Principal Activities
CK Hutchison has five core businesses - ports and related services, retail, infrastructure, energy and telecommunications.
Latest Results
The Group's profit attributable to shareholders for the 6 months ended 30-06-2024 amounted to HKD 10.21 billion, a decrease of 8.9% compared with previous corresponding period. Basic earnings per share was HKD 2.6645. A dividend of HKD 0.688 per share was declared. Turnover amounted to HKD 136.45 billion, an increase of 2.3% over the same period last year, gross profit margin up 1.1% to 62.8%. (Announcement Date: 15 Aug 2024)
Business Review - For the six months ended June 30, 2024
Ports and Related Services
The Ports and Related Services division handled 42.3 million twenty-foot equivalent units (“TEU”) through 293 operating berths in the first half of 2024, a 7% growth compared to the same period last year. Higher volumes across all regions were primarily driven by strong domestic consumption, inventory replenishment caused by anticipated rising consumer demand, as well as supply chain relocations as trade tension and geopolitical risks escalated, which in particular benefited ports in Asia and Latin America. Despite overall favourable variances, throughput volume from Rotterdam in the Netherlands was lower and transhipment volume in Hong Kong also continued to decline.
This division reported revenue of HK$21,594 million, an increase of 9% compared to the first half of 2023. This robust performance was mainly driven by higher throughput, as well as a 4% increase in storage income mostly from Mexico as a result of terminal congestion due to increased import laden containers. EBITDA(1) of HK$7,938 million and EBIT(1) of HK$5,785 million, increased by 22% and 33% respectively in the first half, due to higher revenue and good cost controls, partly offset by subpar performance from an associated company in the container shipping business.
The demand outlook for the third quarter remains positive but is expected to gradually slow down in the fourth quarter as shippers will have frontloaded cargo orders in advance for holiday seasons. The division expects an overall moderate volume growth during 2024 with relatively higher growth in Asia, Europe and Latin America regions.
The Ports division continues progressing decarbonisation of its operation with its near-term and net- zero targets recently validated by the Science Based Targets initiative. The division’s“Equipment Electrification Directive”became mandatory in January 2024, and all new purchases or replacements of terminal equipment or trucks have to be electricity powered. As a result, the division has achieved a 5% year-on-year scope 1 and 2 emission reduction per TEU by the end of May 2024. In addition, the division has also reduced its diesel consumption per TEU by 6.5% year-on-year, further progressing toward its commitment to a net-zero operation.
Retail
The Retail division had 16,548 stores across 28 markets at the end of June 2024, 2% higher against the same period last year. In reported currency against last year, the division’s total revenue of HK$91,469 million increased by 3%, while EBITDA( 2 ) and EBIT(2) of HK$7,089 million and HK$5,433 million remained flat. In local currencies, total revenue, EBITDA and EBIT increased by 5%, 2% and 1% respectively against the same period last year. Apart from non-ASEAN Asia regions, most operations in this division have performed well and continued to achieve or exceed pre- pandemic level performance. Excluding the non-ASEAN Asia regions, EBITDA and EBIT both achieved a robust growth of 16 % in local currencies compared to the first half of 2023.
The Health and Beauty segment, which represented 88% of the Retail division’s revenue in the first half of 2024, reported total sales growth in local currencies of 6% from a solid 5% growth in comparable stores sales. The segment’s EBITDA and EBIT both improved by 6% in local currencies compared to the same period last year. Performance in the Health and Beauty operations in Europe continue its strong growth with 16% and 17% increase in EBITDA and EBIT in local currencies respectively against the same period last year, mainly contributed by strong performance in the UK, Poland, Germany and the Benelux countries. Health and Beauty Asia reported 11% increase in both EBITDA and EBIT in local currencies primarily driven by steady sales growth from its major markets in the ASEAN region. This pleasing growth performance was partly offset by the weak performance of Health and Beauty China which saw a 19% decline in comparable store sales. Health and Beauty China reported EBITDA of HK$250 million and close to achieving breakeven at EBIT level in the first half of 2024.
