Welcome to the live webcast of CK Hutchison 2025 Annual Results Presentation. Our speakers today are Mr. Victor Li, our chairman, who will join us later. Mr. Frank Sixt, our Group Co-Managing Director and Group Finance Director. Mr. Dominic Lai, Group Co-Managing Director of CK Hutchison and Chairman of A.S. Watson Group. Mr. Kwan Cheung, our Group CFO. During the presentation, please feel free to put down your question in the chat box, which is at the lower right-hand side of the 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 two of the presentation. We can start now.
Very good. Thank you for being with us. Let's move straight through to slide 3, and we'll go through the usual explanatory deck as expeditiously as we can, but hopefully comprehensively. Starting on the left-hand side, as you can see, revenues for 2025 were well above 2024 levels, which is very good news. In fairness, that 6% increase came about 2%, right, from Forex differences. We were in a very strong sterling and euro environment, right, in 2025 compared to 2024. Nevertheless, the remaining 4% was underlying, and that's close to HKD 19 billion of incremental revenue. Looking at net earnings in the middle, on an underlying basis, right, we are up 7%.
That's by about HKD 1.5 billion compared to 2024. The underlying, of course, leaves out in both years, right, the one-time largely non-cash items, a write down in 2024 relating to our assets in Vietnam, and the non-cash charges that arose out of the Vodafone merger transaction that we explained during the first half. If you look at the decline in the reported change, that's about HKD 5.2 billion, and the difference is entirely the difference between those two large one-off items, which was about HKD 6.7 billion, HKD 1.5 billion of improvement, right, on the underlying items, and the difference is HKD 5.2 billion, HKD 4.7 billion, right, which accounts for the reported change.
EPS, I think, self-explanatory, as well as dividends per share, and as you can see, we've related dividends per share far more to the underlying performance for the year than to the reported performance for pretty obvious reasons. If we can go to the next slide. From this point on, we're actually starting to focus more towards cash generation and understanding the group's cash flows. That's why we use pre-IFRS numbers, right, on these slides, which someday Kwan will explain the chapter and verse, but basically means that when you look at EBITDA, you're looking at EBITDA after leases, after actual lease expenses, and then you are ignoring notional balance sheet depreciation of lease assets as well as notional financing costs associated with IFRS 16 lease accounting. Those are the key differences.
Again, you look at EBITDA, right? The underlying change, right, was HKD 9.4 billion, which is approximately 9%. 7% of that is fully underlying, and 2% out of that, right, it was driven by favorable Forex tailwinds, right, during the year. I should just make the point in case anybody's wondering. Obviously, the underlying at HKD 115.7 billion does not include, right, the non-cash charge for the year, but it also doesn't include the cash proceeds, which show up in a different part of the cash flow analysis. EBIT I'm not gonna dwell on. I think it's quite self-explanatory. Operating free cash flow, we will have a detailed slide on that.
As you can see, a healthy improvement, and not surprisingly, a very significant improvement in our debt profile. At the end of the year, we were at 13.9% consolidated total net debt to net total capital, right, as opposed to 16.2% when we exited 2024. I can assure you that that has continued to improved as we've seen the consolidated effects early on this year of good performance as well as, of course, the completion of the U.K. Rails transaction by CKI. Okay, the next slide deserves a bit more of a dwell, right? This is understanding EBITDA on the left-hand side, right?
We're looking at, as I say, HKD 104.8 billion reported as against an underlying of HKD 115.7 billion, and we'll explain how you get the differences between those in detail on the right-hand side. It's, I think, always best to focus, right, on the underlying. First of all, in terms of geographical distribution, interestingly, not really all that much change year-on-year. Likewise, right, you know, in terms of the splits between the contributions, you know, a bit of an uptick, right, in terms of telecoms year-on-year, which is nice to see.
Significant uptick in terms of infrastructure, and the rest was kind of breaking down. Pretty well in line, right, with last year's breakdown. The diversification and the spread remains very strong both between businesses and geographically. Turning to the graph on the right, we're going from left to right from 2024's reported EBITDA to 2024's underlying EBITDA. I think that's relatively simple. That's just taking out the impact of the write-down on our Vietnam asset. That takes you to a comparable underlying for 2024 of HKD 106.3 billion. We look at what contributed to this year's increases, and you start with ports.
We'll have a detailed discussion of ports in a later slide, but obviously we've seen very good performance over the year, in particular from our European assets and from our assets in the Americas. Dominic will be taking you through that in detail. We've also started to see the ructions in trade policy having the usual impact when there's disruption in this business. It results in an increasing level of storage charges, and we started seeing that in 2025. We are continuing to see it for pretty obvious reasons, right, today as we sit here. For A.S. Watson, again, a good healthy growth in EBITDA contribution, largely coming from the growth in health.
The health & beauty Asia footprint and in Western and Eastern Europe, Eastern Europe being largely Poland, and Dominic will take you through chapter and verse of that. Infrastructure reported yesterday, and I would say just very well-distributed growth right across the board, across almost all of their assets and all of their asset classes. A very, very solid performance for CK Infrastructure. When you get to CK Hutchison Group Telecom, a very healthy uplift. Now, one thing that we need to understand though is that out of that HKD 2.4 billion right of uplift about HKD 1 billion of that right is the increased contribution right from our share of VodafoneThree's right EBITDA in the U.K. right.
