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Edited Transcript of 659.HK earnings conference call or presentation 28-Feb-20 10:45am GMT

Half Year 2020 NWS Holdings Ltd Earnings Presentation

Central Mar 25, 2020 (Thomson StreetEvents) -- Edited Transcript of NWS Holdings Ltd earnings conference call or presentation Friday, February 28, 2020 at 10:45:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ben Wong;Director of Corporate Development and Investment

* Chi Hang Ho

NWS Holdings Limited - Executive Director

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Presentation

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Unidentified Company Representative, [1]

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Good afternoon, everyone. Thank you for joining NWS Holdings Financial Year 2020 Interim Results Analyst Presentation. First of all, let me introduce our panel members: Mr. Gilbert Ho, Executive Director; and Mr. Ben Wong, Director of Corporate Development and Investment. Gilbert will first present our interim results to all of you then follow with a Q&A session. If you have questions, please enter your questions into the text box in the bottom left corner.

Now let me pass the time to Gilbert. Gilbert, please.

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Chi Hang Ho, NWS Holdings Limited - Executive Director [2]

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Hi. Good evening, everyone. I will give you a brief introductions regarding our interim results for the financial years 2020. I'm going to be brief and leave more time for the Q&A section this time.

Let us begin with Page 5. On Slide 5, it described our core business and strategic portfolio. As we have explained in the last analyst presentation, we have divided our businesses into core business and strategic portfolio.

In this financial year, we have the new addition of Insurance into our core business together with Roads, Aviation and Constructions. Under the strategic portfolio, we have Environment, Logistics, Facility Management and Transport.

On Page 6, you have -- you can see that we have been optimizing our business. In this half year, we have disposed and streamlined a number of our noncore assets. That includes the disposal of our remaining interest in BCIA, Beijing Capital International Airport. We also disposed our interest in health care asset management company. We also discontinued our operations of Free Duty in Macau. In total, we have recuperated about $910 million.

I now go direct to the financial summary. On Slide 9, you can see a brief summary of our AOP contributions by segment. As you can see from there, the largest contributions being Road, having 41%, and the second one being Construction of 29%. For Insurance, although it only has 7%, but it only accounted for 2 months of the result from Insurance since the deal was only completed on the 1st of November.

Regarding the geography, you can see the evolvement. Because of the addition of Insurance, the proportion of Hong Kong has increased from 30% to 34%, while Mainland China has decreased from 63% to 55%.

On the next page, about our financial summary. Our AOP, attributable operating profit, has decreased by 6%, and our profit for the period has decreased by 21%. As you can see, we have a difference of one-off exceptional gains and loss. In 2019, we have a loss of $152 million; as compared to 2018, we have a gain of $180 million.

On the dividend, we have maintained our dividend per share, the same as last year of $0.29. We have also added the adjusted EBITDA in this time for the purpose of our bondholders. You can see that our increase in adjusted EBITDA from $2.5 billion to $3.1 billion, that mainly attributable to the increase to the Insurance business.

The next page, talk about the performance by segments. On the first one, about our growth, it mainly remained constant. With 2019, we have $949 million of AOP. If we exclude the exchange rate effects, which the depreciation of renminbi, our AOP has increased by about 4%.

On our Aviation segment, the AOP has increased 16%. That mainly includes the expansion in fleet size, also the full period AOP impact from the acquisition of Sky Aviation in 2018 October. There has also been a gain arising from the aircraft disposal and, also, we don't have the one-off acquisition expense of Sky Aviation which was recognized in 2019 first half.

For the Insurance segment, you can see that we have a contribution of $160 million. As mentioned, this deal was completed in November 2019. So this $160 million contributions only accounted for 2 months AOP contributions from the Insurance business.

For the strategic portfolio, the first one being Environment, the decrease of 48% is mainly we don't have the one-off fair value gain, which was recognized in 2019 first half, which was recognized there for the fair value gain of SUEZ NWS. Without that, the increase of this segment will be roughly around 7%.

For the Logistics segment, even without the contributions of 2 ports in Tianjin which were disposed in the financial year 2019, the AOP remained pretty much constant. This shows the strong performance of ATL Logistics Centre as well as CUIRC.

For the Facility Management, which was our biggest loss of our different businesses, that mainly include the business of Free Duty, GHK as well as CEC. Hong Kong CEC still has a positive AOP contributions for the first half of the financial year 2020. For GHK, the operating loss also narrowed compared to the last period of same year.

