Earnings Call: Q3 2018

Nov 1, 2018

Analysts from North America, good afternoon. First of all, welcome to WH Group's 2018 third quarter results announcement teleconference. I am from WH Group. I would like to introduce to you our members of the management in attendance. First, we have Mr. Guo Lijun, Executive Director, Executive Vice President, and CFO. We have Mr. Kenneth Sullivan, Executive Director, President, and CEO of Smithfield. He is mainly responsible for our North America, the U.S., and European business. We also have Mr. Glenn Nunziata. For our China business, we have Mr. Ma Xiangjie, Executive Director and President of Shuanghui Development. We also have Mr. Liu Chongtao, CFO of Shuanghui Development. I will now pass the floor to Mr. Guo to go through WH Group's third quarter results. We will have a Q&A session. Mr. Guo, please. Analysts, investors, good evening. I would like to report to you our 2018 third quarter operating results. Because of global trade friction and the changes in the American market and ASF impact in China, in the first three quarters, our production and sales scale is on the rise, and our profitability on a year-on-year basis had come down. In the first three quarters for hogs produced, there are 15 million, up 0.8%, hogs processed, 40.969 million, up 4.3% year-on-year. Packaged meat sold, 2.43 million tons, up 2.4% year-on-year. Operating profit or operating revenue, $16.585 million, 1.8% increase. EBITDA, $1.583 billion, down 9.6% year-on-year. Operating profit, $12.08 million, down 12.4%. Profit attributable to owners of company, $7.56 million, down 3% year-on-year. Basic earnings per share, 5.15 U.S. cents, down 9.6% year-on-year. This is because of change in biological asset fair value. Concerning the market condition in China, U.S., and Europe in the first three quarters in China, hog prices on average was 12.6 RMB per kilogram. In the last month, comparing with that, it is down by 19.2%. For the U.S. hog price, $1.11 USD per kilogram, comparing with September last year of $1.23 USD per kilogram, it is down 10%. In the first three quarters for EU hog price, $1.02 USD per kilogram, and last year it was $1.18, so down 13.3% year-on-year. If you look at the global hog market situation, hog price to different extents came down. As a result this year, for U.S. hog production and China and European hog production industry, comparing with the same period of last year, profitability came down significantly. This is the major reason. If you look at the breakdown or distribution, for our packaged meat, it is our main business, contributing 53% of revenue and 96% of profit. For hog production or for fresh meat, 41% of the total and 11.4% of profit. For hog production, it accounts for 3.1% of the total and 3.6% of profitability. So that affected our overall completion of our profit. If you look at a regional breakdown, China accounted for 33.5% of revenue and 59.1% of operating profit. U.S. accounted for 57.9% of revenue and 33.6% of total profits. Europe accounted for 8.6% of revenue and 7.3% of total profits. From January to September for our cash flow, it is stable. In the first half, operating cash flow, $609 million USD, down 7.3% as compared to the same period of last year. The reason was because of an increase in inventory. Secondly, CapEx. In the first three quarters, CapEx was $480 million, up $100 million or 28.3% year-on-year. For China, CapEx was $65 million, U.S. $355 million, and Europe $60 million. Europe included some newly acquired expansion of production capacity