Group Managing Director’s Review

John Witt

Group Managing Director

The pandemic continued to impact many of our businesses for much of 2022, but the Group performed strongly and delivered near-record levels of underlying profit.

The performance of the Group’s businesses reflects the immense effort our many colleagues across the Group have made to put customers first and to overcome the extensive professional and personal challenges they have continued to face as a result of the pandemic. This was especially the case in Hong Kong and on the Chinese mainland, where the impact of the pandemic and related restrictions continued for much longer than in other parts of the world. I would like to thank each of our colleagues for their unwavering dedication and hard work, often in very difficult circumstances.

We remain focussed on managing the short-term challenges our businesses are likely to face from global economic headwinds. We are at the same time building businesses and teams that will deliver sustainable strong growth over the medium- to long-term, and over the past year we have continued to simplify the Group’s portfolio and set the Group up for its next stage of growth.

Innovation and adaptability have proven to be critical in the face of the rapidly changing business environment, and we have made substantial progress in modernising our core businesses and transforming the way we operate, to reflect that evolving environment. The pace of change continues to accelerate, however, and we are focussed on driving forward our strategic priorities with urgency in the coming year. These priorities and how we are progressing them are set out below.

Evolving our Group Portfolio

Evolving the Group’s portfolio is a key element of ensuring that our business is sustainable and grows earnings over the long-term. We are focussed on deploying capital, both at a Group level and within our Group companies, towards strategic higher growth initiatives, while taking a sensible approach to divesting non-strategic and lower-yielding assets.

During the year, we continued to strengthen our position in the more promising markets of Asia and in industries where we can establish market-leading positions, to create long-term value and ensure sustainable growth. Our diversified presence in China and Southeast Asia, as well as our balanced portfolio across sectors, has helped us perform well even in difficult market conditions.

Our primary focus is on expanding our operations in areas that offer the greatest potential for future growth, such as the Chinese mainland and several ASEAN markets. We are seeking strong growth opportunities in emerging ASEAN markets like Indonesia and Vietnam, as well as developing our automotive, retail and property development interests in China.

We want to align ourselves with key trends in these markets, such as growing urbanisation and the developing middle class. We also recognise that there are continuing growth opportunities in our established markets such as Hong Kong and Singapore, which provide a stable foundation and strong cash flow.

Our capital allocation strategy prioritises organic investment in our portfolio to drive long-term growth and returns, while also aiming to increase dividends over time. We then focus on investing in new business opportunities, as well as carrying out share buybacks in our companies as appropriate. Our strategy is underpinned by a strong balance sheet. We are also increasingly focussed on ensuring that the investment opportunities we take align with our sustainability goals, and in this context we are developing a framework, which will be adopted Group-wide, to integrate sustainability into the capital allocation decision-making process.

The Group’s 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 interests 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.

Following the completion of the acquisition, for the remainder of 2021 we prioritised debt reduction ahead of further, material new investments. In order to achieve this, we made two significant strategic disposals in the second half of 2021: 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 enabled the Company to reduce its net debt to US$1.3 billion by the end of 2021.

During 2022 and, as we enter 2023, we have continued to progress the simplification of the Group’s portfolio and lay the foundations for the next stage of its growth. In January 2023, the Group entered into a conditional agreement to sell its 28.2% stake in the Hong Kong-listed Greatview Aseptic Packaging Company and, in March 2023, the Group expects to complete the sale of its Motors business in the United Kingdom.

The Group also continued to focus on making strategic investments, with Astra acquiring a 49.6% stake in Bank Jasa Jakarta in 2022, continuing its focus on providing compelling financial services to its customers, as well as a 7.4% stake in Medikaloka Hermina, one of the largest hospital groups in Indonesia, increasing its focus on healthcare services and adding to its existing investment in Halodoc, an online platform in Indonesia providing access to a range of medical services.

