Hong Kong company reporting season

China’s WH Group reports worse than expected net profit as CEO plays down trade war threat

PUBLISHED : Monday, 14 August, 2017, 7:24pm
UPDATED : Monday, 14 August, 2017, 10:38pm

WH Group, the world’s largest pork producer, reported a worse than expected 1 per cent rise in net profit for the first half of 2017 as rising raw materials costs ate into the bottom line, according to the company.

The group reported net profit of US$557 million, or 4.07 US cents per share, after biological fair value adjustments for the first half, up 1 per cent from US$551 million in the same period last year.

The result missed a consensus estimate of US$615 million by analysts polled by Bloomberg.

Company turnover after biological fair value adjustments reached US$10. 7 billion for the period, below the US$10.9 billion consensus estimate by analysts.

The group proposed an interim dividend of HK$0.05, the same as first half of 2016.

In comments made during the interim results briefing, WH Group chairman and chief executive Wan Long said: “I don’t think a trade war between the US and China is very likely.”

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Wan said China, being the biggest food importer, and the US, being the biggest food exporter, should both be able to gain from cooperation rather than confrontation.

When asked about the impact of Beijing’s tighter rules on Chinese companies buying assets overseas this year, Wan said the group has not felt “any restrictions” from the government and sees its expansion in Europe going “very smoothly”.

“With the very low cost of food production in China, we are in a very good position to expand overseas,” he said. “We will conduct all of our outbound acquisitions through Smithfield from now on.”

Known as China’s No 1 butcher, WH Group acquired US -based Smithfield Foods, then the world’s largest pork producer, for US$4.7 billion in 2013. The Chinese firm has since been profiting from its mid to premium range meat products, including high quality sausages and bacon, which fit the picky appetite of China’s rapidly enlarging middle class.

Starting out as a small pork factory in Henan, the group is now the largest pork producer and processor in the world. Packaged meat products form the core business of the company, contributing more than half of the turnover during the first half, at US$5.5 billion.

Wan said the company would keep optimising its product portfolio but will always treat pork products as its core business.

In June the company acquired Polish meat processing companies Pini Polska, Hamburger Pini and Royal Chicken, with the deals done through Smithfield, according to the WH Group statement.

In addition to its US and Poland operations, the group also has joint venture interests in two pork companies in Mexico, including Granjas Carroll de Mexico and Norson Holdings, which mainly sell live hogs to Mexico City, one of the largest pork consumption markets in the world.

WH Group’s Hong Kong-listed share remained unchanged at HK$7.5 on Monday before the results were released, slightly up from HK$7.48 at the close last Friday.

Additional reporting by Yu Yifan