Swire Pacific Ltd A

Good afternoon, ladies and gentlemen. Welcome to Swire Pacific 2025 Interim Result Analyst Briefing. Joining us today at the briefing are Mr. Guy Bradley, Chairman of Swire Pacific, Mr. Martin Moray, Finance Director of Swire Pacific, and Ms. Karen So, Chief Executive Officer of Swire Coca-Cola. Before we take a detailed look at our interim results for 2025, we'd love to share with you a short video highlighting the key developments and achievements of Swire Pacific in the first half of 2025. Please enjoy the video. so so We hope you enjoyed the video. May we now invite Guy, Martin and Karen to take us through the details of the interim results of 2025.

Good evening and thank you for joining us. I'll start with the group corporate overview. And I would say at the strategic level, number one, we have very strong underlying profit from the property division, boosted, as you heard earlier, by the excellent disposal of the retail at BCC in Miami and a couple of the other Miami adjacency pieces of land, which we've also managed to dispose. So that's really helped the underlying profit on property That puts the property division 67% committed down their plan of investing 100 billion Hong Kong dollars over the next 10 years. We're only three years into that. So that's a very sort of accelerated performance, I think, in terms of commitment. And I would say that they've got seven major projects under construction at this point in the Chinese mainland. I don't think we've ever had as many projects under construction reflecting that investment and commitment. So there's a lot of work going on on the property side. The other major milestone strategically, I think, for properties in the first half was the successful sale of the first residences that we've built in the Chinese mainland, and that's in Lujiazui, Taikyuan, which is on the bank of the river in Shanghai. Great product. We've sold two batches already, and they're nearly completely sold out. They were sold out within the hour for each batch. Had a great response there, but it's the first time Swire Properties has put its brand on the residential sector in the Chinese mainland. So quite a landmark milestone there for Swire Properties. In beverages, I would call it a solid performance. There have been challenges in Southeast Asia. No doubt. And I'll come on to some of those later. But the investment that we're making in the beverage business continues. And we currently have four new production plants under construction in the Chinese mainland. And a new plant in Vietnam was inaugurated in July this year. So we continue to invest in production capacity to cater for the growth in the region. On aviation, the sector continues to perform well for us, as you heard yesterday, and we're very happy that CAFE and HECO look like having another strong year. Financially... Both underlying profit and recurring underlying profit are basically close to prior year, generating $5.5 billion and $4.7 billion of profit respectively. So good set of numbers, I think, given the climate that we're operating in. We've decided to pay a 4% increase in ordinary dividend per A share to Hong Kong dollars 130. Martin can cover that a bit more detail in a second. And then in terms of the business level of the company, property, I'd say the retail market is performing well in the Chinese mainland, which somewhat offsets the softness that we're all very familiar with in Hong Kong office. And those are our two main contributors in the property business. So one's going reasonably well, one's still soft. EBITDA growth in the Chinese mainland at beverages has been positive, and that has offset some of the challenges in Southeast Asia, which I mentioned earlier. Those challenges range from the relocation of the Ho Chi Minh City plant, the depreciation of the Vietnam Dong, and the competitive environment in Thailand, which has been partly offset by a higher contribution from the increased shareholding that we've taken in Thailand and Laos. Aviation, as I said, continues to perform well based on strong capacity growth and increased demand for maintenance on the Hayco side, with Hayco achieving a 40% growth in recurring profit in the first half. So good performance there by Hayco. Martin.

