1st edition 2011 - john swire & sons

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Newswire 1

Contents

Maisie Shun Wah Editor

Charlotte Bleasdale Deputy Editor

Cindy Cheung Manager

Barry Chu Manager Design/Production

The Swire group is a multi-national, multi-disciplined commercial group, with its principal areas of operations in the Asia Pacific region, and centred on the Greater China area. Hong Kong is home to publicly quoted Swire Pacific, whose core businesses are grouped under five operating divisions: property, aviation, beverages, marine services, and trading & industrial. John Swire & Sons Ltd., headquartered in the UK, is the parent company and corporate co-ordinator of the group. In addition to its controlling shareholding in Swire Pacific, John Swire & Sons Ltd. operates a range of wholly-owned businesses, including deep-sea shipping, cold storage, off-shore and road transport logistics services and agricultural activities with main areas of operation in Australia, Papua New Guinea, East Africa, Sri Lanka, the USA and the UK.

Please send material to the Editor, GPO Box 1, Hong Kong, or email us at [email protected]. For pictures, we welcome prints, colour slides or computer graphics in JPG format (500dpi and 20cm x 16cm), and digital photos taken by cameras with 8 Megapixels or above.

Swire News is published in Hong Kong, by the Group Public Affairs Department.

Copyright©2011

Features Out & About 20

Gaining Momentum in the Journey to Sustainability 16

Finlays - From Farm to Shelf 10

From the ArchivesA Masterly Concept 18

S W I R E N E W S • 1 s t I S S U E 2 0 1 1S W I R E N E W S • 1 s t I S S U E 2 0 1 1

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New wire

The China Navigation Company (CNCo) has placed a firm order for eight multipurpose vessels of 31,000 deadweight tonnes each from Zhejiang Ouhua Shipbuilding Company Limited; they will be the company’s first new buildings from Mainland China and will be delivered between January and August 2013. The contract includes options for up to eight additional vessels. The vessels are rated to carry 2,082 TEUs of containerised cargo, but are also designed to carry general cargo, steel, project cargo, agricultural products and dry bulk cargoes.

“These vessels will be deployed to enhance or replace existing vessels in our liner trades”, says Richard Kendall, Managing Director of CNCo. “We have particularly focused on designing a vessel that is capable of appropriate cargo handling and speed performance to operate successfully in a scheduled liner trade, while delivering ground-breaking fuel efficiency.”

The ships have been designed to ensure the lowest fuel consumption per tonne-mile possible. This was achieved by refining the hull lines using computer optimisation, together with the use of special rudders, propeller nozzles and low resistance paints. A conscious effort to minimise fuel consumption has also been made in the choice of main engine and machinery and the use of variable speed cooling pumps, low wattage lighting and improved thermal insulation. The ships will meet the highest environmental requirements with a ballast water treatment plant, minimal hydraulic machinery used on deck and all fuel and lube oil tanks protected by a double skin.

CNCo currently operates 29 vessels, of which 17 are owned, in its Asia Pacific liner services; these trade under the Swire Shipping, Tasman Orient, New Guinea Pacific Line and Greater Bali Hai brands.

The world’s biggest rugby ball – measuring 2.9 m in height, 4.7 m in length and 2.9 m in diameter – was unveiled by Cathay Pacific in March as part of its “Game On!” marketing campaign for the Hong Kong Sevens; Cathay is co-title sponsor and official airline for the popular annual event. The giant ball, which has been certified by Guinness World Records, is to be auctioned to raise money for the Red Cross, to assist its earthquake relief efforts in Japan, Yunnan Province in China and Christchurch in New Zealand. This is just one of a number of Swire group company initiatives to raise money to help those made homeless by these three devastating natural disasters that have all occurred within the space of one month. Our sincere sympathy goes out to all those who have been affected by these tragedies.

Major shipbuilding order

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Newswire(continued)

Hong Kong Aircraft Engineering Co. Ltd. “As expected, 2010 was a mixed and challenging year for the HAECO group. The results of Taikoo (Xiamen) Aircraft Engineering Co. Ltd. “TAECO” were adversely affected by reductions in demand for Boeing 747 passenger to freighter conversions and for airframe heavy maintenance. The new joint ventures in Mainland China suffered from start-up losses as expected. On the other hand, demand for line and heavy maintenance services in Hong Kong was strong. The results of the group’s jointly controlled companies (Hong Kong Aero Engine Services Ltd. “HAESL” and Singapore Aero Engine Services Pte. Ltd. “SAESL”) benefited from a stronger than expected recovery in demand for engine overhaul services.

Mr. Christopher Pratt, Chairman of the Swire group’s three Hong Kong-listed public companies, comments on 2010 performance:

Swire Pacific Ltd.“Underlying profit attributable to shareholders, which principally adjusts for changes in the valuation of investment properties, increased by HK$7,668 million to HK$16,143 million. Excluding the effect of non-recurring items, underlying profit attributable to shareholders increased by HK$2,743 million to HK$11,099 million. The 2010 results benefited from a very strong performance from the Cathay Pacific group and continued growth in profits from the Property Division. Profits also increased in the Trading & Industrial Division. Profits fell in the Beverages and Marine Services Divisions and were little changed at HAECO.

