WH Group Ltd

HKEX:288

Q2-2025 Earnings Call

[Lijun Guo, executive]

Good evening, dear analysts and investors. Thank you for joining the earning release for the first half of 2025 for WH Group. Attending today's earnings release includes the management of WH Group, Shuanghui Shanghai Development, Smithfield Foods and Morliny Foods, including Chairman and Executive Director of WH Group, Mr. Wan Long, Vice Chairman of Double Group, Chairman of Shanghai Development, Mr. Wang Hong Hua, Executive Director of WH Group and the CEO of Shuanghui Development, Mr. Ma Xiangjie; Executive Vice President and CFO of Shuanghui Development, Mr. Liu Songtao, Chief Executive Officer of Smithfield Foods; Shane Smith and CFO of Smithfield Foods, Mark; CEO of Morliny Foods, Luis; CFO of WH Group, Ms. Joanna Yan; Zhou Xiaoming of WH Group, Vice President. And [indiscernible] Gordon [indiscernible], CEO and Executive Director of WH Group.

So we will have 2 parts in today's call. Firstly, I will walk you through the company's performance in the first half, and then we'll take your questions. In the first half of 2025, our packaged meats sold was 1.45 million metric tons, declined by 3.3% year-over-year. Total pork sold was 1.96 million metric tons, 7.5% higher year-over-year. Total meat sold externally was 3.77 million metric tons, 3.5% higher year-over-year. Total revenue was USD 13.387 billion, 8.3% higher year-over-year. All the numbers reported will be before biological asset fair value adjustments.

EBITDA for the first half $1.585 billion, 7.9% higher year-over-year. Operating profit, USD 1.259 billion, 10.4% higher. Profit before tax, $1.15 billion, 10.5% higher. Profit for the period, $857 million, 7.7% higher. Profit attributable to the company $725 million, 4.5% higher. Basic earnings per share, USD 5.65.

Based on the company's operation performance and cash flow in the first half, the Board decided to declare an interim dividend of HKD 0.2 per share, which is being aggregated HKD 2.566 billion.

If we look at our business by segment, Packaged Meat is our core business, representing 49.6% of our total revenue and 83.2% of our operating profit. Pork business is 42% of our revenue and a 20.3% of our operating profits. Other business is 8.4% of revenue and a loss of $43 million.

If we look at our business by region, North America is 55.2% of total revenue and 53.6% of operating profit. China business is 30% of the revenue and 34.6% of the operating profit. Europe business is 14.8% of the revenue and 11.8% of the operating profit.

In the first half of 2025 slow and uneven economic growth across different regions is compounded by continuing trade tensions and policy uncertainties. Hog supply in China was stable and hog prices remained at a low level. Effective demand for consumer goods was insufficient. North America hog production recovered as feed prices continue to fall, while hog prices rebounded. Market spreads narrowed slightly, fresh meat and packaged meats business faced a cost pressure.

The European market was impacted by animal diseases and temporary export disruptions. Hog prices initially fare and then recovered, but on average, was lower year-over-year. WH Group leveraged its global platform and a vertically integrated business model, promoted efficiency improvement and cost control and optimize this business structure, leading to steady improvement in operating results.

In the first half, the number of harvested hog in China increased by 0.6% to 366 million heads. The average hog price was RMB 15.5 per kilogram, 0.8% lower year-over-year. In the U.S., the total number of hogs harvested was 63.3 million heads, 0.6% lower compared to last year. The average hog price was USD 1.5 per kilogram, up 8.7%. In Europe, the average hog price was EUR 1.5 per kilogram, down 8.3% year-over-year. The hog prices performance in different regions are different. In China and Europe, the price was lower. But in the U.S., it was higher compared to last year.

The average pork cutout value in the U.S. was USD 2.17 per kilogram in the first half '25, up 4.5% year-over-year. Industry market spreads narrowed as hog prices increased more than pork value. In China, the operating profit was USD 435 million, 2.7% lower year-over-year. Packaged Meats operating profit was $411 million, 10.7% lower. Pork business operating profit was $28 million, flat year-over-year.

