Earnings Transcript for JARLF - Q2 Fiscal Year 2023

Graham Baker: Good morning, and welcome to the Jardine Matheson Half Year Results Webcast. I'm Graham Baker, Group Finance Director. You should be able to see the slides on your screen and a Q&A box at the bottom of your page. Please submit your questions at any time and I will answer them at the end of the presentation. This morning, I'll update you on progress against our group's strategic priorities. I'll then take you through the financial performance of the group and our individual businesses. We'll end with the outlook and Q&A. Starting with progress on our strategic priorities. Astra has made 2 further tangible steps in evolving its mining portfolio to a sustainable future. Astra has agreed to acquire a 90% interest in the nickel mining and processing businesses, PT Stargate Pasific Resources and PT Stargate Mineral Asia for $272 million, and United Tractors has agreed to acquire a just under 20% stake in nickel industries, a leading nickel mining and processing company listed in Australia with a growing portfolio of assets in Indonesia for $630 million. Both transactions remain subject to conditions precedent, but aligned with Jardine's and Astra's commitments to diversify from coal and give concrete capital support to Indonesia's energy transition. We've also continued to release capital from noncore assets and simplify the group's portfolio with sales of our U.K. motors business, and DFI's disposal of its Malaysian grocery retail business. Turning to innovation and operational excellence, JEC, Gammon, Jardine Restaurant, Zung Fu and Hactl all continued to make good progress in the period, driving greater efficiency and productivity in their businesses. Hactl, for example, introduced robotics into some of its goods handling operations and automation more generally in areas such as part sourcing and fleet management systems. We've also seen successful early transitions in Jardine Pacific into our new business services operation in Foshan , which brings us closer to driving improvements in our core back office data, processes and systems. Turning to customer-facing innovation, Astra continued progress with its partner WeLAB towards the planned launch of a digital bank following the acquisition of PT Bank Jasa Jakarta, which will provide a wide range of online financial services to the underbanked market in Indonesia. Astra also agreed to acquire Tokobagus, a leading Indonesian online classified adverts platform, operating under the OLX brand. This used car platform builds on Astra's existing online business and opens further opportunities beyond. DFI continued to build its digital capabilities with its new customer loyalty program reaching more than 4.5 million members in Hong Kong and 1.2 million members in Singapore. And in June 2023, JC&C announced a used car and aftersales partnership with Carro , Singapore's leading AI-driven online used car platform. As part of our third strategic priority, enhancing leadership and entrepreneurialism, we aim to create a diverse and inclusive culture where everyone can succeed in Jardine's. Our diversity and inclusion strategy has introduced targets into senior leaders' KPIs and factored them into annual performance reviews as well as making D&I learning programs part of our onboarding process. Diversity and inclusion relies on developing and retaining exceptional leaders and is the foundation for achieving our wider strategic ambitions. It also includes being open to attracting sectoral expertise from outside the group. And during the period, we announced Chief Executive leadership transitions in DFI and Mandarin Oriental. At Jardine Matheson itself, we made a further step forward in enhancing governance with the appointment of Janine Feng as an independent nonexecutive director. Janine brings valuable expertise and experience to our Board, both as an independent nonexecutive and as a seasoned leader with many years experience at Carlyle . Finally, with changes to membership of JM's Audit Committee, the Board considers it now comprises only independent nonexecutive directors. The group continues to drive our sustainability agenda with a focus on making Jardine's both a stronger business and a stronger contributor to the communities we serve. At the end of May, we published our second group sustainability report, which highlighted progress against the 3 key pillars of our sustainability agenda

A - Graham Baker: Great question, Jayden. Thanks for that. Of course, we have large motor interests, both in the Mainland and in Indonesia. And both of those businesses are, of course, pivoting to the future. How they do that, of course, we'll be slightly different in each market. In the Mainland, Zhongsheng has already announced its new strategy around building a vehicle repair, set of centers situated all across the Chinese mainland. Many of the EV players in the Mainland will look to partnership to provide the critical services that they require when unfortunately, their vehicles are involved in accidents. And Zhongsheng with its very large network and strong brand reputation is well placed, not only to help them, but also to work with other partners that they've established in the financial services sector to continue to provide relevant services to mainland customers. They will, of course, work with their OEMs. And in the Luxury segment, of course, the transition from ICE to electric vehicles is proceeding not quite the same pace that it is in the wider market. We believe, of course, that those OEMs are very well positioned over time to bring compelling products not only to the Chinese Mainland, but more broadly around the world. In Indonesia, of course, Astra works with its key partners, Toyota, Honda. And of course, you'll have seen from their announcements that they are pivoting with the change in their leadership and they're changing their strategy towards bringing a more comprehensive offering in the EV vehicle