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 AS 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 three, 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 as to 2% from Forex differences. We were in a very strong sterling and euro environment in 2025 compared to 2024. But 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, we are up 7%. That's by about HKD 1.5 billion compared to 2024.
The underlying, of course, leaves out in both years the one-time largely non-cash items 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 on the underlying items and the difference is HKD 5.247 billion 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 on these slides, which someday Kwan will explain the beauty of the chapter in verse. 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. So those are the key differences. Again, you look at EBITDA. The underlying change was HKD 9.4 billion, which is approximately 9%. Again, 7% of that is fully underlying and 2% out of that it was driven by favorable Forex tailwinds 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 the non-cash charge for the year, but it also does not include the cash proceeds which show up in a different part of the cash flow analysis. EBIT I am not going to dwell on. I think it is quite self-explanatory. Operating free cash flow, we will have a detailed slide on that, but 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 as opposed to 16.2% when we exited 2024. I can assure you that that has continued to improve as we have seen the consolidated effects early on this year of good performance as well as, of course, the completion of the UK Rails transaction by CKI.
Okay, the next slide deserves a bit more of a dwell. This is understanding EBITDA on the left-hand side. We are looking at as I say, HKD 104.8 million of reported as against an underlying of HKD 115.7 million, and we will explain how you get the differences between those in detail. On the right-hand side, it is I think always best to focus on the underlying. First of all, in terms of geographical distribution, interestingly, not really all that much change year-on-year. Likewise in terms of the splits between the contributions, a bit of an uptick 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 with last year's breakdown. The diversification and the spread remains very strong, both between businesses and geographically.
So turning to the graph on the right. We are going from left to right from 2024's reported EBITDA to 2024's underlying EBITDA. I think that is relatively simple. That is just taking out the impact of the write-down on our Vietnam asset. So that takes you to a comparable underlying for 2024 of HKD 106.3 billion. Then we look at what contributed to this year's increases. You start with ports. We will have a detailed discussion of ports in a later slide. But obviously, we have 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 have also started to see with the ructions in trade policy having the usual impact when there is disruption in this business, it results in an increasing level of storage charges. We started seeing that in 2025.
We are continuing to see it for pretty obvious reasons today as we sit here. For AS Watson, again, good healthy growth in EBITDA contribution, largely coming from the growth in the Health and 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. I would say just very well-distributed growth right across the board, across almost all of their assets, and all of their asset classes. So a 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 of uplift, about HKD 1 billion of that is the increased contribution from our share of VodafoneThree's EBITDA in the U.K.
Leaving that aside for a moment, if you look at all of the other businesses, I would say that they all experienced moderate increases in growth. What did contribute a lot was the comparison year-on-year of corporate expenses, because we had a lot less transaction costs booked in 2025 than in 2024. We also had some very healthy gains on trading in CKHGT's pound sterling notes, which gave us a nice contribution. Lastly, finance, investments, and others. 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. I'm sure Kwan will, I'll be talking about that actually later on. But it gave us a very good contribution.
We also in finance, investment, and others, we recognized the proceeds from the sale of a non-core asset in HUTCHMED as an associate. We had a better contribution from Cenovus Energy, and we were dragged back a little bit by a continuing difficult contribution from Marionnaud Group in France and in Europe. So 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. Then, you back out the portion of EBITDA that is the share of EBITDA of associated companies, and you replace that with the actual dividends or distributions that you got from associated companies and, of course, the same treatment for joint ventures. So that's how you get from HKD 115.7 billion down to HKD 62.9 billion on the first bar. Then you look at CapEx and investment on the right-hand side, the brown bar. That's how you then get down to the operating level free cash flow. 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, the long and the short of it, year-on-year, you are looking at CapEx and investment having increased. But you're looking at a somewhat more significant increase year-on-year. That is of earnings from subsidiaries and associates. So basically, it washes out and you've got a HKD 200 million difference in operating free cash flow from ports over the course of the year. So slightly higher reinvestment, but higher operating contribution as well to fund that CapEx 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 is operating free cash flow of HKD 11.3 billion, which I think, if I remember right, was HKD 10.4 billion last year. That 900 million comes in part from very disciplined capital management and very solid overall management. Of course, the EBITDA increase that we talked about for retail earlier on. Infrastructure, again, a strong lift. 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 between the EBITDA growth for the year and the operating free cash flow growth, and that is 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 of its combination plan, and that means no scope for dividends or distributions likely in the near term. That really explains the profile for CK Hutchison Group Telecom. Better year-on-year nevertheless. That is in part due to the reduction in capital spending. 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. An increase of 102%, but this is where we do include the cash proceeds from the VodafoneThree merger in the U.K. If you exclude those, it is still a very good performance. We are still up 29% for the year.