To support its strategy of diversifying into other minerals and renewable energy, Astra, through United Tractors, is entering the nickel mining and processing businesses through an agreement to acquire a 90% interest in Stargate Pasific Resources and Stargate Mineral Asia for US$272 million, which is expected to complete in 2023. It has also acquired a 31.5% interest in Arkora Hydro, a hydro-based energy power generation business.

In February 2023, Cycle & Carriage Singapore completed a sale and leaseback arrangement of its properties for around US$230 million.

These examples illustrate the focus of the Group on implementing its capital allocation and portfolio strategy and on seizing opportunities when they arise to optimise our portfolio and prepare the Group for future growth.

Driving Innovation and Operational Excellence

The Group also continues to focus on delivering operational excellence in our existing and new businesses, and the past year has seen strong progress by our businesses in driving greater efficiency and productivity, despite the challenging market environment. Business improvement initiatives were progressed in the year in many of the Group’s businesses, including Gammon, Jardine Restaurant Group, Zung Fu Hong Kong and HACTL, with a positive impact on results. DFI Retail’s multi-year transformation plan continues to deliver real improvements in operating metrics across its banners. Mandarin Oriental has successfully unified its property management system across hotels, delivering standardisation and enabling efficiency benefits. The increased efficiencies which are being delivered across our businesses are essential to their ability to increase their agility and adaptability and address the challenges they face in order to deliver future growth.

As well as driving operational excellence, a key strategic priority is a focus on innovation. Our B2B businesses have continued enthusiastically to embrace digital ways of working to improve operations. Gammon has been an early embracer of building information modelling and has continued to grow its Virtual Design & Construction (‘VDC’) teams in Hong Kong and Shenzhen, which use digital prototyping to validate and optimise the design and construction process. JEC have developed their JEDI AI-powered digital platform, which utilises data-driven insights to provide building energy services in areas such as energy analytics and optimisation, fault detection and diagnostics and chiller optimisation, and deliver better experiences for end-users. Gammon’s Digital G subsidiary provides digital technology to make the building process and management of the built environment safer, more efficient and less labour intensive.

We continue to seek new inorganic growth opportunities which facilitate our wider participation in the digital economy, emerging industries and new geographies. JEC has acquired the Hong Kong and Macau business of MGI Group Holdings Limited, a leading specialty healthcare engineering solutions provider, as part of JEC’s strategic aim of building its skills and capabilities in the healthcare sector. Astra has continued to invest in digital businesses in Indonesia during the period. It acquired an interest in Paxel, a technology-based logistics startup, and also increased its investments in Sayurbox, an e-commerce grocery farm-to-table platform and Mapan, a digital community-based social financing platform.

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

DFI Retail’s yuu coalition loyalty programme continues to exceed expectations and is the leading customer loyalty programme in Hong Kong, with more than four million members. The group has this year launched yuu Rewards in Singapore, with encouraging performance so far, and its yuu-to-me offering, launched in May 2022, provides customers with an integrated one-stop online shopping experience and home delivery service across leading Hong Kong brands.

Hongkong Land has developed the digital services it provides to customers in its Hong Kong retail portfolio by introducing a revamped LANDMARK app, which provides shoppers and loyalty members with a more personalised and intuitive user experience, while the group has also enhanced the functionality of its ‘By The Bay’ mobile app in Singapore with the addition of exclusive retail offerings, health and wellness workshops and a series of community and charitable events.

Mandarin Oriental launched its new website during the year, redesigned to ensure a mobile-first, personalised user experience whilst improving site performance and reliability. Since the new website went live in August, 60% of visits have come from mobile devices, a considerable uplift from the previous website, driving more direct digital bookings.

Our Southeast Asian businesses are also adopting innovative approaches to how they run their businesses. Astra, for example, is using Formula 1 technology in the mining industry to optimise fuel consumption. It is also using the Internet of Things (‘IoT’) and control centres to optimise manufacturing.

Our businesses are looking for ways in which they can innovate (through enhancements to existing businesses or new inorganic growth) which align with our sustainability priorities. Astra’s investment through United Tractors in Arkora Hydro demonstrates its determination to take action to deliver on the commitments in its Just Energy Transition Statement published last June, by investing in renewable energy. This investment builds on Astra’s existing presence in the hydroelectric power sector, where it already operates a mini-hydro power plant and is developing another.

