WH Group Limited (288) Earnings Call Transcript & Summary

Okay. Good evening, friends from the -- welcome to WH Group's conference call for the announcement of our results for the first half of 2026. This is Guo Lijun, Executive Director and Chief Executive of WH Group. Joining today's results announcement are members of the management team from WH Group and from our subsidiary, Shuanghui Development, Smithfield Foods and Morliny Foods in Europe, namely Mr. Wan Long, Chairman of the Board and Executive Director of WH Group; Mr. Wan Hongwei, Vice Chairman of the Board of WH Group and Chairman of Shuanghui Development; Mr. Ma Xiangjie, Executive Director of WH Group and President of Shuanghui Development; Mr. [ Luzon Tao ], Executive Vice President and Chief Financial Officer of Shuanghui Development; Shane, President and Chief Executive -- Luis, Chief Executive Officer of Morliny Foods; Ms. Kamjin Yan, Chief Financial Officer of the company; and Zhou Xiaoming, Vice President of the company. Today's announcement is divided into 2 parts. We will first present the company's financial and operating performance for the first half of the year, and we'll then take your questions. For the first half 2026, package mid sold is 1.522 million metric tons. Pork sold 2.079 million metric tons year-over-year growth of 6.1%. Revenue USD 13.827 billion, 3.3% higher than last year. EBITDA, $1.681 billion, 6.1% higher than last year. Operating profit $1.231 billion, 2.2% decline compared to last year. Profit before tax, $1.221 billion, 6.2% higher than last year. Profit for the period, $947 million, 10.5% higher than last year. Profit attributable to the owners of the company, $773 million. 6% higher than last year. Basic earnings per share USD 6. 02. The Board has also declared an interest dividend per share of HKD 0.2. Total amount would be roughly USD [ 330 ] million. Despite a challenging operating environment, we have achieved robust performance with growth in both revenue and volumes. Looking at the business segments. Package made is still our core business contributing to 51.3% of our revenue and 89.4% of our operating profit. Pork business is also our major business contributing to 39.1% of our revenue and 14.3% of our operating profit. Other business and contribute to 9.6% of revenue and a loss of $45 million. From a region perspective, North America contributes to more than 50% of our revenue, which is 52.9% in the first half. China business was 30.5% and contributed to 36.8% of the operating profit. European business contributed to 16.6% of revenue and 9.7% of the operating profit. In the first half, the global economic growth moderated geopolitical conflicts elevated trade tensions continued and policy environment remain uncertain. China saw heart continue to reduce, while productivity improved. Abundant supply caused the hard price to decline sharply year-over-year. U.S. pork supply increased price dropped year-over-year. Feed cost was favorable due to lower grain prices. Hog production remained profitable. However, Fresh Pork faced the challenges from narrowing market spread. In Europe, animal disease export restrictions resulted in pork oversupply inside European Union. Hog price dropped significantly pressuring upstream pork operations. WH Group leveraged our global platform and the value chain, promoted efficiency improvement cost savings, optimize the business structure, continued with pricing mix and control strategy, achieving the growth in volume, while the operating profit decreased slightly. Packaged meat as the core business saw growth in both volume and profits. In the first half, the number of slaughter hogs in China increased by 1.7% to 372.46 million hogs. The number of slaughter hogs in the U.S. decreased by 0.5% to 63.08 million hogs. From a pricing perspective, the prices dropped in all the regions. In China, the average hog price was RMB 11.2 per kilogram, down 27.5% year-over-year. U.S. average hog price was USD 1.48, down 1.5% year-over-year. European average hog price was per kilogram, down 20% year-over-year. In the U.S. in the first half, the average pork carat value was USD 2.13 per kilogram, a decrease of 2.2% year-over-year. The market spread narrowed due to port price decreased more than high price. So the spread has narrowed. In China, the operating profit was $454 million, 4.4% higher than