Swire Pacific Ltd A

2024 Annual Results Analyst Briefing. Joining us at the briefing today are Mr. Guy Bradley, Chairman of Swire Pacific, Mr. Martin Murray, Finance Director of Swire Pacific, as well as Ms. Karen Tso, Managing Director of Swire Coca-Cola. Before we take a detailed look at our annual results for the year, we'd like to show you a short video highlighting Swire Pacific's key developments and achievements in the year. Enjoy the video. May we now invite Guy, Martin and Karen to please take us through the details of the annual results of 2024.

Good evening and thank you for joining us. In terms of strategic highlights, these are a good set of results in what I would characterize as a very challenging operating environment. We've continued, in spite of that operating environment, we've continued to invest, which demonstrates our confidence in the future. That's why properties have committed 67% of their 100 billion investment plan. They've continued to invest in the Greater Bay Area. They've increased their stake in the Indigo project in Beijing. And we also, in 2024, did the successful launch of our first residential project in Shanghai. On the beverage side, we invested in the Thai bottler, the big Thai bottler, Thai Namtip, and increased our stake to just under 56% in that business in Southeast Asia. Cathay Pacific continued to repay its government debt and more to the point, committed a further $100 billion over the next seven years in refleeting to capture the third runway systems growth. Lots of good examples of confident investment which should set us up over the next seven to 10 years. In terms of numbers, the recurring underlying profit at HK$9.3 billion shows here was down 11% versus the prior year. The prior year contains the impact of the US bottler that we sold in 2023. If you took that out, you'd actually get a small gain in recurring underlying profit in 2024, which I think supports the the strength of these results here. On the back of that, we were confident enough to increase our dividend by 5%. In terms of the specific business performance, I've described the recurring underlying profit as strong. I think we continue to focus on delivering value for our shareholders through a progressive dividend policy and through the buyback program that you know about. On the property side, Business-wise, 2024 was characterized by continued lower office rental income in Hong Kong. I think we can say that retail sales started to normalize in both the Chinese mainland and Hong Kong towards the end of 2024. And as I said earlier, we're very pleased to launch our first residential project in the Chinese mainland in Shanghai. In beverages, the overall profit decreased, driven by that disposal of the U.S. bottling business, but was partly offset by profit contributions from the newly acquired franchise in Thailand and Laos. The exciting news again in beverages was that recurring profit from the Chinese mainland went up by 11%, largely driven by price increases in that market. On the aviation front, the strong results were driven both by ongoing robust demand for passenger travel and strong cargo performance. And the Hayco Group achieved a 45% growth in recurring profit on the back of the upswing in the aviation sector. At this point, I will turn over to Martin to talk about the numbers in much more detail and how we're doing on the sustainability front.

Thanks, Guy. So again, a summary of the big picture numbers. You'll see, as Guy mentioned, all our profit, revenue, cash-generated numbers have been significantly impacted by the sale of the Swire Coca-Cola US business back in 2023. I've put the numbers underneath so you can see the extent of that. The difference in the statutory profit and the underlying profit as caused by the change in fair values in the investment property, which is about $6 billion. So really what we look at is the recurring underlying profit, which again was marginally up on that basis. And I think despite the disposal of SWAG Coca-Cola US and the lower recurring underlying profit overall, we continue with our progressive dividend policy. you can see here the adjustment on the second line which is the adjustment in relation to the investment property and then just going down we've got much smaller non-recurring items you'll see in the 2023 there you have the 3.5 billion sale of one island east and then the big number being the sale of the us business that allowed us to pay a special dividend in 2023 And then in 2024, the non-recurring items are much smaller, so a smaller stake of the remaining car parts in Tai Ku Shing, the deemed disposal of shares in Air China, the small remeasurement gain in the second phase of the Thailand, and then the deemed gain on Cadillac shares that we're holding, but much smaller under non-recurring items. And whilst this is the step change here, it really just shows the messages of the strength of the solid recurring profit in a difficult market. So on the property side, as Fanny just mentioned, the properties analyst briefing, lower office rentals in Hong Kong and higher net finances charges are the main reason for that decline. Beverages, the decline is all to do with the loss of business in SWAG Coca-Cola U.S., Obviously, we have a contribution from Thailand and Laos, but we had a strong increase in profitability from the Chinese mainland, which was very pleasing. But the story of the thing is, again, the continued strong performance from the aviation division, particularly in Cathay Pacific, with good yields and good cargo performance in 2024. This again just shows the recurring and non-recurring items that I've discussed, but per the division basis. Our net debt of 70 billion has a healthy gearing ratio of 22.1, 23.7, if you include the lease liabilities. Our weighted average cost of debt remains healthy at 4%. Our fixed rate basis is 64% of our gross borrowings are fixed. And again, we have a very strong over 43 billion of available liquidity and a very healthy maturity profile. We are very proud of our sustainability credentials. We should be in terms of Swire properties, beverages and aviation market leaders, which we are, and we're very proud with how well we're progressing to our 2030 commitments across the board under our five pillars of Swire Thrive. And then similarly, we're also very proud, particularly with Swire Properties, as Fanny recently mentioned, becoming number one in the Dow Jones Best in Class World Index for real estate management and development industry. I think the video showed our commitment to CSR and how proud we are for the developments we're doing across all three of our core provisions.