Astra is also developing electricity generation facilities using innovative solar photovoltaic (‘PV’) technology, through its subsidiary PT Energia Prima Nusantara (‘EPN’). In 2022, EPN secured commitments to install 16 MWp of rooftop solar PV, of which 4 MWp has been installed in a number of Astra group company facilities.

Vietnam’s installed capacity for wind, solar and hydro power is forecast to double by 2030 and REE, JC&C’s associate there, continues to make extensive investments in renewable energy. REE is Vietnam’s largest investor in roof-top solar power and also has interests in wind farms and hydroelectric dams. As of December 2022, renewable energy sources (hydroelectric, solar and wind) accounted for 72% of REE’s energy portfolio.

JC&C’s automotive businesses in Southeast Asia are also focussed on innovative sustainable business solutions. As an example, Cycle & Carriage Singapore (‘CCS’) is growing its new electric van logistics business in Singapore, offering logistics solutions to retail giants such as IKEA, Guardian and Uniqlo. CCS also sells and leases the vehicles to large logistics businesses, including UPS and DHL.

Enhancing Leadership and Entrepreneurialism

We need to evolve and accelerate to stay ahead of the competition – and we have identified the embedding of an entrepreneurial culture as a key success factor in doing this. Entrepreneurship means being open to experimentation and having the confidence to put ideas forward and, importantly, to promote and defend them.

A key element of building an entrepreneurial culture is attracting, developing and retaining the right leadership talent, and this is a top priority for the Group and its companies. In the past year, the Group has made a number of significant senior appointments to bolster its leadership and drive future growth. We see it as essential to appoint the most competent, highly-qualified and experienced senior executives to drive business growth, and have appointed two new Jardine Matheson Limited Directors to lead our business development efforts across China and Southeast Asia. We have also strengthened the leadership of our core Group functions, by appointing a new Group General Counsel and Group Head of Human Resources.

We have continued to invest in developing our leaders and providing them with opportunities to advance their careers within different businesses across the Group, with a number of executive-level senior management moves taking place during the period.

We are focussed on providing our colleagues with the appropriate training and support to equip them with the skills needed to navigate the challenges and opportunities they face, both in the short- and the long-term. Our comprehensive Group-wide programme of online learning and academies has seen high levels of participation in the year.

We are also continuing our work to create a diverse and inclusive culture where everyone can succeed. 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 develop diverse pools of talent from which our future senior leaders can be selected. We recognise that there is a great deal more to do in order to build greater diversity at all levels of the Group, but we made good progress last year in implementing our diversity and inclusion (‘D&I’) strategy to help progress our ambitions across the Group. We launched a series of initiatives, including a learning campaign on inclusive leadership; a comprehensive review to enhance Human Resources policies; and new processes which support D&I. We have also developed targets for increasing female representation in our workforce and leadership.

We also aim to create an owner mindset among our staff and are supporting this by enhancing our incentive structures over time to focus less on current profits and more on value creation over a longer time horizon.

Progressing Sustainability

In 2022, we continued to drive a more aligned, focussed approach to sustainability across all our Group companies, leveraging and building on the work many of them are already doing in this area to maximise the impact we have in our communities and on the environment. There is increasingly strong engagement between our businesses on sustainability issues, which will enable us to create real scale in what we do.

We continue to focus on actively sharing the positive actions our diverse businesses are taking in relation to sustainability, by reporting more effectively on Environmental, Social and Governance (‘ESG’) issues, and in 2022 we published our inaugural Sustainability Report. The report included data on a range of Group-wide metrics gathered from our businesses. We also published TCFD-aligned disclosures for the first time in the report.

We took a key step in progressing our climate action agenda in June 2022 with the publication by the Company, JC&C and Astra of a Just Energy Transition statement, which articulated our commitment to a low carbon economy in the geographies where we operate. Effective steps are already being taken to implement the key commitments in the statement: we saw investments in the year in renewable energy-focussed businesses in Indonesia and Vietnam and a diversification into non-coal mineral mining with the acquisition of interests in a nickel mining and processing business.