Leaving that aside for a moment, if you look at all of the other businesses, I would say that they all experienced moderate, right, increases in growth. What did contribute a lot was the comparison year-over-year of corporate expenses, because we had a lot less transaction costs booked in 2025 than in 2024, and we also had some very healthy g ains on trading in CKHGT's pound sterling notes, right, which gave us a nice contribution. Lastly, finance investments and others, right? Again, you see a reasonably healthy lift that's coming from good performances from things like IOH on an underlying basis. Obviously, TPG had quite a remarkable year, and I'm sure Kwan will. Well, I'll be talking about that actually later on. But it gave us a very good contribution, right?
And we also in finance investment and others, we recognized the proceeds from the sale of a non-core asset, right, in Chi-Med, right, as an associate. We had a better contribution from Cenovus, and we were dragged back a little bit, right, by a continuing difficult contribution from Marionnaud Group in France and in Europe. That plus the foreign currency translations that I already mentioned take you to an underlying EBITDA of HKD 115.7 billion, from which to get to the reported, you take out the HKD 10.9 billion of one-time, largely non-cash movements relating to the VodafoneThree merger, and you end up with HKD 104.8 billion. Okay, now that we've got that behind us, we can go to the next slide, which is how do you get to operating free cash flow?
This, of course, starting on the left-hand side, it basically starts with the underlying EBITDA of HKD 115.7 billion, and then you back out, right, the portion of EBITDA that is the share of EBITDA of associated companies, and you replace that with the actual dividends, right, or distributions that you got from associated companies, and, of course, the same treatment for joint ventures. That's how you get from HKD 115 billion down to HKD 62.9 billion on the first bar.
You look at CapEx, right, and investment, right, on the right-hand side, the brown bar, and that's how you then get down to the operating level free cash flow, right, which as I say is HKD 40.5 billion, an increase of 4% on the year. Again, in the circle diagram at the top, not really much to highlight in terms of changes, although infrastructure was a pickup in contribution, as was telecom, as was retail, year-on-year. Now, if we go to the right-hand side, we do exactly the same analysis, but we do it by division.
If you look at ports, right, long and the short of it, you know, year-on-year, you are looking at CapEx and investment having increased, right? But you are looking at a somewhat more significant right, increase, right, year-on-year that is of earnings from subsidiaries and associates. Basically it washes out and you have got a couple of hundred million dollar difference in operating free cash flow from ports over the course of the year. Slightly higher reinvestment, but higher operating contribution as well, right, to fund that CapEx, right, and investment. On the retail side, again, Dominic can take you through that, but we had a year-on-year overall increase of HKD 900 million.
That's operating free cash flow of HKD 11.3 billion, which I think if I remember right, was HKD 10.4 billion last year. That HKD 900 million comes in part from very disciplined capital management and very solid overall management and of course, the EBITDA increase, right, that we talked about, right, for retail earlier on. Infrastructure, right, again, a strong lift, right, and that is despite some incremental spending in CapEx and investment by comparison to last year.
CK Hutchison Group Telecom, well, there you see the big difference, right, between the EBITDA growth for the year, right, and the operating free cash flow growth, and that's simply because the EBITDA lift is not reflected in operating free cash flow. Indeed, probably will not be meaningfully anyway for the next year or two as the company is in the full implementation stage, right, of its combination plan and that means no scope for dividends, right, or distributions likely, right, in the near term. That really explains the profile for CK Hutchison Group Telecom.
Better year-on-year nevertheless, right, and that is in part due to the reduction in capital spending, right, and that in itself is also partially due to the deconsolidation of the capital spending in Three UK for the seven months after the merger. Lastly, we go to the next slide, and we get down to free cash flow, right? An increase, right, of 102%, but this is where we do include, right, the cash proceeds from the VodafoneThree merger in the U.K. So if you exclude those, it's still a very good performance. We're still up 29%, right, for the year. Just going through the waterfall, I'm not quite sure what you call that on the left-hand side, right?
You start obviously with the operating free cash flow that we just went through. Then you look at interest and taxes, and you'll find that interest interestingly was lower, and Kwan will explain that later when he goes through the financial profile, right, of the company. Taxes were a little bit higher, largely because governments are looking for more taxes just about everywhere, but not a meaningfully higher amount. Working capital changes are very interesting and quite complex. Working capital is generally well managed, but you have to remember that there are huge FX impacts, right, on the inventory components and other components of working capital, particularly with the strength of the euro last year.
In that improvement of HKD 3.3 billion, right, you actually had favorable exchange movements, right, of almost HKD 6 billion, right? The same exchange movements give you negatives such as in our consolidation of CKI, the cash flow impact of mark-to-market collateral requirements, right, under currency swaps, right, that they or currency hedges rather, that they go into, which I'm sure they've explained many times in their own results announcements. That kind of explains the working capital changes. The changes to others, it's mainly the deconsolidation of cash, right, and the consumer acquisition costs that are capitalized when you look at EBITDA, but are still cash going out, right?
Those are by and large the main drivers with some disposals in terms of listed investments during the year, right, and some new investments during the year. That takes you down to the underlying free cash flow. That's up 29%, as I said at the outset, at HKD 26.3 billion. You add to that the cash proceeds that we took in from the VodafoneThree merger, and you end up with the HKD 41.201 billion. If I just take you across the division by division contribution, right, to that movement from HKD 20.4 billion to HKD 26.3 billion underlying, right? We've already talked about the EBITDA differences. We've talked about the dividends from associates and JVs. We've talked about interest and taxes.
