Jardine Matheson Holdings Limited today announced that the first half of 1999 saw the lingering effects of the economic downturn that has beleaguered Asian markets for the past two years, although an improving trend is now becoming apparent in the region.
The more positive macro economic indicators have prompted a revival in stockmarkets, and the Group has also seen a recovery in some of its businesses. The improved financial markets are directly benefiting the results of Robert Fleming, while the residential property market in Singapore has strengthened and car sales in Malaysia have also shown a substantial increase.
In the Group's major market of Hong Kong, however, the underlying economy is lagging behind stockmarket expectations. Retail sales remain weak and competitive pressures have produced price deflation in many sectors, which has affected the Group's consumer-oriented businesses. In addition, Dairy Farm's Hong Kong supermarket operations are now facing an intense surge of competitive pricing. In the Hong Kong commercial property sector market rents appear to have found a floor, but Hongkong Land will be affected for some time by the current cycle of negative rent reversions. Lower than forecast levels of activity at the new airport, compounded by an environment of increased competition, have also depressed Jardine Pacific's its aviation businesses.
The Group's results for the first half inevitably reflect these trends. The net profit for the period was US$93 million, compared with US$107 million in 1998. Excluding non-recurring items from both periods, profit declined by 16% to US$89 million. Earnings per share were US¢15.42, compared to US¢18.25 in the first half of 1998. Excluding non-recurring items, earnings per share were US¢14.66, down 18%. An unchanged interim dividend of
US¢7.80 per share has been declared.
However, it is believed that the signs of recovery now being seen herald an eventual return to economic health in Asia and the Group remains confident of its strategic direction. Work has continued on improving the Group's organisational structures and
implementing cost savings that are designed to equip its businesses to compete effectively in today's global markets. The efficient use of capital across the Group also remains a priority, and to this end Dairy Farm has proposed a special dividend, returning some US$178 million to shareholders, while maintaining its comprehensive investment programme.
The Company has increased its shareholdings in certain Group companies in order to concentrate resources on its core businesses and is also targeting bolt-on acquisitions. These will be funded in part by the disposal of businesses where the Company does not see the prospects of profitable market leadership. JOS Technology Group has expanded its operations in Malaysia with the acquisition of a leading IT distributor and Dairy Farm has announced the acquisition of 90% of the Giant supermarket group in Malaysia and a supermarket joint venture in India. At the same time, the Company has agreed the sale of Matheson Investment Limited, a London based financial services subsidiary, which will contribute to earnings in the second half.
Jardine International Motors has begun discussions with DaimlerChrysler with regard to their participation in the distribution of Mercedes-Benz vehicles in Hong Kong. It is expected that the group will continue to play a leading role in the sales and service of Mercedes-Benz vehicles in long term partnership with DaimlerChrysler.
YEAR 2000
Work has proceeded on schedule to ensure that the Group is Y2K ready in all business critical activities by the year end. Both internal and external risks have been assessed by the individual business units, and business continuity plans are being put in place. The audit committees of the Group's principal businesses have been monitoring progress and reporting to the Board.
Costs relating to resolving this issue are expensed as incurred. Excluding the Group's share of costs of associates, US$11 million was charged in the first half of the year, and the total projected costs are still estimated to be some US$40 million.
While the Group continues to make satisfactory progress and is making every effort to reduce the risks of the Y2K issue, there can be no absolute assurance that the Y2K programmes will be completely successful due to the inherent unpredictability and scope of the Y2K problem.
LOOKING AHEAD
In conclusion, Henry Keswick said, "We do not envisage any improvement in the overall performance of the Group companies during the remainder of the year as it will take some time for the nascent recovery in regional economies to translate into a sustained increase in consumer demand. The result for the full year will reflect the competitive challenges faced by Dairy Farm, but will benefit from the profit on sale of the United Kingdom financial services business. We will continue to shape our businesses so as to achieve sustained profit growth and enhanced shareholder value."