31 July 2002 - In the first half of 2002 most of the major markets in which the Group operated benefited from steady or improving economies. This was particularly true of Indonesia, where increased consumer confidence and a strengthening currency created buoyant trading conditions and provided Astra with good demand for both motor vehicles and motorcycles.
In Singapore, however, the Group's performance was impacted by rising unemployment and uneven consumer demand. In the motor sector, the position was aggravated by intense competition amongst dealers to reduce stock levels. The results from the Group's Singapore motor operations also suffered as, unlike the previous year, they did not benefit from distributor margins earned from Mercedes-Benz stocks carried over.
For the six months to 30 June 2002, profit attributable to shareholders excluding exceptional items was S$124.4 million, 96% above the previous year. Earnings from the motor vehicle operations at S$25.8 million were down 47%, while the contribution from property for the first six months increased to S$9.6 million. The share of results from Astra, accounted for one month in arrears, increased 388% to S$98.0 million. Earnings per share, excluding exceptional items, were 52.2 cents, compared to 27.1 cents in the previous year.
The appreciation of the Indonesian Rupiah produced a foreign exchange gain in Astra on its uncovered US Dollar debt, the Group's share of which was S$44.3 million. Foreign exchange losses of S$12.4 million on quasi equity loans were expensed during the period in anticipation of the repayment of these loans. The exchange losses had previously been capitalised in CCL Group Properties and Cycle & Carriage Limited. Other exceptional items included a provision of S$35.0 million for tax in Astra due mainly to the expected expiry of tax losses prior to their utilisation.
The profit attributable to shareholders for the period increased by 376% to S$121.8 million, with the strong trading profits in Astra and the turnaround in its foreign exchange position more than offsetting the decline in earnings from the motor operations. Earnings per share were 51.1 cents, compared with 10.9 cents the previous year.
Debt reduction has been an area of focus, and consolidated net debt has been reduced by S$119.3 million in the six months from the position of S$869.1 million at the 2001 year end.
INTERIM DIVIDEND
An interim dividend of 3 cents or 3% (2001: 3 cents or 3%) less income tax at 22.0% (2001: 24.5%) has been declared for the six months to 30 June 2002. The dividend has been maintained at the previous year's level as the profits from Astra are not backed by dividend payments for the time being. The Cycle & Carriage Limited Scrip Dividend Scheme, under which shareholders may elect to receive dividends in the form of shares instead of cash, will apply to the interim dividend. The Books Closure Date and payment date of this interim dividend are set out in note 10 below, and further details for participation in the Scheme will be announced separately.
CORPORATE EVENTS
February
Cycle & Carriage increased its interest in PT Astra International Tbk to 31.96% with the acquisition of another 33.5 million shares for US$8.0 million in January and February.
April
MCL Land purchased a 26,000 sq ft freehold site at Upper Serangoon Road for S$18.2 million on which a 12-storey apartment is to be developed.
May
MCL Land launched its freehold condominium project, Robertson 100, consisting of 186 units at Robertson Quay.
June
Cycle & Carriage's wholly owned subsidiary in New Zealand, C&C (North Shore) purchased a dual franchise dealership to sell Nissan and Suzuki vehicles for NZ$1.1 million.
July
Jardine Strategic Holdings which has a 29.13% interest in the Company announced a pre-conditional voluntary cash partial offer for a further 21.13% at a price of S$4.76 per share and a voluntary unconditional cash offer to acquire 40.29% of MCL Land at a price of S$1.09 per share which represents a 51% discount to the net asset value per share as at 31 December 2001. The details of these offers are given in note 9 below.
OPERATIONAL REVIEW
Motor
Earnings from the motor vehicle operations at S$25.8 million were 47% below the previous year. There was a weak performance from the Singapore operations, while the operations in all other countries reflected growth.
The 10% decline recorded in the Singapore passenger car market does not reflect the true state of the market, which was supported by significant discounting and promotions. Cycle & Carriage experienced a further reduction in its market share to 14%. The commercial vehicle market declined by 54%, primarily due to a reduction in the number of Certificates of Entitlement.
Earnings for the Singapore motor operations at S$8.8 million were significantly below the previous year. Mercedes-Benz passenger car sales declined to 1,156 units. In addition to the intense market competition, margins were also impacted by the need to discount the E-Class ahead of the introduction of the new model due in August and the loss of distributor margins earned in the previous year on Mercedes-Benz stocks carried over. Sales of Mitsubishi, Kia and Proton declined to 3,239 units, while commercial vehicle sales declined to 641 units.