last year. Packaged meats $458 million, 11.4% higher than last year. Pork business is a loss of $7 million and year-over-year decline by $35 million. In China, we captured market opportunities, achieved growth both in volume and profit mid-and packaged meat products external sales volume reached a record high. In packaged meats, we continue to deepen professional reformation stepped up investment in the market improve the customer service quality, continue the price mix optimization and cost control strategy adapted to changes in the consumption trends, volume increased while unit profit remained at a high level. In Pork business, it captured market opportunities, expanded customer base, harvest volume achieved a significant growth Fresh pork profit under pressure due to severe competition, hog production faced challenges driven by weak car price. In poultry, it continued to expand its scale poultry production, KPI improved while raising costs reduced. Fresh poultry optimize the product mix, expand the network and enhance the competitiveness, total poultry operations improved significantly. In terms of digitalization, we continue to deepen digitalization deployed extensively in production, sales, animal production and internal management, empowering the company to achieve high-quality development. In North America, first half operating profit was $658 million, 2.5% lower than last year. Packaged meats, $545 million, 4.2% lower than last year. Pork, $182 million, 11.7% higher than last year. In the North America, we leverage integrated business model focused on cost efficiency. Operating profit was stable, while net income achieved a record high. In U.S. packaged meat, we leveraged breadth of product portfolio and a channel volume remains stable. We continued the pricing mix optimization and cost control strategy making raw material cost inflation, profitability maintained at high level. in U.S. pork, the hog production benefit from favorable markets and effective hedging strategy. Results improved significantly year-over-year. fresh pork profit dropped due to narrower market spread. Total U.S. pork profit maintained growth. In Mexico, how price dropped, while volume the volume increased profit achieved growth year-over-year. In Europe, in the first half, operating profit was $119 million, 20.1% lower than last year. Packaged meat, $97 million, 44.8% higher than last year. Pork profit, $1 million year-over-year decline by $63 million. In Europe, amid unfavorable market conditions, we continue to integrate synergistic M&As, maintain volume growth, packaged meat and poultry performance continued to improve. New M&A contribute to volume growth. Operating profit increased significantly year-over-year due to lower raw material costs and pricing discipline. Hog price dropped sharply due to animal disease as well as export restrictions, Pork business faced the challenges and the performance was under pressure. Broiler price dropped poultry business grew both in scale and profit. In terms of M&As, we further expanded the business footprint and increase the product offerings. We completed acquisition of Wolf Group, a leading German producer of premium sausages, convenient and ready meals. In terms of business strategies, WH Group will continue to consolidate global resources, leverage synergies adhere to the business philosophy of improved mix, adjust price and control costs and the strategy of industrialization, diversification, globalization and digitalization to enhance our leading position in the global meat industry. In terms of business priorities, we will focus on the following to lay a solid foundation for the long-term sustainable development. Number one, first, enhance the port business, optimized cost structure, improve had production performance, grow fresh pork and strengthen competitiveness. For packaged meats, further optimize the product portfolio, expand the customer network and maintain steady growth in scale and profit. Number three, continuously optimize the pork value chain steadily promote meat diversification, enhanced global footprint and strengthen overall competitiveness. Number four, promote automation and artificial intelligence across the organization, drive digitalization upgrades to improve quality, cost and efficiency. So that's all from the business review. And now we'll move on to the Q&A.