Thank you, Chairman. Good evening. As the Chairman said, we believe these are very solid results in this time of uncertainty. And we'll start with the underlying profit of 5.5 and recurring underlying profit of 4.7 being pretty similar to the prior year. Once you adjust for the change in value of the investment properties, the statutory profit is down at 815 million. Very strong cash generated from operations. A lot better results from HECO. And that includes the land sale of 211 billion U.S. dollars. in the brick and key land, which we'll talk about in later slides. And as the chairman mentioned, we have a progressive dividend policy, so continue to pay that at 1.30 per share. In terms of the underlying profit, between the underlying profit and the recurring underlying profit, the non-recurring items are very similar to last year. In 2025, it's basically all made up of the Brickell Key retail and car park sale, that 833 million non-recurring, and you see on the left-hand side, The prior year, you had the Taiku Shin car parks and the other two were non-core assets relating to Caddler, the disposal of Caddler and a fair value gain in Caddler. This then is a good description of describing our underlying profit. So you can see clearly there the strong underlying profit in Swire Properties, the good results from aviation, the solid results from beverages, despite the challenges that the chairman mentioned in Southeast Asia. And you'll see the head office, the others, there's a little bit higher interest rates, but also the non-recurring items in Caddler last year that we just mentioned. In terms of recurring profit on the right-hand side there, again, it's the same bit. It highlights there on the right-hand side the strong results on the recurring basis of the HECO group and in Cathay Pacific and properties and beverages being marginally down. Balance sheet remains strong, gearing at 23%, weighted average cost of debt 3.7%, fixed to floating 66%, net debt of 71.3 billion. And again, very high liquidity of 64 billion and a solid maturity profile. In terms of sustainability, we very much focus on carbon waste, water, people and communities. We're very proud of all of our core divisions in terms of how they lead in sustainability. As you saw on the video there, Swire property is up at 60% of renewable energy, Swire Beverages at 55%. And that makes up 88% of our scope one and two, those two divisions. And so we're well on track for our 2030 commitments. Thank you.

Just going into more detail on the business review. Property... The first half was very much one of the progress we made in capital recycling and some various upgrades that we're making to the existing portfolio. I mentioned the sales of Taiku Yuen residences and Of course, we like that because you get the cash in early and you're able to turn the capital around relatively quickly on the trading side. So that's gone very well so far. And you heard Tim say that we're hoping to launch the third batch later in the year. The big story on capital recycling, though, has been in Miami. Brickell City Center land was sold for $211 million. That was completed in May. There was a small area of land called North Squared, which we've just completed the sale in May. in July for $45 million. And then there was the big deal with Simon Properties, where we disposed of the Brickell City Center retail and the car parking spaces for approximately $550 million. So all in all, good disposal track record for this year, which will allow us to put some of those funds into the big projects in Miami, which is the remaining residential projects on Brickell Key, where we're selling The residence is building a new Mandarin Oriental Hotel in a two-tower development, and we've already commenced pre-sales on that. So things are going well over there. In terms of the numbers, the underlying profit grew 15%, reflecting those higher disposal gains in the USA. That was partly offset by a reduction in rental income from Hong Kong office portfolios, which have been soft, as we've said, and higher losses from property trading. On a recurring basis, I think we're down 4%. This is now familiar chart, I think, having used this several times already. It basically tracks our progress against the 100 billion investment plan. And there you can see we're now 67% committed. Most of that commitment of the 50 billion is in the Chinese mainland. We're at 46. We're about half committed on our trading and Southeast Asia targets and about a third in Hong Kong. In terms of upcoming projects, we've got a strong pipeline and a balanced pipeline of developments across markets. This chart just shows, you can see there's plenty going on in the Chinese mainland in 2026 and 2027. I've referred to those projects under construction. In Hong Kong, three residential projects, the Headland Residences this year, next year there'll be a project residentially in Wan Chai, and then we have some residential and office developments coming online in 2028 in Quarry Bay. And in Southeast Asia, we're still selling our luxury project down in South Jakarta called Savivasa, whilst the exciting new project in Bangkok should be ready in 2028. And there's another project or two under discussion in Ho Chi Minh City. So lots going on on the trading side in Southeast Asia. The Hong Kong portfolio, I mean, we think that the office stock that we have is very well positioned to benefit from a recovery in demand when that demand does start to recover. We're benefiting at the moment from a flight to quality, meaning that in a sort of semi-soft uh environments at the moment where our occupancy levels are above market and we're sitting at 91 across pacific place and taiku place on the retail side our occupancy levels are at a hundred percent and uh we're starting to see uh a small pickup in in in the results in the last couple of months on retail particularly at pacific place In the Chinese mainland, we've had a very healthy CAGR of 11% in terms of attributable gross rental income in the middle chart there between 2016 and 2024. The right-hand chart shows that we expect to double our GFA in the Chinese mainland by in the next, well, between 2020 and 2030, I would say. And very significantly for the first time on the left-hand side, you can see that the contribution of gross rental income from Chinese mainland retail has just overtaken Hong Kong office, which for a long, long time was our biggest contributor. Karen, thanks.

