Swire Pacific Limited (19) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to Swire Pacific 2026 Interim Results Analyst Briefing. Today at the briefing are Mr. Guy Bradley, Chairman of Swire Pacific; Mr. Martin Murray, Finance Director of Swire Pacific; and Ms. Karen So, Chief Executive Officer of Swire Coca-Cola. Before we take a detailed look at our results, we'd love to show you a short video highlighting Swire Pacific's key developments and achievements in the first half of 2026. Please enjoy the video. [Presentation]

May we now invite Guy, Martin and Karen to take us through the details of the results.

Thank you. Good evening, everybody, and thank you for joining us. I will just kick off with a couple of strategic highlights here. The 2 points I'd like to emphasize are basically that the first half recurring underlying profit is the highest underlying profit that we've reported -- and that's driven basically by consumer sentiment in all of our divisions improving and that's a very good trend to see. The second highlight, of course, is that we haven't stopped investing and the levels of investments that we have across all our businesses are indeed record levels of capital for the group. So 2 very good highlights for the half year. I look at the specific details across the 3 main divisions in property, and we continue to execute against the $100 billion plan and we've currently got 7 projects in the Chinese Mainland under development, which is more than we've ever had in our history and 2 of which will open in phases at least start to open later this year in Sanya and in Beijing at Taikoo Place. On the trading side, also it's worth highlighting that we've got -- we're doing a lot more of that, and we've got very good projects going on in Miami and Bangkok. What the slide doesn't say is that we've also got quite a lot going on in Hong Kong, our home base, where our residential trading brand is extremely well known and well regarded and I can list 269 Queen's Road East, La Montana, Headland residences and the projects in Panote. So we've got 4 projects that are to be going on with. So quite a lot of activity on the residential trading side. Switching over to beverages. The integration of the new franchises in Southeast Asia is progressing well. We're very happy that we're able to expand firstly to Vietnam, Cambodia and then into Thailand and Laos. And those territories are in the process of integrating into our business. at all sorts of levels, and we're happy with how that's all going so far. Focusing on the Chinese Mainland, we have a HKD 12 billion investment plan to open up new facilities and to invest in market cold drink equipment, and we continue to push that out. On the aviation side, you heard yesterday about the Cathay Pacific group and the $150 billion of investment. But I'd just like to highlight the HAECO side of aviation here and they have a new Xiamen facility opening in later in the year, and they've just announced a new investment in Vietnam as their first expansion of the base maintenance business into Southeast Asia. So lots going on. On the financial side, Martin will cover that shortly in more detail, but we're very happy to report that underlying profits increased by 43% versus prior year to GBP 7.8 billion. And in turn, we've announced a 15% increase in the first interim dividend to HKD 1.50 per share. Just looking at the at the recurring level by division. The recurring underlying profit for the first half was $7 billion, which was up 48%. And the positive news was across all the 3 major divisions. As you can see here, 37% up in property driven obviously by residential trading, that extremely good sale of the 60 Water Bay Road property, but also accelerating retail performance in both Hong Kong and the Chinese Mainland. On the beverage side, they had a good year and driven mostly by an improvement in the Chinese mainland. And so UP was up 5% in beverages and aviation, 39% increase, Cafe speaks for itself. You've seen that yesterday, but I also like to say that there is a very good sort of robust demand for HAECO and their base maintenance and engine overhaul services. So very encouraging signs across the 3 major divisions in terms of profit contribution. With that, I will ask Martin to dive into the financial side in a bit more detail. Thank you.

