| To: Business Editor | 14th September 1999 For immediate release |
The following announcement was today issued to the London Stock Exchange.
JARDINE STRATEGIC HOLDINGS LIMITED
INTERIM REPORT 1999 HIGHLIGHTS
Results
*Based on the market price of the Company's holdings at the period end
"Our businesses are undertaking a continuous process of modernisation . . . and are well positioned to achieve sustained growth as Asia emerges from its recent malaise."
Henry Keswick, Chairman
14th September 1999
The interim dividend of US¢4.60 per share will be payable on 23rd November 1999 to Shareholders on the register of members at the close of business on 1st October 1999. The ex-dividend date will be on 27th September 1999, and the share registers will be closed from 4th to 8th October 1999, inclusive.
JARDINE STRATEGIC HOLDINGS LIMITED
INTERIM REPORT 1999
PERFORMANCE
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:
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.
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."
1. ACCOUNTING POLICIES AND BASIS OF PREPARATION
The unaudited interim condensed financial statements have been prepared in accordance with IAS 34 - Interim Financial Reporting.
In 1999 the Group implemented IAS 14 (revised) - Segment Reporting, IAS 17 (revised) - Leases, IAS 19 (revised) - Employee Benefits and IAS 35 - Discontinuing Operations. The provisions of IAS 10 (revised) - Events After the Balance Sheet Date, IAS 16 (revised) - Property, Plant and Equipment, IAS 22 (revised) - Business Combinations, IAS 28 (revised) - Accounting for Investments in Associates, IAS 31 (revised) - Financial Reporting of Interests in Joint Ventures, IAS 36 - Impairment of Assets, IAS 37 - Provisions, Contingent Liabilities and Contingent Assets and IAS 38 - Intangible Assets are applied in advance of their effective dates.
In accordance with IAS 10 (revised), dividends proposed or declared after the balance sheet date are not recognised as a liability at the balance sheet date. In previous years dividends proposed or declared after the balance sheet date were recognised as a liability at the balance sheet date. The effect of this change has been to increase the Shareholders' funds at 31st December 1997 and 1998 by US$90.5 million and US$71.9 million respectively.
In accordance with IAS 19 (revised), pension costs for defined benefit plans are assessed using the projected unit credit method. Under this method, pension obligations are measured as the present value of the estimated future cash flows by reference to market yields on high quality corporate bonds which have terms to maturity approximating the terms of the related liability. Plan assets are measured at fair value. This is a change in accounting policy as in previous years pension costs were assessed using the attained age normal method and pension obligations were discounted at the expected rate of return on plan assets. The comparative figures for 1998 have been restated to reflect the change in policy. The effect of this change has been to increase net profit for the six months ended 30th June 1998 and for the year ended 31st December 1998 by US$2.3 million and US$3.6 million respectively, and the Shareholders' funds at 31st December 1997 and 1998 by US$34.9 million and US$38.5 million respectively.
In accordance with IAS 38, pre-operating costs are expensed as they are incurred. This is a change in accounting policy as in previous years pre-operating costs were capitalized and amortised over a period of three to five years from the date of commencement of operation. The comparative figures for 1998 have been restated to reflect the change in policy. The effect of this change has been to decrease net profit for the six months ended 30th June 1998 and for the year ended 31st December 1998 by US$0.1 million and US$1.2 million respectively, and the Shareholders' funds at 31st December 1997 and 1998 by US$2.7 million and US$3.9 million respectively.
Following the implementation of IAS 37 on provisions by an associate, the Shareholders' funds at 31st December 1997 have increased by US$1.6 million and the net profit for the year ended 31st December 1998 has decreased by US$1.6 million.
With the exception of IAS 10 (revised), IAS 19 (revised), IAS 37 and IAS 38, there are no changes in accounting policy that affect profit or Shareholders' funds resulting from the adoption of the above standards in these condensed financial statements, as the Group was already following other relevant recognition and measurement principles in those standards.
Other than described above, there have been no other changes to the accounting policies described in the 1998 annual financial statements.
The disclosure requirements of IAS 1 (revised) - Presentation of Financial Statements will be complied with in the Group's 1999 annual financial statements.
The Group's reportable segments are set out in note 2.
