguese wind assets in 2020, earnings were actually up 22% for the year. Very healthy net debt ratio, as you can see. I can tell you that we all obviously look through that and look to the leverage levels from the underlying associates and joint ventures.
We're very comfortable that they are prudent given the high regulated asset value component of a number of the businesses and, of course, the boring recurring income profile of the non-regulated components of the portfolio. Again, EBITDA, this is what it looks like to us, including the share that we still have in six assets that we co-own with CKI. A reminder there that the real story with CKI is the funds from operations story. It's the cash that is coming in from their own operations, the cash that's coming out by way of dividends from their associates and the cash that's coming out by way of dividends from their joint ventures.
That was a very healthy 7.8% up year- on- year. Just looking over to the far right, the regulatory reset timetable is very important. As you can see, it's pretty well spread out and pretty healthy really. We're all looking at results in 2021 that absorb the initial impacts of a considerable number of resets that were done in and before that year, which is what the 2021 column tells you. With that, I'll pass it over to Kin Ning to talk about telecoms.
Well, telecom has not an easy year this year. You saw that on the top left-hand side, the revenue went up by 1% and active customers stayed flat. Now of course, t he one thing good is that, the ARPU, the margin, this is what we look at, actually went up by 2%. The usage is quite a lot going up because of a lot of lockdown. If you recall, we are a new challenger, when we start our European 3 business.
One of the things that we are not as competitive as the other company or who has been there for longer is our spectrum collection and ownership. Of course, all through this year we have done various in Ireland, Austria, and Italy, and a lot of mergers, and then also through the 5G auctions in the U.K. In the U.K. we are able to buy the companies that own a lot of 5G spectrum, so that we have the most 5G spectrum than anybody else in the U.K.
In Sweden, Denmark, and we are able , through auction, to acquire enough spectrum so that all our 5G spectrums are now competitive and, if not more than other people. That will take away one major disadvantage of our business. If you look at this, a nd our network in Italy with 95% coverage in FDD and in U.K., as we have been in U.K., Ireland and Austria being rated by Ookla as the fastest 5G network. So then our disadvantage is eventually now disappear. Because of the network situation, we do spend more CapEx in the last two years.
We spent HKD 23 billion in CapEx. Approximately 45% of those are 5G. I would like to say to the market, this will be the top spending for our CapEx. If you go to 2022 this year and next year, you will continue to move down. I think in the not too distant future, our goal of spending CapEx equal to depreciation, we can achieve that. If you look at the EBITDA line. Okay? Then in the middle of the chart.
You go from 2020 to 2021. Actually you see that because we have sold the Tower business so that in order to make it comparative so that we make an adjustment. The 2020's EBITDA , in order to compare the 2021 is in the third bar, 2993.4. Then after that you see the up and down. I think the one that was, you just see that the EBITDA is less than 2020 by 5% in local currency, and mostly come from Italy b ecause there's two things actually that happened.
It was a very competitive market. Our base actually did not perform well in the first half. I'm happy to report that in the second half, actually, we are doing a little bit better, not that much, than the first half. This is why we know we are bottom. W e can see that we are bottom out in Italy. Another effect is that our wholesale income, because one of the major customer is the fourth operator called Iliad, they have been giving us a lot of income because they roam on our network. But as they build up their network and then the income reduces. So this is the two factors. Of course, we d
We always save some money to offset some of those. If you see the one in the chart, Italy recorded a EUR 2 billion reduction, EUR 2.1 billion reduction in EBITDA against 2020. The other is UK is pleasing because the reduction is finally turning around. You see that the new management team is doing well. In fact, if you look at the second half, we starting to grow, their post-pay base is actually the net add is the best in the last seven or nine years. We have half a million of net add in our contract.
that you can see that the EBITDA actually is better by almost HKD 600 million. This is very pleasing. The other is all more or less the same because sometimes affected by COVID . All in all, I think the business is reasonable. I think in 2022, we see that even in Italy, in the first two months, the base is actually settled down, and it started to increase in February, actually. We'll have to see. If you look at the EBITDA margin, UK 36%, Italy 43%.
I t is a little bit lower because for some, we have to add some of the countries like Italy, Sweden, Denmark and Austria, we have to adjust for the TowerC o, the expense which we don't have. But nevertheless, we would continue to try to bring this back to 40% and let's see how it goes. On page 14, just in the detailed figures. Page 15, I think, Frank, c an you describe this? Hello, Frank?
