Afternoon, ladies and gentlemen. Welcome to the live webcast of CK Hutchison 2020 annual results presentation. Today our speakers are Mr. Victor Li, our Chairman and Group Co-Managing Director. Mr. Kenny Fok, Group Co-Managing Director. Mr. Frank, Group Finance Director and Deputy Managing Director. Mr. Dominic Lai, Deputy Managing Director and Group Managing Director of A.S. Watson Group. Malina Ngai, CEO of Asia and Europe of A.S. Watson and Group COO of A.S. Watson Group. During the presentation, please feel free to raise your question in the chat box, which is at the lower right-hand side of your screen. The Q&A session will follow the presentation. Before I hand over to Kenny, please also pay attention to our disclaimer, which you can find on page two of the presentation. We can start now.
Okay. Good afternoon, and let's turn to page four of our presentation. This gives you a summary of our 2020 results. Revenue. 2020 is a year plagued by COVID-19 and also the more significant is oil price drop and that affects Husky Energy in a material way. All this result has been taken into account of all this problem and you will see that revenue, the total group dropped 8% and EBITDA dropped 13% and EBIT dropped 24%. Earnings - 27%, and net earning per share HKD 7.56 - 27% and correspondingly, dividend is - 27%. However, because the operation has been operating very tight and then we have some mega transaction come through. The debt ratio has dropped from 25% last year to 22%.
We consider this is a very excellent result because what happened at the oil front is so difficult and the figure come through negative against us is so big. Thanks for the VHA deal that we merged with TPG Telecom and then thanks for the tower deal. We actually generate enough profit to overcome the mega losses incurred by Husky Energy. Also during this year, we also fixed Husky Energy, which we will go into more detail by merging with Cenovus. The end result is a much better animal. If you look at today, when we merged we were about HKD 3 and then now Cenovus Energy is over HKD 10. If you go back to what we own in Husky Energy, the equivalent is about HKD 8.50.
The result of the merger gives us a lot of hope and then we can deal with it later. If you go to page five. It gives you the EBITDA because of Husky Energy, all the country and percentage changes. If you see that instead of one circle, now we have two circles. The outer one is the actual what it is because Husky Energy suddenly become negative, so every other thing become bigger. The outer one is the actual one, then the inner one is the work of that. Right, Kyle? If you look at the graph the chart on the right-hand side, you saw the waterfall of how the EBITDA dropped. We go from to 2019 underlying EBITDA and then the port basically dropped HKD 2.5 billion. Actually, it mostly came from last year.
As first half and the second half is dropped much less and it went to the fourth quarter. Actually, it is quite a good performance. The same thing is on the retail. With the retail is also suffer by the first half when the whole business dropped 50%. The second half was doing quite good. Actually, the second half was better than last year. This is why. So the retail as a whole year, it only dropped HKD 1.8 billion. It mostly come from first half. The infrastructure isn't really affected by the COVID-19. So it shows a green color. Husky is the big casualty and which we will describe to you later. The telephone group It is basically, although it shows that HKD 3.3 billion negative, it's actually doing quite good.
If you look at the underlying performance, it's similar to last year. So what happened is that there was a non-recurring item or one-time item happened last year, which is HKD 1 billion happened in Italy, when we received some compensation from some vendor. About HKD 1.2 billion from Three UK, where we got some compensation, some benefit from the VAT. There was HKD 1 billion from the corporate side, where there some adjustment came through. Actually, from the operations inside, you will see later, it's quite stable. The same thing happened to Asia, and it is quite a stable operation. So on the head office front, basically the interest, I will let Frank talk more to it. Okay?
So this year, you will see that most of the majority of the income come from Europe, and Hong Kong become more now because of the Husky Oil doesn't contribute anything. So the next page six. Frank, on the cash flow side, can you take over?
The first sort of easy snapshot of what the cash flow profile of the group was like. So operating cash flow is just a very quick proxy. It's EBITDA from our subsidiaries, plus distributions from our associates, less CapEx and investments. So obviously, on that measure, we had a meaningful decline from 2019. Right? You see that in the bars, basically the result for this year at HKD 39.8 billion is what you get by subtracting HKD 29.7 billion from HKD 69.6 billion on the columns on the right. Right? The distribution of that obviously speaks pretty well for itself. Interestingly, though, this rough measure tells a lot less of the story this year. So if we go very quickly to the next slide. We're on slide seven. There's really no important message to convey here, except that essentially, everybody is living within their means.
Everybody is living within CapEx and investment envelopes that are less than depreciation, except in the telecoms group and in HTAL, where we are still in a meaningful investment phase. Obviously the message is, even on the operating free cash flow measure, we are very well covered in terms of our spending profile. The next page 8, is actually quite a little bit more interesting this year because it looks at the whole free cash flow picture. When you do that, you obviously have to take into account what is happening to interest expenses and financing costs. You have to take account of what is happening in taxes, and you have to take account of what is happening in working capital. It is a slightly complex chart, but to simplify it, if you go to the right-hand side.