Thank you, Chairman. So onto the Swire Coca-Cola business in Greater China. We announced in 2023 that Swire Coca-Cola's total investment in the Chinese mainland would exceed 12 billion RMB over the next decade. The 12 billion RMB investment plan include new production facility in Zhengzhou, Shanghai, Guangzhou, and more recently we announced a new production plant to be built in Hainan. So our new production facility in Zhengzhou and Shanghai are expected to commence operation gradually in the phase from quarter four this year, while the facility in Guangzhou is set to be operational by quarter two of next year. In June this year, we announced plan to establish a beverage production base in high-tech industrial development zone. With the construction schedule to begin within this year, the project aims to expand our production capacity and efficiency and meeting the consumer demand in Hainan. In terms of the financial results, revenue from Chinese mainland increased by 3% in local currency, with EBITDA margin improving to drop on 8%. So over to the Southeast Asia side, in July this year, we inaugurated a new 136 million US dollar flagship manufacturing plant in Vietnam, Danin Province, which is an hour and a half close next to Ho Chi Minh City. This is the largest of our three production sites in Vietnam, and the facility is the first food and beverages plant in Vietnam to achieve LEED Gold Green Building Certificate, reflecting our commitment to innovation and sustainability. And this investment will reinforce our long-term commitment to Vietnam, supporting our sustainable growth, our generating significant employment, and is expected to help our business to continue to grow the market share in the country. So, Swire Coca-Cola recorded an EBITDA of HK$2.8 billion in the first half of 2025. The increase is mainly due to the higher contribution from the franchise business in Thailand and Laos with our increase in attributable interest since October last year. The result in Chinese mainland remained resilient, with our EBITDA increasing by 6%, contributed by a 3% revenue growth, despite operating in an environment where consumer demand was subdued. In Vietnam and Cambodia, EBITDA decreased by 28%, while revenue decline, underlying results were adversely impacted by the depreciation of the Vietnamese dong, reduction of our effective shareholding in the Cambodia franchise, and also the expenses on the relocation of the Ho Chi Minh plant to the new Danim plant that we just inaugurated. In Thailand and Laos, EBITDA increased with our increase in achievable profit interest and the business were, however, adversely affected by economic uncertainty and the very intense competition and the implementation of the phase four of the sugar test legislation. Recurring achievable profit is similar to last year. Chinese mainland grew by 8% with result for the first half years of 2025 was affected by softer consumer momentum and also incremental expenses on the capacity enhancement project in Vietnam and Taiwan. On the category mix, sparkling remains our largest driver among our portfolio at 73%. Juice comes next at 12%. Swire Coca-Cola is committed to continue growing our sparkling business while also offering a future-oriented portfolio of market-leading brands in other key categories. On the revenue resources, our revenue source mainly comes from Chinese mainland, followed by Thailand and Laos. And you will see on the financial data at the bottom right-hand side, revenue increased by 25% with full period contribution from Thailand and Laos. EBITDA margin remained almost flat at 12.8%. As mentioned earlier, overall EBITDA margin maintained almost flat at 12.8%, with greater China market remain resilient while Southeast Asia market faced challenges. In terms of revenue by region, there were revenue growth in Chinese mainland and Hong Kong. However, revenue declined slightly in Taiwan in local currency, and there was a drop in Vietnam and Cambodia due to very difficult market situation and intense competition. EBITDA margin continue to improve for our Chinese mainland business. However, Taiwan and Vietnam were particularly impacted by the additional operating costs incurred for the Taoyuan site redevelopment project and also the relocation of our Ho Chi Minh City plant to the new site. So with that, I will hand it over back to the Chairman.

