CK Hutchison has five core businesses - ports and related services, retail, infrastructure, energy and telecommunications.
The Group's profit attributable to shareholders for the 6 months ended 30-06-2019 amounted to HKD 18.32 billion, an increase of 1.7% compared with previous corresponding period. Basic earnings per share was HKD 4.7518. An interim dividend of HKD 0.87 per share was declared. Turnover amounted to HKD 147.62 billion, an increase of 12.7% over the same period last year, gross profit margin up 6.5% to 64.9%. (Announcement Date: 01 Aug 2019)
Business Review - For the six months ended June 30, 2019
Ports and Related Services
The ports and related services division handled throughput of 42.1 million twenty-foot equivalent units (“TEU”) through 288 operating berths in the first half of 2019, a 4% increase compared to the same period in 2018. Volume growth in Barcelona, Rotterdam, Yantian, Klang in Malaysia, and Freeport in Bahamas was partly offset by the loss of throughput from Shantou, as the port operation was disposed of at the end of 2018, as well as volume shortfalls in Hong Kong and Panama. In reported currency, total revenue of HK$17,550 million was flat against the same period last year. EBITDA(1) and EBIT(1) of HK$6,450 million and HK$4,250 million increased 4% and 10% in reported currency against the same period last year respectively, driven primarily by higher throughput and disciplined cost controls, partly offset by adverse foreign currency translation impact. EBIT growth also reflected lower depreciation and amortisation charges due to a concession extension. In local currencies, total revenue, EBITDA and EBIT increased 5%, 8% and 14% respectively.
In May 2019, this division entered into a preliminary long-term commercial agreement with the Quebec Port Authority and Canadian National Railway to build and operate a new container terminal in Quebec City, Canada. The new facility is expected to be the most environmentally and technologically advanced cargo-handling facility in North America and will become one of the terminals with the smallest environmental impact in the world.
Going forward, the ports and related services division will maintain its focus on improving productivity and cost efficiency, and will continue to look for expansion opportunities that will enhance its global footprint.
The retail division had 15,213 stores across 25 markets at the end of first half 2019, a 5% increase compared to the same period last year. During the first half of 2019, ASW’s China supermarket business completed a joint venture with Yonghui Superstores Co. Limited (“Yonghui”) and Tencent Holdings Limited (“Tencent”) to create the largest grocery retail business in Guangdong, China, in which ASW holds a 40% interest. In reported currency, total reported revenue of HK$83,161 million decreased 1% compared to same period last year. EBITDA(2) and EBIT(2) of HK$8,182 million and HK$6,590 million increased by 9% and 10% respectively reflecting the continuous steady growth in the Health and Beauty businesses and the inclusion of a one-off gain of approximately HK$633 million associated with the formation of the joint venture with Yonghui and Tencent for the China supermarket business, partly offset by adverse foreign currency translation impact. In local currencies, total revenue, EBITDA and EBIT increased by 4%, 14% and 15% respectively, and excluding the one-off gain, underlying EBITDA and EBIT increased by 6% and 5% respectively.
Overall, the Health and Beauty segment reported total sales growth of 1% from a 5% increase in store numbers and a 2.9% growth in comparable stores sales, partly offset by the adverse foreign currency translation impact. In local currencies, revenue, EBITDA and EBIT increased by 7%, 6% and 5% respectively against same period in 2018. Health and Beauty operations in Asia delivered a strong EBITDA growth of 15% in local currencies arising from a 9% increase in store numbers and a comparable stores sales uplift of 6.9%. Health and Beauty China maintained a healthy EBITDA margin of 19% and recorded a 4% growth in EBITDA in local currency from continued expansion in store portfolio. Health and Beauty operations in Europe also sustained a strong EBITDA growth of 5% in local currencies from a 3% increase in store numbers and a 1.9% growth in comparable stores sales.