Against a background of continuing growth in Mainland China and Hong Kong, the trading environment for Swire Properties’ principal retail and office developments remains strong. Swire Beverages’ prospects in Mainland China may be affected by pressure on discretionary consumer spending caused by food price inflation. The US operations are likely to be little changed. The Hong Kong and Taiwan markets have potential for growth. 2011 will be another challenging year for Swire Pacific Offshore, with the offshore supply vessel industry continuing to suffer from an over-supply of tonnage. Vessel utilisation is likely to improve but charter hire rates are expected to remain depressed. The Trading & Industrial Division expects continued growth in sales for Swire Resources and Taikoo Motors. Taikoo Sugar and the

paints business expect strong growth in sales in Mainland China, but the effect is likely to be offset by the costs of network expansion. (For prospects for Cathay Pacific and HAECO, please see below)

Cathay Pacific Airways Ltd.“Our recovery from the global economic downturn in the latter part of 2009 was sustained throughout 2010. We also benefited from the strong profits earned by Cathay Pacific’s associated company, Air China, which contributed HK$2,482 million to the 2010 result, from the aggregate profit of HK$2,165 million from the disposal of interests in Hong Kong Air Cargo Terminals and HAECO, and from the profit of HK$868 million from the deemed disposal of part of our interest in Air China. The deemed disposal occurred because Air China issued some new shares, an issue in which we were unable to participate.

The rapid turnaround in our business from the lows of 2008 and much of 2009 to the record highs of 2010 is indicative of the volatile nature of our business. Demand is expected to remain strong in 2011, but this expectation could be undermined if the current (or any higher) level of oil prices were to reduce global economic activity. We will continue to manage our finances prudently and will strive to keep costs firmly under control. I am confident that these, together with our core strengths of a capable and committed team, a superb international network, the quality of our product and services, our strong relationship with Air China and our position in Hong Kong, will help to ensure the continued success of the Cathay Pacific group.”

2010 ResultsResults Swire Pacific Change Cathay Pacific Change HAECO Change

Turnover HK$M 29,201 +17.2% 89,524 +33.7% 4,266 +5.5%

Profit attributable to shareholders HK$M 16,143 +90.5% 14,048 +199.3% 701 +1.9% Earnings per share HK$ 3.571 +199.3% 4.21 +1.9% A shares HK$ 25.42 B Shares HK$ 5.08

Dividends per share HK$ 1.110 +1,010.0% 2.10 +5.0% A shares HK$ 3.500 B shares HK$ 0.700

+74.7%

+25.0%

John Swire & Sons completed acquisition of the Alex Fraser Group on 18th February; Swire first acquired a 51% shareholding in Alex Fraser in 2006. Established in Melbourne in 1879, the Alex Fraser Group is today engaged in four strategic activities: construction and demolition materials recycling, specialist industrial demolition; environmental remediation services, and asphalt production and paving. It has won a raft of environmental awards for its commitment to sustainable industrial practices. The Group operates four production

The prospects for the HAECO group in 2011 remain mixed. Assuming continued strength in the aviation industry generally, demand for HAECO’s heavy and line maintenance services in Hong Kong is expected to remain strong in 2011. HAESL is also expected to perform well. TAECO’s base maintenance operations are expected to recover modestly. The joint ventures in Mainland China are expected to be adversely affected by continued start-up losses and by inflation and increased competition.”

For full results of these companies, please visit our websites:www.swirepacific.comwww.cathaypacific.comwww.haeco.com

facilities in Melbourne, three in Brisbane and employs around 200 people.

The McKellar family, who have been involved with Alex Fraser for over 100 years, will continue their long association, with former MD Jamie McKellar remaining a director of the company and brother Robbie continuing on as General Manager of Alex Fraser Demolitions. A fourth generation McKellar, Jamie’s son Sam, is an Operations Manager in Alex Fraser Demolitions.

(Left to right): John Swire & Sons Pty. Chief Operating Officer Greg Hughes, Chairman Bill Rothery, Finance Director Grant Robinson, Jamie McKellar, Peter Murphy (current Alex Fraser Managing Director), and Robbie McKellar at the signing over ceremony.

Alex Fraser acquisition

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Newswire(continued)

In January, Mr. James Hughes-Hallett, Group Chairman, and Mr. Christopher Pratt, the group’s Hong Kong Chairman, had a luncheon meeting with Director Wang Guangya of the Hong Kong & Macau Affairs Office. Director Wang expressed his appreciation of Swire’s reputation and its extensive footprint on the Mainland. The two Chairmen also called on Mr. Thomas Tso, Director of the HKSAR’s Beijing Office, who shared his

Senior staff appointments

Mr. Guy Bradley, Chief Operating Officer for Swire Properties (SPL), will take up the post of SPL’s Chief Executive Officer – Mainland China on 1st June, 2011.

Mr. Ivan Chu, previously Director Service Delivery of Cathay Pacific Airways, took up the post of Chief Operating Officer of the airline on 31st March, 2011.

Mr. Gordon Ongley, Chief Executive Officer – Mainland China for Swire Properties, will take up the post of Chief Operating Officer on 1st June, 2011.

