Good evening, everyone. Welcome to the results announcement for the first quarter of 2024. The management will walk you through the performance of the first quarter of this year and our future strategies. Today we have, Chairman and Executive Director of the company, Mr. Wan Long, Executive Director and CEO of the company, Mr. Guo Lijun, Executive Director of the company and CEO of Shuanghui Development, Mr. Ma Xiangjie, and CFO of Shuanghui Development, Liu Songtao, Shane Smith, CEO of Smithfield, CFO of Smithfield, Mark Hall, CFO Joanna Yan, and, this is Robert Wan, Executive Director and host of today's briefing session.
So Mr. Guo will start with an overview of the first quarter performance. Good evening, everyone. Now I'm going to walk you through our performance in the first quarter of 2024. In the first quarter of 2024, total package meat sold is 786,000 metric tons, year-over-year drop of 4.1%.
Total pork sold is 941,000 metric tons, year-over-year drop of 7.8%. Revenue was $6.2 billion, year-over-year decline of 8.3%. EBITDA we had achieved $674 million, 27% higher than last year. Operating profit $501 million, which is 37% higher than last year. Net profit attributable to the owners of the company is $301 million, which is 73% higher than last year. So overall, the volume has dropped, but the profitability has improved substantially. In the first quarter of 2024, hog prices in China and the U.S. continued to remain at low levels due to sufficient hog supplies. The hog prices in the EU, Europe were at historical high levels as hog supplies remained tight. In the first quarter of 2024, the number of slaughtered hogs in China decreased by 2.2% - 195 million heads. Hog inventory in China decreased by 5.2% - 409 million heads.
The number of slaughtered hogs in the U.S. increased by 0.4%- 32.7 million heads. The average hog price in China was CNY 14.9 per kg, a decrease of 5.1% year-over-year. In the U.S., the average hog price during the first quarter was $1.26 per kilogram, a decrease of 0.8%. In Europe, the average hog price was EUR 1.6 per kg, decreased by 3.2% year-over-year. The average pork cut-out value in the U.S. was $1.97 per kilogram in the first quarter of 2024, an increase of 8.7%. So the industry market spread, which is the USDA cut-out minus CME hog prices, recovered significantly from the first quarter of last year. In China, the profit of our package meat business increased significantly. Earnings of the pork business declined due to weak demand.
The operating profit in China, the profit for the pork business was $2.251 million, dropped by 10%. The package meat business had a profit of $262 million, an increase of 10%. In the U.S., the profitability of package meat remained high. The loss of the pork business narrowed substantially thanks to lower raising costs and operational improvements. The operating profit in the U.S. in the first quarter was $191 million. The package meat business had an operating profit of $288 million, whereas for the pork business, the loss was $62 million, which is $151 million less loss compared to last year. In Europe, the operating profit achieved record highs as it captured the favorable market conditions. The operating profit in the first quarter of 2024 was $159 million.
The package meat business had an operating profit of $30 million, increased by 100%. The pork business had an operating profit of $26 million, which increased by 189%. From an outlook perspective, we believe the opportunities continue to outweigh the challenges. We see the global economy stabilizes, but growth prospects diverge across regions. Inflation has moderated, which is laying the foundation for easing monetary policy. The geopolitical situation remains complex and volatile, impacting the landscape of the global industrial supply chain. The animal protein industry is gradually rebalancing the supply and demand. For WH Group, we'll continue to consolidate our global resources, adhere to the adjust price, improve mix, and control cost philosophy, leverage our strengths in industrialization, scale and diversification, upgrade intelligent manufacturing, automation, digitalization, and continue to maintain our leading market positions.
[Foreign language]
[ Foreign language]
[ Foreign language]
[ Foreign language]
[ Foreign language]
[ Foreign language]
[ Foreign language]
The first question is from research analyst of Bank of America, Chen Luo. The first question relates to the China business. The profit in the fourth quarter and the first quarter of this year dropped in China Shuanghui. In the first quarter this year the package meat business continued to perform well, but the overall profitability has been negatively impacted by the slaughtering and the hog production business. So the question is what's the management's outlook for the hog prices in the second quarter and the third quarter of this year, and are there any opportunities to see some recovery in hog production and the slaughtering business in China?
