Earnings Call: Q1 2019

Apr 29, 2019

The telephone conference for the first quarter results of the WH Group. Let me introduce you to the management of the company. First of all, the WH International, Mr. Wan Long, Chairman, and Executive Board of Directors, Mr. Guo Lijun. Thirdly, is Gene Thirdway. He is also the Smithfield CEO and the President. He is responsible for the U.S. business. Mr. Ma Xiangjie is Shuanghui's President, and there is Mr. Liu, who is the CFO of Shuanghui. I am the attorney. Let me hand over to Mr. Guo. He is going to talk about the first quarter of the WH Group, and we will have a Q&A session. Ladies and gentlemen, investors, good evening. Let me talk to you about the first quarter's results of the WH International. With the trade conflict and the swine fever in Europe and China, there are many adverse factors, but we face a lot of pressure in the Chinese business. In the Chinese business, taking advantage of the low hog price and the increased demand, we have reached historic heights in the first quarter in the Chinese market, with the overall group increase. In the U.S. market, it is affected by the trade conflict. We have been facing pressure, but in the fresh pork business, it has increased in the U.S. market as well. In the European market, as the spread of ASF affecting the hog production and fresh pork business, this has led to a decrease in overall profit in the European market. In the first quarter, the hog produced 5,459, and we produced 14,843, which is an increase of 6.4%. We reached a total of $5.2 billion revenue in the first quarter, benefited from the increased hog production and increased demand. The EBITDA decreased by 8.7%. The operating profit decreased year-on-year, 10%. WH International, the profit of the earning per share decreased 21.2%, and the profit attributable to owners of the company decreased by 21.3%. In the Chinese market, in the first quarter, it reached $223 million, among which the packaged pork reached a historic. Actually, there is a loss of $150,000. In the U.S. market, the pork and the packaged meat business increased significantly. In the hog production, we lost $160 million. In the European operation, we reached a total of. The fresh pork remained the same as last year, and the hog production recorded a loss of $1.16 million. Thank you, Mr. Guo. Now we have a question and answer session. Please be reminded that you ask the questions prompt. If you have questions, please press star and 1 if you have a question. 我们第一个提问来自罗晨，BofA Merrill Lynch，请开始，谢谢。各位管理层你们好，我这边先请教两个问题。第一个问题是关于中国业务这边的。我们看到一季度中国的肉制品的利润率已经跌破了17%，这已经是过去这几年来最低点了。考虑到接下来中国猪价的进一步上涨，我们对于接下来中国的肉制品利润率大概有什么样的展望？是不是会比一季度的水平更差，还是有可能有所改善？如果是，能不能请管理层对于大概利润率做个预测，以及给我们介绍一下，为了化解这个成本压力，我们会采取哪些措施？我先问第一个关于中国的问题，接下来还会有一个关于美国的问题，谢谢。马总。马总说。罗晨。嗯。罗晨。喂？罗晨，你可不可以重复一下刚刚第一个问题？第一个问题就是中国的肉制品利润率在一季度跌破了17%，是过去这几年来最低点。那我们对于接下来这个利润率有什么样的展望？是会比一季度更差，还是会有所改善？以及我们会采取哪些措施来稳定利润率？谢谢。 My first question is that the profitability, the margin in the Chinese market dropped by 17% in the first quarter. My question is what is our strategy to counter this decrease in margin and what are we going to do to do better in the next quarters? 大家好，我给大家解答一下刚才这个问题。我们一季度的肉制品利润率是19.9%，有所下降。主要的原因有几个方面，一个是在今年一季度我们加大了市场的投入，为了更好地迎接后续的产品结构调整。第二个，我们提薪，这个程度比较大。我们从去年开始对职工，特别是一线职工工资进行了调整，这是一些原料成本的上升。马总。好，说。你说的稍微慢一点，他这边翻译得听清楚。声音大一点。声音大一点。好。我们一季度的利润率下降的主要原因有三个，我再重复一下，因为刚刚翻译得不清楚。一个市场投入的增加，第二个是员工薪酬的提升，第三个是主要原料成本的上升。这三个因素导致了一季度的肉制品的利润率同比下降了2.6个百分点，达到百分之十几。三个原因。三个原因，对。第一个是市场投入增加。 OK。第二个是员工薪酬的上涨。员工的工资上涨。第三个主要原材料价格成本的上升。对。 There are three factors to this decrease of margin. One is the increased investment, and the second is the increased salaries or wages for the employees. Then there is increased raw material prices as well. These are the three main factors contributing to the decrease of the packaged meat margin. 就这样吧，我们让小王来翻译吧，他能听得懂他的口音。后期我们的预计有两个因素可能会影响我们的利润率，一个是非洲猪瘟疫情的演变，会导致下半年乃至明年猪肉的供应短缺，猪价会有一个明显的上涨，这是我们一个市场的预测。