Results
The year saw a steadily worsening global economic environment, culminating in the shock of
the terrorist attack on the United States on 11th September. Only towards the end of the year,
following a series of US and European interest rate cuts, did the decline show signs of
bottoming out. Asian economies reacted with disappointing growth or, in some cases,
recession. Against this background it was a real achievement that the Company 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, rose by 5%.
There were positive turnarounds in Dairy Farm and in Jardine Motors' UK operations, and a
continued strong performance by Jardine Lloyd Thompson. Hongkong Land performed well in
soft rental markets, although there were reductions in values in its property portfolio. Cycle &
Carriage had a difficult year in its traditional motor and property businesses and the weakness
in the Indonesian currency had a negative impact in an otherwise successful year for its
affiliate, Astra. Mandarin Oriental encountered unusually severe conditions in the wake of the
terrorist events, while the performance of several Jardine Pacific companies was held back by
generally adverse markets.
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,
this accounting treatment can give rise to significant fluctuations in reported results. For the
year under review, negative movements in valuations, partly reversing the positive movements
in the prior year, have led to a reported loss.
The Board is recommending a final dividend of US¢18.70 per share, which, together with the
interim dividend of US¢7.80 per share, gives an unchanged dividend for the full year of
US¢26.50 per share.
Corporate Developments
During the year, Hongkong Land and Jardine Strategic both materially lengthened the maturity
of their debt through international bond issues. Jardine Pacific and Jardine Motors Group
continued to concentrate their operations through planned disposals, while Dairy Farm
substantially completed the complex sale of its Australian business.
On the expansionary side, Mandarin Oriental has embarked on new hotel projects in Tokyo
and Washington, while its New York development remains on target for completion in 2003.
Dairy Farm has increased its investment in several Asian countries; in particular, it is
expanding its successful hypermarket format in Southeast Asia. Hongkong Land has
continued its development programme with a new commercial project in Singapore and a
residential project in Beijing, and Chater House in Hong Kong will come on stream in 2002.
For some years the Group has invested part of its available cash flow in increasing its holdings
in Group companies, where it is considered that this is the optimum use of its resources and
where such action is expected to improve earnings or net assets per share. This policy was
successfully maintained in 2001, further reducing the Company's own outstanding shares and
raising the stakes in the Group's core businesses.
Prospects
In conclusion, the Chairman, Henry Keswick said, "We expect conditions in 2002 to remain
challenging and it is hard to forecast the timing of the eventual upturn. Nevertheless, we have
robust businesses and can look beyond the current economic difficulties with confidence that
the Group will deliver long-term value creation to its shareholders."
Managing Director's Review
A Good Performance in a Difficult Year
The overall picture of the year was one of mixed performances across the Group, in most
cases hampered by poor economic conditions. There were improved performances from Dairy
Farm, Jardine Motors Group and Jardine Lloyd Thompson, but lower results at Jardine Pacific
and Mandarin Oriental. Hongkong Land's revenues and declining asset values reflected poor
sentiment in the property market, but the company produced an increased contribution at the
Jardine Matheson level due to the Group's larger holding. Reduced foreign exchange losses
and an improved performance from Astra enhanced Cycle & Carriage's contribution, but a
difficult year in its motor business reduced its underlying result.
The Group's financing charges rose as higher average levels of debt during the year, arising
largely from share repurchases, counterbalanced the lower average cost of borrowing. In such
circumstances, the 50% increase in earnings per share is a clearer indication of the Group's
overall performance than the 5% increase in underlying profit.
Two major problems - at Dairy Farm's Australian subsidiary, Franklins, and at the UK
operations of Jardine Motors Group - were successfully resolved. The complex phased
disposal of Franklins over the second half of the year was executed with considerable skill, as
was the restructuring, now in its final phases, of the UK motors operation by its new
management team.
Optimisation of Resources
We retain a clear focus on our primary goal of maximising shareholder value. We aim to
achieve this by supporting profitable initiatives in our core businesses and concentrating our
resources wherever the best investment opportunities lie, but always against a background of
sound finances. We continue to use and refine value added measurement tools to provide
benchmarks in the assessment of business performance.
During the year further purchases of shares in Group companies were made. We believe that
such purchases offer good potential for growth in value over the longer term, while providing
an immediate enhancement of earnings and net asset value per share. The Company
purchased 2.3% of its own shares, increasing Jardine Strategic's attributable interest to 51%,
while in turn its interest in Jardine Strategic rose to 75%. Jardine Strategic's other interests
have also increased, and it now holds 41% of Hongkong Land, 62% of Dairy Farm, 66% of
Mandarin Oriental and 29% of Cycle & Carriage.
The Group took advantage of a significant decline in US dollar interest rates to enhance its
debt profile. In all, US$900 million was raised on excellent terms through two maiden global
ten-year bond issues, enabling Hongkong Land and Jardine Strategic to diversify their sources
of debt financing. We also renewed a significant number of bank facilities on improved terms.
The Group's portfolio of first class businesses with strong cash flows has proven its worth not
only in assuring stability of earnings in challenging times but also in securing this favourable
access to financial markets.