Thank you. Moving to aviation, you'll see the numbers on the right-hand side there. So we said that the aviation division continues to perform well. The recurring profit of HECO up 40% on that basis. And then the Cathay Pacific Airways level, which is the big number there, is up 1%, which is the continued strong performance of the Cathay Pacific over the last year. three years. So you can see there that Cathy yesterday at their announcement described their performance as solid, so driven by increase in passenger volumes, a very consistent cargo performance, and a lower fuel price. You'll see the liquidity there, 11.2 billion in operating cash flow maintains their gearing at healthy levels of 0.87. Covenants are up at two, so healthier in that sense. They continue to add more passenger flights. They've got 87 new planes in order, and they announced yesterday the 14 new Boeing 777-9s. The new destinations are on the slide. As they've grown their ASK, so passenger revenue was up 14%, ASK up 26%, yield was down 12%. So with more ASK, putting pressure on the yield. And with cargo, the cargo capacity grew, particularly on the passenger bellies. So 50% of the cargo is carried on the passenger bellies. The cargo was up 8.1% and yields marginally down by 3%. The outlook, again, the demand, so three really strong years, the second half, we expect it to continue to be relatively strong. The passenger demand is robust. Again, the cargo side is slightly uncertain. There will be yields continue to normalise, but there is still capacity growing in that sense. So the outlook for the second half will be pretty solid. At Hayco, they had a strong year, a lot more base maintenance man hours and a strong demand for engine overhaul at Hazel and Hayco Engine Services in Jamin. So their main business is performing very well. And again, we expect that to continue into the second half. Finally, we just touch on healthcare. Again, this is, as I mentioned at the press briefing, this is very early stages of our development. There's two of those investments that we actually manage, which is Delta Health. The exciting news with Delta Health, this is one where we now manage, we're learning a lot through that. Becoming a class three standard cardiovascular specialty hospital is a huge step forward. Our cardiology lags our cardiac performance. operations, which should be in the reverse side. And so being Class III allows much more patient referrals, BMI reimbursements, and it really enhances the reputation of the hospital. So we expect this to be a significant change in the fortunes of Delta Health. And our business in Indonesia continues to be profitable. and we've just opened the Bali International Hospital. If you want to do your health check holiday in Bali, then it's now newly opened. Pass back to you, Chairman, for the outlook.

Thank you. Finally, in terms of outlook, we expect the uncertainty across our core markets that we've mentioned for the first half to most likely continue in the second. In terms of Hong Kong office, you'll continue to see this flight to quality trend, and we hope and expect that the retail performance will remain relatively resilient in the second half. The retail market is expected to gradually gain pace in the Chinese mainland, but office occupancy will be impacted by oversupply in that market. On the beverage side, again, there'll be some subdued domestic spending, I think, in the Chinese mainland, which will present some challenges to revenue growth and deteriorating economic conditions, reduced tourism activity, and the implementation of a sugar tax are expected to adversely affect the Thailand business in the second half. On aviation, we think travel demand will remain robust while the market environment for cargo remains somewhat uncertain given the current sort of tariff issues out there. On Hayco, I expect a stable demand for base maintenance and continuing growth of line maintenance work and stable demand for engine overhaul services. So they should end up having a fairly good year. And with that, we can take questions.

Let's do that, let's take questions. Shall we ask for questions to be including name and organization? And may we have your question in English with no more than two questions at a time? Please await my cue and our staff will pass you a microphone. Any questions, please? Yes, gentleman in front. Can we have a microphone, Samantha, over here in front, first row?

Thank you, management. My name is Fan from Bank of America. I have two questions, if I may. First one on the brevage. I saw that in the first half, we still achieved some ESP growth in mainland China, which is quite impressive, given the pretty competitive environment and somewhat deflationary market. So can you elaborate more what actually you have done, but in the outlook slide, you mentioned you are still quite conservative about the outlook in China. So can I get more direction? Do you expect ASB to still achieve positive growth for the rest of the year, or are you expecting the trend to deteriorate? And also secondly, on the Southeast Asia, I understand that it's pretty challenging, so when should we expect a turnaround? And my second question is on the share buyback, if you can provide more color about whether we will resume that. Thank you.

