Jardine Matheson Holdings Limited (J36) Earnings Call Transcript & Summary

Good morning, and welcome to the Jardine Matheson and Jardine Strategic 2020 Results Presentation. In light of the continuing impact of COVID-19, we are again using a webcast for the presentation. You should be able to see the slide deck on your screen at the same time as we speak, and you can also download the deck, if you wish. At the end of the presentation, we'll have an opportunity to respond to questions. [Operator Instructions] As with previous years, Graham and I will go through the 2020 business highlights, strategic priorities, financial performance and outlook for 2021. Before we cover our full year results, however, I wanted to touch on the simplification of the parent company's shareholding structure, which we announced on Monday morning. As you know, the Boards of Jardine Matheson and Jardine Strategic have agreed that, subject to shareholder approval, Jardine Matheson should acquire the 15% of Jardine Strategic shares that it does not already own for a price of USD 33 per share in cash, representing an attractive premium. Once Jardine Matheson owns 100% of Jardine Strategic, it is planned to cancel Jardine Strategic's 59% shareholding in Jardine Matheson. We see this transaction as the natural next step in the evolution of the group structure. I wanted to remind you of the reasons why we believe that carrying out the transaction is the right thing to do. Firstly, removing the cross-holding structure will allow us to simplify the group's legal structure, creating a single point of focus for investors and making it more transparent and aligned with the conventional ownership model. Secondly, taking full control of Jardine Strategic's earnings and shares will deliver a significant increase in earnings per share, which is expected to support long-term dividend growth, which has always been a central value of the group. Thirdly, the transaction will also eliminate some corporate and administrative costs and increase financial and operational flexibility, including increasing Jardine Matheson's flexibility to buy back its own shares. And vitally, we will continue to benefit from the long-term support of our core shareholder base, comprising the holdings of group directors, other members of the founding families of Jardine Matheson, and certain other trusts and foundations. The collective shareholding of all family members and related interest in Jardine Matheson are expected to total some 43% following the completion of this process. Graham will remind you of the implications of the transaction for the group's gearing and its future approach to capital allocation when he talks about our net debt and consolidated cash flows later in the presentation. In the meantime, I wanted to emphasize that I'm delighted that we are taking forward the simplification of our group structure. This is a significant milestone in the group's evolution. We believe that the transaction will underpin the stability and success of the group for many years to come. Turning now to our annual results and looking first at the effect of COVID-19 on the group. Like many others, we have seen significant disruption, operating challenges and rapid change continue across all our markets. Starting in China, ongoing travel restrictions have continued to materially affect tourist numbers, and this has severely impacted our consumer-facing businesses in Hong Kong. Pandemic-related restrictions also resulted in temporary store, restaurants and dealership closures at various periods throughout the year. Conversely, in the Chinese mainland, beginning in the second half, economic activity has been more robust, but it is uncertain whether this will be maintained. In Southeast Asia, Astra's businesses in Indonesia faced extensive disruption for much of the year, materially impacting its profits. The automotive division saw factories and dealerships required to close in the first half, leading to a significant drop in sales volumes and a loss in the second quarter, although partial easing of restrictions in the second half led to some recovery in performance. Astra's financial services division was also affected by the overall drop in activity levels and by the increased loan loss provisions to cover higher nonperforming loan losses in the group's consumer and heavy equipment-focused finance businesses. Astra's mining activities were impacted in the first half by pandemic-related restrictions as well as the impact of low coal prices on our customers for much of the year, even while gold prices remained relatively strong. Access to Astra's plantations was also reduced in the first half, although performance for the year was helped by higher crude palm oil prices. Lockdown restrictions also led to a significant reduction in traffic volumes on Astra's toll road network. Similar challenges were faced by our other businesses in the region. Jardine Cycle & Carriage saw challenging conditions, in particular, for its other automotive businesses with reduced sales and lower margins. Our hotel business, Mandarin Oriental, was severely impacted by the pandemic and the effect it has had on travel. Many countries imposed border controls and there were significant restrictions on hospitality operations, including restaurants. As a result, despite extensive cost reduction initiatives, the business suffered a substantial loss in the year. Despite the challenging conditions, there were some resilient performances from Hongkong Land, Dairy Farm, the Jardine Matheson Group of -- Pacific Group of companies and our Motors businesses. Across the group, immense efforts have been made to respond to the challenges caused by COVID-19. And I would like to thank our teams in all our group companies as well as all our partners for the tremendous dedication and commitment they have chosen throughout the period. Protecting and ensuring the well-being of our colleagues has been a top priority throughout the