Jardine Matheson Holdings Limited
Annual Report 2012

Plain-text annual report

Jardine Matheson Annual Report 2012 Contents Highlights Chairman’s Statement Group Structure Managing Director’s Review People and the Community Financial Review Directors’ Profiles Financial Statements Independent Auditors’ Report Five Year Summary Responsibility Statement Corporate Governance Principal Risks and Uncertainties Shareholder Information Group Offices 1 2 4 5 22 24 27 28 98 99 100 101 106 107 108 Founded as a trading company in China in 1832, Jardine Matheson is today a diversified business group focused principally on Asia. Its businesses comprise a combination of cash generating activities and long-term property assets. The Group’s interests include Jardine Pacific, Jardine Motors, Jardine Lloyd Thompson, Hongkong Land, Dairy Farm, Mandarin Oriental, Jardine Cycle & Carriage and Astra International. These companies are leaders in the fields of engineering and construction, transport services, insurance broking, property investment and development, retailing, restaurants, luxury hotels, motor vehicles and related activities, financial services, heavy equipment, mining and agribusiness. Jardine Matheson Holdings Limited is incorporated in Bermuda and has a premium listing on the London Stock Exchange, with secondary listings in Bermuda and Singapore. Jardine Matheson Limited operates from Hong Kong and provides management services to Group companies. Jardine Matheson Holdings Limited Jardine House Hamilton Bermuda Highlights • Full-year dividend up 8% on flat underlying profits • Record Astra earnings mitigated by decline in rupiah • Hongkong Land and JLT perform well • Results of Jardine Motors affected by weak mainland China earnings • Dairy Farm’s earnings increase offset by one-off charge Results 2012 US$m 60,453 4,762 1,479 1,688 17,803 US$ 4.06 4.63 1.35 48.54 2011 US$m 57,306 4,784 1,495 3,449 16,356 US$ 4.13 9.53 1.25 45.09 Change % 5 – (1) (51) 9 % (2) (51) 8 8 By Geographical Area Greater China Southeast Asia United Kingdom Rest of the world 2012 US$m 618 818 48 15 % 41 55 3 1 2011 US$m 615 861 48 (9) % 40 57 3 – 1,499 100 1,515 100 Corporate and other interests (20) Underlying profit 1,479 (20) 1,495 Revenue together with revenue of associates and joint ventures† Underlying profit before tax* Underlying profit attributable to shareholders Profit attributable to shareholders Shareholders’ funds Underlying earnings per share* Earnings per share Dividends per share Net asset value per share Analysis of Underlying Profit 2012 2011 By Business Jardine Pacific Jardine Motors Jardine Lloyd Thompson Hongkong Land Dairy Farm Mandarin Oriental Jardine Cycle & Carriage Astra US$m 153 18 73 321 285 43 34 % 10 1 5 22 19 3 2 572 1,499 38 100 Corporate and other interests (20) Underlying profit 1,479 % 12 4 4 19 20 2 2 37 100 US$m 179 61 53 289 301 35 36 561 1,515 (20) 1,495 08 09 10 11 12 2.34 2.86 08 09 10 11 12 3.80 4.13 4.06 25.13 29.87 37.99 45.09 48.54 Underlying Earnings per Share (US$) Net Asset Value per Share (US$) † * Includes 100% of revenue from associates and joint ventures. The Group uses ‘underlying profit’ in its internal financial reporting to distinguish between ongoing business performance and non-trading items, as more fully described in note 1 to the financial statements. Management considers this to be a key measure which provides additional information to enhance understanding of the Group’s underlying business performance. 0.000 2.065 4.130 0.000000 24.270000 48.540001 1 Jardine Matheson | Annual Report 2012Chairman’s Statement Most of the Group’s businesses continue to trade well despite the relatively subdued economic environment. 2 Overview The Group produced many good trading performances during 2012 despite the moderating effects on the region of global economic uncertainty. Earnings growth was, however, held back principally by difficult market conditions for Jardine Motors in mainland China, a one-off charge in Dairy Farm and currency weakness reducing the reported contribution from Astra. Performance The Group’s revenue for 2012, including 100% of revenue from associates and joint ventures, was US$60.5 billion, compared with US$57.3 billion in 2011. Jardine Matheson achieved an underlying profit before tax for the year of US$4,762 million, little changed from the previous year. Underlying profit attributable to shareholders was also little changed with a 1% decline at US$1,479 million, while underlying earnings per share were 2% lower at US$4.06. The profit attributable to shareholders for the year was US$1,688 million, with the main non-trading item being a modest increase in the value of Hongkong Land’s investment property portfolio, and compares with US$3,449 million in 2011 which benefited from a more significant increase in valuations. Shareholders’ funds were 9% higher at US$17.8 billion. The Group’s consistent and growing profit generation, cash flows and retained earnings of recent years have enabled it to combine high levels of capital expenditure with low levels of debt. Net debt excluding financial services companies at the year end was US$3.4 billion, or 8% of consolidated total equity. In light of the Group’s strong liquidity, the Board is recommending a final dividend of US$1.00 per share, which represents an overall increase of 8% for the full year. Business Developments Jardine Pacific produced mixed results in 2012, with earnings improvements in its engineering and construction activities being offset by reduced contributions elsewhere. In the coming year, while Jardine Pacific expects to see its operations produce some good performances, Hactl’s result will be impacted by the long planned move of a major customer to its own dedicated facility at Hong Kong International Airport. Jardine Matheson | Annual Report 2012Jardine Motors’ results were severely affected by continued in Shanghai and Taipei are scheduled for later in the year. challenges in its Mercedes-Benz sales operations in mainland Mandarin Oriental has also recently acquired the freehold of China where margins came under intense pressure. Some its Paris hotel. improvement is expected, however, and Jardine Motors remains confident in the potential for this business where Jardine Cycle & Carriage’s motor operations faced difficult it currently has 27 outlets in operation and a further six trading conditions in a number of markets in Southeast Asia under development. in 2012, although Astra’s contribution was maintained despite a weakening Indonesian rupiah. Astra itself produced another Jardine Lloyd Thompson performed well in 2012 in generally record result in its reporting currency as it benefited from a unfavourable trading conditions, recording notable organic strong Indonesian economy supported by robust domestic growth, further enhancing operational efficiency and increasing demand. Good performances were achieved by its motor its returns from the growing economies of Asia and Latin car and financial services operations, but motorcycle sales America. This was accompanied by continued investment in the declined in a softer market. Income from the heavy equipment business through recruitment and acquisitions. and mining sector was little changed, with lower equipment sales being substantially offset by successful contract Hongkong Land produced a good result in 2012 as rental coal mining results. Astra remains active in new business reversions in the group’s prime Hong Kong Central office development in areas such as the production of a new ‘green’ portfolio remained positive in a market supported by a lack of car, increased coal mine ownership, further infrastructure new supply. Earnings from residential development benefited investments and an electronic banking project. Its associate, from the completion of two Singapore projects and additional Bank Permata, recently completed a US$212 million rights unit sales in Hong Kong. In mainland China, the group’s issue to support future business expansion. commercial developments in Beijing progressed well, as did its residential projects, and Hongkong Land has entered the Indonesian residential market with a joint venture to develop a People The fine performances achieved by our businesses are a prime residential community in Jakarta. reflection of the hard work, dedication and professionalism of the 360,000 employees that we have across the Group. Dairy Farm delivered healthy increases in like-for-like I would like to thank them all for their excellent contribution. sales in most of its major businesses during the year, with particularly good performances in Hong Kong and Indonesia. Ben Keswick took over as Managing Director and Adam Complementing its continued organic growth, Dairy Farm Keswick as Deputy Managing Director on 1st April 2012. entered the new markets of Cambodia and the Philippines Anthony Nightingale is now a non-executive Director following through acquisitions. Its contribution was, however, held back his stepping down as Managing Director. Lord Sassoon joined by the reversal of US$59 million supplier income in Malaysia the Board in January 2013. incorrectly accrued in prior years. The group’s focus is on strengthening the appeal of its brands to consumers across Asia and it is investing in supply chain management to drive Outlook Most of the Group’s businesses continue to trade well despite productivity gains and support further growth. the relatively subdued economic environment. With its strong finances and its diverse development programmes, the Group Despite challenging market conditions, Mandarin Oriental was looks forward to another satisfactory year in 2013. able to produce an improved underlying profit during the year. Its development programme made progress as management contracts for three new hotels under development were Sir Henry Keswick announced, and the group assumed management of a luxury Chairman hotel in Atlanta in the United States. Mandarin Oriental, Guangzhou was opened in January 2013, and further openings 8th March 2013 3 Jardine Matheson | Annual Report 2012Jardine Matheson A holding company with a select portfolio representing many of the Group’s non-listed Asian businesses, principally in engineering and construction, transport services, restaurants and IT services. (100%) A group engaged in the sales and service of motor vehicles in Hong Kong, Macau and the United Kingdom, and with a large and growing presence in Southern China. (100%) A leading provider of insurance and employee benefits related advice, brokerage and associated services, combining specialist skills in the London and international insurance markets with a worldwide network. (42%) A listed company holding most of the Group’s major listed interests, including 55% of Jardine Matheson. (82%) (Figures in brackets show effective ownership by Jardine Matheson as at 25th March 2013.) Jardine Strategic A listed property group with some 450,000 sq. m. of prime commercial property in central Hong Kong and further high quality commercial and residential developments in Asia. (50%) A listed pan-Asian retail group operating over 5,600 outlets, including supermarkets, hypermarkets, health and beauty stores, convenience stores, home furnishings stores and restaurants. (78%) A listed hotel investment and management group with a portfolio of 44 deluxe and first class hotels and resorts worldwide, including 16 under development. (74%) A Singapore-listed company with an interest of just over 50% in Astra, a major listed Indonesian conglomerate, and other motor interests in Southeast Asia. (72%) The largest Indonesian motor group, manufacturing, assembling and distributing motor vehicles, motorcycles and components in partnership with industry leaders such as Toyota, Daihatsu and Honda. Astra’s financial services businesses consist of consumer finance (principally motor vehicle and motorcycle), insurance and banking. Astra’s other interests include heavy equipment and mining, oil palm plantations, infrastructure and logistics, and information technology. (Figures in brackets show effective ownership by Jardine Strategic as at 25th March 2013.) 4 Jardine Matheson | Annual Report 2012Managing Director’s Review Performance An underlying profit before tax was achieved in 2012 of The Group continues to enjoy strong operating cash flows, ample committed facilities and access to the capital markets. US$4,762 million, a similar level as in the previous year. This provides a sound financial base on which to support Underlying profit attributable to shareholders was 1% lower at investment in developing its leading market positions. US$1,479 million while underlying earnings per share were 2% Total capital investment across the Group in 2012 exceeded lower at US$4.06. Good trading performances were achieved US$5.3 billion. The consolidated net debt at the end of 2012, by a number of the Group’s businesses, but a combination of excluding financial services companies, was US$3.4 billion, factors constrained profit growth during the year. representing gearing of 8%, which compares to US$2.4 billion at the end of 2011 and gearing of 6%. Jardine Pacific’s operations produced mixed results in more challenging trading conditions. Jardine Motors’ results were severely impacted by a difficult market in mainland Business Model As a diversified business group, Jardine Matheson is focused China. Jardine Lloyd Thompson achieved further growth. principally on Greater China and Southeast Asia, although Hongkong Land produced an increased profit with good some of its operations have a global reach. In 2012, 41% of performances from its commercial and residential activities. underlying profit came from Greater China and 55% from Dairy Farm’s operations traded well overall, but its reported Southeast Asia, primarily due to continuing strong results in profit was reduced by a one-off charge within its Malaysian Indonesia. The Group companies are leaders in the fields of operation. Mandarin Oriental benefited from strong demand motor vehicles and related activities, property investment from the leisure sector more than compensating for weaker and development, retailing and restaurants, engineering corporate business. Jardine Cycle & Carriage’s motor activities and construction, transport services, luxury hotels, financial were mixed, and while Astra’s good result benefited from an services, heavy equipment, mining and agribusiness. impressive performance from its own motor car operations, its contribution to the Group was reduced on consolidation The Group’s representation in this broad mix of business due a softening of the rupiah exchange rate. sectors and the spread between cash generating activities and The Group’s profit attributable to shareholders of in high growth markets while spreading the risk that might US$1,688 million benefited from its US$285 million share otherwise be associated with its geographic concentration. of the increase in the valuation of investment properties, This strategy, combined with a strong balance sheet, is offset in part by other non-trading items, and compares designed to achieve long-term growth in both earnings and long-term property assets enables it to focus its investment with US$3,449 million in 2011 which included an increase net asset value. of US$1,924 million in investment property values. 5 Jardine Matheson | Annual Report 2012• Underlying profit US$153 million, down 15% • Mixed results across business interests • Record performances from Gammon, Jardine Schindler and JEC • Underlying return on average shareholders’ funds of 25% Jardine Pacific includes a significant number of the Group’s non-listed interests in Asia. Encompassing a wide range of industry sectors, Jardine Pacific’s select portfolio of businesses comprises highly motivated market leaders, well positioned for growth. 6 6 Jardine Matheson | Annual Report 2012 Jardine Matheson | Annual Report 2012JEC undertook the Mechanical & Electrical works for the ‘Mega Bangna’ shopping mall in Bangkok, Thailand in 2012. Underlying profit attributable to shareholders Shareholders’ funds 08 09 10 11 12 116 119 156 153 179 08 09 10 11 12 Underlying Profit Attributable to Shareholders (US$ million) Underlying Return on Average Shareholders’ Funds (%) 2012 US$m 153 613 26 28 30 30 25 2011 US$m 179 595 Change % (15) 3 Jardine Pacific’s underlying profit of US$153 million was Aviation and shipping markets remained difficult. Hong Kong 15% lower than in 2011 reflecting the mixed results within Air Cargo Terminals recorded lower results due to rising costs its businesses. With a gain of US$10 million, mainly arising despite a slight increase in cargo throughput. Jardine Aviation on the revaluation of investment properties, the profit Services only achieved a break-even result following a attributable to shareholders was US$163 million, compared reduction in its flight frequencies. Jardine Shipping Services with US$216 million in 2011. Shareholders’ funds were reported a small profit in the face of continued low freight US$613 million at the end of 2012 and the underlying return 179.0 0 89.5 0.0 15 rates and volumes. 30 on average shareholders’ funds was 25%. Jardine Restaurants’ Pizza Hut operation in Hong Kong Jardine Schindler produced improved profits and achieved achieved good sales growth and higher profits. In Taiwan, further growth in its maintenance portfolio. Gammon’s Pizza Hut’s profit was in line with last year, while the KFC earnings were higher and its order book rose to US$3.5 billion. franchise reported lower earnings from trading and the 2011 Jardine Engineering Corporation also saw good profit result also benefited from a deferred tax gain of US$5 million. growth with its operations in Hong Kong and the Philippines Jardine OneSolution recorded lower revenue and profit performing well. following reduced demand for specific products and a general decline in regional IT markets. 7 Jardine Matheson | Annual Report 2012Managing Director’s Review (continued)• Underlying profit down 71% to US$18 million • Severe decline in sales and margins in Southern China • Improved results in Hong Kong and the UK Jardine Motors is engaged in the sales and service of motor vehicles and related activities. It has operations in Hong Kong, Macau and the United Kingdom, and a large and growing presence in Southern China. 8 Jardine Matheson | Annual Report 2012The Mercedes-Benz B-Class was well received in mainland China following its launch in August 2012. Hong Kong, Macau and mainland China United Kingdom Corporate Revenue 2012 US$m 1,940 2,113 – 2011 US$m 2,315 1,967 – 4,053 4,282 Underlying profit attributable to shareholders 2012 US$m 2011 US$m 12 7 (1) 18 59 3 (1) 61 Shareholders’ funds 2012 US$m 281 117 20 418 2011 US$m 242 117 3 362 08 09 10 11 12 2,677 2,522 3,288 4,282 4,053 08 09 10 11 12 18 45 52 87 61 Revenue (US$ million) Underlying Profit Attributable to Shareholders (US$ million) Jardine Motors recorded an underlying profit of US$18 million, Zung Fu produced a modest increase in profit in Hong Kong down 71%. The fall in earnings was due to a loss in mainland and Macau where it achieved higher deliveries of China following a severe decline in sales and margins in Mercedes-Benz passenger cars and saw a good performance Zung Fu’s business. A revised trading approach by Mercedes, by Hyundai. While the market in the United Kingdom as well as plans to release four new models including the continued to be difficult, Jardine Motors’ dealerships were new S Class towards the end of 2013, should provide a more able to achieve increased vehicle sales and improved results. positive trading environment. Accordingly, despite the current 4282 0.0 2141 0 43.5 setback, Jardine Motors remains confident in the potential for its business in Southern China. 87.0 9 Jardine Matheson | Annual Report 2012Managing Director’s Review (continued)• Underlying profit before tax up 10% • Strong growth from Asia and Latin America • Risk & Insurance and Employee Benefits saw a successful year • Group’s attributable interest now 42% JLT is one of the world’s largest providers of insurance and employee benefits related advice, brokerage and associated services. The UK-listed company combines specialist skills in the London and international insurance markets with an extensive network of offices worldwide. 10 Jardine Matheson | Annual Report 2012The move of its global headquarters to The St Botolph Building in London in mid-2013 reflects the rapid growth of JLT’s business over the last few years. Total revenue Underlying profit attributable to shareholders * Based on the change in UK sterling, being the reporting currency of Jardine Lloyd Thompson. 