Campbell’s joint ventureSwire Pacific has formed a joint venture with US food giant, Campbell Soup Company. Swire will hold a 40% shareholding in Campbell Swire, which begins operations this year and will be headquartered in Shanghai. The new

PNG Hotel upgradesSteamships Trading’s hotel division, Coral Sea Hotels, recently unveiled its new Kina 30 million refurbishments to the Ela Beach Hotel & Apartments and Gateway Hotel & Apartments in Port Moresby. The Ela Beach Hotel & Apartments complex, located in the heart of the city, now boasts 42 Premier Suites, which include Hotel Suites, Kitchen Suites and Spa Suites designed to cater to the varying needs of the business and leisure traveller. New amenities include a gymnasium, lap pool, spa and a boardroom with library and internet facilities. The Gateway Hotel & Apartments, located within the Airport Precinct at 7 Mile, recently opened the doors to a brand new conference facility, which has the capacity to accommodate up to 600 delegates and thus host some of the biggest conference events in the country. Thirty-five new premier rooms have been added to the hotel, while existing rooms have been extensively refurbished and an additional 120 secure car parking spaces added. The current expansions in Port

Moresby and at other Coral Sea Hotels Group locations reflect a rise in the Papua New Guinea economy and strong demand from corporate repeat clients. The Highlander Hotel at Mt Hagen and the Melanesian Hotel at Lae are also currently undergoing major upgrades.

observations of China’s recent developments. In February, Mr. Tony Tyler, CEO of Cathay Pacific, visited Minister Li Jiaxiang of the Civil Aviation Authority of China to extend the airline’s good wishes for the Lunar New Year. It was also an opportunity for Mr. Tyler, who left the airline at the end of March to take up the post of Director General of the International Air Transport Association, to bid farewell to his friends at the Authority.

(Left to right): Mr. Ian Shiu, Executive Director – Swire Pacific; Mr. Hughes-Hallett; Mr. Sam Swire, General Manager China – Cathay Pacific Airways; Director Tso; Mr. Patrick Yeung, Director & GM – John Swire & Sons (China); Mr. Pratt; Ms. Stephanie Chen, Manager – John Swire & Sons (China); Ms. Eliza Lam, Principal Trade Officer and Ms. Beatrice Chiu, North China Investment Promotions Manager of the HKSAR Government.

company will be responsible for manufacturing, packaging, branding, marketing, selling and distributing Campbell’s soup, broth and stock products in Mainland China. Campbell will retain ownership of its brands and recipes and will license them to the joint venture. Mainland China is now the world’s second largest economy and has one of the highest rates of per capita soup consumption in the world. Approximately 355 billion servings of soup are consumed annually.

Swire Properties moves into ChengduSwire Properties Limited and Sino-Ocean Land have jointly acquired 70,779 square metres of land for commercial development in Chengdu, the capital of Sichuan Province in Mainland China. The land is located in the Daci Temple area in Jinjiang District and the mixed-use development planned will include a premium shopping centre, a boutique hotel, serviced apartments and an office tower. The project will be jointly developed for investment by Swire Properties and Sino-Ocean Land on a 50/50 basis, providing Swire Properties with a platform to establish a fourth investment hub in Mainland China, after its joint venture developments in Beijing, Guangzhou and Shanghai.

Senior management visits Beijing

(Left to right): Ms. Anna Chen, Manager North China, Dragonair; Mr. Patrick Yeung; Mr. Arnold Cheng, GM – International Affairs, Cathay Pacific; Mr. Sam Swire; Mr. Ian Shiu; Mr. Tyler, Minister Li and friends at CAAC, Mr. Li Jiangmin, Director – International Affairs; Mr. Pu Zhaozhou, Hong Kong, Macau & Taiwan Affairs Director; and Mr. Shi Boli, Director Transportation.

Mr. Hughes-Hallett with Director Wang

The Pool Court at the Ela Beach Hotel

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Ninety-one aircraft now on orderAt a press conference to announce 2010 annual results on 9th March, outgoing Cathay Pacific CEO Tony Tyler confirmed that the airline will be adding another 27 aircraft to its fleet, bringing the total on order for delivery between now and 2019 to 91 aircraft. The airline has entered into an agreement with Airbus S.A.S. to buy 15 more Airbus A330-300s and a separate agreement with The Boeing Company for ten more Boeing 777-300ERs. It has also signed a deal with aircraft leasing company International Lease Finance Corporation (ILFC) to add two more Airbus A350-900s. All of these new aircraft will be delivered before the end of 2015.

The latest orders come on top of the airline’s biggest-ever order in September last year for 30 Airbus A350-900s to be delivered from 2016 to 2019 and six Boeing 777-300ERs to be delivered between 2013 and 2014. “Our plan is to retire our 21 Boeing 747-400 and 11 Airbus A340-300 aircraft before the end of the decade as we take delivery progressively of new generation aircraft that will provide much greater fuel and operating cost efficiencies,” said Tyler. “This is important both for environmental reasons and from a financial perspective as fuel remains our greatest single cost. Cathay Pacific has ambitious plans moving forward and we need to ensure that we have a highly efficient and environmentally friendly fleet to meet those plans.”

New routesCathay Pacific Airways will add two new international routes in 2011: a four-times-weekly service to Abu Dhabi, the capital city of the United Arab Emirates, commencing in June, and a daily flight to Chicago from 1st September. The Chicago service will be operated by a Boeing 777-300ER aircraft and Cathay Pacific intends to launch code-share services to other US cities from this new gateway with oneworld alliance partner American Airlines. The Abu Dhabi service will be operated by an Airbus A330-300 aircraft.