[Foreign Language].

[Foreign Language].

[Interpreted] So the question from Min Bao. The first one relates to the impact of the Middle East conflict on the cost structure of the company. Has that impact on the company's cost structure? And what will be the impact in the second half? And the second question relates to the trade tensions between China and U.S., China and Europe? What has been the impact of these 3 tensions on the company's performance in the first half and what are the expected impact on the performance in the second half and what mitigation measures can the company take to address these trade tensions?

[Foreign Language].

[Interpreted] In terms of the first question, since the conflict but broke in end of February and early March, the crude oil prices has increased sharply and has remained at relatively high levels. So that has indeed caused.

[Foreign Language].

[Foreign Language].

So the answer was from Guo Lijun, the CEO of WH Group. And the elevated crude oil prices if continues will impact the company's transportation costs, fuel costs and the packaging material cost. But overall, the impact is not material considering the scale of the company's operations. And the company also will also take a lot of measures to try to mitigate the increased input costs in relation to the fuels.

[Foreign Language].

[Interpreted] In recent years, indeed, because of the trade tensions, there has been tariffs against many products, including pork in China, the tariff against the book import from Europe and U.S. has increased significantly compared to a few years ago. And on the other hand, the hog prices and pork prices in China are very low. It has caused challenges for importing U.S. pork into China. And in light of the elevated China -- the tariff against the U.S. imports imported pork into China. We are taking a few measures number one, because the tariff against U.S. pork is 47%. So we are focusing importing more of products. from U.S. And for these offer products, we also try to improve the quality and so that we can expand its exports. And secondly, we are also exploring more channels for U.S. pork export into other countries such as Mexico, Japan, Korea, And number three, in China, we are also exploring more importing channels to try to obtain high-quality products at competitive pricing, new channels, including Europe as well as in South America.

[Foreign Language].

[Interpreted] So that concludes Gordon's question -- answers.

[Foreign Language].

[Foreign Language].

The question relates to the forecast for the second half. In the second half, we will continue to face challenges due to weak consumer demand, inflation pressures, commodity market volatility competition in the market as well as the uncertainties of the policy environment, as we described with respect to the tariffs. So from the company's perspective, we are focusing on optimizing our product mix focusing our core strengths and leverage the advantage of our vertically integrated business model and try to deliver stable and good results to create long-term shareholder values.

[Foreign Language].

[Interpreted] And further elaboration on product mix optimization. So by product mix optimization, we try to adapt to the consumer demand and consumption trends. For example, in China's K-shaped economy, we try to develop both high-end and premium products as well as mid- to low-end value-for-money products to better serve our customers and to also achieve higher volume as well as maintain a good profit.

[Foreign Language].

[Interpreted] In terms of payout ratios, our policy -- dividend policy is no less than 50% of net profit attributable to the owners of the company. And for the first half, the Board has declared a dividend of HKD 0.20, which is flat, same as last year.

[Foreign Language].

[Interpreted] First, to review the performance of the global pork business in the first half, the operating profits of port business in China declined year-over-year in Europe also declined year-over-year. But in U.S., actually increased compared to last year. in the first half across the world, the hog prices has decreased. The pork prices also decreased. In China, the hog prices on average has decreased by 28% compared to last year. In European Union, price decreased by 20% compared to last year. The substantial drop in the European hog price is really driven by weak consumer demand as well as the export restrictions as well as a result of the outbreak of animal diseases. Do you call it industries.

[Foreign Language].

[Interpreted] And the performance of China pork business as well as the China market competitive dynamics. In terms of market competitive dynamics, there has been changes in the dynamics in China in the last few years. In the past, the fresh pork industry are primarily dominated by some smaller fragmented slaughtering houses. But in the last few years, because a lot of the large-scale hog production companies are entering into the slaughtering business, these large industrialized players are more aggressive in expanding market shares. So the market becomes more competitive. In the past, we're primarily competing against the small players, but now we have many more large-scale competitors. So that has resulted in industry level compression of gross margins. And for our China business, it has also been impacted -- negatively impacted by the reduced volume and profit from import imported meat as a result of the trade tensions.

[Foreign Language].

[Interpreted] And in the future, we expect this trend will continue and the industry consolidation will continue. In the past, there are a lot of large there are a lot of smaller companies. But in the future, there will be fewer but larger companies. So in light of this evolution, we will focusing on expanding our scale while maintaining stable profits. We'll also try to expand our market shares to participate in the market competition.

[Foreign Language].