The Health and Beauty division now has an addressable loyalty member base of 135 million from its online and offline platforms which allows exclusive products and enhanced customer experiences to be offered to its customers effectively and efficiently through innovative digital technologies and data analytics capabilities.
The Infrastructure division comprise a 75.67%(3) interest in CK Infrastructure Holdings Limited (“CKI”), a subsidiary listed in Hong Kong and the Group’s direct interest in six co-owned infrastructure investments with CKI, of which an aggregated 90% economic benefits was divested in October 2018 under the Economic Benefits Agreements entered with CK Asset Holdings Limited (“CKAH”), CKI and Power Assets (“PAH”).
Total EBITDA( 4 ) and EBIT(4) of this division of HK$14,356 million and HK$9,901 million respectively were 24% and 25% lower than the same period last year respectively in reported currency, mainly due to adverse foreign currency translation impacts, the lower contribution resulting from the disposal of the six co-owned investments mentioned above, the loss on partial disposal of 2.05% interests in PAH of HK$302 million and lower earnings contributions from the UK primarily due to UK Power Networks no longer recognising certain non-cash revenue from January 2019 onwards with no impact to the cash earnings and distribution. As the Group rebased PAH’s assets to their fair values in the 2015 Reorganisation, after consolidation adjustment, the disposal gain recognised by CKI resulted in a loss on disposal in the Group’s reported results. In local currencies, EBITDA and EBIT decreased by 19% and 20% respectively against the same period last year.
Following the Economic Benefits Agreements completed in 2018, the Group has subsequently entered into supplemental agreements with CKAH, CKI and PAH this year to effectively transfer to the respective parties their proportionate voting rights of the co-owned investments in Europe and Canada. Upon completion of the supplemental arrangements, which is subject to certain regulatory approvals, the Group will cease to consolidate the co-owned subsidiaries in the second half of the year with no gain or loss expected on deconsolidation.
CKI announced a net profit attributable to shareholders under Post-IFRS 16 basis of HK$5,943 million, flat against the same period last year. If exchange currency movements on translation are removed, net profit attributable to shareholders increased 6%.
Husky Energy (“Husky”), our associated company listed in Canada, announced Post-IFRS 16 net earnings of C$698 million in the first half of 2019, flat when compared to net earnings of C$696 million in the same period last year. After translation into Hong Kong dollars and including consolidation adjustments based on Pre-IFRS 16, the Group’s share of EBITDA(5) and EBIT(5) were HK$4,713 million and HK$1,787 million respectively, a decrease of 20% and 35% respectively in reported currency or 17% and 32% respectively in local currency against the first half of 2018. The lower EBITDA and EBIT were primarily due to lower overall production from the suspension of operations at the White Rose field in Atlantic in November 2018, which are presently resuming production and will fully ramp up in the second half of 2019, the mandatory oil production curtailments imposed by Government of Alberta in December last year and the lower Downstream contributions from the tighter Canadian heavy-light differentials, as well as the recognition of certain one-time pre-tax write-offs and provisions in the first half of 2019. In Asia, Husky continued to grow with higher production from the liquids-rich BD Project in Indonesia. Further, the above EBITDA and EBIT declines were fully offset by a one-time deferred tax credit of C$233 million associated with the Alberta tax rate reduction.
Average production in the first six months of 2019 was 276,800 barrels of oil equivalent per day, a 7% decrease when compared to the same period last year, primarily due to lower production in White Rose as mentioned above, as well as reduction of heavy crude oil production due to natural declines and government-mandated production curtailments in Alberta, partly offset by increased thermal-bitumen production, as well as higher natural gas and natural gas liquids (“NGL”) production from Western Canada and Asia Pacific.
Husky’s 2019 first half dividend amounted to C$0.25 per common share, 25% above C$0.20 per common share in the same period last year.
3 Group Europe and Hutchison Telecommunications Hong Kong
As at 30 June 2019, 3 Group Europe’s active customer base stands at 41.7 million, a 7% drop against the same period last year mainly from a lower Wind Tre base, partly offset by net additions in other operations in Europe.