2. REVENUE
3. OPERATING PROFIT
4. TAX
Tax on profits has been calculated at rates of taxation prevailing in the territories in which the Group operates and includes United Kingdom tax of US$2.4 million (1998: US$9.1 million).
5. NET PROFIT
6. NON-RECURRING ITEMS
Gross non-recurring items are shown before net financing charges and tax. Net non-recurring items are shown after tax and outside interests.
7. EARNINGS PER SHARE
Earnings per share are calculated on the net profit of US$85.1 million (1998: US$109.8 million) and on the weighted average number of 900.7 million (1998: 913.4 million) shares in issue during the period. The weighted average number excludes shares held by a wholly-owned subsidiary undertaking and the Company's share of the shares held by an associate.
Earnings per share excluding non-recurring items are calculated on the net profit after adjusting for non-recurring profits of US$0.7 million (1998: US$0.9 million).
8. DIVIDENDS
An interim dividend in respect of 1999 of US¢4.60 (1998: US¢4.60) per share amounting to a total of US$53.1 million (1998: US$53.1 million) is declared and the net amount after deducting the Company's share of the dividends payable on the shares held by an associate of US$12.2 million (1998: US$11.4 million) will be accounted for as an appropriation of revenue reserves in the year ending 31st December 1999.
9. NOTES TO CONDENSED CONSOLIDATED CASH FLOW STATEMENT
(b) Purchase of subsidiary undertakings
Purchase of subsidiary undertakings includes the Company's increased interests in Dairy Farm and Mandarin Oriental of US$17.1 million and US$1.7 million respectively.
(c) Purchase of associates, joint ventures and other investments
Purchase of associates, joint ventures and other investments includes the Company's increased interest in Hongkong Land of US$34.1 million.
10. CORPORATE CASH FLOW AND NET DEBT
Corporate cash flow and net cash/debt comprises the cash flows and net cash/debt of the Company and of its investment holding and financing subsidiary undertakings.
11. CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES
(b) Various Group companies are involved in litigation arising in the ordinary course of their respective businesses. Having reviewed outstanding claims and taking into account legal advice received, the Directors are of the opinion that adequate provisions have been made in the financial statements.
12. MARKET VALUE BASIS NET ASSETS
The Company's investment in Jardine Matheson has been calculated by reference to the market value of US$4,104.9 million (1998: US$2,068.7 million) less the market value of Jardine Matheson's interest in the Company.
The net liability at Corporate excludes dividends proposed or declared after the balance sheet date in accordance with IAS 10 (revised).
Net assets per share are calculated on 890.0 million (1998: 907.2 million) shares outstanding at the end of the period which exclude shares held by a wholly-owned subsidiary undertaking and the Company's share of the shares held by an associate.
13. INTERIM REPORT
The Interim Report will be posted to Shareholders on or about 5th October 1999. Copies may be obtained from Jardine Matheson International Services Limited, P.O. Box HM 1068, Hamilton HM EX, Bermuda; IRG plc, Bourne House, 34 Beckenham Road, Beckenham, Kent BR3 4TU, England and M & C Services Private Limited, 16 Raffles Quay #23-01, Hong Leong Building, Singapore 048581.
The interim dividend of US¢4.60 per share will be payable on 23rd November 1999 to Shareholders on the register of members at the close of business on 1st October 1999. The ex-dividend date will be on 27th September 1999, and the share registers will be closed from 4th to 8th October 1999, inclusive. Shareholders will receive their dividends in United States Dollars, unless they are registered on the Jersey branch register where they will have the option to elect for Sterling. These Shareholders may make new currency elections by notifying the United Kingdom transfer agent in writing by 4th November 1999. The Sterling equivalent of dividends declared in United States Dollars will be calculated by reference to a rate prevailing ten business days prior to the payment date. Shareholders holding their shares through The Central Depository (Pte) Limited ("CDP") in Singapore will receive United States Dollars unless they elect, through CDP, to receive Singapore Dollars.
For further information, please contact:
| Jardine Matheson Limited Norman Lyle | (852) 2843 8216 (office) |
| Forrest International Limited | (852) 2522 6475 (office) |
| David Dodwell | (852) 2501 7902 (direct) |
Full text of this and other Group announcements can be accessed through the Internet at
"http://www.irasia.com/listco/sg/jshl".
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