CK Hutchison Holdings Ltd
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CK Hutchison Holdings Ltd
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Thank you very much for attending the live webcast of CK Hutchison 2021 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 A.S. Watson Group; and Malina Ngai, CEO of Asia and Europe of A.S. Watson and Group COO of A.S. Watson Group.
During the presentation, please feel free to raise your question in the chat box, which is at the lower right-hand side of your screen. The Q&A session will follow the presentation. Before I hand over to Canning, please also pay attention to our disclaimer, which you can find on Page 2 of the presentation. We can start now, Canning.
Okay. Thank you. So good afternoon, everybody, and good morning to those in Europe and good morning to Frank, he is in Europe. So I think the first half of the year for CK Hutchison is quite pleasing.
If you turn to Page 4. Revenue went up by 12% and at $212.4 billion and EBITDA went up by 18%, it's $55.6 billion, and EBIT went up by 23%, $32.8 billion. Of course, we got some -- it's about time we got some help from foreign exchange. If you take out the foreign exchange, revenue went up by 4% and EBITDA by 10% and EBIT by 15%.
And our net earnings for the 6 months period is $18.4 billion, recorded a 40% increase. And if you just take away the foreign exchange, it's 32% increase. And of course, earning per share, $4.75, a 41% increase.
So I'm very pleased to say that the Board resolved to pay an increased dividend, which is $0.80 per share, representing 30% increase from same period last year. And of course, one of the more pleasing result is that in the first half, we were able to complete a few of our tower transactions. And then we'll receive the cash, it's in our pocket. And then our net ratio now is 19.9%, which is lowest for a long time. We are very happy that it go down in the teens figure.
If you go to Page 5, we'll talk about the EBITDA. And EBITDA went up by 18% at $55.6 billion. And if you talk about local currency and it's 10% in -- take away the foreign exchange gain. And if you look at the figure in the circles in the far left, you saw that the circle have 2 rings. And actually, the outer ring is where does the profit come from because that we have the tower transactions, so 70% comes from U.K. and Europe. And then -- but then if you take away this one-off, if it's 59% from Europe and 6% from Mainland China and 5% from Hong Kong, China and then 20% from Asia, Australia and Canada. And then, of course, because we classify Husky, our oil company, Cenovus, now changed as the head office, is no longer one of our core business, is classifying head office so head office has always become bigger at 8%.
So if you -- and then you go to the right-hand side, in the middle of the page, right-hand -- more to the right-hand side, you saw the waterfall chart and I'll go from last year to this year to $46.9 billion to $55.5 billion. How we make up of? Of course, last year, we have a one-off from the merger of the TPG. If you take that away and then you become $41 billion, the blue color. And then if you look at the port went up by $1.1 billion. Actually in the port side, I will go through that in the detail, but it went up everywhere. So port has excellent time in the first half. And retail is -- went up by $1.6 billion. Actually is also went up everywhere except that PARKnSHOP even in normal time doesn't do as good as COVID time because people don't go more often than stay home. So otherwise, it's went up everywhere against last year.
And then infrastructure, EBITDA actually went down by $566 million. The reason being that a lot of the projects is under reset. So it's in the new reset. But however, if -- they just announced yesterday, actually net profit after tax actually went up in the first 6 months, okay?
And on the -- And then on the 3 Group, actually, 3 Group has a very -- I won't say stable, but have -- everywhere is more or less the same as last year. In terms of business with Italy, fell behind because this year, it's the first half that we've seen -- we witnessed a change in one of our MVNO, that is earlier. And then they -- because they have built their network, and then they start using the network, we saw that the income come less. I will go into more detail in the telecoms -- telecom sections.
And also on HAT, it's more or less the same with Indonesia. It's under quite severe COVID-19 situation. So that there is a shortfall in revenue. However, even in Vietnam and Sri Lanka, these 2 small operations is doing quite well. They all improved and shows positives figures. And so that it's a very small figure.
And then, of course, the finance and investment represent -- the major increase represented return from a major loss from Husky last year into a profit -- no loss in the Cenovus situation with some profit. So this is why you saw almost $2.5 billion positive.
And so the foreign exchange, as I said, comprised of $3.9 billion. So this year, we have -- we've got the strengthening of our European currencies everywhere. The currency went up against U.S. dollar. So it's quite happy.
And of course -- and then that gave up to the $49 billion. And then this year, we recorded a major gain from the finalization of the tower transaction in Italy. And so what we did is that we took a profit and then we actually did not recognize all the profit. We actually make provisions against the goodwill of Italy so that we only recognize $6.2 billion finally. So that is how the EBITDA waterfall chart represent.
And so before I go further, we have to go for the Page 6 on the operating free cash flow. I will ask Frank to go through the details.
