Net profit for the period excluding non-recurring items increased 32% to US$117 million, compared with US$89 million for the same period in 1999. Including non-recurring items, net profit rose 94% to US$180 million. Earnings per share excluding non-recurring items were US¢19.24, compared to US¢14.66 in the first half of 1999. Including non-recurring items, earnings per share increased 92% to US¢29.62. An unchanged interim dividend of US¢7.80 per share has been declared.
At the end of last year two areas were identified as needing particular attention. In the United Kingdom, Jardine International Motors has begun to implement a detailed plan to address its problem properties and dealerships in what is still a depressed market. At Dairy Farm, the severe Hong Kong supermarket price war is showing some signs of easing, but the difficulties in repositioning the company's Australian supermarket business remain.
Business Developments
Turning to the developments, the Chairman, Henry Keswick, said that the sale of Robert Fleming will provide Jardine Matheson with an attributable profit of some US$800 million. The disposal of Jardine Pacific's stake in its Chubb and Trane China joint ventures accounts for additional profits of some US$65 million.
In May, Mandarin Oriental acquired The Rafael Group for US$143 million, adding six new hotels that will provide critical mass in the United States and Europe and will be enhanced by Mandarin Oriental's brand. The acquisition, which brings to 19 the number of hotels under management, followed a rights issue at the start of the year that was underwritten by Jardine Strategic.
In March, Cycle & Carriage acquired a 25% interest in Astra International which has since been increased to 31% for a total investment of some US$380 million. Astra International is one of Indonesia's largest conglomerates with a dominant presence in the automotive sector and interests in agribusiness, heavy industry, information technology and financial services.
In June, the Company announced proposals for the privatisation of the 25% minority interest in Jardine International Motors through a scheme of arrangement. Upon acceptance by the minority shareholders, the scheme will become effective by the end of September at a cost to the Company of approximately US$63 million.
Jardine International Motors has also reached agreement with DaimlerChrysler regarding the Hong Kong distribution arrangements for Mercedes-Benz vehicles. Effective 1st July 2002, DaimlerChrysler will assume the role of distributor and Jardine International Motors will continue as exclusive dealer in Hong Kong and Macau. While the new arrangements will allow a key relationship to continue, they are bound to affect the future profitability of the business.
Other significant developments in the first half included the acquisition of the United Kingdom retail broker Burke Ford by Jardine Lloyd Thompson and the purchase by Jardine Matheson of some 5% of Jardine Strategic in the market. In addition, Jardine Strategic has increased its holdings in a number of its own affiliates.
Tender Offer
On 1st August the sale of Robert Fleming to Chase Manhattan became fully unconditional and Jardine Matheson shall shortly be receiving some US$960 million for its holding. The Directors have undertaken a comprehensive review of the various options open to the Company for utilising the proceeds and have concluded that the best interests of shareholders would be served by giving them the opportunity to receive a substantial return of capital by means of a share repurchase offer.
Shareholders are therefore being invited to tender their shares at prices between US$4.80 and US$5.50 per share. The Company will accept repurchases of up to 100 million shares, being 12% of the outstanding share capital. There is an option to increase to 165 million shares, being 20% of the outstanding share capital, should the Directors determine that there is sufficient demand and shareholder approval is given. Full details of the tender offer, which will be open for an initial period from 4th August to 1st September, are being sent to shareholders.
Jardine Matheson is committed to shareholder value through improving its focus on its core businesses and enhancing the efficiency of the Company's capital structure. The steps the Group is taking are designed to increase earnings and net asset value per share. At the same time the Group is confident that it is retaining adequate resources to support the growth of all its existing businesses.
Looking Ahead
· Jardine Pacific expects to see continued progress in earnings in the second half of the year.
· Commercial property values will show some gains at the year end, and the current trend indicates that improvements in commercial rents in Hong Kong will produce overall positive rent reversions for Hongkong Land by the middle of next year.
· Mandarin Oriental's flagship London property re-opened in May following extensive renovation. Assisted by the expected increase in tourism in Asia, the company's profitability should return to growth next year.
· Despite good performances in many of its operations, and an anticipated improvement in the second half, Dairy Farm is expected to produce an overall loss this year.
· Jardine Lloyd Thompson continues to gain market share and its prospects remain encouraging.
· The contribution from Robert Fleming will end upon completion of the sale.
In conclusion, Henry Keswick said, "During the first half, the Group has taken advantage of the opportunities which Asia's recovery offers. We expect full-year 2000 results not only to show significant non-recurring gains, but also to mark a return to sustainable profit growth."
