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Swire chief sees 'tremendous' China opportunity as revenue rises

Family scion vows to reengage with Hong Kong at first earnings conference

Merlin Swire stressed building on the two-century-old legacy his family built at his first press conference as the head of Swire Pacific. (Photo by Kenji Kawase)

HONG KONG -- For Swire Group, a 200-year-old British conglomerate with deep ties to Asia, Thursday's annual earnings conference at its flagship listed unit marked a renewed focus on greater China.

Swire Pacific sees "tremendous opportunity" ahead for China and Hong Kong, Merlin Swire, a sixth-generation scion of the Swire family that started the business, told reporters at his first earnings announcement as chairman of the flagship unit.

When Merlin Swire took the reins of Swire Pacific in July, it was met with surprise by many, as he became the first Swire to take on the position. Speaking Thursday, he said the main purpose of his appointment was for the family "to really reengage with Hong Kong, to build relationships in Hong Kong, and get to understand how Hong Kong is working."

Merlin Swire, 45, who was born in the U.K., said his return to live in the former British colony for the first time since 2004 "reinforces the family's sense of confidence in continuing to invest" in the region.

Swire Group's history traces back to Liverpool, where John Swire, Merlin's great-great-great grandfather started a trading business in 1816. The family business expanded into China in 1861, opened its first branch in Hong Kong in 1870 and has been in greater China for more than 150 years under the name of Swire in English, or Taikoo in Chinese.

The U.K.-based John Swire & Sons, chaired by Merlin Swire's cousin Barnaby Swire, remains the headquarters of the business, but the Swire brand -- which spans from aviation and real estate to beverages and retail -- resonates more in Hong Kong, mainland China and elsewhere in Asia than at home. Merlin said he was "really surprised" to rediscover the strength of the family name after moving back to the region.

The Coca-Cola bottling business in China has been a key source of growth in the country for Swire Pacific.

Hong Kong-listed Swire Pacific's 2018 results showed that 62 billion Hong Kong dollars ($7.9 billion), or 73%, of the total revenue last year was generated in Asia. Overall revenue rose 5% to HK$84.6 billion.

As the world watches the U.S.-China trade war and a slowing Chinese economy, Merlin Swire remains bullish on mainland China and Hong Kong. He said this is a "very exciting time" and signaled confidence in China's growth prospects, helped by new potential drivers such as the Greater Bay Area project, Beijing's latest initiative to integrate Hong Kong with southern China.

When asked about his strategy for leading the regional conglomerate, Merlin vowed to "build on strength that we have." Referring to his family business as "great machine for collaborative management," he said he would stand firm on the foundation the business has built over the past two centuries. To him, "it's just a great opportunity to be in this seat."

"I feel [the] luck as I arrived at a good time," he added. Although Swire Pacific's net profit fell 9% last year to HK$23.6 billion, its underlying profit -- a gauge preferred by investors, and the company itself, that strips away fluctuation in investment property values -- grew 80% to HK$8.5 billion.

While its property division remained the largest contributor to the bottom line, the recovery of the aviation segment, led by Cathay Pacific Airways, drove earnings higher. The airline announced on Wednesday it returned to profitability last year, after recording two years of losses stemming from misjudged fuel futures contracts.

Swire Pacific's beverage division -- mainly a Coca-Cola bottling business in China, the U.S., Hong Kong and Taiwan -- is in better shape, where attributable profit excluding non-recurring items increased 41% on revenue growth of 21%.

Despite trade friction with the U.S., the "Coca-Cola business in China remains strong," and the momentum is expected to continue, according to the company's guidance. The bottling business is what brought Swire Pacific back to mainland China in 1989, after pulling out in 1949 when the Communist Party took control of the government.

However, the group's marine services business, which provides vessels for offshore drilling, represents heavy baggage for the new chairman. A higher average crude oil price did not end the segment's earnings troubles. Its loss more than doubled to over HK$5 billion last year, after recognizing impairment charges for four years in a row. On this front, Merlin Swire admitted that "full recovery is two years away in 2021."

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