and revamp as well. If you look at dividend payout, in the past few years, dividend payout was on a steady rise. For 2017, dividend in total was $505 million, 45% of our total profit. This year, interim dividend was $94 million, 18% of our interim profit. Our interest-bearing debt and also debt level are coming down steadily. As of the end of 2018, total was $3.37 billion. That is interest-bearing debt. Gearing ratio 41.1%. That's all in our overall operating results. Thank you. Thank you, Mr. Guo. Now it's time for Q&A. Can you follow the instruction of the operator to proceed? 我们第一位提问是来自CICC的Paul Yuan，请开始。管理层好，三个小问题请教一下。第一个问一下三季度报表，我们大概中国人民币的同比的是一个贬值还是一个升值的状况？大概幅度是多少？在我们三季报当中。这是第一个。第二个是问一个海外的事情，美国业务方面，上游的繁殖跟中游的屠宰，四季度的前瞻怎么看？环比三季度的情况。那么第三个问题是问到欧洲，因为我们早在一年前就谈到罗马尼亚的收购以及波兰Pini另外66.5%的收购需要监管当局批准。那这个进度到现在为止到底怎么样了？也想问一下。好，谢谢。 The first question is, in the third quarter, I would like to know more about the RMB depreciation or appreciation. Was there actually depreciation and appreciation in RMB? How big a degree is that? The second question is concerning the overseas business, in particular the U.S. business. I would like to know about the upstream hog production and also the midstream operations. What will be the situation like in Q4 as compared to the third quarter? The third question is about Europe. One year ago, there was the announcement of plan to acquire business in Romania as well as Poland of up to 66.5%. I know that you need approval from the regulator and the authority in order to do that. So far, what is the progress and latest status of this? 我回答刚才袁总提问的第一个问题。那么今年一至九月份，平均的人民币对美元的汇率是6.529，比去年一至九月份的6.8045升值了4.05%。这个一至九月份的汇率的升值，对我们的利润表有影响。总体来讲，影响我们通过汇率的升值，使我们的报表折算的收入增加了2.25亿美元，经营利润增加了2,900万美元，净利润增加了2,380万美元，归属我们万洲国际所有人应占的利润是增加了1,700万美元，这是一个总体的情况。郭总，我实际上是要知道三季度的情况，可以吗？ May I know the specific situation in the third quarter, please? Concerning January to September on average, RMB against USD exchange rate on average was 6.529, and last year in the same period is 6.804. There is an appreciation of 4.05%, and there was an impact on our profit. For our overall profitability, there is $225 million of impact. Also for operating profit, there is an impact of $29 million. Net profit, the impact was $23.8 million, and also profit attributable to shareholders, the impact was $17 million. Now, the next question was about the specific situation for the third quarter. 好，袁总，三季度的情况，我正在打开电脑。您可以先让我们美国的同事先回答您的第一个问题，我马上回答你剩余的问题。 Now I am trying to look up from my computer for data in relation to the third quarter. Perhaps my colleague responsible for the U.S. business can take your question about U.S. business first, and later on I will get back to you. Ken, can you take the two questions? One is about the upstream midstream business outlook in the fourth quarter, and another question is about our acquisition in Poland. I think it's specifically relating to the acquisition of the fresh pork business in Poland. Okay. First, I would acknowledge that the third quarter was a tough quarter for us here in the U.S. as it relates to the live production business, meaning the farms, as well as the fresh meat business. In addition to the trade tensions that have really disrupted the markets, we have also been dealing with oversupply issues in the U.S. There's a lot of factors, externalities that are impacting us in the third quarter. So the third quarter was tough in both fresh meat and the farms. The fourth quarter, I would expect to be slightly better in both segments. In the fourth quarter, historically, that's been a good quarter