The proceeds from disposals have moved Dairy Farm's balance sheet into a net cash position,
and the company proposes to repurchase up to 10% of its issued share capital by way of a
tender offer. Such a move would still enable Dairy Farm to maintain its active investment
strategy.
Operations
Jardine Pacific improved the composition of its business portfolio and 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 it believes offers scope for expansion.
Jardine Pacific's range of air cargo, aviation services, shipping and logistics operations have
all been affected to some degree by recent events. Nevertheless, Hong Kong's role as a
regional transportation hub serving China's primary export manufacturing base provides a
solid foundation for their growth. Jardine Pacific's engineering and construction businesses
are trading well in difficult markets, and opportunities that offer scope for development of group
companies over the medium term are being sought in Mainland China.
Jardine Motors Group's main areas of focus are now Asia, the United Kingdom and the United
States following the sale in early 2002 of its French dealership group, Cica. The company's
distributorship of Mercedes-Benz vehicles in Hong Kong and Macau through Zung Fu will
revert mid-year to DaimlerChrysler and, while its exclusive dealership will remain a profitable
business, there will be an impact on results. Looking to the future, Zung Fu has continued to
build its network of service centres in Southern China, primarily handling Mercedes-Benz,
which will form the basis for a motor dealership operation once regulations permit.
As Hongkong Land's new development in Central Hong Kong, Chater House, nears
completion in a difficult market, the group has secured prestige anchor tenants for both the
office and retail portions. The outlook for the rest of its unique Hong Kong portfolio remains
sound as occupancies are maintained at above 95%. Elsewhere in the region, following the
success of its Raffles Link development in Singapore, Hongkong Land joined a consortium
with the Cheung Kong and Keppel groups to make the winning bid for the right to develop
Marina Boulevard, a new business and commercial complex in central Singapore. The
company has also partnered with Mainland Chinese interests to build a luxury residential
complex in Beijing, a market that will benefit from the 2008 Olympic Games.
After Dairy Farm's disposal of Franklins, and some improvement of its position in the fiercely
competitive Hong Kong supermarket sector, the company's management is now concentrating
on areas of growth potential. Southeast Asia has been targeted for expansion, where despite
economic difficulties retail sales have been buoyant. The company is investing in its network
of Giant hypermarkets in Malaysia and Singapore, and has recently supported a rights issue
by Hero to fund the expansion of its supermarket chain and the introduction of Giant
hypermarkets to Indonesia. The success in Southern China of 7-Eleven, where Dairy Farm
now operates in joint venture some 70 stores, has also persuaded management to set a target
of 350 stores there by 2005 - almost as large a network as the company currently operates in
Hong Kong.
Depressed industry conditions have not halted Mandarin Oriental's global expansion
programme and its goal of achieving over 10,000 luxury rooms under management. The group
has three new properties under development which will increase its 6,600 room portfolio by a
further 800 rooms. 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.
Jardine Lloyd Thompson had another excellent year as it integrated recent acquisitions and
offered its customers sophisticated risk management services in a market that was hardening
even before the shattering events of 11th September. Since the merger of Jardine Insurance
Brokers with Lloyd Thompson in 1997, the company has established itself as a significant
presence in the insurance broking and employee benefit fields. In doing so, it has earned a
reputation as an attractive employer and an innovative operator - important attributes in an
industry where professionalism is the key to winning market share.
Cycle & Carriage holds a 32% stake in 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 of 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.
China Expansion
With China gaining accession to the WTO in 2001, we have positioned ourselves for new
opportunities that are being created. Operating conditions in China will not be easy, but it is a
country where we have considerable experience - our most recent activity stemming from the
start of Mainland China's open door policy in 1979. We are confident that Hong Kong will also
benefit immensely from the growth of China.
The Right People
We could have achieved very little of what we have without the energy, enterprise and
professionalism of our people. We continue to train and motivate our employees through all
possible means.
This year, we launched a new award programme, "Pride in Performance". The Award will be
presented each year to the business team that best demonstrates real success in delivering
performance. It will reward the creation of sustained value, which will include achievements in
areas such as risk reduction, innovative application of technology and new business ventures
as well as significant profit improvements. The Award goes to the heart of the enterprising spirit
that has served the Group well for 170 years.
The Group's success in identifying the right people has been widely recognised. In 2001,
Group companies received over 200 international and local awards that demonstrate the high
quality of their management and staff. These include awards for hotel and retail service,
catering, construction safety, insurance broking and environmental protection, and were
presented to businesses such as Gammon Construction, IKEA, Jardine Lloyd Thompson,
Mandarin Oriental, Mannings, Maxim's and Pizza Hut. It is of great importance to us that each
of our companies should be a leader in its field, and that this quality should be evidenced by
the attitude of everyone in the organisation.
The Future
The financial stability, diversity and strong market position of our businesses provide the
Group with a solid foundation with which to face the current downturn. Most of the leading
economies on which the prosperity of the Asia-Pacific region depends are facing uncertain
prospects, with no clear indication when conditions will improve. In these circumstances, our
Group companies have learned to combine tight financial control with a continuous search for
opportunities for profitable expansion. We aim to offer scope for the right people to succeed,
effective partnerships within the communities in which we operate and, most importantly, value
creation for our shareholders.