A Coca-Cola display in the shape of a Formula One car in Shanghai. Swire Pacific holds the franchise to manufacture, market and distribute Coca-Cola products in China and 11 US states. [Photo / Bloomberg]
HONG KONG - Hong Kong conglomerate Swire Pacific Ltd's net profit registered a year-on-year rise of 75 percent in 2010, but its beverage division recorded a 7 percent decline owing mainly to a weaker performance on the Chinese mainland, the company said on Thursday.Swire Pacific, whose businesses include property, aviation, beverages, shipping and trading, said its net profit in 2010 rose to HK$38.25 billion ($4.91 billion) from HK$21.89 billion in 2009. The net profit of its beverages division was HK$699 million, down from HK$752 million a year earlier.
On the Chinese mainland, the overall sales volume growth of Swire Pacific's beverages division was 3 percent in 2010, compared with around a 15 percent increase in beverage consumption in the emerging market. The beverage division's compound annual growth rate on the mainland had been 17 to 18 percent over the last few years.
The company's carbonated beverage sales were down 5 percent by volume, yet overall beverage sales increased by 16 percent, principally from juices and water. However, tea declined.
Swire Pacific's Chairman Christopher Pratt attributed last year's weaker beverage performance to increased raw material costs; competitive pressures, which prompted more promotional activity and made it difficult to recover higher costs by raising prices; and climate disasters in many mainland areas. In the tea sector, the company lagged behind competitors. "But we started well in the early part of this year," Pratt said.
Swire Pacific holds the franchise to manufacture, market and distribute Coca-Cola products in China and 11 US states.
Its "beverages division faces strong competition from other players in the non-carbonated beverage - especially tea - sector", said Jiang Feng, a food and beverage analyst at Shenyin & Wanguo Securities.
The trend at home and abroad is for healthier, non-carbonated beverages, such as juice and water, to outperform soda, while in China, a country with long history of tea drinking, tea-styled beverages in particular are becoming more and more popular, he said. "Tea accounts for more than 20 percent of China's beverage market, and average growth in the tea sector is around 30 percent on the mainland," Jiang added.
Hong Kong-listed Tingyi (Cayman Islands) Holding Corp, the maker of Master Kong-branded food and beverages, now controls half of the Chinese mainland's tea beverage market, and it said it expects 30 to 40 percent sales growth by volume in tea drinks in the coming years.
Beijing-based juice giant Huiyuan has just purchased a Chinese tea brand Xurisheng for 10.21 million yuan ($1.55 million) to exploit the huge market potential.
Despite the beverages division, Swire Pacific's performance is sound due to its rich business portfolio, analysts said.
The 2010 results benefited from a strong performance from its aviation division, Cathay Pacific Airways Ltd, and sustained profit growth in the property business, Pratt said in a statement.>