We implemented a range of measures to compete in a challenging market environment. Q2 results improved significantly supporting stable performance in the first half of 2025. In Packaged Meat business accelerated shift towards specialized category management, sales force reformation measures started to yield positive results. Packaged meat sales volume stabilized year-over-year in Q2. Profit per ton maintained at high levels as effective cost control continues.

Import business, we stepped up efforts to expand the customer base and optimize the product mix resulting in substantial increase in harvesting volume. Intensified market competition continued to weigh on fresh meat margins, while hog production segment delivered a notable improvement in KPIs and significantly narrowed loss year-over-year. In poultry, volume of chicken produced and process continue to increase.

Operating performance improved significantly driven by continuous enhancement in KPIs. Digitalization was actively deployed across R&D, manufacturing, sales and hog production, leading to marked improvements in business management capabilities and operational efficiency. In North America, the operating profit in the first half was $675 million, 24% higher year-over-year. In Packaged Meat business, the operating profit was $569 million. 7.3% lower year-over-year, largely because last year, we recorded a significant amount of employee retention tax credit. In Pork business, the operating profit increased substantially to $163 million.

In North America, we capitalized on favorable market conditions, optimized the business structure and implemented cost saving and efficiency enhancing measures resulting in a substantial increase in profits and record high earnings. In Packaged Meats with a diversified product portfolio and channel mix, total sales volume remained stable while sales volume of high-margin products continue to grow. We continued to improve mix, adjust price and control costs to absorb the pressure of raw material costs to maintain profitability at high levels.

Profitability of pork business increased significantly as the hog production business delivered strong improvement by capitalizing on favorable market dynamics and reformation initiatives while the fresh meat business maintained stable profits by proactively implementing measures to mitigate the impact of unfavorable market conditions and tariffs. We also reduced the scale of hog production, continue to enhance efficiency in the results.

In Europe, the operating profit in the first half was USD 149 million. The package mix operating profit is USD 67 million, 6.3% higher year-over-year. Pork business, the operating profit was $64 million, 9.9% lower. In Europe, we leverage the vertically integrated business model is the impact of animal disease and continue to make acquisitions. Sales volume continued to grow and profits remain stable.

Newly acquired business continue to contribute to continuous growth in sales volume. Improved mix, adjusted price and control cost effort mitigate the pressure of rising operating expenses, driving steady growth in operating profits.

In Pork, we leveraged the strength of the vertical integrated business model. Profits of fresh meat segment improved significantly although profit of hog production decreased due to lower hog prices. [indiscernible] further expanded business footprint and enriched product offerings.

In terms of business strategies, WH will continue to consolidate global resources, leverage synergies, adhere to the business philosophy of improved mix, adjusted price and cost control costs and the strategy of industrialization, diversification, internalization and the digitalization to enhance our leading position in the global meat industry.

In terms of business priorities, we'll continue to improve port business, optimize cost structure, improve hog production KPI, grow the fresh meat sales volume and strengthen market competitiveness. We will adhere to the 2 adjustments and one control strategy for Packaged Meat business, expand market network, optimized sales channels and a strengthened competitive advantage to drive steady improvement in sales volume and profits.

We'll continue to optimize our business portfolio, steadily achieve diversification, further strengthen our global business footprint, mitigate risks, improve quality and enhance efficiency. We'll continue to deploy automation and digitalization upgrades in production sales and business management to reduce costs and enhance efficiency. We will maintain the momentum of steady growth, build a solid foundation for the long-term sustainable development of the company.

So that's all the review of first half performance of 2025. Thank you. And I'll move on to the Q&A. Please follow the instructions of the operator.

[Unknown Executive]

[Foreign Language] [Interpreted] So the question is from Lillian Lou of Morgan Stanley. The first question relates to the company's strategic priorities in the future. As Mr. Guo has explained, there are a couple of strategic initiatives for the company in the future. And currently, the company also have a very clear strategic footprints across different regions, what would be the company's strategic focus and priorities in the future?