for us for fresh meat. I don't expect it to be as good as last year, but I do expect it to be better than the third quarter. In terms of live production, same thing. I think, and this is a little bit counter seasonal, ordinarily you would expect the fourth quarter to be your worst quarter from a live production standpoint, meaning hog prices are at their lowest point, and therefore, you typically see the lowest point of profits or the highest point of losses, depending on what the situation is in the fourth quarter. I would expect that this year, in 2018, the third quarter may actually end up being our worst quarter for live production and the fourth quarter being better. In terms of switching gears to the- Ken, can we stop for a little bit for translation first? I apologize. Yes, sir. 首先谈到我们第三季度的美国业务的情况，关于我们大的农场的生产和养殖，另外就是生鲜肉方面。因为我们现在看到有贸易方面的摩擦和紧张的情况，这个真的是打扰了，影响了市场。而且在美国方面也有一个过剩供应的情况，这些都是外部的因素影响我们的业务。然后第四季度来说，应该没有去年这么好，但是应该还是比第三季度为好的。正如这个生猪养殖方面的业务，历史上来说，一般来说都是第四季度是最糟的。这个当然也是因为生猪价格的变动影响，但是在2018年情况就有点不同，第三季度是最糟的一个季度，反而第四季度比三季度为好。 Ken, you can continue. Okay, I apologize. No problem. For the Romanian or the Polish acquisition, unfortunately, the regulatory process has taken longer than we would like. With that said, it is going in our favor, I believe, and we expect good news on that front in the next 30 days. It is a governmental process and so there is uncertainty to it, but I am fairly confident that acquisition will finally get closed prior to the end of the year. 至于罗马尼亚收购的问题，其实因为监管审批的审核的过程是比我们原先希望的为长。但是总体来说，现在的状况都是利好我们这一边的，所以相信在未来30天里面，应该可以得到进一步的进度在审批方面。毕竟这个是政府的一个过程，所以还是有一些不明确性，但是我们相信应该是在今年年底之前，应该是可以得到批准的。我继续回答第一个问题。三季度平均，我们18年的三季度的平均汇率是6.7856，2017年三季度平均是6.6776。由于人民币的贬值，影响我们三季度的收入减少了1.92亿，净利润减少了1,900万，归属万洲国际母公司的利润减少了1,400万。 In Q3 of 2018, the exchange rate was 6.7856. In Q3 of 2017, the exchange rate was 6.6776. Because of this depreciation in RMB, as a result, our revenue was reduced by CNY 192 million and our net profit was reduced by CNY 19 million. Profit attributable to shareholders was reduced by CNY 14 million. 谢谢，没问题了。好，谢谢。 [Foreign language] Ken, it is a follow-up question about hog production profit in fourth quarter. Because we can see from the market future price that the implied return continued to deteriorate in fourth quarter. But you mentioned that fourth quarter should be better than third quarter. Does it mean that actually we already implement hedging practice to protect the profit? Are we going to expect less loss in fourth quarter for hog production? This is my first question. Maybe Ken answer first, and then I ask the second question about China. [Foreign language] Ken, you can take the question. Yeah. The first thing I would say is reiterate that the fourth quarter seasonally is always the worst quarter for live production. As I said, I do actually expect it to be better than the third quarter. To be clear, the fourth quarter has losses. You could look at the futures prices and the live hog prices so far in the fourth quarter and understand that there are losses. We have been hedging and we do have hedge positions. I think that we've got favorable positions to the tune of about $4 or $5 a head in the fourth quarter. Our performance relative to the market prices that you see would be better by about $5 a head in the fourth quarter. 2019, you didn't ask that question, but 2019 at this point looks to be a fair bit better, meaning considerably better than 2018 has been so far. The only caveat I would throw to that is that it still doesn't show big profits. It shows a sort of marginal loss, a couple dollars a head in 2019 at this point. But those numbers have moved around quite a bit. The threat of African swine fever is real, and that could have a potential impact here on our live production business and pork prices next year. 