Swire Pacific, stunned by a record loss in the first half, is gravitating deeper into the mainland Chinese market for recovery as the conglomerate banks on its experience and “strong relationships” to overcome the biggest financial challenge in its history.
The British-controlled group offers some bright spots in its sprawling entity, with its Swire Coca-Cola unit recording an increase in recurring profits in the first half as consumption rebounded in the second quarter in the world’s second-largest economy. Footfall and retail sales have also started to recover, lifting its property ventures, it added.
“We believe the long-term success of Swire Pacific will reflect the continued growth of the Chinese mainland and Hong Kong, and we are well placed to take advantage of new opportunities that might arise,” chairman Merlin Swire said in its interim earnings statement on Thursday.
Get the latest insights and analysis from our Global Impact newsletter on the big stories originating in China.
The comments came as Swire Pacific reported a record HK$5.48 billion (US$707 million) loss for the six months ended June 30, primarily weighed down by unprecedented slump at its 45 per cent-owned Cathay Pacific Airways. It had a profit of HK$15.85 billion a year earlier. The group never had an underlying loss since its listing in 1974, a company official said.
Swire Pacific issues another profit warning as property, airline, marine units suffer from coronavirus impact
China’s economy grew 3.2 per cent in the second quarter, following a historic slump in the first three months of the year, as measures to ease pandemic lockdowns helped revive consumption. China’s economic recovery makes it a fertile ground for Hong Kong developers seeking relief from the city’s worst recession on record.
“Our businesses here are heavily exposed to mainland China, particularly in property and beverage business,” said Swire, the sixth generation of the family that traces its root in mainland China to more than 150 years ago. “We have been encouraged by what we have seen in the last two to three months,” he said during a post-results briefing on Thursday.
Swire’s Chinese name is Taikoo which loosely translates as ‘great and ancient.’ The name was selected by Thomas Taylor Meadows, the British consul in Shanghai at the time when the group founded by John Swire set up its business in the city in 1866 under the name of Butterfield & Swire.
To have a foot in China’s lucrative aviation market, Swire Pacific and its partners in Cathay Pacific Airways have had to reorganise the carrier’s top management amid worsening social unrest in Hong Kong last year, leading to the departure of chief executive Rupert Hogg and chairman John Slosar. The carrier reported a record HK$9.9 billion interim loss, and has sought a HK$27 billion bailout from the Hong Kong government to ride out the pandemic crisis.
The group’s 82 per cent-owned Swire Properties, the unit that manages Pacific Place in Admiralty and six retail-hotel complexes in mainland China, reported an 80 per cent drop in core profit to HK$3.75 billion in the first half from a year earlier, it said in a separate filing.
It has parlayed more than 20 billion yuan (US$2.8 billion) to develop six property projects since a 2008 joint venture to develop Village at Sanlitun in Beijing. In the Greater Bay Area city of Guangzhou, Swire Properties owns 3.84 million sq ft of retail-office-hotel development called Taikoo Hui and a 900,000 sq ft retail project called Hui Fang.
Swire becomes first Hong Kong developer to offer relief, lowers rents temporarily at Pacific Place in protest-hit Admiralty
Swire Coca-Cola has an exclusive right to manufacture, market and distribute the beverage in 11 provinces and the Shanghai Municipality, Hong Kong, Taiwan and an extensive area of the western US, according to its annual report.
Swire Pacific is cutting its interim dividend to HK$0.70 per A share and HK$0.14 per B share. Swire Properties will pay an interim dividend of HK$0.30 versus HK$0.29 a year ago.
“We entered the year in a very strong financial position, our gearing has hardly moved in the first half and only increased by one percentage point, so we are still looking forward to opportunities to invest,” Swire said. “And we would not sit on our hands even if the situation economically is pretty challenging.”
Did you know that China supplies 40% of the world’s active pharmaceutical ingredients (API) for drug manufacturing? Learn what other ways local healthcare players are expanding their global footprint from the China Healthcare Report, brought to you by SCMP Research, and get a comprehensive industry review and insights on Covid-19 induced market shifts. Purchase now and get a 30% discount before 30 September 2020. You will also receive access to 6 closed-door webinars led by China healthcare’s most influential C-suite executives.