Thank you, Martin. Moving on to the business review, I'll take properties first. In 2024, we continue to invest. We got the OP certificate for 6th Pacific Place in February, and that's pre-leasing very well. Despite the difficult time in Hong Kong for demand and supply, both 6th and 5th Pacific Place are achieving success. very, very good leasing levels. We continue to invest in the GBA through a 50% joint venture, which we've now called Taikuli Julongwan in Guangzhou. And again, in Guangzhou, after several years of trying, we managed to... acquire the GIC building next to Taikoo Huay in Guangzhou, which will be a useful addition to the Taikoo Huay shopping mall there. And that's being renovated right now. We also increased our investments in what we now call Taikoo Place Beijing, which was formerly Indigo, by 15%. all last summer in August. At the end of the year, we did our first launch in residential in Shanghai, Lujiazui Taikyuan, and the pre-sales of the first batch were extremely successful. We sold 49 out of 50 units on a pre-sale basis. And as you heard Tim say in the previous session, Swire Properties is now number one in the Dow Jones Best in Class World Index. And that's an incredible achievement to get down the sustainable front. In terms of the overview of the business, the decrease here on the left in underlying profit primarily represents lower disposals in 2024 versus prior year. Prior year, the figure there contains the sale of nine floors in One Island East and many more car parks in Taikuxing. And that explains the 42% drop. We've talked about the recurring underlying profit being much lower. And the movement there on the right-hand side basically reflects that comment, i.e. 4 billion of the drop came from the lack of equivalent divestments in 2024. This chart shows the 67% commitment that I mentioned at the start of the $100 billion investment plan. And the only comment I'd really like to highlight here is that it's a reasonably balanced spread of capital allocation here, albeit the allocation to the Chinese mainland is nearly complete at 46 billion out of the 50. But we've also been investing capital in Hong Kong and in Southeast Asia. So it's across all our core geographies. In terms of the pipeline, 2025 in the Chinese mainland looks empty there. It's not empty. There are 10 projects being constructed at this point in time, and they're all very large and lumpy. There's a lot of work we've never built so much at one stage as we're building right now. And some of those projects will come through as you can see in the list there for 2026 in terms of opening the balance 2027 and a couple beyond that. In Hong Kong and the Southeast Asia markets, you can see there those are primarily residential projects in keeping with our capital allocation strategy, which is to also try to increase the proportion of residential projects that we use for our capital. The Hong Kong portfolio performance, the office occupancy did remain steady at 93%, which is a very good defensive position at a time when demand is weak and supply is quite strong. I think this position reflects what what we like to call the flight to quality, where in times like this, tenants look for the higher quality buildings in the higher quality locations and both Pacific Place and Tyco Place represent just that. Retail side, well, it remained resilient. You could see all our shopping malls in Hong Kong 100% leased, which is a good achievement given the relatively soft retail environment. But I think that that also is testament to this flight to quality that people want to be in Pacific Place. They want to be in City Gate outlets and they want to be in City Plaza. On the Chinese mainland, it's becoming an increasingly strong growth engine for Swire Properties. And you can see in the chart here on the right that the contribution that the mainland, the Chinese mainland retail is making now is almost on a par with the formerly biggest contributor, which was our Hong Kong office portfolio. They're both almost even now in terms of contribution, which shows the growth that you can see on the left in terms of our Chinese mainland retail portfolio. I'll move over to beverages and ask Karen to take over, please.