Secondly, the company increased the interim dividend to HKD 0.20 per share, which is an increase compared to last year. Does that suggest the company also plan to increase the full year dividend?

And thirdly, in China, the Packaged Meat business volume stabilized in the second quarter and stop the declining trend in the previous quarters. So what measures did the company take to achieve this stabilization of the volumes and what would be the full year guidance?

And fourthly, what would be the company's outlook of hog price in the second half of 2025? And lastly, a question related to the U.S. So based on the current data in the futures markets, in the third quarter, the hog price and corn prices continue to be favorable to the U.S. hog production. So what would be the company's guidance for the third quarter or second half hog production results?

[Long Wan, executive]

[Foreign Language] So this is from Chairman, Wan, responding to the first question on the company's strategic priorities. Firstly, in the first half of this year because of the different dynamics, the company's various business segments different impacts. Our pork and poultry business has both growth in volume and profitability, whereas in packaged meats, we had lower volume and also lower profitability. In the second half, we will continue to try to improve the volume and profit of our packaged meat business, in particular, in China. We will continue to work on the product mix and the various initiatives to try to achieve a better second half compared to the first half.

And number two, in our business portfolio, there are still a number of areas that require improvement. For example, in China, the poultry business in U.S., the hog production business. They have made significant improvements in the last few year quarters through our efforts, but we need to continue to accelerate their improvement to achieve our expectations.

And thirdly, we will continue to consolidate our global resources to achieve synergies through different business segments and strengthen our competitiveness. And fourthly, we will adhere to the adjustment one control strategy, which is to optimize the product mix adjusted the price and control the cost to improve our overall profitability. And fifthly, we will focus on innovation we will deploy artificial intelligence and automation to try to transform and upgrade the traditional meat industry. So this is the response to the first question.

[Unknown Executive]

[Foreign Language] [Interpreted] So this is Mr. Ma from Shuanghui Development. He will address the question related to China's Packaged Meat business, which, in summary, pertains to the measures the companies have taken to stabilize the Packaged Meat volume, the full year guidance as well as the guidance for the second half hog price.

[Unknown Executive]

[Foreign Language] [Interpreted] So to answer your first question, in the second half, the packaged meats volume has stabilized year-over-year, whereas in the first half, it was a decrease. So this is a result of a series of efforts the company have made. In summary, there are 3 areas. In first area, we have started to specialize the category management. So we separated our packaged meat business into 4 main categories: the high temperature products, low temperature products, frozen products and snack products.

For each of the category, we have specialized distributors and sales forces. So in the second quarter, we have developed a lot of new specialized distributors and also recruited talent to join our specialized sales forces. And secondly, we also recruited new sales -- new talent in our sales team with experience and expertise in new channels such as cloud-based membership-based club stores, the CVS, O2O channels and the social media e-commerce channels. And thirdly, we have also intensified our efforts to penetrate into some previously underpenetrated markets, such as in [indiscernible] and Northeast China. So we have specialized teams helping us develop this underpenetrated markets.

[Unknown Executive]

[Foreign Language] [Interpreted] Secondly, on the guidance for the packaged meats business for second half based on the results of our strategic initiatives as well as the market conditions, we believe in the second half, the packaged meat volume will achieve significant year-over-year increase which will help us offset some of the declines in the first half. So that on the full year, we can achieve stable or a small increase in the full year volumes.

In terms of the outlook for hog price, we believe in the second half, the hog prices will continue to fluctuate with a declining trend line. We believe in July and August, there may be some recoveries of hog prices but will not be higher than RMB 16 per kilogram at the peak. In September, the hog prices may start to decrease, but will hit the bottom at around RMB 14 per kilogram. On average, the hog price in the second half will be below RMB 15 per kilogram. For next year, we believe the hog prices will be stable and will be lower than the average of 2025. Shane and Mark, over to you on the U.S. hog production question.

