CHINA, Hong Kong. WH Group Limited announced the annual results of the Company and its subsidiaries for the six months ended 30th June 2018. In the first half of 2018, the performance of the packaged meats business was satisfactory on a company-wide basis. Sales volume increased by 2.8% to 1,603,000 t. The turnover in the packaged meat sector was $ 5,901 mill., an increase of 6.9% year-on-year. The operating profit of packaged meats was $ 788 mill., up by 14.9%.
Disregarding the downward trend inhog price, the average sales price of the packaged meats in each respective market went up due to product mix improvement. The revenue of packaged meats increased at different levels in the US, China and Europe. For the China business, operating profit increased by 15% to $ 367 mill. compared with $ 319 mill. in the same period last year.
The strong operating profit was driven mainly by favorable raw materials costs and volume growth. The relatively low hog prices during the Review Period supported the Group’s move to increase inputs in product upgrade and marketing as well as helping it achieve a good margin. For the US business, the operating profit of packaged meats increased by 10.7% to $ 394 mill. compared with $ 356 mill. in the same period last year.
The key driving factors of the strong operating profit were product mix improvement as the Group was migrating volumes to high value-added categories, along with favourable raw material costs as pork prices were lower than that of the same period last year. However, inflationary pressure, particularly in wages and logistics costs, offset part of the increase in operating profit in the U.S.
In Europe, operating profit of packaged meats increased significantly by 145.5% to $ 27 mill. This was primarily due to the increase in sales price and volume. The operating objective will accelerate growth in Europe by continuous volume expansion and efficiency enhancement.
In response to the shifts in demand and supply and the resulting movements in hog prices, WH Group regulates levels of slaughtering activity and adjusts meat prices in each respective market from time to time, in order to maximize the profits. In the first half of 2018, the total number of hogs processed was 27,832,000 heads, an increase of 7.3% year-on-year. Fresh pork turnover decreased 1.1% to $ 4,589 mill., while the operating profit decreased from $ 245 mill. in the same period of last year to $ 93 mill.
In China, market demand was supported by the low level of pork prices. Hog processing volume increased considerably by 30.4%. The Group’s operating target is to capture more market share by continuous volume growth as it keeps improving the utilisation of existing facilities during the era of industry consolidation.
In the US, the hog processing volume was1.4% lower than that of the same period last year as the production scale was constrained by the unfavorable market fundamentals. In Europe, the number of hogs processed increased 8.5% from the same period last year to support the growth in packaged meats business and achieve the benefits of economies of scale. Like China, the increase in hog processing volume in Europe was also driven by the improvement in utilisation of the Group’s existing facilities.
The vast majority of the Group’s hog production business is in the US and Europe. In the first half of 2018, the hog production volume increased by 1.3% to 10,127,000 heads. Revenue from hog production increased by 44.4% to $ 397 mill. due to increased grain sales and more favorable hedging results, partially offset by lower market prices for hogs. Operating profit reduced from $ 49 mill. from the same period last year to $ 22 mill., as hog prices went down.