Ladies and gentlemen, welcome to the CK Hutchison's 2020 interim results presentation. Today our speakers are Mr. Victor Li, our Chairman and Group Co-Managing Director. Mr. Canning Fok, Group Co-Managing Director. Mr. Frank Sixt, Group Finance Director and Deputy Managing Director. Mr. Dominic Lai, Deputy Managing Director and Group Managing Director of AS Watson. Malina Ngai, CEO of Asia and Europe and Group COO of AS Watson. During the presentation, please feel free to put down 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 Canning, please also pay attention to our disclaimer page, which you can find on page two of the presentation. We can start now.
Okay. Good afternoon or good morning, wherever you are. This is the time to announce the half-year results. This first half in 2020 has been a very exciting year in a sense. Because we witnessed the huge drop and fluctuations in the oil price. We also witnessed the COVID-19 that affect initially Hong Kong and Asia, China and Hong Kong, then Asia, and then the rest of the world. The Group has been working hard all these years, and then we deliver the following result. If you turn to page four of the presentation, you saw that revenue, HKD 189.9 billion, down by 12% in the Hong Kong currency. But because we operate in [audio distortion] , operationally, if you take away the foreign exchange, it's down by 9% in local currency.
EBITDA went down HKD 47 billion, went down 13% in reported currency from Hong Kong dollar, 10% reduction in local currency. EBIT, HKD 26.7 billion, down 22%. But if you take away foreign exchange, it is 19%. Net earning, HKD 13.2 billion, down 28%. Take away foreign exchange, it's 25% in local currency. So earnings per share, HKD 3.37. Compared to the same period last year, down 29%. As a result, we also have a reduction in dividend per share payout by 29%. It is HKD 0.14. Although we witness a reduction in earning, the cash flow of the company, we have been putting various stringent control on CapEx and working capital. As a result, compared to last year, the first half, we are at 25.1% net debt ratio, which is 1.1% better than the same period last year.
I would like to take you to page five, which is the EBITDA of the company. HKD 47 billion, - 13%. If you take away the currency fluctuation, it's 10%. You will notice that if you look at the way it happened, 35% of that is in Europe, 8% in China and 4% in Hong Kong. It came up this year because the Hong Kong operation, Hutchison Telecommunications Hong Kong Holdings, and of course, PARKnSHOP, doesn't really affect by the COVID-19 in Hong Kong. Asia is 19%. You will see a big figure of 21%, that is from the finance division. That's basically reflected the earning that we recorded in Asia in Australia, which is used to offset the losses in Husky, which you will see in the following chart in the right side.
So if you look at the composition of the EBITDA, the biggest one is 34%, come from telecom division. Then 29% come from infrastructure division. Of course, the other two contributor to a certain extent is affected by COVID-19, is at 10% for the retail and 12% for the port. If you go to the right side of the screen, you saw a chart. It is a waterfall chart from last year's EBITDA to this year's EBITDA. This year, unfortunately, because it is all affected by the oil company and also by the COVID-19. If you look at the port business, compared to last year, it is HKD 688 million less. The detail, I will explain that in the port division, which is about 11% less than last year, same period. If you look at the detail, we took off two item.
One is the one time profit from last year, the HKD 633 million, and the other is the regular income. So it reduced by HKD 2.766 billion, which is about 31% reduction from the same period last year. If you go to infrastructure, this is more or less the same. Infrastructure is not really affected by the COVID-19 and by the rest of the world, so that it is the EBITDA wise is more or less the same. Of course, Husky Oil, which is affected very big. For EBITDA wise, we affect HKD 4.4 billion for ordinary and then HKD 3.1 billion extraordinary. Of course, as I said earlier, we mix because of the merger in Australia, VHA have 50% interest with TPG, the fixed line, and we record a huge income, which is HKD 8.7 billion. Actually, the total income is about HKD 10 billion.
But we got to take off some minority interest and also take up some provision we put against it so that we record a HKD 8.7 billion, which is very useful for us because to offset the Husky loss. The telephone division in the next two column is doing quite well, except for U.K., which I will explain when we come to the relevant section. All the other countries, Italy and Denmark, Sweden, Austria, and Ireland are also showing improvement in EBITDA and also in gross margin so that businesses are doing well. But U.K. has its own problem, which we have talked about in the past, and then I will elaborate that in the later section so that it drop about. If you take away, last year, we have extraordinary item in Italy, and this year we do not have. So this is HKD 1 billion.
If you take that away, actually, we are about 1% off last year in the EBITDA. If you go to the Asia, it shows an increase in EBITDA. It is because basically come from Vietnam doing much better than last year. Then you have got a reduction in F&I, and then I will let Frank to discuss that. Okay? Of course, foreign exchange took about HKD 1.8 billion away from our EBITDA. So this account for the HKD 55.9 billion from last year to HKD 46.9 billion this year. Okay? I would like Frank, because I said that the cash flow is better, and I would like Frank to talk about it for the next few page about the cash position. Go ahead.
Good. Thank you, Canning. On slide six, this is the view of the decline in operating free cash flow. That does not equate to the full free cash flow picture, which we will get to in a couple of slides. I would point out that the first half of 2019 had about HKD 1.7 billion of one-time occurring items in it, one of which Canning just mentioned in relation to WINDTRE in Italy. Sticking to the left-hand side here, what you are looking at, of course, is the EBITDA contribution from our subsidiaries, the dividends that we receive from our associates netting off against our CapEx and our investment.