Sorry, I had the mute button on. A fter almost two years of process with the CMA, we did finally obtain their conditional clearance, which clears the way for us to complete the transaction with Cellnex. We believe in Q2 or Q3. Which will bring in, as you can see on the slide, EUR 3.7 billion of total proceeds and corresponding increase in earnings either in Q2 or Q3. As a reminder, that's as against what we have collected already in 2021 and 2022, which is about EUR 6.3 billion in proceeds and earnings of EUR 4.3 billion.
The approval is conditional and does require the completion of process between the CMA and Cellnex as to the implementation of the remedy package. But of course, clearance is based on an assumed remedy package, which is very realistic in all of the circumstances. We don't think that that's going to stand in the way, but it does affect the timing, which is why it's still Q2 or Q3 in terms of the actual closing of the transaction. In terms of what we've done with the proceeds that we already received, obviously we had a significant debt reduction by that CK Hutchison Group Telecom distribution.
That's after a distribution from CKH Group Telecom to CKH, which reduced debt at CKH and also funded EUR 135 million of share buybacks, the equivalent of 21.7 million CKHH shares that we bought back in 2021. It also allowed us to save some money by the voluntary prepayment of the license that we made in Italy in the first half. With that, I'll go back to Kin Ning. You're going to talk about our merger in Indonesia.
Well, it's all financial figures. Frank, why don't you take it over?
I think we've gone through this a good many times. The left-hand side shows you how the shareholder structure looks post-merger. The implied enterprise value on the merger was about $6 billion. Pro forma combined annual revenue was $3 billion. The company has achieved a BBB- investment grade rating from Fitch and from a local ratings agency, both with stable outlooks. We think that the realistic run rate of pre-tax synergies is between $300 million and $400 million a year and should be achieved between 3 years and not more than 5 years from the start of the merger, which was at the beginning of this year.
Really a night and day picture, I think, in terms of the position that we had in Indonesia before the merger and the position that CK Hutchison has post-merger. A very good partnership, very strong partnership with Ooredoo from Qatar. As you can see, we're basically 50/50 in the control block. And our local partners own 20.7%, which gives us an additional indirect potential equity interest as well. Overall, it was great to get this done after again, at least three years of hard work.
It's a long-term process, but we finally get it over the line in January 3rd, I think. We are so happy. I think s ustainability F rank, yo u are working with the heart today.
We'll go to Slide 18. Just an update on where we are. The slide focuses on accelerating action on climate change, but that's really just one of the objectives here. Reminder, excluding what we spent on 5G networks, which does have a fairly positive environmental impact overall. We've, over the course of the last three years, spent a total of $2.1 billion around the group, roughly split between CKHH subsidiaries other than CKI and CKI itself. Those are spends on renewable energy, climate adaptations, energy efficiency, sustainable transportation, and the circular economy. We have been and continue to be doing a lot in all aspects of sustainability.
What the chart is showing you is where we are in terms of the key goals in dealing with action on climate change, which is setting science-based targets, developing a pathway to net zero, and developing and understanding our Scope 3 footprints. Very pleasingly, as you can see, all three of those have been completed in telecoms. We're at an advanced stage of progress on in all of the other divisions, and in particular the retail division, which has already scoped out its Scope 3 emissions targets. All of this has actually been recognized by the sustainability ratings agencies. We got a significant improvement from Sustainalytics.
We went from their very high-risk category at a score of 48.5 into their medium risk category at a score of 29.2. Which doesn't sound all that great except that it is the second best rating in all of APAC that they've given, and it's the 11th best globally for people who fall into the conglomerates category. Really good progress from where we started with those folks. MSCI still has what we think is an outrageous B rating outstanding against us. We have been working with them. We are seeing what they call our raw score improving very substantially.
Our own view, this will be played out over the course of the next couple of months, but we think that we are entitled to a two-notch improvement in our rating to BBB from them. Of course, the other thing that we did during the course of last year was to issue our first Green Bond, which also was a validation for us, EUR 500 million principal, maturing 12 years, and at an all-in interest rate of 1%. That's the brief tour de table on sustainability. Then, Kin Ning, I think you're going to cover our 2022 outlook.
Well, this is a very tricky page because then I want to write more, but not allowed, because then we cannot forecast too much in the figures. Basically, you look at the top of the page for this 2022, we want to achieve balanced growth in every business. That's because what we've seen, hope to see, especially in Europe, which is almost more than 60% of our EBITDA. S upported by the economic growth and also we see the trade outlook is still very favorable. Of course, I know that the shareholders are looking for shareholder return.
