Group Managing Director’s Review

John Witt

Group Managing Director

2021 has been another challenging year for Jardines, and our people have had to continue to deal with the obstacles presented by the global pandemic. I would like to thank each of them for their dedication and hard work, often in very challenging circumstances.

COVID-19 and its economic consequences have had a devastating effect in all our markets, and we have intensified our focus on ensuring the health and wellbeing of our communities, customers and colleagues.

Protecting and ensuring the wellbeing of our colleagues has been a top priority throughout the year, with a particular focus on encouraging colleague vaccination. We have also continued to encourage flexible working practices and made health and safety a top priority. Colleagues across our businesses continue to be hit by COVID-19, and a major focus of our efforts has been to support them and keep them safe. We have given colleagues access to support and resources to address mental health issues.

Our businesses have also been taking action to support their partners and the communities in which they operate, to help them meet the challenges of the pandemic. In our communities, this has included extensive corporate social responsibility support.

The COVID-19 pandemic has led to a tightened talent market and growing salary inflation, which makes retaining great Jardines people both a challenge and a high priority. We are working with our businesses to address this challenge as effectively as possible.

Another area where Jardines plays an important role in creating alignment across the Group is the promotion of diversity and inclusion. We are working with our businesses to increase the diversity of the boards and senior management of our Group companies. A key element of this is the successful nurturing of colleagues at all levels, in order to development diverse pools of talent from which our future senior leaders can be selected.

The past year has demonstrated how important it is for Jardines to apply innovation and adaptability in its approach to business. We have made good progress in modernising the core of our businesses and changing how we do business to reflect the evolving environment in which we find ourselves. The pace of change is continuing to accelerate, however, so we need to drive forward our strategic priorities with real pace in the coming year. These priorities and how we are progressing them are set out below.

Evolving our Group Portfolio

Ensuring that our business is sustainable and grows earnings over the long-term is of the utmost importance for the Group, and we therefore need to continue to evolve the portfolio to achieve this. This includes deploying capital towards strategic higher growth initiatives, while prudently divesting lower-yielding non-strategic assets. This approach is being taken both at a Group level and within our individual Group companies.

We have continued to actively manage our portfolio to build our presence in the more attractive markets of Asia and in businesses where we can achieve market-leading positions, in order to maintain growth and create long-term sustainable value. The healthy geographic diversification we have with presence in China and Southeast Asia, as well as our balance of businesses across sectors, continues to underpin our resilient performance in challenging market conditions.

We continue to focus on expanding the Group’s businesses in those areas which we see as offering the most opportunities for future growth. These include the Chinese mainland and a number of ASEAN markets. We have made significant capital investments in these markets. In the Chinese mainland we are focussed on developing our automotive interests, retail and property development. We also foresee strong future growth in a number of developing ASEAN markets, in particular Indonesia and Vietnam. We aim to align with key trends in these markets, including the developing middle class and increasing urbanisation, in developing our businesses there. We also continue to see growth opportunities in developed markets including Hong Kong and Singapore, which provide a stable core and a strong asset and cashflow base.

The Group’s capital allocation framework prioritises organic investment in its portfolio to drive long-term growth and returns, underpinned by the continued payment of dividends, which it aims to grow over time. The Group then focusses on investing in new business opportunities as well as carrying out share buybacks in its Group companies where appropriate. The framework is grounded in a strong balance sheet which provides resilience through the business cycle. We are also increasingly seeking to ensure that our investments align with the objectives of our sustainability strategy.

This prudent capital allocation approach underpinned the acquisition by the Company in April 2021 of the 15% minority stake in Jardine Strategic that it did not already own. This resulted in Jardine Matheson increasing its interest in Hongkong Land, DFI Retail, Mandarin Oriental, Jardine Cycle & Carriage and Astra, as well as simplifying the Group’s ownership structure and governance framework. The acquisition was funded in part by debt facilities.

In the balance of the year after the completion of the acquisition, we prioritised debt reduction ahead of further, material new investments. The second half of the year saw two significant strategic disposals – the sale of the Zung Fu China business to our long-term partner in China, Zhongsheng, and the sale and leaseback of the Zung Fu Hong Kong properties. These transactions, which together realised net cash proceeds of US$1.5 billion, enabled the Company to reduce its net debt to US$1.3 billion by the end of 2021. The Company’s remaining debt is funded by US$1.2 billion of 10 and 15 year long-term fixed rate debt, ensuring that its balance sheet remains robust and flexible.

The Company continued in 2021 to seek mutually beneficial and enduring partnerships with leading businesses in our markets, to support our growth plans. Last year, we announced the Group’s strategic co-operation with Hillhouse Capital, a leading Asian private equity firm, that deploys technology to drive innovation in its portfolio companies, with sustainable, long-term growth as its primary goal. The strategic co-operation enables both of our companies to partner on mutually beneficial investment and business development opportunities predominantly in China, as well as Southeast Asia. The partnership is progressing well and is already resulting in discussion of a number of co-investment opportunities.

