Jardine Matheson: ‘Outstanding Results’
Bermuda-incorporated Jardine Matheson Holdings Ltd. said today [Mar. 4] underlying profit jumped 34 percent, boosted by car sales in Indonesia, residential projects in Singapore and rising demand for its Mandarin Oriental International Ltd.’s hotel rooms.
Underlying profit, or earnings from its ongoing businesses, increased to $1.4 billion from $1 billion a year earlier, it said in a Regulatory News Service statement. Net income increased 78 percent to $3.1 billion from $1.7 billion. Sales surged 31 percent to $47 billion.
“The positive economic environment seen in Asia throughout 2010 underpinned strong performances from most of the group’s businesses,” chairman Henry Keswick said in the statement. “After Jardine Matheson’s outstanding performance in 2010, growth will be harder to achieve in the current year.
“In particular, there will be a lower contribution from residential developments in Hongkong Land due to the reduced number of project completions planned for 2011. The Group, however, remains financially strong, focussed on leadership in its various markets and well placed to pursue development both in Greater China and in Southeast Asia.”
Incorporated in Bermuda with offices on Reid Street, the company operates out of Hong Kong. Jardine shares, which trade in Singapore, have climbed 9.1 percent this year.
Highlights
• Underlying earnings per share up 33%
• Full-year dividend up 28%
• Excellent results from across the Group’s operations
• Good economic growth in Greater China and Southeast Asia
• Significant increase in value of Hongkong Land’s property portfolio
Overview
The positive economic environment seen in Asia throughout 2010 underpinned strong performances from most of the Group’s businesses, enabling Jardine Matheson to produce a record result for the year. The contribution from Southeast Asia represented 56% of Jardine Matheson’s underlying profit for the year, compared with 41% from Greater China,largely due to outstanding results from Astra in Indonesia.
Performance
Jardine Matheson achieved an underlying profit in 2010 of US$1,364 million, an increase of 34%. Underlying earnings per share were 33% higher at US$3.80. The Group’s revenue for the year, including 100% of revenue from associates and joint ventures, was US$47 billion, compared with US$36 billion in 2009.
Cash flows also remained strong notwithstanding continued investment in the Group’s businesses. Net debt excluding financial services companies at the year end was US$2.3 billion, representing 7% of consolidated total equity.
The profit attributable to shareholders for the year was higher at $3,084 million, with the main non-trading item being the significant increase in the value of Hongkong Land’s investment property portfolio. Shareholders’ funds were 28% higher at US$13.7 billion.
The Board is recommending a final dividend of ¢85.00 per share, an overall increase of 28% for the full year.
Business Developments
Interests held directly by Jardine Matheson
Jardine Pacific’s earnings reflected both organic growth and expansion within its existing business portfolio. Developments during the year included an increased shareholding in air cargo terminal operator HACTL, significant new infrastructure contracts won by Gammon, the growth of its Restaurants group in Taiwan and Vietnam through acquisitions, and the year-end announcement by JOS of the purchase of an IT distribution business to enhance its market positions in Hong Kong, Singapore and Malaysia.
Jardine Motors continued to grow profitably in Southern China, where its new car deliveries in 2010 rose by 70%. Further investment is being made to expand its dealership network on the Mainland, which now extends to 17 outlets in operation, five under development and a number of others in the planning stage.
Jardine Lloyd Thompson’s earnings benefited from the investment made in its traditional and emerging markets businesses through acquisitions, the recruitment of professionals and system upgrades, including the contribution from the business transformation and cost reduction programme undertaken in recent years.
Interests held through Jardine Strategic
Hongkong Land’s commercial property activities in Hong Kong and Singapore performed well in 2010 and the company continued to build its residential development portfolio with the emphasis on Singapore and mainland China. In February 2011, it completed the privatization of its subsidiary, MCL Land, a Singapore residential property developer. The reduced number of residential development completions scheduled for 2011 will result in a lower contribution to Hongkong Land’s earnings from this sector than in recent years.
Dairy Farm produced a satisfactory increase in earnings, ending the year with strong finances and leading positions for its main formats in their respective market segments.Expansion continued in 2010 with the total number of outlets increasing by 6% to 5,386.
The group plans to invest further in the development of hypermarkets and supermarkets, particularly in Indonesia and Malaysia, and in the refurbishment of its existing store networks.
Despite the recent challenging market conditions, Mandarin Oriental’s growth strategy remains on track. Last year the group announced three additional hotel development projects; new properties in Abu Dhabi and Doha will mark the group’s entry into the Middle East when they open in 2014, while a new hotel in Shanghai, opening in 2013, will be its fourth hotel in mainland China. This year Mandarin Oriental will also add a hotel in Paris.