Cabin completion centreAirbus Industrie has recently appointed Taikoo (Xiamen) Aircraft Engineering Company as its first approved cabin completion centre for corporate jets in the Asia Pacific region. The new venture will involve outfitting the cabins of aircraft such as the Airbus Corporate Jet (ACJ) and A320 Prestige. “Expanding into cabin completion for Airbus corporate jets is an important and exciting new business opportunity for us, and we look forward to receiving the first jet to be fitted out,” says TAECO Chief Executive Officer Patrick Healy. TAECO has already built a cabin mock-up to showcase its capability in this field.

Swire Pacific Offshore’s latest Anchor Handling Tug Supply Vessel, Pacific Champion, was named by Mrs Francesca Pratt, wife of Swire Pacific Chairman, Christopher Pratt, in Hong Kong on 11th March. The first of four identical 16,314 bhp, Rolls-Royce designed UT786 Anchor Handling Tug Supply Vessels built by Sekwang Heavy Industries at Ulsan, Korea, Pacific Champion is the largest and most powerful vessel to date to join the SPO fleet. The other three vessels, Pacific Commodore, Pacific Centurion and Pacific Crusader will deliver between the third quarter of this year and the third quarter of 2012. The new ice class vessels are certified “clean design” vessels, with unrivalled fuel economy and lower emissions from all machinery, including refrigeration, than any comparable ship employed in the industry. They will enable the company to venture into deeper waters and more harsh environments than ever before, as the search for offshore oil and gas expands into challenging areas that require ever more sophisticated and highly specialised support.

Second Windfarm installation vesselSwire Pacific Offshore has exercised its option with Samsung Heavy Industries in Korea to build a second Windfarm Installation Vessel for subsidiary, Swire Blue Ocean. The new vessel, Pacific Osprey, will be built to the same specifications as Pacific Orca, currently under construction at Samsung and delivering in

2012. Pacific Osprey is scheduled to arrive in Europe in early 2013 and will be used for the installation of 80 Siemens wind turbine generators for Dan Tysk Offshore Wind in the German North Sea. Pacific Orca has secured employment in another European project.

Mr. J.B. Rae-Smith, an Executive Director of Swire Pacific, shows off the state-of-the-art bridge console to Ms. Laiman Tam, Managing Director of Swire Resources.

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Taikoo Motors Group subsidiary, Liberty Motors, launched the Škoda Yeti onto the Taiwanese market in October last year. The stylish and spacious new SUV boasts the highest safety rating from Euro NCAP and features a compact 1.2 litre TSI engine that has been designed to maximise fuel efficiency and reduce emissions. Prior to its official launch, the Yeti received glowing reviews in the Taiwan media and on the internet and more than 100 customers placed orders during the pre-sale period. Škoda has named Yeti as its top-selling model globally and five months after its launch, it is amongst the top ten imported car models in Taiwan.

Meanwhile, exclusive Volkswagen franchisee Beldare Motors is beefing up its sales campaign and targeting sales of 12,000 vehicles in 2011. The company will introduce new luxury models, including an all-new Phaeton during the first quarter and the Touareg SUV in June

and has designated 2011 First Year of the Variant, with the introduction of new Passat and Golf Variant models, a new model of the Touran and the brand new Sharan in the second half of the year. The aim is to ensure Volkswagen is the import motor brand with the most comprehensive line-up of models catering to the requirements of every customer.

Beefing up sales in Taiwan

Operational excellenceSwire Travel has won the Hong Kong Leaders’ Choice 2011 Excellent Brand of Corporate Travel Management award from Metro Finance. The award, which is voted on by opinion makers, senior executives and industry media, recognises Swire Travel’s professionalism in the field of corporate travel management.

has received three awards from the Hangzhou Economic & Technological Development District, including 2010 Advanced Company for Safe Production, 2010 Advanced Company for Facility Management and the 2010 Award for Energy Saving and Waste Discharge Reduction for a more than 4% improvement in environmental performance compared with the previous year. Swire Coca-Cola Beverages Xiamen has meanwhile received the 2010 Advanced Company for Energy Saving from the Xiamen Municipal Government and Swire Coca-Cola Beverages Zhengzhou has received a certificate from Luohe City Government, naming it as “2010 Luohe City Advanced Business on Major Business Construction Project”. The award recognises the successful and speedy completion of the company’s new facility in 2010, using environmentally-friendly materials and advanced construction techniques, and for its health and safety record during construction.

The Zhengzhou plant has also taken second place in the second tier of The Coca-Cola Company’s annual China System Bottler of the Year Competition. Zhengzhou also won this award in 2004, 2005, 2008 and 2009. Nanjing BC Foods received a Silver Award in the first tier of the competition.

Two Swire Resources staff have won the Supervisory and Junior Frontline categories in the Fashion & Accessories (Sports & Outdoor) section of the 2010 Service and Courtesy Awards, organised by the Hong Kong Retail Management Association. Launched over 25 years ago, the

awards are widely respected and supported by the retail trade in Hong Kong. This year, Swire Resources enrolled 26 staff to compete amongst 629 contestants representing 115 retail brands. After four rounds of field assessments, panel interviews and individual interviews, Happy Tse and Maja Li from Columbia won the Supervisory and Junior Frontline awards respectively.