Again, it is a little bit misleading to think that the CapEx has gone up because the CapEx account includes some in effect cash neutral non-cash CapEx, which is driven by our telecoms division. When we swap RAN assets, quite often we do it on a cash neutral basis with the provider. It essentially means that we are invoiced for, and we show as CapEx the cost of the new RAN, but our old RAN that is being swapped out is being purchased. We have a proceeds account in the cash flow statement that reflects that. In reality, if you strip that out, CapEx was a little bit flat. All in all, that takes you to HKD 19.1 billion, and that is showed in the bars right in the middle. Then, of course, on the right-hand side, the split as to where does it come from.
Not surprisingly, most of the operating cash flow comes out of the telecoms business. Less than normal comes out of the retail business. I think the rest of the slide speaks for itself. If I can take you to slide seven. This is the same numbers split up by division. To cut very quickly to the chase, you can see that basically everyone is living within their means except for the net investment going into HAT, which is the bar that you see under HAT, which is higher obviously, than the EBITDA bar. That primarily reflects network investment in Indonesia. The other thing that I would say here is that, interestingly, if you look at the depreciation on a divisional basis, everybody is living within an envelope of capital spending, which is less than depreciation. That has been a very rigid discipline that we have imposed.
Again, with one exception, which is HAT because of the amount that has been spent on accelerated network rollout in Indonesia this year. The story from an operating cash flow point of view is not complete in terms of free cash flow. For that, you go to slide eight. It gets very interesting because we had some very significant savings. If you go down the right, our operating free cash flow, you then deduct interest and taxes paid. We paid close to HKD 2 billion less in interest and just over HKD 1 billion less in tax this year than we did in the first half of 2019, which is really quite a good news. We also had a superb working capital improvement, which is shown in the next line.
That HKD 4.2 billion of increase in working capital compares to a first half increase last year, which was more than HKD 8 billion more. Really a very good job of managing working capital on a very timely basis, particularly by our retail group, so as to offset in cash flow terms some of the adverse movements that you see on the bottom line on the attributable earnings line. That took us to a first half free cash flow before our dividend of HKD 8.9 billion, and that was fully 51% better than the free cash flow performance in the first half of last year. We are very pleased, needless to say, with that outcome, because it essentially meant that our net debt relative to the first half, and I am going to take you to slide nine.
You can see this relative to the first half of last year, actually declined by 1.1%. Whereas it did go up from the year-end number, which was 24.8%, we went up to 25.1%, but that was only because of the weight of the dividends that we paid in the first half. Remember that we always pay the final dividend for the previous year in the first half. That accounts for 1.1% in and of itself of the increase in net debt from the end of the year.
Long story short, those dividends, by the way, totaled HKD 8.9 billion paid out to CK Hutchison shareholders and another HKD 3.4 billion paid out to other minority interests around the Group for a total of HKD 12.3 billion of dividends paid. I think on balance, the financial profile held up much better than might be implied just from looking at the earnings profile.
That in some sense is not that surprising because although the Husky results hit us very hard from an earnings point of view, in reality, they do not hit us very hard from a cash flow point of view because we begin to see that in the lower dividend rate, but you will feel that more in the second half than we did in the first half. I think with that, I will stop there and I will turn it back to Canning and talk about our Ports division.
Well, Port divisions, I do not want to say it is a tough year, but it is always affected by the row between U.S. and China. This year it is much more affected by COVID-19 on top of that as a result. You saw that the TEU that they handle is 6% less. It is 8% less. The EBITDA is now 11% less in operation. If you take foreign currency, it is 14% less. Again, the distribution is for trust in China, it will be better 19%, and then 22% from Asia, and then 22% from Europe, and then 30% from Asia. That, the business of this is still a work hard style of business. If you go, it is affected this year because COVID-19, because there was a closure in China, and then it affected the goods going out.
And then of course, the lockdown in Europe is affected, their receiving goods and all those. You will see that from the lockdown chart. The trust doesn't affect that much to us. It's only 7%, HKD 43 million. It's surprising me. China, mainly outside of the trust is also quite performed better than I thought. They down only HKD 42 million. The problem coming from Europe basically is U.K. and Netherlands. Because in the first quarter, both U.K. and Italy suffered from storms, and that affected our operation. From March onward, and then especially U.K. have a major lockdown and then it affected, so that the EBITDA is 18% affected, HKD 276 million. And then, of course, the lockdown also affected Asia and Australia, HKD 223 million. But it's only about 7% less than last year.
I would say that the cost control is quite good because a lot of the costs are fixed costs in the port, but the Group actually react very fast to try to reduce the fixed cost. The foreign exchange is HKD 223 million. It will take us down from HKD 6.4 billion to HKD 5.5 billion. On the right-hand side corner, the bottom right-hand corner, we show you how does the throughput look like year on year. If you look at the trust, I think in our annual report, we stated just for June alone, we make much more money than the whole year, first half. It reflected the lockdown situation in China and the pickup, and also reflected because a lot of the trade go through Europe and America, so that trust June is a good result.
Also in July, it continues to show the same good result. If you look at the mainland China, again, it doesn't affect it as much. This is the port outside Yantian, China port, outside Yantian. It's more or less a single digit effect. In June, again, it's so positive. We are looking forward to a good second half performance. July already is also quite promising. Europe up to June is still hesitating. However, it's still a solid business. It's down 17% in June, but in July, it's only down 4%. I hope that there will be a lot of catch-up. As I said before, the world needs goods, and then if the goods are not flowing in certain months, it will catch up.