第二个，随着猪价的上涨，相关的产品，牛肉、鸡肉等替代产品的价格也会跟着上涨，这会继续侵蚀我们的利润率。我们整体的措施主要是调节稍等，马总，你来翻译一下。 There are two more reasons that will affect the margin going forward. The first one is the development of ASF, which will cause the shortage of hog in the second half of this year and next year, and contribute to the rally of the hog prices. The other factor is because of the increase in hog prices, may also contribute to the increase in the prices of the alternative proteins such as chicken and beef. OK。我们下一步采取的提升利润率的几项措施，第一个是根据市场情况，择机对产品进行涨价。我们一季度有一个小范围的涨价，2月份开始，我们进行了第二批的涨价。预计下一步根据行情的变化，我们计划还会有第三次的涨价，这是第一个措施。 We have a couple of measures to maintain or to improve our margins. First of all, is to based on the demand to increase our selling price. We have increased our selling price for the first time in the first quarter. We did the second time in April. We are planning to have the third time increase for the rest of the year. 第二项措施是适度增加进口肉和我们前期即将出肥肉的使用，平移后期的成本上涨。 The second measure is to make use of the imported meat that is in our inventory, such that we can lower the average cost of our raw materials. 第三个措施是把握好、用好国家有利的税收政策，提升盈利。 The third measure is to benefit from the tax policy of the government. 第四项措施是加大产品的结构弹性，和市场营销的拉动。总体思路是填补高端产品的空白，巩固大众产品基础，提升整体的盈利水平。 The last one is the continuous modifications of our product mix, such that we can fill up the space in the high-end product categories and also to improve ourselves in the mass products. 第五项措施是强化企业内部管理创新，降低运营费用。 The last one is for the internal innovations to improve our process and lower our manufacturing costs. 我们计划用这五项措施，对冲因非洲猪瘟引起的各种原材料上涨带来的运营压力。公司预计全年的经营利润率不会低于，可能不低于一季度，但要达到前期的20%有很大的难度。 We will make use of the five measures that I have mentioned to hedge against the price pressures from the higher hog costs. We are hopeful that we can maintain the margin for the whole year, won't be lower than the first quarter, but it is difficult for us to achieve a margin as high as the previous years. 谢谢。好，谢谢马总。那我下面一个问题是关于美国的。My second question is for Ken. We notice in Q1, hog production has incurred pretty hefty loss, but over the recent few weeks, actually we have seen pretty dramatic increase of hog spot price and future price in the U.S. Let's forget about Q1, focus on the coming few quarters. What's our projection for the unit profitability or OP perhaps for the hog production business in the U.S.? And what is our inside underlying hog price assumption for that unit profitability projection? Thank you. 第二个问题是关于美国的。在第一季度生猪养殖出现了亏损。但是呢，在最近几周能够看到生猪的跟猪肉的价格正在上涨。所以我们如果忘记第一季度的情况，展望未来几个季度，我们预期未来每一头的利润率会是一个怎么样的水平，或者是一个每一头能够达到经营利润是多少，然后我们这个预计是基于一个怎么样的一个猪价的假设。 Good evening, this is Ken Sullivan. Two things. One, you referenced a dramatic turnaround in hog markets. I would agree with that characterization. It has been extremely dramatic over the last 45 days. I've never seen anything like it in my career, how quickly and strongly the price levels have turned for pigs in the U.S. Second, you said let's forget about Q1. I would like to forget about Q1 also. I look into the future and I see nothing but strong profits in the live production side in the U.S. Typically, we have not given guidance, but I recognize that there's been such a dramatic turn in the markets that perhaps something within ranges is appropriate here. We did lose a fair amount of money, roughly $160 million in the first quarter. But as I look in the second quarter, the third quarter, the fourth quarter, the first quarter of next year and beyond, it all looks like strong profits. That's unusual, by the way, because typically we have a seasonal business and there's typically losses in the fourth quarter. But that's not the case, does not look to be the case this year. I would tell you that from here on out, I see nothing but profits over $25 a head and as high as into the 40-plus a head range. Very strong profits. 以下解答的这个问题是由我们美国的CEO Ken Sullivan。