year. We've taken extensive actions in this regard including giving colleagues access to support and resources to address mental health issues, encouraging flexible working practices and making health and safety a high priority. Our businesses have also been taking action to support suppliers, partners and the communities in which we operate to help them weather the crisis. This has included working with suppliers to help them develop more efficient ways of working, providing rent relief to tenants in our retail portfolios, and extensive corporate social responsibility activity in our communities. As a group, we have been supporting our businesses to ensure that their balance sheets and funding positions are robust and resilient given the ongoing uncertainties they face. There's also been a strong focus on financial discipline with reductions in expenses and CapEx, management and optimization of working capital, and efforts to conserve cash across all businesses. At the same time, our businesses participated in government initiatives to support employment. I'll now spend a few minutes highlighting 1 or 2 significant developments which have taken place across the group during the year. Jardine continues to have a strong presence in and a key focus on 2 of the fastest-growing consumer markets in the world, China and Southeast Asia. In 2020, 73% of the group's underlying profit came from China compared with 56% in 2019, with a stronger performance both from the Chinese mainland and Hong Kong, while 34% came from Southeast Asia. The proportion of group profit from Southeast Asia was considerably lower than the 42% contribution it made in 2019, at an average of around 40% over the past few years due to the disproportionate impact of COVID-19 on the region, and in particular, on Indonesia. The Chinese mainland is an increasingly important market for the group, and the group is focused on growing its businesses there further. This focus is exemplified by Hongkong Land's strategic acquisition and launch during the year of the West Bund project in Shanghai, a large, predominantly commercial mixed-use site in a prime waterside location. Planning for the development of the site is progressing well and incorporates an industry-leading approach to sustainability. We expect the project to be a material driver of long-term value creation, and it complements our large-scale presence in the other key Asian financial centers of Hong Kong and Singapore. Southeast Asia is the other area of key focus for the group. Our businesses in the region faced considerable challenges in the year as a result of COVID, and much of their effort was spent addressing the threats posed by the pandemic. Nevertheless, the group continues to see the region as a source of significant future growth and it is focused on taking a long-term view towards its businesses there. In November 2020, Astra acquired a 35% stake in the operator part of the Jakarta Outer Ring Road, and during 2020, THACO, in which Jardine Cycle & Carriage has nearly 27% interest, expanded its venture in the agricultural sector started in 2019 with the cultivation of fruit trees with a move into livestock breeding. A key focus of the group in the past year has been on modernizing our core business operations and adapting our businesses to changing consumer behaviors. Generally, we are moving to a more relationship-based approach to our customers rather than merely transactional. This has been particularly exemplified by Dairy Farm's July launch of the yuu rewards program. The program has surpassed expectations in its first 9 months, with more than 3 million members now signed up. In 2020, the yuu rewards app was the most downloaded app on Apple's Hong Kong App Store. I'll now talk about our strategic priorities. We clearly need to continue to focus on addressing the short-term challenges to the group from the pandemic, and we have shown great resilience in the past year, while also making good progress on modernizing the core of our operations and changing how we do business to reflect the evolving environment in which we find ourselves. The pace of change in each of our markets has only accelerated over the past year. We, therefore, see it is imperative that we take further steps to ensure that our businesses are in the best possible shape to achieve sustainable, long-term growth and success. To do this, we need to demonstrate pace, we need to demonstrate innovation and adaptability more than ever. This will mean driving forward our strategic priorities with conviction and a heightened sense of urgency in the coming year and beyond. The first of these priorities is to evolve the group's portfolio. We'll build on our proven track record of actively managing our portfolio as well as our geographic diversification in China and Southeast Asia and our good balance of businesses across sectors to increase our presence in the most attractive markets and in businesses where we can achieve market-leading positions. We're relevant. We will expand existing businesses, invest in new projects and growth initiatives, and make strategic investments. And we'll continue to build enduring and successful partnerships with local leaders. Yesterday, we announced a strategic cooperation with Hillhouse Capital, a leading Asian private equity firm, that deploys technology to drive innovation in its portfolio companies with sustainable long-term growth as its goal. The strategic cooperation will enable both of our companies to partner on mutually beneficial investment and business development opportunities, predominantly in China as well as in Southeast Asia. It's also expected to be close collaboration between the Jardines and Hillhouse investment and value creation teams and their portfolio companies, especially in the areas of consumer technology and digital enablement. We will continue to rise to the challenge of digital, finding new inorganic growth opportunities which complement our current businesses or