JDS.L Regulatory News (JDS)

To: Business Editor 2nd March 2017

For immediate release

The following announcement was issued today to a Regulatory Information Service approved by the Financial Conduct Authority in the United Kingdom.

Jardine Matheson Holdings Limited

2016 Preliminary Announcement of Results

Highlights

· Underlying profit* up 2%

· Full-year dividend up 3%

· Sound trading performances from across Group operations

· Regional economies remain resilient

· Material increase in value of the Hongkong Land property portfolio

"After a steady result for the Jardine Matheson Group in 2016, the current year will see our businesses concentrating on improving their underlying performances and investing in key areas for future growth."

Sir Henry Keswick, Chairman

Results

The final dividend of US$1.12 per share will be payable on 11th May 2017, subject to approval at the Annual General Meeting to be held on 4th May 2017, to shareholders on the register of members at the close of business on 17th March 2017 and will be available in cash with a scrip alternative.

Jardine Matheson Holdings Limited

Preliminary Announcement of Results

For The Year Ended 31st December 2016

Overview

The Jardine Matheson Group produced a satisfactory result for the year as most of its businesses traded well. Good performances were seen in Jardine Motors and most of Jardine Pacific's activities. Dairy Farm made further progress in highly competitive retail markets and steady performances were seen in Hongkong Land's operations. Astra produced some very good trading results, although its profit growth was held back by provisions in its banking affiliate, while Jardine Cycle & Carriage saw good contributions from its non-Astra interests. The results of both Mandarin Oriental and Jardine Lloyd Thompson suffered from challenges in their respective markets. The Group's balance sheet benefited from enhanced asset values in Hongkong Land.

Performance

The Group's revenue for 2016, including 100% of revenue from associates and joint ventures, was US$72.4 billion, compared with US$65.3 billion in 2015. Jardine Matheson achieved an underlying profit before tax for the year of US$3,729 million, an increase of 6%. The underlying profit attributable to shareholders was up 2% at US$1,386 million, while underlying earnings per share were 2% higher at US$3.71.

The profit attributable to shareholders for the year was US$2,503 million, which included the Group's US$1.1 billion share of an increase in the value of Hongkong Land's investment property portfolio. This compares with US$1,799 million in 2015, that included a more modest increase in property valuations.

The Group's financial position remains strong with shareholders' funds up 10% at US$21.8 billion. At the end of 2016, the consolidated net debt excluding financial services companies was US$2.1 billion, representing gearing of 4%, compared with US$3.0 billion at the end of 2015 with gearing of 6%.

The Board is recommending a final dividend of US$1.12 per share, which increases the dividend by 3% for the full year to US$1.50 per share.

Business Developments

With most of the Group's businesses concentrated in Greater China and Southeast Asia, they benefit from the ongoing economic development of the Region and the demands for products and services from a growing middle class. Despite China's ongoing economic challenges, its economy saw relatively stable growth during 2016, with retail sales in particular showing promise at the year end. During the year, the Group continued the development of its business networks and operating activities in key commercial centres across the Mainland, and produced good performances in the retail, property and motor sectors. In Southeast Asia, Astra in Indonesia was able to capture market share in the automotive segment with new model launches, while increases in raw material prices should bring further benefits.

Jardine Pacific saw steady trading in most of its businesses during 2016, although Gammon's result was affected by a problem civils contract. The group is seeking expansion opportunities, both in the development of its existing operations and by identifying new interests where it can apply its specialist knowledge and expertise.

Jardine Motors enjoyed a very good year as Zung Fu's mainland China operations achieved increased sales and higher margins. In Hong Kong, Zung Fu is repositioning its sales and service facilities, where proceeds from the disposal of existing properties are being reinvested in new facilities designed to meet the evolving requirements of its customers. Jardine Strategic's motor dealership affiliate, Zhongsheng, also benefited from the strengthening of the Mainland market and reported much improved profitability.

Jardine Lloyd Thompson reported a good result set against the continued challenging economic and trading environment. The weakness of sterling in the second half was a positive factor in JLT's reported results, although the benefit was largely reversed on consolidation in the Group's US dollar results.

Hongkong Land had another good year as its commercial markets remained relatively firm and there was another steady contribution from residential property developments. The value of the group's commercial portfolio in Hong Kong increased by 12% due to office capitalization rates falling further with strong investment demand and rental growth. The group is currently developing a range of commercial and residential projects in mainland China and Southeast Asia, while its strong financial position with ample liquidity and low gearing is allowing it to pursue further opportunities in its chosen markets.

