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

A very good morning to all. It's very nice to have all of you here. Welcome to the Jardine Cycle & Carriage Half Year 2025 Results Presentation. I'm Freddy Lee, the Interim Group Finance Director at JC&C. I will take you through today's presentation. Before we begin, allow me a short introduction of myself. I have been with the Jardine Matheson Group for over 13 years now in various operational and financial roles within the group. In the last 7 years, I was with Astra in Indonesia, where my most recent role was as its Chief Risk and Audit Officer. Coming to today, we would like to talk about 2 things. Firstly, a brief overview about our sharpened focus as an engaged investor. Secondly, I will then take you through highlights of our first half performance. We will then conclude with the outlook and some Q&A. Some logistics for today's presentation before we proceed. If there are any questions, may I invite you to type them in the Q&A box, which you can see at the bottom part of your screen, and we will then address them at the end of the session. Let us begin by recapping JC&C's portfolio. We look at our investments through 3 pillars: Indonesia, Vietnam and Regional Interest. Our businesses are all local champions and hold market-leading positions in the sectors that they participate in. Their ability to stay competitive through the years and deliver results is demonstrated by the consistent growth within JC&C's earnings and dividends, which you can see in this slide. Using pre-pandemic 2019 as the baseline, JC&C achieved a 5% CAGR in both underlying profits and dividends. In terms of shareholder returns, we have delivered over 10% TSR in the last 5 years. We know that earnings and dividends are key drivers of TSR, and that has been a long-standing focus area for JC&C that has served us well. That being said, our long-term success has always depended on our ability to evolve and adapt to the dynamics of a changing market environment and a changing future outlook. We do see the need and opportunity to evolve and do more to further uplift value, which brings me to the next slide. In line with the direction of our parent company, Jardine Matheson, we are now sharpening our focus as an engaged long-term investor with the objective of delivering superior 5-year total shareholder return through our portfolio of businesses. Now as an investment company focused on Southeast Asia, our approach will be tailored to suit. There are 3 approaches that I'd like to highlight. Firstly, we do so by building a portfolio that's exposed to the most attractive profit pools of the region through identifying and investing in today's and tomorrow's market leaders. Indonesia and Vietnam are our key markets. We believe deeply in their long-term growth fundamentals and that they have potential to scale further and faster than today. Investing in JC&C, therefore, provides the exposure to these high-performing markets. Secondly, we engage with our portfolio companies through Board influence and close communication to help shape their future earnings pathways and capital allocation strategies. This is to position them to deliver more value over the long term. Last but not least, apart from driving higher contributions from the businesses to strengthen our ability for steadily growing dividends, JC&C also takes an active capital management approach through various corporate initiatives to further up the value of the overall portfolio. Now as an engaged investor, we cannot focus on everything, and therefore, we actually have a few focus areas, in contrast an operator, we execute on to achieve performance. Firstly, we focus on accelerating earnings. We work with our businesses to align their long-term strategies on earnings and cash flow. This is to sustain and defend the core earnings and maintain healthy dividend payout. Further cash generated may be reinvested towards higher return opportunities and expanding their profit pools. Now this positions them well to become bigger and stronger businesses. Secondly, portfolio management. We ensure that we have clarity on what a coherent portfolio looks like to us, and we take a disciplined approach to capital management. We are clear on investment criteria, and we will deploy capital decisively. Investment criteria such as ROIC, ahead of cost of capital, the geography and sectors that we like, looking at leadership and governance that suits and assessing that the business has the ability to contribute materially to JC&C. And last but not least, a pathway to influence -- strategic influence as well as control in these companies. Being clear on how we allocate capital also entails having a strong balance sheet, especially so for JC&C as a holding company. Our strong balance sheet will give us the flexibility required to take advantage of opportunities as they arise. Next, people and culture is very important to driving a difference in the business. Now we work with our businesses to ensure high-caliber management teams and