For the Free Duty business, it was under pressure and the losses has increased due to the social activities in the second half of 2019, which affects the tourist arrivals in Hong Kong.

For the Transport business, the AOP remained largely constant with a decrease of 12%, with a loss of $29 million. The buses' losses was mainly attributable to the escalating operating costs that has offset the positive impact from the fare increase effective in June -- January 2019. We have already applied for a fare increase again in 2019 August subject to government's approval.

So I go direct to Slide 14, which talk about a number of our core competence, the first one being our continued transitions with captive substantive growth prospects. As we mentioned in the last few analyst briefing and also talked with a number of investors, we continue to build our sustainable growth in our core business. We have 3 recently acquired expressway in central China that has immediate AOP contribution of over $100 million. In Insurance, as I have explained before, it will be one of our new growth engines. For the post completion, 2 months value of new business and APE, the year-on-year growth is about 21% and 11%, and the 2 months contributions is around $160 million.

Our Aviation continued to expand with fleet size by 16 aircrafts during this half year. Our Construction business remains very healthy. We have contract on hand and backlog continue to grow at around 36% and 73%, respectively.

We will continue to look to enhance our shareholders' value by unlocking different value for our businesses. We'll continue to optimize and streamline our business portfolio. Our Insurance business, as I said will be our core -- one of our growth engine, will expand and has been expanding in the distribution platform with the increased numbers of agents. A number of rating agency has affirmed and increased -- upgrade its credit profile with Fitch A- and Moody's A3.

The increase in the VONB and APE during the 2 months after completion, you can see the synergies of -- with New World Group between the Insurance business and the various businesses of New World Group has the first sight of become fruitful.

If we turn to the next page, you can see our dividend policy. We have changed our dividend policy from a strict payout ratios to a sustainable and progressive dividend policy. We will upheld this policy with our very strong balance sheet. During this years, together with the disposal of $910 million and our cash on hand of $12.5 billion as well as our unutilized committed bank loans, we have ample cash to support this dividend policy.

And together, on the next page, you can see our capital structure. We have a very healthy capital structure. We have a gearing ratio of 30%. With a very strong cash flow from our various businesses, we believe we could maintain and decrease this net gearing ratios and make sure our gearing ratios stay at a very healthy level. And also on our debt maturity profile, we have already financed all of our outstanding debt for 2020 and 2021.

On the next few pages, it's mainly talk about the different business segments overviews and updates. I will quickly go through each of them, and I will leave the rest -- the remaining time for Q&A.

For the core business on Roads, as you probably have already seen on the announcement, from the 17th of February, all toll roads in Mainland China during the period of prevention and control of the coronavirus, the government has implement toll-free exemptions for all toll roads in China. Definitely, this will have a short-term impact on the result of the group's Road segments, but we believe this will have no long-term impact for the group as a whole.

On the Aviation segment, we have continued to increase our fleet size but maintaining our target of having a focus in narrowbody aircraft and also a young fleet with long remaining lease terms.

On Constructions, as I have mentioned, we have increased our contract on hand from $39 billion to $53 billion and a backlog from $22 billion to $38 billion. Our type of projects remain very balanced between government and government institutions as well as commercial and residentials. There has been no material contracts won from the government for the first half of 2020 due to Legco meeting suspension. We believe this will resume soon and this will have a positive impact to the Construction business as a whole.

On the next page is about our Insurance business. Although it only has 2 months contributions, it already has some positive contributions to our AOP. As you can see from the slides, the value of new business is around $610 million, and our APE is about $1.996 billion. We maintain a net asset value of $16 billion, which was an increase from last financial years, and also a solvency ratios of over 580% against the backdrop of a statutory requirement of 150%. This means our company is very well-capitalized, and we don't believe there will be any needs for capital injections in a short while.

For the -- after the introductions and launch of the VHIS and QDAP, the Qualifying Deferred Annuity Policy, FTLife has been the forefront in the introductions of these 2 policies and is very popular amongst its customers. We have achieved synergies through collaborations with New World Group by selling all these different policies and also giving discount, premium discount, to homeowners of New World Group.

On Page 23, you can see some examples of the synergies that has achieved between FTLife and the New World Group as a whole, and that lays a very solid foundations for the company to develop going forward.