Yes. So at the operating level, cash flow management continued to be pretty solid during the year. Obviously, operating free cash flow, which is here presented as the EBITDA of our subsidiaries, the dividends received from our associates less CapEx, less investments at $17.7 billion is lower than in 2020's first half, but that is entirely due to increases in spending. Bear in mind that these numbers are presented on underlying operations, so they're not taking account of the cash inflows from, for example, a towers transaction or anything else that's a one-off. And so the spending increase really has been driven by the sensible need to deploy capital, with that in a little bit more detail in the subsequent slides. So I don't take anything adverse from that. And indeed, I look at it the other way, which is that you have healthy increases in the EBITDA from subsidiaries as well as in the dividends that we've received from our associates.
The circle is on the right, just split that out by contribution, by division, pretty self-explanatory. The retail contribution, if you look at it year-on-year, if you look at last year's slide presentation, obviously, it's significantly up in free cash flow terms as well. And that is, of course, because of the early stages of the pandemic hit the mainland very hard with major part of retail businesses in the first half last year and have had some state of recovery as we've gone through the first half of this year.
Moving to the next slide. This just splits it by division in exactly the same way. So you have on the far right for the total, you have exactly the same numbers as you saw on the previous page. The important ones being the $32,890 million of really cash available from ordinary operations and the $15.2 million of spending and another $4.7 million of discretionary spending on licenses. As you go through, it's pretty obvious just from the pictures that everybody is living well within their means. The real investment increases that are coming from the telecoms businesses and HAT has been a bit of a consumer this year as it has rolled out network and so on pretty difficult operating environments in Indonesia. But all in all, everybody is living within their means.
And actually, if you parse the financial statements, you find that everybody is pretty well living within their CapEx envelope -- sorry, their depreciation envelope as well with the exception of CKH Group Telecom and Hutchison Asia Telecom, where we are investing above our current depreciation rates.
And then finally, moving from operating cash flow to real free cash flow. In doing that, you have to take away interest paid, you have to take away working capital, you have to take away things that we decided to do. So we decided to voluntarily prepay some license fees that would have been due in subsequent years in order to save effectively interest costs associated with those balances. And we bought some new telecoms licenses. So that gets you down to an underlying free cash flow of $1.4 billion. But then, of course, you add on to that the cash from the tower proceeds, which is $38.425 billion. So the cash generation in the first half, obviously, very healthy.
And what's quite interesting, if you look at the waterfall on the right-hand side, you quickly find that working capital management was very good. And again, I've singled out the retail group here for having done a superb job in the first half of continuing to manage working capital tightly. And that's not easy as businesses are opening and closing and partially opening and partially closing all around the world, which Dominic will know that will be talking a lot more about. But working capital changes year-on-year have actually been positive. All of the stuff which is driving the negative bars is, by and large, discretionary stuff. It's the prepayment that we made on the license. It's how much more CapEx we decided to invest, and we'll get to that, but that's primarily in the telecoms businesses. And indeed, how much we decided to buy in terms of new licenses supporting our telecoms businesses.
So overall, I think a very healthy cash management profile, which leads me to the next page. And that is reflected in a pretty healthy debt maturity profile of $190 billion of cash and cash equivalents against a total outstanding principal debt of $351.1 billion. That, as Canning mentioned, takes our net debt to net total capital ratio down to 19.9%, which is certainly a recent memory low and a very good thing, I think. And still, to some extent, uncertain times, a good, I think, maturity profile. We have an average maturity of 4.9 years. Our cost of debt has continued to decline. So it averages at 1.6%. Our return on treasury assets is low because most of those have been kept in liquid deposits, so 40 basis points return. So there is a spread between our cost of debt and our liquidity, but it's still a very manageable number overall.
And the only other thing that I would say is that we have changed the mix of our debt after swaps, so that we are much less in floating rates and much more in fixed rates for that 4.9 years duration than we were at the end of last year.
So I think I'll stop there, and Canning send it back to you to talk about ports.
Well, as I said before, ports goes up everywhere. So if you look at the TEUs and then it went up by 11%. And if you look at the EBITDA, it went up by 26%. Even if you take away the foreign currency gain, it went up by 21%. So it's quite a happy first half and following the good business from the last half -- in the second half of 2020.
So if you look at the waterfall chart on the right-hand column, top column. And then you see that go from last year's EBITDA to this year. So you can see that everywhere is blue color, except the mainland one. Why it is a red color, because we -- actually we have less ownership in Shanghai port. So that we have 20% less. And so that it becomes -- so we have less earnings when we own less, we sold 20% last year.
And another worth mentioning is Asia, Australia is really good improvement. Why do I mention that? Because this year, we lost the main port. So that we're 1 port less there. Still doing good. So we are quite happy with that.