Looking into the second half of 2024, businesses in European and ASEAN Asia countries should maintain momentum in achieving solid results, while various initiatives are being implemented to improve the performance of the Asian operations in non-ASEAN markets. The division will strive to enhance profitability and maintain short payback on store openings through effective efficiencies planning, as well as strengthening its customer engagement with its substantial customer base of 164 million loyalty members.
The Retail division continues working towards its emission reduction target commitments to reduce scope 1 and 2 emission by 50.4% and scope 3 emission from purchased goods and services, upstream transportation and distribution, and customer usage of products by 58% per Hong Kong dollar value added. To achieve this goal, the division has already committed and purchased over 581 GWh of renewable energy through Energy Attributes Certificates in selected markets (Mainland China, Hong Kong, Philippines, Malaysia, Thailand, Turkey, Indonesia). The total acquired energy amount represents over 80% coverage of its operation’s annual energy consumption in the above-listed markets, bringing positive contribution to the Group’s emission reduction targets.
Infrastructure
The Infrastructure division comprises a 75.67% interest in CK Infrastructure Holdings Limited (“CKI”), a subsidiary listed in Hong Kong as well as interests in six co-owned infrastructure investments with CKI.
CKI
CKI announced a net profit attributable to shareholders under Post-IFRS 16 basis of HK$4,311 million, 2% higher than the same period last year, mainly from stable contribution from the portfolio of infrastructure assets.
In April 2024, CKI, CK Asset Holdings and Power Assets Holdings completed the acquisition of Phoenix Energy, the largest natural gas distribution network company in Northern Ireland, and also entered into an agreement in August 2024 to acquire an earnings and cashflow accretive portfolio of operating onshore wind farms in the United Kingdom. CKI holds 40% of Phoenix Energy and will also hold 40% interest in the wind farm portfolio, which is expected to be acquired in September 2024.
The Infrastructure division continues to achieve good progress in pursuit of net zero and decarbonising its operations. CKI continues to expand its energy transition portfolio with the acquisition by UK Power Networks of UU Solar in the United Kingdom in the first half of 2024 and the acquisition of the operating wind farm portfolio in the United Kingdom aforementioned. UU Solar brought a 69MW portfolio of renewable energy generation, which included 65 solar photovoltaic, four onshore wind and one hydro generation assets, while the wind farm portfolio comprises 32 wind farms located in England, Scotland and Wales, totalling 175 MW in installed capacity and 137 MW in net attributable capacity. These recent acquisitions highlight the Group’s continual commitment to invest in clean infrastructure assets and deploy capital in progressing green transition.
CK Hutchison Group Telecom
Revenue of CK Hutchison Group Telecom (“CKHGT”) was HK$42,934 million (5,071 million), 3% higher against the same period last year. EBITDA(3) and EBIT(3) of HK$11,732 million (1,387 million) and HK$1,822 million (215 million) were 17% and 444% higher than the same period last year respectively in reported currency, primarily due to better underlying performance of the 3 Group Europe operations and favourable year-on-year variance of HK$0.9 billion arising from the foreign currency revaluation impact of certain monetary assets.
3 Group Europe
As at 30 June 2024, the active customer base of 3 Group Europe stands at 40.5 million, 1% higher against the same period last year mainly due to good growth in customer base reported by almost all the operations, except for Wind Tre which focuses on acquiring and retaining customers with a higher average customer lifetime value.
Revenue of HK$39,935 million was 3% higher against the same period last year in local currencies, primarily driven by the healthy growth in net customer services revenue from higher customer base, favourable impact of revenue initiatives phased throughout 2023 and first half of 2024, coupled with higher roaming income from increased travelling by the European customers. Revenue growth also reflects higher MVNO and other wholesale revenue, with the decline of Italy’s wholesale revenue stabilising in this half. 3 Group Europe reported a corresponding 3% higher total margin in local currencies.
