Earnings Transcript for JARLF - Q2 Fiscal Year 2022

John Witt: Good morning, everyone, and welcome to the Jardine Matheson 2022 Half Year Results Webcast. You should be able to see the slides on your screen at this point. We'll leave plenty of time at the end for Q&A. . This morning, I'll be covering four topics

A - John Witt: Thank you, Shaun, at Credit Suisse for breaking the ice. The question -- the first question is, how comfortable is JM with the $1.4 billion in debt on the corporate level. Any plans to decrease or increase? In terms of our comfort level, I think you can be assured we're pretty comfortable with that. That is essentially fully covered by the 10 and 15 year bonds that we issued last year. And so there's really no refinancing risk and no interest risk associated with those. So our comfort level is pretty high. In terms of plans to decrease or increase, I think you're thinking about investments back into the group, buybacks seeming attractive given the wide discount to market valuations. I think that's the pretext of the question, so I'm reading that out. We don't have any plans at this point in time to launch further buybacks. We continue to, of course, evaluate those opportunities and we think about those in similar ways to the way that you've outlined in the question, but we also think about growth, and we have also committed to continuing to manage down the group's level of gearing closer to our historic norms as part of the large purchase that we made in the Jardine Strategic simplification last year. So at this point, we haven't got any plans if we did, or we would have announced them. But we will, of course, continue to evaluate those as we move forward. George Choi from Citi has sent a very similar question in. Do we still have deleveraging as one of our priorities in terms of capital allocation? We're not obsessive about this. We see -- as we've seen in the first half, it can float up a little -- our general preference, as I outlined, is that we would probably be a little closer to our historic norms. But we're very comfortable where we are. We will continue to be driven principally by opportunities and our capital allocation framework, investments in the organic growth of the businesses in supporting our enhanced dividend and continuing to see progress in that as earnings grow. But we are, of course, operating in a pretty uncertain environment at the moment. And so we do also think about risk as well. So overall, we are comfortable where we are. We continue to think about deleveraging, but we won't be obsessive about it should the right opportunities come along. I've got another question coming from Simon at Goldman Sachs. I mentioned that the announcement that earnings would be substantially moderated for the full-year to the extent you can. Can you share the magnitude and what would be the drivers for the moderation in the second half of the year? To be clear, I'm expecting moderate earnings growth to moderate for the full-year. And the factors that are really driving that are the ones that I touched on. In Hongkong Land, as we came into 2022, we knew that simply through the progression and maturation of the development properties pipeline that we would have fewer sales completions this year than in the prior year and that that would principally hit in the second half of the year. So that will be a growth restrainer add in to that. We've also seen some delays in the development properties business as a result of the pandemic lockdowns and that's further emphasized that as a potential source of restraint on our growth in the second half, principally by pushing some projects likely completion and sales, therefore into the 2023 year. The second piece is that the contribution to growth from -- and earnings per share growth from the Jardine Strategic privatization has now fully annualized and therefore, there won't be any incremental growth driver from that in the second half of the year. And then the third is we've got stronger comparables in the second half of 2021. Astra, in particular, saw a good recovery in the second half of last year. And therefore, while we continue to see very, very good performance at Astra and no signs of that coming to an end. They're just lapping a second half of the year, which we'll see growth rates likely moderate there. So those, I think, are the principal drivers for the moderation of the growth rate as we think about the full-year compared to what we've delivered year-to-date. A follow-up question from Simon that people are starting to get into the swing of things now, which is great. Can I remind us -- remind about the dividend policy and the expectation for the full-year, especially given the strong earnings growth that we reported in the first half of the year? You sort of add -- dividend policy is relatively straightforward that we are committed to seeing to supporting the dividend and to seeing the dividend progress and grow as earnings grow. We, of course, held our dividend through the pandemic unchanged at the onset. And as we close in 2021, we did see a step-up in the final dividend in 2021 as we saw the benefits coming through of the privatization of Jardine Strategic and we had greater confidence about the businesses' resilience in a period of exceptional uncertainty. Those were, as we've communicated on announcement of the half year in 2021. As a result of that, we had in the prior year, a relatively low proportion of dividend paid out at the interim compared with our norms. Our norms are sort of more like 25% of the full-year dividend is paid out at the interim and sometimes a little higher than that. And so our growth in the dividend in the interim in the first half of this year should be understood to reflect both the strong financial performance that we've put in, in the first half of the year and the move to back to normalize the share of the dividend, the full-year dividend that we pay out at the interim i.e., raising the share that comes out at the interim as a share as a whole. I think, therefore, without being too cryptic about it, I'm not expecting, of course, the final dividend through a combination of moderating growth and that rebalancing point to grow at anything like the rate that we've seen for the interim, but of course, I can't be precise at this stage. We are still in a period of significant uncertainty. And of course, we will expect to see growth for the year. But exactly how much that is not clear at this point. A question from Jeff Kang at CLSA. Thank you, Jeff. How is inflation, for example, commodity prices or food price impacted Jardine Matheson's P&L in the first half of 2022. How should we think about inflation and the group's earnings in the second half of the year? But I think that sort of the key points on this are that at this point, we have benefited substantially from inflation in commodity prices, which are an important part of driving the prosperity that we've seen benefiting all the businesses in Indonesia, in Astra. Of course, higher commodity prices directly benefits our mining construction and contracting businesses there, but they also feed through more broadly into the prosperity of Indonesia as a whole. And that, of course has benefited us more broadly there. In other businesses, of course, we are seeing strong demand, for example, in our hotels business for leisure travel. And so with the strength and quality of the Mandarin brand and experience. We are seeing record demand for hotel rooms. And that, of course, to an extent, has an impact on our ability to price those rooms, reflecting the value that we offer. And so in a good number of our businesses, we are able to see to -- we have businesses that have pricing power. And of course, those businesses are seeing inflationary impacts in their cost base, but we are able to pass those through. In other places, we operate in intensely competitive environment where there is still significant dislocation to markets. In Dairy Farm, for instance, the Southeast Asia businesses have seen an impact both at the cost of goods level and at the operating cost level from inflation. I think it is worth saying that Asia has not been experiencing inflation to nearly the same degree as the markets of the West. And so when I talk about inflationary impacts, they are at a considerably more modest level than is being felt in Europe and the U.S. But they are there and we are seeing that coming through in people costs, in costs that are being charged by some of the global FMCG groups and indeed in electricity and utility prices that are coming through in some of our markets. Of course, as we think about how that impacts us in the second half of the year, I don't have a perfect crystal ball about exactly what's going to happen on commodity prices. But so far, as we go through the second half as we're a month in, at least, there don't seem to be too many signals of abatement on commodity prices that are benefiting us, and we have sort of, if you like, the peak season of hotel demand, for instance, still ahead of us across the summer months. So I think we'll continue to see some pluses, but we'll also continue to see some pressure. And so I think we continue to watch that closely. But at this stage, I don't think it's a major threat to the business on the cost side at this point. But of course, we have to see how markets continue to progress through the rest of the year. I think that's probably all I want to say on that crystal ball gazing about exactly what's going to be seen in inflation and commodity prices. If I have that perfect crystal ball, I'd probably be making a living in a different way. So we'll continue to track those. At this stage, the impacts have been on the cost side has been relatively modest, but they are still there.

John Witt: And I think we're getting through the questions. I'll give it a few more minutes just in case anybody has got anything that we haven't covered already. But if not, I think we'll probably think about closing. So thank you for your time, everybody, and I look forward to seeing you again next time.