Thank you, Guy. Moving on to Swire Coca-Cola, revenue and profit increased in both Chinese mainland and Taiwan market. Particularly for the Chinese mainland, revenue increased by 3% in local currency term through our effort in effective revenue management and market execution. That's why Coca-Cola continues to make significant capital investment in the Chinese mainland to strengthen our production capabilities and support our sustainability goal. We broke ground on the Greater Bay Area Intelligent Green Factory in Guangdong in May last year. The factory is designed to be environmentally friendly and incorporating advanced technologies to reduce carbon emissions and improve the energy efficiency. The construction of the new plant in Henan, Zhengzhou and Shanghai are on track to start operation this year. In Southeast Asia, in last year, we acquired equity interest in Thailand Tip, which is the Thailand butler, with franchise business in Thailand and Laos. The acquisition was completed in two different phases in February and September last year. So at the end of last year, that's why Coca-Cola held a slightly below 56% equity interest in Tainan Tea. This acquisition has expanded our footprint in Southeast Asia and provide us great growth opportunity in this market. You may notice there is a non-recurring gain of Hong Kong dollars, $651 million was recognized from the re-measurement of our business equity interest to fair value in Thailand and Laos business as they become our subsidiaries, as well as also an exchange rate gain from the appreciation of the Thai Ba against the Hong Kong dollar. In Vietnam and Cambodia, we continue to strengthen our operation by focusing on route-to-market and execution capabilities. Looking at the EBITDA performance overview, Swire Coca-Cola record a EBITDA of HK$4.8 billion in 2024. The drop compared to last year was largely due to the disposal of our Swire Coca-Cola USA business in 2023. Look at Chinese mainland, EBITDA increased by 8%, mainly contribute by increasing the revenue through our effort in revenue management and also market execution, and with lower raw material cost. In Taiwan, EBITDA also increased very nicely by 17%. In Vietnam and Cambodia, EBITDA decreased by 7%. The result was mainly affected by the unfavorable exchange rate movement of the Vietnamese dong against Hong Kong dollar, which depreciated by 4.9% over that period. And also, as we are relocating our plant from Ho Chi Minh City to Long An, there's a higher relocation cost expense, which is recorded in our P&L in last year. In Thailand and Laos, the EBITDA was $422 million. The underlying business continues to grow, but we are also adversely impacted by the sugar test legislation. The recurrent profit increased by 20% year on year when we excluded the contribution from our U.S. business, which is at the same time, the increase is mainly contributed by the result of Thailand and Laos, and also the increase in Chinese mainland. On the category, sparkling remains the largest driver among our portfolio at 70%. Juice come next at 14%. Swyco continued to commit to grow our sparkling business while also offering a future-oriented portfolio of market-leading brands in other categories. Revenue contribution was mainly from Chinese mainland. If you look at the finance data down below, again, the substantial decrease is due to the disposal of our U.S. business. But as mentioned earlier, recurring profit increased by 20% if excluding those contributions. And our EBITDA remains at 12.5%. EBITDA margin remains stable at 12.5% with the impact of the disposal of SCC, our USA's business. But at the same time, they are being offset by the newly acquired business in Thailand and Laos. Looking at the revenue by region, Our revenue in Chinese mainland and Taiwan increased. Hong Kong basically remained flat. Vietnam, Cambodia decreased mainly due to the exchange rate. From EBITDA margin, EBITDA margin in Chinese mainland has improved by 0.5 percentage point, which is driven by revenue growth. At the same time, Taiwan has also improved nicely to 12.6%. You may also notice that the EBITDA margin from our newly acquired business in Thailand and Laos has a very positive impact in our overall EBITDA margins performance of SCCU, that's why Coca-Cola. So with that, I will pass it back to Guy for aviation business.