[Interpreted] And for market share expansion for pork business, it is our major business. We'll continue to optimize the port business and also to expand its market share across the globe. For packaged meat business is our core business, and we will optimize the product mix, optimize the pricing of our products and also to control cost to achieve expansion of market shares.

[Foreign Language]. [Interpreted] And in China, in terms of product pricing in China, we do not expect any material changes in pricing, particularly in the second half as the hog prices and other raw material costs are not expected to have a significant movement. In U.S. and Europe, we obviously will adjust our pricing according to competition, according to raw material costs, but we also will maintain our pricing discipline to try to reduce the volatility in our prices and try to capture more profits. .

[Foreign Language].

[Interpreted] And we will also adapting to the market demand to optimize our product mix. to by -- through product mix improvement to gradually enhance our pricing.

[Foreign Language].

[Interpreted] And as there's no additional questions, we can conclude today's media presentation. Thank you all.Okay. Good evening, friends from the -- welcome to WH Group's conference call for the announcement of our results for the first half of 2026. This is Guo Lijun, Executive Director and Chief Executive of WH Group. Joining today's results announcement are members of the management team from WH Group and from our subsidiary, Shuanghui Development, Smithfield Foods and Morliny Foods in Europe, namely Mr. Wan Long, Chairman of the Board and Executive Director of WH Group; Mr. Wan Hongwei, Vice Chairman of the Board of WH Group and Chairman of Shuanghui Development; Mr. Ma Xiangjie, Executive Director of WH Group and President of Shuanghui Development; Mr. [ Luzon Tao ], Executive Vice President and Chief Financial Officer of Shuanghui Development; Shane, President and Chief Executive -- Luis, Chief Executive Officer of Morliny Foods; Ms. Kamjin Yan, Chief Financial Officer of the company; and Zhou Xiaoming, Vice President of the company. Today's announcement is divided into 2 parts. We will first present the company's financial and operating performance for the first half of the year, and we'll then take your questions. For the first half 2026, package mid sold is 1.522 million metric tons. Pork sold 2.079 million metric tons year-over-year growth of 6.1%. Revenue USD 13.827 billion, 3.3% higher than last year. EBITDA, $1.681 billion, 6.1% higher than last year. Operating profit $1.231 billion, 2.2% decline compared to last year. Profit before tax, $1.221 billion, 6.2% higher than last year. Profit for the period, $947 million, 10.5% higher than last year. Profit attributable to the owners of the company, $773 million. 6% higher than last year. Basic earnings per share USD 6. 02. The Board has also declared an interest dividend per share of HKD 0.2. Total amount would be roughly USD [ 330 ] million. Despite a challenging operating environment, we have achieved robust performance with growth in both revenue and volumes. Looking at the business segments. Package made is still our core business contributing to 51.3% of our revenue and 89.4% of our operating profit. Pork business is also our major business contributing to 39.1% of our revenue and 14.3% of our operating profit. Other business and contribute to 9.6% of revenue and a loss of $45 million. From a region perspective, North America contributes to more than 50% of our revenue, which is 52.9% in the first half. China business was 30.5% and contributed to 36.8% of the operating profit. European business contributed to 16.6% of revenue and 9.7% of the operating profit. In the first half, the global economic growth moderated geopolitical conflicts elevated trade tensions continued and policy environment remain uncertain. China saw heart continue to reduce, while productivity improved. Abundant supply caused the hard price to decline sharply year-over-year. U.S. pork supply increased price dropped year-over-year. Feed cost was favorable due to lower grain prices. Hog production remained profitable. However, Fresh Pork faced the challenges from narrowing market spread. In Europe, animal disease export restrictions resulted in pork oversupply inside European Union. Hog price dropped significantly pressuring upstream pork operations. WH Group leveraged our global platform and the value chain, promoted efficiency improvement cost savings, optimize the business structure, continued with pricing mix and control strategy, achieving the growth in volume, while the operating profit decreased slightly. Packaged meat as the core business saw growth in both volume and profits. In the first half, the number of slaughter hogs in China increased by 1.7% to 372.46 million hogs. The number of slaughter hogs in the U.S. decreased by 0.5% to 63.08 million hogs. From