Thank you, Guy. Yes. So as the Chairman mentioned, all the core divisions are performing incredibly well on the back of strong consumer sentiment. -- which has led to strong profit at both the underlying and the recurring level, which is very pleasing to see. You can see that, that leads to strong cash flow, reduced gearing, which allows us to have the record investment and maintain our progressive dividend, which is up 15%. This slide is a bit repetitive. It shows the movement in the recurring underlying profit that the Chairman mentioned was at record levels. So in the property division, up 37%, primarily driven by the residential trading profit of the sale of 60 would be road but also the continued robust retail sales in the Chinese Mainland and some positive momentum in retail in Hong Kong, which is pleasing to see. . Beverage is up 5%, improving consumer sentiment in the Chinese Mainland. So more challenges in Southeast Asia, some of the commodity prices have gone up. But again, the integration of that continues to go well. On the aviation side, really strong performance, up 39%, driven mainly by the high load factors, yields from Cathay Pacific despite the higher oil price in the second quarter and HAECO continues to go well in both the base maintenance and the engine side. lower interest rates helping the head office and other costs. On the nonrecurring items, these are mainly from the Aviation division in the first half of 2026. You'll see the $309 million and the $434 million and relates to the sale of the Cathay shares at the Swire Pacific level to get us back to the 45% and the [ 434 ] is the deemdisposal the gain on the deep disposal in Cathy of Air China. Last year, the big movement came from property investment, which was the Miami sale, that's the 833 in 2025. On the liquidity piece, you'll see there's some refinancing in '28, '29. We're going through that process and now we push that out to the 2021, 2032. We have -- our debt has come down 4%. Our weighted average cost of debt is down as well at 3.4%. So we're in great shape on the balance sheet fixed rate borrowing are at 75%. And then this is just the overall picture that we get asked about in terms of the overall strategy. As I said, we actively manage balance sheet prudently. Our gearing has come down to 19.3%, weighted average cost of debt, 3.4%, 75% up fixed borrowing rate -- our primary objective strategically is for our long-term strategic investments, which we're doing at record levels across all our core divisions. And then we focus on operational excellence, driving up returns through targets from each of the businesses. Roy mentioned earlier that in the property business, doing more residential trading, for example. -- and at the same time, maintaining our dividend growth strategy and potentially looking at share buyback is in that order. With that, I will -- oh, sorry, it was a sustainability slide, I do forget, I apologize. We have launched our SD 2050 slide. strategy. We've moved it into reporting like the ISSP, so climate nature and social. It's the same so waste and water in that piece. And then on the left-hand side, you'll see our 2030 targets and on the right-hand side, progress against that. So we've almost achieved our 2030 targets across climate and nature and hit our targets for people. and focus on the communities. So making strong progress on our sustainability targets. With that, I'll pass it back to you, Guy.

Thank you. I'll just take the property side. This is a familiar chart to everybody by now, but it keeps getting better. It shows that the $100 billion plan that we announced, I think in 2022 is now almost 70% committed, and that's across the 3 major core markets that we're invested in. A bit more detail on the next slide, which shows that the pipeline is good. It's diverse and in terms of sector, it's diverse in terms of geography. So we're having a sort of balanced investment plan as we go forward, and that's what we want to see. The first half results, as I say, were driven significantly by the residential profit on the trading. But being encouraging note for me here for this half is that our rental income is going up, driven by -- on the retail side, driven -- particularly driven by the Hong Kong and the Chinese Mainland portfolios and that's very encouraging from a future point of view. On the Chinese Mainland itself, you can see now the 2 points here to note are that the contribution of gross rental income from the Chinese Mainland is now almost half, it's at 46% and growing. And specifically, if you look at the Chinese Mainland retail, it's now our biggest contributor in terms of gross rental income, and that's an incredible performance that's grown over the last 10 years. Just looking at the Hong Kong office market, which has historically been our top contributor. Obviously, it's a cyclical soft point, I would say. We've had a good defensive position with high occupancy through that soft part of the cycle. And as you heard Tim say in the previous session, we're now sort of starting to come out of that cycle with rents starting to go up led in Pacific Place in our case. And we think that's a good sign as we start to look ahead at the next 2 to 3 years. In terms of outlook, we think there'll be positive momentum across all the different portfolios. We've got narrowing reversions in the Hong Kong OS portfolio. And as I said just now, led by Pacific Place, probably a little bit slower in Taikoo Place. On the retail side, we're seeing positive growth momentum in the Chinese Mainland and a sustained recovery in Hong Kong as confidence and sentiment improves. Karen...