space. Indonesia, both because of price point and because of EV charging infrastructure, we believe, has a few years to go before it sees a sort of transition that are happening in the leading markets in the world, and we believe that Astra will be well positioned with its partners to serve its customers there broadly across the country. That, of course, is all consistent with our sustainability commitments to over time, assist wherever we serve customers in serving fair and just energy transitions. I think that, that probably covers the sustainability question. So I will, with that move to a question from Jeff King at CLSA. Thanks, Jeff. You also asked a question about Zhongsheng and EV, so I won't repeat on that one. But can I give an update on the capital allocation priority of the Jardine Matheson Group, given the current interest rate level. I think a couple of points on that. Jeff, firstly, the group has always run a prudent balance sheet and continues to do that. Our fundings are locked in for a significant period into the future, both by having taken advantage of bond markets at advantageous moments and an active hedging program. And so while we, of course, don't do that to 100% level, and we're not therefore completely immune to changes in the interest and rate environment, we -- the impact of that on our bottom line is to an extent, muted. In terms of our capital allocation priorities, over the last 4 to 5 years, the group has invested nearly $7 billion in privatizations and share buybacks. And therefore, our eye at the moment is more focused on looking for opportunities to build new growth drivers for sustainable growth into the long term. We will, of course, continue to look at both internal and external M&A opportunities on a level playing field, and we will keep that up-to-date as economic conditions and business opportunities develop over time. But for now, our priority is principally there. All of that is underpinned by a commitment to running a strong investment-grade set of credit metrics and so both at the parent company and JC&C parent level, our long-term ambitions to have those businesses operate with clean balance sheets and therefore, having ability -- significant flexibility to invest in new opportunities remains unchanged. Hopefully, that covers the key questions. George is asking perhaps that from Citi is asking a slightly more specific point is management comfortable with 12% gearing? Should we expect management to work towards an even lower gearing than the current level perhaps towards a pre-reorganization level? Thanks, George, for that question. As I mentioned, the group is very focused on the strength of its balance sheet. Exactly where we end up year-to-year is balance between the strong cash flow generating opportunities and capability that we have within the group and the opportunities that we encounter for deploying capital into new investments. So we don't have a hard and fast we must be on this number target for gearing. We do have a preference to run our balance sheet prudently. And in the past, that has taken us to single-digit gearing levels. And it's possible we will get there at some point in the future. As I say, whether we do or don't get there will be driven by the quality of the investment opportunities that we have. We continue to believe in all 3 of the key focused markets, China, Indonesia and Vietnam, and we continue to look for opportunities in all 3 of those markets, and, of course, therefore, to an extent our gearing and exactly where we end up as a percentage will depend on the scale of the opportunities that we find there. And question from Simon at Goldman Sachs. The lines are full today, well done, everybody. I appreciate your active participation. The group has acquired and disposed assets in recent months. Where else within the group, do you see opportunities to do so, both M&A and disposals? How does this tie with your target to bring down net gearing ratio to single digits over time? So Simon also picking up on the idea that there is a fixed target for us. Hopefully, I've dealt with that. Directionally, that is right, but there is no fixed target. In terms of the opportunities for M&A and disposals, clearly, at the Jardine Matheson level as an investment holding company, we continuously review opportunities for those place -- for those -- both of those activities. On the M&A side, I would say the majority of the activity will come from within the businesses that currently sit within our portfolio. That doesn't necessarily mean that the businesses, the investments that they make will be exactly within the perimeter of what they do today. They may well extend to include adjacencies. And a great example of that has been down in Astra, both with the acquisitions of the gold and nickel mines and interests over the last few years to move beyond coal also with their investments in the health care space with investments in both Halodoc and Hermina and their investment in financial services in Bank Jasa Jakarta. Most of that capital has been deployed in adjacencies. So businesses that sit quite close to businesses that they currently undertake, with probably only the health care business sitting outside their existing perimeter and the investments there being relatively smaller than the ones that have been made in adjacent businesses. Other opportunities, as I say, probably we will follow the same pattern in other markets and looking for opportunities to invest in businesses that are adjacent to ones that we undertake with moves into areas and businesses that we don't currently operate likely being at a smaller scale, as we dip our toe in the water and undertake our usual more modest approach to businesses to learn at least in the early days. In terms of disposals. Obviously, I won't comment on any of those specifically on any specific areas. The vast majority of our portfolio is performing very well, and we believe that we are good long-term owners