2017 Preliminary Announcement of Results

To:    Business Editor                                                                           8th March 2018

                                                                                                             For immediate release

 

The following announcement was issued today to a Regulatory Information Service approved by the Financial Conduct Authority in the United Kingdom.

 

Jardine Matheson Holdings Limited

2017 Preliminary Announcement of Results

 

Highlights

·    Underlying earnings per share* up 12%

·    Full-year dividend increased by 7%

·    Strong trading performances from most businesses

·    NAV per share up 17% reflecting higher property valuations   

 

"The Group's principal markets across Greater China and Southeast Asia remained strong during 2017, and appear well set for 2018.  This, coupled with development initiatives being pursued by our businesses, provides the Group with a firm foundation for long-term growth."

 

Sir Henry Keswick, Chairman

 

Results

Year ended 31st December
	2017         US$m	2016     US$m		Change %
Gross revenue including 100% of associates and joint ventures	83,808	72,437		+16
Revenue	39,456	37,051		+6
Underlying profit* before tax	4,378	3,729		+17
Underlying profit* attributable to shareholders	1,568	1,386		+13
Profit attributable to shareholders	3,785	2,503		+51
Shareholders' funds	25,669	21,800		+18
	US$	US$		%
Underlying earnings per share*	4.17	3.71		+12
Earnings per share	10.06	6.69		+50
Dividends per share	1.60	1.50		+7
Net asset value per share#	68.21	58.15		+17
*  The Group uses 'underlying profit' in its internal financial reporting to distinguish between ongoing business performance and non-trading items, as more fully described in note 1 to the financial statements.  Management considers this to be a key measure which provides additional information to enhance understanding of the Group's underlying business performance. #  Net asset value per share is based on the book value of shareholders' funds.

The final dividend of US$1.20 per share will be payable on 16th May 2018, subject to approval at the Annual General Meeting to be held on 10th May 2018, to shareholders on the register of members at the close of business on 23rd March 2018 and will be available in cash with a scrip alternative.

 

Jardine Matheson Holdings Limited

Preliminary Announcement of Results

For The Year Ended 31st December 2017

 

Overview

The Jardine Matheson Group produced a good overall result for the year as most businesses traded well.  There were strong performances from Astra, Hongkong Land, Jardine Motors, Jardine Pacific and Jardine Lloyd Thompson.  Reduced contributions were, however, seen from Dairy Farm, Mandarin Oriental and Jardine Cycle & Carriage's non-Astra businesses.

 

Performance

The Group's revenue for 2017, including 100% of revenue from associates and joint ventures, was US$83.8 billion, compared with US$72.4 billion in 2016, while the Group's consolidated revenue for 2017 was US$39.5 billion, an increase of 6%.  Jardine Matheson achieved an underlying profit before tax for the year of US$4,378 million, an increase of 17%.  The underlying profit attributable to shareholders was up 13% at US$1,568 million, while underlying earnings per share were 12% higher at US$4.17.

 

The profit attributable to shareholders for the year was US$3,785 million, which included the Group's US$1,949 million share of increases in property valuations, principally Hongkong Land's investment properties in Hong Kong, and US$268 million of other net non-trading gains.  This compares with US$2,503 million in 2016, which reflected a US$1,061 million increase in property valuations and US$56 million of other net non-trading gains.

 

Within the Group's businesses, Jardine Pacific achieved good results in 2017 as Gammon's contribution recovered and Hactl benefited from increased cargo throughput.  Jardine Motors' increased earnings were led by strong results from mainland China.  Jardine Lloyd Thompson's contribution was higher due to a combination of a good trading performance and the absence of the restructuring costs seen in 2016.

 

At Hongkong Land, underlying profit grew due to the strength of both its investment and development property activities.  Positive performances in most of Dairy Farm's retail formats and key associates were, however, offset by poor performances in its supermarket and hypermarket businesses in Southeast Asia and it recognized US$64 million of business rationalization costs.  Mandarin Oriental saw generally improved performances across its hotel portfolio, notably in Hong Kong, but profitability was again impacted by the renovation of its London hotel.  Mandarin Oriental's adjusted shareholders' funds at the end of 2017 were US$1.9 billion higher following a significant revaluation of The Excelsior hotel in Hong Kong.