And then the last thing I would like to mention in the port business is that we strike a partnership profile. We make a partnership with COSCO because they are one of our biggest customer, and then we invest in the company. And then that gives us a very, very good return, and that is reflected in the $412 million in the corporate cost and other. So it's a good first half.
So I will turn over the page to 11 and then I will ask Dominic, he is our Head -- Dominic Lai, our Head Office Director, but he is in charge of retail. So I would like him to report. This is all this work.
Okay. Well, thank you, Canning. Retail. The Retail division has staged a robust recovery year-on-year and reported a solid first half with active management of the pandemic impact continuing.
Total sales for the first half was $82.6 billion, a 12% increase in reported currency or 5% in local currency. The core health and beauty business reported an 8% sales increase in local currency with strong growth of 17% also in local currency in the second quarter. With over 16,200 stores, the division remains the world's largest international health and beauty retailer, operating in 27 markets with a strong loyalty member base reaching 140 million. And member sales participation high at 66%. That means 66% of total sales came from loyalty members indicating the strong stickiness of our loyalty programs.
Exclusive sales, which include our own brands and exclusive from A brands, the sales participation increased 2 percentage points to reach 36%, creating strong differentiation for the retail business.
Next, on our O+O business model, i.e., offline plus online. It is working out nicely to help build market position and brand uniqueness. For your information, our CRM data shows that customers who shop with us both offline and online buy 3x more than the customers who shop with us only in our physical stores. So these observations formed the business case for our O+O strategy.
On store numbers in the middle chart, we continue to open new stores during the pandemic and 317 net new stores have been added year-on-year, bringing the total store numbers to 16,206 as end of June. And around 80% of new stores opened are in China and Asia. Average payback period for the new health and beauty stores, which represent the great majority remains healthy at 12 months. So we have a short payback. And the split of these 16,000-odd stores is 50-50 between Europe and Asia.
On EBITDA. EBITDA is reported at $6.725 billion, represent an increase of 45% in reported currency or 35% increase in local currencies, and the EBITDA split is 54% in Europe and 46% in Asia. The EBITDA growth chart on the top right shows a very healthy EBITDA growth of 35% from $4.63 billion in the first half of last year to $6.73 billion this year. And this number also includes a favorable foreign exchange translation gain of $481 million.
If you look across the bar chart, all divisions saw positive growth, except other retail. Like what Canning said, predominantly representing the PARKnSHOP supermarket business in Hong Kong, which had an exceptionally strong first half last year due to panic buying, which does not recur this year.
For the core health and beauty business, which account for 94% of the total division's EBITDA, the year-on-year growth rate is a strong 52% in local currencies. Now let me go through it one by one.
First, for Health and Beauty China, the first half sales achieved a growth of 21% versus China's retail market sales growth of 11%. So we are doing better than the market. In the meantime, online sales continued its growth momentum at 80%, 8-0, versus the market growth of 23%. So this increase in sales has resulted in year-on-year EBITDA increase as shown of $494 million, a strong 53% growth in local currency.
Next, for Health and Beauty Asia, despite the resurgence of the pandemic in recent months in some countries, this division also recorded an EBITDA increase of $170 million, a growth of 19% in local currency, with Malaysia, Thailand and the Philippines as the key contributors amid movement restrictions, demonstrating resilience of the Asia businesses.
For Health and Beauty Western Europe, this division's major operations are considered essential retail by the government, which allow stores to remain open during the lockdown period. This has enabled the Western Europe division to deliver a very strong EBITDA increase of $1.04 billion, representing a very high growth rate of 82% in local currency, primarily from the Benelux countries and Germany.
For Health & Beauty Eastern Europe, it also reported a $276 million EBITDA increase, reporting a growth of 39%. The predominant contributor to this EBITDA increase is Rossmann Poland which also enjoy the essential retail status and have stores remain open during lockdowns.
So with all these good contributing results, the total health and beauty business recorded a strong EBITDA increase of almost $2 billion, if you add all the increases together, representing a year-on-year growth of 52% in local currencies, as I mentioned earlier.
Now we turn to the EBITDA margin chart on the bottom right. With the increase in EBITDA, the EBITDA margins also increased correspondingly. For Health and Beauty China, the EBITDA margin increased 2 percentage points year-on-year from 11% last year to this year's 13%. For Asia, the EBITDA margin also increased from 7% in the first half last year to 8% this year. And for Western Europe from 4% to 7%, so it's quite a respectable increase. And for Eastern Europe from 10% to 12%.
So as a result, the overall EBITDA margin for the core health and beauty business has increased 2 percentage points year-on-year from 7% last year to 9% this year. So in summary, the robust year-on-year recovery of the retail division under the pandemic has attributed to the successful strategic decision to drive further digital transformation in accelerating the integration of its -- the physical store portfolio and online channels to offer a seamless O+O experience to the customers, resulting in good increases in sales and margin. And this crucial O+O strategy is working out well and will continue.