[ Foreign language]
[ Foreign language]
[ Foreign language]
[ Foreign language]
So the answer is from a CEO of Shuanghui Mr. Ma. For the result of the fourth quarter last year we had discussed in the previous briefing so we will not discuss further in this meeting. For the performance in the first quarter of this year our profit drop is primarily due to our slaughtering business or fresh pork business, whereas the package meat business has actually improved the profit. And in the hog production we also saw improvements in terms of the raising cost in terms of the KPIs and we're seeing fewer lower losses. So the reason for the relative for the drop in the profit in the slaughtering or the fresh pork business is because in 2023 the price for the frozen meat was relatively high thanks to the release of the COVID-related controls.
So at that time we have achieved good profit from the frozen products, but in 2024 the price of the frozen meat is lower, but on the other hand the margins or profit from our fresh meat continue to be very good. In terms of the outlook for the rest of the year, our judgment or view on the pork hog price is that it will be relatively lower in the first half and it will gradually increase in the second half. But overall the average price in 2024 would be largely same as 2023 or slightly improve, and it will be below CNY 16 per kilogram. And we think the hog prices will improve a little bit in the second quarter and the profitability on the frozen meat products will improve.
The profit from the fresh meat will remain stable. Overall we think this year for the fresh pork business the scale will expand and we will see some pressures in the profitability from the fresh pork business.
[ Foreign language]
[ Foreign language]
[ Foreign language]
[ Foreign language]
Question from Morgan Stanley research analyst, Lillian. The first question relates to the China business. Mr. Ma has already talked about the upstream business. Now, she wants to ask about the downstream business. As Miss Ma mentioned earlier, we are facing weak demand from the market, and we have noted the volume decrease in package meat business in the first quarter. What's the management's outlook for the full-year package meat volume, given the performance in the first quarter? In the previous briefing, management had a positive outlook for the volume for the entire year. Will this change? Second question relates to the U.S. business. We are seeing good improvement in the hog production in the U.S., the narrowing of the losses. Will this trend continue?
If the pork prices increases in the U.S., will that have any negative impact to our package meat business in the U.S.?
[ Foreign language]
So the answer from Mr. Ma on the package meat business in China, we did have a slight decrease in the volume in the package meat business in China for the first quarter, partly because of the lower season after the major holidays and also because we had a higher base in 2023. Because in the first quarter of 2023 was the first quarter where the COVID-related control on the social movement has been released in China. So there have been a lot of pent-up demand from the markets. So the sales volume in the first quarter of 2023 was very strong, even in the historical context is a relatively high level in Shuanghui's history. So with that in mind, we think in the second quarter the volume of package meat business will stabilize in terms of growth.
In the third quarter we'll see growth and in the fourth quarter, we will see more significant growth. We do want to highlight that the year-over-year comparison in the first quarter and the fourth quarter of 2024 are both impacted by the basis of last year. Shane, Mark, do you want to take the second question?
Yeah, yeah, we'll take the second question. So as you noted, the U.S. hog production business has narrowed losses. As we look forward, we do think that trend will continue. That's been a combination of both improvement in pricing from the hog index, underlying transformational changes that have improved our cost structure, and coupled with falling raising costs. When we look at corn, it's down about 13 or I'm sorry, 29% year-over-year, and soybean meal is down about 6%. And so we're seeing a continued improvement in the underlying raising cost base. We do expect that to continue. We expect that we are beginning to come back to normal seasonal patterns and profitability of hog production. Now, typically it means we see losses in the first and fourth quarter and profit in the second and third quarter.
We do believe that we are back in that cycle and we will begin to see profitability in hog production as we go through the second and third quarters. As to the impact of that on our packaged meats business, you're correct that as meat prices change, that does put pressure on packaged meats. However, what I would tell you is we have a very resilient packaged meats business. We continue to remain focused on pricing discipline, controlling our mix, and ultimately controlling our costs. So we feel very encouraged about what we see in packaged meat and the outlook for the remainder of the year.
[ Foreign language]
[ Foreign language]
[ Foreign language]
Three questions from CICC. The first question relates to the U.S. hog production business. We have noticed the increase in the hog prices in the U.S. What's the management's view on the hog price cycles in the U.S.? Where are we in the cycle, and do we see changes in the supply-demand dynamics, and do we believe we have the opportunity to have a higher expectation on the hog production profitability for 2024? The second question also relates to the U.S. In the U.S. package meat business, we noticed a 4% decrease in profit in the first quarter. What's the reasons of this drop in profitability? And what's the management's view on the current consumer demand in the U.S. retail market, and what's the management's outlook for the package meat business?