a pricing perspective, the prices dropped in all the regions. In China, the average hog price was RMB 11.2 per kilogram, down 27.5% year-over-year. U.S. average hog price was USD 1.48, down 1.5% year-over-year. European average hog price was per kilogram, down 20% year-over-year. In the U.S. in the first half, the average pork carat value was USD 2.13 per kilogram, a decrease of 2.2% year-over-year. The market spread narrowed due to port price decreased more than high price. So the spread has narrowed. In China, the operating profit was $454 million, 4.4% higher than last year. Packaged meats $458 million, 11.4% higher than last year. Pork business is a loss of $7 million and year-over-year decline by $35 million. In China, we captured market opportunities, achieved growth both in volume and profit mid-and packaged meat products external sales volume reached a record high. In packaged meats, we continue to deepen professional reformation stepped up investment in the market improve the customer service quality, continue the price mix optimization and cost control strategy adapted to changes in the consumption trends, volume increased while unit profit remained at a high level. In Pork business, it captured market opportunities, expanded customer base, harvest volume achieved a significant growth Fresh pork profit under pressure due to severe competition, hog production faced challenges driven by weak car price. In poultry, it continued to expand its scale poultry production, KPI improved while raising costs reduced. Fresh poultry optimize the product mix, expand the network and enhance the competitiveness, total poultry operations improved significantly. In terms of digitalization, we continue to deepen digitalization deployed extensively in production, sales, animal production and internal management, empowering the company to achieve high-quality development. In North America, first half operating profit was $658 million, 2.5% lower than last year. Packaged meats, $545 million, 4.2% lower than last year. Pork, $182 million, 11.7% higher than last year. In the North America, we leverage integrated business model focused on cost efficiency. Operating profit was stable, while net income achieved a record high. In U.S. packaged meat, we leveraged breadth of product portfolio and a channel volume remains stable. We continued the pricing mix optimization and cost control strategy making raw material cost inflation, profitability maintained at high level. in U.S. pork, the hog production benefit from favorable markets and effective hedging strategy. Results improved significantly year-over-year. fresh pork profit dropped due to narrower market spread. Total U.S. pork profit maintained growth. In Mexico, how price dropped, while volume the volume increased profit achieved growth year-over-year. In Europe, in the first half, operating profit was $119 million, 20.1% lower than last year. Packaged meat, $97 million, 44.8% higher than last year. Pork profit, $1 million year-over-year decline by $63 million. In Europe, amid unfavorable market conditions, we continue to integrate synergistic M&As, maintain volume growth, packaged meat and poultry performance continued to improve. New M&A contribute to volume growth. Operating profit increased significantly year-over-year due to lower raw material costs and pricing discipline. Hog price dropped sharply due to animal disease as well as export restrictions, Pork business faced the challenges and the performance was under pressure. Broiler price dropped poultry business grew both in scale and profit. In terms of M&As, we further expanded the business footprint and increase the product offerings. We completed acquisition of Wolf Group, a leading German producer of premium sausages, convenient and ready meals. In terms of business strategies, WH Group will continue to consolidate global resources, leverage synergies adhere to the business philosophy of improved mix, adjust price and control costs and the strategy of industrialization, diversification, globalization and digitalization to enhance our leading position in the global meat industry. In terms of business priorities, we will focus on the following to lay a solid foundation for the long-term sustainable development. Number one, first, enhance the port business, optimized cost structure, improve had production performance, grow fresh pork and strengthen competitiveness. For packaged meats, further optimize the product portfolio, expand the customer network and maintain steady growth in scale and profit. Number three, continuously optimize the pork value chain steadily promote meat diversification, enhanced global footprint and strengthen overall competitiveness. Number four, promote automation and artificial intelligence across the organization, drive digitalization upgrades to improve quality, cost and efficiency. So that's all from the business review. And now we'll move on to the Q&A.

