Swire Pacific issues another profit warning as property, airline, marine units suffer from coronavirus impact

Swire Pacific has issued another profit warning to investors, saying its property, airline and marine services would post substantial losses in the first half as the coronavirus pandemic hurts its outlook this year.

The group, one of Hong Kong's biggest conglomerates known for its conservative approach, said Swire Properties, Cathay Pacific Airways and Swire Pacific Offshore were expected to report sharp reversals in earnings from a year earlier due to the fallout from the pandemic and a plunge in crude oil plunge.

The British-controlled group said three months ago it expected to incur a recurring loss in the first half as the viral outbreak and crude oil’s descent below zero caught the global economy by surprise.

“It is expected that there will be a loss on revaluation of investment properties, net of deferred tax, of around HK$2.6 billion (US$335 million) in the first six months of 2020,” it said in an exchange filing. Its 82 per cent-owned Swire Properties had a HK$3.6 billion revaluation gain in the same period last year.

The loss mainly reflects the effect of poor market conditions and the valuation of investment properties in Hong Kong and retail investment properties in the United States, it added. One of its prime holdings in Hong Kong is the Pacific Place, an office and shopping complex in Admiralty.

The group also said the property arm is likely to generate lower income from the sale of investment properties this time, while its hotel business will swing into a loss.

“The overall performance of Swire Properties’ investment portfolios remains solid despite the impact brought by Covid-19,” the group said in a separate statement. “With our balanced portfolio and strong balance sheet, we are well-placed to withstand the effects of this difficult time and to benefit from improved conditions in the future.”

Swire Pacific’s 45 per cent-owned carrier, Cathay Pacific Airways, has recently reiterated its expectation of a substantial loss in the first half this year. Not surprisingly, the pandemic has prompted most carriers to ground their planes to save operating costs after an unprecedented slump in travel demand.

Swire expects losses in first-half report as coronavirus hits Cathay Pacific, property units

The carrier announced a HK$39 billion recapitalisation plan on June 9 with HK$27.3 billion to be contributed by the Hong Kong government. The carrier, which is burning cash at the rate of HK$2.5 billion to HK$3 billion per month, is also asking existing shareholders for HK$11.7 billion through a rights offering.

Meanwhile, Swire Pacific said it also expected to book HK$4.3 billion of asset impairment charges from Swire Pacific Offshore, its wholly-owned marine services division. The unit operates 72 offshore vessels that service the oil industry.

“Demand for oil has fallen significantly this year, principally as a result of Covid-19,” it said. “Business conditions in the offshore supply industry and the outlook for the industry have deteriorated substantially.”

Swire Pacific shares fell 2 per cent to HK$43.70 in Hong Kong on Monday. The Hang Seng Index fell 2.2 per cent.