Swire Pacific first-half profit dives 67 per cent, hurt by Cathay Pacific and marine services losses
The group has to absorb attributable losses of US$15 million and US$579 million from Cathay Pacific and marine services division respectively
Swire Pacific, one of Asia’s largest conglomerates, saw underlying profit plunged 67 per cent in the first half as gains in investment property sales failed to offset losses from Cathay Pacific Airways and its marine services business.
Excluding revaluation gains on investment properties, the underlying profit was HK$1.27 billion (US$161 million) in the six months to June, it said in a filing to the Hong Kong stock exchange on Thursday.
The group, whose business empire spans aviation, real estate and offshore marine services, said turnover rose 5 per cent to HK$42.3 billion from the same period in 2017.
An interim dividend of HK$1.20 per share will be paid, up from HK$1 a year ago.
“The decrease in underlying profit principally reflects an impairment charge (and associated write-offs) of HK$3.9 billion at (offshore oil and gas provider) Swire Pacific Offshore,” said chairman of Swire Pacific Merlin Bingham Swire, who was appointed to lead the group and its Hong Kong-listed property arm Swire Properties from July 1, in the statement.
“Despite a substantial recovery in the oil price, there has been no increase in average charter hire rates. Too many vessels, including some being brought out of cold stack, are competing for the available work” Swire said.
But the new chairman was absent at the group’s results media briefing on Thursday.
“Merlin has fully intended to host this briefing but he was called in at short notice for an urgent family matter. This is the chairman’s personal matter and we do not have further information to add,” said finance director Michelle Low, who hosted the briefing with Swire Properties chief executive Guy Bradley.
Low also ruled out a suggestion that assets owned by the Swire family could be injected into the group under the new chairman’s leadership.
While the group benefited in the first half of the year from a HK$5.09 billion interim profit contribution from its property arm, it had to absorb a HK$118 million loss from Cathay Pacific, even though the share of loss narrowed from the HK$923 million recorded for 2017.
On Wednesday, Cathay Pacific, in which the group owns a 45 per cent stake, reported a first-half net loss of HK$263, compared with the decade-high loss of HK$2.05 billion in the first six months of 2017.
Adjusted underlying profit, which excludes the effect of significant non-recurring items, increased 40 per cent to HK$3.03 billion. The increase, Swire Pacific said, reflected better results from the aviation, beverages, and trading & industrial divisions, which buffered the fall in profit from property trading.
Swire Properties, which spun off from Swire Pacific in 2012, reported a 34-per cent rise in underlying profit – excluding revaluation gains on investment properties – to HK$6.22 billion for the six month to June.
The rise in core profit was attributed to the sale of an office building in Kowloon Bay and other investment properties in Hong Kong that compensated for the decline in property development project sales in the first half this year. The Kowloon Bay building, sold for HK$6.53 billion, was completed in June.
The sale of another two office towers, the 21-storey Cityplaza Three and the 24-storey Cityplaza Four, in Taikoo Shing in Quarry Bay for HK$15 billion is expected to be completed before April 2019.
Including a revaluation gain on investment properties, net profit increased 44 per cent to HK$21.2 billion.
CEO Bradley played down the extent of adverse impact that higher mortgage rates will have on Hong Kong’s property market as major lenders like Hang Seng Bank and HSBC raise interest rates from next Monday.
“With interest rate increasing, it will have some negative effect on housing demand. But [from] what we see, demand remains resilient and housing supply remains constrained,” he said, adding that he expected performance in the second half to be similar to the first six months.
Hong Kong home prices have jumped 14 per cent in the first six months, according to Centaline Property Agency’s Centa-City Leading Index, which reflects sales at 100 large housing estates across the city.
Turnover for the developer fell 37 per cent to HK$7.3 billion as contribution from property trading plunged to HK$530 million, from HK$5.26 billion in the same period in 2017.
Swire Properties will pay an interim dividend of 27 HK cents per share, up 8 per cent from 25 HK cents in 2017. The company owns 29 million square feet of investment properties in Hong Kong and mainland China including Pacific Place in Admiralty, One Island East in Quarry Bay and Sanlitun in Beijing.
In February, the Swire Group named a sixth-generation descendant of its founder to helm the group and Swire Properties.
The reshuffle marked the first time a family member has returned to take charge of the conglomerate, a HK$301 billion (US$38.3 billion) business with stakes in almost every aspect of Hong Kong life, from the bottling of beverages and sugar refining to developing commercial and residential property, to operating the city’s dominant airlines.