他说没错，在过去的45天，我们是看到生猪的这个价格出现了强烈的一个变化，而且这种变化的速度跟涨幅是在他的职业生涯里面从来没见过的。他也是希望能够大家忘记第一季度的情况。对于未来的展望，他认为是比较乐观，应该会有一个比较好的利润。但是我们不会给一个比较清晰的指引。因为第一季度我们已经是出现了亏损，第二季度也有一个轻微的1,600万的亏损。但是从目前的价格看，从整个第二季度以及未来的几个季度都是会有一个比较好的利润。在一般的情况下，受季节性的影响，第四季度是一个亏损的情况，但是今年并不会这样出现，可能会出现一个大致是25块钱左右的利润水平。 Thank you, Cam. 谢谢。下一个提问是来自Morgan Stanley的Liu，请开始。管理层你们好，我们这边有三个问题想要请教一下，前两个问题是关于中国的。那第一个就是我们现在看到fresh pork在一季度的unit profit已经达到接近1500元每吨，那这个已经比历史上比较高的水平，比如说在15年、14年的这个猪价低位的，14年的猪价低位的最高水平，利润水平已经要更高了。那going forward的话，我们会怎么去看在中国的生猪屠宰这块的单吨的利润？然后第二个问题是我们的肉制品在一季度的时候有一个2%多以上的销量的增长，那我在全年的话，我们给的这样的一个指引是中高单位数，那不知道后面几个季度管理层对这方面有没有什么指引上面的更新？我先这边问两个关于中国的问题，谢谢。 There are three questions from Morgan Stanley. The first two are related to our China business. The first one is for our fresh pork business. The per unit profit in the first quarter has been equivalent to $1,500 per ton, which has been the highest, even higher than the year of 2014 and 2015, when the hog prices are relatively low. The question is to ask the management about the forecast of the rest of the year. The second question is about the packaged meats business. The company has achieved 2% volume growth in the first quarter, and the guidance before was a mid to high single digit growth for the whole year. What will be the volume growth in the rest of the year? 好，我下面回答这两个问题。一个这个生鲜，我们屠宰这一块季度的单位利润比较高，是因为我们抓住了一个短暂的低价期，也扩大了我们市场的网络，取得了相对较好的经营业绩。但是全年来看，随着非洲猪瘟防控政策的变化和一些偏远的地方非洲猪瘟防控政策的不确定性，我觉得在规模上对屠宰业的经营会有一个较大的影响。第二个是随着猪瘟疫情的已经过去七八个月了，中国的猪价我们预计三季度、四季度会有明显的上升。高猪价对屠宰业的盈利有个很大的挑战，所以后期的屠宰业的单位利润应该会比一季度低。这是一个受制于屠宰业的盈利水平。 For the first question regarding fresh pork, we have achieved good profitability because we take the advantage of the low hog prices in the first quarter to expand our volume and to make good use of our industrial establishments. The ASF control measures have been tightened in the last few months. The development of ASF is going to be certain, and this will affect the volumes later. We expect the hog prices will increase in the third quarter to the fourth quarter, and that will also hurt the profitability of the fresh pork business. Our forecast is the unit profits in the later half of this year will be lower than the first quarter. 肉制品的销量这一块，我们从去年四季度以来，开发了一批市场前景较好的新产品，有利于后期的盈利水平的提高和销量的提升。但由于非洲猪瘟的影响，原材料的上升，我们不得不调价应对，因为涨价可能对它的量会有负面的影响。综合判断，肉制品全年的量有理有据，应该能保持增长。 For the volume of the packaged meat business, we have developed some new products in the fourth quarter, which have good feedbacks from the market. However, because of the ASF, we increase our selling price for the packaged meat and that will negatively affect our volume as well. Therefore, the two factors offset each other, and we will foresee there with continued growth for this year. [Foreign language] Thanks a lot. The third question is about the U.S. fresh pork business. With the rally of hog price, we have noticed a huge shrink in the spread of fresh pork versus hog price in the U.S. How does management look at the future trend of unit profit of fresh pork business? Thanks. 第三个问题是关于美国的。我们现在目前看到猪肉的价格正在反弹，而且生猪的价格跟猪肉的价格的价差也在扩大。想请问管理层在未来单位盈利的一个情况。 This is Ken Sullivan. You are correct that the spread between hog prices and fresh meat has compressed early in the second quarter, and that does reflect the rapid ramp-up in live hog prices. We had a good first quarter in fresh pork year-over-year. Second quarter, as I said, has started out with that margin compression, and even had some red ink in cutout. I would tell you this, that long-term or over the balance of the year, the thing that drives fresh pork is demand. To the extent that the ASF issue in China is going to drive that demand, meat prices are going to come along. The fresh pork business is fundamentally a spread business. When that spread narrows, packers typically react. They cut back kills, that has an impact on prices. I think what has happened is we have just had a violent movement in the markets. You are seeing that compression of that spread. Over the balance of the year, as the entire U.S. industry and the rest of the world for that matter, starts to ship more product to China, that is going to have a positive impact on the spread and on the meat values. I think we should have a reasonably good year in fresh pork, although again, there will be some pressure from the hog prices until the markets can adjust here. I am certainly looking for a rebound in that spread, because the great driver is demand, and the demand is going to be there. 