Thanks, Karen. I'll go fairly quickly through aviation, as you'll have heard it in more detail yesterday. On the left here, you can see on the airline side, there's continuing robust demand for passenger travel and cargo, which translated on the right-hand side for Hayco as a knock-on effect in a healthy increase in attributable profit from 45 million in 2023 to 399 million last year. This represents, for Cathay, the second consecutive profitable year, earning at a 100% basis, HK$9.9 billion in 2024 versus HK$9.8 billion in 2023. So two extremely strong recovery years post-pandemic, with liquidity on the right-hand side and gearing getting back to more like historical levels. We talked about the new fleet investment program, so Cathay reflecting its confidence in Hong Kong as an international aviation hub, and the third runway system has announced over the next seven years a program to commit 100,000 Hong Kong dollars into mostly new aircraft types. And also the financial paying back of the government debt is now all done, basically. So the restructuring that happened during the COVID pandemic has been put to bed. In terms of an outlook, regional yields have normalized and continue to do so. Long-haul supply, we think, will increase in 2025, which, again, will put pressure on yields, and we expect those to continue to normalize further onwards. for the rest of the year. And I would note that supply chain challenges continue to affect the entire global aviation industry. And Cathay is part of that. So there will still continue to be supply chain challenges in terms of the ordering of equipment. On the cargo side, as you're all aware, we're very closely monitoring the impacts on air cargo demand from the increase in tariff and the uncertainty around the exemptions coming out of the US, and we'll adjust the network and cargo mix accordingly when that situation becomes a bit clearer. Just turning to Hayco, their recurring profit increase was driven by the ongoing recovery of line maintenance activity, which follows the uptick in Cathay's growth. It was also contributed by good demand for engine overhaul at both Hazel and Hayco engine services in Sharman, our two engine shops, and an increase in base maintenance man hours sold. Lastly, healthcare. You can see here that there is continued growth in 2024 in revenue. We've put a focus strategically on two businesses at the moment. One is the Delta Health Hospital, that specializes in cardiovascular care in Shanghai, where we completed the acquisition in April 2024. So we now control that asset and are in the process of turning that around. That's a high priority for the management team. We also completed the first tranche of an investment in an Indonesian healthcare opportunity in conjunction with a sovereign wealth fund, INA, in July last year. And that's an exciting turnaround of up to 70 hospitals across that country. I would say it's very early days in our healthcare journey for Swire. We've announced a capital commitment program of 20 billion over 10 years. We've so far invested less than 3 billion. So we're being fairly slow and cautious on this as we understand the sector better. But I would say that policy direction in the Chinese mainland for private investments in healthcare is starting to seem positive and that augurs well for future deals. Lastly, in terms of outlook, I think we expect market headwinds to continue in 2025. We're going to continue our focus on execution of these recent investments that we've made across our core markets, and we'll continue to look for opportunities to expand our business with an emphasis on the Greater Bay Area. I think in property, the office market in Hong Kong, as you heard the properties team say earlier, we expect to remain subdued and retail sales will probably continue to face challenges as you're seeing a lot of spend taking place over the border at the moment and cautionary spend down in Hong Kong. But I think in mainland China, retail sales growth is expected to gain and pick up in momentum in 2025, and that's a good sign. On the beverages side, again, we think that the revenue growth will continue to rise in the Chinese mainland, and that's our biggest market, and that augurs well again for 2025 in terms of what changes we need to make there. On aviation, I talked about yields continuing to normalize, and I think you've also got the question about cargo and tariffs, and that is a question at this stage, so we're watching that situation very carefully. For Hayco, lastly, we expect a stable demand for base maintenance, continuing growth on line maintenance work, and strong demand, as we had in 2024, for the engine overhaul services. I'll leave the outlook there and perhaps we can move into Q&A. Thank you.

Absolutely. Thank you, Guy, Martin and Karen. Let's move on to Q&A. We'll take questions from the floor. Please advise your name, organisation and provide your questions in English with two at a time at most. Please await my cue and our staff will pass you a microphone. This gentleman in the front. Kenneth, Guy.

Hi, thank you, Guy, Martin, and Karen. This is Feng Chou from Bank of America. So two questions from me. First of all, on your thoughts on renewing the buyback program, and in particular, any pressure from the credit rating metrics front that will prevent you from using more free cash flow into a share buyback? And what's your early thoughts on whether to renew it or not? Second one on the mainland China brevages. I saw a very impressive ASP growth, particularly last year. I think the overall mainland China environment is pretty deflationary. So can you elaborate more about what have you guys done to maintain that ASP growth and whether it is sustainable into this new year? Thank you.

Sure. Yeah. Thanks for the question. What we've tried to do in the last few years is give a clear indication of our strategy and outlook. And the beauty of being a conglomerate is that you can write economic uncertainties. So we've been very clear that we've got a hundred billion investment portfolio in property. Similarly, rolling out new franchises in Southeast Asia with the beverage business, 20 billion we can spend in healthcare, and even Cathay Pacific, I know it's an associate, but I've got 100 billion spent on the capital bit. So our commitment to spend is there. And we've always said that with the strength of our balance sheet, whether it be Swire Properties or Swire Pacific, the gearing's still very low. and it gives us a lot of tools to continue. The share buyback program itself is relatively small, and we have a progressive dividend policy, and the beauty of being the strength of that balance sheet and being able to do long-term investment decisions and recycle assets is that there's no change in that strategy. The beauty of the share buyback program is that the reason why you have a program is that you can put it under the drawer and not think about it. A lot's happening in the world at this point in time, so it'll be a decision to be made in May. But we've certainly enjoyed the benefit of the buyback program over the last couple of years. And as I said, it's all part of our shareholder return portfolio.

