HONG KONG -- Swire Pacific has expanded its Coca-Cola bottling operations to cover nearly half the number of provinces in mainland China, a move that would help the conglomerate swallow losses from its struggling aviation and maritime businesses.
The Asian company now owns a beverage business that provides for 11 of 23 Chinese provinces after acquiring more Coca-Cola bottling assets from the U.S. soda producer and a subsidiary of Chinese state-owned food conglomerate Cofco earlier this year.
"We now basically have half of China as our franchise territory, or 49% of the population, which is about [twice] the U.S. population," said Swire's Chairman John Slosar at an earnings briefing on Friday. "We are very excited about the long-term prospect of these businesses."
Slosar's remarks came on the heels of a stronger beverage business, as sales volume in the first-half ended June rose 26% on the year. Attributable profit from the unit, excluding one-off gains, rose 8% to reach 362 million Hong Kong dollars ($46.2 million).
As Coca-Cola accelerated its refranchising process, Swire was able to acquire bottling assets in more U.S. states, making it the third-largest bottler in the country with a 9% share of sales volume.
Swire Pacific, which is 55% owned by London's John Swire & Sons, saw first-half profit more than double to HK$12.14 billion, as gains in its property and beverage businesses offset lower income from its aviation, marine and trading units. Group revenue in the six months ended June reached HK$40.21 billion, up 34% on the year.
Cathay Pacific Airways, a 45%-subsidiary of Swire Pacific, posted its worst first-half loss in nearly two decades on Wednesday. The Hong Kong-based airline blamed intense competition, the hefty costs of fuel hedging and restructuring for its HK$2.05 billion loss in the six months ended June. That compared with a profit of HK$353 million a year earlier.
Asked about Hong Kong-based Kingboard Chemical's attempt to raise its 9% stake in the airline, Slosar said: "Do we feel threatened? No. Our shares are listed on the stock exchange. Anyone can buy at any time they want."
He refused to disclose details about recent talks with Kingboard, stressing both parties only "exchanged ideas."
Swire's marine services unit remained in the doldrums. Attributable loss nearly tripled to HK$676 million from a year ago, thanks to a weak offshore oil exploration market and oversupply of vessels. The group scrapped 20 vessels, or 20% of its fleet over the last few years.
"We are not expecting any significant improvement in the second half. However, there are at least some signs the market may be bottoming out," said Slosar, suggesting a gradual pick-up in the utilization of its fleet and that recent consolidation would be a "precursor" to a more efficient industry.
Meanwhile, its property arm Swire Properties was a main driver of group profits. The developer posted a 177% jump in net profit of HK$14.76 billion due to revaluation gains. Revenue surged 46%, helped by sales of luxury properties and steady rental income from its offices and retail properties.
Its Hong Kong malls, including the upscale Pacific Place, was hit by fewer mainland shoppers, but the developer noted a recovery in retail sales following a change in tenant mix to replace some luxury retailers with restaurants.
"We are reasonably comfortable with that," said Swire Properties Chief Executive Guy Bradley. But he added: "We are still cautious to get too excited about a turnaround."
On the mainland, Swire Properties opened in May its HKRI Taikoo Hui mall in Shanghai, in addition to its portfolio of commercial properties in Beijing and Chengdu. The Shanghai property has pre-leased about 90% of its space and opened 40% of its shops. A hotel will also open there later this year.
Swire Properties has also undertaken a joint venture to develop its next retail project in Qiantan, Shanghai's Pudong New Area. "We would like to do more in China, particularly in Shanghai, which is a great retail city," Bradley said.