However, this time around is a little different because everybody is staying home. Maybe the demand will be less, but that we will see. In July, when compared to last year, it's only 0.4%. In June, it's about 17%, you can see that. Asia part, again, it reflected various lockdown. It is better in June and also in July is slightly better. The port division, all in all, is a solid division and then produce a good cash flow. Of course, in the first half, we are very stringent on CapEx as well. It become a cash flow generator also. With this, I think we should go to the retail division, and then Dominic Lai not only Executive Director of CK Hutchison, but also that he's in charge of the retail business.
Instead of having me reporting, I would like to ask him to describe what happened.
Okay. Well, thank you, Canning. Well, I am sure all of you are interested to know what happened to the retail business under the COVID-19. Let me tell you, the retail business has been severely impacted by the COVID-19 due to the country and city lockdowns, movement control orders, and social distancing rules. However, despite this impact, the retail division remains as the world's largest international health and beauty retailer, operating in 25 markets with a strong loyalty member base of 137 million and member sales participation of over 64%. Total sales for the first half is recorded at HKD 73.6 billion, 11% down from last year in Hong Kong dollars or single digit, 9% down in local currency. For exclusive sales, which include our own brands and exclusive, remains stable at 34% of total sales. Let us go to the store numbers.
On store number, 623 net new stores have been added year-on-year, bringing the total store number to 15,836 as end of June. Over 70% of the new stores are opened in China and Asia. Also, the payback period of these new stores remains healthy at less than 14 months. On the store numbers, half of it in Europe and then also half is in Asia. Let us go to EBITDA. On EBITDA, which is presented on a pre-IFRS 16 basis, dropped 43% to HKD 4.63 billion against a revenue drop of 11% as a result of the pandemic. But if we exclude the one-off gain of about HKD 633 million in the first half of 2019, the decrease would have been 37%, not a small drop. The EBITDA split is 57% in Asia and 43% in Europe.
If you move to the right, the EBITDA growth chart shows decreases in all divisions, with the exception of other retail, which is shown in green, which represent the PARKnSHOP supermarket business in Hong Kong, which benefits from more people eating at home. Let me go through it one by one. The biggest drop of HKD 1.44 billion is in Health and Beauty China, which went through a really tough time in February, when more than 2,500 stores were temporarily closed, with a corresponding 78% drop in monthly sales. The better news is that all stores have been opened, since April with a robust recovery, which I am going to show you in a minute. For Health and Beauty Asia, about 2/3 of the EBITDA decline of HKD 574 million came from Hong Kong, where the border closure reduced the tourist traffic by over 90%.
The EBITDA declines in the rest of Asia are relatively smaller. If we move to Western Europe, the EBITDA drop is HKD 930 million. Over 68% of this drop is in U.K. Because while our Superdrug business or Savers stores are allowed to open or remain open, the significant drop in footfall due to the movement control orders and social distancing has reduced the sales and profit significantly. The drops in other countries in Western Europe are relatively smaller. For Health and Beauty Eastern Europe, the predominant contributor to the EBITDA decline of HKD 219 million is from Rossmann Poland. But the good news is that the business has rebounded strongly in July. For other retail, the HKD 401 million EBITDA increase came from PARKnSHOP in Hong Kong, as mentioned.
The HKD 633 million one-off gain in 2019 relates to the merger of our PARKnSHOP China business with Yonghui last year. It is a one-off gain. Net-net, together with an adverse impact of HKD 157 million, the EBITDA decreased from HKD 8.2 billion in the first half of 2019 to HKD 4.63 billion this year, a 43% drop as just mentioned. We come down to look at the EBITDA margin. For the EBITDA margin of the health and beauty business, which accounts for 83% of the retail division's total EBITDA, because of the significant drop in EBITDA dollar, the EBITDA margin percentage also decreased correspondingly. For Health and Beauty China, the EBITDA margin decreased from 19% to 11%. For Asia, from 10% to 7%. For Western Europe, from 7% to 4%. For Eastern Europe, from 12% to 10%.
As a result, the overall health and beauty EBITDA margin has dropped from 10% to 7% in the first half. It is a very challenging profile. Let us go to slide 12. This slide shows the sales recovery journey of the various divisions. The top chart shows the sales evolution with the solid red line representing the weekly sales progress over the six-month period. The dotted red line beneath it represents the store traffic evolution. The bottom chart is just to show you the magnitude of the temporary store closures. We start with Health and Beauty China on the left. As you can see, the store traffic dropped very sharply in February by 87% with a corresponding monthly sales drop of 78%. It is quite serious.
Although the situation improved steadily through June with the store traffic recovered to - 26%, and the monthly sales drop also narrowed to - 16%. In July, it is even getting better to around, say, 11%. Overall, for the six-month period, total sales in Health & Beauty China dropped 30%. On a positive note, online sales in China during this period increased significantly by over 75%. If you look at the bottom chart for temporary store closures, it reached its peak in February with over 2,500 store closures, representing 64% of the China network. China was affected very much by this COVID, but recovering well. For Health & Beauty Asia, the drop in sales during the pandemic is less severe than in China, with fewer temporary store closures. Total year-on-year sales decrease for the first half is 18%, as shown in the chart.