3 Group Europe’s revenue, EBITDA(6) and EBIT(6) of HK$43,464 million, HK$16,297 million and HK$9,970 million were 20%, 27% and 33% higher against the same period last year respectively in reported currency. In local currencies, revenue, EBITDA and EBIT in the first half of 2019 increased by 27%, 34% and 40% respectively primarily reflecting the full six months’ accretive contribution from the additional 50% share in Wind Tre. Underlying operational environment has improved in Italy with the network consolidation and modernisation substantially completed as at the end of July, higher than planned synergy realisations and reduced churn. Overall 3 Group Europe continued to report a healthy EBITDA margin of 44%, a 2%-point growth compared to the same period last year.
All 3 Group Europe operations continue to focus on cost disciplines and a measured level of network and IT investments, as well as exploring new revenue initiatives. A number of 3 Group Europe operations will be completing network and IT transformations in the second half of 2019, which is expected to further enhance customer experience and 3 Group Europe’s competitiveness.
Hutchison Telecommunications Hong Kong Holdings (“HTHKH”), our Hong Kong listed telecommunications subsidiary operating in Hong Kong and Macau, announced Post-IFRS 16 profit attributable to shareholders of HK$188 million and earnings per share of 3.90 HK cents. As of 30 June 2019, HTHKH had approximately 3.3 million active mobile customers in Hong Kong and Macau.
In July 2019, the Group formed a new wholly-owned telecommunication holding company, CK Hutchison Group Telecom Holdings (“CK Hutchison Telecom”), which consolidates the Group’s European operations and HTHKH under one holding entity, providing a diversified telecommunication asset platform across eight geographical locations. The CK Hutchison Telecom Group will refinance all the existing external debt of Wind Tre of approximately ��10 billion and be separately rated with an expected investment grade rating from all three credit rating agencies. Correspondingly, the CK Hutchison Telecom Group will also set up a new telecommunication infrastructure company, CK Hutchison Networks Holdings (“CK Hutchison Networks”) which will group the 28,500 tower asset interests(7) into a separately managed wholly-owned subsidiary of CK Hutchison Telecom. The new organisation structure and the refinancing transaction will allow the Group to generate significant financing cost savings from 2020 onwards, as well as rationalise its investments in light of the expected need for harmonisation of network, IT platform, and infrastructure configurations to meet new transnational business opportunities going forward.
Hutchison Asia Telecommunications
As of 30 June 2019, Hutchison Asia Telecommunications (“HAT”) had approximately 45.7 million active customer accounts, which represented 29% decrease compared to the same period last year, primarily due to the subscriber registration process imposed by the Government of Indonesia since May 2018.
HAT reported revenue, EBITDA(8) and EBIT(8) of HK$4,325 million, HK$724 million and HK$216 million respectively, representing 6%, 109% and 213% increase in reported currency compared to the same period last year. Despite the drop in active customer accounts since second half of last year, the Indonesian operation has improved its revenue and margin through continuing network expansion to new areas and improving distribution structures and strategies. This growth was partly offset by higher depreciation and amortisation with the continued network rollout and enhancements in Indonesia and Vietnam, as well as network expansion in Sri Lanka after the acquisition of Etisalat Lanka in November 2018. In local currencies, revenue, EBITDA and EBIT increased 10%, 118% and 233% respectively compared to same period last year.
With the continuing network enhancement in the regions and cost synergies in Sri Lanka expected to materialise in second half of the year, positive growth momentum from HAT is expected to continue.
Business Outlook - For the six months ended June 30, 2019
Looking forward into the remaining part of the year, global geographical economic uncertainty remains high. More accommodative monetary and fiscal policies may provide cushion against shocks but serious risks remain.
Resilience, diversity, stable cash flow and strong financial fundamentals continue to be the key strengths of the Group. Accordingly, the Group is cautiously optimistic about its future.
Source: CK Hutchison (00001) Interim Results Announcement