enable our wider participation in the digital economy. We're actively seeking partnership and investment opportunities to evolve our portfolio to increase exposure to the digital economy and emerging industries. We're pleased with the progress of our newer partnerships, including joint ventures with Gojek and WeLAB in Indonesia; and Bank of China and JD Technology in Hong Kong to form the livi virtual bank. But we need to build on the progress we have made so far to develop more new partnerships in this space. At the same time, we'll also regularly review our business portfolio and prune assets, which are no longer seen as being aligned with our group strategy or we believe are better owners of the assets than Jardines. This approach was demonstrated by the disposals this year of our stake in Permata Bank and our IT services business, JTH, as well as the sale of our interest in JLT in 2019. In 2020, we also sold our Wellcome Taiwan business and combined our interest in Rose Pharmacy with Robinsons Retail Pharmacy business in the Philippines. Another key area of focus is on driving operational excellence in our businesses and in new ventures we undertake. A key priority in this context is for our existing businesses to accelerate the pace at which they adapt technology and embrace digital ways of working. Digital techniques and tools have the power to transform the way we interact with customers and maintain competitive leadership. As I noted earlier, Dairy Farm's launch of the yuu rewards platform will enable us to anticipate and meet individual customer preferences and needs. Our focus on modernizing the core of our operations has also seen good progress in a number of our businesses, including the transformation program in Dairy Farm and the business improvement initiatives being carried out in JEC and Jardine Restaurants. Increased efficiencies, which these initiatives have created, are helping our businesses navigate the challenges posed by the pandemic. There's still more to do in many of our businesses to set them up for future success. Our future success will depend on our ability to attract, to develop and to retain leadership talent across our businesses. We must provide our colleagues with appropriate training and other support to equip them with the right skills to navigate the challenges and opportunities we all face. In this context, we have made great progress in the past year in developing a comprehensive program of online learning and academies across the group, which has seen high levels of participation and demonstrates our commitment to supporting our colleagues and acquiring the new skills they need. As we grow, it's essential that we maintain a high pace of change and foster a greater level of entrepreneurship among both current and future leaders. This will be a key focus in the coming year. Another key focus is sustainability. We are committed to integrating sustainability into how we do business. We believe that real value can be realized from doing this. It's not just about ticking boxes, we want to consistently put sustainability at the heart of our strategies and decision-making and really make it part of our DNA. We'll be focusing this year on driving a more aligned, more focused approach to sustainability across all our group companies to maximize the impact we have in our communities and to protect the environment. There are great advantages to being able to leverage our scale in this area. We will actively share the positive actions our diverse businesses are taking in this area by reporting more effectively on environmental, social and governance issues, and we plan to publish a group sustainability report in 2022. In summary, we believe that Jardine remains resilient and well positioned to achieve its long-term growth objectives across the region, reflecting our clear strategic aims, the diversity of our businesses and their underlying business models as they evolve. We recognize that a number of our existing businesses are facing increasing disruption and change, both in technology and consumer behaviors against the backdrop of an increasingly complex environment. By driving operational excellence in our existing businesses, however, and identifying and taking opportunities to evolve our portfolio, together with a focus on enhancing leadership and fostering entrepreneurship, we will create the right engines to achieve sustainable long-term growth. And we will need to demonstrate both speed and agility in order to meet the pace of change we are facing and effectively deliver our group strategy. Turning now to an overview of the 2020 full year results. Graham will take you through the numbers shortly. But in summary, the group's profitability in the year was significantly impacted by COVID-19. The group's revenues reduced by 20% compared with last year, and underlying net profit for the year was down 32% at USD 1.1 billion. The reduction in profit was primarily driven by the weaker performance of the group's Southeast Asian businesses in Astra and Jardine Cycle & Carriage as well as by the severe impact of the pandemic on the group's hotel business. There was, however, resilience of the performance of Hongkong Land, Dairy Farm, Jardine Pacific and Jardine Motors. With the notable exception of Mandarin Oriental, the group's major businesses remained profitable in the year, although in some cases, at materially lower levels than last year. These are clearly difficult times, but we have a long track record of successfully navigating change and challenge throughout our history spanning nearly 2 centuries. The resilience of the group demonstrated in 2020 provides the board with the confidence and our group with the resources to continue to take advantage of long-term opportunities in Asia, while adapting to the changing external environment and evolving expectations of our stakeholders. On that note, I will pause and pass you to Graham, who will take us through a closer look at our results.