 

Jardine Cycle & Carriage produced good profit growth as Astra's results improved, although there was a reduced overall contribution from the group's Direct Motor Interests and Other Strategic Interests, including Thaco and Siam City Cement.  Astra's performance reflected the return to profitability at Permata Bank and enhanced commodity prices benefiting its heavy equipment and mining activities as well as agribusiness.  The results from Astra's automotive activities, however, were lower due to reduced earnings from motor cars in challenging markets.

 

The Group's financial position remains strong with shareholders' funds up 18% at US$25.7 billion at the year end.  Robust cash flows have enabled continued high levels of capital expenditure to be combined with low levels of debt.  The consolidated net debt excluding financial services companies was US$3.4 billion at 31st December 2017, representing gearing of 6%.

 

The Board is recommending a final dividend of US$1.20 per share, which produces a full-year dividend of US$1.60 per share, up 7% from the prior year.

Strategic Developments
Mainland China continued to grow in importance for the Group, with its contribution to profits increasing to 18%.  In this market, Hongkong Land's residential developments achieved an excellent result, while Zung Fu and affiliates Zhongsheng and Yonghui each had a very good year.  A 28% shareholding was taken in Greatview, the second-largest supplier of aseptic carton packaging in China.

Hongkong Land secured five further development projects in mainland China during 2017, including in the new markets of Wuhan, Nanjing and Hangzhou.  The retail component of its luxury retail and hotel complex in Beijing, WF CENTRAL, was opened in late 2017.  In January 2018, Hongkong Land secured a prime commercial site in Nanjing city centre, which has a developable area of 235,000 sq. m.

In Southeast Asia, Jardine Cycle & Carriage continued to build its business interests, acquiring a 10% shareholding in Vinamilk, the leading dairy producer in Vietnam with a market share of some 58%.  Hongkong Land secured further development projects in Singapore and Vietnam, together with a joint-venture interest in a prime freehold site in Bangkok.  Astra in Indonesia is expanding its operations further with investments in toll roads, energy and property.  In February 2018, Astra acquired a minority stake in GO-JEK, Indonesia's leading multi-platform technology group.

The Group's new investments in Greatview and Vinamilk are in line with its strategy of taking stakes in leading companies that are benefiting from the opportunities offered by the economic development of the region and the growth of the middle classes.  Investments are being made in strong companies with first class management teams that can accelerate the Group's exposure to fast growing markets.

Weakness in Dairy Farm's supermarket and hypermarket businesses in Southeast Asia led to a review being undertaken to determine the actions necessary to re-establish the competitive positions of these operations.  While Dairy Farm's other formats and markets are trading well, Dairy Farm recognizes that it must change and adapt in the face of intensifying and evolving competition, both online and offline, as well as greater demands from increasingly well-informed customers.

During the year, Mandarin Oriental explored strategic options for The Excelsior hotel in Hong Kong.  While a review of market interest in a potential sale did not give rise to any acceptable offers, all options for the site are still being considered, including the redevelopment of the site as a commercial property. 

People
The continued progress achieved across our businesses in 2017 is a reflection of the hard work, dedication and professionalism of the Group's 444,000 employees, for which we are most grateful.

We welcomed Alex Newbigging to the Board in October 2017.  Dr Richard Lee will step down from the Board at the forthcoming Annual General Meeting and will not seek re-election.  We would like to thank him for his contribution to the Company.  We are very pleased that Julian Hui has been invited to join the Board with effect from 10th May 2018.

Outlook
The Group's principal markets across Greater China and Southeast Asia remained strong during 2017, and appear well set for 2018.  This, coupled with development initiatives being pursued by our businesses, provides the Group with a firm foundation for long-term growth.

Sir Henry Keswick
Chairman

Managing Director's Review

Jardine Matheson is a diversified group of market-leading operations focused principally on two of the regions that are driving global growth, Greater China and Southeast Asia, although some businesses have a greater global reach.  In 2017, 60% of underlying profit came from Greater China, while 36% was from Southeast Asia.  The main contributors to underlying profit by activity were motor related interests at 26%, property at 26%, and retailing and restaurants at 18%.