2012 US$m 1,401 176 2011 US$m 1,315 160 Change* % 7 11 08 09 10 11 12 1,018 971 1,152 1,315 1,401 08 09 10 11 12 120 113 136 160 176 Total Revenue (US$ million) Underlying Profit Attributable to Shareholders (US$ million) Jardine Lloyd Thompson’s total revenue for the year was The Risk & Insurance group, comprising the worldwide US$1,401 million, an increase of 7% in its reporting currency. specialist insurance, wholesale and reinsurance broking Underlying profit before tax and exceptional items was operations, achieved organic growth of 7% and a 6% increase US$257 million, a reported increase of 10%, while underlying in underlying trading profit in its reporting currency. The diluted earnings per share rose by 11%. This good performance Employee Benefits business also enjoyed a successful year, was set against a generally weak insurance rating environment with total revenue increasing by 10%, organic growth of 8% and poor economic conditions, particularly in the company’s 700.5 1401.0 0.0 0 88 and trading profit up 8% in its reporting currency. 176 UK and European markets. Jardine Lloyd Thompson’s Latin American and Asian operations again achieved strong growth and together now generate 18% of total revenue, not including revenues generated for the London market. 11 Jardine Matheson | Annual Report 2012Managing Director’s Review (continued)• Underlying profit up 11% to US$777 million • Good results in mixed markets • Positive reversions in Hong Kong • Higher contribution from residential operations Hongkong Land is a major listed group with some 450,000 sq. m. of prime commercial property in the heart of Hong Kong. The group also develops high quality commercial and residential projects in other cities in the Region. 12 Jardine Matheson | Annual Report 2012In mainland China, Hongkong Land launched in early 2012 the first phase of Landmark Riverside, a high-end residential community in Chongqing. Underlying profit attributable to shareholders (US$ million) Net asset value per share (US$) 08 09 10 11 12 16.41 34.55 36.02 30.29 33.14 08 09 10 11 12 5.92 6.64 8.64 2012 777 11.11 10.58 11.11 08 09 10 11 12 2011 703 10.58 Change (%) 11 5 8.52 10.84 10.85 11.22 11.64 Underlying Earnings per Share (US¢) Net Asset Value per Share (US$) Hong Kong Portfolio Average Monthly Office Rent (US$ per sq. ft) Hongkong Land performed well during the year despite portfolio remained fully let. In Singapore, the office portfolio the effects on the region of the prevailing global economic was fully leased, with the exception of the third tower at uncertainty, achieving an 11% increase in underlying profit Marina Bay Financial Centre, which was almost 80% let by at US$777 million. Taking into account the increase in the the end of the year. The group’s 50%-owned office portfolio in value of its investment properties, profit attributable to Jakarta was 94% let. shareholders for 2012 was US$1,439 million, compared with US$5,306 million in 2011, while net asset value per share rose 36.02 0.000 18.01 0.00 5.555 In the residential sector, there was a further contribution 11.64 11.110 0.00 5.82 from US$10.58 to US$11.11. The group’s financial position from unit sales in Hong Kong and Macau. In Singapore, two remained strong with year-end net debt of US$3.3 billion and fully pre-sold projects were completed, and an additional gearing at 13%. development site was acquired in August 2012 for approximately US$300 million. In mainland China, the group Leasing demand was relatively weak in both Hong Kong benefited from continuing sales completions at Maple Place and Singapore, although the effects were tempered by the in Beijing and at its 50%-owned joint venture, Bamboo Grove, group’s limited vacancy. In the Hong Kong Central office in Chongqing. Sales continued at projects in Chongqing, portfolio rental reversions continued to be generally positive Chengdu and Shenyang. as vacancy was only 3.4% at the year end, while the retail 13 Jardine Matheson | Annual Report 2012Managing Director’s Review (continued)• Strong trading performances in Hong Kong and Indonesia • Reported earnings decline after reversal of certain income incorrectly accrued in Malaysia in prior years • Adjusted underlying profit up 13% to US$506 million Dairy Farm is a leading pan-Asian retailer. The listed group, together with its associates and joint ventures, operates over 5,600 outlets – including supermarkets, hypermarkets, health and beauty stores, convenience stores, home furnishings stores and restaurants. 14 Jardine Matheson | Annual Report 2012Dairy Farm entered the Philippine market in May 2012 by acquiring a 50% interest in Rustan Supercenters, a leading grocery chain trading under the Shopwise brand. Gross revenue* (US$ billion) Underlying profit attributable to shareholders (US$ million) Adjusted underlying profit attributable to shareholders† (US$ million) 2012 11.5 447 506 2011 10.4 474 450 08 09 10 11 12 7.7 8.1 9.1 10.4 11.5 08 09 10 11 12 320 364 410 474 447 08 09 10 11 12 308 292 276 243 Change (%) 10 (6) 13 502 Gross Revenue* (US$ billion) Underlying Profit Attributable to Shareholders (US$ million) Capital Expenditure and Investments (gross) (US$ million) * Includes 100% of revenue from associates and joint ventures. † Excludes the effects of the reversal of supplier income. Dairy Farm has continued to trade well despite increased Malaysia faced challenging market conditions, while the competition and a more difficult economic environment Guardian health and beauty chain traded satisfactorily. in certain markets. Sales, including 100% of associates All operations continued to perform well in Indonesia. and joint ventures, increased by 10% to US$11.5 billion in The Singapore businesses were flat in the face of increased 2012. Underlying profit was US$447 million compared with operating costs and weaker economic conditions. Restaurant 0.00 US$474 million in 2011. The 2012 result reflects the reversal 11.50 0 5.75 237 associate, Maxim’s, delivered another strong set of results. 474 0 251 502 of US$59 million relating to the incorrect recognition of There was satisfactory trading in the group’s new businesses supplier income in its Malaysian operations over the past in Cambodia and the Philippines. few years. Excluding the effects of the reversed supplier income, underlying profit rose from US$450 million in The construction of a fifth IKEA store in Taichung, Taiwan 2011 to US$506 million in 2012, an increase of 13%. The is progressing well and it is expected to open later in 2013. reported profit attributable to shareholders for 2012 was PT Hero has been awarded the franchise rights to operate US$450 million. Dairy Farm’s financial position remains IKEA stores in Indonesia, and the first store is planned to healthy with net cash at the end of 2012 of US$521 million. open in 2014. Maxim’s continued to expand its operations In Hong Kong, Mannings health and beauty stores delivered opened its first Starbucks store in Vietnam under a new another impressive result and Wellcome supermarkets traded franchise agreement. in Hong Kong and in mainland China, and has recently well. IKEA in both Hong Kong and Taiwan also reported good growth. The supermarket and hypermarket businesses in 15 Jardine Matheson | Annual Report 2012Managing Director’s Review (continued)• Underlying profit up 20% • Four new hotel management contracts announced • Acquisition of the freehold interest in Mandarin Oriental, Paris • Mandarin Oriental, Guangzhou opens Mandarin Oriental is a hotel investment and management group. It has a portfolio of 44 deluxe and first class hotels and resorts worldwide, including 16 under development, and has ‘Residences’ connected to a number of its properties. The listed company holds equity in selected hotels. 16 Jardine Matheson | Annual Report 2012Mandarin Oriental, Guangzhou opened in January 2013 and is the group’s first city hotel in mainland China. Combined total revenue of hotels under management Underlying profit attributable to shareholders 2012 US$m 1,283 71 2011 US$m 1,196 59 08 09 10 11 12 838 1,016 1,026 1,196 1,283 08 09 10 11 12 12 44 67 59 71 08 09 10 11 12 Change % 7 20 2.08 2.18 2.33 2.70 2.88 Combined Total Revenue by Geographical Area (US$ million) Underlying Profit Attributable to Shareholders (US$ million) Net Asset Value per Share* (US$) * With freehold and leasehold properties at valuation. Hong Kong North America Other Asia Europe Mandarin Oriental’s underlying profit in 2012 was up 20% Progress was made in Paris as the hotel continued to stabilize, at US$71 million as a reduction in corporate business was Europe and the freehold rights of the property were recently acquired offset by resilient demand from the leisure sector leading to North america for US$389 million. Individual hotel performances in the increased average rates. Profit attributable to shareholders other asia United States varied according to local market conditions. was US$72 million, compared to US$67 million in the HK prior year. The group now operates 28 hotels and has a further 0.0 641.5 1283.0 0.0 35.5 16 hotels under development. Together these represent over 71.0 0.00 1.44 2.88 The group’s hotels in Hong Kong and Singapore continued to 11,000 rooms in 27 countries. In addition, it operates or has perform well, while its properties in both Tokyo and Bangkok under development 14 Residences at Mandarin Oriental showed some recovery from the effects of natural disasters connected to its properties. in 2011. Improvements were seen in most hotels in Europe. 17 Jardine Matheson | Annual Report 2012Managing Director’s Review (continued)• Underlying earnings per share stable • Strong growth in Astra offset by the weaker rupiah • Lower contribution from other motor interests Jardine Cycle & Carriage is a Singapore-listed company with an interest of just over 50% in Astra, a major listed Indonesian conglomerate, and other motor interests in Southeast Asia. 18 Jardine Matheson | Annual Report 2012Jardine Cycle & Carriage launched the new Mercedes-Benz SL in 2012 in Singapore, 60 years after the first generation of the SL-Class was seen on the roads. Revenue (US$ billion) Underlying profit attributable to shareholders (US$ million) Shareholders’ funds (US$ million) 08 09 10 11 12 11.2 10.6 15.7 08 09 10 11 12 20.1 21.5 483 524 812 Revenue (US$ billion) 0.00 Underlying Profit Attributable to Shareholders (US$ million) 10.75 2011 20.1 1,019 4,407 Change (%) 7 – 5 2012 21.5 1,016 4,639 1,019 1,016 21.50 Jardine Cycle & Carriage produced a stable result in 2012, The contribution from the group’s other motor interests with underlying profit largely unchanged from 2011 at was 5% lower at US$58 million. In Indonesia, Tunas Ridean US$1,016 million. Profit attributable to shareholders saw improved contributions from its motor vehicle, rental was 4% lower at US$987 million after accounting for and finance activities, offsetting a decline in its motorcycle non-trading items. Astra’s contribution to underlying profit business. In the face of a challenging market in Singapore, at US$1,017 million was only slightly up on the previous the group’s operations performed satisfactorily as the year as currency movements offset much of its earnings 0.0 509.5 Mercedes-Benz brand proved to be resilient. In Malaysia, 1019.0 growth achieved in rupiah. Strong results in its motor car Cycle & Carriage Bintang had a disappointing year as the and financial services businesses more than compensated intense competition in the premium car segment led to for lower earnings from its heavy equipment and significant margin erosion. In Vietnam, Truong Hai Auto motorcycle operations. Corporation’s results suffered from higher financing costs and a sharp fall in the automotive market due to poor consumer sentiment in a weak economy. 19 Jardine Matheson | Annual Report 2012Managing Director’s Review (continued)• Record net profit of Rp19.4 trillion • Good growth in motor car and financial services sectors • Reduced contribution from heavy equipment • Strong operating results from mining contracting Astra is a listed diversified Indonesian group with interests in the automotive sector, financial services, heavy equipment and mining, oil palm plantations, infrastructure and logistics, and information technology. 20 Jardine Matheson | Annual Report 2012Astra is active in new business development, such as the production of a new ‘green’ car and increased coal mine ownership. Gross revenue† (US$ billion) Profit attributable to shareholders# (US$ million) Shareholders’ funds# (US$ million) 2012 31.8 2,062 7,363 2011 29.2 2,027 6,666 Change* (%) 17 9 18 08 09 10 11 12 318 281 426 483 605 08 09 10 11 12 2,875 2,701 3,416 4,274 4,089 08 09 10 11 12 16.0 15.3 22.9 29.2 31.8 Motor Vehicle Sales including Associates and Joint Ventures (thousand units) Motorcycle Sales including Associates and Joint Ventures (thousand units) Gross Revenue† (US$ billion) †Includes 100% of revenue from associates and joint ventures. * Based on the change in Indonesian rupiah, being the reporting currency of Astra. †Includes 100% of revenue from associates and joint ventures. #Reported under Indonesian GAAP. Astra produced record results with net profit under United Tractors’ sales of Komatsu heavy equipment were 27% Indonesian accounting standards of Rp19.4 trillion, up 9%, lower due to reduced demand, although the impact was partly equivalent to US$2,062 million. Improved contributions mitigated by strong spare parts and service revenue growth. from its motor car and financial services businesses were Contract coal mining subsidiary, Pamapersada Nusantara, partially offset by lower earnings in its heavy equipment and reported a 25% improvement in net revenue as contract coal motorcycle businesses. 302.5 0.0 605.0 0 2137 production increased 9% to 94 million tonnes and contract 31.799999 15.900000 0.000000 4274 Net income from the group’s automotive businesses grew by Astra Agro Lestari’s increased palm oil production offset 15% to Rp9.5 trillion. Car sales rose by 25% to 605,000 units the effects of lower prices, but higher production costs and with a stable market share of 54%. In more difficult market operating expenses left net income little changed. overburden removal rose 7% to 855 million cubic metres. conditions, Astra Honda Motor’s sales declined by 4% to 4.1 million units, although its market share increased Net income from infrastructure and logistics rose 13%, and from 53% to 58%. Astra Otoparts, the group’s component if the reversal of a tax provision in 2011 is excluded, the net manufacturing business, reported earnings up 5%. income rose 35%. The development of toll road interests continued, and there were increased sales volumes in the The amount financed through Astra’s automotive-focused group’s western Jakarta water utility system. TRAC car rentals consumer finance operations grew by 2% to US$5.3 billion, produced an increase in vehicles under contract, while while the heavy equipment-focused finance operations were in information technology Astra Graphia is pursuing new 2% lower at US$755 million. Group insurance company, business opportunities. Asuransi Astra Buana, recorded higher earnings with improved premiums partly offset by higher commissions and claims expenses. Astra’s 45%-held joint venture, Bank Permata, Ben Keswick reported net income up 18% at US$145 million, with growth Managing Director in net interest income and fee-based income. 8th March 2013 21 Jardine Matheson | Annual Report 2012Managing Director’s Review (continued)People and the Community Group Managing Director and MINDSET Chairman Ben Keswick participated with service users and Jardine Ambassadors in a bakery workshop organized by Mandarin Oriental, Hong Kong. Jardine Matheson Group companies continue to contribute to the communities they operate through philanthropic activities In Hong Kong, mainland China and Singapore, Group NGOs as Peer Support Workers; roles which will also help to companies focus their philanthropic activities on the area enhance their own self-confidence. of mental health through MINDSET, the Group’s in-house charitable programme. Led by the Jardine Ambassadors, MINDSET’s school-based Health in Mind programme, young executives drawn from across the Group, the MINDSET undertaken in collaboration with the Hong Kong Hospital programme aims to raise awareness and understanding Authority, continued its work to empower student ‘advocates’ of mental health issues, while at the same time providing to promote mental health issues among young people. The practical support in this under-resourced area. programme reached 24 secondary schools in 2012 with the direct participation of more than 300 students. Meanwhile, In Hong Kong, MINDSET marked its 10th Anniversary in MINDSET Place, the residential care home financed by 2012 when service users, NGO partners and professionals MINDSET, maintained full occupancy serving 38 rehabilitating in the field were invited to a gala dinner to thank them for residents. Group companies also offered job training and their support. 2012 also saw the launch of the MINDSET employment opportunities for rehabilitated individuals. Peer Support Worker Project, a new three-year pilot project In addition, MINDSET funded a number of projects in Hong in collaboration with four NGO partners financed with a Kong that benefited the mentally ill, their carers and families. donation of HK$5 million. Nineteen recovered service users (www.mindset.org.hk) were selected for the inaugural training course that aims to equip them with the skills needed to help other service With MINDSET Singapore in its second year of operation, users during their recovery phase. Selected individuals who 15 Jardine Ambassadors were appointed to lead its complete the training will be offered positions within the programmes. An inaugural awareness-raising event, 22 Jardine Matheson | Annual Report 2012(Left) Astra launched a series of CSR programmes to celebrate the company’s 55th Anniversary, including a nation-wide tree planting initiative. (Right) In January 2013, the Jardine Foundation awarded 12 scholarships to students from Hong Kong, Indonesia, mainland China, the Philippines and Vietnam. The MINDSET Challenge 2012, has attracted 161 participants pursuing a modular, three-year leadership development to complete a 33-level race at Marina Bay Financial Centre programme, also attain a Chartered Institute of Management Tower One. In addition, five rehabilitated individuals have Accountants qualification. This approach brings a rare balance been placed under the job placement scheme; clients of management breadth and financial depth, and readies them from mental health organizations promoted and sold their for leadership positions. Similar schemes are also offered to handicrafts in 7-Eleven outlets and roadshows; and four graduates from mainland China and Macau. Another example Fun Days were hosted for the beneficiaries of five voluntary is the Director Development Initiative, which provides senior welfare organizations. executives with the opportunity to meet chief executives from some of the world’s most admired companies. Most recently In Indonesia, Astra celebrated 55 years of operation by stepping the Group is launching an in-house Masters programme, up its community effort at the national level, covering the designed specifically for high-potential executives. areas of education, environment, small to medium enterprises’ support and health. Astra provided 55,000 hours of training The Group also conducts a series of development centres for small to medium enterprises and initiated a donation drive every year to identify talent within the organization. In 2012 which collected 55,000 of blood bags. Its mobile health clinic these were supplemented by a cross-Group performance facilities have provided free medical services for over 8,000 coaching process, designed to benefit those identified as patients with financial hardships. Astra also gave out SATU having the potential for larger roles. Indonesia (Astra’s Unified Spirit for Indonesia) Awards to young people who have made outstanding achievements in their contribution to the environment and the communities. Encouraging Higher Education In January 2013, 12 students from Hong Kong, Indonesia, mainland China, the Philippines and Vietnam were awarded In the United Kingdom, Jardine Lloyd Thompson committed to scholarships by the Jardine Foundation to pursue their a three-year sponsorship of Action on Addiction, the largest undergraduate studies in the United Kingdom. Scholarships charity dedicated to the prevention and treatment of problems are available for selected colleges at Oxford and Cambridge associated with addiction. Its charity support on education in Universities, and scholars are chosen for their academic India continued. Globally the group encourages its staff to be ability, leadership qualities and community participation. involved in community projects and matched money raised by Since its establishment, some 160 scholarships have been employees for charitable causes. awarded to students from the regions in which the Group operates. (www.jardine-foundation.org) Providing Expertise Group executives are active on external management boards In Indonesia, Astra distributed scholarships through a number and professional and advisory bodies where they provide of foundations to support students from undeveloped expertise and knowledge. These activities are encouraged as areas. More than 134,000 scholarship grants were given they contribute to the development of the communities and the out to recipients in elementary schools up to university business sectors in which the Group operates. level. Nearly 7,000 schools were funded to improve their Supporting our People The Group supports its people with various management Meanwhile, in Singapore, Jardine Cycle & Carriage training and development programmes. A good example scholarships are awarded yearly to three outstanding is the central recruitment of graduates who in addition to business management undergraduates. educational facilities. 