Jardine Strategic Holdings Limited today announced that the Group's results for the first half of 1999 suffered from the continued effects of the economic downturn that has impacted Asian markets over the past two years. Jardine Strategic's net profit for the period was US$85 million, representing a decline of 22%, and earnings per share were down 21% at US¢9.45. An unchanged interim dividend of US¢4.60 per share has been declared. An improving trend, however, is now becoming apparent in the region and the Group believes that the signs of recovery herald an eventual return to economic health.
Net assets per share, based on the market value of the Company's underlying shareholdings, rose to US$4.80, an increase of 50% from the prior year end. This was primarily due to the rise in value of the holdings in Jardine Matheson and Hongkong Land.
Against this economic backdrop, work has continued in the Group to improve organisational structures and implement 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. To this end Dairy Farm has proposed a special dividend, returning some US$178 million to shareholders, while maintaining its comprehensive investment programme. As the Group progresses, its businesses are undertaking a continuous process of modernisation with the aim of achieving sustained profit growth and enhanced shareholder value.
GROUP REVIEW
Turning to the operations, the Chairman, Henry Keswick, said that Jardine Matheson's underlying profit in the first half declined 16% to US$89 million, reflecting the difficult trading environment. Of its businesses which are not held through Jardine Strategic:
Jardine Pacific's profit before non-recurring items declined 28% in the first half to US$21 million. This was largely due to the impact of sharply reduced earnings from HACTL following its move to the new Hong Kong International Airport. Restaurants' results also weakened in response to intense competition in Hong Kong and Taiwan. JOS Technology, which is working to keep abreast of its rapidly changing industry, experienced a small reduction in profit due to margin pressure. Jardine Engineering performed well with a significant increase in profit, but Gammon Construction's profit declined as a result of problem contracts in its civil division in Hong Kong. Jardine Schindler performed satisfactorily. The earnings from the group's significant Hong Kong residential property portfolio were steady, producing a yield of 5%. The performance of the instalment finance business strengthened with little further increase in non-performing loans.
Jardine International Motors produced an interim profit of US$25 million, a decrease of 13% over 1998. Sales of new and used vehicles by the group during the period rose 12% to 77,600. The Hong Kong operations performed well in the difficult environment, showing some improvement on the second half of 1998. Preliminary discussions are taking place with DaimlerChrysler with regard to their participation in the distribution of Mercedes-Benz vehicles in Hong Kong. The group expects to arrive at a mutually satisfactory arrangement and that Zung Fu will continue to play the leading role in sales and after-sales service of Mercedes-Benz vehicles in Hong Kong, in a long term partnership with DaimlerChrysler. In the United Kingdom the group's specialist franchises continued to achieve good results, but some of the other dealerships performed poorly. In India, the joint venture with the Tata group has completed its dealership infrastructure in anticipation of the new Indica production coming fully on stream.
Jardine Lloyd Thompson announced record results for the six months with pre-tax profit, before exceptional items, up 9% at £33 million. The group's recent reorganisation into core businesses - Risk Solutions, Corporate Risks and Services - has worked well. JLT Risk Solutions generated strong growth in new business wins, with revenues rising 13% to £56 million. Corporate Risks & Services saw more modest growth, with revenues up 3% to £70 million, reflecting a broader spread of business. The company has built a strong platform for further growth in each segment of its business.
Robert Fleming became an associated company in the period when, in response to the increasing globalisation of financial markets, it was merged with Jardine Fleming to create an integrated global asset management and investment banking group. Jardine Matheson now has an interest of some 14%, with a further 4% being directly held by Jardine Strategic. The holdings continue to give the Group an exposure to Asian financial markets as well as to global financial markets. Robert Fleming reported a decline in pre-tax profits for the year ended 31st March 1999 from £136 million to £70 million, although stronger market conditions in Asia have contributed to a significant recent improvement in performance.
The outlook for these operations for the remainder of the year is for an overall modest improvement, but Jardine Matheson's result for the year will benefit from the recent sale of Matheson Investment Limited, its London-based financial services subsidiary.