Working capital, you'll find this is the year-over-year comparison. It's actually a bit of a reduction, but part of the reason is that when you look at A.S. Watson in particular, right, those, again, I mean, a year-over-year comparison is not just, right, the actual close to HKD 6 billion in the year. It's also that in 2024, we had a negative, right, profile in terms of foreign exchange movements on working capital of another HKD 2 billion. That's how you get to the roughly HKD 8.6 billion upside for A.S. Watson's free cash flow compared to 2024. Infrastructure, I think, just goes with the performance of the businesses.
CK Hutchison Group Telecom, again, that includes the deconsolidation impact of about HKD 2.4 billion of CapEx and the other cash flow improvements that I referred to earlier on. All of that. Others, I think we've basically talked about that. It's the proceeds on some sales of some investments. It's year- on- year less proceeds coming out of. Remember that in 2024, we sold almost HKD 7 billion worth of Cellnex stock, and we didn't have anything of that comparable scale in 2025. That's how you get to your HKD 26.3 billion. Add in the cash proceeds, and you're back up to the underlying at HKD 41.2 billion. With that, I'll take a breath and hand you over to our CFO to take you through the group's resulting financial profile.
Thanks, Frank. So on slide 8, I'm happy, very happy to report, of course, as Frank has alluded to, the group's financial profile continues to improve. Net debt as at 31st December 2025 was approximately HKD 113 billion, a reduction of around HKD 16 billion from 2024, and represent a net debt to net total capital ratio of just under 14% on a pre-IFRS 16 basis. The group's gross debt of HKD 263 billion is very well laddered, as you can see on the chart, with average maturity of 4.8 years. Approximately 37% of the gross debt is from banks and 63% is from issuance of bonds and notes. After swaps, 65% of the gross debt carry fixed interest rates and 35% is floating.
The average cost of debt has reduced from 3.6% for 2024 to 3.3% for 2025. The group's cash and liquid assets holding of HKD 151 billion as at 31st of December 2025 provides a lot of comfort in today's very volatile financial markets. We're very happy to have such a high liquidity. With the recent upgrade from Fitch following a change in Fitch's rating methodology, the group is now rated A by all three credit rating agencies, A2 from Moody's and A from both S&P and Fitch. If I can then hand to Dominic to talk about the ports business.
Okay. Now, we talk about or we look at each divisions respectively. On slide nine, you know, we start with the ports division. The ports division actually has delivered a very respectable year. It has a footprint in 24 countries, 53 ports, and 295 berths. Revenue for 2025 reached HKD 48.9 billion, representing an increase of 8% over that of 2024. In terms of throughput increased 3% to 90.1 million TEUs, and the throughput growth was supported by a 3% increase in HPH Trust, a 6% growth in Chinese mainland and other Hong Kong, a relatively stable Europe, and a 3% growth in Asia and Australia.
On EBITDA, you can see on the chart there in the center, EBITDA increased 8% in reported currency or 7% in local currencies to HKD 17.4 billion, with major contribution of 27% from Europe and the rest from Asia, Australia, and others. Yeah, if you go down and on the EBITDA year-on-year change chart below, we can see the following, starting from the left. A 2% or HKD 21 million increase in HPH Trust, mainly attributed to good performance in Yantian, where throughput increased 7%. For Chinese mainland and other Hong Kong, we see a HKD 43 million or 6% increase, and Shanghai port is doing well, in particular, with 10% throughput growth and HKD 67 million increase in EBITDA. This is Shanghai. Shanghai is doing well.
For Europe, EBITDA increased 12% or HKD 465 million. This is mainly due to the increase in storage income, which, you know, is quite good, you know, under the circumstances, in the U.K., Barcelona, and Rotterdam. Now, for Asia, Australia, and others, EBITDA increased 15% to reach almost HKD 1.3 billion. This is mainly attributed by the increases in storage income in Mexico and good underlying improved performances in Mexico, Pakistan, Panama, and Alexandria in Egypt. When you look at the column for corporate costs and other port-related services, we see a decrease of HKD 764 million, mainly due to one-off items in 2024 which did not recur in 2025.
On slide ten, basically, you know, all these are put together to show a track record of sustained growth, both in terms of revenue and EBITDA, even amid a complex global trade environment. It also demonstrates a speedy recovery from the COVID. If you look at the COVID period, and then we, you know, illustrate that, you know, we have a good and speedy recovery, you know, during that period, illustrating the resilience of the port business. As for the outlook for port business this year, you know, of course, you know, the global trade growth is expected to slow down amid geopolitical risk and China-U.S. trade tensions, which we hope will improve. The current conflict in the Middle East region, of course, you know, if prolonged, will also shift trade routes, you know, away from the region.
However, with the ports division's geographically diversified portfolio, the impact is expected to be mostly mitigated as other ports in the division may benefit from the trade route diversions. You know, Middle East, you know, prolonged, we see some trade route shift but, you know, given the footprint of the ports operation, we hope that, you know, we will see that, you know, the business will be picked up by other ports. At the same time, the group in an earlier session on Panama, which aroused, you know, I'm sure, you know, interest from the media as well as the analysts, you know, we'll continue to work to resolve these legal disputes with the Panamanian state and other related parties in a way that is fair, in a way that protects the interest of the shareholders of the group. Now let's turn to retail on page or slide 11.