So from here, I'll pass it back to Frank to talk about infrastructure.
Good. Thanks, Dominic. I'm not going to dwell too much on Slide 12. Obviously, CKI announced their results yesterday, and have done a very good job of explaining the puts and the takes. But obviously, the major sort of anomaly in the first half was the deferred tax charges and deferred tax credits, so -- which related to changes in U.K. tax rates, which will be introduced in 2022, I believe, and involve a substantial increase. But nevertheless, even including that, it showed a 5% increase in earnings, which is very healthy. And obviously, if you exclude the effect of deferred tax charges and credits, a double-digit level increase in earnings.
And that's quite satisfying when you consider that the company is already taking in the impact of resets that took place in '19 -- sorry, in 2020 and in the second quarter of this year. And I think it's about 5 of the assets. The chart on the lower right-hand side shows you where reset effects will come into play. And some of those have already been absorbed, obviously, in the results announced for the first half. So I think overall, very steady as she goes and very happy results from CK Infrastructure, and of course, a debt ratio and a credit rating that are completely supportive of the CKHH's own debt ratios and credit ratings.
So I'll stop there and pass it on to Canning to talk about telecom.
Okay. So the telecom side has a solid first half and revenue went up by 7%. And then although the subscriber -- actually active subscriber went down by 2% to 38 million, but then the AMPU is doing quite well, not only it went up by 1%. And because data usage is quite a lot, so plus 30% that gives us solid foundation to the business.
And the EBITDA for the year -- for the first half is $14.7 billion. And so if you look where does it come from, so I would like to refer to the left-hand side and the right-hand side of the page, then you got the 2020 EBITDA and then you take off in order to make the 2 half year comparable, you take off the tower contributions, the tower expenses, so to make the 2020 figure comparable to the 2021 figures. And you saw that U.K. has a small increase. And then Sweden have a small increase. And then Denmark, Austria and Ireland, they all have a small decrease. I would say that it's all due to a margin, expand a little bit higher here and there, and you will see in the next page.
And then the thing that shows a bigger figure is Italy. Basically, if you look at Italy for the last few years, the strategy was to take the income from the wholesale business and then especially vis-a-vis earlier and then let them take away our low ARPU customers because then we earn more money from the wholesale business than keeping those subscribers. So as a result, we saw that the result in the last few years was very solid. Our strategy worked very well, the gross margin for all those years, while the market has been so competitive, we have been able to stable and increase a little bit.
And on this year, it is the first year we saw that Elliot has built the network and then the channel is a portion of the business back to the network, especially in the cities. And we saw that -- the first time that we saw the wholesale income from Elliot has reduced. However, and we are quite ready because that our second brand has actually take off from second half of last year to this year. And we have quite a substantial base now. And so that actually, if you've seen in our second quarter results, our base performance is actually quite pleasing. Not only is stable, we increased a little bit and then -- so that -- but then the first half results shows the financial effects of less wholesale income and then to the certain extent, offset by our cost saving and also we won some settlement with another competitor. So our EBITDA dropped to -- dropped by $564 million.
And of course -- and if you go to the far right and then we have a foreign exchange gain in this division because the European currency has performed quite flatly. And so -- and then the EBITDA percentage change, that shows the picture. And the margin is quite healthy. Italy is still 45% with Sweden and Denmark at 32% and Austria at 43%.
So that you can move to Page 14. And this Page 14 shows the detailed calculation that this is simple, just representative of what we just described. So with this, I turn to Page 15, Frank, can you?
Yes. Just an update on the tower sales. So just to recap, in 2020, we completed the sales in Austria, Denmark and Ireland, which brought in proceeds of EUR 2.2 billion. And the gains on the disposals of EUR 1.7 billion in the first half of this year. We completed Sweden. Now we completed Italy for total proceeds of EUR 4.1 billion and total gains included in the numbers that we're looking at today of EUR 2.6 billion. So that leaves the U.K. to be done. It is in the CMA regulatory process. As everybody knows, it has gone into Phase 2.
And for those who don't know the competition process in the U.K., it's really very different from the competition process in Europe. Put in a nutshell, in Europe, if you go into Phase 2, you essentially have to convince the same team who put you into Phase 2 that they were wrong in their conclusions on Phase 1 but you're always dealing with the same team and you're dealing with the same decision makers.
But in the U.K., in Phase 2, a panel is in paneled of independent experts that are brought in and both the CMA and Cellnex will make their case to that panel. And we think that in that context, the position that Cellnex is in is very solid. So we remain confident that approval will be forthcoming. I suppose the only thing that it does is leave some question as to whether approval comes before the end of this year or whether it slips into the first half of next year.