刚才这个问题是问得正确的。在二季度的初期，生猪与猪肉的价格价差是出现了收窄的那个情况。这个主要的原因是由于生猪的价格猛涨，但是最终这个差价是取决于需求。因为中国出现非洲猪瘟，这个需求未来会增长，也会导致猪肉的价格上涨。生鲜猪肉就是一个价差的一个业务，如果这个价差收窄，那屠宰行业就会缩减它的屠宰的规模，影响到最终的这个价格。在今年余下的时间，我们可以看到有更多的产品就会出口到中国，这个需求会拉动这个价差扩大，所以全年还是在生鲜肉上会有较好的利润，但是同时也要面临猪价上涨的这个压力。所以总结来说，这个差价还是取决于需求。谢谢。下一个提问是来自高盛的Lincoln，请开始。关于进口这边的问题，想问一下中国和美国现在的 Lincoln，你要大声一点。对，那第一个问题就是跟进口相关，刚才马总也说了，要抑制成本的上涨，有一个方法要多用一些进口肉。那刚才Ken也说了进口方面，我们自己现在的打算就是尽管现在还是有这个关税，那我们自己现在有没有已经做好准备这个中美这边的进口，以及在现在的情况下，我们对今年的进口量的一个预算大概是怎么样的？再进一步来说，如果中美的关税下调了的话，那我们对自己进口量的增加大概有怎样一个规划？这第一个问题。 The first question is about the imports of pork into China, as mentioned by Mr. Ma and Ken. The question is: Given the current rate of tariff, what is the plan of imports for this year? If there is a reduction in the tariff, how much will it increase the volume of imports? This question will be answered by me. I am Gordon Guo, Deputy CEO of WH Group. As for imported pork, we have been actively developing customers and increasing imports not only from the U.S. but also from other parts of the world, including South America and Europe, since last year. At present, we also have certain inventory of imported pork. The next step is, if trade between China and the U.S. reaches an agreement, we will also be very optimistic about it. Next, our imports from the U.S. will increase significantly, and may even reach a new historical high. Mr. Gordon Guo, who is the CFO of WH Group, is going to answer this question. The company has started to plan about the import volume since last year. At this moment, other than the U.S., we have been importing from the other countries in South America and also in Europe. We have built up some inventory on the imported meat already. We will be pretty optimistic that we can further increase our import volume if the tariff is going to be reduced. The volume could reach a historical high in that case. Thank you, Mr. Guo. I may have two more questions about the United States. The first question is still about the hog production business in the U.S. Ken, I think you mentioned the figure $25 to $40 per head profitability. Just want to confirm, are you referring to the full year or the rest of the year, or the coming quarters? What is this figure referring to? That is the first question. Second question is on the packaged meat. I think in the first quarter, the packaged meat had a very decent margin expansion. Could you elaborate a bit more on how we achieve that? Is it more cost-driven or is there continued efficiency optimization in the first quarter? Given that the hog or the pork prices are likely to rally for the rest of the year, should we think that the packaged meat margin for the coming quarters will be under pressure? The following two questions are about the United States. The first is about the livestock industry in the United States. The $25 per head profit Ken mentioned earlier refers to the annual average, the remaining time this year, or the third and fourth quarters? This is the first question. The second question is about the profit margin of meat products, which increased significantly in the first quarter. How was this achieved? Is it because of the optimization of the product combination? Will the profit margin be under pressure in the future as the price of pigs rises? This is Ken. Relative to the hog prices in the U.S., the easiest thing to do would be to look at the CME futures prices. That gives you a very good