of those businesses. Of course, if opportunities arise where we see ownership of that business being stronger and more core holding in the hands of an alternative buyer, where we can do that and it yields good add value to us in exiting the business, and there's also a good investment runway ahead for the business that's acquired, we will consider to look -- continue to look at those opportunities, but I think you'll understand I wouldn't make any specific comments on that at this point. I'm going to continue taking questions from the online source. A question from Pravin [ph] at Morgan Stanley. Thanks, Praveen. What's my view of the stock on the price, the share price on the performance of Hongkong Land despite the sustained buyback program? Is it accretive for Jardine Matheson to increase its stake in undervalued subsidiaries like Hongkong Land? So if I go to the share price performance of Hongkong Land, it's pretty clear that there is a strong reticence amongst most global investors today to deploy new capital into China. It's very broadly reported in the press. And of course, between our business in IP here in Hong Kong, and our large development properties business in the Mainland, the overwhelming proportion of Hong Kong Land's earnings comes from China. And so I think principally, Hong Kong land is facing a sentiment issue around the Mainland. As I mentioned in the overview of their performance, their performance is actually not in any way directly correlated with the performance of the broader property segment in the Mainland. Hong Kong Land's development properties business there is focused on the high-end residential market in 7 key Tier 1 and 2 cities. So very selectively deployed capital. And therefore, that broader sentiment, I think, is attaching to Hongkong Land perhaps in a slightly misguided way and we continue to believe that there is good value in that business. On the Hong Kong side, as I mentioned, our performance here in Central, in the Hong Kong Land portfolio has outperformed Central, and Central continues to outperform the wider Hong Kong market. And so again, there is perhaps a sort of question in global investors' minds about investing in Hong Kong at this moment. I think it is fair to say that there is going to be, probably unlikely to be an overnight turnaround in Hong Kong IP market. There some new office capacity comes into the market over the coming years. On the other hand, I see no overnight cliff edge moment for the portfolio performing much more poorly. And so seeing Hongkong Land performing its share price performing so badly, I can point to no clear economic drivers in the performance of Hong Kong Land that I think account for that. On the other hand, I think that we have to recognize that investors make their decisions more broadly. And so it may take a little bit of time before the Hong Kong Land share price starts to reflect the still pretty resilient performance that it's put in all the way across the pandemic and now coming out beyond. In terms of accretion for JM increasing its stake in undervalued subsidiaries, I can't possibly give investment advice and so I'll confine my comments to recognizing 2 things. One is we continue to look for opportunities to drive value in the portfolio and deepening within the existing portfolio will continue to be something that we look at. However, having deployed $7 billion of capital to driving a very substantial increase in earnings per share, that 45% increase in earnings per share since 2019 that I mentioned on one of the earlier slides, the balance of our attention at the moment at this point in time is focused on looking for new opportunities to bring businesses into the portfolio that can drive sustainable long-term growth for the future. Clearly, we look at those based on earnings. We look at them based on value. We look at them based on risk. And of course, we look at them side by side with internal opportunities. But having deployed such a large amount of capital into the internal space over the last few years, that's our main reason for focusing elsewhere right now, exactly how circumstances unfold will be largely opportunity driven as we go forward into future years. I hope that's not too evasive an answer. We do, of course, continue to believe that all of our businesses in the portfolio have great long-term -- mid- and long-term prospects for earnings growth based around their exposure to the growing prosperity of the growth markets of Asia. And another question from Jayden. Can I provide an update on the HillHouse Capital partnership? Is there still appetite to invest in create new digital businesses and Jardine recent digital investments that have been made, OLS -- OLX and Bank Jasa Jakarta. And the relationship with Hillhouse is very good, very strong. We are continuing to learn from each other. Of course, this has been a time where many private equity firms around the world have judged that it's the right thing to slow down some of their deployments of capital. And of course, we listen to them and watch that with interest. There continue to be good opportunities for us to work together, both on the Mainland and in Southeast Asia and we've had tremendous collaboration from the Hillhouse team. In looking at those, we will continue to do that. We continue to look for opportunities to invest in digital businesses. Most of that activity, as I mentioned, will relate to our existing portfolio of companies, and so some of it will come organically. Some of it, as you've highlighted, will come from new M&A activities that we'll continue to look to both ourselves and with learning from many of our partners. I think I've run through most of the list there. So I'll give it one more chance for any other questions to come in. I probably won't leave it for too long. So if you have another question, please do send it through to us. Otherwise, I'm happy to wrap it up. And I look forward to seeing you next time. Thanks, everybody.