Okay, thank you for the question. So our business in Chinese mainland remains strong. We grow our revenue by 3% and profit by 8%. This is largely due to our initiative in pricing activities. Although the pace of our pricing activity is slower than what we want to be, but we continue our effort in pricing. So in the first half, we achieved a positive sparkling true rate growth by 2.7% and our juice category increased by 1.5%. I think this is the main driver in driving our revenue and also our profit growth. So, in collaboration with the Coca-Cola company, we maintain a very healthy and balanced product portfolio. And at the same time, we remain our organization to be very agile in order to capture the new consumer trend and further diversifying our package by channel. and continue to invest the cold drink equipment to capture the consumer consumption. I think these are all the very important long-term strategic initiative to help us to continue to grow in a market environment that consumer demand is subdued. And we'll continue that effort in the second half of the year.

Yeah, on the share buyback program, we completed our second program, $6 billion, of which $5.98 billion was exercised. So we got that kind of right in that sense. It's always seen as a very short-term solution in that bit, and we've always stressed that in terms of priority, we always look at our long-term strategic investments first. We're much more focused on the progressive dividend. But again, the share buyback is an option to us that we consider. When we consider it, we look at the current share price, the gearing, the credit matrix. And if we're holding any price sensitive information, we can exercise one too. So it's something that we will follow. We've learned a lot in the last two programs. And so it's something that's still there and part of our armory of what we want to do. But again, we... in terms of the shareholding return, very much to focus on the progressive dividend.

Thank you. Any next question? Yes, gentleman in front in the red tie. Thank you, Alan.

Thank you, management. So this is John Lam from UBS. I have two questions. The first one probably is for Guy. It's more for a strategic type of questions. So how do we look at Swahili Pacific if we think about in the next, let's say, three to five years, Is there any matrix that we focus? I see that actually in the problem slide, there's a appendix regarding ROE. Should we also think about to improve the ROE from this perspective? If yes, anything that we could do to improve the ROE here. And then the second one is about, apart the current portfolio, I'm not sure if you're happy with the current business portfolio, any new business that you're looking for for the investment. This is for my question, thank you.

Well, yeah, in the next three to five years, the core divisions that we have have all got a very exciting pipeline program of investments, most of which have been disclosed. But a pipeline is just that. We also have investments that haven't yet been disclosed that we're working on, but perhaps because the deals haven't been consummated. Certainly in terms of aviation, you've seen Cathay continue to place very heavy investments in fleet growth, and on the property side, again, you've heard the tremendous pipeline growth that we're putting Swire Properties through, and all the construction that's going on in the Chinese mainland, and we expect that to continue, and new projects will be emerging over the next three to five years on the real estate side. Probably more likely to see them in Chinese mainland and possibly Southeast Asia, I would say, in the near term. But we continue in Hong Kong to focus on the two clusters of assets in Taiku Place and Pacific Place. And those two areas and locations will continue to provide land bank for the future growth. So there's a good story going on in the property side. And again, we're about to release trading projects onto the market over the next three to five years. So there'll be some trading income coming through there. And then in the healthcare space, it's an early start for us. We've set ourselves a 10-year vision. And we've invested $3 billion so far of the $20 billion that we've sort of allocated loosely towards this. And the reason we want to start slow is that we have a learning curve here. And we've made some good investments so far, I think, in Indonesia, which is a profitable investment, which will... we're very excited about, and in this Delta Heart Hospital in Shanghai. We're focused very much on those two investments at this point before we go any further. We feel that there are opportunities to grow, especially in the Chinese mainland, but the current valuations are too high. And so we're happy to wait for valuations to look a bit more realistic. And in the meantime, focus on getting Delta and the Indonesian business into shape.

Thank you. Any next question? Wonderful. I guess that's a wrap. Thank you so much.

Thank you.

Thank you for attending and have a great evening.