Just going through the waterfall, I am not quite sure what you call that on the left-hand side. You start obviously with the operating free cash flow that we just went through. Then you look at interest and taxes, and you will find that interest, interestingly, was lower, and Kwan will explain that later when he goes through the financial profile 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 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, you actually had favorable exchange movements of almost HKD 6 billion. The same exchange movements give you negatives, such as in our consolidation of CKI, the cash flow impact of mark-to-market collateral requirements under currency swaps. Or currency hedges rather, that they go into, which I am sure they have explained many times in their own results announcements. That kind of explains the working capital changes. The changes to others, it is mainly the deconsolidation of cash and the consumer acquisition costs that are capitalized when you look at EBITDA but are still cash going out. Those are by and large the main drivers with some disposals in terms of listed investments during the year and some new investments during the year. That takes you down to the underlying free cash flow.
That is up 29%, as I said at the outset, at HKD 26.3 billion. Then you add to that the cash proceeds that we took in from the Vodafone Three merger, and you end up with the HKD 41.201 billion. If I just take you then across the division- by- division contribution to that movement from HKD 20.4 billion -HKD 26.3 billion underlying. We have already talked about the EBITDA differences. We have talked about the dividends from associates and JVs. We have talked about interest and taxes. Working capital, you will find this is the year-on-year comparison. So it is actually a bit of a reduction, but part of the reason is that when you look at AS Watson in particular, again, a year-on-year comparison is not just the actual close to HKD 6 billion in the year.
It is also that in 2024, we had a negative profile in terms of foreign exchange movements on working capital of another HKD 2 billion. So that is how you get to the roughly HKD 8.6 billion upside for AS 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. The other cash flow improvements that I referred to earlier on. So all of that. Others, I think we have basically talked about that as the proceeds on some sales of some investments. It is year-on-year less proceeds coming out of. Remember that in 2024, we sold almost $7 billion worth of Cellnex stock, and we did not have anything of that comparable scale in 2025. So that is how you get to your HKD 26.3 billion.
Add in the cash proceeds, and you are back up to the underlying at HKD 41.2 billion. With that, I will take a breath and hand you over to our CFO to take you through the group's resulting financial profile.
Thanks, Frank. On slide eight, I will be very happy to report, of course, as Frank has alluded to, the group's financial profile continues to improve. Net debt as at 31st of December 2025 was approximately HKD 113.8 Billion, a reduction of around HKD 16 billion from 2024 and represent a net- debt- to -net -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 the swaps, 65% of the gross debts 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 are 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 single A by all three credit rating agencies. An A2 from Moody's and A from both S&P and Fitch. I can then hand to Dominic—
Okay.
—to talk about the ports business.
Okay, now we talk about or we look at each division respectively. On slide nine, 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. That throughput growth was supported by a 3% 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 in 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. 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 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. 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 is quite good under the circumstances in the U.K., Barcelona and Rotterdam. 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 10, basically 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, we illustrate that we have a good and speedy recovery during that period, illustrating the resilience of the port business. As for the outlook for port business this year, of course, 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, if prolonged, will also shift trade routes 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. So Middle East, prolonged, we see some trade route shift. But given the footprint of the port's operation, we hope that we will see that the business will be picked up by other ports.
