Swire Pacific’s Focus on Organic Growth in Property and Beverages To Lift Profitability

As Swire Pacific is a conglomerate, its earnings are dictated by the performance of its various divisions. While each division faces widely different competitive environments, close to 70% of the group’s earnings are moaty and resilient, underpinning the group’s recurring income. These businesses are Swire Properties' flagship investment properties in Hong Kong; one of two Coca-Cola bottlers in China with Swire Beverages, and Haeco’s aviation maintenance. However, the steady businesses are offset by more cyclical and capital-intensive divisions in Cathay Pacific and Swire Pacific Offshore, or SPO. Both division’s high level of operating leverage magnified losses in recent years as revenue at Cathay Pacific was pressured from competition, profit from poor fuel hedges, and the COVID-19 pandemic. SPO saw sharp decline in demand and charter rates as oil prices weakened. As such, return on invested capital was dragged below the group’s cost of capital.