The Group is focussed on developing and implementing its portfolio strategy and increasing its decision-making agility, so we can act with speed to seize opportunities when they arise and maximise our portfolio value.

Driving Innovation and Operational Excellence

We are focussed on driving operational excellence in our businesses and in new ventures we undertake, and the past year has seen real progress achieved by our businesses in driving greater efficiency and productivity, despite the challenging market environment. DFI Retail’s multi-year transformation plan is delivering real improvements in underlying performance across its banners, and we have seen strong growth in Mandarin Oriental’s hotel and residences management business. Business improvement initiatives were completed in the year in JEC, Gammon, HACTL, Jardine Restaurants and a number of other companies, with a positive impact on results. The increased efficiencies which these initiatives create help our businesses navigate the challenges posed by the pandemic and prepare for future growth.

Our businesses have also accelerated the pace at which they embrace digital ways of working to improve operations. Leveraging increased robotics at HACTL’s cargo terminal and embracing digital twins in Gammon’s construction business, as well as building modern warehouse and delivery capabilities for DFI Retail have helped our businesses navigate the challenges posed by the pandemic and prepare for future growth.

As the Asian consumer appetite for digital continues to increase, our B2C businesses are heavily focussed on embedding digital as a core component of how we anticipate and serve their needs – developing omnichannel experiences, building data capabilities and embracing start-ups to augment our capabilities to react with speed and agility to the changing marketplace.

A good example of this is DFI Retail’s yuu rewards platform, with almost four million members, which has gone from strength to strength this year and is helping us move beyond a transactional focus to drive new ways of meeting and anticipating individual customer needs and preferences, by embedding e-commerce into the loyalty platform, embracing new partnerships such as those with insurance and fuel companies. DFI Retail has also expanded its e-commerce offering in Southeast Asia with the launch of the CART app in Singapore. Mandarin Oriental has also made good progress in developing new ways of using digital and data to enhance the guest experience on property through wide adoption of a guest messaging service, Hello MO, and by accelerating its Fans of MO recognition programme, which has now passed the milestone of one million members. Our Restaurants business saw peaks of 90% of sales coming through digital channels in some locations in 2021.

Our B2B businesses have enthusiastically embraced digital as a mechanism to anticipate, verify and exceed customer expectations. Gammon (an early adopter of building information modelling) now has one of the largest Virtual Design & Construction (VDC) teams in Hong Kong and Shenzhen. By undertaking digital prototyping, Gammon can validate and optimise the design and construction sequence, ensuring the project is delivered to the highest standard.

We continue to seek new inorganic growth opportunities which complement our current businesses or enable our wider participation in the digital economy. We look for partnership and investment opportunities to increase exposure to the digital economy, emerging industries and new geographies. In 2021, JEC acquired the Hong Kong and Macau business of MGI Group Holdings Limited, a leading specialty healthcare engineering solutions provider. We also invested in Pickupp, a leading smart logistics and delivery business, and Halodoc, a telehealth provider in Indonesia. We need to build on the progress we have made so far to develop more new partnerships in this space.

Enhancing Leadership and Entrepreneurialism

We place a high importance on attracting, developing and retaining leadership talent, and we also support our Group companies as they do the same. The past year has seen the making of a series of key senior appointments by our Group companies to strengthen their leadership and help drive future growth. These included the external appointments of a new Chief Commercial Officer by Mandarin Oriental and a new Chief Executive, Digital by DFI Retail. These leaders have in turn been hiring top quality talent into their areas. We also continued to demonstrate our commitment to developing our leaders and providing them with opportunities to progress their careers within a range of different businesses across the Group, with over a dozen executive level senior management moves taking place in the period across our businesses.

We are focussed on providing our colleagues with appropriate training and other support to equip them with the right skills to navigate the challenges and opportunities they face, both in the short term in the context of COVID-19 and for the longer-term. The comprehensive programme of online learning and academies across the Group has seen high levels of participation in the year.

As we grow, it is essential that we maintain a high pace of change and foster a culture of entrepreneurialism across our businesses. Some good examples of this in action have been the expansion of DFI Retail’s own brand offering, the rollout by JEC of its JEDI sustainable building management solution, and Astra-IKEA’s development of its digital analytics ‘next product to buy’ capability.

Progressing Sustainability

In 2021 we drove a more aligned, focussed approach to sustainability across all our Group companies, leveraging and building on the work many of them were already doing in this area to maximise the impact we have in our communities and on the environment.