[Unknown Executive]

So yes, [indiscernible], you're correct. When you look at third quarter hog prices. When you look at the futures market, we do see high prices remaining elevated, and you're right, corn prices and soyabean prices coming down. So combined, we called out the crush. We do see profitability in the back half of the year as an industry. While we don't give quarter-over-quarter guidance, you will note in this morning's release, we did raise our full year guidance based on our visibility really into the hard production segment in the back half of this year. So we feel really confident in our heart production operations, enough confidence that we were able to raise our overall guidance.

[Unknown Executive]

[Foreign Language] [Interpreted] In terms of dividends in the -- for the interim dividend, we declared HKD 0.20 per share, which shows continuous increase of our dividends in the last 3 years. So the decision of this dividend is paid -- the Board made this decision based on the company's performance in the first half as well as the cash flows. The company's dividend policy is no less than 50% of the full year net profit. We believe as the company's business performance 50% of the net profit attributable to the owners of the company. So as the company's business performance continue to improve, we believe our shareholder return will also continue to be enhanced.

[Unknown Analyst]

[Foreign Language] [Interpreted] Two questions from [indiscernible] of Bank of America. The first question relates to the Chinese packaged meat business. Chairman Wan and Mr. Ma both commented that in the second half, we have a high degree of confidence on the performance of packaged meat business. The growth may offset most of the declines in the first half. So we did notice the company's second quarter package miss volumes stabilized year-over-year, but that's on a relatively low base as the -- due to the destocking last year.

So objectively speaking, it is normal to be able to stabilize the second quarter package meat volumes. So what are the companies -- what factors make the company feel confident about the second half performance for package mix volumes, any data that could be shared with us. In the U.S., the question also relates to the packaged meats. So the profit per unit or profit per metric ton has remained at a very high level for quite an extended period of time. So what would be the company's guidance for profit per metric ton and volume in packaged meat business in the second half in U.S.

[Unknown Executive]

[Foreign Language] [Interpreted] There are a few observations that give us confidence. First of all, -- the -- first, to address your comment that the second quarter last year has a low base but the packaged meat business actually has seasonality. So the first and the third quarter are usually the high season, whereas the second quarter tends to be a low season. So it is not comparable to compare season across season, so we have to make year-over-year comparisons. So on a year-over-year basis, the volume in the first quarter decreased significantly, whereas we achieved the stabilization in the second quarter. So these are the results of the measures we taken.

In terms of the data, firstly, packaged meat specialized category management, we planned to increase 3,000 specialized distributors this year and 1,000 specialized salespeople this year. By the end of the second quarter, we already had achieved a net increase of 1,602 specialized distributors, which is already on track or even faster at the -- the progress is already faster than the plan. And so this brings us to the total specialized customers to 8,000. And also, we -- in the first half, we recruited 490 new salespeople.

And in second quarter, we also observed very significant increase in the new channels. So this also gives a lot of confidence for the continuous growth in these new channels. And thirdly, in some of the privately underpenetrated regions, as mentioned earlier, such as [indiscernible] through our efforts, we have achieved a double-digit growth. So with all these observations, and we believe we will have good growth in the second half. And on the year-over-year growth basis, the fourth quarter growth will be faster than the third quarter growth.

Shane, Mark, do you want to take the second question on U.S. packaged meats?

[Unknown Executive]

[indiscernible] So we attribute the high level of profitability in the U.S. packaged meat business really to our pricing strategies, the improvements we've been able to make in mix and then also our cost control. So more than offsetting inflationary forces with cost savings in our plant supply chains and SG&A. In the quarter, volume was up 4.5% versus the prior year quarter, and that was really driven by the later Easter holiday this year.

But putting the holiday ham business side, our overall packaged meats business, excluding holiday hams is still up 1% year-over-year. And that's really comparable to our full year guidance for the packaged meat business. We expect volume to grow by about 1%.

In terms of profitability, we're really facing a more cautious consumer in the U.S. in terms of inflationary pressures, certainly on food away from home and food at home. So we're facing higher raw material costs. So year-over-year, bellies and trimmings are up significantly. So that consumer is cautious and it's delaying, I would say, a little bit of margin appreciation that we've seen historically. So overall, we're guiding to package segment profit for the year at $1.05 billion to $1.15 billion. And that's really reflective of that more cautious consumer and higher raw material costs.