Last year's free cash flow, underlying free cash flow after tax, after working capital movements, after financing costs, et cetera, was HKD 21.7 billion. We have just gone through the reduction in EBITDA that we suffered during the year of HKD 10.9 billion. We recovered significantly more than that in terms of the, believe it or not, overall level of dividends that we received from our associates, excluding Husky Energy of course. Interest in financing costs and taxes paid were down very significantly. So in the aggregate by HKD 6.1 billion. Working capital was managed very tightly all around the group. I have to, in particular, single out the retail division for their excellent job in managing working capital over the course of the year. So the swing from year-to-year is HKD 9 billion.
The free cash flow underlying profile for 2020 is HKD 27.9 billion, which is fully HKD 6 billion plus better. Obviously, I think a very encouraging picture in terms of the group's financial profile. If we go to the next page. This is page nine. The group's financial profile, not surprisingly after everything that I have just said, is still very strong. Net debt, as we said, has reduced substantially in absolute dollars and we have been continuing to reduce gross debt in the first two months of this year. Our net debt ratio is at 22.2%. One of the things that works against us there is the movement in sterling and euros over year-on-year, which increases net debt. As a result, negatively affects the ratio. So, you could argue on a like-for-like basis that the debt ratio is a little bit better than that. Our rating stayed stable.
Our weighted average maturity at four point seven years is very manageable. We are still further down in terms of the average cost of debt capital at 1.7%. We are now, after swaps, 31% in floating rates and 69% in fixed rates. That is again, less floating than last year. We were 33% last year and 67% fixed, so we have been taking some advantage, of moving out along the curve a bit, as medium and longer-term rates obviously have been, at historic lows. I do not really have anything to say in terms of our debt maturity profile except, as I mentioned, we reduced gross debt already in Q1, by EUR 1.6 billion, roughly $2 billion . CKI, of course, will have reported that they redeemed a perpetual HKD 1.2 billion, in full, in February, I believe.
I think that is all I have to say about the overall financial profile. The next section is ports. Kenny?
Okay. The port this year is a difficult year in the first half because of the China shutdown. Then towards the middle of the year is the European shutdown. But then, it really recovered well towards the end of the year. That is the whole story. We still, our asset is $11 billion, and then 283 berths and 52 ports in 26 country. Last year, we handled 83.7 million TEU, which is 3% below 2019. The EBITDA is HKD 10 billion, almost HKD 11 billion, and 19% off to 2019.
If you look at basically, if you look at the waterfall chart, from 2019 to 2020, you will see that actually, if you look at the first red is the mainland, as basically, it is all come from, because in the first half, we reduced Shanghai by 20%, so that the reduction mainly come from the reductions of interest. It is not really from the operation. Then, as you saw a bigger figure, HKD 1.3 billion from Asia, Australia, and all those. One of the major figure is about HKD 600 million, and then come from the close of the Dammam line. We take the opportunity to provide some of the small Middle East port. So that there is about HKD 600 million. Then another HKD 200 million from, if you compare to last year demand, because we finished the concession in September.
So that if you take that away, the other is a small drop. Then actually it was better in the second half already. Then the corporate is at HKD 400, almost HKD 500 million. It is basically the dividend from OOCL, which we had last year, we do not have this year. So the port this year have a difficult time, but they hold their fort pretty well. Then about the September, August, September onward, actually the throughput start coming back and then we still see a strong throughput growth until now this year. If you go to page 11. Somebody move the page in the screen. That shows you the monthly throughput. If you look at that, the trust is all the green is about 2019. You can see that in all four, trust mainland Europe and Asia, Australia.
If you saw that in Asia, after June, they are all doing quite well. In mainland, it is the same thing. In Europe actually, it is getting better and better in the summer. It is getting better in the last two months. The same as in the other Asian and Australian port. The story is that it is coming back, the stories. We see strong performance in January and February, and also March up to today. Page 12. Go to the famous retail. I think we have Dominic here. He is not only a head office director, but he also is the CEO of Watsons. I would invite him to talk. Please take page 12.
Okay. Well, thank you, Kenny. I am sure all of you will be interested and anxious to know what the retail division was doing last year, and also into the first two months of this year. Before commenting on the slides that follow, I would like to pass on the following messages, so that to put things into the right perspective. 2020 was a testing year for all retailers in the world, and A.S. Watson has proven to be resilient versus competition, with total sales dropping only 5.7% versus 2019. The first half of the year was very challenging, with massive store closures, especially in China. We have a very robust recovery in the second half, both in terms of sales and profit.