sense of what selling prices are likely to be. By the way, I think that market has moved up very strongly, but if we get a trade deal, there could be even more behind that. I have referenced 25 to 40-plus because it is not just 40. I see numbers higher than 40, certainly. I was referring to over the balance of this year. When you look into 2020, you see the same thing. Again, the best reference is to look at the CME live hog futures or lean hog futures. I think the second question was about packaged meats. We had a very good first quarter. You mentioned the margin. We did have very strong margins. Packaged meats just continues to be the driver of our business, and we are sort of proud of the result that we had in the first quarter. I think what you are seeing in terms of the strong move up in the margin was that we did get a little bit of a push from raw materials. In other words, we had some lower raw material costs. But in general terms, that packaged meats business, the reason why the profile keeps moving up is we have had very good success continuing to evolve our product mix, continuing to add those new products, and we have been really focused on improving our margin per pound. That is what you are seeing, I think a focus on particular categories. Just by way of example, hot dogs typically are a category where we have not made great margins. We have begun to focus more on things like dry sausage. So much that you have seen invested in packaged meats business over the last two years has been in things like dry sausage, which have a much higher margin profile. I think product has a lot to do with it as well. Can you repeat the later part of the answer to the first questions about the- Yeah。 the forecast? Yes. Yeah. You mean about the live hogs? Yes. You mentioned that we should make reference to the CME futures, and then you elaborate on your expectations and the price and also the profitabilities in- Yeah. I think if you look at the CME, the Chicago Mercantile Exchange, the live hog futures, what you would see is very strong profits that are being suggested all the way through 2020. These are futures markets, but they're the best indication we have. Of course, people are trading in those markets and selling in these markets. I would just say, quite simply, relative to live production, the profit forecast is strong. One other thing I wanted to clarify about packaged meats is a lot of our packaged meats business is formula-based. So the question was asked about if we see a spike in raw material cost, could that impact our packaged meats business? It certainly could. But I would also tell you that there's a built-in protection in that a lot of our bacon business, our bellies, a lot of our ham business, those are formula-based businesses. The prices fluctuate with the underlying raw material. There's some insulation from spikes in raw materials. OK。刚才是Ken回答这两个问题。第一个是关于生猪养殖的。生猪的价格最好的参考就是芝加哥商品交易所里面的期货价格。我们可以参考这个能够知道生猪的售价会是一个怎么样的状况。在过去这段时间，CME的价格是大力上升的。这个是跟贸易的协议有关，而且指引的猪价是到2020年，生猪养殖有比较可观的利润。现在我们能够看到的，以CME的价格做参考，我们应该可以得到可观的利润。第二条问题是关于肉制品的利润率。我们第一季度好的利润率，说明肉制品将是持续性的我们业务增长的驱动因素。而一季度的利润率良好，一部分的原因是由于原材料价格对我们有利。但是我们部分的产品，比如说做培根的腹内肉，还有火腿，都是以公式来定价的，所以它的价格会跟它所使用的原材料价格发展的方向是同步，造成对于我们销价上的一些保护。另外一个就是我们肉制品产品的结构最近在持续改善。我们在过去两年以一个每磅的利润率来算，是一个持续的改善，因为我们的专注是放在不同的产品品类，比如说是干香肠，我们在干香肠在过去两年的利润率都是非常高的。 OK, thank you. 谢谢。下一个提问是来自UBS的Christine，请开始。管理层您好，我是UBS的Christine。我就是想问双汇的马总两个问题。第一个就是想问一下马总，就您目前对猪价的判断来看的话，双汇需要提价多大的比例才能够完全覆盖猪价上升的一个幅度？这个是我想请教您的第一个问题。那第二个问题的话，我看到一季度的业绩里面，双汇的库存有一个比较大的提升。那我想请教一下，根据目前的一个库存的状况的话，双汇的这个库存能够满足下游肉制品的需求，会到今年的什么样的一个情况？然后最后我也想请教一下马总，能不能帮我们分析一下，猪价下半年和明年会达到一个什么样的一个价格水平？谢谢。 Christine，你第一个问题是问肉制品需要提价多少，是吗？对，没错，才能够完全覆盖成本的压力。好的。那这个讲什么？他让你不是说猪价上涨，成本上升，那肉制品要涨多少价才能消化这个成本？才能抵消这一块。 