One of a handful of long-running Asian conglomerates, Swire Pacific dates back to the late 1700's, when it was started as a small import-export company. The company was featured under the pseudonym "Rothwell-Gornt" in James Clavell's novel "Noble House", which was a thinly-disguised portrayal of the group's competition with Jardine Matheson, a similar conglomerate with a focus on Asia.
Today, Swire's businesses are grouped into: property, aviation, beverages, marine services, and trading and industrial. As with Jardine Matheson, Hutchison Whampoa and others, these conglomerates are interesting ways to get a number of varying businesses under one umbrella. While periods of stagnation may occur or other concerns may arise (and previous performance is not an indicator of future performance), these companies have managed through good times and bad for many, many years.
Swire's key business is Aviation, which consists of a number of businesses, including engineering subsidiaries, airport services (including Hong Kong Airport Services Limited, which provides passenger service, cargo service and other operations at HKIA; Jardine also has operations of their own at HKIA) and airlines. The largest element of this arm of the business is Cathay Pacific Airlines, which Swire is the largest holder of at 43.97%. Cathay Pacific has been named "Airline of the Year" in the annual Skytrax World Airline Awards three times during the ten years that the awards have been running and recently started offering first/business class passengers (for a limited time and on flights from Hong Kong), high-end, Michelin star-graded meals from chefs at the company's hotel restaurants (more on those later.) While Cathay Pacific continues to be one of the world's best-reviewed and most highly regarded airlines, the success of the business is, of course, both sensitive to economic activity and input costs, and both have begun to be more of an issue recently, with oil heading higher and activity declining - while the company has recently stated that it expects a bump up in cargo activity in 2012, cargo activity declined 17.5% y/o/y in October 2011, the seventh consecutive decline (Story). Passenger traffic increased, but passenger load fell slightly.
While not one of the biggest revenue drivers for the company, the Beverage Division is particularly interesting, as Swire is an anchor bottler for Coca-Cola, including Hong Kong, much of China, Taiwan and parts of the US. The company is one of the largest bottlers in the world and works closely with Coca-Cola. The company holds exclusive rights to sellCoca-Cola products to c. 450 MM consumers in Mainland China (413 MM), Taiwan (23 MM), Hong Kong (7 MM) and the USA (6 MM). The latest investor presentation for the beverage side of the business can be found here. The division's growth prospects would certainly appear bright, given its strong position in a growth market and ability/insight to market to the local audience and create locally appealing beverages and/or packaging/marketing. However, raw material costs once again play a significant part and have risen significantly in recent quarters. While not discussed much on the company website, the division did enter into an agreement with Campbell Soup in January 2011 to sell Campbell Soup in mainland China. This venture did produce a loss in the first half of 2011, which was in-line with expectations.
Properties includes commercial, retail and industrial property in Hong Kong, Mainland China and the UK. The properties group recently sold the Festival Walk property in Hong Kong for HK$18,800M, raising cash for other potential opportunities. Other property holdings include Pacific Place and Island East in Hong Kong, as well as other Hong Kong, Mainland China and UK properties, as well as some US real estate (primarily in Florida, including in the Mandarin Oriental Miami.) The property unit has been discussed as a potential spin-off; plans were shelved in 2010 because of "market conditions", but plans have been restarted in 2011 and filings have been started. Growth prospects include the group's Asian hotels, which are beautifully designed, high-end boutiques, such as The Opposite House, as well as Chapter Hotels. Chapter is a new UK chain that will take inspiration on each location's look and feel from the surrounding area. At the point of interim results in August, 2011, the property group saw gains of HK$18,083m thanks to revaluation of properties in HK, as well as a remarkable 100% occupancy level in the group's HK malls. Gross rental income from the retail portfolio increased by 8% and there was retail sales growth of
17%. Hotels in the UK saw improved results, but tough conditions. However, the company's Asian hotels have seen significant improvement. The group expects continued strong performance from the HK commercial portfolio in the second half of 2011.
Another, smaller arm of the company is Swire Pacific Offshore, which provides services largely to the oil and gas industry, including tugboat, inspection/maintenance, platform supply and other additional services. The company's modern fleet is well-positioned across the globe to respond to a number of clients, including Exxon, CNOOC, Schlumberger, Chevron and Shell, among many others. The company has purchased an additional 27 vessels for delivery between 2011 and 2015. With increased activity in the offshore energy market, Swire Pacific Offshore should see continued demand in coming years after difficulty in 2010, although it will have to contend with higher costs and varying charter rates, among other issues.
Lastly, the Trading and Industrial group includes vehicle distribution/sales, sugar (Taikoo Sugar distributes sugar in Hong Kong and across mainland China) and paint (Akzo Nobel Swire Paints), as well as clothing (Swire Resources distributes and retails sportswear, footwear and casual clothing in mainland China and Hong Kong, and has the exclusive rights to a number of brands, including Teva and Champion.)
While not an investment recommendation, Swire remains an interesting array of varying businesses. The company has a number of core businesses with potential - including a Coke bottling business in a growth market, an innovative and exceptionally well-reviewed airline and offshore services. Still, these businesses - as well as a number of Swire's other businesses - are definitely sensitive to the economic environment and in some cases (such as the large aviation division) to higher input costs.
The company offers both A shares and B shares (the latter are more illiquid.) From the website: Notes: Because of the difference in nominal values, five 'B' shares are equivalent (in terms of cashflow rights, dividend payments etc.) to one 'A' share, while each share, whether 'A' or 'B', carries one vote at meetings of shareholders. The ADR A shares have an approximately 4% yield as of 11/19/11.
Swire Hotels Video:
A Look at Creating Cathay Pacific's New Business Class:
US Shares:
SWRAY (ADR A Share), SWRBY (ADR B Share), SWRAF (Ordinary A Share), SWRBF (Ordinary B Share)
Website: http://www.swirepacific.com/eng/global/home.php
Presentations:http://www.swirepacific.com/eng/ir/financialbriefings.php