As you can see from the sales chart, monthly sales in April was - 40% versus last year, but improving to - 20% in June. In fact, if we take away Hong Kong, the sales drop in June would only be 12%, and we see continuous improvement in this division in July and August. For some businesses, major business recovering well. To illustrate, for the month of June, Malaysia sales, which is a big division, dropped only 8% versus June of last year. Thailand sales only dropped 7%, and Taiwan sales only dropped 5% versus June of last year. Philippines is taking a bit longer to recover as populated areas such as Metro Manila are still under quarantine currently. Hong Kong remains quite challenging, as I mentioned before. But Hong Kong represent only 2% of the retail division's revenue in the first half.
If you look at the temporary store closure chart underneath for Health & Beauty Asia, you can see that the peak occur in April when 750 stores were closed, mainly in Turkey and the Philippines. Also worth mentioning here is that the online sales in Health & Beauty Asia during this period has increased significantly by over 110% year-on-year. Now, let's continue on page 13 to see Western Europe and Eastern Europe. For Western and Eastern Europe, the recovery picture looks even better with drop in total sales of only 9% year-on-year for both divisions, and the decrease even smaller in local currencies. First, for Western Europe. On the left, the monthly sales drop peaked in April at - 27%, with over 1,100 stores closed, mainly in U.K. and Belgium. It has subsequently recovered from - 27% to only 5% in June.
That's the sales drop and sales recovery. Within this, Benelux is leading the recovery with sales growth of + 5% in June. The overall -5% , in fact, we see a positive sales growth in Benelux in June. Germany has also proven to be very resilient with sales growth of + 4% and EBITDA growth of + 12% during the six-month period, as all stores remain open. What drags down the sales, in Western Europe is U.K., where the lockdown measures, which started in March, had a very significant impact on footfall. Nevertheless, the silver lining is that we have seen some improvements towards the end of June, following some easing of the lockdowns.
For Eastern Europe on the right, which is predominantly represented by Rossmann Poland, the drop in monthly sales reaches peak in April with a 27% decrease but has since recovered strongly to only - 4% in June. Online sales has increased 126% in this division for the period. All in all, total sales in Western and Eastern Europe only dropped 9% year-on-year in Hong Kong dollars for the first six months. In summary, after you saw all these numbers, the retail division has gone through a very challenging period with significant drop in sales and profit. But the saving grace is that the division has remained profitable even in the darkest month of April with peak store closure impact. Now practically all stores are reopened with a strong recovery continuing.
Moreover, during this period, the Group's e-commerce capabilities have been tested and proven, and online sales has increased significantly during the period, supporting the O+O, the offline plus online omni-channel strategy of the division. Also, for your reference, the June month EBIT of the retail division has rebounded strongly to HKD 1 billion, reflecting the recovery picture that I've just painted to you. Then we have just finished the July month-end closing two days ago, July. With EBIT recorded at HKD 1.1 billion, which is better than the original budget set last year, which didn't anticipate this COVID-19 and represent an EBIT growth of + 14% over July month of last year. Just to round up the story on retail, a very tough first half, but we expect a robust recovery journey to continue in the second half of the year.
On this, I pass back to Frank to talk about our infrastructure business.
Thank you, Dominic. CKI, of course, is the principal component of our infrastructure interests, and it reported its results yesterday. Again, the reported decline in net profit after tax of 52% is more than half attributable to a deferred tax liability adjustment in the U.K. CKI had been on the basis of the government's announced glide path to take income tax rates down to 17% by 2023, if I remember right. Had been booking deferred tax liabilities, obviously using that rate. But the government announced earlier on in this half that it would stabilize the rates at 19% and not follow the glide path. So that simply occasioned a deferred tax write-down for CKI, which as I say, is more than half of the year-on-year NPAT. I think they will have discussed in their results announcement pretty well everything else that's on this slide and more so.
Again, there have been, and probably will continue to be headwinds, in terms of regulatory resets. The most notable of which I think was Northumbrian Water, which is a heavy reset. To some extent, that is to be expected and anticipated in an environment where governments are putting so much money out to consumers. They want to find ways to support consumers at every level, and that suggests that the path in terms of rate resets will probably continue to be difficult. Having said that, again, from a cash point of view, as you can see down on the lower right-hand side, and a debt point of view, net of liquidity, the company is really very stable and will continue to be an important contributor for us in future years. If I could move you along to slide 15.
Again, Husky Energy, I think we talked about it in the introduction. We lay out here the components in Canadian dollars of the company's net loss in the first half. Below that, the attributable EBITDA loss from our point of view. I think those speak for themselves. It was an unprecedented environment. You had not just the collapse in Brent and WTI prices as a result of the actions of Saudi Arabia and Russia. But with the COVID-19 impact in North America, you saw a sudden collapse in the demand for refined products. For example, jet fuel, gasoline, diesel. That meant that where normally when you have a drop in commodity prices in an integrated value chain like Husky's, you recover it, to some extent, at least in refining margin. That didn't happen.
We found ourselves moving into, as of January and February, a very solid sort of emergency expenditure management, capital expenditure reduction program, and cash management program. Basically prioritizing the financial quality of Husky, in an environment where it was not just incurring earnings losses, it was also incurring negative cash flow, both in the upstream and in the downstream. We also obviously dialed back production from cash flow negative assets in the upstream. In the downstream, over a couple of months, we dialed back production from the refineries so as to not be supplying more product than the market would be able to take.
