Creating Value at Jardines

At Jardines, our disciplined capital allocation strategy and core investment principles have allowed us to successfully grow our businesses over time. Our diverse portfolio of market-leading businesses generates strong cashflows and delivers resilient performance across the business cycle.

In this section, Graham Baker, Group Finance Director of Jardine Matheson, shares more about the Group’s capital allocation strategy that supports growth for the long-term.

Can you share about Jardines’ capital allocation strategy?

Our capital allocations start with organic investments in our existing business portfolio in order to drive sustainable long-term earnings growth and returns. Next, we are committed to continued payment of our dividend to shareholders, which we aim to grow over time. Finally, we review M&A opportunities in new businesses and deepening investments in existing Group companies side by side.

Our principal criteria for such investments are value and returns, earnings growth and risk profile, including sustainability considerations. All of this sits within a commitment to a strong balance sheet and investment grade credit metrics, which give us the confidence and flexibility to invest when we see the right opportunities – even at times of financial dislocation.

We have maintained this approach through the recent pandemic with continued support for organic capital investment across our businesses. These include investments to digitally enable our businesses across the portfolio, and as a couple of specific examples, investing in the ongoing transformation programme at DFI Retail Group and the major West Bund project in Shanghai at Hongkong Land.

The Group has recently been deepening its position in existing businesses through share buybacks and the Jardine Strategic acquisition. What is the thinking behind this and what’s next?

There were multiple reasons for the US$5.6 billion acquisition of Jardine Strategic. We wanted to put in place a simpler, more conventional ownership structure for the Group, which provides greater transparency to shareholders. We also saw benefit in enhancing the earnings position of the Group to support long-term dividend growth and the opportunity to streamline some of our internal processes. At the time in 2021, we were also able to leverage the financial strength of our balance sheet.

Since then, the focus of the Group has been on getting gearing closer to historical levels and prioritising reducing debt. To support this – as well as the resilient organic cash generation of the business – we have made some strategic decisions to recycle capital where we saw good value and strategic rationale, notably the sale of Zung Fu China to our associate Zhongsheng.

On buybacks, the Group deployed US$1.3 billion purchasing Jardine Matheson shares over 2020, 2021 and 2022. There have also been buybacks by Hongkong Land and a number of Group companies in Southeast Asia.

As mentioned earlier, the Group evaluates these side by side with external M&A opportunities. However, portfolio evolution remains a strategic priority for the Group. Both of these offer potential for delivering value to shareholders and, therefore, we look to balance the investments in buybacks (and the acquisition of Jardine Strategic) with capital allocations on M&A for new businesses.

In 2022, we made several new investments across the Group. These included investments by Astra in Bank Jasa Jakarta, with plans to transform it into a digital bank; Halodoc, a tele-medical consultant company; and Medikaloka Hermina hospital group.

In summary, we remain committed to reducing net debt and getting gearing closer to historical levels but will also continue to invest in new business opportunities to drive long-term growth and value creation.

How does the Group look at investment opportunities?

We follow a consistent set of investment principles, which have allowed us to successfully grow our businesses’ value and earnings over time. At the broadest level, we invest in businesses where we see long-term value and growth potential, principally in markets and sectors we understand, led by people we know and trust.

We believe that a continued predominant focus on Asia, in particular China, Indonesia and Vietnam, is consistent with this and will continue to bring attractive earnings and growth prospects. Beyond that, what is distinctive is our long-term strategic approach, our ability to create enduring partnerships, local knowledge and relationships, financial strength, and our active, engaged ownership of portfolio companies.

We evolve our portfolio to reflect changes in our operational environment and customer needs, and invest in new sectors and businesses, or divest non-core businesses and exit sectors, where appropriate. We also evolve our investment approach as the needs of our stakeholders and the communities we serve change.

In 2022, we announced a number of significant developments in our approach to sustainability, including issuing our first Sustainability Report and our decarbonisation strategy, which aligns the Group collectively towards the ultimate goal of net-zero.

As we move forward, our sustainability principles will also inform our investment decisions. There is work that remains to be done, for example plotting the decarbonisation pathways of our existing portfolio. The Group is committed to developing a sustainability framework on which we will base our capital allocation decisions, balancing business growth with social well-being and environmental sustainability.

Within this, we are focussed on the growth opportunities in sustainable businesses, and we are actively looking into scaling up our investments in renewable energy and related innovations.