The non-national car sector in Malaysia increased by 35%. Sales for Cycle & Carriage Bintang Berhad ("CCB") grew by 35% to 2,418 units due to strong demand for the Mercedes-Benz C-Class, partly offset by declining demand for the run-out E-Class. Together with Cycle & Carriage (Malaysia), the Group's Malaysian motor interests contributed S$9.8 million.
As reported previously, DaimlerChrysler AG and CCB have commenced negotiations on DaimlerChrysler AG's interest in pursuing an active participation in the wholesale business in Malaysia. The negotiations are progressing and an in-principle agreement should be reached before the end of the year. When concluded, this is expected to have a negative impact in later years.
The Australian passenger car market grew by 3%, and Cycle & Carriage (Australia) achieved sales of 20,587 units of Hyundai and 1,945 units of Audi, increasing its market share to 9%.
Hyundai sales grew by 9% due to the strong Accent sales while the 48% increase in Audi sales was to a large extent, the result of the continued good sales performance of the A4 range, first introduced in 2001. Improved margins and cost control increased its profit contribution to the Group to S$4.3 million. The contribution from New Zealand more than doubled to S$3.0 million due to improved commercial vehicle sales by Truck Investments and continued growth in the aftersales activities.
Property
The contribution from property for the first six months increased to S$9.6 million.
The commercial and industrial property markets in Singapore declined in line with the overall economy, but residential buyers responded to keenly priced projects and the introduction of deferred payment schemes. The market was, however, unsettled by proposed changes to the use of the Central Provident Fund for the purchase of property.
The Group's investment properties enjoyed healthy occupancy rates and stable rentals during the period under review.
The contribution from development property was mainly from Sims Residences, Forest Hills and Rio Vista projects. Sales of new MCL Land leasehold projects have been excellent with the 699-unit Warren fully sold and the 716-unit Rio Vista joint venture project 91% sold. 35 units of the luxury 65-unit Balmoral Residences project have been sold, while the recently launched 186-unit Robertson 100 project has been 48% sold. Sales in the Ubi Tech Park joint-venture, however, have been weak.
As at 30 June 2002, the Directors reviewed the carrying values of the Group's investment properties and a deficit of S$13.1 million (net of minority interests) was taken directly to capital reserves.
Astra
The relative political stability in Indonesia and success by the Indonesian Bank Restructuring Agency in selling off assets has had a significant impact on the currency which has strengthened against the US Dollar from a rate of Rp10,400 at 31 December 2001 to Rp8,730 at 30 June 2002. This has been accompanied by strong consumer demand. The motor vehicle market grew by 10% to 131,941 units for the first five months of the year, while the motorcycle market grew by 48% to 975,710 units in the same period.
Astra's motor vehicle sales for the first five months at 59,704 units were 19% up on the previous year, which had been impacted by a strike at a supplier that severely disrupted the Kijang production. Toyota products, at 37,319 units, comprised 63% of Astra's motor vehicle unit sales, followed by Isuzu at 20% and Daihatsu at 14%. Astra's share of the motor vehicle market for the period was some 45%. Sales of motorcycles by Astra Honda Motors grew by 72% to 563,522 units, which increased Astra's share of the market, including imports, to 58%.
Crude palm oil production increased by 18% to 175,749 metric tonnes, while the average price for the five months increased by 53% due to the worldwide impact of El Nino on vegetable oil production.
Results for Astra are accounted for a month in arrears due to logistical problems caused by Astra's size. Astra's contribution is thus for the six-month period from 1 December 2001 to 31 May 2002. Due to the favourable conditions, the operating contribution from the Group's 32% shareholding in Astra quadrupled to S$98.0 million. In addition, the Group's share of the gain arising from the strengthening of the Rupiah was S$44.3 million, compared to a significant loss in the previous year. This was, however, partly offset by a provision of S$35.0 million for tax due mainly to the expected expiry of tax losses prior to their utilisation.
Astra's high level of foreign currency debt and its onerous repayment schedule remain a challenge, and Astra has indicated that it may not be in a position to meet all of its capital repayments as they fall due. Rothschilds has been appointed as financial adviser by Astra to assist in reviewing the options available so that a decision can be made on the most appropriate balance sheet strategy.
Other Interests
Other interests comprise primarily the holding company costs and the funding costs on the debt arising from the Astra acquisition.
PROSPECTS
No significant economic change is expected in the various markets in which the Group operates in the remainder of the year and the trading performance for the second half of the year is expected to be satisfactory. However, the value of the Rupiah will continue to have a major influence on Astra and the Group's attributable profit.