Henry Keswick, Chairman
Preliminary Announcement of Results
For The Year Ended 31st December 2001
Results
The Group's operating companies faced a steadily deteriorating global economic
environment in 2001, made significantly worse by the terrorist attack on the United States in
September. Asian economies reacted with disappointing growth or, in some cases,
recession, and only towards the end of the year were there indications of a bottoming out.
In the circumstances, Jardine Strategic did well to increase underlying earnings per share by
44% to US¢22.00, reflecting the benefits of larger stakes in a number of Group companies.
Underlying profit rose to US$146 million, compared to US$128 million in 2000.
The Group's financial statements are prepared under International Accounting Standards,
which now require the revaluation of investment properties to be taken through the profit and
loss account, rather than directly to reserves. With the Group's extensive property interests,
primarily through Hongkong Land, this accounting treatment can give rise to significant
fluctuations in reported results.
For the year under review, negative movements in property valuations have produced a
reported net loss of US$181 million, or US¢27.21 per share. This compares with a net profit
of US$1,233 million, or US¢147.40 per share, in 2000, which benefited from the exceptional
profit on the sale of Robert Fleming and positive movements in property valuations.
Net asset value per share, based on the market price of the Company's holdings, decreased
by 4% to US$4.88 at the year end.
The Board is recommending a final dividend of US¢9.90 per share, which, together with the
interim dividend of US¢4.60 per share, gives an unchanged dividend for the full year of
US¢14.50 per share.
Corporate Events
For some years a proportion of the Group's available cash flow has been invested in
increasing shareholdings in affiliates where this is considered the optimum use of resources
and where such action is expected to improve earnings or net assets per share. This policy
was successfully maintained in 2001, and further purchases of shares in Group companies
were made. Jardine Matheson purchased 2.3% of its own shares, increasing Jardine
Strategic's attributable interest to 51%, while in turn Jardine Matheson's interest in the
Company rose to 75%. The Company's other interests have also been increased, and it
now holds 41% of Hongkong Land, 62% of Dairy Farm, 66% of Mandarin Oriental and 29%
of Cycle & Carriage.
Group companies took advantage of the decline in US dollar interest rates to enhance their
debt profile and diversify their sources of debt financing. Two global ten-year bonds were
issued during the year on excellent terms - US$600 million by Hongkong Land and US$300
million by the Company. A significant number of bank facilities were also renewed across
the Group on improved terms. The Company's portfolio of first class businesses with strong
cash flows has proven its worth not only in assuring stability of earnings but also in securing
this favourable access to financial markets.
The proceeds from disposals in 2001 have moved Dairy Farm's balance sheet into a net
cash position. Dairy Farm is offering to repurchase by tender up to 10% of its issued share
capital.
Business Developments
Hongkong Land performed well in soft rental markets in 2001, though its earnings were
affected by increased financing costs incurred in share repurchases, while asset values fell
in line with market trends. Nevertheless, its contribution to Jardine Strategic's results rose
due to an increase in the Company's percentage holding. Hongkong Land's new
development in Central Hong Kong, Chater House, is nearing completion and it has been
able to attract prestige anchor tenants for both the office and the retail portions. In Singapore,
building on the success of its Raffles Link development, Hongkong Land has joined a
consortium with the Cheung Kong and Keppel groups to develop a new business and
commercial complex. The company has also partnered with Mainland Chinese interests to
build a luxury residential complex in Beijing.
Among Jardine Matheson's directly held subsidiaries and affiliates, Jardine Lloyd Thompson
had another excellent year as it integrated recent acquisitions and offered its customers
sophisticated risk management services in an insurance market that was already hardening
before the events of 11th September. Jardine Motors Group saw a return to profit in the
United Kingdom and sold its French subsidiary in early 2002. The company's distributorship
of Mercedes-Benz vehicles in Hong Kong will revert mid-year to DaimlerChrysler, and while
it will retain an exclusive dealership there will be an impact on results. Looking to the future,
it is building its network of service centres in Southern China to form the basis for a motor
dealership operation once regulations permit. Jardine Pacific released value through the sale
of its interests in Jardine Securicor and Colliers Jardine, in the latter case retaining the Hong
Kong property management division which offers scope for expansion. Several of Jardine
Pacific's companies, however, suffered from the weak regional economic conditions.
Dairy Farm successfully resolved the problems with its Australian operation by way of a
complex phased disposal. It has achieved some improvement in the competitive Hong Kong
market and most of its other businesses performed well. The group is now increasing its
investment in Southeast Asia where it is expanding its Giant hypermarket format in Malaysia,
Singapore and Indonesia. It also plans to increase the number of its successful 7-Eleven
outlets in Southern China from 72 to 350 by 2005.
