1996 Preliminary Announcement of Results
| To: Business Editor | 20th March 1997 |
| For immediate release |
JARDINE MATHESON HOLDINGS LIMITED
PRELIMINARY ANNOUNCEMENT OF RESULTS
FOR THE YEAR ENDED 31ST DECEMBER 1996
RESULTS
Jardine Matheson Holdings Limited today
announced that the Group recorded a net profit for 1996 of US$300
million, down 29% on the previous year. The results for both years
were affected by non-recurring items, principally relating to
discontinued activities and repositioning costs. Excluding these,
the underlying profit declined 6% to US$356 million.
Earnings per share were US¢51.63, compared
with US¢72.05 in 1995. Earnings per share excluding non-recurring
items showed a 6% decline.
The Board is recommending a final dividend
of US¢17.20 per share which, together with the interim dividend
of US¢7.80 per share, gives an unchanged dividend for the
full year of US¢25.00 per share.
The net asset value per share recorded a
substantial growth of 26% during 1996, from US$5.63 to US$7.09.
BUSINESS DEVELOPMENTS
Turning to the operations of the Group,
the Chairman, Mr Henry Keswick, said that Jardine Matheson experienced
difficult trading in 1996, much as he had indicated at the time
of the Group's interim announcement, and action was taken to address
a number of specific issues.
The continuing poor performance of the Group's Sizzler restaurants in Australia led to the decision by Jardine Pacific to dispose of this operation at a cost of some US$47 million. Dairy Farm's Australian supermarket chain, Franklins, and its United Kingdom associate, Kwik Save, are both engaged in repositioning programmes, with Franklins being the further advanced of the two. Finally, following regulatory breaches, Jardine Fleming took firm steps to reinforce its management and to improve its controls.
The cost of these remedial measures, allied
to a weak trading environment in certain markets which are important
to the Group, more than offset satisfactory earnings growth elsewhere
in the Group. It was, however, some compensation that Jardine
Matheson recorded a substantial increase in its net asset value
per share. This was largely due to the investment in Hongkong
Land as property valuations rose reflecting confidence in Hong
Kong and low interest rates.
Among the many positive developments of
the last twelve months, a number stand out as particularly significant.
Jardine Pacific sold its interest in Jardine CMG Life for US$163 million, realising a profit of some
US$130 million which will be taken in the 1997 results. The timing
of the disposal was a product of the Group's view that, having
played its part in creating this business, it was now right to
concentrate more fully on its other core activities.
Mandarin Oriental purchased the Hyde Park
Hotel in London for US$143 million, thereby achieving its long-standing
aim of owning a luxury hotel in one of its more favoured markets.
Following a record year, the Group's insurance broking business,
JIB, merged with Lloyd Thompson to create a considerably more
powerful group. And Jardine Strategic also increased its investment
in EON, so as to gain further exposure to the successful Malaysian
economy.
CHINA AND HONG KONG
A landmark event in 1997 will be China's
resumption of the exercise of sovereignty over Hong Kong, where
the Company derives over 50% of its profit and where the overall
Group holds assets well in excess of US$10 billion. It is a mark
of Jardine Matheson's confidence in the future of Hong Kong and
the concept of "one country, two systems" that the Group
continues actively to invest in and develop its operations there.
Since the signing of the Sino-British Joint Declaration in 1984,
the Group's number of employees in Hong Kong has doubled to 60,000
and it is today the largest private sector employer in the future
Special Administrative Region.
LOOKING AHEAD
In conclusion, Mr Henry Keswick said, "Jardine
Matheson's portfolio of businesses, some earnings-based, others
asset-based, includes many which are market leaders in their
field. Each has its own dynamics but shares the objective of providing
Shareholders with growth in real value over time. We are also
fortunate in having a strong balance sheet and a focus of activity
in the Asia-Pacific Region.
In March 1997, Jardine Strategic announced
a share repurchase programme, giving its shareholders the option
either to realise an above-market price on part of their holding
or to retain their shares to benefit from enhanced earnings and
net assets per share. For our part, given our commitment to Asia
and the underlying value of Jardine Strategic's shares, we shall
be retaining our shareholding in its entirety."
The actions we have taken to refine and
strengthen our businesses should enable us to maintain a steady
trading result in 1997, and we look forward to improved earnings
growth coming through in subsequent years."
OPERATING REVIEW
Jardine Pacific
Jardine Pacific's profit from underlying
businesses for 1996 at US$94 million was down 7%. This was primarily
due to weaker performances in its Pizza Hut operations and Shipping
activities, and to a difficult Thai market affecting its Engineering
& Construction businesses.
