Jardine Matheson Holdings Limited
Half-Yearly Results for the Six Months ended 30th June 2013
Overview
There were mixed results from the Group's businesses in the first half of the year. Improved contributions from Hongkong Land, Mandarin Oriental and Jardine Motors compensated for reductions in Astra, Dairy Farm and Jardine Pacific, leading to an increase in profit for the period.
Results
Jardine Matheson's underlying profit for the first six months of 2013 was US$753 million, 7% above the same period in 2012. Underlying earnings per share were 6% higher at US$2.05. The revenue of the Group, including 100% of the revenue from associates and joint ventures, was US$31.4 billion, compared to US$30.3 billion in the first half of 2012.
Non-trading items in the first half produced a gain of US$31 million, following a modest increase in investment property values in Hongkong Land. This compares with net non-trading gains of US$71 million in the first half of 2012. As a result, the Group's profit attributable to shareholders was US$784 million for the six months, compared with US$776 million in 2012.
The Board has declared an increased interim dividend of US¢37.00 per share, up 6%.
Business Performances
There were some varied performances from Jardine Pacific's businesses. Jardine Schindler again produced good profit growth. Hong Kong Air Cargo Terminals recorded lower results due to increased rebates and staff costs, with the impact from Cathay Pacific's long-planned move to its own dedicated facility starting to be felt. The group's results were also reduced by a loss in KFC restaurants in Taiwan and a disappointing performance from Jardine OneSolution.
Jardine Motors produced some earnings recovery as its UK operations did better and its losses in mainland China fell. New model launches by Mercedes-Benz later in the year are expected to have a positive effect. The group remains optimistic about the long-term potential of the Mainland market, where Zung Fu now has 28 outlets and a further four under development.
JLT enjoyed a satisfactory first half with good performances across the group, particularly in Asia, Latin America, Australia and Reinsurance, continuing the strong organic revenue growth of recent years. Preparations are well advanced for the move into new headquarters in London, consolidating several premises into a single site.
Hongkong Land's results benefited from higher rents in its commercial properties and the completion of two large residential projects in Singapore. In its key premium residential markets sentiment remained affected by government measures to dampen prices, although sales in mainland China and Singapore have been satisfactory. Construction has started on the group's Wangfujing development, its first significant commercial project in Beijing, and residential development projects are being pursued in Indonesia.
Dairy Farm produced good sales growth in most of its major operations, with Hong Kong in particular performing well. There was a modest decline in earnings, however, as difficult conditions in Malaysia and Singapore led to increased costs and reduced margins. Progress is being made in addressing the margin challenges and Dairy Farm is continuing to invest for long-term growth in all its key businesses.
Mandarin Oriental enjoyed positive trading conditions and achieved good performances across most of its portfolio. In February, it acquired the freehold rights of its Paris hotel. During the first half it opened hotels in Guangzhou and Shanghai, and a management contract was announced for a property in Istanbul. Within the next 18 months, the group is planning to open hotels in Taipei, Marrakech, Bodrum and Beijing.
The results for Jardine Cycle & Carriage were lower in the first half of the year. Astra's reported earnings declined and were further reduced on translation by a softer rupiah exchange rate. Tough trading conditions were also experienced in Jardine Cycle & Carriage's other motor operations in Southeast Asia.
Astra's earnings benefited from improved contributions from its financial services and mining contracting businesses, but these were offset by lower results from its automotive, heavy equipment and agribusiness segments. While economic conditions in Indonesia continue to support domestic demand, Astra's operations are experiencing increased competition in the motor car market, higher labour costs and softer commodity prices.
Outlook
Faced with the continuance of challenging conditions in many of their markets, most of our businesses have adapted well and are trading satisfactorily. The Group's overall performance for the full year is expected to be broadly unchanged from last year.
Sir Henry Keswick
Chairman
2nd August 2013
Operating Review
Jardine Pacific
Jardine Pacific's underlying profit for the first half of 2013 declined 33% to US$44 million. With the value of the group's investment property portfolio remaining unchanged, the profit attributable to shareholders was also US$44 million.
Jardine Schindler did well to generate a higher profit and achieve further growth in its maintenance portfolio. The earnings of Gammon and Jardine Engineering Corporation were impacted by delays in major projects, although both expect improvements in the second half. Despite throughput being maintained, Hong Kong Air Cargo Terminals saw its earnings decline as costs increased in advance of Cathay Pacific's move to its dedicated facility in the second half of the year. The results of Jardine Shipping Services and Jardine Aviation Services were little changed. Jardine Restaurants' Pizza Hut operations in Hong Kong and Taiwan produced higher sales growth and profits, but its KFC franchise in Taiwan faced more difficult trading and an increased franchise fee. Jardine OneSolution experienced weak demand in all of its markets, which led to lower revenue and a small loss.