23 Jardine Matheson | Annual Report 2012Financial Review Accounting Policies The Directors continue to review the appropriateness of Net financing charges increased US$20 million over 2011 primarily due to the high level of capital expenditure. Interest the accounting policies adopted by the Group having cover remained strong at 34 times, calculated as the sum of regard to developments in International Financial Reporting underlying operating profit and share of results of associates Standards. In 2012, certain amendments to IFRS 7 ‘Financial and joint ventures, divided by net financing charges. Instruments’ became effective and the Group adopted those which are relevant to the Group’s operations. As mentioned The Group’s share of underlying results of associates and joint in note 1 to the financial statements, their adoption does not ventures increased by 6% to US$1,062 million. The higher have a material impact on the Group’s accounting policies contribution from Jardine Lloyd Thompson due to a strong and disclosures. Results In 2012, revenue increased by 4% to US$39.6 billion. Gross trading performance and the higher attributable interest following the Group’s acquisition of an additional 10% stake in November 2011, the recognition of sales on completion of a residential property project by a Hongkong Land joint venture revenue, including 100% of revenue from associates and in Singapore and improved contribution from Dairy Farm’s joint ventures, which is a better measure of the extent of the associates were partly offset by lower contributions from Group’s operations, increased by 5% to US$60.5 billion. certain associates and joint ventures of Astra, mainly the motorcycle assembly business, and Jardine Pacific. Underlying operating profit was US$3,843 million, a drop of US$66 million or 2%. This reflected the mixed The overall contribution from the Group’s associates and joint performances from the Group’s businesses. There was ventures included a number of non-trading items, among an increase in contribution of US$114 million from Astra, which were increases in the fair value of investment properties where strong performances from motor car and financial held by Hongkong Land’s associates and joint ventures, partly services businesses compensated for lower earnings from offset by an asset impairment in Jardine Cycle & Carriage and its motorcycle and heavy equipment and mining activities. loss on the restructuring of Rothschilds Continuation and Against this, there were decreases in contributions of subsequent partial sale of Paris Orléans shares. US$54 million from Dairy Farm whose strong performances in Hong Kong were more than offset by a one-off reversal The underlying effective tax rate for the year was 23%, which of US$67 million of supplier income in Malaysia incorrectly is in line with that of last year. recognized in prior years, US$59 million from Jardine Motors due to the difficult market conditions in mainland China, Underlying earnings per share decreased by 2% to US$4.06. US$31 million from Hongkong Land due to the reduced The drop of US$16 million in underlying earnings was number of residential completions and US$21 million from due to decreases in contributions of US$26 million from Jardine Pacific with lower sales in JOS and higher operating Jardine Pacific, US$43 million from Jardine Motors and costs in Jardine Restaurants’ businesses in Taiwan. US$15 million from Dairy Farm, mitigated by increases of US$21 million from Jardine Lloyd Thompson, US$32 million The operating profit of US$4,173 million included a from Hongkong Land, US$7 million from Mandarin Oriental non-trading gain of US$330 million in respect of the and US$11 million from Astra. Astra reported a 9% increase in increase in the fair value of investment properties mainly its underlying earnings, but its contribution to the Group was in Hongkong Land. impacted by a 7% depreciation in the average exchange rate of Indonesian rupiah. Had Astra’s earnings been translated 24 Jardine Matheson | Annual Report 2012using the same rate as applied in 2011, Astra’s contribution Summarized Cash Flow to the Group’s underlying earnings would have been US$42 million higher. The profit attributable to shareholders for the year of US$1,688 million included a surplus of US$285 million on the revaluation of investment properties, mainly in Hongkong Land, a net loss of US$49 million on the sale and impairment of investments held by Jardine Strategic and Jardine Cycle & Carriage, a non-recurring provision of US$18 million for tax associated with dividends from Astra and a decrease of US$10 million in the fair value of Astra’s Operating cash flow Dividends from associates and joint ventures Operating activities Capital expenditure and investments Cash flow before financing 2012 US$m 1,976 753 2,729 (2,784) (55) 2011 US$m 1,938 736 2,674 (2,675) (1) plantations. Earnings per share were US$4.63, a decrease of in a supermarket chain in the Philippines, and Astra’s 51% primarily due to the significant reduction in the increase subscription to a joint venture bank’s rights issue and in the valuation of Hongkong Land’s investment properties. capital injections into a number of existing associates and Dividends The Board is recommending a final dividend of US$1.00 per joint ventures; US$257 million for the purchase of other investments, mainly in Jardine Cycle & Carriage and Astra; US$300 million for the purchase of intangible assets, which share, giving a total dividend of US$1.35 per share for the included US$161 million for the purchase of leasehold land year, payable on 22nd May 2013 to those persons registered mainly for use by Dairy Farm’s new outlets in Indonesia as shareholders on 22nd March 2013. The dividends are and Astra’s new motor dealerships, US$55 million for the payable in cash with a scrip alternative. construction and improvement costs for toll roads and Cash Flow The cash inflow from operating activities for the year US$44 million of commissions for securing insurance contracts in Astra; US$1,374 million for the purchase of tangible assets, which included US$65 million in was US$2,729 million. This represented an increase of Jardine Motors, US$290 million in Dairy Farm, US$64 million US$55 million on 2011 principally due to a lower increase in in Mandarin Oriental and US$914 million in Astra mainly working capital and higher dividends from associates and for the acquisition of US$521 million of heavy equipment joint ventures. and machinery, predominantly by Pamapersada Nusantara in response to capacity expansion in its mine contracting Capital expenditure for the year before disposals amounted business; US$162 million in its automotive business mainly to US$3,357 million and was broadly spread throughout for outlet development and additional operational machinery the Group. This included US$154 million for the purchase of and equipment, and US$182 million in its agribusiness; subsidiaries, the main ones being the acquisition by Astra US$562 million for additions to investment properties in of a coal mine concession company and an exploration Hongkong Land which included US$498 million for the mining company and the acquisition by Dairy Farm of Wangfujing site in Beijing; US$87 million for the investment a supermarket chain in Cambodia; US$253 million for in plantations in Astra; and US$368 million of advances to the purchase of various associates and joint ventures associates and joint ventures, mainly in Hongkong Land. including the acquisition by Dairy Farm of a 50% interest 25 Jardine Matheson | Annual Report 2012Financial Review (continued) 0.5 2.2 2.3 2.4 3.4 08 09 10 11 12 14.2 25.1 32.0 39.3 42.4 Net Debt* and Total Equity (US$ billion) Net Debt Total Equity * Excluding net debt of financial services companies. The average tenor of the Group’s debt at 31st December 2012 was 4.4 years compared with 4.3 years at the end of 2011. US dollar denominated borrowings comprised 10% of the Group’s total borrowings. Non-US dollar denominated borrowings are directly related to the Group’s businesses in the countries of the currencies concerned. As at 31st December 2012 approximately 53% of the Group’s borrowings, exclusive of financial services companies, were at floating rates and the remaining 47% were fixed rate borrowings or covered by interest rate hedges with major creditworthy financial institutions. The repayment from associates and joint ventures in Overall, the Group’s funding arrangements are designed to Hongkong Land contributed US$58 million, and sale of other Total equity keep an appropriate balance between equity and debt, both investments held by Jardine Strategic, Jardine Cycle & Carriage Net debt short and long term, to give flexibility to develop the business. and Astra contributed US$423 million to the Group’s cash flow. 0.000000 In addition to the capital expenditure, the Group purchased 42.400002 21.200001 Treasury Policy The Group manages its exposure to financial risk using a variety of techniques and instruments. The main objectives additional interests in Group companies for a total cost of are to limit exchange and interest rate risks and to provide a US$167 million and Dairy Farm sold part of its interest in degree of certainty about costs. The investment of the Group’s PT Hero Supermarket for US$139 million, which are both cash resources is managed so as to minimize risk while presented as financing activities in the cash flow statement. seeking to enhance yield. Funding At the year end, undrawn committed facilities totalled Principal Risks and Uncertainties A review of the principal risks and uncertainties facing the US$5.6 billion. In addition, the Group had available liquid Group is set out on page 106. funds of US$4.3 billion. Net borrowings, excluding those relating to Astra’s financial services companies, were US$3.4 billion, representing 8% of total equity. Astra’s James Riley financial services companies had net borrowings of Group Finance Director US$3.8 billion, US$0.4 billion up from 2011 as their overall loan book grew. The Group’s total equity increased by 8th March 2013 US$3.1 billion to US$42.4 billion during the year. 26 Jardine Matheson | Annual Report 2012Directors’ Profiles Sir Henry Keswick* Chairman Sir Henry joined the Group in 1961 and has been a Director of its holding company since 1967. He is chairman of Matheson & Co. and Jardine Strategic, and a director of Dairy Farm, Hongkong Land and Mandarin Oriental. He is also vice chairman of the Hong Kong Association. Ben Keswick* Managing Director Mr Ben Keswick joined the Board in 2007 and was appointed as Managing Director in April 2012. He has held a number of executive positions since joining the Group in 1998, including finance director and then chief executive officer of Jardine Pacific between 2003 and 2007 and, thereafter, group managing director of Jardine Cycle & Carriage until March 2012. He has an MBA from INSEAD. Mr Keswick is chairman of Jardine Matheson Limited and Jardine Cycle & Carriage and a commissioner of Astra and United Tractors. He is also managing director of Dairy Farm, Hongkong Land, Jardine Strategic and Mandarin Oriental, and a director of Jardine Pacific and Jardine Motors. Adam Keswick* Deputy Managing Director Mr Adam Keswick joined the Board in 2007 and was appointed Deputy Managing Director in April 2012. He is chairman of Jardine Pacific and chairman and chief executive of Jardine Motors. He has held a number of executive positions since joining the Group from N M Rothschild & Sons in 2001, including group strategy director and, thereafter, group managing director of Jardine Cycle & Carriage between 2003 and 2007. Mr Keswick is also deputy chairman of Jardine Matheson Limited, and a director of Dairy Farm, Hongkong Land, Jardine Strategic and Mandarin Oriental. Mark Greenberg* Mr Greenberg joined the Board as Group Strategy Director in 2008 having first joined the Group in 2006. He had previously spent 16 years in investment banking with Dresdner Kleinwort Wasserstein in London. He is a director of Jardine Matheson Limited, Dairy Farm, Hongkong Land, Jardine Cycle & Carriage and Mandarin Oriental, and a commissioner of Astra and Bank Permata. Jenkin Hui Mr Hui was appointed a Director in 2003. He is a director of Hongkong Land, Jardine Strategic, Central Development and a number of property and investment companies. Simon Keswick* Mr Simon Keswick joined the Group in 1962 and has been a Director of its holding company since 1972. He is a director of Matheson & Co., chairman of Dairy Farm, Hongkong Land and Mandarin Oriental, and a director of Jardine Lloyd Thompson and Jardine Strategic. Lord Leach of Fairford* Lord Leach joined the Board in 1984 after a career in banking and merchant banking. He is a director of Matheson & Co., deputy chairman of Jardine Lloyd Thompson, and a director of Dairy Farm, Hongkong Land, Jardine Strategic and Mandarin Oriental. He is also a member of the supervisory board of Paris Orléans. Dr Richard Lee Dr Lee joined the Board in 1999. Dr Lee’s principal business interests are in the manufacturing of textiles and apparel in Southeast Asia, and he is the honorary chairman of TAL Apparel. He is also a director of Hongkong Land and Mandarin Oriental. * Executive Director Anthony Nightingale Mr Nightingale joined the Group in 1969 and was appointed as a Director in 1994. He was Managing Director from 2006 until he retired from executive office in March 2012. He is also a director of Dairy Farm, Hongkong Land, Jardine Cycle & Carriage, Jardine Strategic, Mandarin Oriental and Schindler and a commissioner of Astra. Mr Nightingale also acts as an adviser for certain companies outside the Group and holds a number of senior public appointments, including acting as a non-official member of the Commission on Strategic Development, a Hong Kong representative to the Asia Pacific Economic Cooperation (APEC) Business Advisory Council and a member of the UK ASEAN Business Council Advisory Panel. He is an Honorary Professor of the School of Business of the Hong Kong Baptist University. Y.K. Pang* Mr Pang joined the Board in 2011. He was appointed chief executive of Hongkong Land in 2007. He previously held a number of senior executive positions in the Group, which he joined in 1984. He is a director of Jardine Matheson Limited and Jardine Matheson (China) Limited. He is also chairman of the Employers’ Federation of Hong Kong and deputy chairman of the Hong Kong General Chamber of Commerce. James Riley* Mr Riley joined the Board as Group Finance Director in 2007, having been Chief Financial Officer since 2005. A Chartered Accountant, he joined the Group from Kleinwort Benson in 1993. He was appointed chief financial officer of Jardine Cycle & Carriage in 1994, and in 1999 he took over responsibility for the businesses grouped under Jardine Pacific. He is also a director of Jardine Matheson Limited, Dairy Farm and The Hongkong and Shanghai Banking Corporation Limited. Lord Sassoon, Kt* Lord Sassoon joined the Board in January 2013. He began his career at KPMG, before joining SG Warburg (later UBS Warburg) in 1985. From 2002 to 2006 he was in the Treasury in the United Kingdom as a civil servant, where he had responsibility for financial services and enterprise policy. Following this, he chaired the Financial Action Task Force; and conducted a review of the UK’s system of financial regulation. From 2010 to 2013 Lord Sassoon was the first Commercial Secretary to the Treasury and acted as the Government’s Front Bench Treasury spokesman in the House of Lords. He is a director of Matheson & Co., Dairy Farm, Hongkong Land and Mandarin Oriental. Percy Weatherall Mr Weatherall first joined the Company in 1976 and was appointed to the Board in 1999 before being made Managing Director in 2000. He retired from executive office in 2006. He is also a director of Matheson & Co., Dairy Farm, Hongkong Land, Jardine Strategic and Mandarin Oriental. He is chairman of Corney & Barrow and the Nith District Salmon Fishery Board. Giles White* Mr White was appointed to the Board in 2010, having first joined the Group as Group General Counsel in 2009. He was previously Asia managing partner of Linklaters based in Hong Kong, prior to which he was the firm’s head of global finance and projects in London. Mr White is also a director of Jardine Matheson Limited, Dairy Farm and Mandarin Oriental. Company Secretary and Registered Office John C. Lang Jardine House, 33-35 Reid Street Hamilton Bermuda 27 Jardine Matheson | Annual Report 2012Consolidated Profit and Loss Account for the year ended 31st December 2012 Underlying business performance 2012 Non-trading items Note US$m US$m Underlying business performance 2011 Non-trading items US$m US$m Total US$m 39,593 (35,750) – 3,843 (266) 123 (143) – – 330 330 – – – 39.593 (35,750) 37,967 (34,058) 330 4,173 (266) 123 (143) – 3,909 (251) 128 (123) – 65 4,407 4,472 – – – Total US$m 37,967 (33,993) 4,407 8,381 (251) 128 (123) 5,166 8,615 US$ 9.53 9.46 1,062 (47) 1,015 998 (6) 992 11 & 12 1,479 – 1,062 – 4,762 (867) 3,895 2,416 3,895 US$ 4.06 4.04 361 314 (69) 575 (14) 561 209 352 561 361 1,376 (69) 5,337 (881) 4,456 1,688 2,768 4,456 – 998 – 4,784 (862) 3,922 238 232 – 4,704 (11) 4,693 238 1,230 – 9,488 (873) 8,615 1,495 1,954 3,449 2,427 3,922 2,739 4,693 US$ US$ 4.63 4.62 4.13 4.11 5 6 7 8 9 10 Revenue Net operating costs Change in fair value of investment properties Operating profit Net financing charges – financing charges – financing income Share of results of associates and joint ventures – before change in fair value of investment properties – change in fair value of investment properties Sale of an associate Profit before tax Tax Profit after tax Attributable to: Shareholders of the Company Non-controlling interests Earnings per share – basic – diluted 11 28 Jardine Matheson | Annual Report 2012 Consolidated Statement of Comprehensive Income for the year ended 31st December 2012 Note 13 14 18 Profit for the year Revaluation surpluses before transfer to investment properties from – intangible assets – tangible assets Revaluation of other investments – net gain/(loss) arising during the year – transfer to profit and loss Net actuarial loss on employee benefit plans Net exchange translation differences – losses arising during the year – transfer to profit and loss Cash flow hedges – net loss arising during the year – transfer to profit and loss Share of other comprehensive income/(expense) of associates and joint ventures Tax relating to components of other comprehensive income or expense Other comprehensive expense for the year 17 10 Total comprehensive income for the year Attributable to: Shareholders of the Company Non-controlling interests 2012 US$m 4,456 – – – 183 (76) 107 (104) (305) (3) (308) (16) 20 4 18 21 (262) 2011 US$m 8,615 27 4 31 (84) (20) (104) (150) (74) – (74) – 7 7 (130) 21 (399) 4,194 8,216 1,722 2,472 4,194 3,153 5,063 8,216 29 Jardine Matheson | Annual Report 2012Note 13 14 15 16 17 18 19 20 21 22 23 19 18 24 25 2012 US$m 2,466 6,921 23,961 1,026 8,118 1,241 2,697 262 28 46,720 2,513 3,419 6,375 13 114 3,980 318 4,298 16,732 8 16,740 2011 US$m 2,310 5,924 22,979 1,058 7,256 1,095 2,512 181 34 43,349 1,521 3,276 5,845 5 69 3,963 222 4,185 14,901 47 14,948 63,460 58,297 Consolidated Balance Sheet at 31st December 2012 Assets Intangible assets Tangible assets Investment properties Plantations Associates and joint ventures Other investments Non-current debtors Deferred tax assets Pension assets Non-current assets Properties for sale Stocks and work in progress Current debtors Current investments Current tax assets Bank balances and other liquid funds – non-financial services companies – financial services companies Non-current