The retail division has a solid year in 2025, with a revenue growth of 10% to reach HKD 209.3 billion. As for the store number, the division continues to carry out this store expansion program whereby we have opened 988 new stores while closing down 749 underperforming stores in the year. You know, as a result, the store number stood at 17,114 at the end of 2025. That's the number that you saw on the slide. Representing a 2% store number growth over 2024. The stores portfolio split is about 48% and 52% between Asia and Europe.
Asia, 48%, and Europe, 52% of the store network. On EBITDA, as you can see again, you know, at the center of the slide, EBITDA for the year is about, you know, HKD 18.2 billion, an 11% increase over previous year in reported currency, or 5% in local currencies. The EBITDA split is 24% from Asia and 76% from Europe. Now let's move to the EBITDA waterfall chart, which shows the year-on-year EBITDA change of each subdivision. First, you know, you can see Health and Beauty China. Well, this subdivision, as we all know, is under a lot of pressure as a result of subdued consumer spending and sacrificing profit margins to promote sales for the business.
As a result, you know, EBITDA decreased 73% to HKD 341 million. For Health and Beauty Asia, EBITDA increased HKD 304 million or 8%. The growth is primarily driven by good trading performances in the Philippines and Malaysia. We move to Western Europe Health and Beauty. EBITDA increased HKD 377 million or 4%. The increase is mainly driven by good sales growth in the United Kingdom and the Benelux countries. In U.K., we have Superdrug, we have Savers, and in Benelux, basically, we have, you know, the Kruidvat and Trekpleister. They're very well-established home brands for the population.
If we move to Health and Beauty Eastern Europe, EBITDA increased by 9% or HKD 301 million, and then the growth is predominantly attributed to the good and robust trading performance in Rossmann Poland. For other retail, which comprises our supermarket and electrical retail business in Hong Kong, as well as our manufacturing division, the EBITDA has increased by HKD 254 million, primarily attributed to a much improved performance in our PARKnSHOP Hong Kong supermarket business and also our beverage business in Hong Kong and China. All in all, the underlying EBITDA of the retail division increased 5% to reach HKD 17.3 billion. Of course, you know, with a HKD 948 million foreign exchange translation tailwind, the EBITDA or the reported EBITDA for 2025 is HKD 18.24 billion.
For this business, looking ahead for 2026, for Health and Beauty Europe and Health and Beauty Asia, we think we are well-poised to maintain a healthy growth momentum despite economic headwinds. For Health and Beauty China, I'm sure all of you are very interested to see what happened. In fact, you know, in our business in China, we're aiming and also working to mitigate the challenging market conditions through assortment enhancement, focusing on key things like, you know, own brand products, developing new products, you know, and then working with suppliers on exclusives. Also optimizing the existing store network quality and enhancing online capabilities so that we can drive more on the online plus offline traffic.
Division-wise, we are also focusing on expanding and nurturing our 183 million loyalty member base, you know, which is a lot, as well as expanding our physical store network, which now stands at over 17,000 as I just mentioned. The new store CapEx payback period, you know, has been capped at less than 12 months. Slide 12 basically is similar to the port division. The slide is put together to demonstrate our history of resilient growth, you know, through economic cycles, through COVID, and driven by the division's geographic diversity. From here, I pass it back to Frank to talk about our infrastructure business. Thank you.
Just before we go there, on that last slide on retail, I mean, I think that's a, you know, that's a picture of what resilience a ctually looks like, right? Because if you look very closely, you know, you have the externalities hitting you like, you know, COVID and changes in economic circumstances. You also have, you know, Mainland China going from a very high growth contributor, right, to, you know, the more difficult stage that it's in today. Yet despite that, right, the growth offsets from Asia and even from Europe, right, give you a very, very large scale business that has an extremely resilient and solid, right, both revenue, right, and EBITDA margin performance, which is, I think, it's quite unique in the world actually.
On the infrastructure side, I'm not gonna dwell for too long because CKI has announced their own results and they hold their own investor conference, so I'm sure that most of the questions have been answered. Just to point out that at the parent company level, CKI is obviously very modestly geared, so not like some infrastructure investors who will remain nameless, who, you know, having geared to the max at the asset level, gear up to the max at the holding company level. That's just not in the nature of the beast. And actually, if you look through to the underlying financing, right, at the asset level and its various associates and joint ventures, you'll typically find a net debt ratio closer to 50%, right?
Which is very reasonable given that 75% or so of the asset basis is regulated asset value. So the ratings, for obvious reasons, are still very stable. Regulated businesses are generating returns that are supporting now, you know, steady dividend growth since 2006. I think we've talked a lot about the impact of the disposal of UK Power Networks. Again, I think that is a very, very good development for the group as a whole.
You know, actually I should give you some insight as to the value in the world that we live in today of these kinds of very long life, very stable, very yielding, right, cash yielding, right, assets, of which, despite the sale of UKPN and the smaller sale of Rails, you know, CKI and its partners still have a lot of assets of the same nature, right, and quality. You know, that their reported numbers end up making a very, very nice contribution, right, to CKH's EBITDA. That's down at the bottom, right, on the right-hand side. That was up 6%, right, year-over-year, 5% in local currencies. You know, we treasure our investment in CK Infrastructure for as long as we can. Well, Kwan's gonna talk to you about the telecommunications group.