On balance, we were pretty fortunate on the downstream side to be in PADD 2, which is a heavy agricultural country, and probably a better market for consumption of gasoline and diesel as a result, and so less affected than some of the other PADDs in the U.S., but nevertheless, an unprecedented situation. Husky's liquidity remains strong. It announced guidance with its results as to further cost reductions. I think we are in an environment at or around the prices that we're seeing over the last few weeks, where Husky's net debt is not increasing. Of course, it doesn't have any significant maturities until 2022, and has a very high degree of liquidity, well over $4 billion. All of that meant that it was able to get back into bond markets yesterday.
It issued CAD 1.25 billion worth of seven-and-a-half year bonds at an all-in issue yield of 3.5% and a coupon of 3.5%. That has, in effect, refinanced a lot of its, well, they will be retiring a revolving credit facility that they took to assure liquidity earlier on in the year, and they will have pre-refinanced CAD 750 million out of roughly CAD 2 billion that comes due in 2022. From a resilience point of view, and actually at this hour from a ratings point of view, they are holding up reasonably well. They also took some important steps in terms of ESG for the first time, basically setting targets both in terms of carbon intensity on the products that they produce and in terms of diversity in terms of the senior management teams.
I think I will stop there on Husky, and with that, turn back to Canning to talk about telecommunications.
Well, these divisions become a more reliable division under this COVID-19 situation. During the time we saw that people cannot attend to offices, and then most of our country, for one stage or the other, and actually for most of them today, the majority of our staff is still working at home. What we have seen is that our business, our network is very reliable. In fact, in Italy, we just finished our network before all this happened. It really help our customers. Also, in terms of the reliability of the network, we just have a testing by independent party. We become the best network in Italy in terms of stability and download time. All the other countries, although they have to work at home, everything customer service and network reliability have become quite good.
In particular, it affect us on handset gross adds because most of the shops cannot open. However, we switched our business into digital and then because there is a two side wedge to the shop, you cannot close it. Also, our trend perform better in most country. You saw that the total revenue is HKD 40 billion, - 7%, but in terms of local currency it is - 3% same. There is quite a resilient business and active customer is 38.7 million. I think the reduction is mostly come from Italy because it is a strategy that we do not fight against our MVNO when they are on our network. Because we refuse that our income is more making from MVNO than me fighting them. However, what we saw that because of the lockdown, our ARPU is getting better by 1%.
Of course, they use a lot of data during the time, that is 39%. During all this time in the bottom left corner, we continuous to do our business 5G rollout in U.K. and the best network achieved in Italy. Also, we are ready for our 5G network to start on 2,100 MHz covering 60 cities in Sweden. Of course, Ireland this year, if you see later, has improved their business very much. If you look at the EBITDA, HKD 14.4 billion. I would like you to look at this EBITDA, the top EBITDA with the figures and then at the bottom with the percentage. You will see that except for the U.K., which I will explain later, everybody is getting better. All right? When I go through this, I would like you to read together page 17.
Now, if you go to U.K., it dropped HKD 837 million, which is a 25% change in EBITDA. If you go to page 17 on the U.K. column on the left-hand side, the first June 2019, you will find that it's the same problem. Revenue did not grow. It stands for quite a while, also because of the roaming. The customer cannot travel, so the roaming revenue reduced. Some change of regulation came along this May, so you saw that the margin actually reduced by about HKD 10 million. Of course, when the business lockdown, they used to get a lot of vendor funding for the [adding Groups app].
When you have the business problem, cannot sell handset, of course, the vendor funding getting less, also we switch to online, and of course you got to pay more commission there. You got the CapEx is higher, operating cost also higher. Why? Operating at home should not be higher. Again, the same old problem of the IT. We have been incurring extra cost on IT and we are not able to reduce. Of course, out of this HKD 50 million difference, HKD 25 million come from the right, because of our 5G spectrum that we have to pay annual fee that is for six months, HKD 25 million. The other HKD 25 million is come from IT, they are not able to reduce it, but there's an increase. So we have less income, more CapEx and more operating costs.
Of course, you have less EBITDA. So we have changed the management of U.K. Because of the success of Ireland, we have asked the Ireland team, the CEO Ireland to be the CEO of U.K. The marketing and sales director of Ireland to be the marketing and sales director of U.K. Of course, in our Group, we have a very good CTO which is helping us all the time, very sufficient. We change the CTO. As we stated in the chairman statement, after we change it, we see actually a lot of progress in the U.K. division especially on the IT side, on the network side. We are beginning to understand what they are doing. We are actually putting a lot of good effort into it.
On the sales and marketing, it has been stagnant for three years already. If you go back to the financials of U.K., it hasn't increased for the last three years for the margin. I would dare to say that you will see good result coming in the second half because this team was there since April. For the three months, they have done a lot of work. They have streamlined their business. They look at the operating cost. While we are talking consolidation in relation to the staff, just stop because we will have some dismissal, some retirement of the existing staff. With the support of the Ireland business, this change will be a very smooth one because a lot of the business functions are being supported by the Ireland colleague just across the island.
I am confident to say that the U.K. problem should be arrested. If you go to Italy, actually Italy is doing quite well. Last year, the first half EBITDA was supported by a one-time income of EUR 115 million, which is HKD 1 billion. This year, this one is non-recurring. Actually our objective is to try to earn this back with regular business. The fact that you showed that we have HKD 428 million against the HKD 1 billion so that we are on track of what we want to do. If you take that away just on regular business, it is 5% increase. If you go to the rest, Sweden, Denmark, Austria, and Ireland, all doing very well. Just one point I would like to point out. They have all increased reasonable increase in EBITDA.