Jardine Motors
Jardine Motors achieved a much improved underlying profit result of US$20 million in the first half, compared to US$4 million in the same period in 2012. Its dealerships in the United Kingdom performed better with vehicles sales up and margins slightly enhanced. The result also benefited from a US$3 million gain on the sale of BMW dealerships in Hampshire and North London.
Zung Fu produced a modest increase in profit in Hong Kong and Macau, with higher deliveries of Mercedes-Benz passenger cars and an increased profit contribution from Hyundai. While the market remained difficult in mainland China, losses were reduced as margins on new car sales improved slightly and service operations produced higher income.
Jardine Lloyd Thompson
Jardine Lloyd Thompson's revenue for the period was equivalent to US$748 million, an increase of 10% in its reporting currency, reflecting organic growth of 7% and acquisitions primarily made in 2012. The contribution to Group profits rose moderately, held back by acquisition integration costs.
The company's specialist risk and insurance business produced a 7% increase in revenues, all of which was organic, with strong performances from its Reinsurance, Latin American, Asian and Australian operations. The underlying trading profit was up 3%. The Risk & Insurance business continued to make investments for growth, the benefits of which will be seen over time. The Employee Benefits business achieved revenue growth of 21%, comprising 8% from organic growth and the balance from acquisitions, with its international operations making an increasing contribution. Its underlying trading profit rose 16%.
Hongkong Land
Hongkong Land's underlying profit rose 63% to US$519 million as it benefited from higher rents in its commercial properties and the completion of two large residential projects in Singapore. Following a small increase in the values of its investment properties, the profit attributable to shareholders was US$598 million.
The office leasing market in Hong Kong remained relatively unchanged, and Hongkong Land's rental reversions continued to be largely positive. Its office vacancy rose to 5.6% at the end of June due to a major lease expiry, although much of this released space will be taken up by new leases in the second half. Its retail portfolio was fully occupied. The Singapore office portfolio was 97% leased and rental levels were stable, while in Jakarta the portfolio was 93% let. Construction has commenced on the Wangfujing development in Beijing.
Two large residential development projects were completed in Singapore, MCL Land's The Estuary and the one-third owned Marina Bay Suites, while MCL Land is to complete another fully pre-sold project in the second half of the year. MCL Land has a further three projects under construction, which are mostly pre-sold, while a new project launched in June was also fully committed within a few days. A second new development recently launched and targeted at the premium market was affected by the government's cooling measures. In mainland China, the group's attributable interest in contracted sales in its residential projects was US$369 million in the period, compared with US$200 million in 2012. The response to projects launched in Chengdu and Chongqing in the first half was relatively good, while sales also continue at other projects in Chongqing and Shenyang as well as at Maple Place in Beijing.
Dairy Farm
Dairy Farm's sales, including 100% of associates and joint ventures, increased by 10% to US$6.0 billion in the first six months of 2013. Underlying net profit was US$228 million, a decline of 5% from the same period last year in part due to the overstatement of supplier income in Malaysia that had taken place in 2012. The profit attributable to shareholders at US$229 million benefited from a small gain arising from a property disposal.
The group's operations generally traded well, particularly in Hong Kong, and expansion continued in Indonesia. The Food businesses in Malaysia, however, recorded sharply lower profits in the face of more aggressive promotional activity and lower supplier income. Steps are being taken by a new management team in Malaysia to rebuild market positions and address the decline in profitability. The IKEA businesses achieved further profitable growth and construction is progressing on the fifth Taiwanese store and the first Indonesian store. Restaurant associate, Maxim's, maintained its good performance in Hong Kong.
Dairy Farm is building its reputation as an innovator across all retail categories. A joint venture has been established to operate mini-marts in Malaysia, while in Singapore, the Shop N Save supermarkets were rebranded as Giant so as to increase the brand focus. There were further range additions in Health and Beauty, and in the convenience store formats there was an increase in ready-to-eat options. In early July, PT Hero in Indonesia raised the equivalent of US$304 million through a rights issue to support its expansion plans and reduce debt. Continued progress has also been made in the strategic priority of streamlining the supply chain in all markets and driving efficiencies.
Mandarin Oriental
Mandarin Oriental's underlying profit for the period was up 90% to US$54 million, with earnings benefiting in part from US$7 million in one-off items relating to the acquisition in February of the freehold rights to its Paris hotel. The profit attributable to shareholders was US$57 million, including a US$3 million writeback of a provision against asset impairment, which compares with a profit of US$30 million in the first half of 2012 that included a US$2 million writeback.