And given the structures on the regulatory process in the U.K., you can't go past the first half of next year. But of course, given all of the directions and so on that the pandemic has caused, it may be a little slower than it might otherwise be. So we will see what the timing is. I continue to believe that the outcome will be good. And under our contracts, assuming that the regulatory approvals are obtained, which they were in all the other countries where we needed to obtain them, including Italy, we would be getting proceeds of EUR 3.6 billion to EUR 3.7 billion and looking at a gain of EUR 2.6 billion to go into the numbers either for the second half or for the first half of 2022.
One of the things that you start to see in the telecoms reported figures is that we are normalizing when we do period comparisons. So when you compare to the prior year's quarter for the impact on EBITDA of the tower sales because, obviously, they are paying money to Cellnex, and it's important to understand how much that is. And of course, they were not paying money to Cellnex in the first half of last year. And that will continue to be the case as we look forward. So we look at the "normalized numbers" to get fair period-on-period comparisons for the telecom operations.
The impact in the first half of 2021 was really very small. It was about EUR 50 million across all of the countries that had been completed in December 2020. And of course, Italy completed on the 30th of June. So it had no impact, but will have in the second half.
No change at all to the original announcement in terms of the use of proceeds. But obviously, we have applied some of these funds already to reduce gross debt and net debt.
So with that, I would turn it back to Canning to talk about HAT.
So HAT has a difficult environment. Basically, HAT is in Indonesia, Sri Lanka and Vietnam, as I think most of you must well know, it's in the first half of 2021, these 3 places really keep quite hit by COVID-19. And so that we have about 60.4 million active mobile subscriber. And then in the first half, we show a reduction in EBITDA from $872 million to $800 million. Basically, if you look at the Vietnam and Sri Lanka actually, it's quite well. And then they actually do a little bit better than last year's similar period. And Indonesia, actually, the performance is quite well despite of the fact that revenue and margin went down. Actually, we did very good controlling cost and then we make it back by tighter operations and all those so that it shows a $100 million difference between this year and last year similar period. So I would say that it's a good result in a difficult situation. I think everybody wants to know about our discussions within those on emerging. I must say that we have a deadline in the middle of August and I am cautiously optimistic. And so that -- I hope that we can have an announcement by that time, okay?
We'll now go to sustainability. Frank, can you do this?
Yes. This is an area which has been, over the last several years, gaining focus and prominence across the group. And I must say, very satisfactorily. If you go to Page 18, we released our 2020 Sustainability Report. I really do hope that you have had a chance to read it and that you will read it because I think it's very revealing about just how much is going on, on all fronts across all of the divisions and geographies in this group in various coherent directions in terms of sustainability.
And just to put a rough number on that, if you exclude -- because it's very difficult to allocate what we're spending in 5G development, we've spent about USD 1.8 billion in the last 3 years across the board on sustainability initiatives around the group. And that's a number that we're going to be tracking going forward because it is very important.
So if you look at what ports are doing, they're deploying smart port technology, all sorts of electrification, which is reducing their carbon footprint quite rapidly and quite successfully. Self-driving trucks are now part of the state-of-the-art new port development approach. Trialing, hydrogen-powered port equipment. And indeed in the U.K., where the port has been designated as a free port, it's also part of the green agenda -- the government's green agenda and with a view to becoming a -- in effect, a showcase for hydrogen-powered ports operations, which would be extremely environmentally friendly and might set a standard for port operations going forward.
In retail, you see just a plethora of efforts and commitments in the areas of, in particular, the circular economy. Getting stuff on the shelves, that doesn't just consumer resources, but that consumer resources that can be brought back into the world's resource base, which is a goal and objective that is probably right up there with decarbonization and the initiatives relative to climate change that you're seeing across the board.
Infrastructure, the CKI group, I mean, is really leading edge in terms of what they're doing, particularly in terms of the hydrogen economy. So trialing, delivery through natural gas pipelines of hydrogen offtakes and trialing hydrogen-based energies in homes to substitute for natural gas. Trialing, as I understand it, a hydrogen-powered train, about 50% of the trains in the U.K. are electrified. And so there's scope potentially for hydrogen-powered rail. It's really quite remarkable. And then in terms of the EV universe, but planning ahead in the electricity distribution businesses for when and where, it will be necessary to provide additional grid capacity to support charging points and so on. So really across the board what CKI is doing in sustainability is -- I think when you read the report, you find it very, very impressive.
And then, of course, in telecoms, we are part of the CDP. We publish every year. We have targets in terms of our own emissions and decarbonization targets. But we're also involved in a lot of projects looking at how 5G technology can support smart technologies, smart city technologies and so on, that will have meaningful environmental impacts.
