Top Pork Producer’s Profit Triples as Sale Volume JumpsYuriy Humber and Aibing Guo
WH Group Ltd., the biggest pork producer, said first-half profit tripled after the purchase of a U.S. competitor helped it process more than three times the number of hogs and boost packed-meat sales.
Net income after biological fair-value adjustments was $531 million, compared with $179 million a year earlier, the Luohe, China-based company said yesterday in a statement. Sales rose 220 percent to $10.5 billion. The number of hogs processed surged to 24.3 million head from 6.3 million a year earlier.
The results are the first since WH Group raised $2.05 billion in an initial public share sale in July, helping it pare debt incurred through its takeover of Smithfield Food Inc. The transaction is part of WH Group’s plans to boost the cost efficiency and quality of Chinese food as rising incomes in the most populous nation spur demand for more protein.
“As a result of our acquisition of Smithfield and the continued expansion of our operations in China, sales volume and turnover continued to grow,” WH Group said in a statement.
The takeover of Smithfield, the biggest Chinese purchase of a U.S. firm, will allow WH Group to bring the American producer’s techniques and brand to the home market, Chairman Wan Long told FinanceAsia in an interview published Aug. 21. The company is expanding a network of Smithfield-branded meat kiosks nationwide, Wan said.
For every additional bushel of wheat or pound of beef the world produces, China will need almost half of that to keep its citizens fed. With domestic production unable to keep up, Hong Kong-listed and mainland Chinese firms spent $12.3 billion on foreign takeovers and investments in food, drink or agriculture last year, the most in at least a decade, data compiled by Bloomberg show.
Chinese pork prices were “volatile” in the first half of the year partly due to oversupply of hogs, then stabilized in June, WH Group said in the statement. The price may rise to 16 yuan ($2.60) a kilogram in 2015, Chairman Wan told reporters in Hong Kong yesterday.
Demand in the U.S. in the same period was stable despite a spread of the porcine epidemic diarrhea virus, which hurt U.S. hog production, WH said.
The company plans to expand to new markets by starting exports to Russia this year, Wan said. Overall, capital investments will reach $3 billion in the next three years, of which $1 billion each will be made in China and the U.S., Chief Financial Officer Guo Lijun said at the same briefing.
WH Group shares rose 1 percent to close at HK$6.37 in Hong Kong yesterday. They are up 2.7 percent since the IPO. The Hang Seng benchmark index is up 0.6 percent in the period.
Since the IPO, banks that managed the sale used the share over-allotment option to buy a further $301 million of WH stock, the pork company said. This helped WH Group cut its main loan taken out to buy Smithfield to $2.5 billion, it said.