Good afternoon, everyone. Welcome to the live webcast of the Swire Pacific 2020 final results analyst briefing. We apologize that Mr. Merlin Swire, Chairman of Swire Pacific, is not physically present here today. He is self-isolating at home out of an abundance of caution, as he has been in contact with a potential close contact of a confirmed COVID case. Instead, he has dialed in for this session. Also attending the briefing today is Ms. Michelle Low, Finance Director of Swire Pacific. Merlin and Michelle will first take us through a detailed look at our results for 2020. Over to you, Merlin and Michelle.
Okay. Well, thank you, and welcome everybody. I am going to start just with a brief review of what has been a pretty turbulent year for us, as for others, and then talk a little bit more about how we are executing on our strategy of focusing on Greater China. Michelle will then talk about the financials in a bit more detail. We will briefly cover divisional performance, and then we will be ready to go for questions. Next slide, please. As you can see, we had an underlying loss for the year of almost HKD 4 billion, a big swing from the prior year, where we had a number of one-off gains on disposal. At a recurring basis, we were also marginally loss-making. Next slide, please.
On the dividend, despite this challenging year and the losses we have made, we are committed to continue paying a dividend, and you can see we are planning to pay HKD 1.70. That is a big reduction on where we had recovered to last year. We know that is painful for shareholders. But I would say that insofar as our dividend policy says that we will pay out approximately half of our underlying profits over the cycle. You can see that taking the five-year average of dividend payouts with the dividend we are paying this year, that average is 59%, i.e., we are paying out ahead of our policy through what is a difficult period. Next slide, please. We have seen this slide before. Not a happy story. Return on equity for the year, negative 4.1%. Almost all of that comes in either non-cash or non-recurring items. I will break that down later for you.
But the effect is to take our five-year average return on equity down to 4.7%, which is obviously an unsatisfactory position. Next slide, please. I am just going to spend a little time on this because I think it tells the story of the year as clearly as we can. Left-hand bar is shareholders' funds at the start of the year and the right-hand bar, shareholders' funds at the end of the year. And just focusing first on the return on equity element that leads to the -4.1%. On the left section there, recurring profits, you can see that the resilient performance of Swire Properties and the robust performance of Swire Coca-Cola was more than offset by marine services and by the Cathay Pacific losses, such that our recurring profit was mildly negative. We then had, in the aviation sector on top, a number of restructuring costs and asset impairments.
That's a big chunky figure. In marine services, another very big impairment on the fleet after a big setback to the market earlier on in the year. On the property valuations, again, there's been quite a lot going on here. You can see that statutory gain of HKD 1.3 billion on disposal of Cityplaza One, and then some losses in our Hong Kong property portfolio's valuation. That HKD 4.2 billion splits broadly evenly as between our office portfolio in Pacific Place, which has been under pressure, and our retail portfolio across Hong Kong, which has been also under pressure. In the Chinese mainland, we saw some positive valuation gains, despite the troubles that COVID brought. There have been one or two other small adjustments there, too. So that's where the 4.1% comes from. If you look at the translation differences line, this is a relatively encouraging story.
It reflects the strengthening of the renminbi through the year, and it reflects the growing size of our mainland Chinese portfolio, both on the property side, from which the majority of these figures come, but also on beverages and other businesses that we have in the Chinese mainland. If you put all that together, before the payment to shareholder of dividends, the total reduction in shareholders' equity was 2.6% for the year, which clearly is disappointing. But I think given the exceptional nature of the year, it is far from disastrous. Personally, I think it's a creditable performance in the circumstances. I should say that the core operating cash flows of the Swire Pacific Group have remained very resilient through the year. Next slide, please. I think you saw the Cathay results yesterday, and a lot of detail was provided there, which I won't repeat here.
Just to say that the refinancing that was put together was very substantial. HKD 39 billion from the Hong Kong government. That HKD 39 billion as a refinancing in June, which included the Hong Kong government's investment in preference shares. HKD 6.7 billion earlier this year in the way of convertible bonds. That has put Cathay in a very strong liquidity position to weather the storm. Swire Pacific's contribution, along with other shareholders, we contributed HKD 5.3 billion to the rights issue. I should say that the preference shares came with warrants, and the convertible bonds also have a convertible element, evidently. If all of those convertible elements do convert, then the dilution effect for Swire, which wouldn't take effect for five years, would be to reduce our shareholding from 45% - 38%. For our partners at China, their shareholding would reduce from 30% - 25%.