To illustrate, EBITDA in the second half increased significantly by 111% when compared to the first half and, like what Kenny said, 12% increase over the same period second half of 2019. This was helped by the large loyalty member base and an acceleration in our digital transformation. At the same time, the O+O strategy, i.e., offline plus online, has enabled us to significantly increase our digital sales by leveraging our physical store network. The physical stores actually help the e-commerce side. As a result, the e-commerce sales increased over 90% in 2020. To update you on the first two months of this year, EBITDA and EBIT have already returned to the 2019 level. Now let us go to the slide. This gives you an overall perspective of how the retail division was doing last year. Some corporate information on the left.
The retail division is the world's largest international health and beauty retailer, operating in 27 markets with 139 loyalty members worldwide. One of the largest loyalty programs in the world. More importantly, 65% of our total sales actually came from this member base. Exclusive sales participation reached 35% of total sales, creating a lot of uniqueness and differentiation. The business strategy for the past few years has been focusing on O+O, offline plus online. It is a new terminology that I want to elaborate. In fact, it leverages our extensive network and also our CRM member base. I think the reason for this O+O strategy is quite obvious because our data analysis shows that an average O+O customer, i.e., a customer who buys both offline and online, spent 3 x as much as they spend by customers who only shop in physical stores.
There is huge sales upside potential for us going forward. If you want to understand more under this very important O+O strategy, Malina Ngai, the Chief Operating Officer of Retail, will be very happy to elaborate for you in the Q&A session. On store number, the division has 16,167 stores at year-end, an increase of 2%. 50% of the stores are in Asia and 50% in Europe. In terms of EBITDA, despite the tough trading environment marked by store closures and reduced footfall, EBITDA only dropped 15% or 16% in local currency to HKD 14.4 billion. Moreover, if we exclude a one-time dilution gain of HKD 633 million recognized in 2019 as a result of a merger between the PARKnSHOP China and Yonghui Superstores of China, the EBITDA decrease is even lower at 11%. The underlying EBITDA decrease is only 11%, but reportedly, is 16% in local currency.
In terms of the split, 48% of the EBITDA is in Asia and 52% in Europe. On EBITDA growth, the waterfall chart on the right shows decreases in all divisions except other retail, the green block, which shows a HKD 1.1 billion increase. This represents a strong performance of PARKnSHOP, the supermarket chain, as well as Fortress, the electrical retail chain in Hong Kong, and strong performance in the Watsons Water and Beverage division. On the other hand, the health and beauty businesses had a total EBITDA decrease of 20%, around HKD 3.1 billion, attributed by a decrease of HKD 1.77 billion in Health & Beauty China, followed by a HKD 628 million decrease in Health & Beauty Asia, HKD 553 million in Western Europe and HKD 190 million in Eastern Europe.
Noteworthy is that the EBITDA decreases in health and beauty mainly took place in the first half of the year, as Kenny mentioned, as also the Chairman mentioned. It dropped 44%, but since then we saw a very strong recovery in the second half when we witnessed even a small positive growth of 0.3%. Net-net, the total EBITDA for the year is HKD 14.4 billion, which includes an FX translation gain of HKD 161 million. For EBITDA margin percentage, it is worth mentioning in the lower right-hand table. As a result of a decrease in EBITDA dollar, the EBITDA margin percentage of the various health and beauty divisions were also adversely affected. Health & Beauty China saw a four percentage point drop from 18% - 14%, whereas the other divisions dropped one percentage point.
The wider margin percentage decrease in China is due to the significant drop in EBITDA, as Fok mentioned, as well as a shift in category mix. What I mean by category mix is that under the pandemic, we saw less consumption of the higher margin Skincare and cosmetic products, while consumption of the lower margin personal and body care products was still in demand. We believe this is reversible post-COVID-19, and we are seeing it happening in recent months. Next slide 13. In fact, the next two slides show the quarterly sales changes in their respective health and beauty divisions during the year. The blocks in the middle illustrate the quarterly EBITDA change year-on-year, and the charts underneath simply illustrate the temporary store closure profile.
First, for the Health & Beauty China chart on the left, we can see the biggest sales decrease was in Q1, when the sales dropped 78% in February with over 2,500 temporary store closures. With these closed stores gradually reopened in subsequent months, we can see from the graph that the negative sales growth improved. Also worth mentioning is that the sales reduction is smaller than the store's traffic reduction, which is illustrated by the red dotted line underneath the sales change graph. This was the result of increases in customer conversion rates and higher average transaction value, so that the sales decrease is lower than the traffic decrease. Overall, this total sales decrease for the year is 19%, with first half decrease of 26%, improving to 11% in the second half. We have a tough first half, but recovered nicely in the second half.