As mentioned by Chairman Victor Li in the press conference, after we finalize the Cellnex, we'll receive the rest of the money, and of course, part of the money will be used for share buyback. The last but not the least, the telecom market is a very hot item. We are not selling, but then we were looking for in-market consolidation, especially in the U.K. when the Ofcom give an easier signal about consolidation. These are the main thing that we want to do.
I just say very, very quickly on the port side, you have seen that we can earn income before mostly on the quayside, and then now, in last year, we have almost 10% of our revenue come from storage income. We would like to see this as a part of the business going forward. Of course, expanding capacity where it is needed is also very important to us, like in Australia, Thailand, Indonesia, where there is growth. Okay.
On the CKI side, I think the good thing in 2022, there will be no more no reset in 2022, so that we will have a very predictable 2022. Y esterday, they increased interest rates so that we can see higher inflation will come in, and then that is good for our business. Of course, CKI always look for opportunity. On the health and beauty side, you have seen that the European business during 2021 and then Asia and China doesn't work as well, but the European business actually arrive and fill in the void.
In this year, we will see especially in the Asia side in January, February, and they are doing very well. I hope that in China now there's a lot of lockdown in China. This will get over very quickly because the forecast is seven days, one week lockdown. Hopefully, they can stick to the program and the country can reopen again and then the business will perform. Of course, the O+O platform is one of the key driver. This we will continue to work on it. Also, our exclusive and own brand sales is one of the success of this company. It already went up to 36%. Our o riginal target is 40%.
I think we can reach that in no time. Last but not the least, we said a lot about telecoms, and you can see that the UK they are on EBITDA growth now, but they are still not on EBIT growth. I think UK in 2022 will start making good EBIT, going back to EBIT because the EBITDA growth will overcome the depreciation expense because of our investments in network. Italy, and then we have seen that we have taken active steps. We started the second brand, and then already won 1.4 million customers. Of course, in January, we do the repricing. You will see that Italy, we have solid action.
Of course, with a good network, the B2B business side has good growth last year, which will accelerate this year. Last but not the least, I said it before, the spectrum has been our shortcoming through various mergers, and we are able to get together full spectrum in Italy, Ireland and Austria. In U.K. we are able to buy from Richard's company. There's a lot of spectrum in U.K. The 5G spectrum we have the most. Also in Sweden and Denmark, we are able through auction. All our 5G spectrum now is at least competitive against our competitor. That's a good thing.
I think all this will give us the foundation to get into a good 2022 result. O f course, we really shouldn't look beyond 2022. What is our target? Of course, you see that our performance in Hutchison has been both our recurring income and M&A income. We derive a lot of profits from deals, during my career in Hutchison. That effect will continue. We put a special emphasis on recurring solid and net profit. That will be our emphasis. Of course, cash flow is always on top of our mind.
I hope that after we close the deal with Cellnex and then our pro forma debt ratio will go below 17%, which is something that we are shooting for. Last but not least, I know that all the shareholders has been asking us for more shareholder return, right? This is a decision from the board. What I can say that if we have a good business and good balance sheet, the board will support a good shareholder return. Thank you very much. I think this is our near-term outlook.
Thank you. We can now begin the Q&A session. Please feel free to raise your question in the chat box, which is at the lower right-hand side of your screen. The first question is about capital allocation. What is the priority of the company's allocations? Will CKHH continue to buy back its own shares to avoid EPS dilution from Tower sales?
I think the top priorities must be engaging in earnings and cash flow accretive businesses. For example, like telecom in-market consolidation, new retail stores with quick payback periods, all the new projects under CKI in terms of new infrastructure investments. With the completion of the Tower sale, we'll also allocate some of the capital for debt repayment and share buyback to avoid earnings per share dilution from the Tower sales. Thank you.
Thank you. Next question. What is the outlook of 3UK, and will it resume EBIT growth in 2022?
Maybe Kin Ning, you can answer that.
Okay. I think I have explained it briefly. In U.K., the first half was basically flat. Then the second half, as the COVID situations, I think is the freedom started. A ctually, we saw a good performance by the U.K. business. T he EBITDA growth is about 10% year-over-year on the second half. Also the most significant thing on 2021, the net add is. We have the best net add in the U.K. market. That is the gross add, minus churn. Actually for us, it's the best in nine years.
We added about 561,000 customers in 2021 in the contract business, which we never seen before. O ur network is doing better. Ou r operations execution is doing better. You will see that we were expected to go back to EBIT growth again, because the signs of the growth of U.K. business is good. We are quite positive on U.K.