[Unknown Executive]

[Foreign Language] [Interpreted] The follow-up question on the China packaged meat business, does the data we have seen so far in the third quarter support the view that there will be better performance in the third quarter. And also the company mentioned earlier that fourth quarter volume growth will be better than the third quarter. However, the Spring Festival in '26 is relatively late. So some of the seasonal products stocking will take place later compared to 2025. So has the company factored in the timing difference of Spring Festival when suggesting that the fourth quarter growth will be higher than the third quarter? Response from Mr. Ma that the data we have seen so far is generally consistent with our view of the third quarter performance. And our forecast certainly has factored in the timing of the spring festival.

[Unknown Executive]

[Foreign Language] [Interpreted] The question from Veronica of UBS. The first question related to the U.S. hog production. So what's the latest progress of the hog production capacity rationalization given the industry seems to be profitable and will continue to be profitable in the near future? Is the company still sticking to the 10 million heads midterm capacity target?

Second question relates to the European business. The European business contributes to a relatively small portion of the company's overall revenue and profit, but it is growing. So in Europe -- in European packaged meat business, what is the company's outlook and expectations. Is the company explaining more -- expecting more organic growth or more M&A? Any -- if M&A, what kind of -- what are the areas of focus? In China, the management mentioned earlier about our efforts in the new channels and also the growth in the new channels such as CVS, the e-commerce. So what would be -- what is the percentage of revenue or volume contribution of these new channels? And what is the full year outlook of this -- of their contribution?

[Unknown Executive]

So Shane, maybe you want to take the first one on the hog production rationalization.

[Shane Smith, executive]

Yes. Thank you, Veronica. Yes. So as we think about hog production rationalization, just to level set a few numbers, our high point was 17.6 million hogs. 2024, we were about 14.5 million. And our estimates for this year is to end up around 11.5 million. So even as we have seen the change in profitability that was referring to earlier in the futures market, we believe the strategy to get down to 10 million hog is still the correct strategy, and we're still executing different scenarios to get to that number.

And some of the reasons for that, even though there's profitability coming back into high production, what we have removed through our rationalization process is really the higher cost areas either due to geographies. So hog farms that were too far from [indiscernible] or too far from processing plants or just some really underperforming farms. And so even with the level of profitability we see today on a per head basis, we think the rationalization strategy is still the correct strategy and we'll continue to execute against our strategy with the near to medium-term outlook of getting down to about 10 million hogs. That would represent about 30% of the internal harvesting requirements. And we believe that, that number is a right level of vertical integration for our integrated system.

[Unknown Executive]

[Foreign Language] [Interpreted] Luis, do you want to take the second question on the U.S. packaged meats? Luis, you are still on mute. Luis, you are on mute?

[Unknown Executive]

Sorry for [indiscernible]. Okay. In Europe, the package meat growth plan includes both organic and inorganic growth and focus in the categories and companies that we are looking at categories that are growing like convenience, [indiscernible] products, ready meals or snacking, for example. And we are trying to look for categories that has a European market, no local market that can give us a bigger market possibility.

[Unknown Executive]

[Foreign Language] [Interpreted] In the first half, these new channels has achieved a 21% year-over-year growth. In the first quarter, the growth was 10%. The second quarter was 31%. The volume represented 17.6% of the total sales in the first half. Based on the growth trajectory, we believe in the second half, these new channels will achieve year-over-year growth of 43%, and the volume contribution will increase from 17.6% to 20%.

[Unknown Executive]

[Foreign Language] [Interpreted] So the package -- just additional comments from Mr. [indiscernible], European package meat, currently, the volume in Europe is around 400,000 metric tons. Future growth will be driven by both organic growth and M&As. And we will stick to the strategy of effectively managing the price and optimize the product mix. As Luis mentioned, we'll increase more convenience, poultry products, ready meal products and snack products, and we'll also exercise cost controls to improve the profitability of packaged meat business across the 3 regions. European package meats currently has the lowest profit per metric tons. So we will also try to increase the profit per metric ton for European packaged meats and to narrow the gap versus China and the U.S.