Dairy Farm produced sound profit growth in retail markets that remained highly competitive. Its Hong Kong operations continued to trade well, but challenges persisted for a number of its Southeast Asian banners, particularly in Malaysia. In mainland China, Yonghui saw a strong profit improvement, and its contribution was enhanced by the inclusion of its results for a full twelve months. Dairy Farm is making progress in its transformation to compete effectively in an evolving retail landscape, which it is supporting with investment in its supply chain, IT infrastructure and systems, and in the skills and expertise of its people.

Mandarin Oriental's hotels remained focused on maintaining or enhancing their market leadership positions, but weaker demand in the group's key cities of Hong Kong, London and Paris meant that its earnings were lower. Mandarin Oriental continues to pursue expansion opportunities around the world and has a number of hotel management contracts at various stages of development. It recently announced a management contract for a new hotel and residences in Honolulu, Hawaii to open in 2020.

Jardine Cycle & Carriage produced a satisfactory performance in 2016 as Astra's results improved, the Indonesian rupiah exchange rate was stable, and there were increased contributions from its other interests. The group is pursuing expansion in Southeast Asia, through supporting the growth of Astra in Indonesia, strengthening its other motor interests, and investing in market-leading companies that provide exposure to new business sectors. 

Astra had a better year in 2016. Strong performances from its automotive businesses led to increased market shares of 56% for cars and 74% for motorcycles. Most of the group's financial services businesses performed well, with the principal exception of Permata Bank where a material increase in its loan-loss provisions led to a significant loss. Prospects for Astra's heavy equipment and mining activities improved in the final quarter as coal prices started to recover. Its agribusiness also benefited from rising crude palm oil prices, although its 2016 performance was hampered by lower production due to the effects of poor weather. Astra continues to seek investment opportunities in Indonesia to expand its existing activities and move into new sectors, and during the year took additional stakes in toll roads and progressed its property development interests.

People

The strong trading performances achieved by our businesses in the face of uncertain and disruptive markets are a reflection of the hard work, dedication and professionalism of the Group's 430,000 employees, for which we are most grateful.

Jeremy Parr joined the Board in February 2016. James Riley stepped down as Group Finance Director at the end of March 2016 and was succeeded by John Witt. David Hsu joined the Board in May 2016. In August 2016, Adam Keswick moved from Hong Kong to become chairman of Matheson & Co. in London and relinquished his position as Deputy Managing Director in favour of Y.K. Pang. Adam remains on the Board.

We were saddened by the death of Lord Leach in June 2016. He made a significant contribution to the Group over 33 years and his intellect and wise counsel will be greatly missed.

Outlook

After a steady result for the Jardine Matheson Group in 2016, the current year will see our businesses concentrating on improving their underlying performances and investing in key areas for future growth.

Sir Henry Keswick

Chairman

Managing Director's Review

Jardine Matheson is a diversified group of market-leading operations focused principally on two of the regions that are driving global growth, Greater China and Southeast Asia, although some of its businesses have a more global reach. In 2016, 52% of underlying profit came from Greater China, compared with 43% from Southeast Asia. The main contributors to underlying profit by activity were motor related interests at 28%, property at 25%, and retailing and restaurants at 23%.

To support their development, each business has access to the Group's financial resources, expertise, people and customers necessary to enable it to compete effectively in rapidly evolving business environments. This includes the ability to take advantage of the developments in technology necessary to keep pace with consumer demands.

The Group's operations produced creditable performances in 2016, enabling Jardine Matheson to achieve an underlying profit before tax of US$3,729 million, up 6%. The underlying profit attributable to shareholders rose 2% to US$1,386 million, while underlying earnings per share were 2% higher at US$3.71. The profit attributable to shareholders of US$2,503 million included a US$1,043 million share of Hongkong Land's increase in the valuation of investment properties and gains on property and business disposals of US$163 million. Partially offsetting these was US$101 million in charges in respect of the impairment in goodwill within Jardine Pacific, which were taken through profit and loss account in line with accounting requirements.