That's the financing picture, and I think Cathay's put itself in as strong a position as it could in the circumstances. The restructuring that was done last year was very painful, but it has led to a position where Cathay's cost base is considerably lower than it was. I think it's in a good position to come out strongly when the market allows it to, with a streamlined business built around a two-brand strategy. Cathay Pacific as the premium carrier, HK Express as the low-cost carrier. We certainly remain confident in prospects for the business in the medium to long term. Next slide, please. This is one of our core principles which we state every year in our annual report.
A focus on Asia, principally Greater China, because of its strong growth potential and because it is where our group has very long experience, deep knowledge, and strong relationships. On the next slide, just to illustrate what we are doing there. These are really just a snapshot of some of our bigger projects in Greater China in the top half of this slide. You will be familiar with all of those projects in Hong Kong. A very big commitment to building new grade A offices in Hong Kong. We have new projects underway and close to completion in the Chinese mainland, Shenzhen and Taikoo Li Sanlitun. The Haikou and Xiamen airports relocation is a big project. I think you are aware of all of those. There are some new commitments.
Phase II extension of INDIGO, Beijing is a very substantial project for us, and we will turn that site into a very large office and lifestyle destination, not unlike Taikoo Place in Hong Kong, and we are very excited about that. We have also made two investments in healthcare services in the Chinese mainland, and I will talk more about those a bit later. We have also down-weighted to a certain extent outside Asia, selling offices in Miami, selling vessels out of Swire Pacific Offshore. You will see partial disposal of Cadeler. That reflects the listing of our wind farm installation business on the Oslo Stock Exchange. It is a business with good growth potential. It needs capital, but our focus is on putting capital into Asia rather than into European markets.
We have listed it, brought in some strong new partners, raised fresh capital, and it now has a good growth potential without fresh capital from us. Next slide, please. Well, this is another one of our principles to divest from businesses which have reached their full potential under our ownership and to recycle the capital released into existing or new businesses. On the next slide, really this is just a summary of what we have done over the last three years. This will all be familiar to you. Obviously, in 2020, the big story was Cityplaza One. We are very happy with the price we got for that, and we think the timing in the market cycle was very good. The total for the last three years, therefore in excess of HKD 45 billion. Next slide. That has put us in a very strong position.
As we say in our annual report, we are prudent financial managers, and this enables us to execute long-term investment plans irrespective of short-term financial market volatility. We are clearly in a period of short-term financial market volatility. We are also in a period where we are seeing a good range of opportunities in our core businesses, and we are well-placed to take advantage of that. Our gearing now is down to the lowest level since 2006, at 12.2%. I think this brings us back in line with many of our peers in Hong Kong, and in particular peers in the property industry. We have got a very strong liquidity position, and our credit rating is strong.
We are in a good spot for continued investment, and we intend to invest consistently and strongly in the years ahead after what has been a relatively slow 18 months in terms of new projects. I will hand over to Michelle at this point.
Thank you, Merlin. I want to draw your attention to the revenue number, which for this year we have reported a 7% decrease, but the bright spot is beverages. It has recorded a 4% increase, and it is very encouraging. At the same time, the cash generated from operation remained relatively resilient at HKD 15 billion. This is a snapshot of the results by division, and we will go through the divisions one by one later on. As Merlin said, we have a good liquidity position and financing position. The net debt at the end of the year was reduced down to HKD 39 billion, representing 12.2% gearing, the lowest since 2006. We are very pleased with this status. Also, note that the average cost of debts has shown improvement, given that there is some good arrangement which we have done.
Relating to the balance sheet strength, we have HKD 62 billion headroom at the end of the year, of which HKD 33 billion relating to Swire Properties and the head office and other divisions remain very resilient and strong in terms of its headroom. This is very important from our perspective, to maintain such a strong liquidity position because we will be ready to invest when the right opportunities come. In terms of the profile, maturity profile is relatively well-spread. That said, we are still in process with the discussion with banks to extend some of the tenure for the facilities. A very quick snapshot of the commitments that we have had at the end of the year is in total HKD 27 billion. As property is always our biggest spender of our capital commitment, it is accounting for 70% of the commitment.
