WH Group Limited (288) Earnings Call Transcript & Summary

[Interpreted] Dear analysts and investors, good evening. Welcome to our annual results announcement by WH Group. Today, we have with us Mr. Wan Long, Chairman and Executive Director, and he is seated on the stage with us. Next to him, we also have Mr. Guo Lijun, our Executive Director and CEO; our CFO and Vice President, Madam Yan Kam Yin. I'm Zhou Xiaoming, VP. We also have online with us our leaders Mr. Wan Hongwei, Vice Chairman of the Group; Mr. Ma Xiangjie, Mr. James Smith and Luis and Mark. We will first listen to the introduction of our performance in 2025, and then we will proceed to Q&A session. First of all, Mr. Guo, please take us through the financial situation and business review.

[Interpreted] Good evening, everyone. I'm going to take you through the financial summary, business review of 2025. Packaged meats sold 3.054 million tonnes, a drop of 1.5%; pork sold 4.089 million tonnes, an increase of 8.6%. Revenue realized USD 28.026 billion, up 8%; EBITDA, $3.377 billion, up 9.7%; operating profit, $2.612 billion, up 8.7%; profit before tax, $2.5 billion, up 13.2%; profit attributable to owners of the company, $1.591 billion, up 8.2%. Basic earnings per share, USD 0.124. Based on our operating performance and cash flow for the year to better make returns to our shareholders, we have decided that we are going to propose a final dividend of HKD 0.41 together with interim dividend HKD 0.2, for the full year HKD 0.61, total payout, HKD 1 billion, and they will be distributed after the shareholders' meeting. If you look at our segment performance, packaged meat is still our core, contributing 50.6% of revenue and 82% of our profit. Pork contribution, 40% to revenue and 22% to our profit. Others, 8.8% and 4.1%, respectively. And North America contribution 54.3% to our revenue, 53% to our profit. China business contribution, 30% to our revenue and 35% to our profit. Europe contribution 15.4% and 10.9%, respectively. Over the year of 2025, we maintained cash -- operating cash flow at $2.526 billion with a declining CapEx at $611 million, down by 13.6%. Shareholder return, [ 320 ] -- the proposed level for the full year, $0.61, so that will exceed USD 1 billion payout. We have also maintained a conservative leverage level and debt level towards the end of the year, $3.633 billion as our total borrowing, and total debt-to-equity ratio, 0.28%. The global economy demonstrated resilience and escalating trade tensions and policy uncertainties with divergent trends across different regions. Chinese hog market was characterized by strong supply and weaker demand, leading to lower hog prices. Effective demand for consumer goods was insufficient. Hog prices in North America rebounded and market spreads narrowed. Profit of hog production improved, while the fresh meat and packaged meat business faced cost pressures. In the European market, hog prices declined due to animal diseases, war and export restrictions. We leveraged our global platform and vertically integrated business model, optimized our business structure, promoted efficiency improvement and cost control, leading to improvement in all key operating metrics and record high profits. The number of slaughtered hogs in China increased by 2.4% to 720 million heads. By the end of the year, hog inventory in China was 430 million heads, up 0.5% over the end of 2024. So the volume came up with the prices coming down. Number of slaughtered hogs in the U.S. decreased by 0.8% to 127 million heads. Average hog price per kilo, USD 1.57 in the United States and EUR 1.46 per kilo in Europe, down by 8.5%. So hog prices in China and U.S., both -- China and Europe both went down. If you look at the spread in the market, average pork cutout value in the U.S. was USD 2.27 per kilo, an increase of 7.4%. Meat prices went up by 7.4% and industry market spread narrowed as hog prices increased more than pork values. Operating profit, USD 934 million in China, down by 1%; packaged meat, $191 million, down by 3.6%; pork, $44 million, down by 20%. We implemented various innovative measures, continue to enhance performance of underperforming segments, expanded sales network and optimized product mix amid a challenging market environment. Our total meat sales volume reached a record high, while profit remained stable. We have innovative marketing strategies and accelerated channel transformation, driving rapid sales growth in emerging channels. Profit per ton remained strong. We adhere to the strategy of stabilizing profit and expanding volume for pork business. We expand customer base and sales channels, resulting in increase in sales volume. We continue to increase volume of chicken produced and processed, adjusted product mix and expanded sales network for poultry business. We accelerated digital transformation to drive upgrades and management across operations, sales, hog production, administration and R&D. For North America operating profit, USD 1.393 billion, up 17.4%; packaged meat, $1.097 billion, down by 6.6%; pork, $444 million, up 161.2%. We capitalized on favorable market opportunities, leveraged vertically integrated business model, optimized operational management and implemented cost saving and efficiency enhancing measures, resulting in high record earnings. For packaged meats, total sales volume remained stable, supported by diversified product portfolio and channel mix, while high-margin products continue to deliver growth. We continue to improve mix, adjust price and control costs to absorb the pressure of rising raw material cost. For pork business, profit improved significantly, driven by the hog production segment that capitalized on favorable market conditions, improved performance indicators and lowered hog raising cost. Fresh meat business enhanced operational efficiency, reduced expenses and optimized product and channel mix. We continue to improve KPIs of hog production, reduce costs, increase efficiency and strives to achieve a competitive cost structure. For Europe business, operating profit, $285 million, up 4%; packaged meat, $155 million, up 14%; pork business, $90 million, down by 31.3%. We leveraged the strength of our business model to counter market fluctuations, focused on the development of packaged meat business, pursued synergistic M&A, leading to sustained growth in volume and profit. We expanded the scale product offering and geographic footprint of packaged meat by integrating newly acquired operations. We adhere to the strategy of improving mix, adjusting price and controlling cost. For pork business, we leveraged the vertically integrated business model. Profits of the segment improved significantly, mitigating the impact of declined hog prices. The poultry business achieved growth in both volume and profit by improving management and expanding sales network, seizing market opportunities and controlling cost. We focused on the packaged meat segment expanded our supporting business and strengthened business footprint and successfully acquired People Foods from Poland and Wolf Group from Germany. WH Group will continue to consolidate our global resources, leverage synergies, adhere to the business philosophy of improving mix, adjusting price and controlling cost and the strategy of industrialization, diversification, internationalization and digitalization to enhance our leading position. We will continue to focus on our core packaged meat business to achieve steady growth in volume and profit. We respond to evolving consumer market and promote product and channel transformation in China to achieve breakthrough in sales volume. We mitigate the measures of increasing costs and drive growth in high-margin products to maintain high profit in the U.S. We continue to expand our business scale in Europe through organic growth and acquisitions, reducing our cost and improving our efficiency to increase profit. We will explore opportunities to optimize and increase the processing capacity of pork business through M&A, new construction and facility upgrade, optimize product mix and sales channels to enhance profit. We will achieve a competitive cost structure for hog production by improving the KPIs and effectively preventing and controlling diseases. We will accelerate the development of our poultry business and enhance operational performance to further advance our meat diversification strategy and achieve synergistic development through complementary businesses. That's the end of my report. Thank you very much.