EBITDA(4) of HK$11,043 million was 8% or HK$781 million higher against the same period last year in local currencies, reflecting the higher margin and stable operating expenses from tight cost control initiatives. Depreciation and amortisation increased slightly by 2% or HK$213 million against the same period last year due to enlarged network asset base across the footprint. Correspondingly, EBIT(4) of HK$1,693 million was 50% or HK$568 million higher in local currencies, reflecting primarily the EBITDA growth mentioned above.
Looking into the remainder of the year, the good underlying performance reported in the first half is expected to continue with on-going revenue initiatives, disciplined cost management and stabilising depreciation from tight management of capital spending. Although cost pressures will continue to weigh on the division’s profitability, all operations will focus in delivering margin enhancements and cost reductions to improve financial performance.
In March 2024, the competition authorities in the UK have decided that the UK telecom merger will be referred for a Phase 2 review and have recently published a notice to extend the statutory deadline by another 8 weeks, with the final decision date being postponed to 7 December 2024. In July 2024, the Italian telecom operation completed the acquisition of OpNet, a wholesale fixed-wireless-access provider, which will increase Wind Tre’s spectrum holdings to deliver network capacity enhancement.
This division continues to progress towards achieving its Science-Based Targets, including reducing scope 1 and 2 emissions by 50% by 2030 and reducing scope 3 emissions by 42% by 2030 versus a 2020 baseline. This division will continue to invest in the transition to 5G including network equipment upgrades, implementation of energy efficient network features, and virtualisation of networks, all of which are leading to more efficient processing of data traffic. Furthermore, all operations are continuing to evaluate options for procuring long-term renewable power purchase agreements to replace Energy Attribute Certificates, as well as incorporating Sustainability targets in the compensation plans of key executives, driving Sustainability further into strategic directives for the businesses.
Finance & Investments and Others
This segment reported adverse EBITDA(5)and EBIT(5) results in the first half of 2024, primarily due to certain treasury gains on non-core asset disposals in 2023 not recurring in 2024, excluding which, underlying performance was favourable to the same period last year, mainly from higher contributions from Cenovus Energy and Indosat Ooredoo Hutchison (“IOH”), partly offset by share of HutchMed’s partnering revenue being lower as 2023 included upfront licence income from a transaction that closed in the first half of last year.
The Group’s 17.1% share of Cenovus Energy’s Post-IFRS 16 EBITDA, EBIT and net earnings were HK$5,504 million, HK$3,113 million and HK$2,116 million, an increase of 33%, 56% and 46% compared to the same period last year respectively, mainly driven by the improvement in commodity prices as well as increase in upstream production and downstream throughput volume.
IOH, the Group’s Telecommunications joint venture in Indonesia, reported 18% and 43% increase in EBITDA and net profit respectively, primarily driven by a combination of revenue growth and continued cost optimisation.
The Group’s liquidity and financial profile remain strong. Free cash flow in the first half of 2024 increased by 17% against the same period last year, mainly driven by operating cash flow growth and measured capital spending reduction. Consolidated cash and liquid investments totalled HK$143,076 million and consolidated total bank and other debts(6) amounted to HK$280,835 million, resulting in consolidated net debt(6) of HK$137,759 million (31 December 2023–HK$131,810 million) and net debt to net total capital ratio(6) of 17.0% (31 December 2023–16.1%).
Business Outlook - For the six months ended June 30, 2024
Despite the uncertain outlook and the absence of one-time initiatives and treasury gains, the Group remains resilient from an operational perspective as its business and geographical diversification balances upward and downward cycles in various sectors and countries, resulting in an overall solid underlying performance and steady cash flow generation across the core businesses.
The Group will continue to explore long term value accretive transactions for our shareholders, and will seek to strengthen our balance sheet and overall financial profile. Prudent financial, liquidity and cash flow management continue to be the Group’s key priority, along with maintaining an agile financial strategy to ensure that the Group continues to generate shareholder returns while maintaining its strong underlying financial position.
Source: CK Hutchison (00001) Interim Results Announcement |