There are three questions from Christine Peng of UBS. The first question is, with the expected increase in the hog price, how much percentage of the increase in the selling price of packaged meat can compensate this increase in the raw material cost? The second question is, she noted the increase in the inventory level of Shuanghui. How that inventory can work with the requirements of production in the coming periods? The third question is, what is the expectation of the management on the hog prices going forward? 好，我给你回答这三个问题。我也看你这三个问题答起来比较麻烦一些，不太好回答。我解释一下为什么。第一个，后期给你猪价的判断，后期提价多少才能盖过猪价的上涨带来成本的压力？这个问题其实很复杂，因为什么呢？第一，猪价涨多少，现在我们没有一个非常准确的预期，我们只是有一个方向性的预判。第二个是成本上升，不仅仅是因为猪价的上升，因为其他的原材料也会涨。第三个是我提高利润的措施不仅仅只有提价。我刚才第一个问题就讲过了，有很多措施不能完全靠提价来弥补成本的上涨，这样的话对销量的压力就太大了。所以这是第一个问题的解释。 These three questions are indeed difficult to answer. For the first question, it is complicated because it depends on our forecast or expected hog prices. But we cannot predict the exact hog prices, just the trend. The increase in hog cost is not the only source of pressures on raw materials, but also the others. We have already mentioned we have a couple of measures to mitigate the pressures of this raw material cost increase. Any single measure may not be able to mitigate this pressure in full. OK，我下面回答你第二个问题。目前的原料库存能够满足肉制品多久的使用，这个也是个变数。因为我们生产肉制品不完全靠现在库存的冻品来用。假如现在的猪价低，我们会以鲜品原料为主。你若明知道后期猪价要涨，我们可能把原料往后放一放。如果现在猪价涨得很猛、很高，我们可能加大冻品的适用量，我会减少短期内的鲜品的使用量。冻品对鲜品原料它是一个调节，而不是完全用它来满足，所以这个时间是变化的，而且变化很大，无法给一个准确的时间。 To the second question, it is also difficult to give a precise answer, because how long this inventory could be used to fulfill the requirement of our productions, it depends on our expected hog price going forward. Right now, we expect that the hog price is relatively low. We will use the fresh pork for the production of packaged meat for the moment, and keep the inventory for later periods, vice versa. 关于第三个问题，后期猪价的预判。农业部公布了几个数，到3月1号公布的能繁母猪的存栏量比去年同期减少了21%。我们觉得后期的数据可能还会变大。基于这个数据，农业部做了个预判。农业部一个专家做这个预测，下半年的猪价比去年同期可能要上涨70%。我们分析这个数据和市场具体情况差异不大。 In regards of your third question, according to the Agriculture Department of China, it said that at the end of March, the inventory level of sow has been decreased by 21% year-on-year. We expect that number will enlarge in later periods. That will cause the hog cost to increase for over 70%. With reference to the current market situation, we believe that it is a fair estimation. 根据农业部这个70%上涨的预测，下半年的猪价高点很可能要突破20块钱以上一公斤，这样的话会同时引起其他原料肉的上涨，这也是我们今年利润上涨最大的压力。 Because of this ASF issue, the hog price may increase to more than 20 RMB per kilo, and this will also trigger the increase of the price of other proteins. 基于这个原料的行情，我们预判我们后期全年的利润增长压力还很大。 Because of this increase in raw material costs, we expect the pressures on our margins in the later periods is high. 谢谢大家。谢谢。下一个提问是来自Deutsche Bank的Fox，请开始。管理层好，我这里有两个关于财务的问题。第一个，我们的双汇的有效税率从21个点降到了今年的16个点，这个主要是什么原因？我们今年全年是什么样的一个趋势呢？这是第一个问题。然后第二个问题，我们看到我们今年的公允价值调整前后差异有1.5亿美元。这个差异能不能再讲一下？这个调整主要是哪方面的调整？有没有可能在二季度转化成我们一个真正的利润？谢谢。德意志银行有两个问题。第一个问题是关于中国的有效税率的下降。用英文的。 There are two questions from Deutsche Bank. The first question is about the effective tax rate of our China business. He is asking about the reason of the decrease of the effective tax rate. The second question is about the swing in the biological fair value adjustments. He is asking the management, will this fair value adjustment be turned into real profit in the second quarter? 宋涛在这儿吗？宋涛说。屠宰业的。好，我是双汇发展的常务副总裁、财务总监刘松涛。你刚才问的问题是不是所得税的税负率？一季度所得税的税负率与同期比有明显的下降。主要的原因是我们的应税利润，也就是征收所得税的利润有所下降，而免征所得税的利润，包括了我们生猪屠宰业的利润和我们养鸡的利润，是有大幅度的上升。所以总体来说，所得税的税负率有明显的下降。那么后期呢？随着我们这个征税和免税利润的变化，我预计这个税负率会比一季度有一定的上升。这是我想说的第一点。第二个，国家的减税降费的政策，主要是体现在这个流转税方面，是比较明显，这会对公司的成本有一定的帮助。公司也会通过利用国家的减税降费政策，合理地控制我们销售产品的价格，争取因为减税降费、增值税的下降，使我们销售价格不下降。同时加大上游的谈判的力度，让上游的这个不含税价格不上升，更多地获取国家的减税降费的红利。谢谢。 