Marathon Sports has been selected as the 2010-2011 Best for Home retailer in its “Retail/Department Stores/Chain Stores” category by Take Me Home, a monthly district newspaper circulated by The Hong Kong Economic Times to over 400 housing estates throughout Hong Kong. This is the third consecutive year that Marathon Sports has won the award. All Take Me Home awards are selected both by the readers and editorial staff, with more than 60,000 voters participating this year.

“More care, less to cure”To raise awareness and understanding of mental health issues, John Swire & Sons (H.K.) Ltd. invited its Employee Assistance Programme service provider, Four Dimensions Consulting Ltd, to conduct a two-day certificate course on Mental Health First Aid for the group’s HR staff in January. The course aimed to help participants recognise the symptoms of mental illnesses, so that assistance can be provided at an early stage in mental health crisis situations. A total of 40 participants from 13 Swire group

companies attended the course and the overall feedback was very positive. The majority of participants found the course clear, easy to understand, interesting and practical. “I realise how difficult and complex it is in dealing with mental health cases after the course, it’s much more than a ‘first aid’ course. More care, then less to cure,” said Jess Li, Manager Personnel & Administration of Vogue Laundry. Another participant Chan Wai Ping, HAECO’s Nursing Officer, commented, “The Community Resources handbook provided, specifying different ways of professional support, was very useful!”.

The Upper House, Swire Hotels’ luxury boutique business hotel at Pacific Place in Hong Kong, has been named “Hotel of the Year” by Preferred Hotels & Resorts Group, which represents more than 800 independent, best-in-class hotels in 70 countries. Dean Winter, General Manager of The Upper House said: “The award is a reflection of the hard work and strong customer commitment of The Upper House team. It also demonstrates the development of Swire Hotels into a preferred brand for business and leisure travellers globally – it is a great honour.” Since opening in October 2009, The Upper House has scooped top awards and is recognised for its fresh approach to personalised service and its stylish design. Designer Andre Fu of AFSO has been hailed by Vogue UK as a ‘Design Wunderkind’ and by Condé Nast Traveler US as an ‘Asian Design Sensation’. Café Gray Deluxe, presided over by celebrated chef Gray Kunz, has recently been awarded one star in the Michelin Guide Hong Kong and Macau 2011.

Swire Beverages’ Coca-Cola production plants on the Mainland have won a raft of awards under local municipal government incentive schemes. Hangzhou BC Foods

Mr. Andrew Leung, Managing Director of Swire Travel, receives the award. Happy Tse and Maja Li with colleagues at the award presentation.

Staff of Beldare Motors drink to the 2011 sales target (Left to right: Mr. Chicco Huang, Communication Manager; Mr. Jeff Lee, Assistant General Manager – National Sales; Mr. Chili Huang, Managing Director; Mr. Charlie Peng, Assistant General Manger – Aftersales; and Mr. Jack Liu, Sales Manager.)

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Feature

A nice cup of tea and a lovely bunch of

flowers - two of life’s simple pleasures.

Yet the process of transforming green leaf

into tea and getting fresh cut flowers from

farms in Kenya to supermarket shelves in

Europe is far from simple.

The growing, processing, packaging and distribution of both tea and

horticultural produce (flowers and premium vegetables) are the core

businesses of James Finlay Limited, more commonly known as Finlays,

and a wholly owned subsidiary of Swire since 2000.

Finlays - From Farm to Shelf


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Feature(continued)

Founded in Glasgow, Scotland over 260 years ago, Finlays began as a trader and manufacturer of cotton, before expanding into tea in the late 19th century, following the collapse of the British cotton industry. Over the years, Finlays has diversified to reduce reliance on its tea plantations with varying degrees of success. Diversification into horticulture began around 20 years ago and with the acquisition of Flamingo in 2007, Finlays is now one of the leading players in the UK cut flower and fresh produce industry. The company has over 40,000 employees as far afield as its flower farms in South Africa and China, as well as its tea plantations in Kenya and Sri Lanka.

Today, Finlays produces over 45 million kilos of black tea every year and is one of the only tea companies in the world to be involved in every aspect of the complex process of growing, trading, blending, extracting, packaging and distributing tea.

Over the last few years, Finlays has faced some seemingly insurmountable challenges: global recession, rocketing oil prices, currency fluctuations, weather extremes and consumers who are more demanding than ever before. Managing Director of Finlays, Ron Mathison, is

pragmatic about the challenges the company faces: “There are lots of moving parts in Finlays, there’s a lot of complexity and there’s a lot of risk.”

Fortunately, one of the few commodities to escape the worst of the global economic downturn was tea. As the second most consumed beverage in the world after water, tea remains a staple in both good times and bad. Finlays’ tea business is therefore relatively resilient to economic recession.

For Finlays’ other major business – flowers and premium vegetables – the economic downturn has been more problematic. Surprisingly, demand has remained fairly constant, perhaps as more people opt to cook at home using premium vegetables like mange tout, asparagus

and sugar snap peas, rather than dining out. And if they dine at home, then they are more likely to buy some flowers to complement the dinner. However, like most agricultural businesses, Finlays has been plagued by rising oil prices. There is the most obvious knock-on effect of rising transport costs, particularly air freight, but oil is also an essential component of fertiliser and the plastics used in greenhouses – both of which are critical in horticulture.