Great progress was made in the year in putting in place the key frameworks for delivering the Group’s sustainability agenda. This included setting metrics to be measured by each of our businesses and communicated for the Group as a whole, as well as establishing working groups to support each of the three pillars of our strategy and drive collaboration and action across our Group businesses.

We also strengthened the capability of the Group in relation to sustainability by the appointment of a Head of Sustainability, and we are well placed to provide guidance and support to our Group businesses as they take forward their sustainability agendas. Most of our businesses also strengthened their sustainability resources during the year, and we will be creating a community of expertise in this area across the Group in the coming months.

We are focussed on actively sharing the positive actions our diverse businesses are taking in this area, by reporting more effectively on Environmental, Social and Governance (ESG) issues, and we will be publishing our first Group Sustainability Report in May 2022.

Creating emotional engagement among our colleagues and other stakeholders is a key aspect of implementing an impactful and effective sustainability approach, and this was a focus of our sustainability efforts during the year, as we developed a Group-wide volunteering programme, which we launched in December. We will be working across our Group businesses in the coming year to encourage colleague engagement across our sustainability agenda, including high levels of take-up for volunteering opportunities.

Summary of Performance

Jardine Matheson delivered encouraging performance in 2021, with most of its businesses achieving better results than last year, although COVID-19 restrictions continue to impact trading conditions in a number of markets. The Group’s underlying net profit for the year increased by 39% to US$1,513 million, with underlying earnings per share up 64% to US$4.83. This was 10% above the Group’s record earnings per share of US$4.40 in 2018, following the completion of the Group simplification in April 2021.

There were strong contributions from Astra, which saw improved performances in most of its divisions; Jardine Cycle & Carriage, whose Direct Motor Interests and Other Strategic Interests across Southeast Asia delivered better results; and the Group’s Motors interests, which saw a higher contribution from the interest in Zhongsheng (more than 10% of the Group’s total earnings) as well as stronger performance in our UK and Hong Kong operations.

Mandarin Oriental continued to be materially impacted by the pandemic and the resulting reduction in travel, but saw a significantly reduced annual loss, due to a modest recovery outside Asia and the benefits of careful costs management.

Jardine Pacific delivered improvements in the underlying performance of most its businesses, but reported results were slightly lower than last year due to a focus on operational improvements.

Hongkong Land delivered a resilient performance in 2021 despite the continued impact of the pandemic, with the results from Investment Properties in line with last year, while Development Properties delivered an improved contribution due to higher residential sales completions, against the backdrop of an increasingly challenging environment.

DFI Retail’s contribution was considerably lower than the previous year, with profit impacted by a material loss in its 21%-owned associate, Yonghui. The group also continued to face challenging trading conditions due to a lack of tourists in Hong Kong and pandemic restrictions, which impacted store operations, customer numbers and consumer behaviours. Results also reflected a lower level of government support than last year. Excluding the Yonghui impact, however, performance was relatively resilient compared with the previous year.

Net non-trading items were positive, versus a negative position last year. A large proportion of the non-trading gain resulted from transactions – including a US$791 million gain on the disposal of the Zung Fu China business and a US$337 million gain on the sale and leaseback of Zung Fu Hong Kong’s principal operating properties. These gains were offset by an unrealised US$664 million loss in respect of the revaluation of the value of the Hongkong Land’s Investment Properties portfolio.

Jardine Matheson’s diversified portfolio of market-leading businesses is focussed principally on two of the regions that are most driving global growth: China and Southeast Asia. In 2021, the split between China and Southeast Asia reverted to more historic norms, with 55% of the Group’s underlying profit coming from China (compared with 73% in 2020), and 42% coming from Southeast Asia (compared with 34% in 2020).

The Group’s balance sheet remains strong with gearing of 11%, up from 6% at the end of 2020, reflecting the acquisition of Jardine Strategic and subsequent strategic disposals.

The Group’s capital investment, including expenditure on properties for sale, was US$10.3 billion in 2021, and capital investment at its associates and joint ventures exceeded US$4.7 billion. The Group continues to invest for the long-term and ensure that its businesses have the resources to drive future growth.

Outlook

The Group saw a recovery in a number of its businesses in 2021, demonstrating their continuing resilience. In 2022, Astra is expected to see ongoing benefits from positive commodity prices across its portfolio, while the normal progression of projects in the Group’s development properties business on the Chinese mainland is expected to result in a reduction in the number of completions. The performance of the Group’s Hong Kong operations will depend on the impact of the ongoing pandemic on our businesses there.

We remain confident in our long-term strategy, rooted in the growth markets of China and Southeast Asia, and we will continue to focus on our core priorities of driving operational excellence, evolving the Group’s portfolio and finding new growth opportunities, in order to deliver long-term value.