Thank you. The next question is still on telecom. This time is on Italy. What initiative will WINDTRE implement to reverse the earnings decline?
Hello?
I'll repeat the question.
No, I lost you for a second.
Yes. I repeat the question. What initiatives will WINDTRE implement to reverse the earnings decline?
Okay. Kin Ning, your question.
Basically now, t here are two sides of the business. One is the base. Then the base has not been doing well, especially in the first half. In the second half is of the order level. What we did is that what we have in Italy is that now we have the best network in Italy. That what we are concentrating to do is that, we will work with... The progress on the B2B side has been very good in the second half. Also, we have started a second brand called 3, and then that has been very successful.
Only about a little bit more than a year, we have 1.44 million customers, and that can be able to compete on the lower side of lower ARPU side of the business. Last but not least, in January, we started a repricing exercise, which we think we see the signals are good. I think this year, 3 will start on a good basis. Confident that WINDTRE will be much better this year than last year.
Thank you. The next question is on the retail side. What was the reason for the EBITDA decline of health and beauty in China in the second half of 2021? And what are the steps CKH will do to reverse the EBITDA decline?
Dominic.
Yes. Okay. Well, Yes, as I said, in the early part of the presentation, first half is quite encouraging, but second half was affected by this regional outbreak of COVID and also the national or nationwide movement restrictions. That affect the customer footfall. The main reason for the drop in the second half is the drop in customer footfalls because of these pandemic measures. Particularly in Q4 of last year, in fact, it was the most serious quarter that we have seen, statistically, because we see the growth rate projected by the Chinese government or the national statistics actually fell real short. Q4, particularly, last year, was badly hit.
On the other hand, we have been doing a lot of actions in China to really safeguard as much as possible. We continue to recruit new members. In fact, we have been successful in recruiting members and also turning the members into O+O. As I said, the O+O members, i.e., customer shopping with us online and offline, actually got a 2.8 times multiple, i.e., they spend 2.8 times more than a customer that shop with us only on the physical stores. That's the strategy. Also, to report numerical terms, because our O+O sales participation in China has now reached over 50%.
Fifty percent of our sales comes from O+O. The growth of this O+O sales is also over 55%. Basically, the O+O platform that, of course, the group, and especially in China, is working. We are expanding very selectively on our store network, especially in the lower tier cities where we have under-penetrated. These are the online, the O+O, and also store network expansion. Thank you.
Thank you. The same investor have a follow-up question on retail. Do you consider there is a structural change of China's health and beauty retail industry, and isn't China's store network in China saturated?
Well, in fact, the shift has...
No, please, Dominic. Continue.
In fact, the shift has started. Sorry, gentlemen.
No. Go ahead.
Well, in fact, as we mentioned a number of years ago, the shift has started, from the physical store to online. The consumers want more premium products. All along, we invested in technology. We launched a very powerful O+O platform. And also the physical store network expansion actually gets the payback period, even now, with the lower sales performance, is less than two years. We are following the market, following the consumers, and then offer them a 24/7 shopping experience and also expanding our store network. Yes. O+O and quality service and network expansion. Thank you.
Thank you. Next question is on CKI. The question is, will the increased emphasis on ESG have negative impact on CKI earnings?
Okay, maybe I'll take this question myself. The quick answer is no, because the majority of CKI's profit contributors, such as power distribution networks, gas distribution networks, household infrastructure, and water utilities, they're not really significant carbon producers. In our view, the transition risks of these assets are relatively low. These businesses have also developed net zero targets and business transition plans. Let me see. For example, our gas network is leading the way in hydrogen transmission, transition. CKI only has a very small portion of its profit from power generation business. They are also switching from coal to gas-fired generation.
As well as renewables and green hydrogen. I'm not too concerned about that. Actually, we can benefit from this because a lot of this our asset will benefit from this transition. They help our customers as they help the customers meet these goals. We'll be the enabler in renewable energy and in connecting various smart solutions. I look at this as an opportunity rather than a cost. We expect to be possibly investing in helping our P&L in this area. Thank you.
Thank you, Chairman. The next question is on the retail side again. Can you elaborate on the attributes of your O + O model?
Dominic, you can continue on Watson's question. There's a lot of interest on O and O.