So the revenue growth in the Chinese mainland is mainly contributed by the few important strategy that we have implemented in China. First of all, we're pushing for price rises. There are price rises opportunity, and we're pushing for this, leveraging the power of our brand. So we do have a collective powerful brand on our hand that can give us that power on price rises. Then package differentiation by channel. The better we can differentiate by pack, by channel, the better we can demand a premium pricing. And also driving more single serve consumption on the go, which is a more premium package for us. And at the same time, we are very strong in execution in the market, which allow us to command a premium pricing in the market. So looking at the outlook for our strategy, we're going to continue this strategy moving forward, and we are optimistic that it will bear fruit to our overall revenue growth this year.

Thank you. Any other questions? Gentleman on the left-hand side in front.

Thank you. This is Raymond Liu from HSBC. So I got two questions, which is more related to beverage business. So if we actually see very nice improvement in the China business here, can management share with us what would be the outlook on EBITDA trend? So should we see more improvement in the next 12 months time for the beverage business? And the second question is also related to the Southeast Asia expansion because we have a strategic pivot from US side to as a light and then towards the Southeast Asia. And it seems that there are still some opportunities here. Should we expect there will be more expansion to come for your expansion towards Southeast Asia?

Thank you. Thank you, Raymond. For the EBITDA performance in Chinese mainland, we're expecting future EBITDA will be steadily grow in Chinese mainland. So as I mentioned earlier, we're going to continue our strategy in revenue growth and premiumization of our brand. So we are also at the same time streamlining our operating efficiency. So we believe those efforts will continue to contribute to our overall EBITDA growth in Chinese mainland. For Southeast Asia, we are very excited that we have the opportunity to expand our business in Southeast Asia, and those are very, very good market for us. We continue to look for opportunity of expansion in Southeast market whenever the valuation is right and it has a complementary value to overall of our business.

Thank you. Any other questions? Yes, gentleman in front.

Hi, thank you. This is Praveen Chaudhary from Morgan Stanley. Two questions for me. The first one is for Martin on gearing. You said 22% is very comfortable. Swire properties mentioned that to maintain certain credit rating, they want to keep it below 20%, so just wanted to understand what is the comfortable level for SwirePAC. The second question is for Guy. This is about the corporate structure. I'm not sure you can answer it here, but there are two ways to do this. One, you privatize SWARP Act to remove the double discounting. Some people have done that. a VLOC, for example, or you split every company separately, like what GE has done it, and their stock has gone 3x. So just wanted to get your thoughts on how does board and management think about it. Thank you so much.

Yeah, well, on the gearing side, when we launched our talk of the 100 billion spend and how we could do that and all the capital allocation we did, I did mention that I'd be very comfortable with gearing at 30%. Fanny mentioned for Swire Properties, 20%. And both Swire Props and Swire Pacific think they'll be well under that level. So from that point of view, I think that answers your first question.

I think on the second question, all I could say is that both the major shareholder and the current management don't feel this is the right time to go down those sort of routes, and we feel the structure at the moment is the right structure for the group.

Thank you. Yes, gentleman in the front.

Thank you. So this is John Lam from UBS. I have two questions here. The first one is regarding on the bond refinancing. So this year, I think on the PowerPoint, we have about $10 billion Hong Kong dollars for the bonds to be mature. I just wonder about, we see that's why properties have been able to tap into the onshore or the RMB loan market, which has a low interest rate. Not sure if we could also do the same as well. And then the second one is about, is there any further opportunity for the capital recycling? Thank you.

Yeah, I mean, Swire Property is doing a great job in terms of the dim sum bonds and the green financing. Obviously, they've got their projects going on in the mainland. And obviously, you're trying to balance the currencies. So they have the need for Remnant B and they take advantage of that quite well. We share a similar weighted average cost of debt, about 4%. So again, we manage that in a healthy situation on that front. we've got a lot of liquidity and so yes we have to uh we like the bond market as well as the equity market but the bond market we uh on that front we will tap into it but we're in no rush um we've got a healthy balance sheet and so you know the the interest rate continues to come down a little bit um we tap the private placement uh market which is again significantly or has been a lot cheaper than the the bond market so again We chip away at having long-term debt through private placement, etc. So, again, it's just timing. The capital recycling, again, we continue to, it's part of the portfolio. We're very open with the capital commitments that we've made in terms of the targets. And again, we recycle assets and it's part of that portfolio.

Thank you. Any other questions from the floor? Right, that might be it. Let's call it a day. Thank you so much for attending.