[Unknown Executive]

[Foreign Language] [Interpreted] So 2 questions from Tiffany of Citi. The first one, the company -- WH Group has increased operating profit in the second quarter year-over-year, but the net profit actually decreased. So what are the factors resulting in this -- resulting in this discrepancy between the operating profit and net profit year-over-year comparison?

And the second question relates to the hog cycles in China, U.S. and Europe. So in China, Mr. Ma already commented on the views for the second half and the next year outlook. What are the underline supply and the demand the company sees in driving this view? Apparently, the government is also meeting with some hog suppliers to try to control the average weight of the hogs to control the -- to manage the current oversupply situation. How long does the company believe the hog market will achieve a more balanced supply/demand?

In the U.S. So what's the outlook for hog prices in the second half and the next year? And what's the underlying supply and demand? And also the question also applies to Europe, what's the -- where are we in the hog cycle? And what's the latest hog price and supply and demand in Europe?

[Unknown Executive]

[Foreign Language] [Interpreted] So the first half operating profit increased by 10.4%, but net income only increased by 7.7%. There are 2 major factors between operating profit and net profit. In operating profit -- first of all, there's other income and expenses, which includes some legal accruals, some insurance claims, foreign exchange gain, loss, interest related expense and also some restructuring-related expenses. So compared to last year, it is a net increase of expense by $10 million.

And also the second factor is the tax. Last year, we recognized a one-off deferred tax asset. So -- but this year, we didn't have this kind of in the tax expense. And if you look at the net profit attributable to the owners of WH Group, the growth was even lower. That's primarily because of the dilution from the Smithfield IPO early in the year.

[Unknown Executive]

[Foreign Language] [Interpreted] So to answer the question on the hog cycle in China -- to answer the question in 3 aspects. First is Shuanghui's methodology of predicting the hog price. Our prediction of hog price is not just based on supply and demand. We also factor into a lot of other elements. Obviously, the inventory as well as consumption are 2 of the most relevant factors.

And secondly, in terms of data, there are 3 -- data of 3 areas that I can share with you. First is about the sell inventory. In May 2024 -- starting from May '24, the sell inventory has started to increase. In May 2025, the sell inventory in China was 4.42 million heads hats based on the public data, representing year-over-year increase of 1.2%. So with this increased capacity, there should be higher production volume in the second half of '25, which is compounded by weak sales -- weak consumption demand. So this will put pressure on the hog prices.

And secondly, the hog produced in the second half of '25 are essentially the [indiscernible] pigs produced in the first half. Based on the number of [indiscernible] pigs in the first half, it is 7.9% higher than last year, which also suggests an increase of supply in the second half of '25.

And number three, for the hog producers that practice extended faring, they will procure the hogs in the last round of [indiscernible] hogs in August and September and ready for production -- ready for supply in the fourth quarter of this year. And because this is towards the end of the year, at the end, they will probably only supply the hogs into the market, but we're not procure more piglets for further growing. So with all these data, we believe that supports increased supply of hogs.

And thirdly, you mentioned government policy or government initiatives to reduce the supply. Indeed, the government has met with some large hog production companies in China recently to urge them to reduce the average weight or control the [indiscernible] inventories. We believe these initiatives will have some impact, but the impact would be relatively limited because these large producing companies only represent a small percentage of total hog production capacity in China. So a lot of mid-scale and small-scale hog producers will continue to reduce the -- feel the capacity reduced by the large hog producing companies. So we believe the overall hog production volume will be stable. And based on the latest data from the futures markets, it also suggests a declining or a relatively lower hog price.

Shane, do you want to comment on the U.S. hog price?

[Shane Smith, executive]

Yes, I'll talk about the U.S. hog cycle. So typically in the U.S., what we see is the first and fourth quarter that is loss-making to breakeven and profitability in the second and third quarter. As we look at this year, what we see from a USDA standpoint, they expect full year pork production to grow by about 0.9%, and that's due to higher weights and really an expected increase in harvest levels in the second half of the year. In reality, what we're seeing, if you look at the last 4 weeks compared to the same time period last year, what we're seeing on an industry harvest level is the head harvest is actually down about 3%. So we think what that shows us is that we're setting up for continued strong pricing through the back half of the year. And again, that's one of the confidence points for us on why we updated and improved our guidance in hog production in the back half of the year.

