WH Group credits global operations, integrated model

WH Group Ltd. credits its global structure and integrated model for its ability to weather challenging market conditions in 2015.

WH Group Ltd., the world’s largest pork company, has announced its annual results for the year ended Dec. 31, 2015, and, in doing so, credited its global structure and integrated model.

In 2015, the company reported the production of 19.1 million hogs, processing of 48.3 million hogs and sale of 3.9 million metric tons of fresh pork and 3.2 mmt of packaged meat products. The consolidated turnover and net profit were $21.2 billion and $1.0 billion, respectively.

“In 2015, we saw challenging industry and macroeconomic environments. However, with WH Group’s competitive advantages of having a fully integrated business model and effective global management and operations, our business as a whole performed satisfactorily.” WH Group chairman and chief executive officer Wan Long said.

During the period, the company’s debt-to-equity ratio decreased from 77.2% at the end of 2014 to 58.4% at the end of 2015. The net debt-to-equity ratio decreased 19.6 percentage points, from 61.0% at year-end 2014 to 41.4% at year-end 2015.

Financial costs in 2015 were $219 million, down $28 million compared to the underlying financial costs in 2014 (excluding the interest expense and amortization of transaction costs in respect of the refinancing and partial repayment of a syndicated term loan relating to the acquisition of Smithfield in 2013).

Packaged meat products. The packaged meat products segment has always been the company’s core business. WH Group launched 905 new products globally during the current period.

Packaged meat products accounted for 53.0% of the company’s total turnover and contributed 96.3% to its operating profit in 2015. During the period, sales volume of packaged meat products slightly decreased by 1.4%, turnover decreased by 5.4% to $11.240 billion, while operating profit surged 27.2% to $1.499 billion, with a significant improvement in margin.

Sales volume of China’s packaged meat products decreased 8.3% due to the slowdown of economic growth and transformation of consumption patterns in China, the company said. To this end, WH Group said it has been developing more new products and accelerating the modification of product portfolio. Although sales volume dropped, the company reported significant improvement in operating profit in this segment during the period.

High hog prices has impacted the raw material costs in the China business, but the company said it benefited from lower commodity prices, the expanded import of pork from the U.S., the strategic management of inventory as well as the efficiency improvements resulting from process reengineering. China’s packaged meat segment achieved its record-high per unit profit.

In the U.S., due to the drop in average selling prices caused by the lower meat value during the period, turnover of packaged meat products decreased by 1.2%. However, the company strengthened its marketing efforts to expand market share and solidify the leadership in many key products. U.S. sales volume rose by 7.1% in 2015. Furthermore, as the cost of raw materials decreased due to lower hog prices and efficiencies improved as a result of the company’s internal alignment program “One Smithfield”. Operating profit for the U.S. packaged meat products increased by 48.4%. According to Information Resources, Inc., Smithfield branded packaged meat products ranked the second fastest growing in the retail channel amongst the top 25 food companies in the U.S., the company reported.

Fresh pork. WH Group has adjusted its fresh pork business strategy from time to time in order to cope with the demand and supply movements in the market. In 2015, hog processing volume increased 2.5%, external sales volume of fresh pork increased by 2.8%, whereas turnover decreased by 8.3% to $8.591 billion, and operating profit was similar to 2014. The downward trends in hog processed volume and external sales volume of fresh pork in China were primarily due to demand slowdown caused by the macroeconomic situation and relatively high pork prices. In contrast, hog processing volume and external sales volume of fresh pork in the U.S. increased as the overall hog supply increased across the nation after the spread of porcine epidemic diarrhea virus (PEDV) was contained.

Hog production. In 2015, hog production volume increased by 7.9%, and turnover increased by 68.7% to $990 million. The majority of the company’s hog production business was operating in the U.S. where in 2015 in grew mainly due to the removal of the negative impact of PEDV. The company said it benefited from gains on lean hog futures contracts; turnover from the U.S. operations also increased. However, despite the company’s effective hedging programs, which enabled it to outperform the market in general, operating profit of hog production significantly decreased to $54 million in 2015 due to the post-PEDV oversupply leading hog prices to decrease.

WH Group, based in Hong Kong, is the largest pork company in the world with the top market share in China, the U.S. and some markets in Europe. It owns many well-recognized and trusted brands in all key segments of the pork value chain, including packaged meats, fresh pork and hog production. The company conducts its operations in Asia through Henan Shuanghui Investment & Development Co. Ltd., the largest animal protein company, and in the U.S. through Smithfield Foods, the nation's largest pork company.

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