Astra benefited from the 6% growth of the Indonesian economy in 2010 and robust market conditions. Good performances from its automotive, financial services and heavy equipment activities enabled the group to achieve a record profit for the year. Its rate of growth, however, is expected to moderate in 2011.
People
The impressive performances that we have again seen from our businesses is a testament to the hard work, dedication and professionalism of the 300,000 employees that we have across the Group. I would like to thank them all for their magnificent contribution to the Group’s results.
Outlook
After Jardine Matheson’s outstanding performance in 2010, growth will be harder to achieve in the current year. In particular, there will be a lower contribution from residential developments in Hongkong Land due to the reduced number of project completions planned for 2011. The Group, however, remains financially strong, focused on leadership in its various markets and well placed to pursue development both in Greater China and in Southeast Asia.
Sir Henry Keswick
Chairman
March 4, 2011
Managing Director’s Review
A record underlying profit was achieved in 2010 of US$1,364 million, an increase of 34%, with outstanding performances from many of the Group’s operations. Underlying earnings per share were 33% higher at US$3.80. The significant improvement benefited from comparison with a relatively weak first half in 2009. Earnings growth in the second half was a more moderate 12%.
Of the Group’s businesses, Jardine Pacific saw good performances across its operations, leading to another record profit, while a strong first half enabled Jardine Motors also to produce an excellent result. Jardine Lloyd Thompson made satisfying all round progress.
Hongkong Land’s impressive result included notable gains on completion of residential development projects, while Dairy Farm achieved higher earnings in most of its banners. Mandarin Oriental saw profits start to recover following improvements in occupancy and room rates. Jardine Cycle & Carriage’s earnings reflected the record results achieved by Astra, enhanced on translation by the strength of the rupiah.
Non-trading items in 2010 primarily consisted of the Group’s share of the increase in the valuation of investment properties, including US$1,621 million from Hongkong Land and US$18 million from Jardine Pacific, and a US$71 million share of the increase in the fair value of Astra’s plantations recognized within Jardine Cycle & Carriage. Accounting standards require these revaluations to be taken through the profit and loss account. The result was a profit attributable to shareholders for 2010 of US$3,084 million, compared with US$1,731 million in 2009. Following a change in accounting standards, the Group is no longer required to provide for deferred tax on valuation gains on which no such tax liability would arise.
The Group continues to benefit from strong operating cash flows, ample committed facilities and ready access to capital markets. Capital investment by the Group, on a consolidated basis, amounted to US$1.9 billion in 2010. The consolidated net debt at the end of 2010,
excluding financial services companies, was up modestly at US$2.3 billion, representing gearing of 7%.
Our businesses are continuing to invest in their strong market positions. The steady earnings growth and low levels of net debt achieved in recent years provide the Group with a sound financial base on which to support this development.
Jardine Pacific
Jardine Pacific’s underlying profit rose 31% to US$156 million in 2010 as most of its businesses enjoyed stronger trading conditions. A gain of US$18 million arising on the revaluation of investment properties, together with gains from disposals, contributed to a profit attributable to shareholders of US$182 million, up from US$156 million in 2009.
Shareholders’ funds were US$599 million at the end of 2010, and the underlying return on average shareholders’ funds was 30%. Gammon’s contribution to underlying profit was down slightly at US$21 million, although its order book rose 30% to US$3 billion as it continued to win new large projects. Jardine Schindler achieved an improved profit, excluding the effect of a provision reversal in 2009, with a higher contribution from new installations and additional units under maintenance.
With most of its operations performing well, JEC also produced good profit growth when compared to its 2009 result excluding the benefit of released provisions.
Hong Kong Air Cargo Terminals recorded a substantially higher contribution of US$52 million as a 25% improvement in cargo throughput was augmented by an increase in the group’s shareholding in the business from 25% to 42% in the first half of the year. Jardine Aviation Services benefited from greater flight frequencies as aviation markets improved, while Jardine Shipping Services saw earnings growth with the recovery of freight rates and volumes.
Jardine Restaurants’ results included an encouraging first contribution from the KFC business in Taiwan. JOS produced increased earnings as consumer markets grew, and at the year end announced the US$130 million acquisition of an IT distribution business.
Jardine Motors
Jardine Motors produced an underlying profit in 2010 of US$87 million, up 66%, as its businesses in Hong Kong and, in particular, mainland China enjoyed much improved trading conditions. Profit attributable to shareholders was also US$87 million, compared with US$64 million in 2009.