The Group's profit generation, cash flows and retained earnings have supported continued investment enabling high levels of capital expenditure to be combined with low levels of debt. The Group's capital investment, including expenditure on properties for sale, exceeded US$3.3 billion in 2016, in addition to which its associates and joint ventures had capital investment of US$2.3 billion. Three of Astra's operations, Permata Bank, Astra Agro Lestari and Acset Indonusa, raised equity through rights issues during the year to enhance their balance sheets and fund growth. The Group's consolidated net debt at the end of the year, excluding financial services companies, was US$2.1 billion, which compares to US$3.0 billion at the end of 2015, with gearing reducing from 6% to 4%.

Jardine Pacific

Jardine Pacific produced an underlying net profit of US$135 million in 2016, a reduction of 5% largely as a result of the sale of its shipping business in 2015. Most ongoing businesses reported steady growth, although Gammon's contribution was affected by a difficult contract. The profit attributable to shareholders was US$57 million after taking into account property valuations and goodwill impairments principally against the IT operations. This compares with US$145 million in 2015.

Jardine Schindler continued its good performance as it generated stable profits and margins, and further growth in its maintenance portfolio was achieved. JEC also did well to generate improved earnings. Gammon's contribution was lower following the underperformance of a contract in its civils division. Its order book has remained steady at US$3.8 billion.

Jardine Restaurants produced good profit growth in Taiwan, in part deriving from tax benefits, but saw more difficult trading for its Pizza Hut operations in Hong Kong. Jardine Pacific's continuing Transport Services businesses reported stable contributions, with a slight increase in cargo throughput seen at Hactl. There was a better result from JTH Group despite continuing weak markets, however, following a review of the trading performance of its IT distribution business, a US$73 million goodwill impairment was recorded.

Jardine Motors

Jardine Motors produced a much improved underlying profit of US$110 million in 2016, 43% higher than the prior year.

Zung Fu in mainland China achieved higher sales of Mercedes-Benz passenger cars at enhanced margins and better performances from its after-sales operations. However, it faced declining sales and margins in softer markets in Hong Kong and Macau. Zung Fu is developing a new flagship property on Hong Kong Island, primarily financed by proceeds from the disposal of existing properties, that will combine most of its Mercedes-Benz sales, service and administration activities onto a single site. In the United Kingdom, the dealerships achieved higher vehicle sales and stable margins, but a weaker sterling exchange rate led to a lower earnings contribution.

Zhongsheng, one of mainland China's leading motor dealership groups in which Jardine Strategic now holds a 15.5% interest, announced a significant improvement in profitability in 2016 as a result of increased sales and better margins.

Jardine Lloyd Thompson

JLT's total revenue for 2016 was US$1,698 million, an increase of 9% in its reporting currency. While underlying trading profit was up 3% in its reporting currency at US$260 million, it was 9% lower at constant rates of exchange. This reflects a weaker first-half performance in its UK Employee Benefits business and the development cost of its US Specialty business. On conversion into US dollars and after adjusting for restructuring costs, JLT's contribution to the Group's underlying profit was 20% lower than the prior year.

JLT's Risk & Insurance businesses produced a 4% increase in revenues at constant rates of exchange. Good performances were seen in its Specialty and Reinsurance businesses as well as its Asian and Latin American operations, with progress continuing to be made in its new US Specialty business.

The revenues of its Employee Benefits operations were down 1% at constant rates of exchange following the impact on the UK Employee Benefits business of structural changes in the industry. The profits of the business started to recover, however, in the second half of the year. The International Employee Benefits operations delivered 5% revenue growth at constant rates of exchange.

Hongkong Land

Hongkong Land's underlying profit in 2016 was 6% lower at US$848 million. Good results were seen in its commercial portfolio and its residential sector profits were marginally lower, but its overall earnings declined in the absence of a gain recorded in 2015 on a redeveloped property in Hong Kong. The profit attributable to shareholders was US$3,346 million after accounting for net non-trading gains of US$2,498 million recorded on the revaluation of the group's investment properties. This compares to US$2,012 million in 2015, which included net valuation gains of US$1,107 million. Hongkong Land remains well-financed with net debt of US$2.0 billion at the year end and net gearing of 6%.

