Swire Pacific Limited


Swire Pacific Limited

1996 Final Results


1) Exceptional item

The exceptional item in 1996 represents the profit from the sale of an 80% interest in a subsidiary which holds the JW Marriott Hotel Hong Kong.

2) Exceptional items of associated companies

The share of associated companies' exceptional items comprises HK$468 million profit from the sale of an effective 10.65% indirect interest in Dragonair and HK$59 million profit from the transfer of business from Hong Kong Aircraft Engineering Company Limited to a joint venture company, formed with Rolls-Royce plc.

Hong Kong profits tax is calculated at 16.5% (1995: 16.5%) on the estimated assessable profits each year. Overseas taxation is calculated at rates of tax applicable in countries in which the Group is assessed for tax.

4) Earnings per share

Earnings per share are calculated by dividing the profit attributable to shareholders for the year of HK$7,654 million (1995: HK$6,454 million) by the weighted average number of 970,009,385 'A' shares and 3,076,706,271 'B' shares in issue during the period (1995: 970,070,240 'A' shares and 3,078,069,476 'B' shares).

Earnings per share excluding exceptional items of associated companies are calculated in the same way, except that the profit attributable to shareholders has been adjusted to exclude the Group's share of associates' exceptional items of HK$567 million. Due to the particular nature of the exceptional items, these additional earnings per share figures have been calculated in addition to the earnings per share required by Hong Kong Statement of Standard Accounting Practice No. 5. In the opinion of the directors, this additional disclosure will assist in the assessment and comparison of the on-going operating results of the Group.


Final dividends to be recommended at the Annual General Meeting on 15th May 1997 amount to HK134.0 per 'A' share and HK26.8 per 'B' share, which together with interim dividends of HK43.0 per 'A' share, and HK8.6 per 'B' share, result in an increase of 11.3% over the total dividends paid for 1995. Share registers will be closed from 5th May 1997 to 9th May 1997, both dates inclusive, and dividends will be payable on 2nd June 1997 to shareholders registered on 9th May 1997.

Share capital

The Group did not purchase, sell or redeem any shares in Swire Pacific Limited.

Movements on reserves

The 1996 valuation at open market value of the Group's investment properties, both completed and under development, was HK$90,438 million. This valuation together with the Group's share of an associated company's property valuation reserve resulted in an increase of HK$23,573 million in the Group's property valuation reserve. Taking into account both the retained earnings, the increase in the valuation of investment properties and the gain arising on share placement by Cathay Pacific in 1996, the net asset value of the Swire Pacific Group at 31st December 1996 was HK$100,788 million, a 41.3% increase on the prior year.

Chairman's Statement

The Swire Pacific Group's profit attributable to shareholders increased by 18.6% to HK$7,654 million. This included exceptional profits of associated companies in relation to the sale of an effective 10.65% interest in Dragonair and the transfer of business from HAECO to a joint venture company, amounting in aggregate to HK$527 million. The Group's attributable profit excluding those exceptional items increased by 10.4%.


Interim dividends of HK43.0 per 'A' share and HK8.6 per 'B' share were declared on 8th August 1996; directors have recommended final dividends for 1996 of HK134.0 per 'A' share and HK26.8 per 'B' share. Thus the total distribution per share paid and proposed for 1996 is 11.3% higher than that for 1995. Subject to approval by shareholders, dividend payments will be made on 2nd June 1997.

Property Division

The property market in Hong Kong exhibited renewed strength in 1996 which has been reflected in a marked increase in capital values and in sale prices for residential apartments and for office floors sold on a "strata-title" basis. Whilst office rentals have not kept pace with appreciating capital values, there are signs that rental levels have now stabilised, having softened appreciably in 1995.

The property division recorded a 12.7% increase in attributable profit in 1996. Recurring earnings from investment properties showed good growth and there was a profit of HK$1,050 million on the sale of an 80% interest in the Marriott Hotel. Property trading profits from the sale of residential and commercial properties declined, due to the lower effective share in the profits from the Island Place joint venture development when compared to the wholly-owned Robinson Place development completed in 1995.

Swire Properties continues to commit significant capital expenditure to the expansion of its investment property portfolio with a focus on consolidating its position as a principal provider of grade A office space on Hong Kong Island, and the construction of Festival Walk, a major retail and commercial complex expected to open in early 1998, which is adjacent to the Kowloon Tong KCRC/MTRC interchange station.

Although the company has a number of residential development projects in hand which will keep it busy in the medium term, the acquisition of land for the development of new residential schemes remains a top priority. Opportunities to add to the company's development property land bank will be vigorously pursued.

The market for high quality residential apartments in Miami, Florida improved during 1996 enabling the sale of a further 111 units in the One Tequesta Point condominium tower. A decision was made during the year to construct a further condominium tower to be known as Two Tequesta Point on an adjacent site.