Thank you, John, and good morning, everyone. Before I focus on performance, let me remind you of the structure of the group. There have been no material changes since the 2020 half year results presentation. In addition to the ownership interest shown here, Jardine Strategic currently holds a 59% interest in its parent, Jardine Matheson. Turning to the group's results for the year. As in the past, I'll focus on underlying profit attributable to shareholders, which the group uses as its key earnings performance measure. Underlying profit excludes nontrading items as defined in the group's accounts and is intended to provide a clearer understanding of the ongoing business performance of the group. Full year revenue from subsidiaries was USD 32.6 billion, 20% lower than last year. The group's underlying profit in the period was $1.1 billion, 32% below that in 2019. We booked a nontrading net loss of $1.5 billion in the year compared to a net nontrading gain of $1.2 billion last year. Accordingly, the group saw a loss attributable to shareholders for the year of $394 million compared with a profit of $2.8 billion in 2019. Underlying earnings per share were 30% lower at $2.95. The Board has declared a final dividend of $1.28 per share, unchanged from last year. This means that the total dividend for the year will also be unchanged from last year at $1.72. This slide summarizes performance business by business, which I'll return to in a moment. As noted in our results announcement, the underlying profit for the period reflects $282 million of support received from a number of governments, principally to support employment. At the same time, the group's companies have invested substantial sums supporting colleagues, customers and communities. And the overall impact on our business from COVID-19, of course, remains sharply negative. Moving to nontrading items during the period. The group saw a net loss in the year of nearly $1.5 billion compared with a net gain of $1.2 billion in 2019. The net loss in 2020 principally reflected a net decrease in fair value of investment properties of $1.4 billion, primarily in Hongkong Land. I'll now turn to the individual operating businesses before returning to the group's net debt position and consolidated cash flow, and then hand back to John to cover the outlook for 2021. I'll start with the businesses held directly by Jardine Matheson and then cover the group's listed entities, which are held through Jardine Strategic, and all of which have issued their own results announcements over the past 2 days. Jardine Pacific reported an underlying net profit of $182 million for the year compared with $164 million last year, a highly resilient and cash-generative performance in current market conditions, reflecting its diversified business portfolio. Looking at individual businesses, JEC, HACTL, Gammon and our Restaurant businesses all performed well. But the other businesses saw their performance decline as a result of the pandemic. There was an extensive focus across the businesses in the year on driving operational improvements. The benefits are starting to be seen and Jardine Pacific is well placed for future growth. Looking now at our Motors businesses. Jardine Motors saw its underlying net profit for the year increase by 9% to $214 million. We recorded a higher contribution from the investment in Zhongsheng, remembering, of course, that this result relates to Zhongsheng's performance for the second half of 2019 and the first half of 2020. Zung Fu on the Chinese mainland saw a rapid recovery in demand from the second quarter onwards, which led to an increase in car sales and it also implemented cost efficiency measures to drive the bottom line. Zung Fu in Hong Kong saw lower underlying performance in the period ahead of the Mercedes product line refresh expected in 2021 and beyond. Mercedes-Benz remains the #1 selling brand among all carmakers in the territory. United Kingdom business continued to face difficult market conditions and to be materially impacted by lockdown measures, which led to the temporary closure of dealerships and lower demand. Looking now at Jardine Strategic. Consolidated underlying profit for 2020 fell by 35% to $1.1 billion. Once again, the nontrading loss of approximately $2 billion, mainly reflects noncash revaluation losses in Hongkong Land's investment properties. Turning now to Hongkong Land, whose underlying profit for the year was $963 million down 11% from 2019. Performance was negatively impacted by COVID-19, particularly in relation to the provision of retail rent relief in the investment properties business and a lower contribution from development properties as a result of fewer planned residential completions. The group's office portfolio in Hong Kong performed relatively well amidst the current market downturn, reflecting its active lease management in recent years. Vacancy at the end of 2020 was 6.3% or 5.9% on a committed basis compared with 2.9% at the end of 2019. The Central retail portfolio suffered in the period from deteriorating consumer sentiment due to the pandemic and resulting travel restrictions although there were modest improvements in the second half of the year. Vacancy was, however, virtually unchanged from the end of 2019. In Singapore, rental reversions remained positive in the office portfolio, and vacancy reduced to 2.1% at the end of 2020 on a physical and committed basis, down from 5% at the end of 2019. Turning to Hongkong Land's development properties. On the Chinese mainland, there were varying levels of disruption across different cities due to the temporary suspension of sales and development activities, particularly in the early and middle parts of the year. But sentiment in the group's core markets has recovered to pre-pandemic levels. Full year performance was impacted by construction delays which led to fewer planned residential completions as well as by a change in product sales mix transferred to buyers. At the 31st of December 2020, the group had $2.6 billion in sold but unrecognized contracted sales compared with $1.9 billion at the end of 2019. The profit contribution from the Singapore development properties business was lower than last year, largely due to construction delays caused by the pandemic. In the rest of Southeast Asia, construction activities have largely resumed after having been suspended or curtailed in the second quarter. But market sentiment remains subdued. Our regular biannual revaluation of investment properties saw a $3.6 billion decrease in the value of the portfolio, leading to a loss attributable to shareholders of $2.6 billion for the year. The drop was primarily in the group's Central portfolio in Hong Kong, driven by lower open market rents. We