Correspondingly, as shown in the red box in the middle, the EBITDA dropped 62% in the first half and narrowed to only 13% in the second half, with total EBITDA decrease of 39% for the year. Nonetheless, the silver lining is that there's a rapid proliferation of online sales, which increased 123% year-on-year. The increase in online sales was helped by the My Store initiative, which I mentioned last year during the internal results, whereby our 28,000 + store staff remain connected with our loyalty members through the WeChat Enterprise app to retain sales. So even during the close down, during the pandemic, our customers are still engaged with our 28,000 odd store staff, sales agents and beauty advisors. O+O participation has reached 35%. China got the highest O+O sales participation within their retail group. Next for Health & Beauty Asia.
We see a sharp decrease of around 30% in Q2 as a result of store closures in a number of countries in April. Overall, the sales decrease for the year is 16%, with first half decrease of 17%, improving to 14% in the second half. On EBITDA, I must point out that Hong Kong had a major adverse impact on the division's EBITDA. With the sharp decrease of PRC tourist arrivals due to the border closures, our Hong Kong Watsons stores located in tourist areas were severely impacted. But on a more positive note, excluding these tourist stores, the rest of the portfolio is healthy and profitable, and the tourist stores are being turned around with encouraging initial results that we see recently. Overall, the Asia division managed to narrow its year-on-year EBITDA decline from 39% in the first half to only 3% in the second half.
On a country basis, Malaysia, Thailand were doing better and leading the recovery with 2024 year sales matching that of 2019. Malaysia, Thailand, key contributors that maintain the sales versus 2019. Philippines still suffer from a prolonged period of quarantine in key cities. And lastly, for the Health & Beauty Asia division, the online sales growth is 101%. Next slide 14. Similar charts for Western Europe and Eastern Europe. First on Western Europe. Western Europe is like a tale of two cities. In the Netherlands and Germany, all of our health and beauty stores remained open during the lockdown because they are deemed essential retail. Both countries, Netherlands and Germany, saw positive sales and positive EBITDA growth during the year because the stores are located in suburban areas and close to supermarkets, where the footfalls were not much affected by COVID-19.
Whereas in U.K., although our health and beauty stores also remain open, they are more located in the high streets and shopping malls, where footfalls drops was most apparent. As a result, both sales and EBITDA in U.K. declined significantly versus 2019. However, we are confident that when the lockdown measures start to ease, which is now with the vaccination program, the U.K. business are poised for a robust recovery this year, and we are very confident of that. On the luxury business, while the health and beauty stores remain open, the perfumery, the luxury business, although located in the same countries, for example, the Netherlands, the 5 A.M.'s open, but the ICI Paris luxury business has to be closed because they are deemed non-essential.
Net-net, with all these counterbalancing factors, the total sales for the year in Western Europe only dropped 3% overall, 5% in the first half, and recovered strongly to only 1% in the second half. Likewise for EBITDA, we see a very strong recovery in the second half by turning around a year-on-year reduction of 39% in the first half to a growth of 14% in the second half. As a result, total EBITDA decrease for the year is only 9%. Online sales for this division has recorded a healthy 17% growth year-on-year. Last, we turn to the Eastern Europe chart. Overall, the total sales of Eastern Europe remain flat at the same level as 2019, with 2% drop in the first half and compensated by 2% growth in the second half. 2% drop first half, 2% increase in second half.
The sales and EBITDA profile for Eastern Europe actually is dominated by Poland, where they had a 24% EBITDA drop in the first half, but a robust recovery to positive EBITDA growth of 3% in the second half. Total EBITDA decrease for this division is limited to only 9%. Online sales growth for the division is also very good at 108%. In summary, we have looked at various divisions, Asia, China, Western Europe, Eastern Europe. Overall, the retail division has shown a high degree of resilience attributed to its well-balanced and well-diversified portfolio, and the online capability actually have benefited and quickly improved during the pandemic year in support of our successful O+O strategy. This is a very quick summary of retail happening last year. I now pass back to Kenny on the infrastructure. Yeah.
Okay. I don't think we need to dwell on it. I'm sure CKI will have reported in detail what the drivers were, right, of its earnings reduction in 2020. A couple of anomalies. One is some meaningful COVID-19 events effects somewhere in the area of HKD 600 million from assets like Park'N Fly in Canada, where obviously nobody was flying and therefore nobody was parking. In addition, though, there was a very major accounting volatility relating to deferred taxes which resulted in a charge of HKD 1.4 billion because of a 2% increase in the tax rate in the U.K. that was announced during the course of 2020. That's quite problematic, right? Because it's not a real cash volatility or even a real cash flow risk.