O + O. It's easy to say, but very sophisticated in implementation. As I said, O+ O, the platform, has to connect O+ O, the online together with offline. It's an integration rather than just a connection. It's unique. In fact, if you look around, we are the only health and beauty retailer in the world who's adopting, investing, and implementing this O + O platform. Because of the mere fact that the O+ O customers buy two, almost up to three times more of products from us. Basically, this is a very common sense, common commercial sense strategy. On the O+ O suite, it's quite sophisticated. It's not just connecting them, but we have to integrate them.
What are we integrating? Let me tell you, just in essence, w e put in this ecosystem, what we call ecosystem, is our 16,000 physical stores, 120 online stores, our global 89 warehouses, our 142 million loyal customers, our 130 social media fans, our 15,000 beauty advisors. Everything has to be integrated and to enable a very smooth and seamless shopping journey for the customers 24/7. We want longer trading hours, 24/7, happier experience for the customers. It is a very sophisticated and well-thought-out integration that we are unique, so, and it's working out fine. There's a whole potential to have more sales and of course, more profit because our O+ O sales participation for the group is only 20%, about 20%. There's a lot of headroom to grow. Okay. Thank you.
Thank you, Dominic. The next question is still on the retail side. What is the outlook of A.S. Watson in 2022?
That's a big question for Dominic. Continue, please.
Okay. Well, in fact, of course, we are not out of the COVID yet the worldwide. I think we have been seeing good year-on-year growth in the first two months. For example, we are talking about 9% year-on-year growth on sales. At the same time, if you look at the EBITDA, I must caution, our analyst friends that because as the last year and the year before, we have been receiving from the government support to help us during this difficult trading times. In the year 2020, we got HKD 1.6 billion. 2021, we got HKD 600 million, so HKD 1 billion reduction, and this year 0. That impacted EBITDA. We are still projecting a modest EBITDA growth this year.
Thank you.
Before we move on to other questions, maybe I can offer our analyst friends my view on Watson.
Yes.
We have just gone through possibly the biggest challenge for the retail industry in recent human history with COVID. Most retailers have major drops in profit. I think what A.S. Watson have shown is amazing resilience. The sector we're in, health and beauty, show that during COVID, when we're facing store closures, manpower shortages, and customer challenges, they still maintain a reasonable profit. At the same time, as soon as the COVID measures are slightly relaxed, the company start to bounce back and show growth in profit. That shows that Watson is a major quality asset for CKHH. The fact that we operate so many of our own brands and contributing such a big portion of our profit through the O+O platform, plus our own products.
These two factors show that, in a way, I use the word separate the men from the boys. A.S. Watson has definitely demonstrated that the amazing resilience and the fact that it's a quality asset of CKHH. Thank you.
Thank you, chairman. The next question is as follows. Cenovus made an impairment in Q4 last year. How do you view the return of your investment in this company?
Maybe I can give an overview first, and then Frank, you can help me with the numbers to the analysts. I think the merger of Cenovus and Husky is a success. I think it unlocks a lot of synergistic opportunities, both in value, in revenue, and in cost reduction. Even if we take away the recent rise in oil prices, the merger is a success. Today it's producing about 800,000 barrels of oil a day and is one of the three biggest producers in Canada. Frank, maybe you can help me with the numbers.
Yes. I think when we did the merger, we expected, first of all, that we would see an enhanced earnings contribution. We did see that even after the write-off of their U.S. refining assets, for which our share of the write-off was HKD 1.4 billion. We still had a good earnings contribution from Cenovus for the year. It's not just about earnings, it's about earnings prospects. They have announced that they have achieved, indeed overachieved their initial targets to achieve better than CAD 1.2 billion a year in synergies. That drops straight through in two ways. One, in terms of balance sheet repair.
I think you've seen continuous progress with Cenovus becoming investment grade and continuing to build one of the strongest balance sheets in the business. V ery well-positioned as you look forward to continue to enhance shareholder returns. I think they've telegraphed that very well. From CKHH's point of view, the outlook should be for a healthy earnings contribution, but also for a good cash contribution in terms of returns to shareholders as we look forward into the rest of 2022 and the ensuing years. The other thing was value creation.
A s a former Husky shareholder, essentially, if you look at the valuation, on a per Husky share basis that Cenovus implies today, it's already 4.5 times more than it was at the time of the merger. Not just earnings contribution moving in the right direction in terms of cash flow contribution and shareholder return contribution, but from a value perspective, it has been an extremely successful merger.
Thank you. Frank?
I think the market also would like to look at the fact that today, on the personal side, together with the CKHH, we own about 28% of Cenovus, roughly.
Yes.
It's an important a sset for the group in general. I refer to group as CK Group together with our personal holdings.