The net result after non-recurring charges
was significantly lower, mainly due to provisions for the disposal
of the company's Sizzler restaurants in Australia. The 1996 loss
recorded in the life assurance business has been included in discontinued
activities. This business has now been sold to Jardine Pacific's
joint venture partner, giving rise to an exceptional gain of some
US$130 million in 1997.
Jardine Pacific made progress in its strategy
of developing large businesses, with significant investments in
information technology products and services, instalment finance
and new infrastructure projects in Hong Kong. It also increased
its investment in the Philippines.
Marketing & Distribution
JOS Technology Group successfully integrated
the newly acquired System-Pro business, which made a major contribution
to profit. Jardine Pacific's IKEA home furnishing stores had
a good year in both Hong Kong and Taiwan, and a major expansion
of its stores is under way. The Optical Shop has commenced a
relaunch under a new format.
Pizza Hut in Hong Kong performed exceptionally
well, but the gain was offset by a decline in Taiwan due to poor
consumer demand. The Pizza Hut activities in Australia and Hawaii
also had a disappointing year, while Jardine Wines & Spirits
continues to face a difficult operating environment in Japan.
In the Philippines, proceeds from Jardine
Davies' US$71 million rights issue are being used to improve its
existing cement and sugar milling operations and to develop new
ventures including fibre cement board production and middle-income
housing. Some of these activities will begin to contribute in
1997, while others have a longer development cycle.
Engineering & Construction
Jardine Pacific's engineering & construction
businesses fell short of the record performance of the previous
year. Gammon continued its regional expansion and had an outstanding
order book at year end of US$1.4 billion, but suffered from a
downturn in the construction market in Thailand. Jardine Schindler
had another record year with excellent sales, and is to set up
a new manufacturing plant in Malaysia.
Within Jardine Engineering Services, Jardine
Airconditioning and Chubb produced good performances, and new
joint ventures have been established to manufacture airconditioners
in China. Jardine Pacific has now been awarded the Caterpillar
franchises in the Chinese provinces of Fujian, Jiangxi and Hunan,
in addition to its existing franchises in Hawaii and Taiwan.
Aviation & Shipping Services
Aviation services achieved a good result
in 1996 with a record throughput at Hong Kong's existing aircargo
terminal. HACTL's business will be transferred to the new airport,
which is scheduled to open in April 1998. Jardine Pacific was
also successful, in joint venture with China National Aviation
Corporation, in winning a franchise for ramp and passenger handling
at the new airport.
Jardine Pacific acquired an interest in
the new River Trade Terminal project in Hong Kong, and discussions
continue on the acquisition of two berths at Hong Kong's container
port by Asia Container Terminals. Shipping services' performance
was disappointing, however, due to a reduced contribution from
its midstream and feeder services.
Property Services
Property services saw an improvement from
Colliers Jardine, and a steady peformance was recorded at Jardine
Securicor. Reliance, the office cleaning and environmental services
operation, also made good progress after a difficult 1995.
Financial Services
Jardine Pacific's financial services businesses
had a good year, with further excellent growth from Pacific Finance,
the Hong Kong instalment finance joint venture with Jardine Fleming.
The company's instalment finance activities in Singapore also
did well.
With much achieved in the past year in rationalising
and focusing its portfolio of businesses, together with benefits
from reduced start-up losses and initial contributions from new
ventures, Jardine Pacific is looking forward to a return to profit
growth in 1997.
Jardine International Motors
Jardine International Motors achieved a
trading profit of US$88 million in 1996, an increase of 7%. Profit
after taxation and outside interests was US$69 million, an increase
of 9% excluding the 1995 exceptional profit. Turnover reached
US$2,007 million, an increase of 8%, with total new and used vehicle
sales rising by 8% to 64,000 units.
In Hong Kong, demand for luxury cars fell
in 1996, but there were encouraging signs of recovery at the end
of the year. Zung Fu increased its share of the luxury car market.
The company also successfully launched the Mercedes-Benz SLK
sports car and repositioned the marque's C-Class and E-Class models,
introducing a number of new variants.
Zung Fu in Macau had another disappointing
year due to a weak luxury car market. Demand also remained weak
in Southern China for most of the year, but an upturn in the last
quarter allowed Southern Star Motor Company to achieve higher
sales. The six Zung Fu joint venture service centres in Southern
China also saw improved volumes.
