Jardine Cycle & Carriage Limited (C07) Earnings Call Transcript & Summary

Okay. Good morning, everybody, and thank you for joining us today for our first half results presentation for 2020. My name is Stephen Gore and I'm the Group Finance Director of Jardine Cycle & Carriage. I will give you a brief summary of the half, followed by an overview of our strategy and then take you through the numbers. We are once again meeting virtually, and I will take any questions that you may have following the presentation, which you can submit into the system. As you all know, this has been a challenging half for our businesses globally as a result of COVID-19, and the performance of JC&C has been significantly impacted as a result of the pandemic and restrictions put in place across the region. Part of the group's operations were closed in the second quarter in line with local government restrictions and guidelines to support containment efforts. Most of the group's operations have now resumed trading. During this time, the group has remained focused on our approach to delivering value in the long term and helping to support our investing businesses. Debt levels and liquidity positions have been kept under constant review, and a range of measures have been taken to manage costs and preserve cash. I will talk more about the results in detail for this half year. But before I get into that, I would like to take a moment to discuss our strategy and why we believe it positions us for long-term growth. JC&C is an investment holding company of Jardine's, and we have built a reputation as a long term and strategic investor across Southeast Asia. Our strategy is founded on 3 key principles. We focus on Southeast Asia. We invest in market-leading businesses and work closely with them to reach their full potential, and our investment teams, our organization and the emerging consumer class in Southeast Asia. Based on these 3 elements, we aim to grow with Southeast Asia and to elevate our communities. As you know, we think about our investments across 3 distinct pillars, supporting the 3 strategic principles I have just outlined. I will go through the performance of each of these segments and businesses shortly. But first, I would like to remind you of our portfolio. The first pillar is our investment in Astra in which JC&C holds a 50.1% interest. Astra is the largest independent auto group in Indonesia and is a diversified group spanning financial services, heavy equipment, agriculture, infrastructure, IT and property as well as auto. For DMI, we have through our investments in Tunas and Cycle & Carriage built a leading regional auto presence across Singapore, Malaysia, Myanmar and Indonesia. All of these businesses sit within Jardine International Motors, which exists to enhance efficiencies across Jardine's and ensure a consistent response, with 29% stake in REE and a 10.6% stake in Vinamilk and in Thailand, a 25.5% stake in Siam City Cement. This diversified portfolio with market-leading positions across the region gives us and the Board confidence that the group's strong financial position, clear strategic priorities will position it well to deliver long-term growth. I will now take you through the financial highlights for the first half of 2020. The group's underlying profit attributable to shareholders for the first half of 2020 was $138 million, down 66% from the same period last year. This was primarily due to the impact of COVID-19 on our businesses. Astra contributed $171.6 million to the group's underlying profit on weaker performances across the portfolio. Following the temporary closure of showrooms across the region, the contribution from the direct motor interests was also significantly down. Other strategic interests contributed $27.8 million, down 58% from the previous year. This was primarily due to weaker performance from Thaco and the timing of the interim dividend from Vinamilk, which will be recognized later in the year. In the first half of 2019, JC&C received an interim dividend of $15.8 million from Vinamilk. In 2020, the interim dividend will only be recognized in Q3. The impact of the FX translation on the parent company debt contributed $41 million exchange loss for the corporate cost. Adjusting for this item, underlying profit would be 55% lower. Turning to the group's P&L for the period. The underlying profit attributable to shareholders was 66% lower than the same period last year at $138 million. Excluding the impact of foreign exchange from the translation of foreign currency loans in the JC&C parent, underlying profit would be 55% lower than last year. Profit attributable to shareholders decreased to $301 million from $427 million in the same period last year. This figure reflects a $188 million gain on the disposal of Astra's investment in Permata Bank, which was partly offset by unrealized fair value losses related to noncurrent investments. Board has declared an interim dividend of $0.09 per share for the first half of 2020 compared to $0.18 per share for the interim in 2019. The lower dividend reflects the decline in the performance in this period and the ongoing challenging trading conditions. Turning now to the group's balance sheet. The group's financial position remains strong. Shareholders' funds were down marginally at $6.7 billion, and