But if you look at the subsidy on the EBIT, a lot of them show a little bit decrease because of the- we are still putting more network in all these places. Of course, after you put network, you have depreciation. However, because of COVID-19, you are not able to get the kind of customer that you want to cover the depreciation. But the business is on the right track. Also improvement in the - improvement in the EBIT. Therefore, and hopefully, the foreign exchange situation will change in the second half. We show the HKD 636 million reduction. This end up from HKD 16 billion or HKD 15 billion to HKD 14.4 billion. This is the situation. I think, if you go to page 17, you see that in the middle column where you have the first square. You saw the EBITDA on underlying business.
- 25% from U.K., + 5% Italy, + 6% for Sweden, + 4% for Denmark, + 5% for Austria, + 8% for Ireland. End up it is a ±1% against total. I talk about the EBIT. Frank has said that the CapEx is under control, so you got positive EBITDA minus CapEx. Then you have HKD 7.7 billion, almost HKD 7.8 billion for EBITDA minus CapEx. The depreciation and line, and the CapEx line is also somewhat equal to each other. These are the dynamic of the Telecom divisions. Actually these divisions have tons of assets, and not only network and spectrum. When we do networks, we also come up with towers. Of course, last year we have announced that we formed the TowerCo.
I would like Frank to talk about the tower business on page 18.
Yeah, I'll be very brief. I mean, we said that we would complete the structural separation of our towers into a separately managed TowerCo business, which is a subsidiary of CK Hutchison Group Telecom, and that we would do that by midyear. We did. Senior management are appointed at the head office in Luxembourg. Each of the countries has teams led by managing directors in each of the six countries. We actually completed the legal reorganizations to make sure that all of the relevant assets are in or the economic benefits of them accrue to CKH Networks. We missed our deadline by a couple of weeks. It was in very early July that we were able to celebrate completing that. We also said that we would be exploring all of our options to, I suppose I would say surface the value credibly in this tower business.
It's not a tower portfolio now, it's actually a tower business. We have begun that process. I'm not in a position to announce anything today or to give anybody any assurance that it'll lead to any transaction. But certainly we are looking at all of the options and all the types of transactions and all of the counterparties that we might be able to do things with. I think it will be a very busy second half. With that, I give you back to Canning to talk about Hutchison Asia Telecom.
Well, actually, this division is, we are quite happy with this division's revenue +5% and active mobile customer +7%. Usage, of course, because of COVID-19, it went up by 42%. Again, this division is actually operate under COVID-19, and actually is also under remote control in Indonesia, in Sri Lanka, and for Vietnam. It's all work at home. But our network stay very nice. In fact, we are quite pleased to see. If you look at the total division, the EBITDA went up from HKD 724 million to HKD 807.2 million after a HKD 13 million loss on foreign exchange. It comprise of Indonesia losing HKD 77 million again last year. Actually, this division is doing quite well. But the COVID-19 is actually affecting them for certain extent.
Actually every month, there is only a few months they are not doing so well, but they actually begin to catch up to the HKD 77 billion out of the total EBITDA of HKD 900 million. They drop a little bit. But we have good June and we have good July, so that I'm sure we will be able to catch up more than last year. Vietnam, it's a small company, but it actually make a major improvement this half. Not because of the growth, because 100%. But what they did in six months is to put the subscriber on a different, the base of the subscriber on a different proposition, so that they incur much less in the connection cost. Also, of course, they work hard on the over air.
Everything reduced, revenues increase a little bit, increase about 10%, then they end up, they are almost breaking even now. Last year, they lost a similar amount, this year this improvement will put them into break even. I would say practically break even, loss of [audio distortion] first half. In Sri Lanka, we are merging the two company, then of course COVID-19 come and everything is a real knockdown Sri Lanka. However, the team worked very well on costs, on revenue, then we see the improvement in that. I think this will be a small little division which we are very happy. With that, I go to the next page 22. This is about the ESG. I think Frank is a champion on this on our Group, I think he can talk about that.
Thanks, Canning. We listen to the prevailing winds in capital markets and in equity capital markets. Clearly, being able to be and be well seen to be an ESG responsible player is beginning to matter to a meaningful extent in terms of both access to capital and also the cost of capital. We decided to put a major push behind, in effect, bringing our management of particularly sustainability related risks into line with best of breed global standards, number one. Number two, to upgrade our reporting. I think in the past, we have suffered from not giving enough visibility as to what we do in all of the various category components that make up sustainability ratings of one sort or another. If we can go to the next slide, which is slide 21.
I am very pleased to say that on the disclosure side, this is our first standalone sustainability report, which was issued in July. I would encourage everybody to read it. Please download it. We are trying to limit the number of paper copies because we are trying to save paper, of course. It is a very big step, I think a step that begins to put us well ahead of norms that you will find around this part of the world in particular. We also, in CK Hutchison Group Telecom, submitted our first CDP report, which is basically a ratings in terms of carbon report. Of course, Husky has been doing that now for many years. That will lead us to setting some Science Based Targets as we go forward in Group Telecom, and we will be doing a number of other things in other Group companies.