In commercial property, limited competitive supply in the Hong Kong office leasing market benefited the group's Central portfolio, with year-end vacancy of 2.2% and rental reversions remaining positive. The retail portion of the portfolio was fully occupied and base rental reversions were largely positive, although the impact of turnover rent led to reduced rental income. The group's Singapore office portfolio was almost fully let, but the average rent decreased slightly. In mainland China, construction of the group's luxury retail and hotel complex in Beijing is on target, with the retail component opening later in 2017 and the Mandarin Oriental Hotel due to open in 2018. In Jakarta, the fifth tower at Jakarta Land, the group's 50%-owned joint venture, is due to complete in 2018.

In Hongkong Land's residential developments, revenue recognized in mainland China during the year, including attributable interests in joint ventures, increased by 34%, but the profit contribution was flat due to the product mix and a weaker Chinese currency. The group's attributable interest in contracted sales was 38% higher in 2016 at US$1,105 million. The construction of the 50%-owned New Bamboo Grove in Chongqing began in mid-2016 and is progressing well. Results from the Singapore residential business declined marginally due to lower provision write-backs on completed developments. Of Hongkong Land's other residential interests, the developments in Indonesia and the Philippines are progressing well.

Dairy Farm

Dairy Farm produced sound profit growth despite soft consumer spending and pressure on pricing in most of its markets. Sales by subsidiaries in 2016 were up 1% at US$11.2 billion. Total sales, including 100% of associates and joint ventures, were 14% higher at US$20.4 billion as Yonghui produced stronger growth and an additional three months' contribution. Dairy Farm's underlying profit was up 7% at US$460 million, with the increase being largely attributable to improved operating margins in its Food and Home Furnishings divisions and strong contributions from both Yonghui and Maxim's. The group's operations continue to generate good net cash flows, although somewhat reduced from 2015 due to timing differences on working capital movements. A further US$190 million was invested in Yonghui in August to maintain Dairy Farm's shareholding at 19.99%.

Further progress was made by Dairy Farm in pursuit of its strategic objectives in 2016 as it took measures to compete effectively in an evolving retail landscape and grow its market share. Its e-commerce offerings were improved, with initiatives in its Home Furnishings, Food and Health and Beauty operations. Range enhancements were introduced in all of its formats in areas such as fresh produce, ready-to-eat and corporate brands. Dairy Farm is using its scale to provide an increasingly extensive international product range at more attractive prices, while its customers are benefiting from improved store networks and further investment in quality assurance. 

Dairy Farm's continuing operations, including associates and joint ventures, added a net 114 stores during the year after the rationalization of some underperforming stores. At 31st December 2016, the group had 6,548 stores in operation in eleven countries and territories, including its interest in 487 Yonghui stores in mainland China.

Mandarin Oriental

Mandarin Oriental faced softer demand in many of its key markets throughout 2016 resulting in its underlying profit reducing to US$57 million, compared with the US$90 million in the prior year. Profit attributable to shareholders was US$55 million, compared to US$89 million in 2015.

The group's hotels in Hong Kong, London and Paris were particularly affected by reduced demand, while its London property was also impacted by an 18-month renovation programme which began in September. The group saw a positive trading environment in Tokyo, a return to normal operations in Munich following a public area renovation, and a contribution from the newly acquired equity interest in Mandarin Oriental, Boston. There were, however, weaker performances in Washington D.C. and Jakarta.

Mandarin Oriental completed the US$140 million acquisition of its Boston hotel in April 2016. In July, it announced 30 branded residences adjacent to Mandarin Oriental, Bali, both of which are due to open in mid-2018, and in February 2017 it announced a management contract for a new hotel and residences in Honolulu, Hawaii to open in 2020. The group has eleven hotels under development, which are expected to open in the next five years, with the next hotel opening in Doha expected later this year. Mandarin Oriental currently operates 29 hotels and eight residences in 19 countries and territories.

Jardine Cycle & Carriage

Jardine Cycle & Carriage's underlying profit was 7% higher at US$679 million. Profit attributable to shareholders was US$702 million after accounting for a net non-trading profit of US$23 million, compared with US$691 million in 2015 after a net non-trading gain of US$59 million. Astra's contribution of US$500 million was up 6%. The group's Direct Motor Interests contributed US$167 million, up 18%, while the contribution from its Other Interests was 11% higher at US$33 million.

Within the Direct Motor Interests, the 25%-owned Truong Hai Auto Corporation in Vietnam had a good year with its contribution up 10% at US$94 million following a good performance from its automotive operations and initial profits from a new real estate business. Earnings from the wholly-owned Singapore motor operations rose 26% to US$49 million following an increase in the number of certificates of entitlement. In Malaysia, the results of 59%-owned Cycle & Carriage Bintang declined despite increased unit sales as changes in the sales mix led to lower margins. In Indonesia, 44%-owned Tunas Ridean increased its contribution by 94% to US$18 million with higher income from motor car sales and financing.