 

The Group provides access to financial resources, expertise, people and customers necessary to support the development of its businesses and enable them to compete effectively in rapidly evolving operating environments.  This includes the ability to take advantage of the developments in technology necessary to keep pace with consumer expectations. 

 

The Group's businesses traded well in 2017.  Jardine Matheson achieved an underlying profit before tax of US$4,378 million, up 17%.  The underlying profit attributable to shareholders rose 13% to US$1,568 million, while underlying earnings per share were 12% higher at US$4.17.

 

The profit attributable to shareholders of US$3,785 million included a US$1,949 million share of increases in commercial property valuations, principally relating to Hongkong Land's investment properties in the Central District of Hong Kong, and net gains of US$268 million mainly arising from property and other disposals.

 

The Group's profit generation and related cash flows and retained earnings have supported continued investment enabling high levels of capital expenditure to be combined with low levels of debt.  The Group's capital investment, including expenditure on properties for sale, was US$7.1 billion in 2017, in addition to which capital investment at its associates and joint ventures exceeded US$4.6 billion.  The Group's consolidated net debt at the end of the year, excluding financial services companies, was US$3.4 billion, which compares to US$2.1 billion at the end of 2016, with gearing increasing from 4% to 6%. 

 

The Group's strong financial position, continued business development and investment in new areas of activity provide the foundation for profit growth over the long term.  

 

Jardine Pacific

Jardine Pacific produced an underlying net profit of US$164 million, including an initial contribution from the interest in Greatview, compared with US$135 million in 2016, an increase of 21%.  The net profit after non-trading gains was US$174 million. 

	Group Interest		Group Share of Underlying profit
	%		2017   US$m	2016 US$m
Analysis of Jardine Pacific's contribution:
Jardine Schindler	50		47	44
Gammon	50		31	18
JEC	50-100		30	28
Jardine Restaurants	100		24	28
Transport Services	42-50		25	17
JTH	100		7	9
Corporate, property and other interests*			-	(9)
			164	135

*including Greatview, held through Jardine Strategic

 

Jardine Schindler and JEC again performed well to deliver higher contributions.  Gammon's result recovered in 2017 following a weaker performance in 2016 due to provisions for a specific civils project.  Jardine Restaurants produced steady profit growth, but the reported result was lower due to one-off employee benefit costs.  The contribution from Transport Services reflected Hactl's improved performance due to good growth in cargo throughput.  JTH delivered reduced earnings as IT markets remained soft. 

A 28% stake in Hong Kong-listed Greatview was acquired by Jardine Strategic in June 2017. Founded in mainland China, Greatview is the second-largest supplier of aseptic carton packaging in China and the third-largest globally.  Greatview achieved stable growth during 2017 as the effect of challenging market conditions in China was offset by strong growth momentum in its international business.  Its contribution from June onwards reflects the Group's equity interest.  Jardine Pacific will be supporting Greatview's continued development, particularly in new markets including those in Southeast Asia.

Jardine Motors
Jardine Motors produced an underlying net profit in 2017 of US$184 million, a 46% improvement being largely due to impressive performances from Zung Fu and Zhongsheng in mainland China.  After taking into account non-trading gains, the net profit was US$388 million.

 

In mainland China, Zung Fu had another good year due to higher sales of Mercedes-Benz passenger cars, margin improvement and a strong performance from its after-sales activities.  In Hong Kong and Macau there was an improved trading performance, although this was offset by costs associated with the repositioning of its sales and service facilities to meet changing customer requirements.  The new flagship property, combining most of the Mercedes-Benz sales, service and administration activities, is scheduled to be fully operational in the last quarter of 2018.  In the United Kingdom, the result was significantly lower than that in 2016, which had included a gain on the sale of a dealership. 

Zhongsheng, one of mainland China's leading motor dealership groups, produced a significant improvement in profitability in 2017, reflecting increased sales and better margins. The Group's shareholding, held through Jardine Strategic, was increased from 15.5% to 20% in June 2017.