For the first question, CFO of Shuanghui answered this question. The reason for the lower effective tax rate in the first quarter was mainly due to the fact that there was a decrease in the taxable profits, but increase in non-taxable profits related to hog productions and fresh pork business. We expect because of the change in the mix in the later quarters, the effective tax rate will be higher than Q1. Another point Mr. Liu mentioned is about the benefits from the VAT, because the government has been lowering the VAT as to stimulate the economic growth of the countries. We will try our best to maintain our selling price in our downstream business and to make good use of our bargaining power in the upstream business to benefit from this decrease in the VAT. 要不你直接把那个生物资产调整的这个讲一下。第二个。另外关于你问的第二个问题是生物资产的调整。生物资产这个调整很主要的一个部分是基于未来对于生猪价格的预期，因为它的调整是来自于未来可以实现的猪价，减去它可能会发生的成本，再结合我们现在生物资产的成长情况得出来的一个财务上的调整。那这个未来会不会变成实际的利润的话，取决于最终猪价的情况。但是这是一个非常好的指标，来指引市场未来生猪价格的走向。The answer to the second question is about the biological fair value adjustment. This adjustment is an accounting adjustment. We reflect the expected future hog prices and the estimated cost of production, and also the life status of biological assets owned by the company. Will this turn into real profit in the second quarter? It all depends on how the hog price will evolve at the end. It is a good indication that the hog prices are trending upward. 好，现在时间关系，我们现在是问最后一条问题。谢谢。最后一个问题是来自花旗的魏晓波，请开始。谢谢冠宇总。两个问题，一个中文的，然后后面再加一个英文的，都蛮简单的。中文问题就是—— 晓波，你大声一点。现在可以吗？可以。现在第一个先问一个中文问题，以后我再英文问第二个问题。第一个就是公司的集团口径，OP是掉了10%左右，那么我们的NP，net profit是掉了20多个%，那中间是什么东西呢？因为我们只看见双汇中国的业务，那中间的是税还是利息支出，是一次性的还是经常性的？就是在集团层面，OP和NP之间这个跌幅不一样，能不能请郭总解答一下？是这样，中国双汇经营利润是增长了10.6%，按人民币口径来讲，净利润增长17.5%。这个刚才已经解释过了，就是由于我们税收的因素造成了实际的税负有所下降。一个主要是我们免税的产业盈利多，而征税的产业盈利少，造成了这个变化。郭总，不是，我是问集团层面，美国美元口径的，我们的集团的OP是掉了10%，就是经营利润掉10%，从379个million美元掉到了341。但是如果我们看净利润，净利润的下跌的幅度是比负10%高的。我的意思是说这中间是什么项目造成了我们净利润的下跌幅度高于经营性利润的下跌幅度？都是美元报表的，因为我们看不见整个的利润表，是这个意思。主要是银行利息4000多万，银行利息和投资收益。这是美国方面的是吗？美国方面的。中国方面的是没有影响的。那请问本年度的这后边9个月，随着美国业务好转的话，这个是不是会改善呢？这个让Ken来回答吧，你和Ken翻译一下。 I translate the questions for you as well for the U.S. part. Let Ken or Glenn answer your question. The questions from Citibank, 魏晓波. The first question is about the OP margins has been decreased by 10% year-on-year, and the net profit has. Sorry, it is not OP margin, it is operating profit in absolute dollar, has been decreased by 10% year-on-year, and the net profit decreased for 2% year-on-year. The question is asking about why the degree of decrease has been different. Gordon just answered the part for Shuanghui, is in RMB terms. Indeed, the OP has been increased by 10.6%, but net profit has increased by 17.5% because of the decrease in effective tax rate, as explained by the CFO of Shuanghui. For the U.S. business, the change is mainly contributed by the investment income and finance cost. Ken, would you like to elaborate that part? I am sorry, I do not understand the question. Ken, I have a big question, because my question asking why the decline of WH Group in the first quarter, the net profit declines more than the OP, and Mr. Guo explained that there was a $14 million interest expenses impacted from the U.S. side. My question is, in the rest of the year, in the next three quarters, whether this negative impact of this interest expense in the U.S. side will continue, i.e., is the 1Q interest expense $40 million impact is one-off, or it will be recurring the rest of the year, assuming that U.S. business is recovering as you discussed? That is the question and logic. Yes. There should not be a recurring $40 million quarterly increase. I think what he may have been referring to is the overall annual. Okay. $40 million is annual impact year-on-year. Yeah. I don't have the advantage of having what Mr. Guo said. Obviously, I don't have the translation exactly, but we're not expecting a quarterly $40 million year-over-year or quarter-over-quarter increases going forward. That is not the case. Okay, good. Joanna, can you translate into Chinese? Good. Ken just answered the question about the financial fee that Mr. Guo just talked about. He thinks that there will be no one-off factor in Q1. Okay. Ken, the second question is the operation