Thank you. Next question is on HUTCHMED. HUTCHMED was reported to face delisting by the U.S. SEC. What are your views? How does the group see HUTCHMED's future?
I'm not a politician, so I'm not going to comment on the politics of it. I'll focus on the business side of it. Let's get the facts right. There are over 200 companies on the list. For HUTCHMED, it's listed first in London. It's also listed in Hong Kong. Even in the scenario, if it's delisted in the U.S., there's still two markets that it will be traded. For investors holding U.S. ADS, they have the flexibility to change their shares to London or Hong Kong. I don't know how to comment on these geopolitical issues. Actually, HUTCHMED has been having quite good progress over the several years, and it has a deep and broad pipeline of new drugs and new innovations.
The oncology drugs have been approved and marketed in mainland China. One of them, Surufatinib, is now being reviewed for market authorization in the U.S. and EU. HUTCHMED at the moment has another 10 drug candidates in clinical studies around the world. They will continue to invest in the R&D in the future and expand in the global market. Operation goes on.
Victor, there's one more point I want to add.
Please.
There is a concern by the market that is the change of CEO where the former CEO Christian Hogg retired back to London England.
We have a succession plan already.
Yes. I just want to emphasize that the new CEO that was selected has been with the company for 16 years, and he was the chief scientist, then responsible for developing all the successful drugs. Three successful and then another 10 in the pipeline. He will be the most logical person to become the next CEO, and then it will be a seamless transition. I just wanted to say to the market because
That is part of the plan.
Yes.
Thank you, Chairman. Thank you, Kin Ning. The next question is as follows. Did the supply chain disruption have any negative impact on CKH port earnings?
Actually it's a positive impact. Maybe I'll take this question. When there are supply chain disruptions, containers tend to stay in the yard longer, so it will generate higher storage income. We expect gradual easing of the supply chain disruption in the second half of 2022, but the port congestions and the high yard density, basically containers at our container yard, is likely to continue for some time and contribute positively to our earnings.
Thank you, Chairman. The next question is as follows. What is the outlook for throughput growth in 2022, and do you expect any increase of container terminal handling fee? If yes, what sort of increase do you expect?
Kin Ning, do you want to make that projection? Prediction?
Well, we all expect our division to grow. They must grow. You will expect that the congestion should be less, and then more business will come from the quayside. I think in 2022, I would expect that it will be more volume driven. However, if the congestion is still there, and then we still have storage income, and this is what we are expecting.
Okay. Thank you very much, Kin Ning. The next question is on telecom. What is the outlook of throughput CapEx in 2022, and will there be any spectrum auction this year?
Kin Ning, telecom, you continue.
Okay. The CapEx in 2022 will be a significant decrease from 2021. On top of that, the spectrum auction will be less, which, I think, will only be in Austria and in Ireland. In Ireland, it looks like it may not happen this year. O n the cash side in 2022, the CapEx for the telecom group will be much less. I n the 20-30 and less.
Thank you, Kin Ning. Due to the time constraint, maybe we will take two more question. The next question is, what are CKI major focus with respect to sustainability, particularly net zero?
We've answered that question earlier. First, it's not a problem for us, and we look at this as opportunity. A lot of our businesses are not carbon generators, and we are distributors, we're not generators. This movement will benefit us as we connect other alternatives and invest in accommodating them. I look at it as opportunities because we have wind, we'll be looking at solar, we are already in waste to energy. There's an acquisition in the Netherlands which is still subject to government approval, but we're the only forerunners in that. We're enjoying it. I look at it as a positive movement for us.
Thank you, Chairman.
Thank you.
Okay, this is our last question today. Our IR department will answer the remaining unanswered questions in the next few days. The next question is, how do you view the current telecom regulatory environment towards in-market telecom consolidation?
Kin Ning, you must be the person answering this final question?
Okay. I think that in the U.K., it s eems to me that the Ofcom have a change. It's not final yet. It looks like that they have a change of heart. T he number of players may not be as critical as they saw before. We welcome this. Let's see what can happen because the in-market consolidation is our key strategy. We welcome that. Thank you.
I don't think we can go on any further details than that.
Yes.
Thank you, Kin Ning. Thank you, Chairman.
Thank you.
This concludes our online press conference today. Thank you very much for joining our presentation.
Okay. Thank you.
Thank you. I hope next year we can see each other in person.
Indeed.
My eyes are going dim, staring at this little screen. Okay. Thank you.
Bye bye. Okay.
Bye bye.