Mandarin Oriental encountered unusually depressed markets in the wake of the terrorist
attack. These conditions have not, however, halted the company's global expansion
programme and its goal of achieving over 10,000 luxury rooms under management. In
addition to its current project in New York, which will come on stream in 2003, the group is to
manage a new hotel in central Tokyo on its completion in 2006, and has recently announced
a new hotel in Washington, which is targeted to open in 2004.
Cycle & Carriage had a difficult year in its traditional motor and property businesses, offset
by better performances from Astra, one of Indonesia's largest conglomerates with a wide
exposure to opportunities in Asia's third most populous country. Despite the need for a
provision resulting from the decline in the Indonesian Rupiah, Astra produced a good trading
performance in 2001 and it should become a significant contributor to Cycle & Carriage once
its foreign currency debt problems are resolved.
Prospects
In conclusion, the Chairman, Henry Keswick said, "The outlook for 2002 remains uncertain in
most of the world's major economies, and it is too early to predict the timing of an upturn.
Nevertheless, in 2001 the Group's businesses made good progress in the pursuit of their
strategic aims, and the Company's earnings per share benefited from share purchases and
buybacks in several Group companies. The Company's policy of seeking genuine value for
shareholders while maintaining sound finances should stand it in good stead in what
promises to be another challenging year."
Operating Review
Jardine Matheson
The year saw a steadily worsening global economic environment, and the Asian economies
within which Jardine Matheson operates produced disappointing growth or even recession.
Against this background it was a real achievement that the group was able to increase
earnings per share by 50% to US¢47.97. Underlying profit, after higher interest charges
incurred in implementing a substantial share repurchase programme in 2000, rose by 5%.
Economic conditions are expected to remain challenging; nevertheless, Jardine Matheson
has robust businesses that are taking the initiative in their chosen areas of growth and can
look beyond the current economic difficulties with confidence.
€¢Jardine Pacific faced weak consumer markets and lower levels of trading activity in the
Asia-Pacific region, which inevitably impacted on performance. Jardine Pacific produced
an underlying profit of US$77 million, down 17%. The return on average shareholders'
funds in 2001, excluding non-recurring items, was 14% compared with 16% in the prior
year.
Within Jardine Pacific's businesses, Gammon Construction saw its profits decline by
15%, but its order book remained at over US$900 million. Jardine Engineering
Corporation had a good year, and Jardine Schindler increased its profit contribution by
37%. The 9% fall in cargo through-put at Hong Kong's Chek Lap Kok airport impacted
the profitability of HACTL, but it was offset by lower interest rates and operational
efficiencies. Jardine OneSolution's performance was adversely affected by the downturn
in the global economy, and an impairment charge of US$21 million was made in respect
of goodwill relating to prior acquisitions. IKEA's sales grew by 7% in Hong Kong, but
profitability fell slightly.
Earnings were also negatively affected by losses in two businesses: Colliers Jardine,
which was sold at the end of the year, with Jardine Pacific retaining its profitable Hong
Kong property management business; and Jardine Logistics, the management of which
was restructured. The group's interests in Jardine Securicor were sold in December for
US$43 million, realising a profit of US$24 million, as further steps were taken by Jardine
Pacific to refine its portfolio and release value created.
∙Jardine Motors Group achieved an underlying profit of US$51 million, the increase of
100% mainly due to the return to profitability of its UK operations. After non-recurring
items a net profit of US$38 million was recorded, compared to a net loss of US$37 million
in 2000. Revenue declined by 2% to US$2.5 billion following the disposal of loss-making
dealerships in the United Kingdom.
In a contracting Hong Kong market Zung Fu saw lower margins on new car sales, but
was able to increase its market share. A positive contribution was also achieved in
Mainland China. There was a reduced contribution from the group's Indonesian
associate, while its Indian joint venture continued to produce losses and a major
restructuring of the business is being undertaken.
Against a background of record volumes in the UK market, the group's new management
team rationalised the dealership portfolio and returned the principal businesses to
profitability. There was a reduced profit contribution from France, and in a transaction
completed in early 2002 the group disposed of its interest in Cica, the French dealership
operation. An improved result was achieved in the United States.
Jardine Motors Group will continue to refine its business, positioning itself for changes in
trading practices in the United Kingdom that are likely be required by the European
Commission and the implementation of the new Mercedes-Benz distribution
arrangements in Hong Kong in mid-2002.