Of the group's Other Interests, the first full-year's contribution from 25%-held Siam City Cement Public Company Limited ('SCCC') in Thailand of US$22 million was modestly higher as the effect of reduced domestic cement prices was partly offset by contributions from new acquisitions. SCCC is investing some US$1 billion to expand its business with acquisitions in Vietnam, Bangladesh and Sri Lanka, which it will finance in part by a US$480 million rights issue. Jardine Cycle & Carriage's 23%-owned Refrigeration Electrical Engineering Corporation in Vietnam, contributed US$11 million, an increase of 25% with progress being made in its property development activities. 

Astra

Astra's underlying profit for 2016 under Indonesian accounting standards was up 4% at Rp14.6 trillion, equivalent to US$1,096 million. Its net profit was up 5% at Rp15.2 trillion, some US$1,137 million. Strong working capital inflows were maintained with net cash, excluding its financial services subsidiaries, of Rp6.2 trillion or US$461 million at 31st December 2016, compared to net cash of Rp1.0 trillion or US$75 million at the end of 2015.

Net income from Astra's automotive businesses in Indonesia rose 23% to US$688 million, largely due to successful new model launches. Astra's car sales were up 16% at 591,000 units, outperforming the wholesale market increase of 5%, resulting in its market share rising from 50% to 56%. Astra Honda Motor's domestic motorcycle sales were 2% lower at 4.4 million units, while the wholesale market declined 8%, increasing its market share from 69% to 74%. Net income from Astra Otoparts rose 31% to US$31 million.

Net income in financial services was 78% lower at US$59 million, mainly due to a loss in Permata Bank following a significant increase in loan-loss provisions in its commercial loan book, excluding this loss the net income would have risen 7% to US$282 million. To strengthen its capital base, Permata Bank undertook a US$420 million rights issue in June 2016 and plans for a further US$220 million rights issue in the first half of 2017, in respect of which US$110 million has already been advanced by its two major shareholders, Astra and Standard Chartered Bank. Astra's consumer financing rose 21% in 2016 to US$5.5 billion, while its heavy equipment financing rose 20% to US$352 million. Modest improvement was seen in Astra's general insurance company, and by the end of the year its life insurance joint venture, Astra Aviva Life, had reached 228,000 individual life customers and 596,000 participants for its corporate employee benefits programmes.

United Tractors' net income of US$375 million was up 30% over 2015, when an impairment charge was incurred, excluding which the net income in 2016 would have been down 22%. Mining contracting revenue was lower due to the relatively weak coal prices for much of the year. Earnings were also impacted by foreign exchange translation losses. Komatsu heavy equipment sales rose 3%, but parts and service revenue declined. Pamapersada Nusantara's mining contracting operations saw coal production little changed, while overburden removal was 8% lower. Coal sales at United Tractors' mining subsidiaries were 48% higher at 6.8 million tonnes. General contractor, Acset Indonusa, reported net income up 63% at US$5 million, and in June 2016 raised US$45 million in a rights issue to support its continued growth.

Astra Agro Lestari's net income increased from US$46 million to US$150 million. Its revenue improved as higher crude palm oil prices offset reduced production due to the impact of poor weather, while the stronger rupiah at the year end benefited the translation of its US dollar monetary liabilities. It completed a US$300 million rights issue in June 2016.

Net income from Astra's infrastructure and logistics activities increased by 35% to US$20 million. Progress continues in the expansion of the group's toll road interests, which including greenfield developments now extend to 343 kilometres.  PAM Lyonnaise Jaya, which operates the western Jakarta water utility system, saw a modest rise in sales volumes. Astra's contract car hire business produced a better result, while its information technology interests saw a modest decline in net income.  

Astra's new property division produced net income of US$8 million, down from US$16 million in 2015 primarily due to lower revaluation gains. Construction is ongoing at the 93%-sold luxury residential development Anandamaya Residences, a 60%-owned joint venture with Hongkong Land in Jakarta's Central Business District, and at Menara Astra, the adjacent Grade A office tower development. Both are on schedule to complete in 2018.

Ben Keswick

Managing Director