So for the group as a whole, we've adopted for 2021 and '22. Of course, we've endorsed the UN Sustainable Development standards. But we've also adopted out of those, 4 key actions for this year. One is to continue to up our game on climate change. So make progress in terms of understanding our Scope 3 emissions as they're called, but also make sure progress in terms of target setting division by division and over time.
The second is seizing the opportunity of sustainability, that's really what I've been talking about in terms of investing in new technology that either works towards decarbonization or new technology that supports the circular economy. Creating great places to work, that's very important. The work environment has been really highlighted during the pandemic and how you deal with your people is the starting point, I think, of what kind of company you are. And one of the things that's happening there is that the workplace metrics are starting to be woven into short-term and long-term incentive calculation metrics for managers. So we're really taking seriously the need to make sure we're achieving the right things in terms of diversity and inclusion and the way that we handle our workplaces.
And then lastly, of course, as we did from the beginning of the pandemic and we will continue to do, just a whole plethora of things to support employees, support communities, support stakeholders through the pandemic, and that's happening in all of our divisions, and it will continue in the rest of '21 and into '22.
So as I said, I'd encourage you to read our sustainability report and keep an eye on this area because I think it's an area that is necessary, both from a capital markets point of view and a customer-facing point of view, but it is also an area that is rich in opportunity potentially for our group for the future across all of our lines of business.
So I'll stop there, and I think that takes us to Q&A.
Thank you very much. We will now begin the Q&A session. [Operator Instructions] The first question is, "Is there more specific information about the breakdown of proceeds from tower sales to market share buyback, debt reduction, others if any?"
Well, we have started the share buyback plan, and we've started paying down the debt. But remember, the biggest part of the cash proceeds just from the completion of the Italian tower sale, which only took place at the end of June. So we don't exactly have a lot of time to use those yet. So I think all of them will be active pursuing.
Thank you, Chairman. The next question is, "What is the priority of the company's capital allocation?"
Well, it's a couple of things, the top priorities. And I think the -- if we engage in earnings and cash flow accretive telecom deals, hopefully engaging in in-market consolidation, that will be very good for the group. The second one would be retail stores because they have a pretty good payback period and continuing new investment in recurring income in CKI, be it utility or steady income project that would also be a priority. But the 2 new areas would be debt repayment and share buyback. So those 2 are together with the earlier 3, the 5 priorities would be our focus.
Thank you, Chairman. The following question is, "What is a comfortable gearing method that will of course increase return to shareholders?"
Well, the world is -- pandemic and political issues are continuing. And uncertainty seems to be the word in the next coming 1 year. And I think the only guidance I have is that we have to maintain our gearing ratios to make sure that we can maintain our credit rating, and we intend to stay in A class for our credit rating.
Thank you, Chairman. The next question is about telecom, "What do we expect to see commencement of the revenue source from 5G?"
Canning, can you -- you're on mute, Canning.
Am I?
Now we can hear you.
Yes. Okay. So we are now building up 5G infrastructure everywhere, U.K., Italy, Hong Kong, Sweden, Denmark and Austria. So we are building all this out. And actually, the one that we -- I think this time that we saw is they provide exceptional speed. And I think what we have we see there is one of the best weapon to provide consumer with what we call the wireless -- fixed wireless asset and it is just a thing to -- a device to produce Wi-Fi at home at a speed even faster than fixed wire actually. I use it myself. So that we are selling these fixed wireless assets and started selling it and the result is pretty very pleasing. So that the income for -- although we're still building, but we are also able to derive revenue from this new infrastructure.
Thank you, Canning. The next question is on retail. "Do you expect A.S. Watson will maintain double-digit year-on-year growth rate in EBITDA and EBIT in the second half?"
Canning?
Well, in the last year, 2020, the recovery of the retail business was pretty good. And then we have a very good second half in 2020 against 2019. And then this year, I think we will continue to have good in the business. And of course, we hope that the COVID-19 in Asia and the recent outbreak in the Mainland will be over pretty soon. And then we still have strong belief that we can maintain growth against our last year. So I think I would like to be a little bit more conservative. But this business has been going strong since the beginning of this year.
Yes. Thank you, Canning. The follow up -- following question is on sustainability. "With the process looked in our recently issued sustainability report, will sustainability be the key focus of the group in this area going forward?"
I think we've covered already quite a lot. I mean Frank had mentioned a lot and also in the Chairman's statement, we've said a lot about our focus in the sustainability area. But one thing that maybe I want to highlight is that for a lot of other companies, sustainability may be a compliance issue, whereas for Hutch and CK Hutch and also the subsidiary, it's a new business opportunity. And we've always been doing that. So if you look at, for example, I use something close to home, Hong Kong Electric. I mean the change from coal to gas and hopefully later on to renewable energies and the transmission of it is our active business. We're no longer only in the business of generating electricity. We are in the business of generating cleaner air. So it's a new opportunity. It's a new product. So that's Hong Kong Electric.