In Indonesia, P. T. Tunas Ridean, in which
the group has a 25% shareholding, made a reduced contribution
following a slowdown in the market. Elsewhere in Asia, the Stern
Zushi dealership in Japan increased sales and made a modest contribution.
In Malaysia, Cycle & Carriage Bintang, in which the group
has a 13% interest, continued to make excellent progress with
a 34% rise in attributable profit.
In France, Cica achieved stronger results
for much of the year, but government incentives to replace older
cars ended in September and the market has since weakened significantly.
In the United Kingdom, Lancaster again improved its performance
in demanding conditions.
In the United States, Beverly Hills made
a strong contribution, while in Hawaii much improved sales were
achieved, but the costs associated with opening a major new facility
during the year held back the result.
Jardine International Motors is expecting
mixed performances from its markets in 1997 and lower margins
in Hong Kong. As a consequence, the current year's earnings will
do well to match those of 1996.
Jardine Fleming
Jardine Fleming recorded a net profit from
operations before exceptional items of US$108 million in 1996, down 11%. The overall
result was affected by an exceptional charge of US$26 million
relating to regulatory issues arising in earlier years. The shortcomings
which gave rise to these issues have been fully addressed by Jardine
Fleming, which is committed to ensuring that its controls keep
pace with best international practice.
The comparatively poor performance of the
Asia-Pacific equity markets in 1996 provided a difficult backdrop
for the group's investment management arm. Funds under management
were US$20 billion at year end. Recent trends are encouraging
and the company is well placed to benefit from the rapid growth
of savings in the Region.
Rowe Price-Fleming International, the group's
25%-held associate in the United States, had an outstanding year
in which its funds under management increased to US$29 billion.
Jardine Fleming unit trusts have maintained
their market leadership in Hong Kong, with innovative products
raising some US$100 million during their launch periods. Sales
through Investment Centres grew by more than 20%, while four further
banks are now distributing the group's products through their
branch networks. The receipt of a domestic mutual fund licence
in Thailand provides a new opportunity, while the group continues
to develop fund management operations in Singapore, Malaysia,
Taiwan, India and Indonesia.
Strong performances on the equity markets
of Shanghai, Shenzhen, Hong Kong and Taiwan helped Jardine Fleming
to consolidate its leading position in the "Greater China"
markets.
Other key areas including Japan, Korea and
India performed less well. In Australia and New Zealand, Ord
Minnett had a highly successful year, with all areas of business
showing improved contributions.
1996 saw a further development of the corporate
finance team in Hong Kong and China. In capital markets the company
participated in over 60 international equity and equity-linked
issues, raising approximately US$8 billion.
Jardine Fleming Bank performed strongly
despite difficult conditions in bond and foreign exchange trading.
After two comparatively flat years, Jardine
Fleming expects that many Asian markets are set to perform well
in 1997. This will enable the group to capitalize on its well
established position in Asia, and to benefit from an inflow of
funds from the United States and Europe.
JIB Group (pre-merger)
1996 was a significant year for the former
JIB Group. Against a background of continued fierce competition
in global insurance markets, record results were achieved with
increased profitability from all divisions. Profit before tax
of £28 million was up 29% from 1995.
In the United Kingdom, profits from the
wholesale and retail operations showed good increases following
reductions in the overall cost base at the end of 1995. Competition
continued to be severe in these markets, and significant rate
reductions during the year contained revenue growth.
In the United States, JIB's specialty business
performed well in 1996, realizing the good prospects predicted
at the beginning of the year.
Asia Pacific operations are developing well
with profit recovering satisfactorily. A more competitive environment,
however, emerged in Hong Kong where local insurance companies
fought to obtain a larger share of the market. Further progress
was made in the ASEAN countries, and the local government business
in Australia continues to be successful.
The reinsurance division had a good year
both in London and elsewhere. Despite difficult trading conditions,
new business and tight overhead controls have led to a significant
improvement in profit.
The company's associate, SIACI, again produced
an excellent result despite a continuing increase in competition
in the French market. JIB increased its interest in SIACI to
37% during the year.
The year ended with the announcement of
the merger of JIB with Lloyd Thompson, a specialist London broker
which reported a pretax profit of £11 million in the six
months to 31st December 1996. The Company's interest in the new
group, called Jardine Lloyd Thompson, is 34%.
Competition, low interest rates, the current
strength of Sterling and the consolidation of the merger are the
challenges for 1997. However, the combination of Lloyd Thompson's
specialist skills in the London market with
JIB's international network, especially in the Asia-Pacific Region,
provides Jardine Lloyd Thompson with a solid foundation for growth.