assets classified as held for sale Current assets Total assets Approved by the Board of Directors Ben Keswick James Riley Directors 8th March 2013 30 Jardine Matheson | Annual Report 2012Equity Share capital Share premium and capital reserves Revenue and other reserves Own shares held Shareholders’ funds Non-controlling interests Total equity Liabilities Long-term borrowings – non-financial services companies – financial services companies Deferred tax liabilities Pension liabilities Non-current creditors Non-current provisions Non-current liabilities Current creditors Current borrowings – non-financial services companies – financial services companies Current tax liabilities Current provisions Current liabilities Total liabilities Total equity and liabilities Note 26 28 30 31 32 20 21 33 34 33 32 34 2012 US$m 168 105 19,764 (2,234) 17,803 24,583 42,386 5,577 2,319 7,896 800 363 388 136 9,583 7,540 1,816 1,803 3,619 274 58 11,491 2011 US$m 165 82 17,964 (1,855) 16,356 22,906 39,262 5,048 2,002 7,050 653 259 289 112 8,363 7,275 1,347 1,670 3,017 323 57 10,672 21,074 19,035 63,460 58,297 31 Jardine Matheson | Annual Report 2012Consolidated Statement of Changes in Equity for the year ended 31st December 2012 Share capital US$m Share premium US$m Capital reserves US$m Revenue reserves US$m Asset revaluation reserves US$m Hedging reserves US$m Exchange reserves US$m 2012 At 1st January Total comprehensive income Dividends paid by the Company Dividends paid to non-controlling interests Unclaimed dividends forfeited Issue of shares Employee share option schemes Scrip issued in lieu of dividends Increase in own shares held Subsidiaries acquired Subsidiaries disposed of Conversion of convertible bonds in a subsidiary Capital contribution from non-controlling interests Change in interests in subsidiaries Change in interests in associates and joint ventures Transfer At 31st December 2011 At 1st January Total comprehensive income Dividends paid by the Company Dividends paid to non-controlling interests Unclaimed dividends forfeited Issue of shares Employee share option schemes Scrip issued in lieu of dividends Increase in own shares held Subsidiaries acquired Conversion of convertible bonds in a subsidiary Capital contribution from non-controlling interests Purchase of additional interests in subsidiaries Change in interests in associates and joint ventures Transfer At 31st December 165 – – – – – – 3 – – – – – – – – 168 162 – – – – – – 3 – – – – – – – 165 8 – – – – 9 – (3) – – – – – – – 2 16 10 – – – – 1 – (3) – – – – – – – 8 74 – – – – – 17 – – – – – – – – (2) 89 59 – – – – – 15 – – – – – – – – 74 17,763 1,706 (462) – 2 – – 574 – – – – – (33) (3) – 19,547 14,723 3,210 (427) – 3 – – 523 – – – – (266) (2) (1) 17,763 Total comprehensive income included in revenue reserves comprises profit attributable to shareholders of the Company of US$1,688 million (2011: US$3,449 million), net fair value gain on other investments of US$100 million (2011: loss of US$79 million) and net actuarial loss on employee benefit plans of US$82 million (2011: US$160 million). Cumulative net fair value gain on other investments and net actuarial loss on employee benefit plans amounted to US$226 million (2011: US$126 million) and US$469 million (2011: US$387 million), respectively. 168 – – – – – – – – – – – – – – – 168 159 9 – – – – – – – – – – – – – 168 (40) 21 – – – – – – – – – – – – – – (19) (34) (6) – – – – – – – – – – – – – (40) 73 (5) – – – – – – – – – – – – – – 68 132 (60) – – – – – – – – – – – – 1 73 Own shares held US$m (1,855) – – – – – – – (379) – – – – – – – (2,234) (1,501) – – – – – – – (354) – – – – – – (1,855) Attributable to shareholders of the Company Attributable to non-controlling interests US$m US$m 16,356 1,722 (462) – 2 9 17 574 (379) – – – – (33) (3) – 17,803 13,710 3,153 (427) – 3 1 15 523 (354) – – – (266) (2) – 16,356 22,906 2,472 83 (1,043) 3 – 2 – (82) 152 (1) 56 6 29 – – 24,583 18,250 5,063 77 (935) – – 2 – (64) 140 319 315 (260) (1) – 22,906 Total equity US$m 39,262 4,194 (379) (1,043) 5 9 19 574 (461) 152 (1) 56 6 (4) (3) – 42,386 31,960 8,216 (350) (935) 3 1 17 523 (418) 140 319 315 (526) (3) – 39,262 32 33 Jardine Matheson | Annual Report 2012Jardine Matheson | Annual Report 2012Consolidated Cash Flow Statement for the year ended 31st December 2012 Operating activities Operating profit Change in fair value of investment properties Depreciation and amortization Other non-cash items Increase in working capital Interest received Interest and other financing charges paid Tax paid Dividends from associates and joint ventures Cash flows from operating activities Investing activities Purchase of subsidiaries Purchase of shares in Jardine Lloyd Thompson Purchase of other associates and joint ventures Purchase of other investments Purchase of intangible assets Purchase of tangible assets Additions to investment properties Additions to plantations Advance to associates, joint ventures and others Repayment from associates, joint ventures and others Sale of subsidiaries Sale of associates and joint ventures Sale of other investments Sale of intangible assets Sale of tangible assets Sale of investment properties Cash flows from investing activities Financing activities Issue of shares Capital contribution from non-controlling interests Advance from/(repayment to) non-controlling interests Change in interests in subsidiaries Drawdown of borrowings Repayment of borrowings Dividends paid by the Company Dividends paid to non-controlling interests Cash flows from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1st January Effect of exchange rate changes Note 35 (a) 35 (b) 35 (c) 35 (d) 35 (e) 35 (f) 35 (g) 35 (h) 35 (i) 35 (j) 35 (k) 35 (l) 2012 US$m 4,173 (330) 1,026 331 (2,101) 120 (237) (1,006) 1,976 753 2,729 (154) (2) (253) (257) (300) (1,374) (562) (87) (368) 69 11 8 423 5 49 8 (2,784) 9 6 22 (28) 17,931 (16,428) (266) (1,043) 203 148 4,158 (53) Cash and cash equivalents at 31st December 35 (m) 4,253 2011 US$m 8,381 (4,407) 914 116 (2,139) 130 (249) (808) 1,938 736 2,674 (363) (276) (86) (265) (255) (1,280) (87) (91) (259) 115 4 1 124 – 39 4 (2,675) 1 315 (6) (526) 17,914 (16,602) (244) (935) (83) (84) 4,268 (26) 4,158 34 Jardine Matheson | Annual Report 2012Notes to the Financial Statements 1 Principal Accounting Policies Basis of preparation The financial statements have been prepared in accordance with International Financial Reporting Standards, including International Accounting Standards and Interpretations adopted by the International Accounting Standards Board. The financial statements have been prepared under the historical cost convention except as disclosed in the accounting policies below. Amendments to IFRS 7 ‘Financial Instruments: Transfers of Financial Assets’ became effective in the current accounting year and are relevant to the Group’s operations. The amendments promote transparency in the reporting of such transfer transactions and improve users’ understanding of the risk exposures relating to transfer of financial assets and the effect of those risks on an entity’s financial position particularly those involving securitization of financial assets. The adoption of these amendments does not have a material impact on the Group’s accounting policies and disclosures. The following standards and amendments which are effective after 2012, are relevant to the Group’s operations and yet to be adopted IFRS 9 IFRS 10 IFRS 11 IFRS 12 IFRS 13 Amendments to IFRS 7 Amendments to IFRSs 10, 11 and 12 Financial Instruments Consolidated Financial Statements Joint Arrangements Disclosure of Interests in Other Entities Fair Value Measurement Disclosures – Offsetting Financial Assets and Financial Liabilities Consolidated Financial Statements, Joint Arrangements and Disclosure of Amendments to IAS 1 IAS 19 (amended 2011) IAS 27 (2011) IAS 28 (2011) Amendments to IAS 32 IFRIC 20 Annual Improvements to IFRS Interests in Other Entities: Transition Guidance Presentation of Items of Other Comprehensive Income Employee Benefits Separate Financial Statements Investments in Associates and Joint Ventures Offsetting Financial Assets and Financial Liabilities Stripping Costs in the Production Phase of a Surface Mine 2009 – 2011 Cycle The Group is currently assessing the impact of these new standards and amendments but expects their adoption will not have a material effect on the consolidated profit and loss account and balance sheet, although there will be additional disclosures in respect of IFRS 12 and 13. IFRS 9 ‘Financial Instruments’ (effective 1st January 2015) is the first standard issued as part of a wider project to replace IAS 39. IFRS 9 (2009) retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortized cost and fair value. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. The guidance in IAS 39 on impairment of financial assets and hedge accounting continues to apply. IFRS 9 (2010) adds requirements related to the classification and measurement of financial liabilities, and derecognition of financial assets and liabilities, to the version issued in November 2009. It also includes those paragraphs of IAS 39 dealing with how to measure fair value and accounting for derivatives embedded in a contract that contains a host that is not a financial asset, as well as the requirements of IFRIC 9 ‘Remeasurement of Embedded Derivatives’. The Group will apply the standard from 1st January 2015. IFRS 10 ‘Consolidated Financial Statements’ (effective 1st January 2013) replaces SIC Interpretation 12 ‘Consolidation – Special Purpose Entities’ and most of IAS 27 ‘Consolidated and Separate Financial Statements’. It contains a new single consolidation model that identifies control as the basis for consolidation for all types of entities. It provides a definition of control that comprises the elements of power over an investee; exposure of rights to variable returns from an investees; and ability to use power to affect the reporting entity’s returns. The Group will apply the standard from 1st January 2013. IFRS 11 ‘Joint Arrangements’ replaces IAS 31 ‘Interests in Joint Ventures’ and SIC 13 ‘Jointly Controlled Entities – Non Monetary Contributions by Venturers’. Under IFRS 11, joint arrangements are classified as either joint operations (whereby the parties that have joint control have rights to the assets and obligations for the liabilities of the joint arrangements) or joint ventures (whereby the parties that have joint control have rights to the net assets of the joint arrangements). Joint operations are accounted for by showing the party’s interest in the assets, liabilities, revenue and expenses, and/or its relative share of jointly controlled assets, liabilities, revenue and expenses, if any. Accounting for joint ventures is now covered by IAS 28 (2011) as proportionate consolidation is no longer permitted. The Group will apply the standard from 1st January 2013. 35 Jardine Matheson | Annual Report 2012 IFRS 12 ‘Disclosure of Interests in Other Entities’ (effective 1st January 2013) requires entities to disclose information that helps financial statements readers to evaluate the nature, risks and financial effects associated with the entity’s interests in subsidiaries, associates, joint arrangements and unconsolidated structured entities. Disclosure required includes significant judgements and assumptions made in determining whether an entity controls, jointly controls, significantly influences or has some other interest in other entities. The Group will apply the standard from 1st January 2013. IFRS 13 ‘Fair Value Measurement’ (effective 1st January 2013) requires entities to disclose information about the valuation techniques and inputs used to measure fair value, as well as information about the uncertainty inherent in fair value measurements. The standard applies to both financial and non-financial items measured at fair value. Fair value is now defined as ‘the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date’ (i.e. an exit price). The Group will apply the standard from 1st January 2013. Amendments to IFRS 7 ‘Disclosures – Offsetting Financial Assets and Financial Liabilities’ focus on disclosures of quantitative information about recognized financial instruments that are offset in the balance sheet, as well as those recognized financial instruments that are subject to master netting or similar arrangements irrespective of whether they are offset. The Group will adopt the amendments from 1st January 2013. Amendments to IFRSs 10, 11 and 12 on transition guidance provide additional transition relief to IFRSs 10, 11 and 12, limiting the requirement to provide adjusted comparative information to only the preceding comparative period. For disclosures related to unconsolidated structured entities, the amendments will remove the requirement to present comparative information for periods before IFRS 12 is first applied. The Group will adopt the amendments from 1st January 2013. Amendments to IAS 1 ‘Presentation of Items of Other Comprehensive Income’ (effective 1st July 2012) improve the consistency and clarity of the presentation of items of other comprehensive income. The amendments require entities to separate items presented in other comprehensive income into two groups, based on whether or not they may be recycled to profit or loss in the future. Items that will not be recycled – such as actuarial gains or losses on defined benefit pension plans – will be presented separately from items that may be recycled in the future – such as deferred gains and losses on cash flow hedges. The amounts of tax related to the two groups are required to be allocated on the same basis. The Group will adopt the amendments from 1st January 2013. IAS 19 (amended 2011) ‘Employee Benefits’ (effective 1st January 2013) requires the assumed return on plan assets recognized in the profit and loss to be the same as the rate used to discount the defined benefit obligation. It also requires actuarial gains and losses to be recognized immediately in other comprehensive income and past service costs immediately in profit or loss. Additional disclosures are required to present the characteristics of benefit plans, the amount recognized in the financial statements, and the risks arising from defined benefit plans and multi-employer plans. The Group will apply the amended standard from 1st January 2013. IAS 27 (2011) ‘Separate Financial Statements’ (effective 1st January 2013) supersedes IAS 27 (2008) and prescribes the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. There will be no impact on the consolidated financial statements as the changes only affect the separate financial statements of the investing entity. IAS 28 (2011) ‘Investments in Associates and Joint Ventures’ (effective 1st January 2013) supersedes IAS 28 (2008) and prescribes the accounting for investments in associates and joint ventures and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. The adoption of this standard is not expected to have any material impact on the results of the Group as the Group is already following the standard. Amendments to IAS 32 ‘Offsetting Financial Assets and Financial Liabilities’ (effective 1st January 2014) are made to the application guidance in IAS 32 and clarify some of the requirements for offsetting financial assets and financial liabilities on the balance sheet. The Group will adopt the amendments from 1st January 2014. IFRIC 20 ‘Stripping Costs in the Production Phase of a Surface Mine’ (effective 1st January 2013) clarifies when production stripping should lead to the recognition of an asset and how that asset should be measured, both initially and in subsequent periods. The Group will apply the Interpretation from 1st January 2013. Annual improvements to IFRSs 2009 – 2011 Cycle comprise a number of non-urgent but necessary amendments to IFRSs. The amendments which are relevant to the Group’s operations include the following: 36 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)Amendment to IAS 1 ‘Presentation of Financial Statements’ clarifies the disclosure requirements for comparative information when an entity provides a third balance sheet either as required by IAS 8, ‘Accounting policies, changes in accounting estimates and errors’; or voluntarily. When an entity produces an additional balance sheet as required by IAS 8, the balance sheet should be as at the date of the beginning of the preceding period – that is, the opening position. No notes are required to support this balance sheet. When management provides additional comparative information voluntarily – for example, profit and loss account, balance sheet – it should present the supporting notes to these additional statements. The Group will adopt the amendment from 1st January 2013. Amendment to IAS 16 ‘Property, Plant and Equipment’ clarifies that spare parts and servicing equipment are classified as property, plant and equipment rather than inventory when they meet the definition of property, plant and equipment. The previous wording of IAS 16 indicated that servicing equipment should be classified as inventory, even if it was used for more than one period. Following the amendment, this equipment used for more than one period is classified as property, plant and equipment. The Group will adopt the amendment from 1st January 2013. Amendment to IAS 32 ‘Financial Instruments: Presentation’ clarifies that income tax related to profit distributions is recognized in the profit and loss account, and income tax related to the costs of equity transactions is recognized in equity. Prior to the amendment, IAS 32 was ambiguous as to whether the tax effects of distributions and the tax effects of equity transactions should be accounted for in the profit and loss account or in equity. The Group will adopt the amendment from 1st January 2013. Amendment to IAS 34 ‘Interim Financial Reporting’ clarifies the disclosure requirements for segment assets and liabilities in interim financial statements. A measure of total assets and liabilities is required for an operating segment in interim financial statements if such information is regularly provided to the chief operating decision maker and there has been a material change in those measures since the last annual financial statements. The Group will adopt the amendment from 1st January 2013. The principal operating subsidiaries, associates and joint ventures have different functional currencies in line with the economic environments of the locations in which they operate. The functional currency of the Company is United States dollars. The consolidated financial statements are presented in United States dollars. The Group’s reportable segments are set out in note 4 and are described on page 4 and pages 6 to 21. Basis of consolidation (i) The consolidated financial statements include the financial statements of the Company, its subsidiaries, and the Group’s interests in associates and joint ventures. (ii) Subsidiaries are entities over which the Group has the power to govern the financial and operating policies. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition include the fair value at the acquisition date of any contingent consideration. The Group recognizes the non-controlling interest’s proportionate share of the recognized identifiable net assets of the acquired subsidiary. In a business combination achieved in stages, the Group remeasures its previously held interest in the acquiree at its acquisition-date fair value and recognized the resulting gain or loss in profit and loss. Changes in a parent’s ownership interest in a subsidiary that do not result in the loss of control are accounted for as equity transactions. When control over a previous subsidiary is lost, any remaining interest in the entity is remeasured at fair value and the resulting gain or loss is recognized in profit and loss. All material intercompany transactions, balances and unrealized surpluses and deficits on transactions between Group companies have been eliminated. The cost of and related income arising from shares held in the Company by subsidiaries are eliminated from shareholders’ funds and non-controlling interests, and profit, respectively. (iii) Associates are entities, not being subsidiaries or joint ventures, over which the Group exercises significant influence. Joint ventures are entities which the Group jointly controls with one or more other venturers. Associates and joint ventures are included on the equity basis of accounting. Profits and losses resulting from upstream and downstream transactions between the Group and its associates are recognized in the consolidated financial statements only to the extent of unrelated investor’s interests in the associates. (iv) Non-controlling interests represent the proportion of the results and net assets of subsidiaries and their associates and joint ventures not attributable to the Group. (v) The results of subsidiaries, associates and joint ventures are included or excluded from their effective dates of acquisition or disposal, respectively. The results of entities other than subsidiaries, associates and joint ventures are included to the extent of dividends received when the right to receive such dividend is established. 