Okay. We can go to slide 14. The Three Group Europe division has had a very steady performance for 2025, with underlying EBITDA growing by 6% in local currency. In the U.K., Three UK merged with Vodafone UK the end of May 2025, and the numbers you see represent Three UK's standalone numbers from January to May, and 49% of the merged entity's performance from June to December. From an EBITDA point of view, the U.K. merged entity of course has benefited from the enlarged scale from the merger. Just want to also point out to you in Sweden, the increase in EBITDA also includes the exchange gain on an intercompany loan. However, even after excluding this gain, Three Sweden's EBITDA grew 7% year-on-year.
The one-off item of negative HKD 774 million represents transaction-related expenses incurred for the U.K. merger, so that you end up with a growth of 6% before the one-off gain and still a growth year-over-year after the negative one-off expense. Going forward, the division is expected to deliver stable underlying performance through growing customer base, expanding beyond the core offering, which I'll go through a little bit more in detail later on, and implementing cost efficiency initiatives. Slide 15 provides a year-over-year comparison of the individual business units in local currency for the Three Group Europe division. Frank has already mentioned the performance of the businesses, so I won't go through it in detail.
One particular point I'd like to highlight is while U.K. operations EBITDA grew 19% year-on-year, EBIT has turned from positive to negative, as the merged entities are incurring significant depreciation charges as it integrates the two legacy companies networks and systems. This is expected to continue in the near term as the integration work continues. Now, we can quickly turn to slide 16. This slide focuses on the UK operations. Upon completion of the merger, Frank has already mentioned that the group received approximately GBP 1.3 billion from the transaction.
While the merged entity will not be providing much earnings or cash flow contribution to the group in the near term, as it proceeds with the integration tasks in hand, it is providing, of course, value accretion as it works to deliver GBP 700 million of synergies on annual basis by the fifth year following merger completion. Now, I'm happy again to report here that the integration is progressing well and is on track to deliver on plan. This is progressing in line with the plan that we always put together for the merger. On slide 17, this slide provides a bit more detail where the growth, earnings, and cash flow growth in this division will come from. First is beyond the core, when the division is providing new services to its customers based on this trusted brand.
As new services get piloted and successfully tested in one market, it's rolled out to other markets. For example, in utilities, WINDTRE has moved from a white label provider of gas and electricity to a full integrated offering. The division, of course, also continues to look at improving costs by leveraging on group scale and leveraging on new technology with the potential to use AI across the operations. A working group with participants from the different operations have been formed to share learnings and also to look for some cost-sharing opportunities. This work is ongoing to try to drive more earnings and more cash flow from this division. Of course, as the last pillar, there's a continued focus on investments, both in terms of investment amount, but also the reinvestment cycle and revenue opportunities.
Clearly, M&A activities like the merger in UK could provide the benefit of a increased scale, and the group continues to look for opportunities in this area as well. If I can then now hand back to Frank.
Good. Well, this is quite a happy slide. These are four associated companies all of which did very well in 2025, starting on the left-hand side, of course, with Cenovus Energy. You know, I mean, as you can imagine, the impact of the current oil price, gas price, and refined products environment for Cenovus is very, very positive. We grew the company this year with the acquisition of MEG Energy which adds barrels that would take us to close to 1 MMbpd of oil equivalent by this year. That's been reflected, right, very significantly in the current share price. It was moving very favorably all across the end of last year and has continued to move favorably as we sit here today.
Our 16.4% interest was at the low point in 2024, which was in April, worth CAD 15 a share. It's now worth CAD 32 some odd a share. The difference there is between a valuation on our holding that was under CAD 5 billion to today, just slightly over CAD 10 billion. The hedge benefit associated with Cenovus is terrific from a value hedge point of view. Indosat Ooredoo Hutchison staged a very good recovery during the course of last year. I think the slide pretty well speaks for itself, because I have to move quickly because our chairman has arrived.
Sorry, I have to finish the CKH analyst meeting first.
TPG Telecom in Australia actually had a phenomenal year, maintained a very solid operating profile in the businesses that it has retained, but also disposed of a very material set of assets at we think very good value, bringing in AUD 4.7 billion in net cash, of which AUD 3 billion was in effect distributed to shareholder by way of return of capital and dividend. At the same time, it repaid AUD 2.7 billion of debt to really result in a very, very strong financial position for the company going forward.
Part of that was through a very innovative structure, right, to handle handset receivable financing so that that financing is being done by third parties to put handsets in people's hands, not just by us, which is a very good thing. Of course, we also had a reinvestment plan put in place which enabled the float to be enlarged, which was very important because the liquidity in the stock, right, was you know, subpar just because of the size of the public float. Then lastly, HUTCHMED, again, this speaks for itself, but encouraging, right, the stuff in terms of sales of existing drugs.
A very, very interesting ATTC, right, platform advances, which they have announced and will be continuing to announce, right, and the divestment of a non-core asset, which I referred to in the financials. I'll go to the next slide 19, which is on sustainability. I won't read it. I think you can read it for yourself. I think we're making very good progress. We're dealing with, you know, an increasingly complex regulatory and disclosure requirement, but, you know, it's in hand. Our, you know, green spending, as you can see, is very elevated. It's about $1.9 billion of what we spend in any year, right? Or what we spent in 2025, it counts as green spending.