net asset value per share was at $17 at the half year, both down 2% on the full year. The group's consolidated net debt, excluding Astra's financial services subsidiaries, was $1.3 billion at the end of June 2020 compared to $3 billion at the end of 2019. This is mainly due to the receipt of proceeds from the disposal of its investment in Permata Bank. Net debt within Astra's financial services subsidiaries increased slightly to $3.2 billion. JC&C parent company's net debt was $1.5 billion, similar to the previous year-end. I will now take you through each of our interests in further detail. Moving first to Astra. Astra is one of Indonesia's leading diversified business groups. Let me take you through Astra's first half performance. Excluding the gain on the disposal of its investment in Permata Bank, Astra reported a profit of $372 million, a 44% lower in local currency terms than the same period last year. This was mainly due to significantly lower contributions from its automotive, financial services and heavy equipment and mining businesses, partially offset by its agribusiness. In the auto segment, the wholesale car market declined by 46% in the first half to 261,000 units. Astra's car sales were 45% lower at 139,500 units, with its market share maintained at around 53%. 6 new models and 10 revamped models were also launched during the period. The wholesale market for motorcycles declined by 42% to 1.9 million units in the first half of 2020. Astra Honda motorcycle sales fell 40% to 1.5 million units, with an increase in market share from 75% to 77%. 3 new models and 6 revamped models were launched. Financial services saw a drop in net income to $142 million, down 25%. This was primarily due to increased loan loss provisions to cover higher nonperforming loan losses in the consumer and heavy equipment-focused finance businesses, which saw decreases of 16% and 14%, respectively, in the amounts financed. Lower heavy equipment sales and weaker coal prices contributed to the 29% decrease in Astra's heavy equipment, mining, construction and energy sector. Astra's agribusiness was supported by higher crude palm oil prices. Bringing Astra's results into JC&C's accounts and translating into U.S. dollars produces the table shown here. Contribution to JC&C is $171.6 million, and this is 47% down from the first half of 2019. Turning now to our direct motor interests, which represent a number of leading global brands across Southeast Asia. Contribution from Cycle & Carriage Singapore was 95% lower at $1 million. Passenger car sales decreased by 61% to 3,200 units. This was primarily due to the closure of showrooms in the second quarter. Tunas contributed $3 million, 70% lower due to weaker performances across its automotive, consumer finance and rental operations. Cycle & Carriage Bintang contributed a loss of $3 million compared to a loss of $0.7 million last year. Unit sales fell by 46%, and margins were also impacted. Overall, the group's direct motor interests contributed a loss of $0.3 million compared to a profit of $33 million in the same period last year. This was largely a result of the temporary closure of showrooms due to the COVID-19 pandemic in the second quarter. As of today, all of the group's showrooms are open and operational. However, we are, of course, operating within the guidelines as set out by respective authorities to manage safe distancing and the well-being of our staff and customers. Turning now to our other strategic interests, which include Thaco, REE, Vinamilk and Siam City Cement. Thaco is a leading automotive business in Vietnam with interest in automotive, property development and agriculture. Following a true-up adjustment in respect of its 2019 results, Thaco contributed a profit of $1 million as unit sales fell by 30%, and margins declined as a result of difficult market conditions, primarily due to COVID-19. Excluding the adjustment, the contribution would have been $8 million. REE is a leading Vietnamese conglomerate with businesses in power and utilities, property development, and mechanical and electrical engineering contracting. REE's contribution of $3 million based on its first quarter results was 16% lower than in the same period last year. Weaker performances from its power and water investments in its M&E business were partially offset by a stronger contribution from real estate. Siam City Cement is the second largest cement producer in Thailand. It has a regional footprint that includes businesses in South Vietnam, Sri Lanka, Cambodia and Bangladesh. Siam City Cement produced a contribution that was 5% lower than the same period last year at $12 million. Finally, Vinamilk, in which we own 10.6%, is the #1 producer of dairy products in Vietnam with a market share of 61% by volume. Vinamilk produced a dividend income of $12 million as the 2020 interim dividend will be recognized later in the year. Vinamilk continued to grow in its domestic dairy and exports in the first half. Overall, the group's other strategic interests contributed a profit of $28 million, 58% lower than the previous year. Finally, turning to the outlook. While the impact of COVID-19 is expected to continue, we are confident in the financial position of the company, and the strategic priorities we have in place to deliver longer-term growth.