37 Jardine Matheson | Annual Report 2012Foreign currencies Transactions in foreign currencies are accounted for at the exchange rates ruling at the transaction dates. Assets and liabilities of subsidiaries, associates and joint ventures, together with all other monetary assets and liabilities expressed in foreign currencies, are translated into United States dollars at the rates of exchange ruling at the year end. Results expressed in foreign currencies are translated into United States dollars at the average rates of exchange ruling during the year, which approximate the exchange rates at the dates of the transactions. Exchange differences arising from the retranslation of the net investment in foreign subsidiaries, associates and joint ventures, and of financial instruments which are designated as hedges of such investments, are recognized in other comprehensive income and accumulated in equity under exchange reserves. On the disposal of these investments, such exchange differences are recognized in profit and loss. Exchange differences on available-for-sale investments are recognized in other comprehensive income as part of the gains and losses arising from changes in their fair value. Exchange differences relating to changes in the amortized cost of monetary securities classified as available-for-sale and all other exchange differences are recognized in profit and loss. Goodwill and fair value adjustments arising on acquisition of a foreign entity after 1st January 2003 are treated as assets and liabilities of the foreign entity and translated into United States dollars at the rate of exchange ruling at the year end. Impairment of non-financial assets Assets that have indefinite useful lives are not subject to amortization and are tested for impairment annually and whenever there is an indication that the assets may be impaired. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For the purpose of assessing impairment, assets are grouped at the lowest level for which there is separately identifiable cash flows. Cash-generating units or groups of cash-generating units to which goodwill has been allocated are tested for impairment annually and whenever there is an indication that the units may be impaired. An impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of an asset’s fair value less costs to sell and value in use. Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment annually. Intangible assets (i) Goodwill represents the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the acquisition-date fair value of any previously held equity interest in the acquiree over the acquisition-date fair value of the Group’s share of the net identifiable assets acquired. Non-controlling interests are measured at their proportionate share of the net identifiable assets at the acquisition date. If the cost of acquisition is less than the fair value of the net assets acquired, the difference is recognized directly in profit and loss. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates and joint ventures is included in investment in associates and joint ventures. Goodwill is allocated to cash-generating units or groups of cash-generating units for the purpose of impairment testing and is carried at cost less accumulated impairment loss. The profit or loss on disposal of subsidiaries, associates and joint ventures is stated after deducting the carrying amount of goodwill relating to the entity sold. (ii) Franchise rights, which are rights under franchise agreements, are separately identified intangible assets acquired as part of a business combination. These franchise agreements are deemed to have indefinite lives because either they do not have any term of expiry or their renewal by the Group would be probable and would not involve significant costs, taking into account the history of renewal and the relationships between the franchisee and the contracting parties. The useful lives are reviewed at each balance sheet date. Franchise rights are carried at cost less accumulated impairment loss. (iii) Leasehold land represents payments to third parties to acquire short-term interests in property. These payments are stated at cost and are amortized over the useful life of the lease which includes the renewal period if the lease can be renewed by the Group without significant cost. (iv) Concession rights are operating rights for toll roads under service concession arrangements. The cost of the construction services provided under the arrangements is amortized over the period of the concession. (v) Other intangible assets are stated at cost less accumulated amortization. Amortization is calculated on the straight line basis to allocate the cost of intangible assets over their estimated useful lives. 38 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)Tangible fixed assets and depreciation Freehold land and buildings, and the building component of owner-occupied leasehold properties are stated at cost less any accumulated depreciation and impairment. Long-term interests in leasehold land are classified as finance leases and grouped under tangible assets if substantially all risks and rewards relating to the land have been transferred to the Group, and are amortized over the useful life of the lease. Grants related to tangible assets are deducted in arriving at the carrying amount of the assets. Mining properties, which are contractual rights to mine and own coal reserves in specified concession areas, and other tangible fixed assets are stated at cost less amounts provided for depreciation. Cost of mining properties includes expenditure to restore and rehabilitate coal mining areas following the completion of production. Depreciation of tangible fixed assets other than mining properties is calculated on the straight line basis to allocate the cost or valuation of each asset to its residual value over its estimated useful life. The residual values and useful lives are reviewed at each balance sheet date. The estimated useful lives are as follows: Buildings Surface, finishes and services of hotel properties Leasehold improvements Leasehold land Plant and machinery Furniture, equipment and motor vehicles 14 – 150 years 20 – 30 years period of the lease period of the lease 2 – 20 years 2 – 16 years No depreciation is provided on freehold land as it is deemed to have an indefinite life. Mining properties are depreciated using the unit of production method. Where the carrying amount of a tangible fixed asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. The profit or loss on disposal of tangible fixed assets is recognized by reference to their carrying amount. Investment properties Properties including those under operating leases which are held for long-term rental yields or capital gains are classified and accounted for as investment properties, but the business model does not necessarily envisage that the properties will be held for their entire useful life. Investment properties are carried at fair value, representing estimated open market value determined annually by independent qualified valuers who have recent experience in the location and category of the investment property being valued. The market value of each property is calculated on the discounted net rental income allowing for reversionary potential. Changes in fair value are recognized in profit and loss. Plantations Plantations, which principally comprise oil palm plantations and exclude the related land, are measured at each balance sheet date at their fair values, representing the present value of expected net cash flows from the assets in their present location and condition determined internally, less estimated point of sale costs. Changes in fair values are recorded in the profit and loss account. The plantations which have a life of approximately 25 years are considered mature three to four years after planting and once they are generating fresh fruit bunches which average four to six tonnes per hectare per year. Investments (i) Investments are classified by management as available for sale or held to maturity on initial recognition. Available-for-sale investments are shown at fair value. Gains and losses arising from changes in fair value are recognized in other comprehensive income and accumulated in equity. On the disposal of an investment or when an investment is determined to be impaired, the cumulative gain or loss previously deferred in equity is recognized in profit and loss. Held-to-maturity investments are shown at amortized cost. Investments are classified under non-current assets unless they are expected to be realized within 12 months after the balance sheet date. (ii) At each balance sheet date, the Group assesses whether there is objective evidence that an investment is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. (iii) All purchases and sales of investments are recognized on the trade date, which is the date that the Group commits to purchase or sell the investment. 39 Jardine Matheson | Annual Report 2012Leases Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. (i) Amount due from lessees under finance leases are recorded as receivables at the amount of the Group’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases. (ii) Plant and machinery under finance leases are capitalized at the commencement of the lease at the lower of the fair value of the leased asset and the present value of the minimum lease payments. Lease payments are allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. (iii) Payments made under operating leases (net of any incentives received from the lessor) are charged to profit and loss on a straight line basis over the period of the lease. When a lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognized as an expense in the year in which termination takes place. Properties for sale Properties for sale, which comprise land and buildings held for resale, are stated at the lower of cost and net realizable value. The cost of properties for sale comprises land costs, and construction and other development costs. Stocks and work in progress Stocks, which principally comprise goods held for resale, are stated at the lower of cost and net realizable value. Cost is determined by the first-in, first-out method. The cost of finished goods and work in progress comprises raw materials, labour and an appropriate proportion of overheads. Debtors Consumer financing debtors and financing lease receivables are measured at amortized cost using the effective interest method. The gross amount due from customers for contract work is stated at cost plus an appropriate proportion of profit, established by reference to the percentage of completion, and after deducting progress payments and provisions for foreseeable losses. Repossessed assets of finance companies are measured at the lower of the carrying amount of the debtors in default and fair value less costs to sell. All other debtors, excluding derivative financial instruments, are measured at amortized cost except where the effect of discounting would be immaterial. Provision for impairment is established when there is objective evidence that the outstanding amounts will not be collected. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the debtor is impaired. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in arriving at operating profit. When a debtor is uncollectible, it is written off against the allowance account. Subsequent recoveries of amount previously written off are credited to profit and loss. Debtors with maturities greater than 12 months after the balance sheet date are classified under non-current assets. Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise deposits with banks and financial institutions, bank and cash balances, and liquid investments, net of bank overdrafts. In the balance sheet, restricted bank balances and deposits are included in non-current debtors, and bank overdrafts are included in current borrowings. Liquid investments, which are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value, are included in bank balances and other liquid funds and are stated at market value. Increases or decreases in market value are recognized in profit and loss. Provisions Provisions are recognized when the Group has present legal or constructive obligations as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligations, and a reliable estimate of the amount of the obligations can be made. Borrowings and borrowing costs Borrowings are initially recognized at fair value, net of transaction costs incurred. In subsequent periods, borrowings are stated at amortized cost using the effective interest method. 40 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)On the issue of bonds which are convertible into a fixed number of ordinary shares of the issuing entity, the fair value of the liability portion is determined using a market interest rate for an equivalent non-convertible bond; this amount is included in long-term borrowings on the amortized cost basis until extinguished on conversion or maturity of the bond. The remainder of the proceeds is allocated to the conversion option which is recognized and included in shareholders’ funds. On the issue of convertible bonds which are not convertible into the issuing entity’s own shares or which are not convertible into a fixed number of ordinary shares of the issuing entity, the fair value of the conversion option component is determined and included in current liabilities, and the residual amount is allocated to the carrying amount of the bond. Any conversion option component included in current liabilities is shown at fair value with changes in fair value recognized in profit and loss. Borrowing costs relating to major development projects are capitalized until the asset is substantially completed. Capitalized borrowing costs are included as part of the cost of the asset. All other borrowing costs are expensed as incurred. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Current and deferred tax The tax expense for the year comprises current and deferred tax. Tax is recognized in profit and loss, except to the extent that it relates to items recognized in other comprehensive income or direct in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Group operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred tax is provided, using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying values. Deferred tax is determined using tax rates and laws that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realized or the deferred tax liability is settled. Provision for deferred tax is made on the revaluation of certain non-current assets and, in relation to acquisitions, on the difference between the fair value of the net assets acquired and their tax base. Deferred tax is provided on temporary differences associated with investments in subsidiaries, associates and joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets relating to the carry forward of unused tax losses are recognized to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilized. Employee benefits Pension obligations The Group operates a number of defined benefit and defined contribution plans, the assets of which are held in trustee administered funds. Pension accounting costs for defined benefit plans are assessed using the projected unit credit method. Under this method, the costs of providing pensions are charged to profit and loss spreading the regular cost over the service lives of employees in accordance with the advice of qualified actuaries, who carry out a full valuation of major plans every year. The pension obligations are measured as the present value of the estimated future cash outflows by reference to market yields on high quality corporate bonds which have terms to maturity approximating the terms of the related liability. Plan assets are measured at fair value. Actuarial gains and losses are recognized in other comprehensive income in the year in which they occur. The Group’s total contributions relating to the defined contribution plans are charged to profit and loss in the year to which they relate. Share-based compensation The Company and its subsidiaries and associates operate a number of equity settled employee share option schemes. The fair value of the employee services received in exchange for the grant of the options in respect of options granted after 7th November 2002 is recognized as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted as determined on the grant date. At each balance sheet date, the entity revises its estimates of the number of options that are expected to become exercisable. The impact of the revision of original estimates, if any, is recognized in profit and loss. 41 Jardine Matheson | Annual Report 2012Non-current assets held for sale Non-current assets are classified as assets held for sale and stated at the lower of carrying amount and fair value less costs to sell if their carrying amount is recovered principally through a sale transaction rather than through continuing use. Once classified as held for sale, the assets are no longer amortized or depreciated. Derivative financial instruments The Group only enters into derivative financial instruments in order to hedge underlying exposures. Derivative financial instruments are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognizing the resulting gain or loss is dependent on the nature of the item being hedged. The Group designates certain derivatives as a hedge of the fair value of a recognized asset or liability (‘fair value hedge’), or a hedge of a forecasted transaction or of the foreign currency risk on a firm commitment (‘cash flow hedge’), or a hedge of a net investment in a foreign entity. Changes in the fair value of derivatives that are designated and qualify as fair value hedges and that are highly effective, are recognized in profit and loss, along with any changes in the fair value of the hedged asset or liability that is attributable to the hedged risk. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, the cumulative adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortized to profit and loss over the residual period to maturity. Changes in the fair value of derivatives that are designated and qualify as cash flow hedges and that are highly effective, are recognized in other comprehensive income and accumulated in equity under hedging reserves. Changes in the fair value relating to the ineffective portion is recognized immediately in profit and loss. Where the forecasted transaction or firm commitment results in the recognition of a non-financial asset or of a non-financial liability, the gains and losses previously deferred in hedging reserves are transferred from hedging reserves and included in the initial measurement of the cost of the asset or liability. Otherwise, amounts deferred in hedging reserves are transferred to profit and loss in the same periods during which the hedged firm commitment or forecasted transaction affects profit and loss. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in hedging reserves at that time remains in the hedging reserves and is recognized when the committed or forecasted transaction ultimately is recognized in profit and loss. When a committed or forecasted transaction is no longer expected to occur, the cumulative gain or loss that was reported in hedging reserves is immediately transferred to profit and loss. Certain derivative transactions, while providing effective economic hedges under the Group’s risk management policies, do not qualify for hedge accounting under the specific rules in IAS 39. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting under IAS 39 are recognized immediately in profit and loss. Hedges of net investments in foreign entities are accounted for on a similar basis to that used for cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in other comprehensive income and accumulated in exchange reserves; the gain or loss relating to the ineffective portion is recognized immediately in profit and loss. The fair value of derivatives which are designated and qualify as effective hedges are classified as non-current assets or liabilities if the remaining maturities of the hedged assets or liabilities are greater than 12 months after the balance sheet date. Insurance contracts Insurance contracts are those contracts that transfer significant insurance risk. Premiums on insurance contracts are recognized as revenue proportionately over the period of coverage. The portion of premium received on in-force contracts that relates to unexpired risks at the balance sheet date is reported as the unearned premium liability. Claims and loss adjustment expenses are charged to profit and loss as incurred based on the estimated liabilities for compensation owed to contract holders or third parties damaged by the contract holders. They include direct and indirect claims settlement costs and arise from events that have occurred up to the balance sheet date even if they have not yet been reported to the Group. The Group does not discount its liabilities for unpaid claims. Liabilities for unpaid claims are estimated using the input of assessments for individual cases reported to the Group and statistical analyses for the claims incurred but not reported. 42 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)Financial guarantee contracts under which the Group accepts significant risk from a third party by agreeing to compensate that party on the occurrence of a specified uncertain future event are accounted for in a manner similar to insurance contracts. Provisions are recognized when it is probable that the Group has obligations under such guarantees and an outflow of resources embodying economic benefits will be required to settle the obligations. Non-trading items Non-trading items are separately identified to provide greater understanding of the Group’s underlying business performance. Items classified as non-trading items include fair value gains or losses on revaluation of investment properties and plantations; gains and losses arising from the sale of businesses, investments and properties; impairment of non-depreciable intangible assets and other investments; provisions for the closure of businesses; acquisition-related costs in business combinations; and other credits and charges of a non-recurring nature that require inclusion in order to provide additional insight into underlying business performance. Earnings per share Basic earnings per share are calculated on profit attributable to shareholders and on the weighted average number of shares in issue during the year. The weighted average number excludes the Company’s share of the shares held by subsidiaries and the shares held by the Trustee under the Senior Executive Share Incentive Schemes. For the purpose of calculating diluted earnings per share, profit attributable to shareholders is adjusted for the effects of the conversion of dilutive potential ordinary shares of subsidiaries, associates or joint ventures, and the weighted average number of shares is adjusted for the number of shares which are deemed to be issued for no consideration under the Senior Executive Share Incentive Schemes based on the average share price during the year. Dividends Dividends proposed or declared after the balance sheet date are not recognized as a liability at the balance sheet date. The nominal amount of the ordinary shares issued as a result of election for scrip is capitalized out of the share premium account or other reserves, as appropriate. Revenue recognition Revenue is measured at the fair value of the consideration received and receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and sales related taxes. (i) Revenue from the sale of goods, including properties for sale, is recognized on the transfer of significant risks and rewards of ownership, which generally coincides with the time when the goods are delivered to customers. (ii) Receipts under operating leases are accounted for on an accrual basis over the lease terms. (iii) Revenue from a contract to provide services is recognized by reference to the stage of completion of the contract. (iv) Revenue from consumer financing and financing leases is recognized over the term of the respective contracts based on a constant rate of return on the net investment. (v) Interest income is recognized on a time proportion basis taking into account the principal amounts outstanding and the interest rates applicable. (vi) Dividend income is recognized when the right to receive payment is established. Pre-operating costs Pre-operating costs are expensed as they are incurred. 43 Jardine Matheson | Annual Report 20122 Financial Risk Management Financial risk factors The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s treasury function co-ordinates, under the directions of the board of Jardine Matheson Limited, financial risk management policies and their implementation on a group-wide basis. The Group’s treasury policies are designed to manage the financial impact of fluctuations in interest rates and foreign exchange rates and to minimize the Group’s financial risks. The Group uses derivative financial instruments, principally interest rate swaps, caps and collars, cross-currency swaps, forward foreign exchange contracts and foreign currency options as appropriate for hedging transactions and managing the Group’s assets and liabilities in accordance with the Group’s financial risk management policies. Financial derivative contracts are executed between third party banks and the Group entity that is directly exposed to the risk being hedged. Certain derivative transactions, while providing effective economic hedges under the Group’s risk management policies, do not qualify for hedge accounting under the specific rules in IAS 39. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting under IAS 39 are recognized immediately in the profit and loss account. It is the Group’s policy not to enter into derivative transactions for speculative purposes. The notional amounts and fair values of derivative financial instruments at 31st December 2012 are disclosed in note 36. (i) Market risk Foreign exchange risk Entities within the Group are exposed to foreign exchange risk from future commercial transactions, net investments in foreign operations and net monetary assets and liabilities that are denominated in a currency that is not the entity’s functional currency. Entities in the Group use cross-currency swaps, forward foreign exchange contracts and foreign currency options in a consistent manner to hedge firm and anticipated foreign exchange commitments and manage their foreign exchange risk arising from future commercial transactions. The Group does not usually hedge its net investments in foreign operations except in circumstances where there is a material exposure arising from a currency that is anticipated to be volatile and the hedging is cost effective. Group entities are required to manage their foreign exchange risk against their functional currency. Foreign currency borrowings are swapped into the entity’s functional currency using cross-currency swaps except where the foreign currency borrowings are repaid with cash flows generated in the same foreign currency. The purpose of these hedges is to mitigate the impact of movements in foreign exchange rates on assets and liabilities and the profit and loss account of the Group. Currency risks as defined by IFRS 7 arise on account of monetary assets and liabilities being denominated in a currency that is not the functional currency. At 31st December 2012 the Group’s Indonesian rupiah functional entities had United States dollar denominated net monetary liabilities of US$175 million (2011: assets of US$340 million). At 31st December 2012, if the United States dollar had strengthened/weakened by 10% against the Indonesian rupiah with all other variables unchanged, the Group’s profit after tax would have been US$13 million lower/higher (2011: US$26 million higher/ lower), arising from foreign exchange losses/gains taken on translation. The impact on amounts attributable to the shareholders of the Company would be US$3 million lower/higher (2011: US$5 million higher/ lower). This sensitivity analysis ignores any offsetting foreign exchange factors and has been determined assuming that the change in foreign exchange rates had occurred at the balance sheet date. The stated change represents management’s assessment of reasonably possible changes in foreign exchange rates over the period until the next annual balance sheet date. There are no other significant monetary balances held by Group companies at 31st December 2012 that are denominated in a non-functional currency. Differences resulting from the translation of financial statements into the Group’s presentation currency are not taken into consideration. Since the Group manages the interdependencies between foreign exchange risk and interest rate risk of foreign currency borrowings using cross-currency swaps, the sensitivity analysis on financial impacts arising from cross-currency swaps is included in the sensitivity assessment on interest rates under the interest rate risk section. 44 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)Interest rate risk The Group is exposed to interest rate risk through the impact of rate changes on interest bearing liabilities and assets. These exposures are managed partly by using natural hedges that arise from offsetting interest rate sensitive assets and liabilities, and partly through fixed rate borrowings and the use of derivative financial instruments such as interest rate swaps, caps and collars. The Group monitors interest rate exposure on a monthly basis by currency and business unit, taking into consideration proposed financing and hedging arrangements. The Group’s guideline is to maintain 40% to 60% of its gross borrowings, exclusive of the financial services companies, in fixed rate instruments. At 31st December 2012 the Group’s interest rate hedge exclusive of the financial services companies was 47% (2011: 46%), with an average tenor of seven years (2011: six years). The financial services companies borrow predominately at a fixed rate. The interest rate profile of the Group’s borrowings after taking into account hedging transactions are set out in note 32. Cash flow interest rate risk is the risk that changes in market interest rates will impact cash flows arising from variable rate financial instruments. Borrowings at floating rates therefore expose the Group to cash flow interest rate risk. The Group manages this risk by using forward rate agreements to a maturity of one year, and by entering into interest rate swaps, caps and collars for a maturity of up to five years. Forward rate agreements and interest rate swaps have the economic effect of converting borrowings from floating rate to fixed rate, caps provide protection against a rise in floating rates above a pre-determined rate, whilst collars combine the purchase of a cap and the sale of a floor to specify a range in which an interest rate will fluctuate. Fair value interest rate risk is the risk that the value of a financial asset or liability and derivative financial instruments will fluctuate because of changes in market interest rates. The Group manages its fair value interest rate risk by entering into interest rate swaps which have the economic effect of converting borrowings from fixed rate to floating rate, to maintain the Group’s fixed rate instruments to within the Group’s guideline. At 31st December 2012, if interest rates had been 100 basis points higher/lower with all other variables held constant, the Group’s profit after tax would have been US$23 million (2011: US$16 million) higher/lower, and hedging reserves would have been US$113 million (2011: US$90 million) higher/lower as a result of fair value changes to cash flow hedges. The sensitivity analysis has been determined assuming that the change in interest rates had occurred at the balance sheet date and had been applied to the exposure to interest rate risk for both derivative and non-derivative financial instruments in existence at that date. There is no significant sensitivity resulting from interest rate caps and collars. The 100 basis point increase or decrease represents management’s assessment of a reasonably possible change in those interest rates which have the most impact on the Group, specifically the United States, Hong Kong and Indonesian rates, over the period until the next annual balance sheet date. In the case of effective fair value hedges, changes in the fair value of the hedged items caused by interest rate movements balance out in the profit and loss account against changes in the fair value of the hedging instruments. Changes in market interest rates affect the interest income or expense of non-derivative variable-interest financial instruments, the interest payments of which are not designated as hedged items of cash flow hedges against interest rate risks. As a consequence, they are included in the calculation of profit after tax sensitivities. Changes in the market interest rate of financial instruments that were designated as hedging instruments in a cash flow hedge to hedge payment fluctuations resulting from interest rate movements affect the hedging reserves and are therefore taken into consideration in the equity-related sensitivity calculations. Price risk The Group is exposed to securities price risk because of listed and unlisted investments which are available for sale and held by the Group at fair value. Gains and losses arising from changes in the fair value of available-for-sale investments are recognized in other comprehensive income. The performance of the Group’s listed and unlisted available-for-sale investments are monitored regularly, together with an assessment of their relevance to the Group’s long term strategic plans. Details of the Group’s available-for-sale investments are contained in note 18. 45 Jardine Matheson | Annual Report 2012Available-for-sale investments are unhedged. At 31st December 2012, if the price of listed and unlisted available-for-sale investments had been 25% higher/lower with all other variables held constant, total equity would have been US$313 million (2011: US$273 million) higher/lower unless impaired. The sensitivity analysis has been determined based on a reasonable expectation of possible valuation volatility over the next 12 months. The Group is exposed to financial risks arising from changes in commodity prices, primarily crude palm oil, coal, steel rebar and copper. The Group considers the outlook for crude palm oil, coal, steel rebar and copper prices regularly in considering the need for active financial risk management. The Group’s policy is generally not to hedge commodity price risk, although limited hedging may be undertaken for strategic reasons. In such cases the Group uses forward contracts to hedge the price risk. To mitigate or hedge the price risk, Group entities may enter into a forward contract to buy the commodity at a fixed price at a future date, or a forward contract to sell the commodity at a fixed price at a future date. (ii) Credit risk The Group’s credit risk is primarily attributable to deposits with banks, credit exposures to customers and derivative financial instruments with a positive fair value. The Group has credit policies in place and the exposures to these credit risks are monitored on an ongoing basis. The Group manages its deposits with banks and financial institutions and transactions involving derivative financial instruments by monitoring credit ratings and capital adequacy ratios of counterparties, and limiting the aggregate risk to any individual counterparty. The utilization of credit limits is regularly monitored. At 31st December 2012, over 74% (2011: 64%) of deposits and balances with banks and financial institutions were made to institutions with credit ratings of no less than A- (Fitch). Similarly transactions involving derivative financial instruments are with banks with sound credit ratings and capital adequacy ratios. In developing countries it may be necessary to deposit money with banks that have a lower credit rating, however the Group only enters into derivative transactions with counterparties which have credit ratings of at least investment grade. Management does not expect any counterparty to fail to meet its obligations. In respect of credit exposures to customers, the Group has policies in place to ensure that sales on credit without collateral are made principally to corporate companies with an appropriate credit history and credit insurance is purchased for businesses where it is economically effective. The Group normally obtains collateral over vehicles from consumer financing debtors towards settlement of vehicle receivables. Customers give the right to the Group to sell the repossessed collateral or take any other action to settle the outstanding receivable. Sales to other customers are made in cash or by major credit cards. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet after deducting any impairment allowance. (iii) Liquidity risk Prudent liquidity risk management includes managing the profile of debt maturities and funding sources, maintaining sufficient cash and marketable securities, and ensuring the availability of funding from an adequate amount of committed credit facilities and the ability to close out market positions. The Group’s ability to fund its existing and prospective debt requirements is managed by maintaining diversified funding sources with adequate committed funding lines from high quality lenders, and by monitoring rolling short-term forecasts of the Group’s cash and gross debt on the basis of expected cash flows. In addition long-term cash flows are projected to assist with the Group’s long-term debt financing plans. At 31st December 2012, total available borrowing facilities amounted to US$19.5 billion (2011: US$16.4 billion) of which US$11.5 billion (2011: US$10.1 billion) was drawn down. Undrawn committed facilities, in the form of revolving credit and term loan facilities, and undrawn uncommitted facilities totalled US$5.6 billion (2011: US$4.2 billion) and US$2.4 billion (2011: US$2.1 billion), respectively. The following table analyses the Group’s non-derivative financial liabilities, net-settled derivative financial liabilities and gross-settled derivative financial instruments into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. Derivative financial liabilities are included in the analysis if their contractual maturities are essential for an understanding of the timing of the cash flows. The amounts disclosed in the table are the contractual undiscounted cash flows. 46 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)Between one and two years Between two and three years Between three and four years Between four and five years US$m US$m US$m US$m Beyond five years US$m Total undiscounted cash flows US$m Within one year US$m 4,056 6,177 3,302 77 1,847 49 13 7 2 1,172 1,146 129 3,303 6,337 1,104 1,081 – 2,508 54 264 249 – 2,537 52 15 12 5 982 939 133 754 700 – 909 881 – At 31st December 2012 Borrowings Creditors Net settled derivative financial instruments Gross settled derivative financial instruments – inflow – outflow Estimated losses on insurance contracts At 31st December 2011 Borrowings Creditors Net settled derivative financial instruments Gross settled derivative financial instruments – inflow – outflow Estimated losses on insurance contracts 796 25 1 59 50 – 778 22 2 133 121 – 512 25 1 53 45 – 482 12 – 33 24 – 2,848 99 13,361 6,452 – 24 1,553 1,527 4,205 4,098 – 129 1,869 29 11,477 6,506 – 34 1,002 936 3,813 3,601 – 133 Capital management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern whilst seeking to maximize benefits to shareholders and other stakeholders. Capital is equity as shown in the consolidated balance sheet plus net debt. The Group actively and regularly reviews and manages its capital structure to ensure optimal capital structure and shareholder returns, taking into consideration the future capital requirements of the Group and capital efficiency, prevailing and projected profitability, projected operating cash flows, projected capital expenditures and projected strategic investment opportunities. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, purchase Group shares, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group monitors capital on the basis of the Group’s consolidated gearing ratio and consolidated interest cover. The gearing ratio is calculated as net debt divided by total equity. Net debt is calculated as total borrowings less bank balances and other liquid funds. Interest cover is calculated as underlying operating profit and share of results of associates and joint ventures divided by net financing charges. The ratios are monitored both inclusive and exclusive of the Group’s financial services companies, which by their nature are generally more highly leveraged than the Group’s other businesses. The Group does not have a defined gearing or interest cover benchmark or range. The ratios at 31st December 2011 and 2012 are as follows: Gearing ratio exclusive of financial services companies (%) Gearing ratio inclusive of financial services companies (%) Interest cover exclusive of financial services companies (times) Interest cover inclusive of financial services companies (times) 2012 2011 8 17 28 34 6 15 33 40 47 Jardine Matheson | Annual Report 2012 Fair value estimation (i) Financial instruments that are measured at fair value For financial instruments that are measured at fair value in the balance sheet, the corresponding fair value measurements are disclosed by level of the following fair value measurement hierarchy: (a) Quoted prices (unadjusted) in active markets for identical assets or liabilities (‘quoted prices in active markets’) The fair value of listed securities, which are classified as available-for-sale, is based on quoted prices in active markets at the balance sheet date. The quoted market price used for listed investments held by the Group is the current bid price. (b) Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly (‘observable current market transactions’) The fair values of all interest rate swaps and caps, cross-currency swaps, forward foreign exchange contracts and credit default swaps have been determined using rates quoted by the Group’s bankers at the balance sheet date which are calculated by reference to market interest rates and foreign exchange rates. (c) Inputs for assets or liabilities that are not based on observable market data (‘unobservable inputs’) The fair value of unlisted securities, which are classified as available-for-sale, is determined using valuation techniques by reference to observable current market transactions or the market prices of the underlying investments with certain degree of entity specific estimates. The table below analyses financial instruments carried at fair value, by the levels in the fair value measurement hierarchy. Quoted prices in active markets US$m Observable current market transactions Unobservable inputs US$m US$m 1,077 – 1,077 – 1,077 – – – 964 – 964 – 964 – – – – 41 41 144 185 – (45) (45) – 36 36 132 168 – (54) (54) – 134 134 – 134 (66) – (66) – 93 93 – 93 (7) – (7) Total US$m 1,077 175 1,252 144 1,396 (66) (45) (111) 964 129 1,093 132 1,225 (7) (54) (61) 2012 Assets Available-for-sale financial assets – listed securities – unlisted investments Derivative financial instruments Liabilities Contingent consideration payable Derivative financial instruments 2011 Assets Available-for-sale financial assets – listed securities – unlisted investments Derivatives financial instruments Liabilities Contingent consideration payable Derivative financial instruments 48 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)(ii) Financial instruments that are not measured at fair value The fair values of current debtors, bank balances and other liquid funds, current creditors and current borrowings are assumed to approximate their carrying amounts due to the short-term maturities of these assets and liabilities. The fair values of long-term borrowings are based on market prices or are estimated using the expected future payments discounted at market interest rates. Financial instruments by category Loans and receivables Derivatives Available- for-sale US$m US$m US$m Held-to- maturity US$m 2012 Other investments Debtors Bank balance and other liquid funds Borrowings (excluding finance lease liabilities) Finance lease liabilities Trade and other payables excluding non-financial liabilities 2011 Other investments Debtors Bank balance and other liquid funds Borrowings (excluding finance lease liabilities) Finance lease liabilities Trade and other payables excluding non-financial liabilities – 7,969 4,298 12,267 – – – – – 7,323 4,185 11,508 – – – – – 144 – 144 – – (45) (45) – 132 – 132 – – (54) (54) 1,252 – – 1,252 – – – – 1,093 – – 1,093 – – – – 2 – – 2 – – – – 7 – – 7 – – – – Other financial liabilities at amortized cost US$m – – – – Total carrying amount US$m 1,254 8,113 Fair value US$m 1,254 8,356 4,298 4,298 13,665 13,908 (11,365) (150) (11,365) (150) (11,478) (150) (6,452) (6,497) (6,497) (17,967) (18,012) (18,125) – – – – 1,100 7,455 1,100 7,454 4,185 4,185 12,740 12,739 (9,961) (106) (9,961) (106) (10,034) (106) (6,506) (6,560) (6,560) (16,573) (16,627) (16,700) 49 Jardine Matheson | Annual Report 2012 3 Critical Accounting Estimates and Judgements Estimates and judgements used in preparing the financial statements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant effect on the carrying amounts of assets and liabilities are discussed below. Acquisition of subsidiaries, associates and joint ventures The initial accounting on the acquisition of subsidiaries, associates and joint ventures involves identifying and determining the fair values to be assigned to the identifiable assets, liabilities and contingent liabilities of the acquired entities. The fair values of franchise rights, leasehold land, concession rights, tangible assets, investment properties and plantations are determined by independent valuers by reference to market prices or present value of expected net cash flows from the assets. Any changes in the assumptions used and estimates made in determining the fair values, and management’s ability to measure reliably the contingent liabilities of the acquired entity will impact the carrying amount of these assets and liabilities. Tangible fixed assets and depreciation Management determines the estimated useful lives and related depreciation charges for the Group’s tangible fixed assets. Management will revise the depreciation charge where useful lives are different to those previously estimated, or it will write off or write down technically obsolete or non-strategic assets that have been abandoned. Investment properties The fair values of investment properties, which are principally held by Hongkong Land, are determined by independent valuers on an open market for existing-use basis calculated on the discounted net income allowing for reversionary potential. Captialisation rates in the range of 3.50% to 4.45% for office (2011: 3.75% to 4.85%) and 4.50% to 5.75% for retail (2011: 4.50% to 5.75%) are used by Hongkong Land in the fair value determination. Consideration has been given to assumptions that are mainly based on market conditions existing at the balance sheet date and appropriate capitalization rates. These estimates are regularly compared to actual market data and actual transactions entered into by the Group. Plantations The fair values of plantations are determined by management based on the expected cash flows from the plantations. Management applies judgement in determining the assumptions to be used; the significant ones include a historical average crude palm oil price as the basis for deriving the price of fresh fruit bunches, maintenance costs, inflation, the yield per hectare based on industry standards and historical experience and the discount rates. Impairment of assets The Group tests annually whether goodwill and other assets that have indefinite useful lives suffered any impairment. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its recoverable amount. The recoverable amount of an asset or a cash generating unit is determined based on the higher of its fair value less costs to sell and its value in use, calculated on the basis of management’s assumptions and estimates. Changing the key assumptions, including the amount of estimated coal reserves, the discount rates or the growth rate assumptions in the cash flow projections, could materially affect the value-in-use calculations. The results of the impairment reviews undertaken at 31st December 2012 on the Group’s indefinite life franchise rights indicated that no impairment charge was necessary. If there is a significant increase in the discount rate and/or a significant adverse change in the projected performance of the business to which these rights attach, it may be necessary to take an impairment charge to profit and loss in the future. In determining when an available-for-sale equity investment is impaired, significant judgement is required. In making this judgement, the Group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost; and the financial health of and near-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flow. 50 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)Income taxes The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. Provision of deferred tax follows the way management expects to recover or settle the carrying amount of the related assets or liabilities, which the management may expect to recover through use, sale or combination of both. Accordingly, deferred tax will be calculated at income tax rate, capital gains tax rate or combination of both. There is a rebuttable presumption in International Financial Reporting Standards that investment properties measured at fair value are recovered through sale. Thus, deferred tax on revaluation of investment properties held by the Group are calculated at the capital gains tax rate. Recognition of deferred tax assets, which principally relate to tax losses, depends on the management’s expectation of future taxable profit that will be available against which the tax losses can be utilized. The outcome of their actual utilization may be different. Pension obligations The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost/income for pensions include the expected long-term rate of return on the relevant plan assets and the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations. The expected return on plan assets assumption is determined on a uniform basis, taking into consideration long-term historical returns, asset allocation and future estimates of long-term investment returns. The Group determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the Group considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension obligation. Other key assumptions for pension obligations are based in part on current market conditions. Non-trading items The Group uses underlying business performance in its internal financial reporting to distinguish between the underlying profits and non-trading items. The identification of non-trading items requires judgement by management, but follows the consistent methodology as set out in the Group’s accounting policies. 51 Jardine Matheson | Annual Report 20124 Segmental Information Operating segments are identified on the basis of internal reports about components of the Group that are regularly reviewed by the executive directors of the Company for the purpose of resource allocation and performance assessment. The Group has eight operating segments as more fully described on page 4. No operating segments have been aggregated to form the reportable segments. Set out below is an analysis of the Group’s underlying profit, net debt and total equity by reportable segment. 2012 Revenue (refer note 5) Net operating costs Change in fair value of investment properties Operating profit Net financing charges – financing charges – financing income Share of results of associates and joint ventures – before change in fair value of investment properties – change in fair value of investment properties Sale of an associate Profit before tax Tax Profit after tax Non-controlling interests Profit attributable to shareholders Net (debt)/cash (excluding net debt of financial services companies)* Total equity 2011 Revenue (refer note 5) Net operating costs Change in fair value of investment properties Operating profit Net financing charges – financing charges – financing income Share of results of associates and joint ventures – before change in fair value of investment properties – change in fair value of investment properties Profit before tax Tax Profit after tax Non-controlling interests Profit attributable to shareholders Net (debt)/cash (excluding net debt of financial services companies)* Total equity Jardine Pacific US$m 2,458 (2,407) – 51 (5) 1 (4) 119 – 119 – 166 (13) 153 – 153 (232) 615 2,655 (2,583) – 72 (4) – (4) 122 – 122 190 (11) 179 – 179 (193) 597 Jardine Motors US$m 4,053 (4,008) – 45 (21) – (21) – – – – 24 (9) 15 3 18 (129) 456 4,282 (4,178) – 104 (21) – (21) – – – 83 (18) 65 (4) 61 Jardine Lloyd Thompson US$m Hongkong Land US$m – – – – – – – 73 – 73 – 73 – 73 – 73 1,115 (314) – 801 (99) 38 (61) 166 – 166 – 906 (124) 782 (461) 321 – 520 (3,273) 26,184 – – – – – – – 53 – 53 53 – 53 – 53 1,224 (392) – 832 (100) 33 (67) 77 – 77 842 (133) 709 (420) 289 Dairy Farm US$m 9,801 (9,320) – 481 (14) 3 (11) 63 – 63 – 533 (83) 450 (165) 285 521 1,464 9,134 (8,599) – 535 (21) 4 (17) 55 – 55 573 (99) 474 (173) 301 (312) 401 – 453 (2,359) 24,764 466 1,148 * Net (debt)/cash is total borrowings less bank balances and other liquid funds. Net debt of financial services companies amounted to US$3,804 million at 31st December 2012 (2011: US$3,450 million) and relates to Astra. Mandarin Oriental US$m 648 (564) – 84 (15) 4 (11) 15 – 15 – 88 (17) 71 (28) 43 (136) 1,055 614 (534) – 80 (15) 3 (12) 10 – 10 78 (19) 59 (24) 35 (113) 1,019 Jardine Cycle & Carriage US$m 1,502 (1,454) – 48 (1) – (1) 24 – 24 – 71 (8) 63 (29) 34 32 360 1,448 (1,392) – 56 (1) – (1) 24 – 24 79 (11) 68 (32) 36 (74) 384 Astra US$m 20,039 (17,654) – 2,385 (108) 72 (36) 598 – 598 – 2,947 (614) 2,333 (1,761) 572 (922) 10,442 18,636 (16,365) – 2,271 (81) 82 1 650 – 650 2,922 (563) 2,359 (1,798) 561 (66) 9,657 Corporate and other interests US$m Intersegment transactions Underlying businesses performance Non-trading items US$m US$m US$m – (52) – (52) (3) 5 2 4 – 4 – (46) 1 (45) 25 (20) 726 1,307 – (41) – (41) (8) 6 (2) 7 – 7 (36) (8) (44) 24 (20) 220 857 39,593 (35,750) – 3,843 (266) 123 (143) 1,062 – 1,062 – 4,762 (867) 3,895 (2,416) 1,479 37,967 (34,058) – 3,909 (251) 128 (123) 998 – 998 4,784 (862) 3,922 (2,427) 1,495 – – 330 330 – – – (47) 361 314 (69) 575 (14) 561 (352) 209 – 65 4,407 4,472 – – – (6) 238 232 4,704 (11) 4,693 (2,739) 1,954 (23) 23 – – – – – – – – – – – – – – – (17) (26) 26 – – – – – – – – – – – – – (1) (18) Group US$m 39,593 (35,750) 330 4,173 (266) 123 (143) 1,015 361 1,376 (69) 5,337 (881) 4,456 (2,768) 1,688 (3,413) 42,386 37,967 (33,993) 4,407 8,381 (251) 128 (123) 992 238 1,230 9,488 (873) 8,615 (5,166) 3,449 (2,432) 39,262 52 53 Jardine Matheson | Annual Report 2012Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)4 Segment Information (continued) Set out below are analyses of the Group’s underlying profit attributable to shareholders and non-current assets, by geographical areas: Underlying profit attributable to shareholders: Greater China Southeast Asia United Kingdom Rest of the world Corporate and other interests Non-current assets*: Greater China Southeast Asia United Kingdom Rest of the world * Excluding financial instruments, deferred tax assets and pension assets. 2012 US$m 618 818 48 15 1,499 (20) 1,479 26,232 14,890 798 572 42,492 2011 US$m 615 861 48 (9) 1,515 (20) 1,495 24,959 13,096 922 550 39,527 54 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)5 Revenue By business: Jardine Pacific Jardine Motors Jardine Lloyd Thompson Hongkong Land Dairy Farm Mandarin Oriental Jardine Cycle & Carriage Astra Corporate and other interests Intersegment transactions By product and service: Agribusiness Engineering and construction Mining Financial services Logistics and IT services Motor vehicles Property and hotels Restaurants Retail By geographical location of customers: Greater China Southeast Asia United Kingdom Rest of the world Gross revenue Revenue 2012 US$m 5,348 4,053 1,401 2,526 11,541 1,012 3,059 31,831 503 (821) 60,453 1,228 5,538 3,319 4,616 2,963 27,019 3,769 1,869 10,132 60,453 13,960 42,111 3,493 889 60,453 2011 US$m 5,430 4,282 1,315 2,077 10,449 957 2,957 29,182 1,313 (656) 57,306 1,228 5,873 3,175 5,102 3,077 24,746 3,251 1,648 9,206 57,306 13,649 38,701 4,142 814 57,306 2012 US$m 2,458 4,053 – 1,115 9,801 648 1,502 20,039 – (23) 39,593 1,228 2,983 3,319 1,423 2,424 16,134 1,869 412 9,801 39,593 9,861 27,268 2,206 258 39,593 Gross revenue comprises revenue together with 100% of revenue from associates and joint ventures. 2011 US$m 2,655 4,282 – 1,224 9,134 614 1,448 18,636 – (26) 37,967 1,228 3,438 3,175 1,319 2,539 14,810 1,934 390 9,134 37,967 9,676 25,998 2,071 222 37,967 55 Jardine Matheson | Annual Report 20126 Net Operating Costs Cost of sales Other operating income Selling and distribution costs Administration expenses Other operating expenses The following credits/(charges) are included in net operating costs: Cost of stocks recognized as expense Cost of properties for sale recognized as expense Amortization of intangible assets Depreciation of tangible assets Impairment of intangible assets Impairment of tangible assets Write down of stocks and work in progress Reversal of write down of stocks and work in progress Reversal of write down of properties for sale Impairment of debtors Operating expenses arising from investment properties Employee benefit expense – salaries and benefits in kind – share options granted – defined benefit pension plans (refer note 21) – defined contribution pension plans Net foreign exchange (losses)/gains Operating lease expenses – minimum lease payments – contingent rents – subleases Auditors’ remuneration – audit – non-audit services Dividend and interest income from available-for-sale investments Dividend and interest income from held-to-maturity investments Rental income from properties Net operating costs included the following gains/(losses) from non-trading items: (Decrease)/increase in fair value of plantations Asset impairment Sale and closure of businesses Sale of investments Sale of property interests Acquisition-related costs Value added tax recovery in Jardine Motors Gain on One Hyde Park lease space 56 2012 US$m (30,728) 540 (3,714) (1,742) (106) (35,750) (27,547) (102) (85) (941) – (4) (44) 27 7 (143) (132) (2,875) (10) (56) (71) (3,012) (3) (925) (44) 54 (915) (17) (4) (21) 46 – 30 (52) 2 (12) 57 5 (1) 1 – – 2011 US$m (29,368) 488 (3,428) (1,645) (40) (33,993) (26,391) (229) (75) (839) (1) – (35) 14 44 (121) (122) (2,665) (8) (39) (58) (2,770) 18 (848) (21) 48 (821) (16) (4) (20) 43 1 28 37 (1) 1 – 15 (2) 5 10 65 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)7 Net Financing Charges Interest expense – bank loans and advances – other Fair value gains on fair value hedges Fair value adjustment on hedged items attributable to the hedged risk Interest capitalized Commitment and other fees Financing charges Financing income 8 Share of Results of Associates and Joint Ventures By business: Jardine Pacific Jardine Motors Jardine Lloyd Thompson Hongkong Land Dairy Farm Mandarin Oriental Jardine Cycle & Carriage Astra Corporate and other interests 2012 US$m (143) (108) (251) 4 (4) – (251) 14 (29) (266) 123 (143) 2012 US$m 120 – 71 527 63 15 (22) 598 4 2011 US$m (125) (99) (224) 58 (58) – (224) 2 (29) (251) 128 (123) 2011 US$m 122 2 51 298 66 10 24 650 7 Share of results of associates and joint ventures included the following gains/(losses) from non-trading items: Increase in fair value of investment properties Asset impairment Sale and closure of businesses Restructuring of businesses Other Results are shown after tax and non-controlling interests in the associates and joint ventures. 1,376 1,230 361 (45) – (3) 1 314 238 (17) 16 (4) (1) 232 57 Jardine Matheson | Annual Report 2012 9 Sale of an Associate In June 2012 the Group participated in the restructuring of the Rothschild group interests, pursuant to which it sold its holding of 21% in Rothschilds Continuation Holdings, which it originally acquired for US$181 million, in exchange for new shares in Paris Orléans (‘PO’) with a market value of US$172 million. The Group subsequently sold slightly less than 50% of its interest in PO for cash. These transactions together resulted in a non-trading loss of US$69 million or US$57 million after non-controlling interests (note 12). The remaining PO shares held by the Group are classified as other investments. 10 Tax Tax charged to profit and loss is analyzed as follows: Current tax Deferred tax Greater China Southeast Asia United Kingdom Rest of the world Reconciliation between tax expense and tax at the applicable tax rate*: Tax at applicable tax rate Income not subject to tax – change in fair value of investment properties – other items Expenses not deductible for tax purposes Tax losses and temporary differences not recognized Utilization of previously unrecognized tax losses and temporary differences Recognition of previously unrecognized tax losses and temporary differences Deferred tax assets written off Deferred tax liabilities written back Over/(under) provision in prior years Withholding tax Other Tax relating to components of other comprehensive income is analyzed as follows: Revaluation of other investments Actuarial valuation of employee benefit plans Cash flow hedges 2012 US$m (906) 25 (881) (195) (677) (6) (3) (881) (785) 99 43 (139) (33) 2 2 (2) – 20 (85) (3) (881) (1) 21 1 21 2011 US$m (921) 48 (873) (189) (676) (5) (3) (873) (1,499) 726 41 (83) (29) 12 8 (1) 12 (3) (55) (2) (873) – 22 (1) 21 Share of tax charge of associates and joint ventures of US$372 million and credit of US$7 million (2011: US$357 million and US$16 million) are included in share of results of associates and joint ventures and share of other comprehensive income of associates and joint ventures, respectively. * The applicable tax rate for the year was 19.5% (2011: 18.1%) and represents the weighted average of the rates of taxation prevailing in the territories in which the Group operates. The increase in applicable tax rate was caused by a change in the geographic mix of the Group’s profits. 