好，谢谢，Ken。我第二个问题是关于中国业务的。 Lillian，你等一下好吗？我们现在。不好意思，好的。关于第四季度的业务，一般来说这个季节性方面的趋势，一般第四季度是最糟的。但是正如我说的，今年的第四季度其实比第三季度要好。那么第四季度确实有一些的亏损，如果你看这个期货价格，你也可以看到这一点。我们是有做对冲的，对冲之后我们是有这个利好的一个情况。在第四季度我们这个利好的那个状况方面，大概是4到5元左右。然后这个也是，如果你看市场价格，也是大概有5元的这一个利好的状况。那么2019年来说的话，我们觉得保守来说应该是比2018年要好，但是还不会有非常大的利润。在2019年的话，我们觉得应该还是有一点点边际的亏损，但是我们还是要看真正数字，到时候的移动的情况来看。好。关于中国，首先第一个，能不能管理层分解一下三季度鲜肉跟冻肉，就是鲜冻肉的量和肉制品的量各是多少？然后另外一个问题是，我们看到中国的肉制品在三季度，其实它的经营利润率是下降的，能解释一下这个原因是什么吗？然后另外一个，大家也比较关心非洲猪瘟现在对整个中国业务的影响，那么从四季度看，我们在量上是不是可以有所恢复？谢谢。好，双汇那边看是马总还是刘总来回答。 The question is about the China business. First question is about third quarter. Can you let us know the volume of fresh meat, frozen meat, as well as packaged meat? I would also like to know packaged meat in China, I would like to know why there is a decline in the operating profit margin. Everybody is very concerned about the impact of ASF in China. Do you think that in the fourth quarter in terms of volume that there can be a recovery? 好，这个问题由我来回答。第一个方面，就是我们主要产品销量的一个拆分。那么三季度双汇发展销售肉制品是43万吨，同比增长0.81%；鲜冻肉一共是销售38万吨，同比下降4%，这个主要是受贸易摩擦和进口肉一些下降的原因影响。这是第一个问题。另外是肉制品业务，三季度的毛利率的确是有所下降。三季度与去年同期相比，肉制品总体猪肉的成本是有所下降的。但是其他的一些成本，包括鸡肉的成本和其他物资的成本有一定的上升。同时，公司在三季度进一步加大市场的支持力度，因为我们对市场的支持是通过降低一级批发价来支持市场的，这也会影响一定的毛利率。另外，我们持续地改进产品的品质，增加猪肉类原料的食用量。另外，今年三季度与去年三季度相比，员工的工资也有一定的提升。综合这几个因素，使三季度的肉制品的毛利率与同期相比略有下降。 Let me give you the details about sales volume. In the third quarter, if you look at Shuanghui sales volume for packaged meat, altogether the volume was 430,000 tons, up 0.81% year-on-year. For fresh and frozen meat, total sales volume was 380,000 tons, down 4%. The decline was caused by trade friction as well as decline in imported meat. Concerning packaged meat in the third quarter. As stated just now, gross profit margin came down. Firstly, there is a decline in the cost of pork, but for other costs, there is an increase. Besides, in the third quarter, we have increased marketing effort and also our support to the market by means of lowering wholesale price. This again affected the gross profit margin. Besides, we made an effort to improve the quality of the meat. In the third quarter on a year-on-year basis, there was also an increase in wages. Because of all these reasons, the GP margin of packaged meat in the third quarter came down on a year-on-year basis. 那我们可以接下来回答关于非洲猪瘟的问题。关于非洲猪瘟的问题，我来讲，我是双汇发展总裁马建义。非洲猪瘟的情况现在是这样的，从8月初以来，我们的非洲猪瘟在国内总共涉及到13个省，截止到今天下午，发生非洲猪瘟，根据农业部公告的是48起，这是一个基本情况。然后对我们的影响，第一个是由于农业部和各个省分别出台了一些生猪和生鲜产品的限调政策，对公司的部分工厂的采购量、采购成本和销量产生了一个超我们预期的一个影响。整体上对屠宰量的影响大于对经营利润的影响。可不可以大声一点？我听不清楚。哦，我再去机器远了点。这个需要阶段性翻译吗？需要，麻烦。需要。那好吧。刚才我是讲了一个发生的现状，然后对我们的经营的影响。总体来讲，我们量和利都有影响，量的影响大于对利的影响。因为我们有工厂的布局的优势，我们通过国家的限调政策，在我们的低价区的工厂上量，高价区的工厂限量，所以在利润这一块影响相对小一些，这是一个对整体的影响。 Concerning impact of ASF in China, we can see that the impact on volume is actually bigger than the impact on profitability because of some sort of volume restriction policy being implemented. Also, as far as the end of August, in the whole of China, we have already found 48 cases happened in certain provinces according to the record of 农业部 of China. 第二个是因为我们郑州工厂发生了一起首例性的非洲猪瘟，停产了六周。对郑州工厂直接经营损失660万，这是一个直接影响。 There was one case happened in our Zhengzhou plant, our business stopped for six weeks and have already got impact of 6.6 million CNY lost. 另外，根据现在非洲猪瘟发展的趋势来看，基本趋稳，但是不断的发展，我们预计对四季度的影响依然是负面的，影响程度基本和三季度相当。 