Companies like Finlays, which spends in one currency and earns in another, have much to lose or gain from currency fluctuations. Currency movements over recent years have had huge implications for the health of Finlays’ earnings.

The majority of Finlays’ customers are in the UK and therefore the company’s earnings are primarily in pound sterling. Meanwhile, its costs are mostly in American dollars (or currencies linked to the US dollar). The depreciation of sterling against the dollar has therefore dented Finlays’ profits. Passing on cost inflation through price increases has proved difficult, given resistance by large UK retailers who are reluctant to pass on higher prices to the end consumer in a recessionary environment. The reality is that Finlays is operating in a highly competitive marketplace where there is excess capacity and downward pressure on pricing exerted by powerful retailers.

An even greater risk, and of more concern to Finlays than anything else, is the weather. On Finlays’ tea plantations and flower farms, optimal weather conditions are critical to an abundant and high quality harvest. For the horticultural side of the business in particular, there are weather risks at every step along the way to the supermarket shelf. Weather conditions are integral to the efficient transportation of flowers and vegetables, and ultimately to the vagaries of customers. For example, consumers tend to stick to buying essentials (not flowers) when weather conditions such as snow make getting to the supermarket tricky. Ironically, the worst weather-related interruption to Finlays’ horticultural business came as a result of a volcanic eruption in Iceland, thousands of miles away from their African flower farms. The resulting volcanic ash grounded air traffic across Europe and beyond, creating a logistical nightmare and severe financial losses for Finlays.

Finlays’ customers are chiefly the large supermarket chains in the UK. Their customers demand ever higher standards from the products they purchase - bunches of exotic flowers should look freshly picked year-round and have a long vase life. Finlays’ logistical and distribution expertise is critical to meeting this demand.

The varied challenges Finlays currently faces demand a multifaceted response from all corners of the business. Finlays has been utilising the technical expertise of its existing employees to minimise the impact on the bottom line, and in some cases turn the challenge into an opportunity.

Finlays has long been committed to using renewable energy sources, already using hydroelectric power and its own Eucalyptus forests to generate timber to fuel its boilers. However, its search for alternative renewable energy sources is seen as a strategic imperative and Finlays views anaerobic digestion of biomass as a potential source of clean, renewable energy. Anaerobic digestion, like a compost heap, is the process by which micro-organisms break down biodegradable material. The process produces methane gas which can be used to generate thermal or electrical energy. Finlays’ researchers and engineers in Kenya are experimenting with flower, tea and human waste combinations to create the optimum conditions for generating methane gas, which can be harnessed to power turbines and generate electricity. And of course, the nutrient-rich leftovers make excellent fertiliser that will be reused on the farms and plantations.

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Feature(continued)

In an effort to hedge against rising oil prices, Finlays is looking to expand its investment in the natural rubber market. As oil prices rise, so too does the cost of synthetic oil-based rubber, making natural rubber a more competitive alternative. Already a producer of over 850,000 kilos of rubber latex a year from its plantations in Sri Lanka, and with extensive experience in forestry management, the company is ideally positioned to broaden its exposure to this buoyant market and is actively pursuing the acquisition of suitable land in Sri Lanka to this end.

Finlays also hopes to tap into new and expanding global markets. Demand for tea in its many forms is on the rise. Population growth in Asia, particularly in China, India, Pakistan and Bangladesh, is fuelling consumption of black tea. Meanwhile green, decaffeinated and instant tea drinks are gaining popularity due to the heightened interest in the health and wellness properties of tea. Tea extract is also being used with more frequency in other beverages. With its longstanding experience in tea extraction, Finlays hopes to play a greater role in developing new products for the big beverage brands.

On the horticultural side, Finlays is planning to expand its flourishing flower business Omniflora in Germany, as well as expand its operations into other European countries. It also sees enormous opportunity in the burgeoning Asian markets, particularly China, where Finlays already has a farm growing carnation flowers for export to Japan.

A surprising and potentially lucrative aspect of Finlays’ business is bug production. Dudutech, part of Kenyan subsidiary Homegrown, is revolutionising crop protection through integrated pest management. To manage soil or airborne pests such as spider mites, which can devastate tea and flower crops, Dudutech is identifying and breeding predatory bugs and funguses. Seemingly innocent insects such as ladybirds are used as predators to target pests, thereby reducing the need for traditional pesticides. Dudutech’s nine hectares of bug production facilities in Naivasha yield in the region of 60 million bugs on a weekly basis for use on Finlays’ crops.

Another diverse and flourishing side of the business is Finlays Colombo in Sri Lanka. The end of the lengthy civil war in Sri Lanka has

brought about renewed economic optimism on the island. The country now boasts one of the strongest performing stock markets in the world. Finlays Colombo, dating back to the early 19th century, has a wealth of experience in Sri Lanka across a wide variety of sectors and its various agencies are making the most of the opportunities that this regenerating economy is presenting. Amongst its plethora of business interests it boasts one of the largest insurance brokers in the country, and its state-of-the-art cold storage facility is the first of its kind in the country.

So what is Finlays’ vision for the future? Ron Mathison cautions against using the term ‘vision’. “It’s difficult to come up with a compelling, unique vision for such a diversified business. We’re like a mini conglomerate. Instead we focus on our values, principles and strategic aims.”