Dairy Farm's trading conditions became more difficult in 1999, resulting in a disappointing performance in the first half. Recurring trading profit of US$46 million is 28% down on the first half of 1998. Sales from continuing activities for the six months were US$2.8 billion, a slight decline from the same period last year. In Hong Kong, the supermarket business suffered from an expansion in rival retail space and constrained consumer spending, requiring steps to be taken to improve market share, and more recently from an intense surge in competitive pricing. The recovery at Franklins in Australia was also set back by increased competition. In Singapore, however, the group's businesses have done well, and in Indonesia Hero increased both its profit and market share. The group continues to expand its supermarket interests in South Asia with the recent acquisition of a 90% stake in Giant in Malaysia and a new joint venture in India. Dairy Farm is also seeking a more efficient use of its capital and is proposing to repay some US$178 million to shareholders by way of a special dividend and capital consolidation, while maintaining its investment in enhancing fresh food sales, developing new formats and improving operational effectiveness. It is, however, expected to be at least another year before Franklins adds economic value, and the increased competitive activity in Hong Kong's supermarket sector will also impact the current year's result.
Hongkong Land has maintained high levels of occupancy in its portfolio throughout the downturn and good progress has been made in letting properties under development. However, the effect of negative rent reversions working through the Hong Kong portfolio led to a 25% decline in underlying earnings, giving a net profit for the period of US$149 million. The rate of decline of rents in Hong Kong has slowed significantly in 1999 and the new supply in Central is progressively letting up. The group's investment and development properties are believed to have maintained their year-end values and, overall, Hongkong Land remains in a strong financial position. Work on the substructure of the group's new development at 11 Chater Road, Hong Kong will soon commence, following completion of the demolition of the old property. The group's new office and retail development in Singapore is nearing completion, and leasing interest has been encouraging. While there are signs of stability in the regional property markets where Hongkong Land operates, negative reversions will continue to affect its results.
Mandarin Oriental continued to be affected by highly competitive pricing for hotel rooms in almost all Asian destinations in the first six months, leading to a decline in the trading profit of 16% to US$20 million. A reduced tax charge, however, limited the fall in net profit to 3%. Increased visitor arrivals in Hong Kong improved occupancies, but the benefit was more than offset by declines in room rates. A similar picture was seen in most of the group's other hotels in Asia, although in Kuala Lumpur their new property has done well to establish its leadership position. The restoration of Mandarin Oriental Hyde Park in London will include additional new facilities, which will necessitate an overhaul of the back-of-house infrastructure. It has, therefore, been decided to close the hotel for five months from November to avoid significant disruption to guests. Overall, the outlook for the Asian markets remains difficult for the remainder of the year, and the costs associated with the London renovation will also depress profits in the second half. The group continues to respond vigorously to the twin challenge of the current difficult market conditions in Asia and the long-term development of a global brand.
Cycle & Carriage reported an attributable profit of S$58 million for the first half, compared to S$9 million in 1998. This result was arrived at after a reversal of S$3 million of the exceptional charge of S$68 million made in 1998 for foreseeable losses on development properties in Singapore and after an extraordinary gain of S$2 million from the sale of shares in a subsidiary. The results reflect a recovery in all major markets other than the Singapore motor sector, which suffered from continuing pressure on margins. Both Cycle & Carriage Bintang's motor operations in Malaysia and the group's Australian motor business returned to profitability. Despite the recovery in the Singapore property market, however, trading profits from property development declined due to the completion of comparatively fewer projects in the period.
Of Jardine Strategic's other interests, its 19% held investment, Edaran Otomobil Nasional, benefited from a significant improvement in motor sales in Malaysia and moved from a loss in 1998 to record a RM220 million profit in the first half of 1999. Its share price also made a strong recovery and is now well in excess of the written down carrying value. Connaught Investors saw a strong growth in its net assets which rose by 40% to US$758 million at the period end, based on the market value of its investments.
YEAR 2000
Work has proceeded on schedule to ensure that the Group is Y2K ready in all business critical activities by the year-end. The individual business units have assessed both internal and external risks, 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.
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.
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.
LOOKING AHEAD
In conclusion, Henry Keswick said, "There are no signs of immediate improvement in the overall performance of our underlying interests, and the result for the full year will reflect the competitive challenges now being faced by Dairy Farm. Nevertheless, our businesses are now stronger and more focused. As such, they are well positioned to achieve sustained growth as Asia emerges from its recent malaise."