Thank you, Mr. Guo. Now let's enter the Q&A session.

[Operator Instructions] Let's invite the first question from the floor.

I'm from Morgan Stanley. I'm Lillian Lou. I have two questions. First of all, Mr. Guo, you talked about 2026 for packaged meat business. Mr. Wan has been paying very close attention to that and you have been making adjustments. So for this segment in China, if you look at hog prices declining continuously. So in 2026, with a rather high level of profit per ton last year, do you think you can achieve new heights this year? And concerning packaged meat business in terms of sales volume, this been suppressed by demand. So it hasn't been very strong. What about this year? What is your thinking? And then about the U.S. side, packaged meat business, as you mentioned, you would like to expand high unit price products and high profit margin products. So what is the overall thinking about 2026? And then taking one step back, Mr. Wan, the entire group is in a stabilization stage. What about the next 3 to 5 years? What would be the focal point in terms of return to shareholders? What is your plan?

[Foreign Language] So the question came from Lillian of Morgan Stanley. The first part relates to the packaged meats. As Mr. Guo mentioned that packaged meats is a strategic priority for WH Group. With respect to China, given the relatively low raw material cost, in light of the strong profit per metric ton performance in 2025, is there an opportunity to achieve even higher profit per metric ton in China for 2026? And also, the volume of China packaged meats has been under pressure due to the demand in the market. And how should investors look at the demand for the volume for 2026? And with respect to the U.S. packaged meats, Shane, Mark, I will defer to you to answer this part. As we mentioned, we will promote more high unit cost, high-margin products. And what's the outlook for U.S. packaged meats, I guess, in terms of volume and profitability going forward? And the second question for Chairman Wan, what will be the company's strategic priority in the next 3 to 5 years? And what will be the shareholder return look like in the future?

So Shuanghui leaders, can you talk about the packaged meat business? Can we connect them?

Good evening. I'm Ma Xiangjie from Shuanghui. I'm joining online. Concerning the first question about packaged meat. In 2026, the hog prices have been dropping. So concerning our strategies...

Mr. Ma, I think you are too far from the mic. You are being cut off. You better start from scratch again.

How about now?

It's better.

I will answer the first question concerning about packaged meat business. [Foreign Language] Response from Mr. Ma, CEO of Shuanghui on China packaged meats. Based on our latest observation in the market, the recovery of the demand is not very obvious and the competition remain very strong. So in 2026, our strategy for China packaged meats is to balance volume and profitability with a focus -- slight focus on volumes. So consistent with this strategy, our priority will be to expand market shares to step up our investment in marketing, in innovations, which means that we expect our volume will grow, but profit per metric ton may have a slight decline compared to 2025, but will remain at a very high level, probably the second highest in the company's -- in the context of the historical profit per ton. So the second part relates to U.S. packaged meats, I will defer to Shane and Mark.

Shane and Mark, can you hear us?

Yes, we can hear you. Can you hear us?

It will be great -- it will be better if you can get closer to the mic.

Okay. Can you hear us now?

Yes, yes.