You note that there is a HKD 9.2 billion new commitments relating to the INDIGO, Beijing project, which Merlin has mentioned. In HAECO, there is also included in the capital commitment, commitments to spend relating to the new airports in Haikou Xiamen Airport. Also Beverages, there is continuing investment in terms of property assets for the logistic infrastructure, merchandising equipment, and also digital capabilities. We thought this is very important to continue to drive the business for beverages. A very quick overview for the properties. In fact, Swire Properties has announced their results, and they also have a very thorough analyst briefing. Just a few highlights. The recurring underlying profit for the property division decreased by 7%, despite the adverse effects of the COVID-19, and that is mainly relating to hotel and also lower rental income from Hong Kong.
At the same time, office, in fact, has been doing relatively steady, and our Chinese mainland portfolio has been performing or recovering very strongly since the first quarter of 2020. For the Aviation division, Merlin, would you-
Yeah.
Just give us some highlights? Yeah.
Sure, Michelle. Thank you. Look, I do not think I will add to what I have said already on Cathay and what was said yesterday, but just to talk briefly about the HAECO Group. Clearly HAECO has been heavily affected, like Cathay, by the decline in aviation demand. You can see revenues for HAECO are down 28%. The business still made an attributable profit of HKD 96 million, despite some impairments on some of its assets and some of its spare parts. But if we move to the next slide, we can see more of a breakdown on the recurring profit. You see that figure of HKD 370 million. Clearly all of the businesses in the HAECO Group showed declines over prior year of one type or another. HAECO Hong Kong and HAECO Americas were both loss-making.
Indeed, in those cases, the losses would have been considerably greater had it not been for government support in both Hong Kong and the U.S., which totaled HKD 600 million in 2020. Of that, for the HAECO Group in Hong Kong, there was HKD 324 million of support under the ESS. In the U.S., HKD 284 million under the CARES Act scheme. So that was a great help in 2020. We do not expect to see that again in 2021 in Hong Kong. Although in the U.S., there is further government subsidy for the aviation industry from which we will benefit. Next slide, please. Again, I think I will pass on this because we have kind of covered most of this already. If we can move on to beverages. This has really been the most wonderful story in 2020.
Despite all the chaos around the world, the business has powered ahead. Profits up 22% in the Chinese mainland, 26% in the U.S., and in the smaller markets, Taiwan has been a wonderful story. Even in Hong Kong, we managed to increase profit marginally. If we can move to the next slide, please. I think there is really just two numbers. If we can go back. Yeah. Thank you. Just two numbers here that I would like to highlight. One, the attributable profit for the division breaching HKD 2 billion for the first time. Perhaps more relevant, if you look at the recurring EBITDA number, HKD 5 billion for the year. I think it is just an illustration of what a great cash-generating business this is and how significant it is becoming within our operating cash flows. Next slide, please.
Revenue growth by region has been variable. I will not really go into the details and the reasons for that. I would like to focus on the EBITDA margins. You can see that in all regions, we have seen meaningful increases in EBITDA margin. In the Chinese mainland, which is our biggest, fastest-growing market, 2 percentage points improvements in EBITDA. That is a virtuous combination of some product and pack mix changes that have improved profitability, good execution, and some reduced input costs in 2020. I think it does illustrate why this is a great business for us. It is possible for us, given how skillful we are now at executing in this business, to go on growing margins at the same time as growing top line. We are very bullish about growth in this business, and indeed, it started 2021 very strongly. Okay.
Moving on to marine services, which we are not so bullish about. This has been a long, painful journey for our team. The business was on track and recovering as we had hoped in the earlier part of last year. The oil price collapsed due to COVID in the second quarter. We assess that this has pushed the recovery in this industry back by two years. That is reflected in the decline in rates and utilization in our core fleet in oil and gas. It is reflected, of course, in the very big impairment we took, again, aggressively to the oil and gas fleet. What I would say is that the carrying value of that fleet is now down to HKD 2.7 billion.
We have been continuing to do what we have been doing for a number of years, which is to manage costs aggressively, to reduce the size of the fleet and the business by selling old vessels where we can. We sold 12 in 2020. To try and make sure the business returns to a cash positive position. Indeed, the oil and gas business is expected to be cash positive in 2021. We await developments in the market and the industry to see what will come next for this business. Okay. Next slide, I think back to you, Michelle, for trading and industrial.
Thank you, Merlin. We made small profits for the trading industrial division in 2020. Just like any other retail business, Swire Resources has been very severely hit by COVID-19, and it had incurred a loss of HKD 134 million. For the other companies, in fact, they had all shown improvements of numbers compared to last year. Merlin, healthcare.