leadership with complete alignment on incentives as well as organizational design with the business strategy of the portfolio company. Finally, as part of Jardine's, there are principles and values that we hold here that are of utmost importance to us from how we conduct businesses, our ethics and our code of conduct to governance and managing our risks, including ESG risks. Now we believe these are the key ingredients to building strong and lasting relationships with our people and our business partners, complemented by the strong balance sheet I mentioned and excellent access to banking partners as well as the capital markets. Now all in, this provides a glimpse into the direction that JC&C will be taking going forward. In line with this, JC&C is working closely with our portfolio companies now to review business strategy, priorities and initiatives to improve returns. We -- the exercise is ongoing, and we expect it to be completed by the first half of 2026, and we look forward to providing you with an update then. This wraps up the first segment of today's presentation. I will now take you through our first half performance. For the 6 months of 2025, we reported an underlying profit of $529 million. This is 6% up from the prior year as we have benefited from improved performances in Vietnam and Singapore, foreign exchange gains as well as lower financing costs at the JC&C corporate level. This was offset by lower performance in Indonesia. At a constant exchange rate basis, our underlying profit would have been plus 2% year-on-year. The group's net profit after accounting for nontrading items is $371 million. Based on the first half result, the Board has declared an interim dividend of $0.28 per share. This is the same as the previous year. Next, I will take you through a more detailed look of our performance by business segment. In Indonesia, our investments contributed $466 million to JC&C's underlying profit. This is 9% down from last year. Now this reflected the softer consumer sentiment in the country and lower mining contracting volumes in the first half. In Vietnam, THACO and REE both reported improved results. This supported the higher contribution to JC&C's underlying profit, which was up 17% to $36 million. For Regional Interests, the contribution to JC&C is actually 16% lower at $20 million, primarily because in the same period last year, we included contributions from Siam City Cement, which we have since divested. Now excluding this disposal, the contribution of Regional Interest would have been 71% higher, driven materially by Cycle & Carriage Singapore. Now during the first half as well, at the corporate level, we recorded a $33 million translation gain on foreign currency loans. At the same time, corporate net financing charges decreased due to a lower corporate net debt level over the period ended June 2025 compared to the prior period. Now these factors collectively improved the group's profitability. Moving on to the balance sheet. Shareholder funds remained strong at $8.3 billion. JC&C's consolidated net cash, excluding the net borrowings from Astra's Financial Services business, is $26 million compared to net debt of $235 million as at the end of last year due to strong operating cash flow. The holding company net debt was reduced from $1.3 billion at the end of 2023 to $860 million at the end of 2024, and this remained relatively unchanged as at the end of June 2025. Moving on to each of the business pillars in detail, starting with Indonesia. In the first half, our portfolio companies, Astra and Tunas contributed a total of $466 million, down 9% from the prior year. Astra's contribution was $456 million, 8% lower than the previous year. Astra reported improved results from financial services, infrastructure and agri business. However, its 4-wheel business, which is part of the automotive division and United Tractors reported lower earnings. This contributed to an overall lower performance. I will take you through more details of Astra in the next slide. On the other hand, Tunas faced similar challenges of a softer car market and reported 40% lower contribution to JC&C at $10 million. Let me now take you through some details on Astra's performance. Astra reported 4% lower net income for the first half of 2025 at $974 million on a 100% basis. The net income for its Automotive and Mobility division was down 8% to $320 million. The 4-wheel wholesale market declined 9% to 375,000 units due to weak consumer sentiment. However, Astra stayed resilient by maintaining its market share at 54%. The 2-wheeler wholesale market was relatively stable at 3.1 million units, down 2% from last year. Astra continued to command a strong market share of 77%. Astra's used car business continued to grow, recording 26% higher sales to over 15,000 units in the first 6 months of the year. Moving on to Financial Services. Net income increased 6% to $266 million due to higher contribution from Astra's consumer finance business on larger loan portfolios, reflecting strong growth in their multipurpose