Jardine Lloyd Thompson

JLT's total revenue for 2017 was US$1,800 million, an increase of 10% in its reporting currency, of which 5% represented organic growth.  Underlying trading profit was up 10% in its reporting currency at US$277 million, or 7% higher at constant rates of exchange.  On conversion into US dollars, JLT's contribution to the Group's underlying profit in 2017 was 22% higher than in 2016, which had included restructuring costs.  JLT's Risk & Insurance businesses saw revenue growth of 11%, with good performances in Europe, Latin America, Asia and the United States.  The combined Employee Benefits businesses produced headline revenue growth of 7%.  Continued progress was made with the development of JLT's Specialty business in the United States.  The group is undertaking a reorganization into three global divisions, Reinsurance, Specialty and Employee Benefits, and is implementing a business transformation programme which will deliver significant cost reductions.

Hongkong Land
Hongkong Land's underlying profit for 2017 rose 14% to US$970 million, with strong performances from both investment properties and development properties.  The profit attributable to shareholders of US$5,585 million included net revaluation gains of US$4,615 million recorded on its investment properties, principally in Hong Kong.  This compares to US$3,346 million in 2016, which included net revaluation gains of US$2,498 million.  The group remains well-financed with net debt of US$2.5 billion at the year end and net gearing of 7%.

In investment properties, limited competitive supply in the Hong Kong office leasing market benefited the group's Central portfolio where year-end vacancy reduced to 1.4% and rental reversions remained positive.  The retail portion of the portfolio was effectively fully occupied, although rental reversions were neutral during the year.  The group's Singapore office portfolio was almost fully let, but the average rents declined marginally.

In mainland China, the retail component of the group's luxury retail and hotel complex in Beijing opened in late 2017, and the Mandarin Oriental Hotel is due to open in the second half of 2018.  Elsewhere, in Jakarta the development of the fifth tower of World Trade Centre was completed, in Phnom Penh a 25,000 sq. m. mixed-use complex was opened, and in Bangkok's central business district the group acquired a 49%-joint venture interest in a prime freehold site with a developable area of 440,000 sq. m.

Within development properties, the profit contribution from mainland China increased significantly in 2017 due to higher completions of residential units.  In Singapore, results were lower with only one project completion during the year.  Hongkong Land's joint venture projects in the rest of Southeast Asia are progressing on schedule. 

Dairy Farm
Dairy Farm's result in 2017 was disappointing as positive performances in most formats and key associates were offset by weakness in its supermarket and hypermarket operations in Southeast Asia.  Sales for the year by the group's subsidiaries were little changed at US$11.3 billion.  Total sales, including 100% of associates and joint ventures, were up 7% at US$21.8 billion, reflecting strong growth at both Yonghui and Maxim's.  The underlying profit attributable to shareholders was 13% lower at US$403 million, after deducting rationalization costs of US$64 million principally relating to the closure of underperforming stores and stock clearance in the Food Division.

The Food Division's poor performances in its supermarket and hypermarket businesses in Malaysia, Singapore and Indonesia led to sales being down and profits significantly lower.  A strategic review is underway to determine the actions needed to restore the profitability of these businesses.  Sales were more resilient in Hong Kong, although increasing costs led to profits being marginally lower.  The group's convenience stores produced overall sales and profit growth, in part reflecting a consumer shift to more convenient retail formats and enhanced customer offerings. 

In the Health and Beauty Division, strong performances in Hong Kong, Macau and Indonesia, together with improvements in mainland China, led to sales and profit growth. IKEA recorded higher sales and trading profit, but overall profit was affected by store pre-opening expenses in Hong Kong.  There was encouraging growth in IKEA's e-commerce channels.  Maxim's, which enjoyed good sales and profit growth during the year, is continuing to expand in the region with the acquisition of the existing businesses and franchises of Genki Sushi in both Singapore and Malaysia, and of Starbucks in Singapore.  