If you look at CKI, we've been in solar, we've been in wind turbines, and we're looking at wind turbines that potentially can compete with gas. We are in the business of generation of hydrogen, looking at it as a -- I mean hydrogen is like a battery, storing the power from be it nuclear or wind or solar that is not being used at the time of generation.
And if you look at electrical vehicles, mostly we look at the cars. I look at all the charges that are necessary to charge up all the vehicles. And if you have to charge all the vehicles, you have to build a whole new distribution network with transformers and everything to charge so many vehicles. That's one little business for CKI and Hutch. So we're not looking at it only as compliance. We're looking at it as a good business.
Thank you, Chairman. The last 2 questions are about retail. "What is the progress of the O+O strategy? And what is the sales participation of the O and O shoppers in Watsons China and ASW as a whole?"
Can I refer that question to Dominic then?
Okay. Well, thank you, Victor. In fact, the O+O strategy has been working out very well. Because just to remind everybody, our O+O strategy, it's not O2O. In fact, within that physical network that we have built, together with the technology on the online capabilities, we have incremental business when a customer shop with us both offline and online.
So on our offline side, we promote the online products and categories and vice versa. On the online, we introduce, for example, coupons that they can use in physical stores. So we are talking about incremental. This is a retail model for the future for A.S. Watson. So the -- right now, I think the O+O sales participation is around, say, 18% for the group. And for health and beauty, it's 21%. So we are growing. Just imagine that we have identified there's 3x more spending for O+O customers than the physical store customers. So the room for growth is tremendous. So this is something that we are working on and is working out very well with feedback from the customers, with feedback in our CRM data.
Canning, do you have other things to add?
Well, just 1 more point. Today, we only around 9% of our base are doing O+O. And then the growth here was about 30-odd -- 30-plus percent. So that I think one of our strategy is to work on our CRM, so to make sure we try to increase the participant of our CRM base to do not only shopping on shops but also shop through our online channels. I think this will -- is a way that can increase our sales revenue quite drastically. We are looking forward...
This is a model that the customer wants. We are not imposing on them. That's why we have this 34% growth, Canning mentioned. So the O+O model is working out fine with good increase in growth. And also, Canning mentioned that the member, for example, in our entire portfolio, A.S. Watson, we have 9 -- -- only 9% of our customer base is O+O. So there's huge potential to convert them to do O+O.
Malina, what is our latest number on the total customers on CRM?
At the moment, it's 140 million, which is 4 million more than last year same time. So this is a clear indicator of the good progress of our O+O strategy, because the more members we recruit, the more opportunities we can get.
If I may also mention about China. I think the question also cover China. In terms of China, O+O sales participation reached 40%. So the opportunities is -- again, as Canning said, we are going to recruit more of the members. The current base is only 12% base of the 63 million members that we have in China. They are shopping O+O. So we continue to confirm all of them and there's huge opportunities ahead of us.
Thank you.
Thank you. The other question about retail is, "What is the payback period of opening new stores in China? And are you still considering opening new stores in China?"
Canning, do you want to pick up that question?
Actually, it's more for Dominic, but Dominic correct me.
Okay.
So I think our job now is to opening stores. So we use opening store and then the payback. Now from head office, I only look at the return point of view. So it has been because of COVID-19 has been a slower payback, but still 17 months payback, which is a damn good on our capital employed. So do more, Dominic.
Yes. Well, in fact, as we're rewarding even under the pandemic, the payback period is only 17 months. For the health and beauty as a whole it's 12 months. So we got some quick payback, for example, in Asia and, say, Eastern Europe. So this is a good investment if you look at the return on capital.
But it's not only China, we're achieving similar results in some of these Asian countries also.
Yes. Yes. Yes.
Yes. I don't want this -- I mean, China is a wonderful market, but it's not China only.
And if you take in other countries, the payback is only 12 months. Other companies is better. Yes, so Dominic, can you continue.
Yes. Yes, the payback definitely on average health and beauty 12 months, China 17 months, and Asia is 9 months, Eastern Europe was 9 months, and then Western Europe is less than a year. So all these payback shows that we select the sites correctly, and then the O+O model also helps the footfall of customers coming to our physical stores and our conversion rate on our online. Yes.
Other questions?
Thank you. The next question is on infrastructure. "What are the opportunities to acquire new assets from CPI?"
Sorry, I couldn't hear that last sentence.
"What are the opportunities to acquire new assets by CPI?"