Most of the regulated assets have, in effect, a pass-through of the actual cash tax burden that is paid out in any given year by the regulated utilities. This anomaly, of course, grows larger with the increase in 2021, with the proposed increase in tax rates that we're expecting this summer in the U.K., which would go up by 6% and is something that we'll be looking very closely at because it's becoming a very distorting earnings volatility with no real meaning in cash terms. Other than that, there are some headwinds in the business in terms of regulatory resets. We all know that. Regulatory resets are tending in one direction, which is not that surprising given how far long-term interest rates have dropped all around the world. The timetable on the lower right sort of sets out what is to be reset during which periods.
It will be what it will be. Needless to say, in value terms, the same low interest rate environment that's driving the regulatory reset environment is probably also supportive of the valuation environment for infrastructure assets. So we'll have to see where all those puts and takes take you. If I can move on. Kenny, do you want to talk about Husky or you want me to do that?
Kenny continues.
Oh. Thank you. Okay, so slide 16. I'm not going to dwell on the Husky debacle. I mean, what happens when all of the commodity price supporting your production goes through the floor and goes way below your cash break-even level, let alone your earnings break-even level. And you combine that with effectively a collapse in the markets for refined products. Largely due to the collapse in demand for jet fuel. And you have an unprecedented Armageddon, and you get the kind of net loss profile which is shown on this slide. Which WACS, CKHH, whichever line you choose to look at, it was an unprecedented loss. Now, interestingly, it is a non-cash loss in the sense that Husky only paid us a relatively small dividend.
So in terms of its impact on our cash and our financial profile, relatively low, but it is indicative of a pretty significant value loss in Husky, and you cannot ignore that. Of course, we were fortunate in that we were able to agree and then in early January complete a merger with Cenovus Energy. That merger we have already talked about a little bit, but it creates not only one of the largest, number three producer in Canada, but also one of the lowest cost producers and one of the most integrated producers in North America, which is a superb place to be. What that translates into is a WTI breakeven, which is very significantly below where Husky's WTI breakeven might ever have been considered to be.
And as a result of that, in the current commodity price environment, which let us hope that it persists during the course of the year, we are probably experiencing net backs that are more than double what they would otherwise have been in last year's price environment. So, the good news there is that in terms of value creation, Cenovus is a company that does not need to incur exploration expenses in order to support its production profile and its reserve profile, and a reasonable level of growth in its production. That being the case, most of the kind of cash flow that is being generated in this environment can go to debt reduction, as can the realization of synergies, which have been targeted at a run rate in cash terms of CAD 1.2 billion a year as an exit rate coming out of this year.
So you can see that that potentially adds to the value of the equity position that we have very materially. Just to go over that very quickly, we actually hold a number of warrants in addition to our shares. So on a fully diluted basis, our interest is 16.79%. The warrants are at 650 strike price. They have a five year term. So they are very valuable little pieces of paper right now. Kenny mentioned that we have experienced a terrific recovery in value already. So, for our 16.79%, that is a CAD 3.5 billion gain from the Husky low point, which was at around $3 a share. So, as mergers go, so far we are very happy because it is almost a three Xer. I think I will stop there and hand back to Kenny for telecoms.
Okay. So much for Husky, then I think the combined animal is a much better animal, but then Husky stand alone. Similar productions of oil quantities but at a much higher quality and much lower cost. That I think we should be able to take advantage of this situation. Now let us go to page 17 on telecommunication. So that this company total revenue of 85 billion revenue. But then it dropped about 3% in local currency. And, of course, during the COVID period, which cover most of the time, a lot of the time in Europe, in various time. And then gross add has dropped. However, the churn is also doing good. And then, of course, the one thing that we miss out is, we have a reduction is the roaming income. Okay? So that our customer base is 38.5 million, so down 5%.
Our ARPU is getting better because people stay home. I suppose they have nothing to do, and then they spend more time on the phone. Of course, you can see the usage is 35% more. During last year, we actually do a lot of things on 5G. You just see the scope of the 5G capability, we start rolling out in everywhere. As the chairman point out in the press conference, actually we just got hold of two 10 MHz of 700 MHz at a price which is almost 50% of what we paid for last time around, which is very good. In fact, I just want to say that it is the first time in our career our U.K. spectrum position is more than competitive than the others. Our 5G 3.55 is much more than our competitor.
The first time, and we have a 10 MHZ of lower spectrum at 700 MHz, which is very useful to us. If you look at the right-hand side, the middle of the slide, you see the waterfall chart. I think basically it just summarize what I said. Take away the one-off or non-recurring one. Actually all the business is similar to last year. This group holding very well. Actually the slight Red in U.K., you can just say that is because of the cost in holding the 5G spectrum, and we have to pay a spectrum fee. This amount is more than what we did last year. So EBITDA margin is more. U.K. is always still is in a work in progress, but has improving. The margin other than U.K. is more almost dropped. It is quite good.