The group's 20%-owned associate in mainland China, Yonghui Superstores, opened a net 292 new stores in 2017, which underpinned its 19% growth in revenue.  Supply chain and shrinkage improvements produced margin gains, which together with better capital utilization, led to a 45% growth in profit.

Mandarin Oriental

Mandarin Oriental's underlying profit was slightly lower primarily due to the impact of the renovation of its London property as the combined results of the group's other hotels improved in 2017, notably in Hong Kong.  The underlying profit was US$55 million, compared with US$57 million in 2016, and with no non-trading items the profit attributable to shareholders was also US$55 million, in line with 2016.

The renovation of Mandarin Oriental Hyde Park, London is on schedule to complete in the second quarter of 2018. The jointly-owned Hotel Ritz, Madrid closed at the end of February 2018 to commence an extensive renovation.  In June 2017, the group announced that consideration was being given to its strategic options for The Excelsior, Hong Kong.  A subsequent review of market interest in a potential sale did not give rise to any acceptable offers.  Mandarin Oriental is still considering all options for the site, including possible redevelopment as a commercial property, although no decision has yet been made.

Mandarin Oriental announced nine new management contracts over the past year.  They comprise the management of existing hotels in Santiago, Chile and on Canouan in Saint Vincent and the Grenadines; four hotels with branded residences scheduled to open in Dubai and Honolulu in 2020, in London in 2021 and in Melbourne in 2022; a hotel in Beijing located in a traditional hutong quarter due to open in 2019; branded residences in Barcelona opening in 2020; and a coastal resort in Viña del Mar in Chile opening in 2020.  In the next 12 months the group expects to open its first hotels in the Middle East, in Doha and Dubai, as well as Mandarin Oriental Wangfujing in Beijing.

Jardine Cycle & Carriage

Jardine Cycle & Carriage's underlying profit was up 16% at US$788 million.  Profit attributable to shareholders was US$811 million, including a net non-trading profit of US$23 million, compared with US$702 million in 2016.  Astra's contribution to underlying profit of US$641 million was up 28%.  The group's Direct Motor Interests contributed US$125 million, 25% down, while the contribution from its Other Strategic Interests was 3% higher at US$34 million.

Within the group's Direct Motor Interests, Cycle & Carriage Singapore performed well as it grew its earnings by 15% to US$57 million.  The 25%-owned Truong Hai Auto Corporation, however, faced an increasingly competitive environment in Vietnam ahead of the removal of tariffs on imported cars in January 2018.  Its profit contribution declined 40% to US$57 million, although its real estate interests performed better.  In Malaysia, 59%-owned Cycle & Carriage Bintang reported a loss in a particularly challenging year, while 44%-owned Tunas Ridean in Indonesia recorded an 18% reduction in its contribution mainly due to weaker margins in car sales. 

Within Other Strategic Interests, 25.5%-held Siam City Cement in Thailand reported a profit of US$54 million, down 54% in local currency terms, following one-off restructuring expenses and lower domestic volume and prices, coupled with higher energy costs.  The profit of 24%-held Refrigeration Electrical Engineering Corporation in Vietnam of US$61 million was 26% higher in local currency terms due to higher contributions from all its businesses.  An initial dividend contribution of US$9 million was recognized on the recently acquired 10% shareholding in Vinamilk in Vietnam.

Astra
Astra's underlying profit for 2017 under Indonesian accounting standards was up 27% at Rp18.6 trillion, equivalent to US$1,387 million.  Its net profit was up 25% at Rp18.9 trillion, some US$1,409 million.  The group's net cash, excluding financial services subsidiaries, was US$196 million at 31st December 2017, the reduction from the net cash of US$461 million at the end of 2016 was due mainly to investments in toll roads, property and power plants.

Net income from Astra's automotive division was 3% lower at US$661 million.  Astra's car sales were 2% lower at 579,000 units in a wholesale market that was little changed, leading to its market share declining from 55% to 54%.  Astra Honda Motor's market share improved from 74% to 75% as its domestic sales of motorcycles were maintained at 4.4 million units while the wholesale market contracted by 1%.  Astra Otoparts, the group's components business, saw net income increase by 32% to US$41 million.