Our focus on climate action also saw our businesses setting science-based 2030 targets for decarbonisation and starting to develop decarbonisation pathways towards achieving those targets.

Our businesses are exploring opportunities to collaborate in relation to responsible consumption, especially in the areas of waste and circularity, and the Group is developing its social inclusion strategy, with a particular focus on the areas of education and mental health.

Creating emotional engagement among our colleagues and other stakeholders continues to be 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 saw an acceleration in momentum across our businesses in organising volunteering activity, with a significant increase in volunteering hours and number of volunteers.

Summary of Performance

The Group saw improved performances from many of its businesses in 2022, compared to 2021, with particularly strong growth in Southeast Asia, led by Astra. The results delivered by the Group in 2022 once again demonstrate the continuing value of our diversified portfolio, which has enabled Jardines to produce a resilient performance, despite challenging conditions in a number of our sectors and markets.

The strong performance of the Group’s businesses in Southeast Asia in the first half of 2022, together with the challenges faced by our businesses in Hong Kong and on the Chinese mainland throughout the year, led to 55% of the Group’s profit for the period coming from Southeast Asia and 39% from China.

The Group’s underlying net profit for the year increased by 5% to US$1,584 million and underlying earnings per share were US$5.49, an increase of 14%. The Group’s underlying earnings per share in 2022 represent an increase of 30% over those of 2019, while its dividends per share of US$2.15 in 2022 represent an increase of 25% over the same period.

The key drivers of the Group’s performance were strong performances by Astra and our other Southeast Asian businesses held by JC&C. Astra reported a 51% increase in underlying earnings, excluding the unrealised net fair value loss on investments in GoTo and Hermina, with improvements across most of its divisions, supported by Indonesia’s economic recovery and higher commodity prices. JC&C’s underlying profits increased by 39%, with strong performances by THACO and its Direct Motor Interests.

Mandarin Oriental saw a return to underlying profitability in the year, with a strong performance from its resort hotels and a good recovery by its owned hotels, although results were impacted by Hong Kong and Tokyo. There was also an improved contribution from the Group’s unlisted Jardine Pacific businesses, driven by Jardine Schindler and JEC, although most of the businesses focussed on Hong Kong were impacted by the continuation of pandemic restrictions there.

Hongkong Land’s full year underlying profits were 20% lower than the prior year, as a result of a significantly lower profit contribution from the Development Properties business in the second half of the year. The lower profit contribution was primarily due to a smaller number of planned sales completions and the impact of pandemic-related restrictions on construction activities on the Chinese mainland. DFI Retail Group saw a decline year-on-year in underlying profit, with the pandemic continuing to impact the financial performance of the group’s subsidiaries and associates. There were, however, encouraging signs of an improvement in performance in the second half. There was a slight decline in the performance of the Group’s Motor interests.

Net non-trading items were negative, versus a positive position last year. The majority of the non-trading losses in 2022 were the Group’s share of fair value losses of US$604 million arising from the revaluation of the Group’s investment properties portfolio and non-current investments of US$309 million, together with the impairment of investment in associates of US$320 million. The net non-trading gain in 2021 mainly included the US$791 million gain on disposal of Zung Fu China business and the US$337 million gain on the sale and leaseback of Zung Fu Hong Kong’s principal operating properties, partly offset by the Group’s share of the unrealised loss of US$681 million in respect of the Group’s investment properties portfolio. After taking account of the net non-trading losses, the Group recorded a net profit attributable to shareholders of US$354 million in 2022.

The Group’s balance sheet remains strong with gearing of 13%, up from 11% at the end of 2021.

The Group’s capital investment, including expenditure on properties for sale, was US$5.3 billion in 2022, and capital investment at its associates and joint ventures exceeded US$4.3 billion. The Group continues to invest for the long-term and ensure that its businesses have the resources to drive future growth.