Italy, 46%. Sweden, 47%. Austria, 51%. Even Ireland go to 43%. So the two need to improve is Denmark and U.K. All right? Page 18, you saw the details. I just want to draw you the line is the EBITDA less CapEx, HKD 11 billion for the Three U.K. group, which is quite good. CapEx is a little bit higher at HKD 20 billion. The depreciation just for equipment alone, you saw the HKD 15 billion, which is include CAC and spectrum. If you just take those two out, it is about HKD 12 billion. So that our CapEx is still higher at HKD 20 billion, higher than the HKD 12 billion I would like them to spend. This is a continuous work that we need to improve.
However, because this is to build out 5G and actually, we do have business plan so that when we build a cell site, they should able to sell it, so to generate income. Hopefully, that will be a key driver for the business for the next few years. Okay. Come to 19. I think Frank spent a lot of time on this. Maybe I will let him describe it on page 19.
Yeah. I think the story on our tower sales is well-known. I just want to make clear so that everybody understands what we received, in 2020 and booked was proceeds of HKD 20.8 billion. And what we recorded is a gain of HKD 16.6 billion in the year. The remainder of the aggregate HKD 10 billion of consideration comes in this year, in 2021. That has already started with the completion of the sale in Sweden in January. But of course, the two biggest sales remain to be completed. That is the towers in Italy and the tower assets in the U.K., including the lion's share of the build to suit program, which falls in the U.K. That we anticipate will bring in additional proceeds of HKD 73.1 billion, and an additional gain in 2021 of HKD 50.8 billion.
We do not, at this point, anticipate any major issues impacting closing either in Italy or in the U.K. And we are in the relatively routine regulatory processes in respect of both of those closings, as we speak, and we will update as developments occur. What do we do with the cash? Well, obviously, what we did with the cash was what you do in relatively dark and uncertain times. We first reduced gross debt. We said in the original announcement last November, that we would be considering market share buyback programs, and that remains the case when these proceeds come in. I think it is quite possible that we will be in execution mode. But again, as we said in the announcement, always subject to a full evaluation of the company's position, the market's position, and the world as we see it, at the time.
I think that pretty well summarizes the tower picture, and we will take questions later if there are any.
Okay. I just want to emphasize, I think this transaction is very convenient for us and both the VHA and this one because of the big loss we have incurred in Husky. And this transaction actually help us to overcome the losses that we suffer from and make the losses we suffer from Husky. Go to page 20, HIT is nothing much to talk about. The Indonesian business, I think the exciting thing is not the result. The exciting thing is that we are able to come to a preliminary agreement with Indosat so that to merge the two company and everything is in progress, and the two party is working out nicely. Hopefully, we can have something to sign, and there is a goodwill on two parties. And if you look at the-
The red color in Indonesia is basically not from the operation. There was an exchange gain that they booked last year, which is non-recurring this year. Other than that, they have increased margin by 7%, but also because they have a bigger network, so they also receive cost by 7%. So their operation is similar to the year before. Vietnam, I think I want to mention a special mention because we are a small player in a difficult market. We have a small team, and I just want to mention that the new CEO, the female CEO that we appointed, has been doing extremely well. It is in such a difficult situation with COVID-19, and she managed to break even. I take my hat off to them. We are not losing any EBITDA there. All right?
I just want to mention it so that she can hear this, and she knows that I'm not critical of her. All right? Next page. ESG. I think, Frank, are you going to do it this time?
Sure. Look, there is so much that we could say about the developments around ESG, all around the CK Hutchison Group. I think I'll leave it for the most part to Q&A at this stage, because it would extend the presentation time for longer than we should. Probably the most important thing is not walking the walk or talking the talk. It's what you actually achieve. There's never been a challenge like COVID-19. I'm actually very proud of the way our group made our way through it. If you look at our employees, we had caseloads, hospital admissions, morbidity way below the national averages in all of the countries that we operate in. I can tell you that as of last night, we had 373 active cases, mainly in Europe. Sadly, we've lost 14 colleagues, but that is against a workforce of over 300,000.
Which is, I think, just an absolutely first-rate testament to having handled the protection of our employees well. We did a lot, which you can see on the next slide, in terms of protecting our customers and the communities that we operate in. I think that's the final slide 24. This is the stuff that ESG is really about. It's what you really do when the rubber hits the road. I think we showed ourselves very proud in 2020. With that, we can move to Q&A.
Thank you very much. We can now begin the Q&A session. Once again, please feel free to raise your question in the chat box, which is at the lower right-hand side of your screen. The first question is a general question about our company. What is the priority of the company's capital allocation?
I think our priorities would be opening some new retail stores that have quick payback. The other one would be we would engage in market consolidation within the telecom market and activities which are earnings and cash flow accretive. We will do those. Also, part of the capital will be allocated to some share buyback, but the timing would have to depend on the closing of the tower deals. Since we are talking about tower deals, there is some market misunderstanding that some people thought that we will be taking the profit of the whole tower deal in 2020. Actually, we are taking a rather conservative view, and that is we take the profit on those portions that have been closed in 2020, and a big portion of them will be taken in 2021. I think I might as well use this opportunity to clarify that misunderstanding.