Mathison highlights four key aims for the future: improving returns for shareholders, reducing complexity and risk, value addition in its operating model, and leadership in sustainability. The values and principles of Finlays’ many businesses are grounded in transparency and accountability. The company takes very seriously both the social and environmental costs of its activities. “We are an agri-business so we are clearly very dependent on the environment. It’s very much front of mind for us,” Mathison explains. Acutely aware of its carbon footprint, Finlays is constantly looking at ways to minimise its resource consumption per unit of production.

Finlays is an industry leader in bringing Fairtrade flowers, tea and coffee to market in the UK and one of very few companies who can provide complete traceability of its products, from farm

to supermarket shelf. “We do our best to look after our people, the environment and the communities in which we operate. The nature of farming requires us to take a long-term view and sustainability lies at the heart of everything that we do,” explains Mathison. Finlays provides housing, schooling and medical facilities for many of its employees who live and work on the flower farms and tea plantations. As a result, the company has achieved a whole raft of awards and accreditations including Fairtrade and Rainforest Alliance.

Supermarket customers, who are the end consumers of Finlays’ products, are showing growing interest in the life story of what they purchase. They expect detailed information about products – for example the exact origin of their tea, what pesticides were used in its cultivation and whether the workers on the plantations were given a fair deal. For

some consumers, ethical trade issues may have taken a back seat as the grey cloud of recession hangs above, but the demand for Fairtrade products is here to stay and most likely will grow. Finlays is determined to continue to play a leading role in this important sector.

The risky and cyclical nature of agri-businesses means there is a natural temptation to diversify, but for now Finlays is refocusing on its existing core businesses where vertical integration already affords some protection against low crop prices or low crop volumes. Sustainability is the common thread that binds together the various businesses and as Mathison emphasises, “when we talk about sustainability, we mean sustainability in every sense of the word, economic, social and environmental sustainability.”

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Feature(continued)

The cold chain is a multibillion-dollar industry that forms the backbone of

the global food distribution network. It encompasses the handling, storage

and transportation of frozen food products, including their import and

export. Since the majority of societies across the world are dependent on

the cold chain to meet their daily food requirements, the industry’s global

impact is vast – as are the energy requirements demanded by advanced

refrigeration technology. In a world where environmental challenges are

becoming increasingly complex, the race to find a sustainable way forward

has found a top spot on every agenda.

For United States Cold Storage, managing environmental impact has long been an integral part of the business. “Environmental sustainability and energy utilisation are two of the primary environmental challenges facing the cold storage industry,” explains Michael Lynch, Vice President of Engineering at USCS. As North America’s fourth-largest public refrigerated warehousing company, USCS is one of the industry’s leading players, with facilities that currently account for 193.8 million cubic feet of refrigerated storage space, amounting to five percent of the overall market. Recognising the environmental toll taken by operations of such scope and size, USCS first set out to reduce its carbon footprint in 2005, beginning by benchmarking its CO2 emissions to gauge its environmental impact.

Since then, sustainability efforts have grown and matured rapidly. “We believe it’s important to build high-quality warehouses and to equip them with the newest, most energy-efficient

renewable resources and curbed waste, USCS actively sought alternative energy sources and the means to improve energy efficiency in its warehouses. Today, it is a world leader in energy-efficient refrigeration technology, with multimillion dollar research and development projects in the pipeline.

One of these initiatives is USCS’s CO2 cascade refrigeration system, which has come a long way since the compression refrigeration units of the late 1800s. When the cold chain industry first gained ground in the early 1900s, ammonia was widely used in refrigeration systems, and was later replaced with chemical gases like Freon. When these gases were subsequently found to be ozone-depleting, USCS switched back to its ammonia systems, though the quest for more efficient refrigeration technology continued.

After five years of development and investments totalling US$26.3 million, USCS introduced CO2 cascade refrigeration, making it the only public refrigerated warehouse in the United States to use this system. The technology has so far been implemented in six of its warehouses, proving to be more efficient, simpler to maintain and safer to operate than the two- or single-stage ammonia refrigeration systems that are still in use in the industry.

Another important step towards energy efficiency is the phasing out of conventional high intensity discharge (HID) lighting inside USCS freezers, which previously accounted for 10% of a facility’s overall power consumption and had a lifespan of approximately three years. In late 2010, USCS took a new direction, outfitting its Hazleton facility in Pennsylvania with freezers that use only energy-efficient light emitting diodes (LED). Not only do these provide better lighting, they also consume 60% less electricity and have a life expectancy that is over three times longer, directly shrinking USCS’s carbon footprint.

Although LED lights are hardly a new development, their application in high-bay freezers has only emerged in the past two years, and there is potential for further development. State sponsored incentives have allowed USCS to economically test LED technology on a large scale, and on the heels of its success at Hazleton, the company is currently retrofitting two existing warehouses with LED lighting, with further plans to retrofit another 12 over the next two years. If successful, they could usher in LED technology as the new standard for high-bay freezer lighting.

In addition to its innovations in energy efficient technology, USCS has placed significant focus on the search for alternative energy. “USCS was one of the first public refrigerated warehousing companies to install a solar array on the roof of a warehouse,” says Mr. Lynch. It was installed in late 2008 on the roof of the Tulare warehouse in California, and is currently generating approximately 785,000 kilowatt hours. Not only does this solar alternative offset 14% of the facility’s annual energy requirements that would otherwise have come from traditional carbon-based sources, it also opens the doors to further applications in this field. USCS is currently investigating the use of land-based solar trackers at its other locations, which will likely be financed under a Power Purchase Agreement. This will allow USCS to gain the environmental advantages of the technology while offsetting some of the associated costs.