The third question relates to China's network doubling efforts, and what's the latest progress and any data that the management can share with the group?
To the first question, you in hog production, again, we're seeing improvements coming out of this incredibly bad cycle that we've been in really since the fourth quarter of 2022. As I said while I go, as we come into the second quarter, we are seeing strengthening in pricing, a reduction in raising costs, both driven by the reduction in corn and soybean meal on the input side, as well as transformational things that we have done as a company to remove unprofitable parts of that business, unprofitable or underperforming farms. And so we do expect as we go forward that as we go through the second and third quarter, we'll see a return to seasonal profitability, as I mentioned earlier. Fourth quarter is a quarter that remains historically under pressure from a profitability standpoint.
But we do believe we've come out of this cycle that we've been in and returned into the more normal cycle of losses in the first and fourth quarter, profitability in the second and third. So that's the way we look at 2024. That's what the markets would indicate to us today, is our expectation. And so I believe we're in a much better place today in our hog production business than we were, as we went into this cycle in the back half of 2022.
[ Foreign language]
To the second part of the hog production question, you asked about supply-demand. We are and continue to see some contraction in the U.S. herd. We've seen an increase in sow slaughter, as well as other indicative information that there's an overall reduction or contraction in the U.S. industry. However, I would temper that a little bit with we are seeing increases in productivity. And so I think the USDA is calling down about 1% or calling up 1%. We think that may actually be flat to down as things are offset by productivity gains. So we don't see a significant change in the supply-demand economics in the U.S.
[ Foreign language]
Xiaoming, I'll take the second question on package meats. As Shane stated, at the outset, you know, our package meats business continues to perform exceptionally well. And this first quarter results was actually the third best in our company's history. So you referenced some softness as compared to the prior year. I would say that last year's first quarter was a record first quarter. So it's a difficult comp for us. And it's really our first quarter results are heavily dependent on the holiday ham season. So I would say marginally, holiday ham business was a little bit softer than last year. But again, the business continues to perform exceptionally well. Our profitability per metric ton was over $880 during the quarter. So again, just outstanding results from package meats.
The question as to the health of the consumer, you know, I would say the consumer continues to contend with high prices, driven by inflation and reduced government support programs. It's especially prevalent on the food service side of the business where food inflation on food away from home was over 4% during the last reporting cycle. So, you know, the consumer is still very cautious. But as we've stated before, you know, Smithfield is uniquely positioned across price tiers, across brands, and also providing a fair amount of private label business so that we're able to capture that consumer trade down across the Smithfield franchise and not lose that customer outside of the Smithfield business.
[ Foreign language]
[ Foreign language]
[ Foreign language]
With respect to the doubling network initiative in China, it is an important initiative we launched last year to hopefully achieve two objectives. One is to double the number of point of sales or the network coverage of our fresh pork and package meat business in the next three to five years. And the second is to strengthen the quality and the operating capability of the point of sales of our distribution network. Last year it was in the pilot project last year was in the experimental stage, where we launched the initiative in selected markets. This year we expect to roll out this initiative into more cities in China. For the package meat business, we hope to add 250,000 new networks and, by the end of the year, to have 1.74 million point of sales.
In the fresh pork business, we hope to add 15,000 new points of sale and to reach 65,000 points of sale by the end of the year.
[ Foreign language]
[ Foreign language]
[ Foreign language]
[ Foreign language]
Two follow-up questions from Bank of America, Chen Luo. First relates to the China business. As Mr. Ma has mentioned earlier, he expects the fresh pork business to improve in the remaining part of the year, and he remained very confident in the package meat business. So, given that we have a relatively low base in the fourth quarter of 2023, does that mean the management still believe we can achieve a slight increase in the overall profitability in China for the full year? And the second question relates to the potential spinoff IPO of Smithfield, because in the third quarter of last year the management has mentioned that they are discussing this plan. Are there any more developments or any further updates that can be shared with the market?