Somehow, it keeps creeping up in various reports, outside reports. Next question.
Thank you very much, Victor. The second question. The group's 2020 cash flow profile was very strong, with underlying year-on-year growth of 29% in free cash flow. Any comment on the group's cash generating capability in 2021 when CapEx starts to be normalized?
Well, we always take quite a conservative approach to CapEx spending and working capital. I look forward to another year of strong cash flow. Cash flow is the Hutch motto.
Absolutely.
Okay. The next question is: what is the company's target gearing ratio?
I don't think we have a target simple gearing ratio. I think our objective is to make sure that we have our credit rating.
Again, I use this opportunity to go back to the earlier question about cash flow.
Yeah.
Sometimes in the new accounting rules now, cash flow in a way reflects the company's operation strength or health. Sometimes more so than the simple earnings. I use one example. One subsidiary of Hutch is CKI. This year, the cash flow is stronger than the previous year, but because of the impairment of deferred tax charges, earnings is down. But if you look closely at the regulated business, the rules of the regulation allow the operator to collect the difference in increase in tax in future years. So actually, there is no destruction of value when the tax rate goes up. But because we are to abide by accounting rule, we will have to take the hit now, but we will have a higher reported profit in later years, which is confusing to some people, but the accounting rule is that way.
Sometimes I use the cash flow as a better indicator of the operations health and operating environment.
Okay. Thank you. The next question is about our ports division. Do you expect the improvement in ports throughput will be continued in 2021?
Well, maybe Kenny, you can answer that question, but all I know is that the first two months looks extremely good.
I think the outlook for us is positive. The ports are very busy in China. Very busy. From China, it go to Europe. The first two months result is good. We are happy.
Okay. The next question is about the retail division. What is the progress of the O+O strategy?
Well-
Well-
The O to-
Yeah.
The O+O is a success story. Two things. One, it shows the return, and it shows the resilience of the group in a big crisis in 2020. It has achieved good results, and this is Dominic and Malina's baby. I am not going to discuss further. I should let them answer the question.
Okay. Well, in fact, the O+O is exactly what the customer wants. Because the customer is now moving, say, online, offline, and then we can serve them equally well. The numbers show that they spend three times more than a single-channel customer. Why don't I pass this? Maybe on this O+O, I'll ask Malina to shed some light on this strategy. This is a very important strategy for the retail group.
Okay. Thank you, Dominic. Well, the progress of the O+O strategy has actually accelerated ahead of our expectation in 2020. Well, first and foremost, O+O is about getting our customer to shop with us both offline and online. Unlike some of the retailers who are driving offline to online or vice versa, our O+O strategy is about not having any cannibalization. The customer who shops with us both offline and online, their spending currently, the analytic shows us that it's three times higher than the customers who shop with us only in the store. Meaning that if I used to spend HKD 1,000 with A.S. Watson, HKD 1,000 by shopping in the store, and once I get to shop online, as well, then my spending every year becomes HKD 3,000.
This is the three-times spending potential that we are seeing in our O+O strategy. The progress of O+O. What happened in 2020? First of all, more customers actually shopped with us on eStore because of necessity, because of movement control. We actually, in 2020, we managed to recruit millions more customers who shop with us online. Secondly, our 139 million multi-members, because of the digital transformation, we can digitally connect to them. In 2020, we actually doubled the development of our digital assets, meaning content, to continue to engage them and get them to continue to shop with us. In fact, actually, in several markets, we become top brands on Instagram and Facebook as well. Our O+O strategy has helped us to also transform the way we sell. Okay, this is important.
Because traditionally, any retailers, they would be doing their business offline and then online separately. For us, actually, in 2020, our stores team in the store, they are able to use WhatsApp, WeChat, telephone to help us to engage the customers, and they convert sales also on the digital platform. This is how the O+O strategy helps us to drive more growth. Finally, because of our physical store penetration, our O+O strategy helps us to have that fulfillment flexibility. Even during COVID, when our online sales growth, just now already mentioned, is 90%, it's doubled. We were still able to deliver within one hour, within two hours, or within a day during COVID, because we are able to turn some of the physical store to support the fulfillment.
In summary, the O+O strategy has accelerated a lot in 2020. The physical store will continue to be a core touch point in this strategy. In terms of store opening plan, we will continue to have store opening in Asia, Europe, residential locations and shopping malls, provided the financial model makes sense. That is the overall strategy. Thank you.
Thank you.