Dairy Farm
In 1996 Dairy Farm's trading profit declined
31% to US$168 million, with poor results from Australia and the
United Kingdom and increased start-up costs. Improved performances
were, however, recorded in Hong Kong, New Zealand, Singapore and
Spain. The overall result was further affected by repositioning
provisions of US$78 million. Sales in 1996, including associates,
were US$12,767 million, an increase of 9%.
Capital expenditure of US$247 million was
made during 1996, and the group opened 143 stores giving a total
at year end of 1,518. Gross retail area increased 5% to exceed
14 million sq. ft. If associates are included, the number of outlets
rose to 2,822.
In Australia, Franklins' sales grew by 8%,
but the cost of its new 'Fresh' stores, which now account for
over 40% of sales, offset an improvement in margins. The new
format has, however, been well received, and Franklins has decided
to accelerate the conversion of the 'No Frills' stores to 'Fresh'
over the next four years, which has required a write down of fixed
assets of US$38 million. Overall, profit recovery will be held
back for the next two years. In New Zealand, Woolworths continued
to perform strongly.
In Hong Kong, steady sales and profit growth
was achieved, and Wellcome's focus on fresh food will be underpinned
by a US$50 million investment in a fresh food processing centre.
Sims Trading reported a good result, and in Southern China, the
7-Eleven and supermarket joint ventures have established a sound
base for expansion. The operations in Taiwan faced particularly strong competition,
and Dairy Farm is responding by positioning Wellcome as a neighbourhood
supermarket and by planning to open a first joint venture hypermarket
in Taipei with Casino S.A. in 1998. Dairy Farm's Singapore businesses
had another good year in 1996.
In Japan, 14 Wellsave stores have been opened,
although start-up losses are still being incurred. The company's
supermarket interests in Malaysia and Indonesia are being upgraded,
and the expansion of its regional drugstore chain is making progress.
Maxim's Caterers, the 50% restaurant associate,
produced another excellent result with sales and profit growth
well ahead of the industry trend in Hong Kong. Its prospects
remain outstanding. The Nestlé Dairy Farm joint venture's
results, however, were affected by the start-up costs of new factories
in China and Hong Kong.
In the United Kingdom, Kwik Save is undertaking
a three year store repositioning programme following a comprehensive
review. Simago achieved break-even in Spain following an 11%
increase in sales.
Dairy Farm is investing for the future by
adapting its mature businesses to meet changing retail environments
and by entering new markets in Asia. These steps have had an
impact on results, but are creating a sound base for renewed profit
growth.
Hongkong Land
Hongkong Land's profit for 1996 was US$432
million, compared with US$415 million in 1995, excluding the effect
in both years of Trafalgar House. There was a writeback of US$217
million in 1996 in respect of the disposal of that investment.
The group's Grade A office buildings in
Hong Kong's Central business district continued to perform well
and saw a substantial appreciation, the total value of the portfolio
increasing 27%. Shareholders' funds at the year end were US$9,871
million and net asset value per share was US$3.75, an increase
of 32%. Net borrowings at the year end totalled US$358 million
which represented 4% of shareholders' funds.
Office rents in Hong Kong stabilized early
in 1996 after falling from a peak in mid 1994. Towards the end
of the year, there was also increased leasing activity in the
Central business district. The group's office and retail portfolio
was 97% occupied at the year end.
Competition from new developments is expected
in 1998, and there are plans to upgrade the facilities in Hongkong
Land's portfolio to meet this challenge.
In Hong Kong the group acquired a site in
Quarry Bay, where it is developing a 300,000 sq. ft Grade A office
building at a total cost of some US$200 million. A townhouse
development in Stanley was also purchased for US$39 million.
The feasibility of redeveloping Swire House,
a 427,000 sq. ft commercial property in Hong Kong, is under consideration.
The necessary regulatory approvals have been obtained, and a
final decision is expected before the end of the year.
The group has entered the Singapore property
market by successfully tendering for a site at Marina Square,
and the planning of a prime 395,000 sq. ft commercial and retail
development is now at an advanced stage. The group is also undertaking
two initiatives in the Philippines; a 40% investment in a joint
venture with Ayala Land to develop for sale a US$400 million residential complex in the
heart of Manila; and a 20% interest in Jardine Land, which is
to participate in the expanding middle-income housing market.
Hongkong Land expanded its infrastructure
interests in 1996. It is now a 23% shareholder in Asia Container
Terminals, which is negotiating to operate two berths at Hong
Kong's container port. A 33% shareholding was taken in the newly
formed China Water Company, which will participate in water treatment
and infrastructure projects in China. In September the company
also acquired a 10% interest in a toll road in Indonesia.