Aviation Division

In a landmark agreement completed in June, Cathay Pacific placed 572 million new shares with long-term shareholder CITIC Pacific Limited. This has taken CITIC's shareholding in the company to 25% and has provided important new capital to help finance the significant investments in land and buildings at the new airport at Chek Lap Kok and inflight services equipment, including the installation of personal television sets in all seats throughout the fleet. As a result of the placement, the Swire Pacific Group's equity interest in Cathay Pacific was diluted from 52.6% to 43.9% and accordingly its results and those of HAECO are no longer consolidated. Concurrent with the agreement for that placement, Swire Pacific, Cathay Pacific and CITIC Pacific agreed to sell a combined interest of approximately 36% in Dragonair to China National Aviation Corporation (Group) Limited. The restructuring of the Group's aviation interests has resulted in a more certain aviation environment, which represents a positive development for the local aviation industry at a time when all airlines face considerable challenges associated with an extremely competitive market. The move to the new airport at Chek Lap Kok will bring with it opportunities for the industry and economy in general, provided these are not undermined by excessive landing charges and other costs associated with the new facilities.

The modest growth in profit before exceptional item in Cathay Pacific reflects continued erosion in both passenger and cargo yields, largely the consequence of excess capacity and adverse movements in exchange rates. Rising fuel prices throughout the year also contributed to the pressure on margins. Against this difficult competitive background, the company continued to make good progress in the control of costs. Twelve new aircraft joined the fleet during 1996 and the remaining Lockheed L1011 TriStars were retired during the year. The fleet replacement programme, now completed, is making a significant contribution to operational efficiency and cost effectiveness. Additional aircraft on order are expected to boost the airline's capacity, measured in available tonne kilometres, by an average rate of 5.5 per cent per annum over the next three years.

HAECO recorded a slight decline in profit excluding exceptional item. Given the continued competitive pressures in the aircraft maintenance industry, this is a creditable performance. There has been some improvement in worldwide rates for heavy airframe maintenance but it is too early to know whether it will be sustained. HAECO's associated company in Xiamen, Taikoo (Xiamen) Aircraft Engineering Company Limited, has performed to a high standard and work prospects are good. The company's engine overhaul joint venture with Rolls-Royce plc is proceeding as planned, initially at Kai Tak and then at Tseung Kwan O. HAECO will have a good spread of facilities at Chek Lap Kok, Xiamen and Tseung Kwan O.

Dragonair has expanded its route network and increased frequencies on several routes. It remains in a strong position to further improve its revenues and has recently announced orders for new aircraft.

Other companies in the aviation division have performed well in what remain very competitive markets for their services.

Industries Division

Profits from the division's subsidiaries showed satisfactory growth with improved results at Swire Beverages' Coca-Cola operations being only partially offset by the absence of significant profits from Swire Technologies which was sold in March 1996.

Swire Beverages experienced good results in Taiwan and the USA and achieved volume growth but only a modest increase in profits in Hong Kong, due to inflationary pressures and increased competition. New Coca-Cola plants were opened in Zhengzhou and Hangzhou during the year, while plants in Dongguan, Guangzhou, Hefei and Xiamen were under construction at the year-end. The distribution system has been expanded through the opening of a number of new sales centres in key cities within Swire Beverages' China franchise territory.

Swire Industrial, which includes Taikoo Sugar, Swire Duro and Swire Engineering, made satisfactory progress during the year.

Profits from the division's associated companies declined as a result of weaker results at Crown Can Hong Kong, Carlsberg Brewery Hong Kong and Tate & Lyle Swire, all of which experienced difficult market conditions in their expansion into China. Satisfactory results were recorded by Swire BFI Waste Services and the ICI Swire Paints group of companies.

Trading Division

Weak consumer demand in Taiwan throughout the year continued to depress both volumes and margins in the motor vehicle distribution business and as a result profits for the division were lower than in 1995.

The Group committed to a number of new investments in the sports shoe and leisure apparel business during the year, including the acquisition of the Reebok distributorship for China and the launch of two new sports and casual wear concept shops, GigaSports and M Street.

Marine Services Division

Swire Pacific Offshore enjoyed strong growth in demand for its services during the year leading to higher vessel utilisation, charter rates and attributable profits. Four new vessels were ordered during the year, the first three of which are scheduled for delivery in 1997. Contributions from the associates grew strongly in 1996 although these results were influenced by capital profits in Hongkong United Dockyards following the sale of one of its floating docks and the inclusion of a 15 month accounting period for Modern Terminals following a change in its financial year end.