are seeing signs of changes both in the way people work and the working environment. Hongkong Land is adapting to these changes through a range of initiatives including the creation of flexible space and enhancements to the services it offers tenants to meet their changing needs. Dairy Farm reported sales of $10.3 billion for the period by its subsidiaries, 8% lower than last year. Underlying profit was 14% lower at $276 million. The Grocery Retail business saw profit significantly improve. This reflected strong like-for-like sales growth as a result of a shift in consumer behavior during the pandemic and operational improvements to range, quality and pricing. It also reflected further progress in the group's transformation plan and improvement programs. There was strong sales growth in Singapore and Malaysia, but market conditions in Indonesia remained challenging throughout the year. Home Furnishings also delivered a good performance, mainly in Hong Kong and Taiwan, with new store openings and strong e-commerce growth offsetting pandemic-related disruption. The business also benefited from lower cost of goods in the period, reflecting focused procurement activities and reduced preopening expenses. In Health and Beauty, however, performance in North Asia was materially affected by a continuing lack of overseas tourist custom in Hong Kong and Macau. In Southeast Asia, following strong like-for-like sales growth in the first quarter, Guardian sales growth decelerated significantly due to movement restrictions in the remainder of the year. In order to meet the challenges of difficult trading conditions and the lack of tourist traffic, Dairy Farm is focusing on price investment to ensure relevance to the customer. It also sees investments in digital, the yuu rewards program, improvements in store design and the development of the group's own brand offering as key drivers of future growth. In the convenience stores business, pandemic-related restrictions significantly impacted traffic into stores. The group is continuing to invest in the growth of its 7-Eleven store network in Guangdong and is investing in new IT systems to support future growth. Dairy Farm's 50% owned associate, Maxim's, saw a significant fall in customer numbers and a number of temporary store closures and adjusted operating ad. Weak sales performance led to a significant reduction in profitability, although the business implemented a range of measures to reduce costs. While trading conditions continue to be challenging, Maxim's remained committed to pursuing its multi-brand strategy, and during the year, announced that it has expanded its partnership with Shake Shack across China. Maxim's has also secured the Starbucks franchise in Laos and now holds the franchise in 7 markets. Moving to the group's luxury hotel business. Mandarin Oriental recorded a substantial underlying loss of $206 million for the year compared with a profit of $41 million last year, despite implementing multiple cost management measures. Government actions to curtail the pandemic drastically reduced both international and domestic travel. Many countries closed their borders. And there were significant restrictions on freedom of movement and on hospitality operations. In Asia, most hotels were able to remain operational through the year, but with sharply reduced occupancy due to border closures. In Europe and America, hotels closed for much of the second quarter, with most reopening thereafter. The relaxation of travel restrictions allowed some recovery in business levels, a resurgence in COVID-19 cases towards the end of the year, however, brought back many even stricter restrictions. The group's managed hotels in resort locations, such as Dubai and Bodrum, performed well when travel conditions permitted. Against this background, the combined total revenues from hotels under management fell by 55% in 2020 compared to the previous year. And the group's profitability was severely impacted albeit to a lesser extent in the second half of the year. Trading conditions remain extremely challenging, and the group's performance will not substantially improve until travel restrictions are relaxed. An underlying loss is expected to be reported for the first half of 2021. The group's pipeline of new properties, however, remains strong. Despite the challenges faced by Mandarin Oriental, its liquidity position remains robust, and it has sufficient cash reserves and undrawn loan facilities to sustain it through an extended period of further weak performance. Turning now to the group's other business interests in Southeast Asia. Jardine Cycle & Carriage reported an underlying profit for the period of $429 million, a fall of 50% against last year. Excluding the gain on sale of its investment in Permata Bank, Astra's profit contribution to JC&C fell by 57% to $309 million. There was significantly weaker performances from its automotive, financial services and heavy equipment and mining operations, partially offset by agribusiness. JC&C's direct motor interests were significantly impacted and saw profit fall by 78%. The contribution from Cycle & Carriage Singapore was 68% lower than last year as the business saw both its sales and market share fall. Tunas Ridean's contribution was 94% lower due to weaker performances across its automotive and consumer finance operations. In Malaysia, Cycle & Carriage Bintang, however, reported a lower loss than last year as sales improved and cost savings were implemented. In other strategic interests, THACO's contribution was lower than the prior year, with a decline in margins in its automotive business as a result of the difficult market conditions in the first half of the year due to the pandemic, partly offset by higher unit sales. There was a 3% higher contribution from Siam City Cement in Thailand, with margins benefiting from improved operational efficiencies, which helped offset a decline in sales. The contribution from REE in Vietnam was 13% higher, due primarily to a stronger contribution from real estate and the effect of an increase in the group's shareholding from 25% to 30%. Vinamilk produced dividend income of $37 million in the period compared with $36 million last year. The business reported an improvement in profit as its export business continued to grow, while its domestic dairy segment remained relatively stable. Overall, the contribution from other strategic interests was down just 5% at $120 million. JC&C's corporate costs were lower than last year, mainly due to a reduction in net financing charges. Turning now to Astra. The pandemic containment measures implemented across Indonesia caused severe disruption to Astra's operations. Low coal prices until the latter part of the year also impacted