∙Jardine Lloyd Thompson's turnover increased 22% to £350 million in 2001. Profit
before tax, exceptional items and goodwill amortisation rose 18% to £84 million, based
on UK accounting standards. The performance, which maintains and builds upon JLT's
growth in recent years, benefited from acquisitions in 2000 and the strength of its
traditional business within Risk Solutions, Corporate Risks and Services.
JLT has reorganised its operational structure into two new business groups; Risk &
Insurance Group and Employee Benefits. The latter business has grown substantially,
and JLT now has one of the United Kingdom's largest outsourced pensions
administration operations. Risk & Insurance Group revenue from continuing operations
grew by 15% in 2001 to £272 million, reflecting organic growth and new business
demand in the harder market. Employee Benefits revenue increased by some 79% in
2001 to £74 million, benefiting from the acquisition of Abbey National Benefit Consultants
together with new business growth.
JLT's strong financial position and reputation for professionalism and innovation will
allow the group to maintain sustainable organic growth and to capitalize on its unique
market position in 2002.
Dairy Farm
Dairy Farm made significant progress in 2001 against a backdrop of poor economic
conditions in most of its markets. A major problem was resolved through the disposal of its
Australian business and sustained developments in areas seen as profit drivers for the future
were initiated. The group's sales from continuing activities of US$3,470 million were 7%
ahead of 2000, with growth in all regions. Each of the group's regional businesses showed
an improved performance, and its underlying profit of US$48 million, compared to
US$1 million in the prior year, represented underlying earnings per share of US¢2.87.
Dairy Farm undertook a managed sell-down of Franklins in Australia as the most effective
means of realising value from the limited options available. An assessment of Franklins'
assets in 2000 had led to an impairment charge of US$129 million. During the course of the
disposal programme a premium was achieved on the sale of the assets, yielding a net gain
in 2001 of US$38 million.
Dairy Farm's balance sheet moved into a net cash position, due mainly to the proceeds from
disposals, and the company proposes to repurchase up to 10% of its issued share capital by
way of a tender offer. Such a proposal would still enable the group to maintain its active
investment strategy.
Improved results were achieved in all businesses in North Asia with Mannings and 7-Eleven
in Hong Kong and Wellcome Taiwan all increasing profits. Wellcome Hong Kong also made
good progress, although much has still to be done before it reaches acceptable levels of
profitability. The successful 72 store 7-Eleven network in neighbouring Guangdong is being
expanded to 350 stores by 2005. The Maxim's joint venture is expanding the Starbucks
chain in Hong Kong, and will be extending it to Southern China.
Dairy Farm's focus in South Asia is on developing its Giant hypermarket format in Malaysia
and Singapore, as well as introducing it into Indonesia and, subject to government approvals,
India. During the year Dairy Farm was approached to sell its Woolworths supermarket
operation in New Zealand, but after review, the decision was taken to retain and grow the
business.
While the economic outlook is uncertain, Dairy Farm remains strong with sound retail
businesses that are well positioned to succeed.
Hongkong Land
A weakening sentiment prevailed in the office market in Hong Kong in 2001, with the events
in the United States in September accelerating the decline. The effect was mitigated in
Central by a lack of supply, and occupancy in high quality buildings remained firm.
Hongkong Land's net rental income was little changed as reversions were largely neutral,
but higher levels of debt following share repurchases completed in January 2001 led to
increased financing charges. Its underlying earnings fell by 7% to US$213 million, while
underlying earnings per share reduced by 2% to US¢8.94.
The valuation of the group's investment property portfolio at the end of 2001 produced a
deficit of US$600 million. Largely due to this deficit, shareholders' funds were reduced by
13% to US$6,048 million. The effect on net asset value per share was, however, mitigated
by the group's action in December 2001 when it bought back a further 6.7% of its share
capital at a cost of US$295 million. As a consequence the net asset value per share
benefited by 3% and restricted the overall fall in the year to 7%.
The group took advantage of fine interest rates to enhance its debt profile with a US$600
million global bond issue. Its strong cash flow has proven its worth not only in assuring
stability of earnings in challenging times but also in securing favourable access to financial
markets.
Hongkong Land's core portfolio of prime assets will be strengthened by the completion in
2002 of Chater House at the heart of Hong Kong's Central district. The group is continuing to
make strategic investments, focusing on high quality assets in the best locations. These
include new developments, such as One Marina Boulevard in Singapore and a residential
site at Central Park in Beijing, and refurbishments, of which a planned upgrade of the
Alexandra House retail podium in Hong Kong is the latest example.