Hongkong Land's earnings are expected to
be flat in 1997 as a result of the rental reversion cycle. The
progress made on expanding its property and infrastructure interests
in the Region will, however, provide the foundation for longer-term
growth.
Mandarin Oriental
Mandarin Oriental achieved a record profit
in 1996 of US$60 million with excellent results from its Hong
Kong hotels and a further improvement by Mandarin Oriental, Manila.
The opening of two hotels in Hawaii and Surabaya, Indonesia,
together with the acquisition of the Hyde Park Hotel, London,
were the highlights of the year.
Shareholders' funds in 1996 rose 27% to
US$1,261 million, primarily as a result of the revaluation of
properties.
Mandarin Oriental's two Hong Kong hotels
again benefited from the strength of the Hong Kong hotel market,
while both hotels improved their competitive positions within
their specific markets. Mandarin Oriental, Manila achieved a record
occupancy in 1996, owing to a strengthening economy and successful
positioning of the hotel in its market.
The group's existing associate hotels in
Southeast Asia overcame increasing competition to show improved
profit contribution from all locations except Jakarta. These
improvements, however, were offset by the costs incurred
to establish Kahala Mandarin Oriental, Hawaii and Hotel Majapahit,
Surabaya in Indonesia in their respective markets after their
re-opening in early 1996 following extensive renovation.
In November, Mandarin Oriental acquired
the Hyde Park Hotel in London for US$143 million. With its prime
location in Knightsbridge, this hotel is ideally positioned to
take advantage of the strengthening London hotel market and provides
the group with an important presence in one of its principal source
locations.
Work is progressing towards the opening
of the new Mandarin Oriental, Kuala Lumpur at the end of 1997.
When fully operational in mid 1998, the 645-room hotel is expected
to be a strong competitor in the Kuala Lumpur market.
Throughout the year Mandarin Oriental received
noteworthy international awards for quality service, including
"Hotel with the Best Staff" at Mandarin Oriental, Hong
Kong. Such awards are a testament to the high standards of service
achieved by the group.
The current positive trends at the group's
Hong Kong and Manila hotels have continued into 1997. With an
overall improvement anticipated in the performance of its other
Asian hotels and the new London hotel expected to make a positive
contribution, the outlook for Mandarin Oriental in 1997 is encouraging.
Cycle & Carriage
Cycle & Carriage produced a good result
and reported a net profit for the year of S$200 million, an increase
of 10%. Motor earnings rose 15% to S$156 million, while profit
from property activities fell 14% to S$39 million. Earnings per
share rose 10%.
In 1996, the overall size of the Singapore
new car market declined 12%, and earnings from the company's Singapore
motor business fell by 15%. Nevertheless, Cycle & Carriage's
significant share of the passenger car market
remained at over 25%, with good sales of Mercedes-Benz E-Class.
In Malaysia, the 49%-owned Cycle & Carriage
Bintang had another successful year, increasing its attributable
profit by 34%, as demand for Mercedes-Benz cars remained strong.
In Australia, 49%-owned Astre Investments continued its good
performance; Hyundai sales exceeded 49,000 units, representing
over 10% of the passenger car market, and its other marques also
performed well. The group's Thai and Vietnamese operations continued
to incur losses, albeit lower than the prior year. Cycle &
Carriage is looking to expand further its motor interests in these
countries and in other parts of Southeast Asia.
MCL Land (formerly Malayan Credit) recorded
a 14% increase in profit largely due to profit recognised on residential
developments in Singapore, all of which are fully sold. The contribution
from CCL Group Properties fell as a result of delays in the construction
of a major project. In Malaysia, the 283,000 sq. ft Weld Tower
has been completed in the centre of Kuala Lumpur, and there are
already commitments to lease more than 50% of the building.
The group's Guardian pharmacy business in
Malaysia is expected to benefit from its recent tie-up with Dairy
Farm's Guardian chain in Singapore.
The Singapore car market is expected to
see further contraction in 1997 and competition is likely to result
in further pressure on margins. In Malaysia and Australasia,
growth is anticipated, but at slower rates than in recent years.
Returns from property development should improve in 1997, and
overall the result for the year is expected to be satisfactory.
Other Interests
Neighbourhood Stores, which operates the
7-Eleven convenience store chain in the United Kingdom, recorded
disappointing results in the face of intense competition. The
financial services group in the United Kingdom was restructured
during the year to provide a platform for future growth.
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