Astra's heavy equipment, mining contracting and mining businesses. Gold sales, which accounted for some 40% of this division's profits in 2020, up from 18% in 2019, were more resilient. Looking at the performance of the individual businesses within Astra in a little more detail, the contribution from Astra's automotive business fell by 76%, mainly due to a substantial fall in sales volumes. The overall wholesale car and motorcycle markets contracted by 48% and 44%, respectively. And Astra's sales fell in both sectors. Market shares, though, were broadly stable in both sectors. The contribution from Astra's Financial Services division fell by 49% to $111 million, mainly due to increased loan loss provisions to cover higher nonperforming loans in the group's consumer and heavy equipment-focused finance businesses. Responding to government policy, support was also provided to many of our customers with the restructuring of consumer loans. Consumer finance businesses saw a 23% decrease in the amounts financed and the profit contribution from car-focused and motorcycle-focused finance companies declined by 46% and 42%, respectively. Heavy equipment-focused finance operations saw a 17% decrease in the amounts financed and a 49% fall in profit contribution. Astra completed the disposal of its nearly 45% stake in Permata Bank in May 2020 for sale proceeds of $1.1 billion. Astra's heavy equipment, mining and construction division saw a 49% fall in profit. This was caused by a 47% reduction in heavy equipment sales as well as lower parts and service revenues together with 17% lower overburden removal volume and 13% lower coal production by the group's mining contracting operations. The group's gold mining operations saw gold sales of 320,000 ounces, 22% lower than last year. Astra's Agribusiness division performed significantly better due to a 28% increase in crude palm oil prices, which offset a decline in crude palm oil and derivative sales. The group's infrastructure and logistics division saw a significant decrease in its contribution mainly due to lower toll road revenues and lower operating margins. Moving from the operating company's trading performance to the group's balance sheet. The balance sheet remains strong with shareholders' funds down just 3% to $29.4 billion at the 31st of December 2020. Jardine Matheson's consolidated net borrowings, excluding financial services companies, were $3.7 billion at the end of 2020, representing gearing of 6%. This compares to net borrowings of $4.8 billion and gearing of 7% at the end of the prior year. The decrease in net borrowings reflected lower net borrowings in Astra, mainly due to proceeds from the sale of Permata Bank and a reduction in working capital, partly offset by investments in the group's businesses in the year, including Hongkong Land's West Bund new project. The group's financial services companies, comprising primarily the consumer finance businesses within Astra, had net borrowings of $2.8 billion at the end of 2020, reduced from $3.3 billion at December 2019. Looking more closely at the group's net borrowings, excluding financial services companies. In Hongkong Land, net borrowings increased to $4.6 billion from $3.6 billion at the prior year-end, primarily due to that acquisition of the West Bund site. Dairy Farm's net borrowings at December 31 were $817 million, in line with 2019. Mandarin Oriental saw its net borrowings increase from $300 million to $506 million at the end of 2020, reflecting capital expenditure in the period, mainly in relation to the renovation of the Madrid hotel and the redevelopment of The Excelsior site as well as the trading losses incurred by the business. At Jardine Cycle & Carriage, consolidated net borrowings, excluding Astra's financial services subsidiaries, fell from $3 billion at the end of 2019 to $854 million at the end of 2020, mainly due to the receipt of the proceeds from the sale of Astra's interest in Permata Bank and a reduction in net working capital. As we announced on Monday, the group will fund the acquisition of the 15% minority in Jardine Strategic, through a combination of existing cash resources and new debt funding. The acquisition value is approximately $5.5 billion. On a pro forma basis, this would take our 2020 year-end net borrowings from $3.7 billion to $9.2 billion and our gearing from 6% to 16%, again on a pro forma basis. I'll end by making a few observations on cash and liquidity. Firstly, despite lower operating profits, cash from operations rose by some USD 400 million. This was principally driven by reductions in net working capital, particularly in Astra. These reflected a combination of focused management and to an extent, the natural response of working capital to depress activity levels in the business. We also benefited in the year from completion of important projects, such as the Jakarta-Cikampek Elevated Toll Road in United Tractors. We've also been disciplined in managing all categories of capital investment carefully during 2020, while continuing to progress with major priority investments for the long term, such as the West Bund development. Finally, liquidity has, of course, benefited from the well time disposals at attractive valuations of JLT in 2019 and Permata Bank in the first half of 2020. As I mentioned, the acquisition of the minority shareholding in Jardine Strategic will lead to an increase in group gearing to 16% on a 2020 pro forma basis. Our prudent funding approach shaped by our capital allocation framework and our commitment to strong investment credit metrics is unchanged. The acquisition will be funded by a 1-year bridge financing facility. We plan to turn out the bridge facility within its tenure with a combination of termed, committed revolving credit facilities and longer tenor capital markets debt, which is likely to consist of a 10-year bond. For the time being, we expect greater emphasis on continued organic investment, the payment of a stable and growing dividend and some reduction in gearing at the parent company level. Beyond that, we will, of course, continue to be able to deploy surplus capital generated by the businesses where suitable opportunities arise, making inorganic investments in new businesses to drive overall growth, and deepening investment in the existing group companies, including through buybacks. With significant further undrawn committed borrowing facilities, the group will remain in a strong financial position after completion of the transaction. That concludes my summary of the performance and financial position of the group. Thank you. I'll now remind all attendees to please send through your questions if you haven't already, by pressing submit question on your screen. And then hand back to John.