The group's Asian hotels performed well. The two wholly-owned Hong Kong hotels maintained their occupancy and average rates, despite a softening in corporate demand, and Tokyo benefited from increasing visitor arrivals. In Europe, an improved performance in Munich, further stabilization in Paris and a solid performance in London more than compensated for a difficult market in Geneva. Demand increased in the group's American portfolio as the trading environment improved, resulting in higher occupancies and average rates. The group's portfolio of properties in operation or under development is now 45 hotels in 27 countries.
Jardine Cycle & Carriage
Jardine Cycle & Carriage saw its underlying profit attributable to shareholders decline by 11% to US$453 million. Astra's contribution of US$433 million was 11% lower reflecting its reduced earnings and the impact on consolidation of a weaker exchange rate. As the withholding tax on Astra's dividend has been provided in advance since the end of 2012, the first-half result includes a provision of US$14 million in respect of the estimated 2013 interim dividend from Astra, while the results for the first half of 2012 included withholding tax of US$31 million in respect of Astra's 2011 final dividend. There were no non-trading items in the first half, so the profit attributable to shareholders was the same as the underlying profit.
The profit contribution from the group's directly-held motor interests fell 20% to US$25 million. Sales in the Singapore operations were adversely affected by government restrictions, while in Malaysia, Cycle & Carriage Bintang faced intense competition in the premium car segment leading to severe pressure on margins. In Indonesia, Tunas Ridean also suffered competitive pressures as well as higher labour costs. In Vietnam, Truong Hai Auto Corporation performed better than the previous year with unit sales and margins both showing improvements.
Astra
Astra reported a net profit equivalent to US$904 million under Indonesian accounting standards, 9% down in its reporting currency. While economic conditions in Indonesia continue to support domestic demand, Astra's operations face increased competition in the motor car sector, higher labour costs and lower commodity prices.
Automotive demand in Indonesia remained favourable during the period as it benefited from rising incomes and affordable interest rates. Astra, however, faced increased competition in the motor car market which, coupled with higher labour costs, led to a decline in earnings. The Indonesian wholesale market for motor cars grew by 12% to 602,000 units, while Astra's motor car sales rose by 6% to 321,000 units, with its market share reducing from 56% to 53%. The wholesale market for motorcycles increased by 6% to 3.9 million units, and Astra Honda Motor's sales rose 12% to 2.4 million units, with its market share increasing from 57% to 60%.
Astra Otoparts, the group's automotive components business, reported net income down 2% at US$53 million with higher labour costs offsetting an increase in revenue. In April, the company acquired a 51% interest in PT Pakoakuina, a producer of wheel rims for both motor cars and motorcycles, for a consideration of US$72 million. Astra Otoparts completed a US$306 million rights issue in May to strengthen its capital base, while Astra helped to increase the liquidity of the stock by placing 16% of the shares; reducing its shareholding to 80% and generating US$290 million in gross proceeds.
Tax incentives have been announced in Indonesia to encourage the domestic production of 'low cost green cars'. Astra has products that are well positioned to benefit from these measures that it intends to begin distributing in the second half of the year.
The amount financed through Astra's automotive-focused consumer finance operations grew by 6% to US$2.9 billion, including joint bank financing without recourse. The amount financed through Astra's heavy equipment finance operations declined by 42% to US$264 million following a decline in sales.
Astra's 45%-held Bank Permata reported net income up 15% at US$84 million following a strong increase in net interest income on a larger loan book, partly offset by higher operating costs. The group's insurance company, Asuransi Astra Buana, recorded improved earnings with growth in gross written premiums more than compensating for higher reinsurance and claims expenses.
United Tractors, which is 60%-owned, reported a 25% decline in income at US$237 million. In its construction machinery business, sales of Komatsu heavy equipment declined 42% to 2,452 units due to reduced demand from the mining sector. The coal mining contracting operations of subsidiary, Pamapersada Nusantara, benefited from increased mine site capacity. It reported a 12% improvement in revenue as contract coal production increased 12% to 50 million tonnes and contract overburden removal rose 2% to 414 million cubic metres. United Tractors' coal mining subsidiaries saw revenues fall 44% following a 29% reduction in coal sales and a decline in coal prices, and earnings were further impacted by an increase in fuel costs.
Astra Agro Lestari, which is 80%-held, reported income 25% lower at US$74 million. Revenue decreased by 3% to US$563 million, with an 11% increase in palm oil production more than offset by a 16% decline in average crude palm oil prices achieved. Net income was also affected by higher production costs and operating expenses. Astra Agro Lestari is investing US$77 million in the construction of a palm oil refinery in West Sulawesi, which will become operational in 2014.
Income from infrastructure and logistics declined by 29% to US$23 million. The 77%-owned Astra Graphia reported income up 2% at US$7 million.