The outlook for Hongkong Land's core market is closely tied to the timing and strength of
global economic recovery, especially in the United States. The current weakness in the
Hong Kong property sector has, however, deterred investment in new supply so that when
demand recovers Hongkong Land should see a positive response in values and rentals in its
prime locations.
Mandarin Oriental
Mandarin Oriental faced significant challenges in 2001 when, in an already weakening
trading environment, the events of 11th September prompted a dramatic fall in both leisure
and corporate travel. The effect on Mandarin Oriental was particularly severe as the latter
part of the year is traditionally the strongest for many of its hotels. The company's
consolidated profit before interest and tax for 2001 was US$41 million, a decrease of US$12
million from 2000. The decline, together with higher interest charges, resulted in a net profit
of US$4 million, 76% down on the previous year. Shareholders' funds at the close of 2001
were US$890 million, down 9%, primarily due to a decline in value of the group's Hong Kong
hotel properties.
Despite the poor trading environment, Mandarin Oriental remains committed to its long-term
strategy of being one of the world's top luxury hotel groups with a target of 10,000 rooms
under management. To achieve its goal the group is undertaking a programme of selective
expansion in international destinations. In the last three years its portfolio has been
increased from 12 to 18 properties, with 6,600 rooms, and three additional hotels under
development. In New York the construction is progressing of the AOL Time Warner Center
at the southwest corner of Central Park, which in 2003 will house the 251-room Mandarin
Oriental, New York. The group has announced the development of a 400-room deluxe hotel
in Washington D.C. to open in 2004, while, in Asia, Mandarin Oriental is to manage a new
171-room luxury hotel in Tokyo under a long-term lease upon its completion in 2006.
The quality of service upon which Mandarin Oriental's reputation is built was again
recognised by a record number of international awards, both in individual hotels and for the
group. 2002 will, however, be another challenging year with little to suggest a sustained
turnaround in corporate or leisure travel in the near future, and initiatives will continue to be
pursued to enable the group to manage effectively through the downturn.
Cycle & Carriage
Cycle & Carriage's profit excluding exceptional items, under Singapore GAAP, decreased by
4% to S$166 million due to a significant decline from its traditional motor business,
particularly in Singapore, which was partly offset by a substantial increase in contribution
from its associate, Astra, on an equity accounting basis. The net profit for the year was
S$120 million, an increase of 20% over 2000.
Earnings from motor operations fell by 45% to S$65 million, with all major markets
experiencing much weaker consumer demand in the second half of the year as economies
slowed. In Singapore, this position was compounded by the loss of the Mercedes-Benz
distributorship from the beginning of the year.
The contribution from property was S$14 million excluding exceptional items, a decline of
15% due to the limited number of projects under development. MCL Land, in which Cycle &
Carriage holds a 60% interest, recorded an operating profit of S$15 million, but made an
additional provision of S$31 million in respect of foreseeable losses on its development
properties.
Astra, in which Cycle & Carriage has recently increased its stake to 32%, achieved an
improved performance due to good consumer demand, particularly for motorcycles, and
lower interest rates on its considerable debt. It contributed S$67 million to Cycle & Carriage's
results after exchange losses and an investment writedown - an improvement over the S$29
million loss in the previous year. Improved cash flows and proceeds from disposals funded
loan prepayments, but Astra's exposure to debt, particularly foreign currency debt, remains
significant.
Unlike in 2001, Cycle & Carriage's Singapore motor operations will not benefit from the
importer margin on stocks carried over at the start of the year or the writeback of provisions,
and revenues are likely to decline further in 2002. The motor operations elsewhere, however,
are expected to produce reasonable performances despite the prevailing unsatisfactory
market conditions. MCL Land will earn development profits from its recent property
launches, but the sector is not expected to show any significant improvement overall. In
Indonesia, Astra should maintain its trading performance if consumer demand remains
steady, but its level of contribution to Cycle & Carriage will be dependent upon interest rates
and the value of the Rupiah.
Other Interests
Tata Industries is an investment vehicle of the Tata Group for new ventures in India. Tata
Industries, in which the Company has a 20% stake, is involved principally in the areas of
telecommunications, property, financial services and auto-components.
Edaran Otomobil Nasional, in which the Company holds a 19% interest, continued to
perform well as the demand for the Proton car remained quite firm in 2001. Of its financial
services interests, EON Bank is undergoing a restructuring which should result in a public
listing.