On the governance side, this is very important, we established a board level sustainability committee with three senior directors on the committee. We have sustainability committees at the business unit level already in place and a working group under the board sustainability committee to make sure that we are doing things. We hired a head of group sustainability who is a seasoned professional in the area. We introduced what I would describe as a bottoms up and tops down semiannual risk assessment and forum for establishing the right goals and the right targets going forward. I must say that the AS Watson Group has shown a lot of leadership in this area. They have committed to a 40% reduction in Scope 1 and 2 emissions by 2030 as against 2015 levels. CK Hutchison Group Telecom is committed to reducing carbon intensity by 70% from 2015 levels by 2025.
I think that we are both from the governance point of view and from the commitment to climate action point of view in particular, moving at quite a fair pace. If you just go to the last page 22. Obviously, the first significant step in understanding and managing sustainability risks is understanding the materiality of various risks to various businesses in various locations. This is a very high level overview of which businesses, which people issues, which community issues, and which environmental issues are most material in each of our core divisions. I think they speak for themselves. Again, I would really encourage you to read our sustainability report and offer up any comment on it.
We will also be engaging with the, well, we have engaged, actually, with the major sustainability ratings players, including MSCI and Sustainalytics. I think we will probably, well, shouldn't speak too soon, but we will be working to achieve a sea change, right? In the way that they have rated us in the past. I think I will stop there, and I believe that takes us to the Q&A session.
Yeah. Thank you very much. We will now begin the Q&A session. Once again, please feel free to put down your question in the chat box, which is at the lower right-hand side of your screen. The first question come from [Ned] of L1 Capital. The question is, why did the dividend increase in line with earnings if free cash flow actually increased from first half 2019 to first half 2020, as shown in slide eight? How much does debt have to be reduced before we can start seeing increasing dividend payout ratio from CK Hutchison?
I think, a couple years ago when we talked to investors, we have made a general statement that our dividend policy will be very much in line with our P&L, and this is exactly what we have done. The debt reduction is more a response to the COVID-19 situation. I think in this time, it is only right to conserve a bit of cash so that we can prepare ourself for unexpected surprises, and it is also the war chest for potential acquisitions. I think the two are not completely related to each other. The dividend policy is more in line with our P&L, and the reduction is debt, is more to make sure that the company is in the safe hands.
Okay. Thank you, Victor. The next question is from Cusson of JPMorgan. His question is, for Hutchison Network company, are there any opportunities that the company can explore?
Frank, you want to answer that?
Sure. Sure. I most certainly believe that there are, and we will be exploring them as we go forward now that we have met the first milestone, which is establishing CK Networks, right, as a separate business under CK Hutchison Group Telecom.
Yeah. Okay. Next question is still from Cusson. His question is, what's the momentum of the retail operation in recent months, and when can we expect profit to have growth again?
Can I answer a little bit of that before I ask Dominic to continue on it? The exact recovery rate, of course, is highly dependent on the situation with the virus. No one can predict that. But the one thing I noticed as soon as the government let the market open and relax the lockdown situation, is that customers roll back quite rapidly. To my pleasant surprise, the cosmetics and healthcare division is a lot more resilient to difficult times. We have never seen this in our lifetime, this type of virus situation. Health and beauty retail is more resilient than I originally thought. Now, on the exact recovery rate, maybe Dominic, you can answer that.
Okay. Well, as I illustrated in the previous slides, the recovery has started. We got the very, I would say, encouraging signs in June and July. Because as I mentioned, the biggest test or evidence of improvement in the bottom line, which I said, we just closed in July month end two days ago. The bottom line EBIT was 14% higher than last year. So which is already planned under the budget that no COVID ever was thought of. What I am saying there is that the retail division, given what Victor said, is our daily recoveries. As long as the store remains open and also the easing of the movement orders, it will come back. It will come back.
Our current view is that, of course, we do not have a crystal ball, but from what we have seen lately, although it is just for one month, we would like to strive to reach the same level of sales and profit in the Q3 and overachieve in Q4. So the first half is behind us, so what we are trying to do is to do as much as possible to recover the sales and profit. Also, so far, we have not been disconnected with our customers. During the lockdowns, we have been keeping our customers engaged through the social media, through all the digital means. It is important that the silver lining during the COVID is our ability to connect with customers. Also our e-commerce capabilities have now been proven and tested. Before that, people always ask me, "How is the online?
How is the e-commerce?" But now I can hand on heart, I can tell you that we have reached there. That we are good in online as well as offline. Okay?
Dominic, there's one more point I wanted to add.
Yes.
If you look at the profile of the retail business, actually the second half make more money than the first half.
Yes.
If the profile is not what we expected, then we miss out the lean months, and hopefully-
Yeah.
The rich month will come back. This all depends on COVID-19.
Right.
Okay. The next question is from Angela. Her question is, what is the outlook for Husky and retail in the second half of the year?
Pretty broad question. Maybe Canning, can you-
Yep. Well, if you look at the oil price, it was quite stable in July. All through July it is about $40 oil. I once said that the break-even for Husky was $38. But then, when the refining margin dropped from $15 to about $7, in order to break even, we need to have about $43, $44. On the second half, if the oil price stay at this level, we have a good chance of not losing money. But we have to see how the oil price go. The thing that we are working on is the minimum cash flow, so that every month, we should have. In June and July already, we have almost break-even cash flow that is controlling the operating cost and also controlling CapEx.