Okay. All right. Thank you, Lillian, and thank you, Xiaoming. So Lillian, packaged meats continues to be the earnings driver of the North American business. And this 2025 was the fourth consecutive year where we had achieved over $1 billion of segment profit. From a volume standpoint, we were up in 6 of the 10 $1 billion-plus categories that we operate in. We saw in our foodservice channel, we saw sales increase by 10% in fiscal 2025. But we also saw volume increases in that channel as well, which was up by about 2%. Xiaoming, I'll let you translate that, and then I'll continue.

[Foreign Language]

Again in 6 out of 10 of those $1 billion categories. But more importantly, that includes the higher-margin categories like daily meat, packaged lunch meat and dry sausage. So we grew dollar and unit share in 2025. And we also grew our points of distribution. We have 25 key categories, and we saw up -- points of distribution up about 5% for the full year. That was really led by performance in our prime Fresh. So our packaged meats, we feel really strong about going into 2026. We will be exercising more along the lines of advertising and promotion to promote brand growth. But we are aware in North America, we still were operating with a very cautious consumer, a very cautious spending environment. But we think we have the right strategies in place to see both volume and profitability growth in 2026.

[Foreign Language] Thank you, Shane.

[Interpreted] so in response to your second question related to the company strategies, we have the four-pronged strategies with four themes: industrialization, diversification, globalization and digitalization. Specifically for industrialization, it means we realized the full benefits from a vertically integrated business model to achieve the synergies from the upstream, downstream -- between the upstream, midstream and downstream. In hog production, in U.S., we are reducing our capacities. In China and in Europe, there is a slight increase. And for fresh pork and packaged meats, we'll maintain their steady growth. We want to achieve the optimal balance between the different businesses to maximize the synergies. And secondly, diversification, it means we will -- while we continue to focus the meat processing business, we will continue to diversify -- while we continue to grow the pork business, we'll also diversify into poultry and beef as opportunities arise. And thirdly, in terms of globalization, because we are a multinational company, we have a lot of synergies between different parts of our business. So through various trading opportunities, we want to achieve synergies between our business subsidiaries. In terms of digitalization, we aim to use new technologies to improve our business management to use artificial intelligence, robots to replace some existing processes to improve efficiency, improve productivity and use these new technologies to transform our traditional meat processing industry. And to execute on this strategy, we will have three priorities. First priority is that for our existing pork, poultry and packaged meat business, we will focus on the core existing business, expand their volumes. In the last couple of years, we have some pressures and declines in the volume of our business, and we will focus on recover the volume growth in China and the U.S. And secondly, in terms of technology, we will introduce more technologies to improve the process efficiency, to reduce cost and expenses. And thirdly, in terms of acquisitions, we will selectively identify and execute acquisitions in pork, poultry and beef to further strengthen -- expand our scale and strengthen our business portfolio. In terms of shareholder return, as you know, our dividend policy is that no less than 50% of the profit attributable to owners of the company. And as we -- we obviously will continue to adhere to our shareholder dividend policies. And as you see -- as you have seen, in the last couple of years, we have made some reorganizations, including the IPO of Smithfield and the separation of Morliny Foods from Smithfield. And after these restructurings, all these subsidiaries performed very well, and we are also confident about the outlook. For 2026, we have very good plans for volume, for revenue as well as the profit. And we are confident in our ability to deliver shareholder returns in 2026 and going forward. So that's all from Chairman.

[Interpreted] So Shane, Mark, two questions from BofA Research, Luo Chen, and they're all related to the U.S. business. The first is on U.S. hog production. It looks like the 2025 hog production profit per head was $18, which is one of the highest in the recent history. And in your previous guidance you have guided hog production profit of $125 million to $150 million. But in the final results, it was $200 million, which has far exceeded the guidance. And in light of the recent conflicts in Middle East and the rising of crude oil and other commodities -- commodity prices, how will these higher raw material price impact the hog production business in the U.S. in 2026, such as the feed, the hogs? And how will that impact our profit per head in hog production? And given our hedging strategies and how much visibility we have for 2026 hog production? And secondly, related to the recent Senate bill on the meat business. And the part obviously talked about the separation of different animal proteins, but also talked about the foreign investment in the U.S. meat industry. What's the possibility that the bill will be passed by the U.S. Congress and how long it will take for this to become a law? And what will be the impact of this bill? And what measures is the company taking to address this potential risk?

To the first question, U.S. hog production had a fantastic 2025. And I think you quoted a number that was $200 million. It was actually $176 million is where we finished the year. And that's really a reflection of both improved operations and market conditions. Inherently in that, if you look at our raising cost, raising cost year-over-year was down 4.8%, and that was really driven by an improvement in our wean pig cost, which if you go back and reflect upon the things we've talked about from our genetic strategy to improve our wean cost, we're really seeing that come through. So that was down about 8.1% and feed cost was down about 5%. So those things combined really drove that 4.8% decrease in raising costs, coupled with a really good hog market throughout 2025 allowed us to [ post earnings ] that were the best we've had since 2014. So Xiaoming, I'll let you translate that.

[Foreign Language]