If you look at the trend of ASF right now in China, actually, the impact and also more and more cases are still being discovered and there are more and more cases found. We believe that there is still a negative impact. In terms of the degree of negative impact in the fourth quarter, it will be more or less the same in the third quarter. 第三个，我讲下一步的预期。非洲猪瘟预期有两个方面，一个对猪价的影响，一个对我们未来经营的影响。首先对猪价的影响。今年的非洲猪瘟造成了短期内能繁母猪和仔猪交易的收缩，预计明年的猪价在正常猪周期的基础上会有所升高。 As regards the future outlook, of course, there will be impact on hog price. This is because of the possible reduction in the supply of hog. We believe that the hog price will rise in the future period. 受非洲猪瘟的影响，明年的猪价可能呈现三个特点：第一个是整体猪价高于今年；第二个，各区之间的整猪价差会明显拉大；第三个，全年的猪价的振幅将会扩大。 The overall impact of ASF in terms of hog price in 2019, the first one is hog price in 2019 will be overall higher than 2018, and the difference among different regions will be larger and the different regions will have different prices. The overall impact of 2019 will be bigger than 2018. 根据现在非洲猪瘟的情况，以及对明年猪价的预判，我们针对非洲猪瘟采取几项措施，也给大家报告一下。 Based on the forecast of ASF, we will have the measures as below, and we can report here to all of you. 我们的非洲猪瘟采取措施表现在两个方面，一个是保安全措施，一个是保经营的措施。在保安全方面，我们有六项措施。第一，我们根据农业部非洲猪瘟的发布疫情的情况，调整我们的采购区域，在安全区域采购，避开疫区、受威胁区和高风险区。 We will guarantee our food safety in 2019, and we will purchase the raw materials in the regions have no ASF impact and escape away from the regions have already have the cases happened. 第二项措施，我们的检验检疫延伸到装车，自己在整车的时候，在养殖场装车的加强装车前的检验，确保我们买的猪是安全合格的。 Also, we will take the measure of the testing. We will extend our testing process into the farm and stop the disease from the transportation and the farm. 第三项措施，加大就地采购的量，围绕屠宰场就地采购，减少远距离调运，避免非洲猪瘟的传播。 Also, we will purchase our raw material locally to escape away from the transportation and spread out of the ASF impact among different regions. 第四项措施，加强和规模养殖场的开发，提高规模养殖场的采购占比，防范疫情风险。 Also, we will purchase our raw materials in the industrialized plants in a scaled level and escape away from the purchase from the individual farm. 第五项措施，加强场外预检，确保生猪进场全部合格。我们过去检验是生猪进场以后检验，现在在厂门外检验，合格的生猪才允许进入工厂。 So we will do the testing before the raw materials come into our plant. 第六项是根据农业部的要求，做好屠宰场内部的清洗消毒，做好内部的防疫管理。 We will do the cleaning and safety measures in our plant according to the requirement of the 农业部. 以上六项措施是确保我们19个屠宰场不收购非洲猪瘟的生猪，这是保安全的。第二个方面是保经营方面，也是有五项措施。第一项措施，生猪采购和产品流通均不受限的低价猪场，调整市场订单，扩大规模。这是根据农业部的政策做的。 There are also five measures that we will take to guarantee our operations. One is to purchase the raw materials hogs, not from the plants with low price, and make sure to guarantee the orders that they and also the scales to meet our requirements and our testing standards. 这个我说简单一点，可能不太好解释，就是说非洲猪瘟是有区域性的，在不受非洲区域影响的工厂，低猪价的扩大产量，高猪价的满足本区域市场限制产量，这是一个整体讨论策略，我这样说可能更好翻译一些。这是不受影响的猪场。受非洲猪瘟影响的工厂，低价期的加上本地市场的开发，扩大规模；高价期的，高猪价的工厂，我们会调入产品，降低整体采购成本。这是受影响的区域。另外一个，根据各区域的限调政策引起的行情变化，我们把控好两端的购销价差，我们在变化中把控变化，获取行情下的最大收益。 We will take measures in different regions. In the regions have the impact of the ASF and also the regions have no impact of ASF. We will take the different measures in different regions to guarantee the food safety and our daily operations. 关于非洲猪瘟的问题，我就讲这么多，谢谢大家。 This is all the answers to the question of ASF. 谢谢马总的解释。那我想追问一下，对四季度我们在量上面跟三季度来比较一下，这个同比是可能会稍微变好一点呢，还是差不多的一个影响？根据我们现在的分析，整个双汇发展这一块，无论是规模还是利润，四季度预计都能保持正增长，但是增幅会低于上半年，高于三季度。好，谢谢马总。 We believe that there would be a positive growth, but the extent of growth will be better than the third quarter, but lower than the first half of the year. 谢谢。我们下一位提问是来自Goldman Sachs的Lincoln，请开始，谢谢。 [Foreign language] So the question on U.S. packaged meat business. I think the packaged meat margin improving year-on-year in the third quarter. But giving the recent belly and ham cost trend, how do we think of the fourth quarter packaged meat margin? Do we see any downside risk on a year-on-year basis? Or we are pretty comfortable with that. 第一个问题是关于你们的美国业务的，刚才也了解到你们肉制品方面按年比有一个改善。那么最近的情况，我想了解的是，如果你看第四季度的话，有没有一些下行的风险，还是会跟本来的状况差不多？你们是怎么看呢？ Ken, you can take the question. It is about the packaged meat outlook in fourth quarter. Ken? Yes. Yes. Sorry, Lewis. What was the question? The question is about the packaged meat business outlook in the fourth quarter. Well, as you can tell from the results, our packaged meat business has had a pretty good year. Our bacon business in particular has been very strong, and our sausage business has been good this year, too. 如果你问我对第四季度的outlook是什么，我认为我们会在packaged meat方面以强劲的表现结束这一年。我不愿意给出任何具体的guidance，只是想说我们的packaged meats business将继续其战略，即改变销售混合。如果看看我们的volume增减，我们正在销售较少ham和便宜的hot dogs，更多bacon products、smoked sausage和dry sausage products，这正是profitability增加的驱动力。关于肉制品方面，我们总体来说有非常好的一年，总体的成绩、业绩都是挺强劲的。如果问到我们的第四季度的展望的话，我们相信今年完成这一年的状况还是强劲的，因为我们会继续我们目前的战略，我们会继续改变我们的销售的组合。比如说某一些的产品，我们会卖多一点，比如风干的肠或者烟肠方面的这些的产品，我们会多卖一点。好，那我再问一个中国这边的吧。就是刚才有说到三季度我们的肉制品利润率下降，因为一些其他的成本，那我们的整体的猪肉的成本还是有些下降的。那现在如果去往四季度看的话，我们以前的一些低价的猪肉的库存大概还有多少？如果去想四季度同比三季度，我们的猪肉成本是不是会有一个上升的风险？再加上刚才也预测了可能明年的整体的猪价也有一个上行的风险，那如果往四季度甚至往明年去想，我们整体的肉制品的利润率有没有一些下降的风险？ The question is about the packaged meat business. Packaged meat business in the third quarter suffers from a declining profit margin because of other costs. However, pork cost has been coming down. In the fourth quarter, how much low price or low cost pork inventory do you still have? Is pork cost going to rise in the fourth quarter? If you look towards next year, what will happen to the hog price? Also, what will be the outlook of profit margin for packaged meat next year? 好，双汇的马总或刘总可以回答。我来回答这个问题。刚才刘总在回答的时候，涉及到肉制品三季度利润下降的主要原因，打击的是市场的知识增加，然后是提高产品的工艺质量。当然还有一个我们的工资的提升，员工工资的提升。我重复的目的是告诉大家，其中有一个是产品工艺质量的提升，这个质量提升主要是我们增加了猪肉的用量，就是用肉换量提高，才能在低猪价。根据现在的我们的库存以及对后期猪价的判断来讲，四季度肉制品的总体成本基本持稳，但同比去年仍然具有一定的优势。所以这样我们认为四季度肉制品的量和利均会出现实现较好的增长，利的增幅会大于量的增幅。这个不用翻译吧？不需要。需要。那你就翻译。 I take the question of the OP margin of packaged meat. Well, one of the reasons that Mr. Liu Chongtao just mentioned of the OP margin of packaged meat was about the quality of the packaged meat, that we will increase our pork percentage in ingredients, and this will impact our cost in the pork of the packaged meat in the following months. The inventory and the price of the packaged meat will impact our cost, and the cost of the pork in the packaged meat will keep flat. But overall speaking, the volume and the revenue of the packaged meat will keep single-digit growth in the next few months. 关于明年的利润率，我这么看。明年的非洲猪瘟影响，猪价会高于今年，猪肉成本会高于今年。但是我们有两项措施，今年以来，我们重点推广高档的肉制品，现在肉制品的整体的价位和利润率由于结构的调整会有所提升，这是第一个。第二个，我们最近有一个调价的政策，这是一个方案，预计在明年五六月推出，预计结构的调整和价格的调整这两项会对冲掉我们成本上升造成的利润的下降，总体利润率预计明年会有所提升。好 The overall OP margin of 2019 will be as follow: hog price next year will be higher than this year, and the cost of our hog feeding will also increase, but we will have our measures to keep our cost. One is to continue our strategy of product mix and we will measure and improve our product mix. We will also increase our pricing. According to these two measures that we take, product mix improvement and pricing strategy, we will hedge the impact of cost. Overall speaking, our OP margin for next year will continue to increase. 好的，谢谢。谢谢。我们下一位提问是来自Bank of America Merrill Lynch的陈罗。