Operating Review
Jardine Pacific
Jardine Pacific achieved a profit before non-recurring items of US$45 million in the first half, up 115%, with most businesses within its portfolio benefiting from the improved trading conditions in Asia. The result was further enhanced by a non-recurring profit of US$65 million, primarily from value released on the sale of a 50% interest in Chubb China. The restructuring undertaken last year has also produced significant savings in central overheads.
In marketing and distribution, Jardine OneSolution (JOS) increased its profit by 84%. JOS is developing its systems integration and application solutions business, and has increased its regional presence with a number of acquisitions in Singapore and Malaysia. Restaurants benefited from both stronger trading conditions and the rationalisation of its Ruby Tuesday business. IKEA in Hong Kong also achieved a marked turnaround in its result. However, there were further losses from the group's sugar interests in the Philippines.
Jardine Engineering again did well, and Gammon produced improved profits, although this trend will be difficult to sustain in an increasingly competitive construction sector in Hong Kong. Jardine Schindler improved its profitability despite losses in its Malaysian factory. HACTL benefited from enhanced operating efficiencies and a significant increase in cargo volumes at Chek Lap Kok. Shipping services also achieved an excellent result. Income from properties declined 13% due to negative rental reversions, and the contribution from the property and financial services businesses also reduced following the sale of Central Registration at the end of 1999 and a reduction in the stake in UMF Singapore.
Jardine International Motors
Jardine International Motors', including its associates and joint ventures, sales of motor vehicles in the first half increased by 14% over the same period in 1999 to some 88,500. Net profit for the six months was US$19 million, a decrease of 25%. The proposed privatisation of Jardine International Motors by way of a scheme of arrangement was announced in June. It is believed that the complexities involved in restructuring the business as a public company outweigh the advantages of a stock market listing. The scheme is expected to become effective by the end of September, and the cost of acquiring the 25% minority interest is some US$63 million.
The group has reached agreement with DaimlerChrysler AG on the future arrangements for the distribution of Mercedes-Benz motor vehicles in the Hong Kong and Macau markets. With effect from 1st July 2002, DaimlerChrysler will assume the role of distributor and Zung Fu will continue as exclusive dealer in Hong Kong and Macau. While the new arrangements allow a key relationship to continue, they will have an adverse impact on the future profitability of Jardine International Motors.
Zung Fu continued to perform well, and improved performances were also achieved in the group's other Asian operations and in the United States. The United Kingdom business is still being adversely affected by the controversy over manufacturers' pricing levels, and significant costs are also being incurred in the reorganisation of this business. In France, Cica has benefited from a continuing strong market, but the translated earnings were reduced by the weakness of the Euro. Cica has consolidated a number of its Internet-compatible business ventures into one new subsidiary, Exlinea, and the group is also reviewing other e-business initiatives that may have wider applications.
Jardine Lloyd Thompson
Jardine Lloyd Thompson again announced record results with turnover for the six months increasing 9% to £138 million. Pre tax profit was up 7% at £35 million.
The results reflect further strong new business development across the entire group and an indication of a slightly hardening market in some areas of the business. There were also benefits arising from improvements in process efficiencies within Corporate Risks. Revenue growth of 12% has been achieved in Risk Solutions, 14% in Corporate Risks and 5% in Services, after allowing for acquisitions and disposals. Including acquisitions, Corporate Risks revenue growth was 17%.
In the first six months there have been significant developments in the group's structure with the creation of Capital Risk Group in New York, a joint venture with The Blackstone Group; the acquisition of Burke Ford in the United Kingdom; and the launch of JLT InterActive, an
e-commerce initiative in the United States aimed at the affinity group market.
Robert Fleming
Robert Fleming reported an extremely strong performance for its financial year ended 31st March 2000. The integration of Fleming Martin and Jardine Fleming enabled the group to deliver a more competitive service to its clients, which, together with the strong recovery in the Asian markets, contributed to significantly improved results. The profit for the six months to 31st March that has been consolidated into the half-year results of Jardine Matheson amounted to US$41 million.
In April, The Chase Manhattan Corporation made an offer for Robert Fleming. It is believed that the businesses of Flemings and Chase are complementary both in terms of product range and geographic spread. It was felt that the sale gave Flemings the best opportunity for long-term growth, while releasing the significant value built up by the Company through its original 50% stake in Jardine Fleming. The offer became fully unconditional on 1st August. The profit on the sale of some US$800 million will be accounted for in the second half of the year.