Net income from financial services increased to US$280 million from US$59 million, primarily due to a return to profitability at 44.6%-owned Permata Bank.  To strengthen its capital base, Permata Bank completed a further US$220 million rights issue in June 2017.  There were improved contributions from a number of the group's finance businesses, although overall earnings were held back by increased loan loss provisions relating to the low cost car segment and the small and medium sized borrowers in the heavy equipment segment.  Net income at general insurer Asuransi Astra Buana was 9% higher at US$75 million, and life insurance joint venture, Astra Aviva Life, continued to acquire new individual life customers and participants for its corporate employee benefits programmes.

United Tractors, which is 59.5%-owned, reported net income 48% higher at US$553 million as significantly stronger coal prices led to improved performances in its construction machinery and mining contracting businesses, as well as its mining operations.  Komatsu heavy equipment sales were up 74%, and parts and service revenues were also higher. The mining contracting operations of Pamapersada Nusantara recorded a 3% increase in coal production, while overburden removal was up 14%.  United Tractors' mining subsidiaries, however, reported coal sales down 8%.  General contractor Acset Indonusa, 50%-held, reported net income up 126% at US$11 million, with new contracts worth US$627 million secured.

United Tractors has an 80% interest in a coking coal company in Central Kalimantan, which started production at the end of 2017, and a 25% interest in two 1,000MW power plants under construction in Central Java, which are due to start commercial operations in 2021.

Astra Agro Lestari, which is 80%-owned, saw improved revenue from higher crude palm oil prices and sales volumes, but reported net income little changed at US$150 million. The 2016 result had benefited from foreign exchange translation gains, excluding which net income in 2017 would have been 8% higher.

Astra's infrastructure and logistics division reported a net loss of US$17 million, compared with net profit of US$20 million in 2016, due to initial losses on a newly opened toll road and a loss on the disposal of the group's 49% interest in PAM Lyonnaise Jaya, a water concession with five years left to run.  Astra is continuing to expand its toll road interests, which now extend to 353km of toll roads, of which 269km is operational.  Serasi Autoraya's net income doubled to US$15 million due to higher net margins in its car leasing and rental, as well as logistics businesses.  Net income from the group's information technology division was 1% higher at US$15 million.

The group's property division saw net income double to US$17 million under local accounting standards, primarily due to higher property development earnings recognized on its Anandamaya Residences project.

Ben Keswick
Managing Director

 

Jardine Matheson Holdings Limited Consolidated Profit and Loss Account for the year ended 31st December 2017
	2017											2016
Underlying business performance US$m			Non- trading items US$m				Total US$m					Underlying business performance US$m					Non- trading items US$m				Total US$m
Revenue (note 2)		39,456				-					39,456					37,051				-					37,051
Net operating costs (note 3)		(36,151)				279					(35,872)					(33,905)				93					(33,812)
Change in fair value of investment properties		-				4,706					4,706					-				2,573					2,573
Operating profit		3,305				4,985					8,290					3,146				2,666					5,812
Net financing charges
- financing charges		(334)				-					(334)					(297)				-					(297)
- financing income		173				-					173					146				-					146
		(161)				-					(161)					(151)				-					(151)
Share of results of associates and joint ventures (note 4)
- before change in fair value of investment properties		1,234				(9)					1,225					734				7					741
- change in fair value of investment properties		-				(32)					(32)					-				(56)					(56)
		1,234				(41)					1,193					734				(49)					685
Profit before tax		4,378				4,944					9,322					3,729				2,617					6,346
Tax (note 5)		(826)				(3)					(829)					(654)				(5)					(659)
Profit after tax		3,552				4,941					8,493					3,075				2,612					5,687
Attributable to:
Shareholders of the Company (notes 6 & 7)		1,568				2,217					3,785					1,386				1,117					2,503
Non-controlling interests		1,984				2,724					4,708					1,689				1,495					3,184
		3,552				4,941					8,493					3,075				2,612					5,687
		US$									US$					US$									US$
Earnings per share (note 6)
- basic		4.17									10.06					3.71									6.69
- diluted		4.16									10.04					3.70									6.68