The second thing, when we look at pork in comparison at a retail pricing level compared to beef and in chicken. If you look at where the 3 proteins were 4 years ago, for example, beef is up about 24% as price point, chicken is up about 22%, while pork is only up 7%. And so again, when you look at it in comparison to the proteins, that also is another data point that tells us that pork is in a really good position against other proteins for, again, the medium to -- or the short to medium term, so into next year.

And then the third data point I would point to is lower freezer inventories. Now when you look at across the U.S. and look at freezer inventory levels. So we see lower levels than we would typically see this time of the year. And it's really driven by some of the key problems such as [indiscernible].

And so you take those 3 things together, Tiffany, and to your question of what does hog pricing look like out of this year and into next year, I think pork as a protein is set up to perform really well into 2026. And I think that's going to be seen in the prices that we see for hogs. So we believe we're really well positioned as we finish out 2025 and go into 2026.

[Unknown Executive]

[Foreign Language] [Interpreted] Luis, do you want to comment a little bit on the European hot market?

[Unknown Executive]

Yes. In Europe, the pork production supply increased in 2025 versus 2022, [indiscernible] 2024. The pig price are below last year, and we expect the price still decline seasonally in the third and fourth quarter, but keeping the 3%, 4% below last year. The pork exports are increasing versus last year, and this -- with a flat demand in Europe will be the key driver for the prices in the end of the year and next year. And one of the factors that still can change the cycle is the African swine fever and [indiscernible] impact that can have in the cycle in the European markets.

[Unknown Executive]

[Foreign Language] [Interpreted] Two questions from [indiscernible] of Goldman Sachs. The first question on China's packaged meats business. The management commented earlier that the second half volume and profit are both expected to increase. In the first half, we did notice the company achieved a good profit per metric tons. So can the management break down these strong profit performance by price and raw material costs? And in the second half, what's the guidance for the profit per metric counts?

And secondly, on China's fresh pork business, there is a significant growth in volumes, but the profit per tonne is under pressure. So what's the management's comments on this and guidance on the fresh pork?

[Unknown Executive]

[Foreign Language] [Interpreted] On the packaged meat business, as commented earlier, the volume is expected to increase in the second half. And we also believe the hog price or the raw material costs will decline in the second half. So these 2 factors will contribute -- will be positive to the profit per metric tonnes. But on the other hand, there are 2 other offsetting factors. One is that we will be stepping up our investment in the market to support our volume growth. And secondly, we will promote more value for money products or products with lower profit per metric tons. So these 2 factors will be negative to profit per metric counts.

Overall, we believe the second half packaged meats profit per metric ton will remain at a very high level of RMB 4,800 per metric counts. It is a slight increase versus the first half and also a slight increase versus the second half of '24. The full year average profit per metric ton will also be a record level of RMB 4,200 per metric ton.

On fresh pork business, in the first half or particularly second quarter, the profits per head is lower. But actually the fresh products or the fresh product sales continue to maintain good profit per head. The key drivers of the overall profit per -- lower profit per head is because last year, we had increased the profit from the frozen inventories given the hog prices was in uptrend whereas this year, the hog price is in a downward trend. So we actually recorded losses in the frozen inventories.

For the second half, there are 3 main strategic initiatives. First is to continue to expand our customer base, grow our volumes to amortize our costs. And secondly, we leverage our processing capabilities to develop more high profitable products that are customized, that are in ready case and that are -- or already made products. And thirdly, we will continue to leverage our synergies with the packaged meat business and sell more -- further process the products to compete with -- to compete with differentiation.

[Unknown Executive]

[Foreign Language] [Interpreted] So thank you all for attending today's earnings call, and we have had a very in-depth discussion. And thank you, and have a good evening.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]