Thank you, and good afternoon, everyone. So I'm pleased to report that why Coca-Cola has delivered a broad-based growth. This performance demonstrates our effective strategy, our resilient portfolio and our ability to execute with discipline in a very dynamic operating environment, serving a consumer base of nearly 1 billion people. So let's look at the market overview. The first half of 2026 saw improving market conditions, particularly in the Chinese Mainland, where demand rebounded in the first -- in the fast-moving consumer sectors following a very challenging 2025. The China's consumer market remained broad and deemed. It is also at the forefront of the digital retail space. and we are closely matching consumers changing consumption habit by capturing the volume growth in the e-commerce channel, immediate consumption and also through our investment in the cold drink equipment for emerging new sales channel. The conflict in the Middle East continues to drive uncertainty in oil and aluminum prices. This is a headwind felt by bottlers worldwide. Other input cost inflation has continued to weigh on our margin, particularly in Southeast Asia. We are managing our exposure through advanced purchase contract and commercial initiative. The consumption trends are evolving towards a better value product by maintaining a disciplined channel packaging pricing strategy, we are capturing the growth with affordable entry pack that meets the consumer needs. Water sparkling continues to remain our core growth driver, we are also rapidly growing our low and no sugar portfolio alongside the functional portfolio to meet the shifting consumer preference. This shift in our product mix is already taking place in the key markets, highlighted by our successful consumer-led rollout like Sprite, our expansion to the energy category through Monster brand accelerated growth of the zero-calorie sparkling drinks. We invest for the long term in every market we serve. That means the disciplined capital allocation operational excellence and relentless focus on innovation. In Greater China, our major investment program, which was first announced in 2023 is well underway. We continue to advance our RMB 12 billion investment plan in new facility and equipment in the Chinese Mainland to support our expected growth. I'm delighted to report that in May, our 2 world-class intelligent green production plant commenced production in Kunshan of Jiangsu Province and Guangzhou in Guangdong. Together, they host over 20 production lines and they are set to boost our total mainland China production capacity by 10%. Both of these facility are integrating AI into our manufacturing process and a LEGO certified. Building on this momentum, construction is also underway for our new production facility in Hainan province targeted for completion by end '27. In the Taiwan region, production upgrade work continues with a newly automated storage and retrieval system and also an accepted production line at our Taiwan facility. Turning to Southeast Asia, we remain confident in the long-term growth potential of this market, driven by favorable demographic, the potential of growing sparkling beverages in the market with currently low per capita consumption and positive GDP growth. We have invested significantly in equipment and production assets, including our new affordable small sparkling package in Vietnam. We also continue to transfer digital expertise, operational know-how, innovation from global best practice to our Southeast Asia businesses. So underpinning all of this, our investment in digital and AI, and we're building an intelligent enterprise on the foundation of modern process, trusted data and a unified digital core by scaling AI across organization, we're empowering our team with better insight, automating routine tasks and enabling a faster, higher quality decision. So let me walk you through our financial results. Our recurring attributable profit in the first half of 2026 was HKD 907 billion representing a 5% increase from the same period in '25. This was mainly driven by the robust performance in the Chinese Mainland. In the Chinese Mainland, recurring profit increased by 24% to driven by strong growth across the emerging channels such as e-commerce. Our first -- our business in the first half year remained relatively insulated from the higher raw material costs due to our effective procurement strategy. In Vietnam and Cambodia, recurring profit was down by 13% to HKD 98 million. That drop was largely due to strip out that once-off impact. Attributable profit we have actually grown by 15%. In the thin and Lou, recurring profit went down by 10% to HKD 95 million, mainly due to lower interest income. After cash was deployed to acquire the 30% stake in our Vietnam bottler. Excluding those impact, the profit will have grown by 16% due to the strong sparkling volume growth and the commercial initiatives in this market. In Hong Kong, profit [Technical Difficulty] revenue grown by 10%, driven by the volume rise across the market. Overall EBITDA increased by 11%, with our margin edging up from 4.8% to 12.9%. On the strong -- our strong first half performance reflected the effectiveness of our strategy and also the discipline of our commercial execution. It lays a strong foundation for the remainder of the year. However, we anticipate that the macroeconomic and geopolitical environment will remain complex elevated aluminum price and ongoing energy volatility will continue to place pressure on raw material and logistic expenses. While this headwind present margin risk across the beverage industry, we have put in place a range of commercial and cost initiatives to reduce the exposure. In the Chinese Mainland, our business is growing steadily, and we're capturing category specific growth even as broader consumer sentiment remain very conscious. In the Southeast Asia, we are confident over the long-term growth potential in Vietnam, affordability led growth supported by our entry pad strategy in sparkling and portfolio expansion will help us capture further growth. In Thailand, while the impact of sugar test gave cautious for -- caution. We are encouraged by the early signs of our entrance into energy category, and we'll continue to expand our low and no-sugar portfolio. Overall, we remain confident about the prospect of our market, while supported by our continued long-term investment, and we'll continue to innovate and transfer operational expertise to Southeast Asia. And all of this is meant for driving a better execution in the market for further growth. So with that, thank you, and now hand over to Martin.