Thank you, Graham. Turning to the outlook. High levels of uncertainty remain in respect of this year, given the continuing impact of the pandemic. The group's performance in the first part of 2021 is expected to be affected, in particular, by the continuing headwinds faced by our businesses in Southeast Asia and the ongoing low levels of Chinese mainland and other visitors to Hong Kong. There is continued robust activity in the Chinese mainland, but it is uncertain whether this will be maintained. Certainly, it remains too soon to predict what the impact of the pandemic will be on the group's performance for the full year. We remain confident, however, in our long-term strategy, rooted in the growth markets of Asia, and we will continue to focus on our core priorities of driving operational excellence, evolving the group's portfolio and finding new growth opportunities in order to deliver long-term value. With that, we conclude our presentation and can take any questions you have. Thank you very much.

Now I'm going to turn to the questions. I see we have a number of questions. So I'm going to synthesize in respect to the thought process on how Jardines arrived at the offer price of USD 33 for Jardine Strategic, how does Jardine Strategic NAV come into consideration when reaching the offer price.

Sure. I'm happy to start on that. Please join me where appropriate. So the thought process starts with the principles that the group wanted to respect the rights of both groups of shareholders, the Jardine Matheson shareholders and the Jardine Strategic shareholders by paying a fair and reasonable price. To that end, we appointed in thinking of the offer that Jardine Matheson should make, financial advisers, JPMorgan and Simon Robertson Associates and latterly HSBC to advise us in relation to the making of that offer and what a fair and reasonable price would be. We appointed a transaction committee. The Jardine Strategic Board appointed a transaction committee, comprised only of the members of the Board of Jardine Strategic, who were not also on the Board of Jardine Matheson. And that transaction committee appointed an independent financial adviser and an independent legal adviser. There was a robust process followed, and the price that was offered was recommended by the independent financial adviser and the transaction committee of Jardine Strategic to the Board. So the process that was followed reflected the thinking, which was that we wanted to deliver a fair and reasonable price to the shareholders in Jardine Strategic, but that also had to make sense to the shareholders of Jardine Matheson. Clearly, in thinking about the perspectives on the price, there are a number of perspectives on price. And offering a 20% premium to the spot price on the 5th of March, the day before the offer was made, a 29% premium to the price in the month before that, and a 40% premium in the 6 months before that is seen as a compelling offer and was unanimously agreed to by all sets of advisers, the transaction committee, and the Boards. Other alternative perspectives on valuation were, of course, considered, I'm sure, by the -- both the Jardine Matheson Advisory Group and the independent financial adviser, Evercore Partners to the Jardine transaction committee. Many of those alternative valuation approaches in common with many conglomerates, the Jardine Strategic share price has sat at a long-term discount to net asset value. And therefore, I believe that the fact of the offer makes it clear that both sets of advisers together with the boards of both companies believe that it is more important to pay attention to the price that the shares actually trade at and have traded at. And in relation to that, as I said, the price represents an attractive premium in cash for a full exit by the Jardine Strategic shareholders.

Thank you, Graham. Another question on the transaction. I think Bloomberg had reported that a couple of the minority shareholders were opposing the transaction. And the question really is around sort of what were the precedents in Bermuda, any color?

Sure. So to start with the most important fact under the Companies Act in Bermuda, Jardine Matheson, like all other shareholders, is entitled to vote each share in the approval of that transaction, and it intends to do so. And that, of course, follows a number of similar transactions in the past. So in relation to the opportunity for shareholders who have a different view, there will be a circular issued within the next week to Jardine Strategic shareholders. That will set out the mechanisms by which any dissenting shareholders may, if they wish, apply to the courts in Bermuda. Our understanding is that, that will not, in any way, interrupt the completion of the transaction, which will proceed within a relatively short time frame, and we expect to be in place by the end of April.