In June and July already we have a cash flow break-even. So the outlook will be that if the oil price stay at this level, we should be okay to don't have big figures from Husky. For the retail, I think that we have said it all. If the COVID-19 situation is more or less what we are aiming for, then we hope to do at least as good as last year second half. This is the reference that my chairman had made reference to this outlook. You know, he say that it's challenging because we don't know the COVID-19 outlook, but, second half, at least the last year second half to our target at least.
Now it is true. Just to give some color, say, in the month of July, the Benelux has already achieved positive sales growth. Same for Poland and Germany. Also the negative sales in the U.K. is improving. So, everything is dependent on COVID, as far as the retail is concerned.
Okay. Thank you very much. The next few question is on the telecom side. Cusson of JPMorgan asked, U.K. telco EBITDA margin dropped from 40% to 30%. Where do you think the margin will stabilize?
Canning?
Okay. Thank you. The U.K. is in a I don't like the figures of the U.K. at all. No growth in margin, and then growth in expenses like CAC, like the operating cost. We are doing a total revamp for the last few months already. Our target should be above 40%. If you look at the rest of the Group, it's above 40%. Actually, if you look at Austria, it's 50%. Each market is different. However, I'm looking- even if you look at Ireland, it was the lowest. Now it become 40%. I think 40% is the least I can look at, and I would like them to achieve as soon as possible.
Thank you. The next question comes from Angus Chan of UBS. How would moving out Huawei change the CapEx outlook for the telecom division?
Okay, Canning.
Well, actually, Huawei we don't have that in our European business. We don't have that much Huawei equipment. We use Huawei in Hong Kong and we use Huawei in Indonesia. On Europe, we only sign a new contract with them about one and a half years ago, which was a very good contract. The price is attractive. To do part of our U.K. RAN radio network, but not the core. The core we have given it to Nokia. That RAN actually initial proposal is to about 30% of our business. For the other part of the business, we have chosen Ericsson. Okay. Of course, when this change of rule come and then we have to comply with the rule. We are still in discussion with Huawei so that we don't increase our exposure to them. Okay?
Because we have to comply through. Other than that, we have a little bit of Huawei in the fibers, but not. And so that our exposure for Huawei is limited.
Okay. The next question comes from [Tao Choi] of Bank of America Securities. In your discussion to unlock value for the telecom unit, I guess it's the network company, is retaining some control on how the units are run a prerequisite?
Whatever happens, I think the more important thing is we need to facilitate our core business. So, when we mean control, it cannot hurt our core business. The things that we don't need, and it doesn't affect our core business, then it's not a prerequisite. I think it depends on what type of thing.
Yeah.
Frank, anything you want to-
It's also the case that operators deal with network and tower providers all the time, and what runs between them is something called a master services agreement or a master lease agreement. Those are the crunch point where we need to ensure that our operators are protected through the agreements that they have with the Tower Co, so that they can't impede their performance going forward.
Hey, thank you very much. The next question comes from [Simon Cheung] of Goldman Sachs. He asked, "A few years ago, retail was identified as one of the fastest growing division. Which among your five divisions now do you feel there is still much scope to drive EBITDA growth, either through organically or M&A, potential for monetization?
Should I take this? Well, we can all add our optimism, and telecom can be one of them. Retail is certainly a good engine, but a lot really depends on the virus situation. I don't have a crystal ball on the virus situation. But we do have quality assets, and this virus situation has shown that some of them are more resilient than other people may think. Canning, maybe you can add some more.
Well, I just go along with what you said, that we have quality assets. And then quality assets means quality in any environment. So I think you will see that in telecom divisions, we have the towers, and then we have rumors that we have not do an in-market merger yet. Those discussions still going on. And then in the retail divisions, that we got the O+O situation, which we are working very hard. Admittedly, the retail division did not grow in the last couple years. But again, with the big base of asset, these are quality assets.
The situation will be changing. And then we have a very good management that we can react very fast. So we say that I think the basic of the work is the asset that we have is quality and subject to stress test in extreme environment. Even in this environment, we have very good asset. This is what I would say.
Okay. Due to the time constraint, we will have the last two questions. The next question is still from Simon. He asked, "To the extent that it can be disclosed, can you perhaps share with us what are the potential options under consideration for the Tower Co?
Frank?
No. I think they are obvious. There are any of a number of players, both strategic and financial, in these areas, that offer different types of opportunities. And then ultimately there's public markets. But no decision made as between any of them, but exploring all of them. And it would be wrong for me to go beyond that, although we are working very diligently to obtain some good result.
Yeah. Okay, the last question is from Lorraine of Morningstar. She wants to know what portion of retail sales came from online in the first half of 2020, and how does this compare to 2019?
Dominic, should we ask Malina to answer this?
Yes. Maybe, yeah. Malina, who's the COO.
Yeah.
Yeah.
For Lorraine's question, I will probably start for Q2, because in fact, the worldwide lockdown started from April. In the last three months, our e-commerce sales growth has been about 90%, nine, zero. Compared to last year, it's about triple, the growth rate. As Dominic mentioned earlier, the silver lining from this pandemic is that we are able to accelerate our e-commerce development, and we are determined to maintain that momentum. Thank you.
Okay.
Thank you very much. This concludes our presentation today. Thank you very much.
I look forward to the chance of seeing all our analyst friends in person on our next meeting. Because if we see you in person, that means flights have started, hotels are full, and restaurants are back in business, and the results will be better.
Okay.
Okay. Thank you. Good health.
Okay. Thank you. Bye.