Thank you. And Aviation has performed exceptionally well and continues to do so. So it's fantastic to see. As Karen mentioned, all our core businesses are investing into the long term. And from a HAECO perspective, it's an exciting time zone on that piece, particularly the problems they've had we're cleaning that up and we've exited the U.S. side like we did in properties, very much Swire Pacific focused on Greater China. And then we've got the excitement of moving the Xiamen facility will open later this year. And then as the Chairman mentioned, in [ 2028 ] moving facilities into Vietnam. So exciting times in terms of investment in HAECO. And then the Cathay group has $150 billion committed that was mentioned earlier and it's great to see Cathay growing again with Hong Kong being in aviation and financial hub. And so we're targeting to have 150 new aircraft joining the fleet over the next 10 years and targeting 150 destinations by the end of that 10-year period. . The results are very strong in both HAECO and particularly so really driven by the Cathay strong results. in HAECO, you can see the base maintenance, line maintenance and engine performing well and other items coming down as we exited the ITM program last year. On the Cathay group, it really is a great story in both passenger and cargo with strong growth in capacity, up 11.8%. And strong load factors and higher yield across the board. So first quarter, very strong second quarter was impacted by the Middle East and the higher oil price but strong factors made it a good first half overall. And the outlook, again remains good for both entities who will continue, we think, to have strong base maintenance and engine services. And at the Cathay side, whilst we -- there is still the Middle East uncertainty and a higher oil price, we expect load factors and yield to continue to be strong. With healthcare, I'll mention this very briefly, healthcare as we've said for a while now, is patients. As we look to expand healthcare, we believe a lot of our targets are overvalued at this point in time. So we're really rebidding down the operations side. it's great to see Delta moving in the right direction, and we have a new CEO appointed to lead our health care business. So we're heavily focused on our business that we own in Delta and landing more on that front. But the healthcare business will remain a small part of the portfolio over the medium term. With that, I'll pass it back to you, Guy.

Thank you. So 3 key takeaways from what we just heard. An excellent first half with very good and improving consumer sentiment. We expect that consumer sentiment improvement and to translate across into the second half. And we continue thirdly to with our planned strategic investment program across all of our businesses. So I would say, a very good set of results in the first half, which we anticipate barring anything untoward will continue into the remainder of the year. Thanks very much. We can take questions. .

[Operator Instructions] We have a gentleman in front. Thank you, Nico.

Is John from UBS. Come question, a good result. Two questions from me. Number one, could I ask about the exchangeable bond on Cafe. So I saw that today's share price for Cafe has always surpassed the conversion price. So I guess should we be the end of June next year, the company, I mean by Pacific does not need to be paid. -- the exchangeable bond. And also maybe a follow-up question regarding on this 1 is regarding on -- would that be also possible to consider to issue active bond on Swire Properties. My second question is about, given all the fee business has been doing very well. So it seems to me that it is now in the half period with foreign net gearing -- so how do we think about the CapEx and also investment in the new business or maybe existing business?

Yes. Look, on the exchangeable bond, -- that was done in June. And as you mentioned, we'll expire in June next year. Time and June was favorable market conditions when we're looking to do a bond like that, it was an instrument that we looked at and the pricing is superbly attractive, helps us get the balance sheet Cathay riding high, but the Middle East crisis gives you that flexibility but what will happen in the next 12 months on that piece. But again, we still own 45% and we can refinance it. So it's a really strong financial instrument that we thought we're pleased with it. So our property is there's no -- been discussion on doing something like that with that. Is it opportunistic financing at the time. .

Harvest period on capital...

And what I think is -- the slide speak for themselves in terms of the intent of the continued investment. I mean the strategy that we have in properties is recycling we've recycled over $60 billion on that piece. We're not changing strategy in any sense. We're investing heavily across all the core divisions and that piece -- we've got 7 properties in the -- under execution. So we have very much focused on the execution and delivery phase as well. But yes, it's exciting times. .

Any next questions?