Well, we're looking at new assets all the time, but other than the -- in terms of acquisitions. But in terms of the traditional infrastructure, we're looking also into building infrastructure, and one division that has been doing extremely well, especially during this pandemic, is all the water heaters in Ontario. And it's not the infrastructure that we traditionally see as roads or highways or electricity, but it is as essential as other infrastructure in other people's home. And I think we're the largest player in Ontario giving people hot water. Imagine in Ontario winter, you don't have hot water for your bath. I think that's -- that is a very good steady income.
And now we are also moving into air conditioning. So we are, again, providing air conditioning to all these homes. Now that CKI is working together with CKA and CKHH in doing this. In the meantime, we're also expanding in areas of metering. So in Continental Europe, using our base in Germany, we're expanding into other countries. Now none of these are major sort of acquisitions like big deals that were to announce. But it's like every week or every 2 weeks, we're making new deals, buying sort of a small neighborhood there, another neighborhood there on the market share. So in all of these markets, we're growing in market share without making big announcements. But cumulatively, they are quite respectable. So infrastructure that doesn't look like traditional infrastructure will be something that we would like to work more on. I can go on and on, garbage collection. Sorry, I shouldn't use that word, waste to energy.
Yes. Thank you, Chairman. Okay, the next question is about ports division, "What is the outlook of focused growth in the second half of 2021?"
Again, am I allowed to make profit projections, Frank?
But we can talk about throughput, I suppose, Chairman.
I think I can talk about the first half. I think the growth in ports is clear and strong. And in the first half 2021, it's very strong momentum. I mean you look at Yantian, it's -- if I'm correct, 21% year-on-year growth. Frank, correct me if I'm wrong on numbers. It's 21% growth year-on-year in throughput. And even during this time, in June, I think they have a scary experience with COVID 19. And given that it's still 21% and I think I'm generally optimistic about second half. That's what I can say. The momentum seems to be continuing.
Okay. Thank you, Chairman. Okay. Due to the time constraint, we are going to have the 2 last question. They are all from -- they are all about telecom division. The first one is, "How will CKHH and Cellnex adjust the competition concerns of CMA?"
Frank?
Chairman, I think I already addressed that. But this CMA process is a normal process. It's actually Cellnex's process because they're the guys who are acquiring, they need to get approval in light of the impact on their position overall in the market. It's a new situation in the sense that in the U.K., at least, nobody does own as many towers as Cellnex owns today or indeed would own on completion of this. I think that they make case very, very well. That is not an adverse impact on competition, but actually it's probably pro-competitive in the sense that they are opening to the market assets that were off the market when they were exclusively used by existing MNOs. But that's their case to make.
And as I said before, the good news here is that the U.K. process is not like the European process. You are convincing a new panel. The CMA staff make their case, Cellnex makes its case. We support that case in terms of facts relating to us that may be brought to bear. And I think, overall, I'm quite optimistic that it's a process that we will get through. And as I say, we have gotten through it in 5 other countries, including in Italy where that concentration is at least not similar to the concentration that Cellnex would have in the U.K.
Thank you, Frank. The last question is about Indonesia, "What is the current status on the merger with Indosat?"
Canning?
Okay. Frank?
You're working on that.
I've reported earlier when we went through Indonesian sessions so that we are positive about this merger. Is there anything that you want to add, Frank?
Just to say that, I mean, the most -- or all sides, actually, right, because it clearly involves a redo. It involves Indosat, which is a separate public company and ourselves. And all sides are working towards meeting that August 15 deadline, and I share Canning's optimism. But nothing has ever done until it's done. So hopefully, we'll be in a position to make a good announcement on the 15th of August.
But I think maybe to -- I can add my comment on this is, the synergy is quite obvious. And I think there is good intent on both parties to conclude this. We're now really on the nitty and gritty and the logistics of it. Now don't forget, I mean Indonesia is now going through a really, really hard time during this pandemic and staff safety and everything. I think we have to take a priority on this also. So Frank, on one hand, we want the deal and on the other hand, we have to look at it from a human level. And if it's -- we're talking about lives here. So -- and it's very difficult operating Indonesia now. I mean people cannot travel, people cannot even move between neighborhoods. So to conclude a deal in this circumstances, I think it's quite a challenge. Yes. I just want to share the human side with our investors that other than the numbers, which makes absolutely good sense, maybe a couple of days earlier, a couple of days later, it's not the end of the world.
We hope to make an announcement on the 15th.
I hope so, too.
Ladies and gentlemen, thank you very much for attending the presentation today. Due to the time constraint, we have to conclude our live webcast today. Our IR department will answer the remaining questions very soon. Thank you very much for joining.
No, I just want to say thank you to all the attendees. And I really look forward to seeing all of you in person in the not-too-distant future because if I can see you, that means this pandemic is gone and business is good. And so I really look forward to seeing all of you. Thank you.
Thank you.
Thank you. Bye-bye.