At the same time, the group, in the earlier session on Panama, which aroused, I am sure, interest from the media as well as the analysts. We will 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.
Your own domain.
Yeah. Hope so. Yeah, getting a little bit rusty. 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 its store expansion program, whereby we have opened 988 new stores while closing down 749 underperforming stores in the year. As a result, the store number stood at 17,114 at the end of 2025. That is 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, at the center of the slide.
EBITDA for the year is about HKD 18.2 billion and 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 us move to the EBITDA waterfall chart, which shows the year-on-year EBITDA change of each subdivision. First, you can see Health and Beauty China. This subdivision, as we all know, is under a lot of pressure as a result of subdued consumer spending and investing profit margins to promote sales for the business. As a result, EBITDA decreased 73% or decreased by HKD 341 million, 70% dropped. Next, for Health & Beauty Asia, EBITDA increased HKD 304 million or 8%. The growth is primarily driven by good trading performances in the Philippines and Malaysia. Then 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 U.K. and the Benelux countries. In U.K., we have Superdrug, we have Savers, and in Benelux, basically we have the Kruidvat and Trekpleister. They are very well-established home brands for the population. If we move to Health and Beauty Eastern Europe, EBITDA increased by 9% or 301 million. 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, 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 & Beauty Asia, we think we are well-poised to maintain a healthy growth momentum despite economic headwinds. For H&B China, I am sure all of you are very interested to see what happened. In fact, in our business in China, we are aiming and also working to mitigate the challenging market conditions through assortment enhancement, focusing on key things like own brand products, developing new products, and 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, 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 has been capped at less than 12 months. Slide 12, basically similar to the port division. The slide is put together to demonstrate our history of resilient growth 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.
Yeah. Just before we go there, on that last slide on retail, I think that's a picture of what resilience—
Yeah.
—actually looks like, right? Because if you look very closely, you have the externalities hitting you like COVID and changes in economic circumstances. You also have Mainland China going from—
Yeah.
—a very high growth contributor, right, to the more difficult stage that it's in today.
Yeah.
Despite that, the growth offsets from Asia and even from Europe give you a very large scale business that has an extremely resilient and solid, both revenue and EBITDA margin performance, which I think is quite unique in the world actually.
Yeah.
On the infrastructure side, I am not going to dwell for too long because CKI, A, announced their own results, and B, held their own investor conference. I am 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. Not like some infrastructure investors who will remain nameless who, having geared to the max at the asset level, gear up to the max at the holding company level. That is just not in the nature of the beast. Actually, if you look through to the underlying financing at the asset level and its various associates and joint ventures, you will typically find a net debt ratio closer to 50%, which is very reasonable given that 70%, I think 75% somewhat percent of the asset basis is regulatory asset value.
The ratings, for obvious reasons, are still very stable. Regulated businesses are generating returns that are supporting now steady dividend growth since 2006. I think we have talked a lot about the impact of the disposal of UK Power Networks. Again, I think that is a very good development for the group as a whole. 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, cash yielding assets. Of which, despite the sale of UKPN and the smaller sale of UK Rails, CKI and its partners still have a lot of assets of the same nature and quality. Their reported numbers end up making a very nice contribution to CKH's EBITDA. That is down at the bottom on the right-hand side.
That was up 6% year-on-year, 5% in local currencies. We treasure our investment in CK Infrastructure for as long as we can. Kwan is going to talk to you about the telecommunications group.
Okay, so we can go to slide 14. The 3 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 at the end of May 2025. The numbers you see represent Three UK standalone numbers from January - May, and 49% of the merged entity's performance from June- December. From an EBITDA point of view, the UK merged entity, of course, has benefited from the large 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 EUR 774 million represents transaction-related expenses incurred for the UK merger, so that you end up with a growth of 6% before the one-off gain and still a growth year-on-year after the negative one-off expense. Going forward, the division is expected to deliver stable underlying performance for 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-on-year comparison of the individual business units in local currency for the 3 Group Europe division. Frank has already mentioned the performance of the businesses, so I won't go through it in detail.
