The profit for 2000, at HK$3,889 million, was 12.3% lower than in 1999.
This reflects a further HK$1,700 million provision against the residential
property trading portfolio, a provision of HK$250 million in respect of
the property trading element of the Taikoo Shing arbitration and other
non-recurring items of HK$132 million. Profit excluding non-recurring
items in both years rose from HK$4,324 million in 1999 to HK$5,971 million
in 2000 - an increase of 38.1%. This underlying result demonstrates the
strong pick up in demand for commercial property in Hong Kong, and for
aviation services in the region. Our other businesses reported generally
improved operating results. Net debt has decreased marginally to HK$16,815
million, whilst gearing has fallen from 23% to 21% following an upward
revaluation of our investment properties.
Interim dividends of HK36.0 per 'A' share and HK7.2 per 'B' share were declared on 10th August 2000. Directors have recommended
final dividends for 2000 of HK76.0 per 'A' share and HK15.2
per 'B' share. The total distribution per share paid and proposed for 2000 is 1.8% higher than that for 1999. Subject to approval by shareholders,
dividend payments will be made on 1st June 2001.
Markets and Operations
2000 was a year in which Swire Pacific saw
significant improvements in most of its core activities, though difficult
trading conditions persisted in some. The continuing challenge, as for
any conglomerate, is to capitalise on our strength, in terms of industry-specific
expertise and of our knowledge and experience of the Greater China region.
We continue to evaluate the group's contribution to the businesses in
which we are engaged, increasing our investment in those where we believe
we add significant value and rationalising investment in those businesses
where we believe we are unable to see a return commensurate with our costs
of capital and management time. This process has led to the disposal of
several business interests in the Trading & Industrial Division and to
expansion in several other businesses, most notably commercial property
investment, aviation and offshore marine services.
In January 2001, Government's claim for land premium in respect of various
buildings in Taikoo Shing was upheld in an arbitration award. Although
an appeal has been submitted, certain provisions have been made in the
2000 financial statements. These are explained further in the review of
The Hong Kong property market has seen a significant upturn
in achieved rentals for office and retail space, and this is reflected
in the encouraging results from our investment property portfolio, both
in terms of profit and balance sheet valuations. The residential sales
market has been weak, and therefore we have made a further provision of
HK$1,700 million against the Ocean Shores development in Tseung Kwan O.
However, a welcome recent clarification by Government of its long-term
intentions as regards new residential supply, together with a lower interest
rate environment, should help improve the tone of the market. While the
provision we have made has had a negative impact on profit in 2000, future
cash flow will remain strong as the development is sold. We continue to
look for additional property investment and trading opportunities that
will enable us to earn an adequate return.
The upturn in regional economies has led to an increase in demand for
aviation services. In 2000, Cathay Pacific set new records for profits,
for the number of passengers carried and for cargo tonnage. Both passenger
and cargo yields improved slightly, but still remain well below the levels
seen in the mid 1990s. The result reflects the airline's success in carefully
controlling costs, even though fuel prices increased sharply. Cathay Pacific
and Dragonair have announced plans to expand their fleets with the addition
of 11 and 4 aircraft respectively. These aircraft will enable both airlines
to open new routes and add more frequencies to both regional and long-haul
destinations, thus reinforcing Hong Kong's position as Asia's leading
The Beverages Division achieved good overall volume growth at 9%. The
strongest volume growth, 12%, was seen in Mainland China. We have continued
to improve and deepen our distribution network in order to achieve better
control over pricing and market penetration. The established businesses
in Hong Kong and the USA continue to deliver stable and satisfactory returns,
whilst Taiwan had a difficult year. The operations in Mainland China already
generate strong cash flow and we are confident of further volume growth
and of our ability to generate profits through better control over both
prices and costs.
In the Marine Services Division, Swire Pacific Offshore has benefited
from the increase in oil prices, with an improvement in both charter rates
and vessel utilisation. Orders have been placed for six new vessels to
be delivered in 2002 and 2003, and the company has taken a 50% stake in
a joint venture to supply and operate an early production facility offshore
Iran on behalf of Shell Exploration BV. Our container handling interests
in both Hong Kong and Shekou achieved good profit growth on the back of
higher volumes and operating efficiencies.
The Trading & Industrial Division had a mixed year, with good profits
earned from the car businesses in Taiwan and, for the first time, in Mainland
China, and from the sports apparel and waste management businesses. Other
businesses continued to suffer from difficult market conditions, although
the beneficial effects of restructuring are now being seen.
The group's financial position remains strong, with committed loan
facilities and other financing amounting to HK$18,356 million, of which
13% remained undrawn at 31st December 2000. In addition, there were uncommitted
facilities undrawn at the year end of HK$3,512 million.