for the U.S. I will ask directly in English. So in the optimistic scenario where the hog price in the U.S. and the pork price in the U.S. is going to go up a lot driven by the external demand, i.e., especially China. If you are seeing that your profit of supplying domestic U.S. retailer is lower than export, serving the China export demand, will you make a decision that it diverts some of the supply to your U.S. customers to China market, i.e. Yeah pursuing better profitability? Yeah. So that's a question I think that we receive that people are curious about. Will somehow we stop servicing our domestic customers? Of course, the answer is, fortunately or unfortunately, depending on how you want to look at it, we have excess pork supplies in the U.S., just as an exporting country, exporting 25%-30% of all our production. We have ample supplies to service our U.S. customers, and that will not be an issue, particularly for our big customers. You always have a book of business that is more bid and ask of just day-to-day type business. That typically is a lower margin type of profile. You would obviously arbitrage to whatever the best market is, whether that's Mexico or Japan or China. Excuse me. I don't expect that we'll have any issues servicing our U.S. customers. I also, at the same time, expect that we'll be exporting significantly more volumes to China. Those two things can happen in concert because we do sell to over 40 countries around the world, and it's a global market. What will end up happening is that the flows will generally migrate towards China. The second question is about this. If the price in China continues to rise, will we export more to meet the demand from China and reduce the supply to local customers in the U.S.? The issue is that the U.S. as a whole is a country with an oversupply, and it needs to export 20%-25% of its products. For us, we don't see any need to meet the needs of local customers. But if pork prices in China continue to rise, we will shift from supplying customers with relatively low profit levels to exporting to Japan, Mexico, or China, which are higher-value markets. We expect to export more products to China while not affecting our supply to the local U.S. market because we are a company with a global presence, exporting to over 40 countries or regions. Ken, follow up on that. At this point of time, you do not expect that the China-driven demand will result in a short supply in the U.S. domestic market as a result. Is that a correct understanding? Well, I think like any market, what will happen is prices will rise. In other words, as demand increases, prices rise. And I'm not suggesting that won't happen. I think it will. And it's not just Smithfield, by the way, it's every U.S. pork processor will be shipping more product to China. And the demand side is just expected to be strong going forward, certainly into 2020. But this is not a situation where you all of a sudden have to start allocating or rationalizing because of the strong export position that we're in. There's plenty of countries, there's plenty of product. It just gets rotated to a better market, and in this case, China will be a better market than many other destinations. Thank you very much. He was asking if you do not expect China's demand increase to cause a supply shortage in the U.S. He said this supply and demand issue will be balanced by price. We are not saying the issue you just asked about will not happen, but this does not just affect Smithfield, it affects all industry players in the U.S. In addition, the overall demand will be very strong, and this high demand will continue until 2020. Now what we are facing is that when selecting export destinations, we will choose countries with higher profit levels. Okay. That concludes today's phone conference. Thank you for your participation. Thank you for attending the earnings call tonight. Thank you.