Okay. Thank you, Graham. Next question is on capital allocation. Could you share more about the decision-making when Jardines was deciding to make an offer for Jardine Strategic instead of the other portfolio companies? And I suppose the answer is that we are always looking at ways of adding value through the portfolio, looking at the underlying businesses. And I believe the tractions of Jardine Strategic versus some of the other portfolio companies were really twofold. One, the Jardine Strategic business is a very diverse portfolio. The business is, of course, in Southeast Asia, in China, represent assets, value growth that we understand very well. So really, that was the first reason. But the second, in the complexity of the dual parent structure at the top only by addressing the issue of Jardine Strategic were we able to essentially present a more conventional ownership structure. And we thought there were significant benefits in that. Really those reasons led the decision of why Jardine Strategic rather than something else. There's another question. Would Jardines be amenable to raising net gearing above 16% post acquisition of Jardine Strategic? I suppose, Graham, my first comment would be that, certainly, we're -- the transaction is well within the debt capacity of the group. And I suppose from my perspective, we very much focus not only on the consolidated gearing, but equally of the sort of the gearing of the parent company. Frankly, I haven't looked particularly at setting very specific targets for either of those but recognizing that our philosophy of financial prudence really, really remains as was.

Nothing really to add, John. I mean, as we've said, our plan in the near term is to reduce gearing nearer to our historic levels, but we will be putting in place probably an element of the financing package that will sit there for some time into the future. So we're very confident, as you said, about the capacity of the group to support borrowings, should the right opportunities arise. But in the near term, we're probably focused on dealing with this very large and important transaction that we have just ahead of us.

Next question is, once the structure is simplified, Jardines will directly own a 75% stake in JC&C. Our view on -- will you consider increasing your stake in Jardine Cycle & Carriage in the future, down a similar road to Jardine Strategic? I suppose the second question, as part of that, Jardine Cycle & Carriage has around $1.5 billion debt at the parent level, long-term objective of bringing it down to 0 gearing -- given the gearing of Jardine Matheson, will elevate once the structure is simplified. At what future level of gearing Jardine Matheson would be willing to fund the possible rights issue to bring down the debt? There we are. So maybe on the first. I mean to put the context again of the Jardine Strategic transaction in light. On the one hand, it was very much in keeping with our long-term views of how to allocate capital. We are convinced of our businesses and really want to continue to allocate capital as we've been doing over many years in terms of share buyback programs. But the Jardine Strategic is simply this, but clearly in a very different scale and with the reason, very specifically, of also modernizing the structure of the group at the top, much, much more simple going forward. So Jardine Cycle & Carriage any business within the group, we'll continue to look at opportunities. But that's not to say this is our only focus. If I -- we look at our capital allocation really on an ongoing basis. And if I summarize that, it's ensuring that our businesses are well capitalized, continuing to invest in their businesses as they're growing. The second is, of course, as I mentioned, the payment of dividends. And really, the third is not only looking inwardly at opportunities within the group, but also looking for opportunities outside the group in respect of inorganic investments as it were. Really, that doesn't change. Graham, maybe you take the gearing question in respect of Jardine Cycle & Carriage.

Sure. I mean, I think nobody would expect me to give an absolutely precise view on that, but as I think the team at JC&C covered a week ago, we are putting in place some mid-term borrowing facilities, I think they're 3-year facilities, to give them some breathing space around their capital position. We don't anticipate anything happening within that time frame.

Thank you, Graham. Next question, could you please talk about your view on the exposure to coal via United Tractors? Is it something which you see no longer aligned with the group strategy? How should we think of this business going forward as part of the group? Sort of -- maybe let me answer the question by making a couple of points. We are a very diversified group. And as we've thought about sustainability and bringing together and coordinating our sustainability efforts and views really from the center, it's been very important for us to have dialogues and alignment across all of the group companies. And really, that process is very much included, both Astra as well as United Tractors. United Tractors operates in Indonesia. Indonesia, coal, which United Tractors contracts generally for third-party owners, is a very important part of not only the electricity grid in Indonesia, but also many other developing countries. We believe, and United Tractors management are very much aligned to this, that United Tractors has several things to do. First, it can play the role of a responsible miner in fulfilling its obligations under these contracts. Second, as Indonesia itself and other countries make a transition through to a low-carbon economy, United Tractors we see playing a role for that, even while coal remains a necessary part of the energy mix within Indonesia, and again, other developing countries. I think equally, United Tractors, we're very supportive of management's diversification. You see in this presentation, the early impact of that diversification, where now some 40% of UT's earnings are coming from gold, and we very much see that diversification continuing. We're very conscious of the Indonesian government's objectives to drive Indonesia going forward in respect of becoming a very significant center for EV vehicles as well as batteries and some of industries that come of that. And we're very focused on each of these things. So very much focused on a transition to a low-carbon economy within Indonesia. At the Jardine Matheson level, to put the issue into perspective, from an earnings perspective, this is less than 5% of our overall earnings. So moving to the next question. With regard to the simplification, we're back to the Jardine shareholding structure. With effective higher stakes, lower number of shares, how should investors think about the dividend? Would Jardine Matheson keep dividends stable in terms of absolute levels or in terms of payout ratio? Graham?