As demonstrated by the progress over the last five years, innovation and improvement are woven into the very fabric of USCS’s corporate culture. Research and development continue to play an important role in the company’s sustainable policies, while customer roundtables are regularly held to facilitate communication and share best practices. Are environmental issues becoming increasingly difficult to unravel? Yes, but sustainable solutions are likewise growing in sophistication, and it is the commitment of companies such as Swire and USCS that will unlock a future where an environmentally sustainable industry can become a reality.

Gaining Momentum in the Journey to Sustainability

technology available,” says Mr. Lynch. Through the stewardship of Swire, USCS is now a voluntary participant in the Carbon Disclosure Project, which collects and reports corporate climate change strategies on a global scale. One of its sustainability goals is to achieve a 1.5% reduction in energy usage year-on-year – a strategy that has translated into the successful reduction of its greenhouse gas emissions every year since its efforts first began in 2005.

This solid result was achieved through several significant initiatives. In addition to launching programmes that lowered the use of non-

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The opening of Swire’s Taikoo Dockyard in Hong Kong, in the summer of 1907 was a quiet affair, marked only by the flooding of its huge graving dock for the first time on Saturday 22nd June, watched by a small gathering of staff. Public fanfare was felt to be inappropriate for a number of reasons: Hong Kong was still recovering from a devastating typhoon the previous September that had resulted in the deaths of over 2,000 people, done untold damage to the city and put every ship in the harbour it did not sink ashore; it had also seriously delayed completion of the docks. Another reason for reticence was that this was a wholly new game for Swire: a project driven by Senior Partner, James Henry Scott, whose family were notable Clyde shipbuilders; his predecessor, John Samuel Swire, had fiercely resisted “the dockyard scheme” up until his death in 1898. The firm had good reason to be apprehensive, since Taikoo’s opening coincided with a world-wide slump in shipping that was to last several years. To make matters very much worse, public opinion – and the waspish Hong

A Masterly Concept

Kong press of those days – had turned against Swire for what was seen as a direct attack on one of Hong Kong’s oldest and best-loved companies, the Hongkong & Whampoa Dock Co.

The Directors of HWD – which almost 70 years later would merge with its new rival – looked on with grudging admiration, however. In his history, Whampoa: Ships on the shore (SCMP, 1980) Austin Coates writes:

“Butterfield & Swire had engaged the services of Donald MacDonald, one of the most brilliant architects of his time. The conventional way of building docks is to align them from shore to sea. There then arises the problem of creating wharves, which have to be treated as a separate operation. MacDonald saw that by cutting the mountain which was part of the selected site at Quarry Bay and dumping it in the sea to make a reclamation, a sufficient depth of water could be achieved to enable the docks to be aligned parallel with the shore. The reclamation requiring a massive wall

on the seaward, non-dock side, this automatically provided more than half a mile of wharves. The entire concept was masterly. 1,600,000 cubic yards of mountain gave 51.5 acres of new land, part of it reclaimed, most of it the flattened base of the mountain. The yard had the colony’s largest machine shop and largest source of electric power. The lay-out of the buildings and the railway arrangement were so well thought out that no matter how many future enlargements had to be made, none of the principal constructions ever had to be dismantled or removed.”

Jim Scott clearly knew what he was doing and Taikoo went on to become one of Hong Kong’s biggest employers. It helped having a built-in clientele that included Swire’s own China Navigation Company (CNCo) and leading British shipping line, Blue Funnel, for which Swire was managing agent. The first few years were difficult, however, with operating losses of between £40,000 and £50,000 annually, thanks to cutthroat competition from HWD. Only after a

working arrangement was established between the two yards was Taikoo able to show its first profit.

Our photographs show the dockyard up to full strength in 1911 and the launch of Tencho Maru towards the end of that year; both pictures were taken by Warren Swire. Tencho Maru was an important milestone for Taikoo, since this was the first vessel of any size built for an outside company. She was built for the South Manchurian Railway Company (Mantetsu), a company founded in 1906 to operate the Lushun-Harbin Railway, but which quickly grew into Japan’s largest corporation, contributing a quarter of the country’s tax revenues by the 1920s and with a wide spectrum of interests that included coal mines, steelworks, flour and sugar mills. It was a considerable vote of confidence when this leading sogo shosha* contracted to build with Taikoo; and Mantetsu was a particularly fitting first customer, since one of its principal sources of income was the export of soybean from Manchuria – a trade in which Swire had also founded its fortunes.

From the Archives

* Japanese general trading company


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a

a At a recent gathering of Fox Camper owners in Taiwan, one camper owner showed off his handmade T1 toy van. Also on show were one 1965 T1 and one 1974 T2.

b “They are partial to CX,” said one Cathay Pacific passenger about his “kids”. This passenger has 16 “kids” in total, all well-known Hong Kong toys, and a few always accompany him when he travels.

c Ten volunteers from around the group in Hong Kong got together to produce 300 jars of marmalade for the Food Bank of St. James Settlement. The marmalade was made from Chinese New Year kumquats which would have been thrown away.

b c

1st edition 2011 - john swire & sons

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