But one particular point I'd like to highlight is whilst U.K ... Operations EBITDA grew 90% year-on-year, EBIT has turned from positive to negative as the merged entity is incurring significant depreciation charges as it integrates the two legacy company networks and systems. This is expected to continue 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. And whilst the merged entity would not be providing much earnings or cash flow contribution to the group in the near term as it proceeds with the integration task in hand, it is providing, of course, value accretion as it works to deliver the GBP 700 million of synergies on an annual basis by the fifth year following merger completion.
Now, I'm happy again to report here that the accretion is progressing well and is on track to deliver on plan. So 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, where 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, on as the last pillar, there is 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 U.K. could provide the benefit of 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. As you can imagine, the impact of the current oil price, gas price, and refined products environment for Cenovus is 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 this year. That has been reflected 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, was worth $15 a share. It is now worth 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. So 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 this slide pretty well speaks for itself as I have to move quickly because our chairman has arrived.
Sorry, I have to finish the CKI analyst meeting first.
TPG 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 strong financial position for the company going forward. Part of that was through a very innovative structure 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.
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 was subpar just because of the size of the public float. Lastly, HUTCHMED, again, this speaks for itself, but encouraging the stuff in terms of sales of existing drugs, v ery, very interesting ATTC platform advances, which they have announced and will be continuing to announce, 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 an increasingly complex regulatory and disclosure requirement, but it's in hand. Our green spending, as you can see, is very elevated.
About $1.9 billion of what we spend in any year, 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 whatever with something that is greener by its nature. Whether that's sourcing power, whether it's managing power and telecoms networks, whether it's electrifying cranes, whether it's electrifying trucks or tractors in the ports. So 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.
Yep. 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 signs of 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 objectives is to unlock value of our assets and strengthen our financial position. We are 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 prospects. 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 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 Energy. We are finally over 1 MMbpd of production. Conversely, when we sell businesses, this is generally because we are 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, our recently announced sale of UK Power Networks. It works on both sides. Thank you.
Thank you, Chairman. The next question. What are the group's latest thoughts on its 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 have covered a lot of that already in the presentation. I am not going to repeat the value hedge effect that Cenovus has for us. Look, we have been in the energy sector in Canada now for 40 years, believe it or not. 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 are talking about. When MEG was priced, oil was at $58 a barrel. I am sure Cenovus has said on many occasions that their breakeven price for producing a barrel of oil in WTI terms is less than $45 a barrel. Volatility is volatility, but if you look at history, not very often have WTI prices sunk below that threshold. This is a company that has such a level of scale.
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. There are bad days from time to time when WTI goes way down, and the elevator can go down fast.
Yeah.
You look at it over a period of time, and this has been a tremendous value to the group.
Yeah, a lot of producers have cost base around $60, ooo yes.
Yeah.
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 Hutchison Port Holdings operations from escalating conflict in the Middle East?
Dominic, can you help me answer that?
Operationally, we expect the vessel calls at our port in UAE will reduce as major carriers have paused sailings through 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 our 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, the figures prove that the impact to Hutchison overall was not significant. As I said, 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. Well, obviously, there's two aspects to this. 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 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 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. But 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, 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 is that our free cash flow was up 102% to HKD 41.2 billion in 2025, mainly due to receipt of approximately HKD 1.3 billion net proceeds upon completion of the U.K. 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 under 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 turf.
Okay, let me try to answer that. As you see, AS Watson has a diversified business portfolio operating 12 retail brands in U.K. and in Netherlands and others in Asia, with over 17,000 stores in 30 markets worldwide. We think it is already a very good geographical spread. We are also second to none in terms of 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 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 earlier 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. That's the resilience and succession of the business. Health and Beauty Asia, on the other hand, has provided a very large opportunity for higher growth rates. If you exclude China and Hong Kong, the Health and Beauty Asia represent 22% over the retails division. EBITDA, 34% of its year-on-year EBITDA growth. Asia is important for the future growth of ASW. China in particular, has been a crucible of development. Of course, when people talk about China, people talk about the issues. But 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. 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.