During 2000, our credit ratings from Moody's and Standard & Poor's
were upgraded from A3/A- negative outlook to stable, reflecting the strength
of our recurrent cash flows. Both agencies reaffirmed these ratings after
the announcement of the initial award in the Taikoo Shing arbitration.
At 31st December 2000, consolidated net borrowings amounted to HK$16,815
million, which, when related to shareholders' funds and minority interests
of HK$81,267 million, resulted in a gearing ratio of 0.21. The decrease
in the gearing ratio from that of 31st December 1999 reflects an increase
in shareholders' funds, principally attributable to retained profit for
the year and an increase in the property valuation reserve.
The group views e-business initiatives as
an integral part of existing operations. Our strategy is to use e-business
internally to reduce purchasing and administration costs and externally
to provide enhanced service capabilities to our customers. Cathay Pacific's
award-winning flagship website, www.cathaypacific.com, now offers
a wide variety of services, including on-line booking and internet check-in.
In March 2000, Swire Pacific, together with
five other Hong Kong conglomerates, invested in a new business-to-business
(B2B) exchange venture, Asia2B. This company has recently merged with
a similar venture, based in Singapore, to form SESAMi Inc.
Swire Pacific is committed to excellence
in its corporate governance. In addition to encouraging fair and ethical
dealing with stakeholders and business partners, we have an active programme
of briefings for analysts and investors to ensure that, as far as is possible,
the market is kept apprised of the plans and prospects for the group.
Swire Pacific has an Audit Committee which
meets three times a year to review financial statements and to receive
reports on financial matters and risk management from the internal and
external auditors of the group. The Internal Audit department has a structured
programme of risk-based audits for all of the group's businesses. It reports
directly to the Group Finance Director, with other reporting lines to
the Chairman and the Audit Committee.
The group also has a Risk Management Committee which includes representatives
from each of the divisions. This committee meets quarterly to review the
group's risk management initiatives and to promote an awareness throughout
the group of good corporate governance principles and practices.
The Swire group has been part of the Hong
Kong community for over 130 years and is firmly committed to its future.
The Swire Pacific group has a continuing programme of charitable activities
to benefit less-advantaged members of society. Organisations that we have
supported include the Community Chest, the Hong Kong Association for the
Mentally Handicapped, Befrienders International, the Society for the Promotion
of Hospice Care and the Sunnyside Club. The group is also the major sponsor
of the Life Education Activity Programme (LEAP), which teaches young children
about healthy living and the dangers of substance abuse. Swire Pacific
funds a number of university scholarships in Hong Kong and overseas for
students from a number of Asian countries, and locally funds scholarships
at the Taikoo Primary School, which was founded by the group in 1923.
Also in Hong Kong, Swire Pacific supports the Community English Language
Laboratory (CELL), a free facility for those wishing to improve their
spoken English, and we have invested in the future of the environment
by funding research facilities at the Swire Institute of Marine Science.
As a major business group, Swire Pacific
is very conscious of the potential impact of its activities on the environment.
The group takes active measures across all its businesses to measure and
minimise any negative effects and to ensure that we meet or exceed standards
for environmental best practice wherever possible. Swire Properties was
the driving force behind the inception of the Hong Kong Building Environmental
Assessment Method, which sets standards for efficiency and the impact
on the environment of new buildings. Cathay Pacific has won a number of
awards for environmental initiatives. All group companies are encouraged
to implement annual environmental audits and to undertake environmental
impact assessments before committing to projects. The Swire group is a
member of the Hong Kong Business Coalition for the Environment and was
elected to the United Nations Global 500 Roll of Honour in recognition
of its contributions in this field.
The group employs more than 60,000 people,
whose efforts are a major contributor to the continuing success of Swire
Pacific. On behalf of the shareholders, I would like to thank all our
staff for their achievements during the past year.
Prospects for the Hong Kong economy remain
good, with the most recent forecasts projecting GDP growth in a range
of 3 to 4% in 2001. Mainland China also predicts strong GDP growth at
7.5%. Our businesses are in good shape and are well-positioned to take
advantage of the opportunities presented by such growth. Local economies
should also benefit from falling global interest rates. However, a cautionary
note should be sounded in that any further slowdown in the US economy
will, inevitably, have an effect on Asian economies, including Hong Kong.
In the commercial property market in Hong Kong, limited new supply over
the next two years should mean that rental levels remain firm. Notwithstanding
continued weakness in the residential property sales market, Swire Properties'
portfolio is expected to generate satisfactory returns.
After a record year in 2000, Cathay Pacific faces a number of challenges
in 2001. The significant expansion of the fleet, and the expected slower
growth in demand, may exert pressure on margins. However, Cathay Pacific's
reputation for excellent service, the strength of the route network and
tight control over costs will stand the airline in good stead.
An improved contribution is expected from other interests.
Long-term prospects for all our core businesses remain good, and we shall
continue to focus new investment in those areas.
Hong Kong, 9th March 2001