A higher contribution from Zung Fu in Hong Kong and Macau resulted from an increase in deliveries of Mercedes-Benz passenger cars. There was also a good contribution from aftersales and commercial vehicle activities. The group continued to grow profitably in Southern China where new car deliveries rose from 9,200 units to over 15,600 and the aftersales activities also progressed with higher volumes.
Despite difficult trading conditions for Jardine Motors’ dealerships in the United Kingdom, the business recorded an improved underlying profit, which included gains on two property disposals.
Jardine Lloyd Thompson
Jardine Lloyd Thompson produced a very good performance in 2010, notwithstanding the continued soft rating environment and low interest rates. Total revenue rose to US$1,152 million, an increase of 21% in the company’s reporting currency, reflecting above market growth and the benefit of acquisitions. Underlying profit before tax was US$201 million, an increase of 24% in its reporting currency. Including a significant tax credit, the company’s contribution to the Group’s underlying profit rose 34%.
Jardine Lloyd Thompson’s Risk & Insurance group, comprising its worldwide retail operations and its specialist, mainly London-based, insurance, wholesale and reinsurance broking, produced growth of 17% in revenue and 31% in underlying trading profit, with an increased trading margin of 22%.
The group’s Latin American and Asian activities recorded particularly encouraging results. The Employee Benefits business also had a successful year, with revenue increasing by 46% and a trading margin of 17%, up from 16% in the prior year, while the recently formed underwriting and distribution business, Thistle Insurance Services, made a satisfactory start. The company’s ongoing business transformation project has exceeded expectations and is delivering notable cost and efficiency improvements.
Hongkong Land
Market conditions remained favourable for Hongkong Land’s commercial property interests in 2010, and its results also benefited from the recognition of profits on residential completions. Underlying profit was up 4% at US$810 million. Taking into account the increase in the value of investment properties, profit attributable to shareholders was US$4,739 million, compared with US$1,813 million in 2009, while net asset value per share rose 30%.
Steady demand in the group’s Hong Kong Central district portfolio enabled rental levels achieved on reversions to be maintained. Vacancy at the year end was just 2.9%. In Singapore, market conditions began to improve in the second half of the year. The first two office towers were completed at Marina Bay Financial Centre, in which the group has a onethird interest, while completion of the final tower, which is 66% pre-let, will follow in 2012.
MCL Land recognized profits on two residential projects in Singapore, while the successful launch of The Estuary, completing in 2013, enabled the reversal of a US$39 million writedown previously made. The first residential tower at Marina Bay, which had been fully sold, was completed and the group benefited from the profit attributable to its one-third interest. A second tower will complete in 2013.
Profits were also recognized on Hongkong Land’s residential developments in Hong Kong and Macau. In mainland China, profits were recorded from residential projects in Beijing and Chongqing. The company recently acquired in joint venture a 190,000 sq. m. development site in the Jinjiang District of Chengdu, as well as a 386,000 sq. m. site in Chongqing (its first wholly-owned project on the Mainland) and increased its interest in a joint venture in Shenyang from 30% to 50%.
In August 2010, the company announced its intention to privatize its 77%-owned Singapore-listed ffiliate, MCL Land. An accompanying exit offer was made to the minority shareholders, and the privatization was completed in early 2011.
Dairy Farm
Dairy Farm produced another good performance in 2010, with sales, including 100% of associates, increasing by 13% to US$9.1 billion and underlying profit rising 13% to US$410 million. Favourable exchange movements enhanced both sales and profit by some 5%. Profit attributable to shareholders for the year was US$411 million, 13% higher. There were mixed performances from the group’s activities in North Asia. In Hong Kong, its health and beauty and IKEA operations achieved excellent results and its supermarket chain traded reasonably, but 7-Eleven had a more difficult year. In Taiwan, IKEA improved its profitability further, but earnings from supermarkets declined.
The 7-Eleven stores in Southern China faced further challenges, although the business stabilized in the second half. The expansion of the Mannings health and beauty business on the Mainland continued with the network now standing at 163 outlets. Restaurant associate, Maxim’s, had a fine year with good performances from all its operations in Hong Kong, while its expansion of various formats in mainland China is progressing well.
A buoyant economy in Singapore enabled Dairy Farm to achieve further growth in sales and trading profit. The group’s operations in Malaysia performed well, with an excellent contribution from the Guardian health and beauty stores. In Indonesia, sales and profits continue to improve as both hypermarkets and supermarkets made progress. In its joint ventures in India, the health and beauty chain is trading profitably while in the supermarket business operating losses have been reduced.