For the strategic portfolio, I wouldn't cover it each by each. I mainly will go through the Facility Management on Page 27. The key losses will be the Free Duty shops. The reasons for the losses on Free Duty shops, as you can expect, are the social activities that happened in the second half of 2019. And due exactly to the strategies of the company, we have discontinued the operations of 2 outlets in Macau which has been loss-making, and we have closed it in the first half of the financial year 2020. We will continue to streamline the business and explore business opportunities to try to improve its profitability.

For the first half of the year 2020, due to the virus, the 3 of the duty-free shops has been closed because of the closing of the borders, including Lo Wu, Hung Hom and Lok Ma Chau. We have been negotiating with our landlord, MTR, regarding the reduction of rents during this period.

On the next page about our Transport business, it remains pretty much steady over loss of $29 million. The loss was partly due to the public activities in the second half of 2019 that has affected the bus operations from time to time. That basically offset the increase in fares in the first half of 2019. The good news is that the government has already confirmed that they will reimburse 1/3 of the actual fuel cost for the 12 months all the way up to June 2020 for all public buses and ferry operations.

I will let Ben to talk about the potential impact about the coronavirus outbreak.

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Ben Wong;Director of Corporate Development and Investment, [3]

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Thanks, Gilbert. Now I think from the investors' point of view, our balance sheet, cash flow, AOP and our risk management will be your key concern. And of course, there will be some impact in the short term but we have made various measures to make sure that we have a strong balance sheet with unutilized committed bank facilities, over $10 million as of today, ample cash on hand with $12.5 billion as of the end of December. Our gearing, as mentioned by Gilbert, it's within the comfort range of the management.

Secondly, on the cash flow side, we do experience some temporary impact from, for example, the toll operation from the toll exemption, but we also have new contribution coming in from the FTLife, which will expand our income and cash flow base. And on the AOP side, while we have a few businesses that remains under pressure, but we are responding swiftly to have different measures to minimize the impact.

On the risk management side, we focus on our credit and liquidity risk, which is minimized through our ample cash on hand and strong balance sheet. And on the concentration and policy risk, as you can see, we have 4 different core businesses and also 4 different businesses in our strategic portfolio that should alleviate some of the concerns. Unfortunately, some of our businesses are regulated business. Hence, we will still have pressures from the policy side. But in the medium to the long term, fundamental and strategic direction is unchanged. Sustainable and progressive dividend policy is well supported by a strong balance sheet. In fact, if we do look into M&A opportunity, this may be a good opportunity for us to look for distressed assets and so on with our strong balance sheet. Again, we want to stress that we are committed to the sustainable and progressive dividend policy.

And I will flip to the next page to give you a quick overview of the ESG side of things whereby I know it's a big topic for investors these days, especially fund managers like many of you who have had questions being asked by investors. So from the New -- NWS or NW Group side, we have a vision of SV2030, which is focusing on green, wellness, caring and smart. And with our -- at the NWS level, we are looking -- we have adopted UN's Sustainable Development Goals with those focus.

And on the next slide, we would like to briefly give you an overview of how the ESG strategies has evolved under NWS. First of all, we have been in the Hang Seng corporate sustainability benchmark index for eighth consecutive year since its inception. So it has been a [correspondent], a recognition by the market. And second of all, we are working on a few things including framework, investment strategy and operation excellence to follow our vision. On the sustainability governance side, we have a Board level oversight. We have sustainability policy overseeing and making sure we have good corporate governance on sustainability and ESG. We actively engage with our stakeholders internally and externally. And in 2017, we have set up a sustainability committee. And last year, we also had a sustainability forum.

And on the investment strategy side, some of you may know we had coal-fired energy, and now we have gradually phasing out the coal-based energy and now investing into renewable energy. We have invested into the solar platform in Italy in the solar sector. So we do have a strong focus on sustainability.

And if you flip to the next page, we have a few environmental targets that we have set aligning with the group of SV2030, reducing CO2, reducing the use of water, electricity and reuse construction materials.

And in the next couple of slides, we have laid out some of the key highlights from the sustainability side in the past year. In the social side, we have 0 fatality at our construction site. On the governance side, we have 0 cases reported on corruption. We have worked very hard on the environment side to reduce our greenhouse gas emission. And again, if you go into further segments within Roads, Construction, Facility Management and Transport, again, we have focused on green, smart, caring and wellness.

So at the management level and at the operation level, we are all tuned in into the ESG and its part of our strategy to create social value and also to create a win-win situation for not just our shareholders, but also for our business and also for our stakeholders.

So I think we'll take a pause there and look at some of the questions that our investors have asked.