Okay. Yeah, healthcare. Well, I might just talk about this for a little while because I know people are interested in this development for the group, which we do see as an exciting long-term direction for us. You saw earlier that we've invested HKD 1.1 billion so far in healthcare in these two investments. One was a minority stake in Columbia China Healthcare in Shanghai, in the Yangtze River. Just last month, we made a further associate investment in a big hospital being developed in Shenzhen. Maybe to talk about why we're interested in this sector. Our strategic goal broadly is to look for opportunities that will increase our exposure to businesses that benefit directly from growth in consumer spending in China. We think the healthcare services sector fits that bill. The rapidly growing middle class and an aging population.
There's an increasing demand for quality healthcare services and a short supply of such services. We think private healthcare will play an important role and that the government will support that important role for the sector. We also think it's a very good fit for Swire's capabilities. Healthcare is a business where quality, operational excellence, a commitment to good service, and reputation and brand are key, and I think that plays to our strength. It's also a business where you need long-term investment horizons. You build a new hospital, and it will take five or eight years to ramp up to full operating cash flow potential. So we're a good investor for this sector in a way that some others may not be. It's a business with barriers to entry. Clearly it's highly regulated, and that may put off some investors.
But we operate in several highly regulated businesses already, including in China. So we're confident of being able to navigate that. It's also a business that is asset-based, and our property development and management experience will support our growth in this area. So in terms of direction, we're focused on investing in city clusters in the Chinese mainland, where we already have a presence in terms of a property asset. We're going to focus on certain specialties, OBGYN, orthopedics and rehabilitation, oncology, renal are areas that we see as being particularly attractive. The goal over the next few years is to take significant minority stakes where we can play a meaningful role in management or indeed control the investments in operating businesses. This is a period of learning, of building relationships and building partnerships.
It's not going to move the dial in the short term, and there's no need for you to expect it to. We've invested HKD 1.1 billion. We've allocated several billion Hong Kong dollars to be invested in the next few years. Our expectation is that in doing that, we will build a platform by the middle of the decade where we can accelerate growth and accelerate investment into the sector in the second half of the decade, such that it becomes a meaningful business for us at Swire Pacific. Back to you, Michelle Low.
Thank you. I'll just very briefly cover some of the highlights relating to sustainability. In fact, on the ground, there are many sustainability initiatives that the group companies are working on. The one I put up here, just a snapshot. SwireTHRIVE, we have expanded SwireTHRIVE to include social issues, being people and community, in addition to climate, water, and waste. On the green financing fund, we have done our first sustainability-linked loan facility. Following that, in fact, most of the loan facilities that we are right now in discussion with the bank are essentially green related. Also, very proudly, we have launched the TrustTomorrow, which is a new community initiative and a funding program. In 2020, most of the funding are related to COVID-19 relief in the community.
Thank you, Michelle. On the outlook, the papers you have in hand give quite detailed as of projections by division, and I'm not going to repeat those here. Simply to say that, clearly the COVID challenges are not over, particularly in aviation, and we're expecting a tough 2021. As I said, we're expecting to incur a recurring loss in the first half. But I'm very encouraged by the way our management teams responded to the challenges in 2020. There was great teamwork, and they've proven very resilient in operating our businesses under extremely difficult conditions. I think that's a great sign. It's a great testament to the teams. We're still strong, fresh, and ready for whatever this year has to throw at us. Looking forward, we are very clear that our focus is on Greater China.
In Hong Kong, we really believe Hong Kong's best years as an international financial center lie ahead. The demand for what Hong Kong has to offer from the Chinese mainland is growing by the year. The depth and breadth of financial services that Hong Kong offers is increasing. We expect this to be a very strong period for Hong Kong financial services and a strong decade, therefore, for the Hong Kong office market, and indeed for aviation once COVID is behind us. In the Chinese mainland, we're extremely bullish on Chinese domestic consumption. This year has shown more than any other what happens when Chinese consumers stay in the country and spend their money at home. There's an awful lot of spending power there, and we're finding ways to put ourselves in the path of that spending power. I think we're not in bad shape.
The balance sheet is looking very strong. Clearly, the last year or so, for various reasons, has been a relatively quiet time in terms of committing to new projects. It hasn't been easy to get things over the line because of COVID. I think we're feeling more and more optimistic about the deliverability of our pipeline, and you should start to see faster redeployment of capital in the year and years ahead.
Thank you, Merlin. We'd like to show you a short video now highlighting Swire Pacific's key developments and achievements in 2020. We hope you enjoy the video. That concludes our analyst briefing. Thank you once again for joining us.