That's quite natural because as you go through the replacement cycles in our very capital-intensive industries, you're almost always replacing, you know, whatever with something that is greener by its nature, right? Whether that's sourcing power, whether it's managing power in telecoms networks, whether it's electrifying cranes, whether it's electrifying trucks or tractors in the ports. It's very natural for us to have a very substantial green spend, and we do. I will stop there, and I think we turn you over to Q&A.
Thanks. We will now begin the Q&A session. Once again, please feel free to put down your question in the chat box. It seems that CK Hutchison has seen more corporate actions in the past 12 months. What are the drivers, and what does the group want to achieve through these exercises? Are there any priorities?
Well, our recent corporate actions reflect a consistent strategy rather than a shift in directions. One of the group's key objective is to unlock value of our assets and strengthen our financial position. We're responding to opportunities that allow us to recycle capital efficiently and reinforce the group's long-term resilience. One recent example is the disposal of UKPN at a very good premium to RAV, which will result in attractive return crystallization with significant cash flow and disposal gain to the group upon completion. We have always tried to convince the market that our stock is undervalued by engaging in value-accretive corporate transactions and improving earnings prospect.
We believe the market will acknowledge our efforts and ability to continue creating value for shareholders while maintaining a strong financial profile, which ultimately should lead to a gradual narrowing of the discount to NAV of our stock. If you look closely, you'll see that by their nature, most of our businesses benefit from achieving and growing scale in their sector and markets. Conversely, they are disadvantaged in cases where they are subscale. This will be increasingly true as we move into the age of AI. Productivity and cost improvements on AI will be more valuable the more they are implemented at scale. Subscale players will be increasingly at a competitive disadvantage. This is why generally when we buy businesses, it is to increase the scale of our existing businesses. For example, Cenovus' recent acquisition of MEG.
I mean, we're finally over 1 MMbpd of production. Conversely, when we sell businesses, this is generally because we're being paid an attractive premium by a buyer who wants to increase scale at a price higher than we would be prepared to pay for it. For example, a recently announced sale of UKPN. It works on both sides. Thank you.
Thank you, Chairman. The next question. What are the group's latest thoughts on this stake in Cenovus? Is there any desire to sell down further, as earnings from the energy segment are inherently much more volatile compared to most of the rest of the group's businesses?
Frank?
Sure. I mean, I've covered a lot of that already in the presentation, so I'm not going to repeat, right, the value hedge, right, effect that Cenovus has for us. Look, we've been in the energy sector in Canada now for 40 years, believe it or not. You know, it has always been a good asset despite the so-called volatility. If you look at Cenovus, post-MEG with the levels of production that we're talking about, right? When MEG was priced, oil was at $58 a barrel. I'm sure Cenovus has said on many occasions that their break-even price, right, for producing a barrel of oil in WTI terms, right, is less than $45 a barrel.
You know, volatility is volatility, but if you look at history, not very often, right, have WTI prices sunk below, right, that threshold. You know, this is a company that has such a level of scale, right, and of course, very integrated production, along with refining and transportation assets, right, that enable it to take quite a bit of the volatility out of the picture. It's, you know, there are bad days from time to time when WTI goes way down, and the elevator can go down fast. You look at it over a period of time and, you know, this has been a tremendous value to the group.
Yeah, a lot of producers, of course, face around $60. When prices drop below $60, those producers will leave the table.
Thank you, Frank and the chairman. Next question. A lot of people are asking this one. What are the impacts on HPH's operations from escalating conflict in the Middle East?
Dominic, can you help me answer that?
Okay. Operationally, we expect the vessel calls at our port in UAE will reduce, as major carriers have paused sailings, you know, to the Strait of Hormuz. On the other hand, to compensate, there has been an increase of requests for ad hoc calls at our other ports outside the strait, such as Sohar and Pakistan, for cargo diversion. We lose some here, and then we got new business in other ports because of the diversity of the portfolio. However, if you look at the overall things, the contribution of the Middle East ports in the conflict zone accounts for less than 0.5% of our group's overall throughput.
If we look at the Red Sea disruption, which started in 2023, you know, its figures prove that the impact to HPH overall was not significant. As I said, you know, some ports have benefited from the increase in transshipment volume from the route of diversion. The geographical spread of our portfolio is very important in mitigating this downside or any regional disruptions. Thank you.
Thank you, Mr. Lai. Next question. Also a lot of investors are asking this one. Given the latest development of PPC Panama, could you provide an update on the progress of the larger transaction?
Frank, your favorite topic.
My favorite topic. Obviously, there's two aspects to this. I mean, as in terms of the situation in Panama itself, we've been issuing regular updates and will continue to issue regular updates on a number of very serious and very substantial legal proceedings that we have underway, right? To try and make sure that we are not, in the long run, unfairly treated or harmed in economic terms, at least, by what we consider to be a completely unlawful expropriation of our franchise and confiscation, right, of our working assets in Panama. These developments have not materially affected our ongoing discussions with counterparts on the bigger transaction, and those are still ongoing.
You know, some people may think it's taking long, and that's not a good thing. Actually, as a practical matter, the business is getting better, right? Not getting worse, and has all the way through 2025. We were not at all unhappy to be holding the business through 2025 or indeed to be holding it today.