This is Kenny. I just want to add one more point. If you look at Watsons China, approximately 80% of our revenue comes from our member. If you look at our O+O revenue, it is 35%, but it only comes from 5% of our members. I just want you to think about this, and this gets me very excited. This tells you the size of the opportunity, so that I always say that when we fish, we should go to a fish pond. People that we know. But don't go to the ocean where there are so many.
Watsons O+O is a very exciting story. I think the potential is yet to be fully unleashed.
Yes.
A lot of growth.
Okay. Thank you, everyone. The next question is about infrastructure. What is the outlook of CKI in 2021?
Now, there are things that I think the market knows already, and maybe I can add a few new things. What the market already knows is that there will be resets. For the regulated business, the resets happen every five to eight years. So it is always grow, grow until the year of reset, and then goes down a bit, and then it goes up again. So this is normal for the business. So in 2021, there will be a couple of resets, which is part of the anticipated plan for CKI. That, the market knows already. The market also knows that we are always looking for new opportunities. The new one is a new farm in Canada and providing pretty good stable return. Those are the basic things. Now, going forward, there are two things that maybe I can share.
One is last, night before last. The CMA has confirmed a position on our appeal against the regulator. In U.K., the regulator is usually the person setting the rates. If you are unhappy with the initial judgment, you can appeal to the CMA. In that scenario, most of the water operators accepted the regulator's proposal. We do not think it is fair, and we appeal to the CMA. All I can say is that the result of the CMA is a big improvement from the regulator's original reset. We do not think it is 100% what we want, but it is acceptable, and it is an improvement from the regulator. The importance of that judgment is that not only does it set a rate for the water business, but it is a cornerstone for all other infrastructure resets in the U.K. in the coming months and years.
It will affect the rates for gas as well as electricity. Two days ago, the decision was a time change. I do not know whether it is one and a half days or two days. But the recent judgment, it is quite important news for CKI and for the U.K. utility business. The second one, second news maybe I can share, is a breaking news. Literally about an hour ago one utility asset was sold in the U.K. at a 73% premium to RAV. That is what we infer from their announcement. Now, if you use that ratio, then the assets in CKI are worth a lot more than the share price would indicate.
Most of the assets are acquired by CKI at a much lower premium to RAV. This confirms that in this market, there is still a lot of I use the word in Chinese, treasures, that is within the Hutch Group, like the O+O and some of the CKI assets. Some of the valuations are yet to be fully appreciated.
Yeah. Thank you. The next question is: Will CK Hutchison equity account or dividend account stake in Cenovus?
Well, together with the personal or family ownership. CKHH and the family is the largest shareholder group in Cenovus and has influence on the board influence. I think we should be equity accounting the stake at the moment, Frank, right? Yeah.
Yes, that's correct.
Yeah. Sorry, Kenny?
No, it's okay.
Next.
Yeah.
Yeah. Due to the time constraint, we will have the last two questions. What is the outlook of Three UK in 2021 is one of them.
That is definitely a question for Kenny.
I think that in the budget, they show that they will be much improved.
Actually, what we would like to do is to get the company back to where we were before, when we talk about the merger with O2, which is we make EBITDA of EUR 700 million. After the merger fell through, I think my team, somehow, got disenchanted and then got into trouble with IT and all those. Still keep on having one concern after the other. As a result, we have a brand-new management team since the beginning of last year, and that has been very effective and a nice change. I am not saying that the last team is no good, it is just that, I think it is a nice fresh air into it. You can see that the result in the second half is actually 25% better than last year, 2019. We will continue to see positive development in U.K.
Also one thing worth mentioning, is that we always have a handicap on spectrum because we are the smallest network, we have the smallest spectrum in the whole world, 4G and before. But now with the 5G where we have the most spectrum, and also with the success of getting the 700 MHz spectrum as a very advantageous cost. This cost is almost 50% of the last time that we got the 800 MHz. So that we are very well equipped to go into the future as a major player. U.K., I think the scenery is good for us.
I think we can say that we are the largest number of spectrum in U.K., and the recent auction completes a portfolio in improving our in-building penetration. We are quite happy with the recent purchase.
Okay. The last question is still on Three UK. Why did Three UK CapEx increase so much in 2020, and will 2021 be another heavy CapEx year?
We just said we are building 5G. Kenny, maybe you continue.
It is almost all network. Kenny, it is almost all network.
Yep. I think that, it is part of the UK problem which we are correcting, and this core network which we try to finish, and finally, I think is finished now because they does not run into any problem for the last two months. I think a lot of things we are being put right. And of course, with the new spectrum, people they do the 5G. But I told them that when they build 5G, they got to put more income. Let us see. And the figures will speak for itself. But finally, UK is strong.
Okay. Thank you very much. This concludes our live webcast today. Thank you very much for joining our presentation.
Thank you. Good health.
Thank you.
Thank you. Bye-bye.