12 Years of Growing Dividends at Jardine Matheson Holdings

The sprawling conglomerate Jardine Matheson Holdings (SGX: J36) released its full year results for 2013 yesterday evening and saw a slight dip in profits even though revenue had increased.

The company is involved with a wide range of businesses around the globe. Through Astra (which is half-owned by Jardine Cycle & Carriage (SGX: C07)), it has interests in farming, financial services, mining, and the automotive sector among others, in Indonesia. With Dairy Farm International Holdings (SGX: D01), it has more than 5,600 retail outlets (consisting of supermarkets, hypermarkets, and more) across Asia.

Jardine Matheson Holdings also has property plays through Mandarin Oriental (SGX: M04) and Hongkong Land (SGX: H78); the former owns luxury hotels and resorts while the latter is a commercial and residential property developer sprawled across Hong Kong, Singapore, China and other parts of Asia.

In addition, Jardine Matheson Holdings has a majority stake in Jardine Strategic Holdings (SGX: J37), a fellow Straits Times Index (SGX: ^STI) component. Jardine Strategic Holdings holds majority ownership of all the subsidiaries listed above, which is what predominantly provides Jardine Matheson Holdings with all that exposure to the different businesses and industries.

Coming back to the company’s results, here are 10 quick facts about it:

1. Revenue for the year, including all revenue from associates and joint ventures, increased 2% year-on-year from US$60.5 billion to US$61.4 billion.

2. Reported profits were down 6% from US$1.67 billion to US$1.57 billion. On the other hand, Jardine Matheson Holdings’ underlying profits were up 3% to US$1.50 billion. The latter measurement is used “to distinguish between ongoing business performance and non-trading items [such as the revaluation of its subsidiaries’ property portfolio, for instance]”. In any case, the changes in reported profits and underlying profits brought about a 7% year-on-year drop in earnings per share from US$4.26 to US$4.58, while underlying earnings per share went up 2% to US$4.09.

3. The increase in profits, strong cash flows produced in the year, and the improvement in the company’s balance sheet, had enabled the company to bump up its annual dividend for 2013. Jardine Matheson Holdings had declared a final dividend of US$1.03 per share to bring up the total dividend for the year to US$1.40 per share, up 4% from 2012’s dividend of US$1.35 per share.

4. The dividend increase makes it 12 consecutive years of annual dividend growth for the company.

5. Speaking of strong cash flows, Jardine Matheson Holdings grew its operating cash flow by 54% from US$2.73 billion in 2012 to US$4.20 billion in 2013.

6. The company’s balance sheet had improved by quite a fair bit as mentioned earlier. At the end of 2013, its net debt (total debt minus total cash), excluding financial services companies, had decreased to US$2.6 billion from US$3.4 billion in the previous year. This resulted in the company’s gearing (debt over equity) dropping from 8% to 6%.

7. Astra, Hong Kong Land, and Dairy Farm are the three most important segments for Jardine Matheson Holdings. They account for, respectively, 34%, 26%, and 20% of the latter’s underlying profit in 2013.

8. Astra had delivered a net profit of Rp19.4 trillion, “little changed” from a year ago. Unfortunately, there was a lower contribution to Jardine Matheson Holdings’ pool of earnings from it mainly due to a weakening of the Indonesian currency in relation to the US dollar. The subsidiary had seen a good performance from its financial services, motorcycle and coal mining businesses while its other motor operations faced tougher competition.

9. Hongkong Land’s underlying profits grew 20% to US$935 million during the year as its commercial and residential activities both saw stronger performance. Meanwhile, its reported profit had declined from US$1.44 billion to US$1.19 billion mainly due to much smaller revaluation gains from its property portfolio; in 2012, revaluation gains came in at US$662 million while it was only at US$225 million in 2013.

10. Dairy Farm’s sales grew across all its divisions, resulting in its revenue being 8% higher at US$12.4 billion. Meanwhile, the company’s profits were “held back by mixed performances within its Food businesses in Southeast Asia.” Nonetheless, underlying profit at Dairy Farm was still up 8% to US$480 million. During the year, Dairy Farm had reorganised its business by format into four divisions. This was done to achieve three objectives: to allow for economies of scale to show up faster; to better focus on what it can offer to customers and; to “improve its financial performance over the longer term”. To hit those targets and more, the company’s investing heavily in its people, infrastructure and systems.

Foolish Bottom Line

While profits at Jardine Matheson Holdings aren’t exactly growing at a breakneck pace, it’s only natural given the size of the company’s business. Going forward, this is what the chairman of the company, Sir Henry Keswick, has to say:

In 2014, [Jardine Matheson Holdings] expects a continuation of last year’s uneven market conditions, with a reduced contribution from Hongkong Land’s residential completions and a weaker average exchange rate for the Indonesian rupiah. Nevertheless, [Jardine Matheson Holdings’] businesses are generally trading well and continuing to invest for the future. Although it is too early to forecast, the current outlook is for a sound overall performance.

The market seems to have taken a liking for Jardine Matheson Holdings’ results as its shares are up 1.6% to US$60.03 at the time of writing (11:15 am, 7 March 2014) even as the Straits Times Index is up by only 0.1% to 3,131 points.

At that price, shares of the company are valued at 15 times its underlying earnings and carry a trailing dividend yield of 2.3% based on its annual dividend for 2013.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn’t own shares in any companies mentioned.