Thank you, Mr. Sixt. The next question: what is the group's capital allocation strategy, especially if net debt comes down significantly after asset sale? Will the company consider increasing dividend payout ratio or conducting share buybacks?
Well, we're living in a world in turmoil today. Allow me to report that our free cash flow was up 102% to HKD 41.2 billion in 2025, mainly due to receipt of approximately GBP 1.3 billion net proceeds upon completion of the UK merger, as well as continued cash flow generation from the measured capital spending and disciplined working capital management. Net debt to net total capital ratio on a pre-IFRS 16 basis improved to 13.9% at the end of 2025, demonstrating our strong resilience in navigating an extremely volatile macro environment. With the recent war in the Middle East and its repercussions to the market, the group's businesses will undoubtedly face some new and perhaps unforeseeable challenges in 2026.
It is therefore very important for us to maintain more financial resilience. We continue to manage our assets and businesses with focus on delivering sustainable growth in the underlying value while maintaining our current investment-grade ratings. We'll also maintain our long-term objective of exploring value-accretive transactions for our shareholders and looking for earnings and cash flow-accretive opportunities that fit into our existing expertise. I think it's quite obvious we've been doing exactly that. Dividend payout and share buybacks remain a board decision. However, the management believe that share buyback is not the only means of capital return. Recurring earnings growth that enables consistent dividend return is another compelling way to reward shareholders. Overall, we aim to achieve a competitive total return for our shareholders over the long term. Thank you.
Thank you, Chairman. Next question is on retail. How does CK Hutchison think about retail division's current geographical exposure?
Retail is definitely Dominic's turn.
Okay, let me try to answer that. As you see, A.S. Watson has a diversified business portfolio operating 12 retail brands, you know, in U.K. and in Netherlands and others in Asia, with over 17,000 stores in 31 markets worldwide. We think it is already a very good geographical spread. We are also second to none, you know, in terms of our online offerings and fulfillment capabilities. Based on this, all the business in this division benefit from the most advanced retail technology, including AI, to improve our customers' experience, increase productivity, and of course reduce cost. We are also helping or protected by the group-wide cybersecurity capabilities. That, again, is second to none. We have technology, and then the technologies is well-protected.
If you look at how our geographies have performed over the past 10 years, as I show in one of the earliest slide, you can see that the U.K. and Europe providing leading sales and margin growth and competitive earnings return on a steady basis over a very long term. You know, that's the resilience and a succession, you know, of the business. Health and Beauty Asia, on the other hand, has provided a very large opportunity for higher growth rates. You know, if you exclude China and Hong Kong, the Health and Beauty Asia represent 22% over the retail division EBITA and 34% of its year-on-year EBITA growth. Asia is important for the future growth of ASW. China in particular has been the crucible of development.
Of course, you know, people talk about China, people are talking about the issues. You know, one thing I can always say is, never bet against China. Because if you look at the development of our offerings online and fulfillment capabilities, actually we capitalize on our China experience so that all these developments accrue the benefit of all our retail business around the world. You know, this is a practice when we have something in one country or one district, we always try to pick it up and then try to benefit the entire group. Thank you.
We have a very strong brand in China.
Y es. We have.
The recognition is trans-generation. We will see better times in China. I'm quite confident. Thank you.
Next question is on telecom. Are the expected synergies from the U.K. merger on track?
Frank?
Yeah. Actually, we've already answered that question in slide 16 that Kwan took you through in our presentation, so I'm not gonna dwell on it. We think, yes, right? The integration work is progressing well. We think it's on track. We've had a number of wins which are listed on that slide 16. As we look forward, well, you know, we think that we are on track to get to the targeted GBP 700 million of operating and CapEx synergies by the fifth year post-merger. The only thing that I would add is that, you know, it is early days. The merger was completed, right, in the month of May, if I remember right.
As we watch through 2026, right? It's quite a crucial year for really understanding whether we have the right momentum, right, in terms of both synergy capture, but also avoiding major dyssynergies as we go through and major cost issues. I have no reason to think that we won't, but it's gonna be a very seminal year to watch whether we're tracking to, ahead of, or hopefully never behind what our aspiration was and our combined business plan to get to that synergy level.
Thank you, Mr. Sixt. The next question is also on telecom. When will VodafoneThree start to appraise the enterprise value of the business? How far are you from the current level to the threshold of GBP 16.5 billion for exercising the H put option?
Frank, it seems Vodafone is. It's always the topic.
All right. All right. Happy to, you know, happy to take that one, Chairman. Well, look, I mean, first of all, right, the option structure, right, the put and call option structure is only exercisable after three full financial years post-merger, which is obviously still some time away. You know, the current focus just has to be on the execution of the integration plan, which was agreed jointly between us and Vodafone and delivering the target synergies within the expected timeframe. You know, if you ask me whether we've made progress, of course we have. I mean, I think that there's value in our 49% interest, right, in VodafoneThree, right? And that it has certainly not deteriorated since the day that we agreed to it.
Thank you, Mr. Sixt. The next question is on CKI. What are the expected returns in the upcoming tariff resets for CKI's Australian portfolio in 2026?
Victoria Power Networks and United Energy should receive their final determinations in April 2026, and the new regulatory periods will start on 1st of July 2026. Based on the draft determinations, allowable returns are set to increase, with allowed ROE increasing from 5.04% in current period to 7.97% in the next period. Thank you.