[Foreign Language].

[Interpreted] So 2 questions from Lao Chen from BofA Securities. First one relates to China packaged meat business. The second quarter profit per ton in packaged meat business has dropped significantly compared to last year. And based on his calculation, it's roughly RMB 4,000 per metric tons. But on the other hand, the volume growth was not very high. So what's the reasons behind the sharp drop in profit per ton, but relatively moderate growth in volumes? And what's the outlook of volume and profit per ton in the second half. Second question relates to dividends. Historically, Shanghai has a track record of paying interim dividend. But for this half, Change has not declared interim dividend, what's the reasons? And what are the reasons? And what's the outlook for the full year dividend from Shuanghui. And given the challenges in the operations, is it possible to still achieve a flat dividend payout compared to last year for Shuanghui? And for WH Group, we are pleased to see that tables continue to declare an interim dividend. But what would be the outlook given double cash flows are largely from the -- the dividends of the subsidiaries. And will WH Group be able to maintain the dividend per share in -- for the full year?

[Foreign Language].

[Interpreted] The first question from Mr. Mark, CEO of Shuanghui Development. The second quarter per ton for packaged meats dropped by CNY 500 per tonne. For the first half, the decrease was RMB 150 per tonne. So there are a few reasons behind the drop in profit per ton. Number one is the -- we have taken various initiatives we have adopted various initiatives to reform our mid business, including more professionalized sales force and increase. We also increased the headcount in the professional teams. So -- and number two, we also stepped up investments or expenses in certain key growing channels. So these are really the initiatives we took to support our strategy of expanding our scale at stable profit. So that has caused a temporary short-term decrease in profit per ton. And as the impact of these investments gradually ease -- in the third quarter, we expect the profit per ton will gradually recover. And for the full year, we -- our outlook is still around RMB 4,500 per metric ton which is just slightly below last year's level. So this consistent with the strategy that we formulated at the beginning of the year, which is to grow our volume at stable profitability.

[Foreign Language].

[Interpreted] And the second question relates to the dividend. So first of all, the company's operations are all normal. In the first half of this year, because the hog price in China was very low, which was a decade low. So we have took advantage of this market opportunity to build some inventories including some frozen meat for the packaged meat raw materials. So we believe these inventories would benefit the company's long-term operations. But on the other hand, these inventories will tie up some of the company's cash flows and working capital. So in light of the cash flows as a result of the inventory buildup, the company has decided, the Board after considering all the factors decided not to pay an interim dividend this time. But because this inventory building is a relatively short-term activity. We believe that in the future, we will continue our strategy of shareholder return through cash dividends and maintain a relatively high dividend payout ratio.

[Foreign Language].

[Interpreted] The question is that with the lower investment expense in the market in the second half, will that impact the company's packaged meats volume growth. And the response is that, number one, because a lot of the investment in the marketing and the sales force is really on the personnel cost -- and as the volume grows, these investments will be amortized. And also last year, fourth quarter, we had a relatively lower base. So we are very confident that we can achieve the volume growth in the second half.

[Foreign Language].

[Interpreted] And a clarification on the question on WH dividends, when talking about whether WH can maintain the dividend per share versus 2025. The 2025 number has it should exclude all the special dividends. Just the base should be just ongoing dividend interim and the final dividend in 2025, it was HKD 0.61.

[Foreign Language].

[Interpreted] And a Response from Joanna, the company's CFO. First, we -- our dividend policy has not changed. The dividend policy is no less than 50% of payout ratio is no less than 50% of the net profit attributable to the owners of the company. And number two, we have a strategy or business philosophy of delivering stable returns to our shareholders. For the interim dividend, after considering the company's balance sheet, cash flows we have decided to pay HKD 0.20 per share interim dividend, which was same as last year.