financing segment. On heavy equipment, mining, construction and energy, United Tractors' net income decreased 15% to $303 million. This was largely due to lower contribution from overburden volume removals because of heavy rainfall experienced earlier in the year -- in the first 5 months of the year, in fact. Lower coal prices also impacted United Tractors' profitability to a lesser extent. However, UT's gold mining achieved a good result, reporting 14% higher gold sales at 37% higher prices. Komatsu equipment sales also increased this period by 27% to 2,700 units due to higher demand across all sectors. In addition, the revenue from aftersales business also increased. For Agribusiness, net income increased by 40% to $34 million. This was due to higher CPO prices and increased sales volume. Astra's Infrastructure division continued good growth, reporting a 30% increase in net income to $39 million. The toll road business saw a daily toll revenue growth of 8% as a result of higher traffic volume compared to 2024. In the first half, Astra continues to execute its strategic initiatives in automotive, renewable energy as well as industrial and logistics infrastructure. As follows: in April, as part of Astra's strategy to further strengthen its leading market position in the used car sector, it partnered with Toyota, where Toyota invested $120 million for a 40% stake in OLXmobbi, Astra's used car platform. Under this partnership, OLXmobbi will be able to expand its sourcing of used cars to even more dealerships. It will also increase access to used cars, financing, insurance and aftersales for customers all across Indonesia. We are very optimistic that this partnership will accelerate Astra's growth in the used car market. And in June, as part of United Tractors' strategy to build new earnings stream in renewable energy, we completed the acquisition of an additional 30.6% stake in Supreme Energy Sriwijaya for $31 million, which increased United Tractors' effective interest in an operating 2 x 49 megawatt geothermal project in South Sumatera, to 40.4%. Now most recently, just about a week ago, Astra announced that it is acquiring an 83.7% stake in Mega Manunggal Property, an industrial and logistics property developer listed on the Indonesian Stock Exchange. This transaction is part of Astra's strategy to benefit from the rapidly growing industrial and logistics infrastructure sector in Indonesia. The sector has been growing at about 9% per annum in recent years and is projected to grow similarly up to 2030. Now on to our Vietnam businesses. The contribution from JC&C's Vietnam portfolio increased 17% to $36 million compared to last year. THACO contributed $17 million to JC&C's underlying profit, up 10% from the prior year. This was driven by 12% higher automotive sales to 41,000 units. Although against the backdrop of increased competition, automotive margins remained strong, which supported THACO's profitability. Moving on to REE. REE reported 48% higher underlying profits to $10 million. This was due to favorable hydrology conditions as well as JC&C's increased shareholding in the company. For Vinamilk, we received a dividend income of $9 million, largely unchanged from the previous year. Finally, moving on to the performance of our Regional Interest. Regional Interest this half contributed $20 million to JC&C's underlying profit. This is down 16% compared to the prior year because of the disposal of Siam City Cement. Singapore makes up most of Cycle & Carriage's earnings. In the first half of 2025, it achieved a market share of 14% and higher sales in all our segments, new car, used car and commercial vehicles. It also recorded higher aftersales volume. A bit of color, new car sales were 4% higher at 3,300 units. Singapore new car market has been witnessing strong demand despite elevated [ CRE ] prices. We are also delighted to share that Cycle & Carriage is now partnering with Stellantis, adding Citroën, Peugeot and Leapmotor to its banner and expanding its product range to customers. In addition, in line with our strategy to grow the commercial vehicle business, we are pleased to report that the full delivery to Singapore's Land Transport Authority of 120 Zhongtong electric buses will be completed this year. Moving on to our outlook. Now in the first half of 2025, our markets experienced various macroeconomic challenges that were also felt globally. These near-term challenges are likely to remain elevated, and we will continue to monitor and manage them closely. For the second half, we expect our businesses in Indonesia and Singapore to remain stable and our businesses in Vietnam to continue building on the country's economic momentum through the rest of the year. While we continue executing this year's results, we are also excited and focused to deliver our longer-term objective of building portfolio with strong growth and total shareholder returns. I would like to close today's session. I thank you all for the time and wish everyone a good morning. See you in 6 months' time. Thank you.