Thank you, Chairman. The next question. Three Group has seen solid earnings recovery since 2023. What is the future strategy for the business?
Okay. I mean, obviously, we've been talking a lot about VodafoneThree, and that is to get it right and get, hopefully, ahead of our aspirations on the merger integration plan, both in terms of time and in terms of quantum. For the rest of the businesses that we have operating control of, I think again, Kwan has taken you through all of the multidimensional things that we are doing, all of which are directed to expanding revenues and margins from new areas right to a very big customer base that can be targeted for them. Targeted in the nicest way that can take benefit from it.
Kwan himself is responsible for running a very significant overall review and implementation as to how we can enhance free cash flow generally from these businesses. That includes what do we do, right, in terms of AI tools? What are the implications of introducing those AI tools at many, many levels? At customer-facing levels, at network management levels, at frankly, IT levels, right? I mean, you know, one of the most significant uses of artificial intelligence today is to reduce the number of people you need to execute programming, right? It may be that there will be some substantive changes in our IT departments. We're looking across the board at that, and I think that's probably one of the most important things that we can do, right, over the next 12-18 months.
Thank you, Mr. Sixt. Next question is on retail. How have H&B China and other retail as a whole performed in the first two months of 2026?
Okay. All right. The answer could be short and simple. Both businesses, you know, Watsons China and other retail in Hong Kong, actually deliver good results in the first two months of this year, 2026, as compared to same period last year. So, you know, good news, but.
Better luck.
Better luck. Yes. Yes. Okay. Thank you.
Thank you, Mr. Lai. The next question is also in retail. Foreign retailers, including Mannings, IKEA, Harrods, Zara Home, et cetera, are increasingly exiting or reducing their footprint in Chinese mainland. What are the latest thoughts on the market from H&B China's perspective?
Well, we will not comment on other retailers. You know, they have their strategies, they have their own views. But as far as we are concerned, ASW is concerned, CK is concerned, China remains hugely important to our group as a whole. Not least because it is one of the most advanced economies in the world in terms of rapidly changing customer behavior and trends. It is also one of the most advanced countries in the world in terms of retail technology. If you go to China, the technology in retail is just amazing. Particularly, you know, they're using and implementing AI in retail. Then not to mention the innovation in robotics and in delivery and fulfillment. In that sense, you know, China is the innovator. Okay.
It is also where we learn most how to improve the customer experience, increase productivity and reduce costs. A key to success, not just in China, but in all business around the world. Yes, you know, as I said, just now, you know, regarding China, people are a bit, you know, pessimistic on China given what's happening. On the other hand, we look at China as very important. Although consumption's sluggish, but we don't see it as a prolonged negative. Because, you know, if you look at statistics, China has huge untapped consumption capacity. Household deposits alone are over CNY 168 trillion. It's not CNY 168 billion, it's CNY 168 trillion. We'll be there at scale to meet demand when it's unleashed. We have confidence in China. Thank you.
Thank you. Next question. How resilient is your business model under different climate policy and demand scenarios? What is your plan to manage transition and physical risk?
On this one, you know, it's a pretty complex area, and we are responding to a lot of new regulatory requirements, right, that address precisely these kinds of areas, how resilient is the business model, et cetera. I would say, in general, we're in pretty good nick. We do conduct the TCFD-aligned climate scenario analyses, and additional analyses are underway. If you read our sustainability report, which will come out with our annual report, you'll see that we've completed some. We're in the process of completing some others, right? As to the major risks and the major mitigations across the businesses. We do what are called double materiality assessments across all of the divisions. We have pretty strong governance.
I mean, we have a board sustainability committee, divisional working groups, sustainability working group across all of the businesses. Our transition strategy, specifically in terms of carbon, right, is supported with Science Based Targets initiative, validated target, and 10 specific net zero opportunities. At this point, which go to renewable energy efficiency, electrification, supply chain decarbonization, climate adaptation, and so on. I think all of this keeps us on track to meet, right, our carbon reduction targets, which are set out in detail, as is the performance to date, right, in our sustainability report.
Thank you, Mr. Sixt. Actually, the next question is on CKI. CKI is actively pursuing growth opportunities with a strong financial position. What will be the geographical focus for CKI in terms of M&A projects going forward? Will CKI consider investing more in unregulated businesses rather than regulated ones going forward? What are the IRR hurdles for project acquisition?
Many, many questions. I'm not making a division between regulated versus unregulated business. I'm looking at the stability of the cash flow. That's not where I draw the line. It's mainly on the stability of cash flow. CKI will continue to look for new M&A opportunities, and we'll focus on locations that we already have presence and create synergies, and scale, such as U.K., Continental Europe, Australia, and Canada. We'll evaluate each opportunity on a deal-by-deal basis and open to both, as I said earlier, both regulated and unregulated business, but mainly with the emphasis on predictable cash flow. And an IRR that fits our criteria. Now, I'm not going to give a number because if that number goes to my competitor, I should lose my job. Thank you.
Thank you, Chairman. Due to time constraint, we have to conclude our webcast today. Our IR team will respond to the unanswered questions. Thank you very much.
Thank you.
Thank you.
Can I just add, given how the world looks today, I think both CKHH and the other members of our group are at a good place. At a good place. We feel fortunate that the plans that we did a couple years ago. Now it's, we're getting the fruits. We're enjoying the fruits. Thank you.
Thank you.