Jardine Strategic
Jardine Strategic's 19%-held investment, Edaran Otomobil Nasional, continued to record an improved performance as the motor market in Malaysia strengthened. Connaught Investors saw modest gains as its net assets rose by some 3% during the half year to reach US$1,061 million. Jardine Strategic itself recorded a net profit for the half year of US$71 million, a decrease of 17% over 1999. The company will be receiving net proceeds of some US$250 million from the sale of its interest in Robert Fleming and it is its intention to utilise the proceeds largely to increase its stakes in its core investments and to initiate a share repurchase programme.
Dairy Farm
Dairy Farm's performance has been dominated by difficult operating conditions in its two largest businesses. In Hong Kong, there are some positive signs in the supermarket price war, with margins rising gradually, but it is expected that the effects will continue to be felt into 2001. In Australia, Franklins has experienced a decline in sales at a time when it is investing in repositioning its brand. While the initiatives should deliver benefit, acceptable levels of financial performance are not expected until 2002. Dairy Farm's other businesses are performing at or above expectations, and of particular significance has been the successful integration of the Giant chain in Malaysia and the Tops stores in Singapore. Against this mixed background Dairy Farm made a loss of US$51 million in the first six months, and has therefore not declared an interim dividend.
The second half of the year will remain difficult as the company maintains its price position in Hong Kong and continues to invest in improved systems and stores at Franklins. This investment strategy is necessary to secure its longer-term performance and achieve its goal of becoming the leading food and drugstore retailer in the region.
Hongkong Land
A strong recovery in demand in Hong Kong's Grade A commercial property market, coinciding with tightening supply, has led to significantly increased rents. Vacancy was below 2% in Hongkong Land's office portfolio, and is likely to remain low in the absence of any significant new supply over the next two years. However, the reversion pattern of Hongkong Land's leases will delay the impact of this recovery on profit. Net profit for the first six months of 2000 was US$118 million, a decline of 21%. The positive impact on capital values of the recovery in rentals will be measured at the year end.
Hongkong Land's office development in Singapore, One Raffles Link, opened fully let in the first half, and the retail element was successfully launched. In Hong Kong, 11 Chater Road remains on track for completion in 2002. The 29%-owned associate, Asia Container Terminals, completed its debt financing and awarded the main construction contract for the new container terminal in Hong Kong. In Mainland China, the group's power and water infrastructure investments made progress, and a small investment was made in the India Project Development Fund.
Sensibly-priced investment opportunities are becoming more common in Asia, which, despite the current impact on its earnings of negative rent reversions, Hongkong Land is well positioned to pursue.
Mandarin Oriental
Mandarin Oriental took a significant step forward in its development when it acquired the prestigious Rafael Group in May, increasing its room portfolio from 5,800 to 7,000. The US$143 million acquisition was funded by a rights issue. Operationally, there was a continued recovery in Hong Kong, but that was more than offset by costs associated with the closure of its London property, which reopened in May following an extensive renovation programme. The net profit for the period at US$3 million, compared with US$9 million in 1999. In the rest of Asia, poor markets affected the hotels in Manila and Jakarta; The Oriental, Bangkok did well, commencing a US$30 million room renovation programme; while the hotels in Singapore and Macau performed satisfactorily. Results from the group's North American hotels continued to improve.
The strategy is to position Mandarin Oriental as one of the world's leading luxury hotel brands, with a growing presence in North America, Europe and Asia, increasing the number of rooms under management to 10,000. In the second half of 2000 the group will begin to benefit from the reopening of the London hotel and the continuing recovery in Hong Kong.
Cycle & Carriage
Cycle & Carriage has acquired 31% of the voting rights in Astra International for an investment of some US$380 million. Astra International is one of Indonesia's largest conglomerates with a dominant presence in the automotive sector and further interests in agribusiness, heavy industry, information technology and financial services. The acquisition is a significant step in Cycle & Carriage's strategy of diversifying its earnings stream.
Cycle & Carriage's profit for the first half of 2000, excluding non-recurring items, was S$83 million, a 57% increase. Earnings from motor operations rose 164% with improved performances from both Singapore and Malaysia. Underlying property earnings declined by 67% due to fewer development projects. The overall improved trading was, however, largely offset by foreign exchange losses on the debt of Astra International. The good trading performance of Cycle & Carriage is expected to be sustained in the second half of the year, albeit at a slower rate. The performance of Astra International should also continue to improve, although the level of its contribution will depend upon the stability of the Rupiah.