[ Foreign language]
The answer from Mr. Ma on the first question is positive, because we believe we are seeing improvements in the KPIs of our hog production and our poultry raising business, livestock raising business. So we expect the losses in those areas will significantly narrow this year. And we are also seeing improvements in the package meat business. So we are confident for the increase in profitability in 2024 full year.
[ Foreign language]
So, in relation to the spin-off, IPO, spin-off of Smithfield, as mentioned, it is certainly an idea the management has been discussing. We are closely monitoring our own operating performance as well as the external market development. When the conditions are mature, we will be presenting the proposals to the board and to seek approval and make announcements as appropriate to the market.
[ Foreign language]
[ Foreign language]
The question from UBS relates to the U.S. hog production business. She wants to understand more about the progress of our hog production capacity reduction plans. Are there any latest updates? Also, are there any impairments we expect to incur in 2024? Given where we are in the cycle, given the gradual improvement in the dynamics in the U.S. hog production in the U.S. hog markets, will we slow down our hog production capacity reduction plan? Also, in previous briefings, the management has talked about a capacity target of less than 10 million heads per year. When do we expect to hit that target?
Okay. Thank you, Veronica. Yeah, so, you know, if you think back to our height, we were at about 17.5 million hogs, just a couple of years ago. As we look at 2024, we expect that number to be less than 15 million. We've done that in a number of ways, including, and most importantly, removing our highest cost underperforming farms. We completed that part of the process in 2023 with the closure of Utah, the removal of some underperforming high cost farms in North Carolina. We do believe that the impairments associated with those are the last of what I would call the material investments. The impairments, we still may have some write-offs here and there, small numbers. I would tell you that materially, all of those impairments have already been taken.
I think the third point of your question is, as hog markets change, do we see this slowing down? The answer to that would be no. And the reasoning then, again, the farms that we're taking out, again, are very high cost farms, underperforming or geographically located in areas that are just not conducive to raising hogs. And so our ultimate goal is still to get our overall hog production operations to about 10 million head or maybe even a little bit less. So that is still a priority for us. It's a focus for us. We'll continue to execute against that. As to a timing standpoint, you know, that depends on the mechanism or the vehicle that we use to exit these, whether these just continue to be closures, non-renewal of contracts, or the sales.
It can happen in a period of, I would say, one to three years is our expectation of when we would be below that 10 million head number.
[ Foreign language]
[ Foreign language] thank you very much, very sharing. Thanks.
[ Foreign language]
[ Foreign language]
[ Foreign language]
[ Foreign language]
Two questions both relates to Shuanghui. The first is about the profit per ton of package meat business in the first quarter. And based on his rough calculation, he believed the profit is around CNY 4,700- CNY 4,800 per metric tons, which is much higher than our objective or our target of C NY 4,000 per metric ton. Is this accurate and is this high profitability sustainable? And second question relates to the finance cost. The interest income of Shuanghui in the first quarter has dropped quite substantially compared to 2023. What's the reason?
[ Foreign language]
[ Foreign language]
In relation to the first question, the profits per metric ton in the first quarter for the package meat business was CNY 5,000 per ton. This is the historical high level for us. It's a record for Shuanghui. And obviously much higher than the CNY 4,000 per ton target. Historically our profit for package meat business has been around CNY 4,000 per ton. And if the cost is very high, we will adjust our price. If the cost is lower, we will give some profits to the market. And for this year, for the first quarter of this year, the profit is CNY 860 higher than last year. That's because of a better product mix as well as a lower cost. And we believe the lower meat cost will continue throughout 2024.
Our profit for package meat per ton will be significantly higher than the CNY 4,000 target.
[Foreign language]
In relation to the second question, the interest, the finance cost in the first quarter of 2024 was CNY 37 million, whereas last year it is a interest income net income of CNY 71 million. So there's a delta of around CNY 100 million. That's because last year we had a large amount of deposit that has matured in the first quarter, so which has resulted in a one-off interest income of approximately CNY 100 million. So if we have removed this one-off item, the overall finance income/cost expense should be comparable to last year. And also when you look at our finance income or cost, it will be reflected into three items in our P&L. One is in the gross profit because that's where we book the profit for our finance company. And it will also be reflected in the interest income as well as investment income.
If we add up all the finance-related income and expenses overall, it is profitable.
[Foreign language] Ma Xiangjie, today's meeting has finished. Thank you for your participation, and you may get off the line.
Thank you, Robert. Thank you, everyone.