Mandarin Oriental
Improved economic conditions resulted in increased demand for most of Mandarin Oriental’s hotels. Its strongest performances were seen in Asia, particularly Hong Kong and Singapore. Underlying profit rose to US$44 million in 2010, up from US$12 million. There were no non-trading items in 2010, while the profit attributable to shareholders in the prior year of US$83 million included a gain from a property disposal.
The group has a total of 26 hotels in operation, with a further 16 under development. During 2010, three new projects were announced, comprising two in the Middle East and one in mainland China, while a project in the United States will now not proceed. A new hotel was opened in Macau in June 2010 under a long-term management contract with a Hongkong Land joint venture, and residences at the property have also been launched. There are now a total of 13 ‘Residences at Mandarin Oriental’ projects open or under development from which the group will benefit from branding fees over the next few years.
Jardine Cycle & Carriage
Jardine Cycle & Carriage produced an excellent result in 2010 with underlying profit up 55% at US$812 million. Its profit attributable to shareholders of US$944 million included a non-trading gain of US$132 million, which arose mainly on the revaluation of Astra’s oil palm plantations, compared with a non-trading loss of US$12 million in 2009. Astra enjoyed improved performances from most of its major businesses. Its contribution to the underlying profit of Jardine Cycle & Carriage, up 62% to US$798 million, also reflected a stronger rupiah.
The underlying profit contribution from the group’s other motor interests was 5% lower at US$56 million. This was mainly due to reduced earnings in Singapore following restrictions in the government quota for new vehicle sales. Cycle & Carriage Bintang in Malaysia, which reported improved earnings on higher sales, is in the process of acquiring a small Mercedes Benz dealership in Penang. In Indonesia, Tunas Ridean benefited from the good market.
Truong Hai Auto Corporation made a lower contribution, but did well to increase its market share in the face of difficult trading conditions in Vietnam.
Astra
Astra performed extremely well overall in 2010, achieving a record profit with improved contributions from all its businesses except contract mining. It produced a record net profit under Indonesian accounting standards of Rp14.4 trillion, up 43%, equivalent to US$1.6 billion.
The Indonesian wholesale market for motor cars experienced 57% growth, with Astra’s sales increasing by 52% to 426,000 units. The group’s market share declined slightly to 56%. The wholesale market for motorcycles also grew strongly, up 26%, and Astra Honda Motor did well to maintain its leading position selling 3.4 million units with a market share of 46%.
Astra Otoparts reported a 49% increase in profits, supported by the strong demand for its products. Earnings of Astra’s consumer finance operations benefited from growth in their overall loan books, stable interest margins and liquidity in the banking sector. In December 2010, the group completed the acquisition of the 47% of Astra Sedaya Finance it did not already own.
Bank Permata’s reported profit doubled in the positive economic environment. In the last quarter, the bank enhanced its capital adequacy ratio through a rights issue and also completed the acquisition of a domestic credit card issuer, GE Finance Indonesia.
United Tractors’ results were little changed, despite a 74% increase in Komatsu equipment sales, owing to lower income from its contract coal mining subsidiary, Pamapersada Nusantara. Coal production increased by 14% to 78 million tonnes and overburden removal by 9% to 651 million bcm, but the results were adversely impacted by poor weather conditions and the weaker US dollar. Astra Agro Lestari’s profit improved by 21% due to higher palm oil prices and production gains.
Elsewhere, there were increased contributions from Astra’s infrastructure and logistics businesses as well as Astra Graphia, which is the sole distributor of Fuji Xerox equipment in Indonesia and is active in information technology.
Further Interests
Rothschilds Continuation
Rothschilds Continuation, in which Jardine Strategic holds a 21% interest, is the holding company of an independent global financial advisory group with 49 offices in 36 countries worldwide. The company’s performance has seen improvement over the last year as conditions in financial markets stabilized.
Other
ACLEDA Bank of Cambodia, in which Jardine Strategic purchased a 12% stake early last year, achieved its highest annual profit in 2010 and enters 2011 with expectations of further profit growth. By contrast, Asia Commercial Bank, 7% held, faced headwinds in Vietnam as the country sought to restore balanced growth while containing inflation.
In India, Tata Power continued to focus on the construction and completion of its large generation projects supported by stable Indian utility earnings and improving returns from its Indonesian coal investments. Jardine Strategic has a 3% investment.
Anthony Nightingale
Managing Director
March 4, 2011