Insurance Division

A decision was taken during the year to withdraw from the insurance underwriting and agency businesses and to scale back the Group's involvement in insurance broking activities. This reflects a strategic move to improve Swire Pacific's focus of activity. Agreement has now been reached on terms for the sale of 49% of Taikoo Royal Insurance Company Limited to the Royal Sun Alliance Group; 100% of the Swire Insurance Group and 60% of Paofoong Insurance Company Limited to Zurich Insurance Company and 15% of Paofoong Insurance Company Limited to the Shanghai Commercial Bank Group. A 70% interest in Swire Fraser Limited has been sold to E W Blanch & Co. of the United States, with Swire Pacific holding the remaining 30%.


As a consequence of the dilution of the Group's interest in Cathay Pacific, with effect from 10th June 1996 the results of both Cathay Pacific and HAECO are no longer consolidated with those of the rest of the Swire Pacific Group. This has important implications for the presentation of Swire Pacific's results and accounting ratios, in particular for turnover, operating profit, net finance charges and contributions from associated companies in the profit and loss account and for net assets, reserves, minority interests and debt in the balance sheet.

At 31st December 1996 consolidated net borrowings, including the US$300 million Perpetual Capital Securities issued in October 1996, were HK$10,418 million which when related to shareholders' funds and minority interests totalling HK$104,436 million resulted in a gearing ratio of 0.10/1. The marked reduction in gearing principally reflects the deconsolidation of the Group's aviation interests referred to above and the significant increase in valuation of the Group's investment properties.

Community Relations and the Environment

As one of Hong Kong's largest corporate groups, we believe we have a duty to support projects which offer an improved quality of life to the community we serve, with a focus on charities which help those least able to help themselves. During the year, we have continued our support for the Community Chest, Befrienders International, the flying eye hospital Project Orbis, and the Bayanihan Trust, which helps overseas workers in Hong Kong.

In 1996, the Group was particularly strong in its support for educational projects. During the year, Swire Pacific joined Cathay Pacific as a major sponsor of the Life Education Activity Programme (LEAP), a project which has had considerable success in raising children's awareness of the dangers of drug abuse, through the medium of mobile classrooms. We also provided funding for the Community English Language Laboratory (CELL), a free facility which helps those who want to improve their spoken English, and through the Swire Group Charitable Trust, share in the endowment of the Bremridge Chair for Asian Studies at the London School of Economics.

The Swire Group is committed to ensuring its operations have a minimal impact on the environment and many Group companies have already set standards for environmental best practice in Hong Kong. The Group takes a proactive stance on raising awareness of environmental issues amongst its staff, their families and the community at large. In 1996, Swire Pacific produced a booklet outlining the Swire Group Environmental Policy and highlighting some of the ways Group companies are putting this policy into practice. Work also began on a second environmental awareness video.

1996 saw the opening of Hong Kong's new Centre of Environmental Technology: the headquarters of the Private Sector Committee on the Environment (PSCE). As a founder-member of the PSCE, Swire Pacific has been closely involved in its design and construction and was one of three main sponsors which provided funding for the building. Swire Pacific's continuing support for the Swire Institute of Marine Science is another prominent example of our commitment to funding research into local environmental issues.


During the year, the 56,000 dedicated staff of the Swire Pacific Group subsidiary and associated companies have worked very hard to produce this satisfactory result in the face of perennial inflationary pressures and a competitive business environment. I would like to take this opportunity to thank them on behalf of the shareholders for their valuable contribution.


The continued growth of the Group's investment property portfolio and relative stability in rental levels will enable net rental income to increase in 1997, albeit only moderately. I would expect the contribution from the sale of residential properties to rise significantly in 1997 in light of the increase in the number of units to be offered for sale during the year and likely strong demand.

Whilst I do not expect any respite from the difficult competitive environment faced by the Group's aviation interests, both Cathay Pacific and Dragonair should enjoy the benefits of good traffic growth on loads, and of new aircraft on operating efficiency in 1997. However, the continued high price of fuel and strength of the HK dollar, particularly against the Japanese Yen, will to some degree offset these benefits.

The industries and trading divisions continue to invest significant sums in the expansion of their respective businesses in Hong Kong, Taiwan and China where long-term growth opportunities remain attractive. In the marine services division, I expect offshore oil support activity to remain firm.

The Swire Pacific Group is in a strong position and, although it is unlikely that the exceptional profits recorded in 1996 will be repeated in the current year, the outlook for the Group as a whole is good.

P D A Sutch


Hong Kong, 14th March 1997

  • Annual Reports
  • Company's Index

  • © Copyright 1996-2023 Ltd. All rights reserved.
    DISCLAIMER: Ltd makes no guarantee as to the accuracy or completeness of any information provided on this website. Under no circumstances shall Ltd be liable for damages resulting from the use of the information provided on this website.
    TRADEMARK & COPYRIGHT: All intellectual property rights subsisting in the contents of this website belong to Ltd or have been lawfully licensed to Ltd for use on this website. All rights under applicable laws are hereby reserved. Reproduction of this website in whole or in part without the express written permission of Ltd is strictly prohibited.
    TERMS OF USE: Please read the Terms of Use governing the use of our website.