请开始，谢谢。谢谢。我这边中国的问题其实基本上前面都已经有问过了，只是想追问一下，刚才马总提到了明年的中国的利润率是有所上升，我只是想再确认一下，就是您是说我们的中国肉制品这一块，还是整个公司的包含了屠宰的利润率？那么中国肉制品的话，如果我们仅仅是看猪肉成本，明年肯定上升的。那么我们现在是希望通过结构和价格的提升来对冲这个风险。但是这里面我们暗含的猪肉成本上升的幅度的假设是多少？谢谢。我先问这个问题，接下来再问一个关于美国的问题。 This question is about packaged meat business in China. Next year, profit margin in China of this business segment will go up. I would like to know whether this refers, I mean the increase in profit margin refers to the packaged meat business in specific or it is referring to the overall business including slaughtering. Besides, next year, we are going to see an increase in pork cost. I know that you are going to improve your business by altering your sales mix as well as increasing price in order to offset or counteract the risk. Anyway, pork cost will go up next year, so how much will be this increase? 好，双汇的刘总或马总可以回答。我来回答这个问题。明年的成本预计，猪原料的成本肯定是上升的。但其他原料、软副料，我们预计是稳定的。摊薄以后，总体肉制品的成本有所上升。但是刚才讲到了，通过结构调整和价格的调整，肉制品利润率我觉得会预计稳中有升，这是肉制品的。屠宰业，因为随着猪价的上升，今年的这个低谷，明年屠宰业的利润率会有所下降。两个行业对冲了以后，我觉得明年整体利润率会保持稳定。 In 2019, the cost of pork will increase, but other materials will keep flat. Overall speaking, the cost of packaged meat will increase slightly. We will have our strategy of product mix and also our ASP strategy. We will keep our operating profit of packaged meat, keep flat. Also for the slaughtering business, the hog price will increase, OP margin will drop, but overall speaking, the offset of the hog price and our operating profit of the packaged meat, the operating profit of these two businesses will keep flat for the overall next year. [Foreign language] Thank you, Ma 总. My next question is about the U.S. The second question is on the U.S. side. Can management share a comment on the potential implication from the new NAFTA deal, which has been recently signed? What is the implication to the future hog price in the U.S. and the related margins for the business? Also, the fresh pork is under a lot of pressure this year. Going forward, what is the outlook for the fresh pork margin in 2019? In particular, we know that 2017 and 2016, actually, there was high base. Can we compare the 2019 with 2015? Are we comfortable that our profitability for the fresh pork business can actually go back to the level that we have seen in 2015? Thank you. For your first question, you asked for the potential implication of what? Can you repeat your first question? The new NAFTA deal. I understand the question. 第一个问题关于你们觉得在美国方面，因为北美那方面的发展，这个事情潜在的影响是怎么样呢？对于你们未来在美国的生猪价格方面，还有对你们的利润率方面的影响会是怎么样？另外今年我们看到在生鲜猪肉方面有点压力。然后我想了解2019年的利润率会是怎么样？我了解你们2017年，还有2016年，你们利润率方面有一个挺高的基数，那你觉得2019年可不可以回到2016年这么高的一个基数上？在盈利方面能不能恢复2016年这个高的数字呢？ 2015年。 2015年。 Okay, this is Ken. I will answer the question about NAFTA and fresh pork outlook. Obviously, resolving the trade issues with Mexico was important and will be favorable to the outlook going forward. Mexico being one of our largest trade partners in a huge market for hams in particular, which you have 50 pounds of ham coming off of every hog. I will pause here for a minute just for translation. 首先我们如果能够跟墨西哥的贸易上的问题能够处理掉的话，这个对于未来的展望肯定是利好的。因为墨西哥方面他们是其中一个最大的贸易伙伴，同时他们也是在这一个火腿方面是一个非常庞大的市场，量方面大概是5万。所以如果能够处理掉墨西哥的贸易问题肯定是好的。 Overall, the trade tension issues in 2018 have had a significant psychological impact on the markets, and that has translated into our P&L. I repeat that resolving the issues with Mexico are important and hopefully we can get issues resolved, or the U.S. government and the Chinese government can resolve the trade issues that exist there. I think that will be very helpful to 2019. 