It's a very strong brand in China.
Oh, yes. We have.
The recognition is trans-generation.
Oh, yes.
We'll 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?
Yes. Actually, we've already answered that question in slide 16 that Kwan took you through in our presentation. I'm not going to dwell on it. We think, yes. 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, we think that we are on track to get to the targeted GBP 700 million of operating in CapEx. Synergies by the fifth year post-merger. The only thing that I would add is that it is early days. The merger was completed in the month of May, if I remember right.
Yeah.
As we watch through 2026, it's quite a crucial year for really understanding whether we have the right momentum in terms of both synergy capture, but also avoiding major dis-synergies as we go through major cost issues. I have no reason to think that we won't, but it's going to 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 put option?
Frank, it seems Vodafone is always the [problem].
All right. Happy to take that one, chairman. Look, first of all, the option structure, the put and call option structure, is only exercisable after three full financial years post-merger, which is obviously still some time away. So, 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. If you ask me whether we've made progress, of course, we have. I think that there's value in our 49% interest in VodafoneThree. 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. 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. 3 Group has seen solid earnings recovery since 2023. What is the future strategy for the business?
Frank?
Okay. 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 multi-dimensional things that we are doing, all of which are directed to expanding revenues and margins from new areas 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 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. One of the most significant uses of artificial intelligence today is to reduce the number of people you need to execute programming. 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 over the next 12 - 18 months.
Thank you, Mr. Sixt. Next question is on retail. How has 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 in 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, good news, but we have better luck. Yes. Thank you.
Thank you. The next question is also in retail. Foreign retailers, including Mannings, IKEA, Harrods, Zara Home, et cetera, are increasingly exiting or reducing the 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. They have their strategy, they have their own views. But as far as we are concerned, AS Watson is concerned, CK Hutchison 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. And particularly, they are using and implementing AI in retail. Then not to mention the innovation in robotics and in delivery and fulfillment. So in that sense, China is the innovator. Okay. So, 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 places around the world. So, yes, as I said just now regarding China, people are a bit pessimistic on China given what is happening. But on the other hand, we look at China as very important. Although consumption is sluggish, but we do not see it as a prolonged negative. Because if you look at the statistics, China has huge untapped consumption capacity. Household deposits alone are over CNY 168 trillion. It is not CNY 168 billion, it is CNY 168 trillion. So we will be there at scale to meet demand when it is unleashed. So we have confidence in China. Thank you.
Thank you. Next question. How resilient is your business model under different climate policy and demand scenarios? And what is your plan to manage transition and physical risk?
On this one. It is a pretty complex area, and we are responding to a lot of new regulatory requirements that address precisely these kinds of areas, how resilient is the business model, et cetera. I would say, in general, we are in pretty good nick. We do conduct the TCFD-aligned climate scenario analyses, a nd additional analyses are underway if you read our sustainability report, which will come out with our annual report. You will see that we have completed some. We are in the course of completing some others. 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. 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, is supported with science-based target initiatives, 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 our carbon reduction targets, which are set out in detail, as is the performance to date in our sustainability report.
Thank you, Mr. Sixt. Actually, the next question is on CKI. CKI is actively pursuing growth opportunities with its 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?
Okay. This is many questions. I am not making a division between regulated versus unregulated business. I am looking at the stability of the cash flow. That is not where I draw the line. It is mainly on the stability of cash flow. CKI will continue to look for new M&A opportunities, and will focus on locations that we already have presence and create synergies, and scale, such as U.K., continental Europe, Australia, and Canada. We will 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. IRR that fits our criteria. Now, I am not going to give a number because if that number goes to my competitor, I should lose my job. So thank you.
Thank you, Chairman. Due to time constraints, we have to conclude our webcast today. Our IR team will respond to the unanswered questions. Thank you very much.
Thank you.
Thank you.
But 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. We feel fortunate that the plans that we did a couple years ago, now we are getting the fruits.
Yeah.
We are enjoying the fruits. Thank you.
Thank you.
Thank you