总体来说，在2018年，我们看到有贸易上的一些张力，而且影响到心理上，影响到市场。因为这一方面的心理上的影响，这个也是传播到我们的盈亏方面，我们也看到影响。所以能够解决墨西哥方面这个贸易的问题是至为重要的。我们也非常期望美国和中国政府能够在这方面能够解决问题，这样的话肯定对于2019年是有一个很大的帮助。 In terms of the outlook for fresh pork, you are right, 2016 and 2017 were very good years in fresh pork. The gap between live hog prices and meat values widened out wider than it had been historically. Those were good years. We have got to, though, lower our cost in our fresh meat plants, and that will allow us to get back to those levels. What we are doing is we are investing in our fresh meat plants. We are going to invest $200 million this year in our fresh meat plants, and that is all capital designed to automate and simplify our fresh meat operations. That spending, by the way, will continue into 2019. We have got several major projects. We have nine fresh meat plants here in the U.S., 10, I guess, including a 10 fresh meat plants. We are targeting some of our largest plants with that spending, all with a view of reducing our processing cost. 如果提到我们的展望方面，关于生鲜肉，2016和2017真的在生鲜猪肉方面是非常好的年份，因为在生猪和最后肉成品的价格方面的价差扩大了。另外我们也有一些生鲜肉的工厂方面的投资。我们今年将会投资2亿在生鲜肉厂方面。这个主要就是在资本设计方面，比如我们投资去自动化和简化整个生鲜肉方面的运作和运营。这种投资会在2019年开始，而且我们也是有几个大的项目。我们在美国总共就是有9个生鲜肉厂，这些都是为了去减少我们的成本和简化我们总体的生产的流程。 I think we are in a bad end of a cycle right now, but I do expect that it is just that, it is a cycle between the turning of the cycle and the investments we are making in our fresh pork plants that yes, we will get back to those profitability levels that we have seen the last couple of years eventually. I expect our capital that we have deployed to start to take effect about mid-year in 2019, and should be almost at a full rate by the end of 2019. 所以总体来说，我们看到的是一种周期，我们已经看到这个周期在逆转的情况。还有我们的投资计划也是其中一个因素。我们相信，我们是应该可以恢复到几年前我们的利润水平。如果说到我们动用的资金方面，我们应该是在2019年中，开始看到这方面的效果。而且总体全面的效果，应该是在2019年底就会全面看到的了。 One other factor I should mention that has had an impact on both the fresh meat business and the packaged meats business in 2018 is increased transportation cost. We have had capacity issues in the United States, freight capacity issues that have really driven up our rates, and therefore our overall cost. It is very meaningful for the year. I expect the industry is reacting and adding capacity, and hopefully we will see a reduction in our freight rates going forward. 另外一个对于我们生鲜肉和肉制品业务都有一个大影响的，就是在18年看到其中一个因素就是交通运输方面的成本上升。在美国我们有这个运能方面的问题，所以运价是有所增加，这个对整个行业都是有一个重大影响。我们看到整个行业已经开始在运能方面在提升，也希望这样来说就可以减低成本，可以让我们的利润也可以恢复过来的。 Thank you, Ken. Before we close the meeting today, I would like to recap on some of the questions about the China business. I think some of the English-speaking investors might have some confusion about the outlook for the packaged meat business. Let me do a short recap here. About 2019, we do expect the overall hog price will be slightly higher than 2018. However, our packaged meat business, our plan is to continue to improve the product mix, which means we are going to roll out more high-end, which also means higher margin products. At the same time, we will also adjust our selling price accordingly to capture the increase of the hog price. Overall speaking, we do expect our profit margin in the packaged meat business will continue to improve given the expectation that the hog price next year will go slightly higher. For the slaughtering business, we do expect the slaughtering profit per head might slightly come down a little bit in 2019. However, we do believe the packaged meat business in 2019 with the improved profitability, will be able to offset the downside of the slaughtering business in 2019.