58 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)11 Earnings per Share Basic earnings per share are calculated on profit attributable to shareholders of US$1,688 million (2011: US$3,449 million) and on the weighted average number of 365 million (2011: 362 million) shares in issue during the year. Diluted earnings per share are calculated on profit attributable to shareholders of US$1,687 million (2011: US$3,435 million), which is after adjusting for the effects of the conversion of dilutive potential ordinary shares of subsidiaries, associates or joint ventures, and on the weighted average number of 366 million (2011: 363 million) shares in issue during the year. The weighted average number of shares is arrived at as follows: Weighted average number of shares in issue Company’s share of shares held by subsidiaries Weighted average number of shares for basic earnings per share calculation Adjustment for shares deemed to be issued for no consideration under the Senior Executive Share Incentive Schemes Weighted average number of shares for diluted earnings per share calculation Ordinary shares in millions 2012 665 (300) 365 1 366 2011 653 (291) 362 1 363 Additional basic and diluted earnings per share are also calculated based on underlying profit attributable to shareholders. A reconciliation of earnings is set out below: 2012 Basic earnings per share US$ 4.63 Diluted earnings per share US$ 4.62 US$m 1,688 (209) 2011 Basic earnings per share US$ 9.53 Diluted earnings per share US$ 9.46 US$m 3,449 (1,954) 1,479 4.06 4.04 1,495 4.13 4.11 Profit attributable to shareholders Non-trading items (refer note 12) Underlying profit attributable to shareholders 59 Jardine Matheson | Annual Report 201212 Non-trading Items By business: Jardine Pacific Jardine Motors Jardine Lloyd Thompson Hongkong Land Dairy Farm Mandarin Oriental Jardine Cycle & Carriage Astra Corporate and other interests An analysis of non-trading items after interest, tax and non-controlling interests is set out below: Increase in fair value of investment properties – Hongkong Land – other (Decrease)/increase in fair value of plantations Asset impairment Sale and closure of businesses Sale of investments Sale of property interests Acquisition-related costs Restructuring of businesses Value added tax recovery in Jardine Motors Gain on One Hyde Park lease space Restructuring of Rothschild and subsequent partial sale of investment in Paris Orléans Withholding tax Other 2012 US$m 10 1 (3) 272 2 1 10 (27) (57) 209 272 13 285 (10) (26) (1) 34 3 – (3) 1 – (57) (18) 1 209 2011 US$m 37 6 (2) 1,894 7 5 – 7 – 1,954 1,901 23 1,924 6 (8) 13 – 15 (2) (4) 5 6 – – (1) 1,954 60 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued) Goodwill US$m Franchise rights US$m Leasehold land Concession rights US$m US$m 1,055 (4) 1,051 (9) 33 – (1) – – 1,074 1,079 (5) 1,074 953 (4) 949 (9) 113 – (2) – – – – 1,051 1,055 (4) 1,051 235 – 235 (15) – – – – – 220 220 – 220 235 – 235 (2) 2 – – – – – – 235 235 – 235 670 (119) 551 (34) – 139 (1) 14 (26) 643 781 (138) 643 592 (98) 494 (6) 1 89 – 27 (31) (23) – 551 670 (119) 551 349 (13) 336 (22) – 58 – – (5) 367 384 (17) 367 168 (9) 159 (7) 138 50 – – – (4) – 336 349 (13) 336 13 Intangible Assets 2012 Cost Amortization and impairment Net book value at 1st January Exchange differences New subsidiaries Additions Disposals Transfer from investment properties Amortization Net book value at 31st December Cost Amortization and impairment 2011 Cost Amortization and impairment Net book value at 1st January Exchange differences New subsidiaries Additions Disposals Revaluation surplus before transfer to investment properties Transfer to tangible assets and investment properties Amortization Impairment charge Net book value at 31st December Cost Amortization and impairment Goodwill allocation by business: Jardine Pacific Jardine Motors Dairy Farm Mandarin Oriental Astra Other US$m 279 (142) 137 (6) 4 81 – – (54) 162 271 (109) 162 214 (93) 121 (1) 18 77 – – (29) (48) (1) 137 279 (142) 137 2012 US$m 98 51 501 40 384 Total US$m 2,588 (278) 2,310 (86) 37 278 (2) 14 (85) 2,466 2,735 (269) 2,466 2,162 (204) 1,958 (25) 272 216 (2) 27 (60) (75) (1) 2,310 2,588 (278) 2,310 2011 US$m 90 48 463 40 410 1,074 1,051 61 Jardine Matheson | Annual Report 2012 Intangible Assets (continued) 13 Goodwill relating to Dairy Farm is allocated to groups of cash-generating units identified by banners or group of stores acquired in each geographical segment. Cash flow projections for impairment reviews are based on budgets prepared on the basis of assumptions reflective of the prevailing market conditions, and are discounted appropriately. Key assumptions used for value-in-use calculations include budgeted gross margins of between 25% and 49% and growth rates of up to 5% to extrapolate cash flows, which vary across the group’s business segments and geographical locations, over a five-year period and thereafter, and are based on management expectations for the market development; and pre-tax discount rates of between 7% and 20% applied to the cash flow projections. The discount rates used reflect business specific risks relating to the relevant industry, business life-cycle and geographical location. On the basis of these reviews, management concluded that no impairment is required. Goodwill relating to Astra has been allocated to the operating segment of Astra. Accordingly, for the purpose of impairment review, the carrying value of Astra is compared with the recoverable amount measured by reference to the quoted market price of the shares held. On the basis of this review and the continued expected level of profitability, management concluded that no impairment has occurred. Franchise rights are rights under franchise agreements with automobile and heavy equipment manufacturers. These franchise agreements are deemed to have indefinite lives because either they do not have any term of expiry or their renewal would be probable and would not involve significant costs, taking into account the history of renewal and the relationships between the franchisee and the contracting parties. The carrying amounts of franchise rights, which included automotive of US$79 million and heavy equipment of US$140 million, are not amortized as such rights will contribute cash flows for an indefinite period. Management has performed an impairment review of the carrying amounts of franchise rights at 31st December 2012 and has concluded that no impairment has occurred. The impairment review was made by comparing the carrying amounts of the cash- generating units in which the franchise rights reside with the recoverable amounts of the cash-generating units. The recoverable amounts of the cash-generating units are determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on budgets covering a three-year period. Cash flows beyond the three-year period are extrapolated using growth rates of between 3% and 4%. Pre-tax discount rates of between 19% and 23%, reflecting business specific risks, are applied to the cash flow projections. Other intangible assets comprise trademarks, computer software, hotel development costs, deferred acquisition costs for insurance contracts and customer contracts. At 31st December 2012, the carrying amount of leasehold land pledged as security for borrowings amounted to US$12 million (2011: US$13 million) (refer note 32). The amortization charges are all recognized in arriving at operating profit and are included in cost of sales, selling and distribution costs and administration expenses. The remaining amortization periods for intangible assets are as follows: up to 87 years 35 years up to 10 years up to 40 years Leasehold land Concession rights Computer software Other 62 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)14 Tangible Assets 2012 Cost Depreciation and impairment Net book value at 1st January Exchange differences New subsidiaries Additions Disposals Transfer to stocks and work in progress Depreciation charge Impairment charge Reclassified from non-current assets held for sale Net book value at 31st December Cost Depreciation and impairment 2011 Cost Depreciation and impairment Net book value at 1st January Exchange differences New subsidiaries Additions Disposals Revaluation surplus before transfer to investment properties Transfer to investment properties, and stocks and work in progress Transfer from intangible assets Depreciation charge Classified as non-current assets held for sale Net book value at 31st December Cost Depreciation and impairment Freehold properties Leasehold properties Leasehold improve- ments Mining properties Plant & machinery Furniture, equipment & motor vehicles US$m US$m US$m US$m US$m US$m Total US$m 9,545 (3,621) 5,924 (143) 496 1,676 (42) (87) (941) (4) 3,307 (1,577) 1,730 (91) 1 704 (16) (36) (481) – 2,070 (1,008) 1,062 (42) – 466 (17) (51) (275) – 705 (73) 632 (4) 492 – – – (21) – – 900 (518) 382 4 2 144 (5) – (88) (3) – 436 – – 42 1,099 1,811 1,143 6,921 1,026 (590) 1,191 (92) 3,690 (1,879) 2,261 (1,118) 11,115 (4,194) 436 1,099 1,811 1,143 6,921 845 (487) 358 (9) 5 113 (5) – – – (80) – 382 900 (518) 382 299 (52) 247 (15) 400 22 – – – – (22) – 632 705 (73) 632 2,685 (1,255) 1,430 (23) 6 765 (3) 1,738 (909) 829 (15) 3 525 (13) 7,911 (3,095) 4,816 (72) 418 1,696 (25) – – 4 (17) – (428) (31) 7 (243) (54) 29 (839) – – (49) 1,730 1,062 5,924 3,307 (1,577) 2,070 (1,008) 9,545 (3,621) 1,730 1,062 5,924 591 (74) 517 20 – 23 (2) – (7) (1) 19 569 651 (82) 569 556 (62) 494 (7) 3 54 (3) – – – (5) (19) 517 591 (74) 517 1,972 (371) 1,601 (30) 1 339 (2) – (69) – 23 1,863 2,296 (433) 1,863 1,788 (330) 1,458 (3) 1 217 (1) 4 (6) 22 (61) (30) 1,601 1,972 (371) 1,601 Freehold properties include a hotel property of US$100 million (2011: US$101 million), which is stated net of a grant of US$26 million (2011: US$26 million). Net book value of leasehold properties and plant and machinery acquired under finance leases amounted to US$317 million and US$152 million (2011: US$282 million and US$107 million), respectively. 63 Jardine Matheson | Annual Report 2012 14 Tangible Assets (continued) Rental income from properties and other tangible assets amounted to US$329 million (2011: US$329 million) including contingent rents of US$3 million (2011: US$3 million). Future minimum rental payments receivable under non-cancellable leases are as follows: Within one year Between one and two years Between two and five years Beyond five years 2012 US$m 169 78 60 4 311 2011 US$m 123 54 46 4 227 At 31st December 2012, the carrying amount of tangible assets pledged as security for borrowings amounted to US$819 million (2011: US$837 million) (refer note 32). 15 Investment Properties 2012 At 1st January Exchange differences Additions Disposals Transfer to intangible assets Net increase in fair value At 31st December 2011 At 1st January Exchange differences Additions Disposals Transfer from intangible and tangible assets Net increase in fair value At 31st December Freehold properties Leasehold properties US$m US$m Total US$m 22,979 96 576 (6) (14) 330 22,928 96 574 (6) (14) 328 23,906 23,961 18,413 28 50 (2) 37 4,402 18,426 27 84 (2) 37 4,407 22,928 22,979 51 – 2 – – 2 55 13 (1) 34 – – 5 51 The fair value of the Group’s investment properties at 31st December 2012, which were principally held by Hongkong Land, has been determined on the basis of valuations carried out by independent valuers not related to the Group. Hongkong Land employed Jones Lang LaSalle to value its commercial investment properties in Hong Kong, Singapore, Vietnam and Cambodia which are either freehold or held under leases with unexpired lease terms of more than 20 years. The valuations, which conform to the International Valuation Standards issued by the International Valuation Standards Committee and the HKIS Valuation Standards on Properties issued by the Hong Kong Institute of Surveyors, were arrived at by reference to the net income, allowing for reversionary potential, of each property. Rental income from investment properties amounted to US$743 million (2011: US$696 million) including contingent rents of US$13 million (2011: US$12 million). 64 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)Investment Properties (continued) 15 Future minimum rental payments receivable under non-cancellable leases are as follows: Within one year Between one and two years Between two and five years Beyond five years 2012 US$m 707 506 411 59 1,683 Generally the Group’s operating leases in respect of investment properties are for terms of three or more years. The Group’s investment properties had not been pledged as security for borrowings at 31st December 2011 and 2012. 16 Plantations The Group’s plantation assets are primarily for the production of palm oil. Movements for the year: At 1st January Exchange differences Additions Disposals Net (decrease)/increase in fair value At 31st December Immature plantations Mature plantations Planted area: Immature plantations Mature plantations 2011 US$m 640 483 479 79 1,681 2011 US$m 954 (12) 83 (4) 37 1,058 253 805 1,058 2012 US$m 1,058 (67) 92 (5) (52) 1,026 178 848 1,026 Hectares Hectares 37,842 175,288 213,130 46,238 160,849 207,087 65 Jardine Matheson | Annual Report 201216 Plantations (continued) The plantations were valued internally at their fair values less point of sale costs using the discounted cash flow method. The major assumptions used in the valuation are: Crude palm oil price per tonne (US$) Effective annual price inflation (for the first five years) (%) Effective annual cost inflation (for the first five years) (%) Post-tax discount rates (%) 2012 2011 934 9* 6* 14 889 11* 6* 14 During the year, the Group harvested 4.1 million (2011: 3.6 million) tonnes of produce from the plantations with a fair value at the point of harvest less point of sale costs of US$638 million (2011: US$638 million). The Group’s plantations had not been pledged as security for borrowings at 31st December 2011 and 2012. * 0% inflation thereafter. 17 Associates and Joint Ventures 2012 US$m 285 81 20 386 791 1,177 626 5,905 6,531 7,708 410 8,118 330 1 520 4,273 341 112 169 2,354 18 8,118 2011 US$m 231 73 16 320 872 1,192 501 5,187 5,688 6,880 376 7,256 331 1 453 3,551 196 82 203 2,202 237 7,256 Listed associates – Jardine Lloyd Thompson – PT Tunas Ridean – OHTL Unlisted associates Listed joint venture – Bank Permata Unlisted joint ventures Share of attributable net assets Goodwill on acquisition By business: Jardine Pacific Jardine Motors Jardine Lloyd Thompson Hongkong Land Dairy Farm Mandarin Oriental Jardine Cycle & Carriage Astra Corporate and other interests 66 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)17 Associates and Joint Ventures (continued) Movements of associates and joint ventures for the year: At 1st January Share of results after tax and non-controlling interests Share of other comprehensive income after tax and non-controlling interests Dividends received Share of employee share options granted Acquisitions and increases in attributable interests Disposals and decreases in attributable interests Other At 31st December Fair value of listed associates Fair value of listed joint venture 2012 US$m 7,256 1,376 18 (764) 9 525 (299) (3) 8,118 1,430 649 2011 US$m 6,385 1,230 (130) (736) 9 618 (119) (1) 7,256 1,170 603 The Group’s share of assets, liabilities, capital commitments, contingent liabilities and results of associates and joint ventures are summarized below: Associates Total assets Total liabilities Total equity Attributable to non-controlling interests Attributable net assets Revenue Profit after tax Capital commitments Contingent liabilities Joint ventures Non-current assets Current assets Non-current liabilities Current liabilities Total equity Attributable to non-controlling interests Attributable net assets Revenue Profit after tax Capital commitments Contingent liabilities 2012 US$m 2,872 (1,679) 1,193 (16) 1,177 3,990 285 139 – 7,998 8,317 (2,114) (7,505) 6,696 (165) 6,531 9,578 1,126 35 258 2011 US$m 4,343 (3,013) 1,330 (138) 1,192 3,565 280 171 – 6,894 6,988 (1,861) (6,278) 5,743 (55) 5,688 8,329 1,014 81 196 Financial guarantees issued by the Group to associates and joint ventures and outstanding at 31st December 2012 amounted to US$90 million (2011: US$90 million). 67 Jardine Matheson | Annual Report 20122012 US$m 54 97 181 140 30 575 1,077 175 1,252 2 1,254 1,241 13 1,254 125 817 312 2011 US$m 70 12 147 114 28 593 964 129 1,093 7 1,100 1,095 5 1,100 88 822 190 1,254 1,100 1,100 (21) 427 (435) 183 1,254 1,050 (10) 266 (122) (84) 1,100 2011 US$m 95 (1) 2 (3) 93 18 Other Investments Available-for-sale financial assets Listed securities – Asia Commercial Bank – Paris Orléans – Schindler Holdings – Tata Power – The Bank of N.T. Butterfield & Son – other Unlisted securities Held-to-maturity financial assets Listed securities Non-current Current Analysis by geographical area of operation: Greater China Southeast Asia Rest of the world Movements for the year: At 1st January Exchange differences Additions Disposals Net revaluation surplus/(deficit) At 31st December Movements of available-for-sale financial assets which are valued based on unobservable inputs are as follows: At 1st January Exchange differences Additions Net revaluation surplus/(deficit) At 31st December 2012 US$m 93 – 1 40 134 Profit on sale of these financial assets during 2012 amounted to US$3 million and was credited to profit and loss. The fair value of held-to-maturity financial assets is US$2 million (2011: US$7 million). 68 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)19 Debtors Consumer financing debtors – gross – provision for impairment Financing lease receivables – gross investment – unearned finance income – net investment – provision for impairment Financing debtors Trade debtors – third parties – associates and joint ventures – provision for impairment Other debtors – third parties – associates and joint ventures – provision for impairment Non-current Current Analysis by geographical area of operation: Greater China Southeast Asia United Kingdom Rest of the world Fair value: Consumer financing debtors Financing lease receivables Financing debtors Trade debtors Other debtors* * Excluding prepayments, rental and other deposits, and other non-financial debtors. 2012 US$m 4,332 (218) 4,114 1,085 (132) 953 (37) 916 5,030 2,351 79 2,430 (27) 2,403 1,538 111 1,649 (10) 1,639 9,072 2,697 6,375 9,072 926 8,013 72 61 9,072 4,381 892 5,273 2,403 680 8,356 2011 US$m 3,953 (206) 3,747 910 (112) 798 (19) 779 4,526 2,293 62 2,355 (26) 2,329 1,354 159 1,513 (11) 1,502 8,357 2,512 5,845 8,357 878 7,346 78 55 8,357 3,840 711 4,551 2,329 574 7,454 69 Jardine Matheson | Annual Report 201219 Debtors (continued) Trade and other debtors excluding derivative financial instruments are stated at amortized cost. The fair value of these debtors other than short-term debtors is estimated using the expected future receipts discounted at market rates ranging from 6% to 15% (2011: 7% to 19%) per annum, while the fair value of short-term debtors approximates their carrying amounts. Derivative financial instruments are stated at fair value. Consumer financing debtors The consumer financing debtors relate primarily to Astra’s motor vehicle and motorcycle financing. Before accepting any new customer, the Group assesses the potential customer’s credit quality and sets credit limits by customer using internal scoring systems. These limits and scoring are reviewed periodically. The Group obtains collateral in the form of motor vehicles and motorcycles from consumer financing debtors who give the Group the right to sell the repossessed collateral or take any other action to settle the outstanding debt. The loan repayment period ranges from 6 to 60 months for motor vehicles and motorcycles. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization and default or delinquency in payment are considered indicators that the debtor is impaired. An allowance for impairment is made based on the estimated irrecovable amount by reference to past default experience. The Group has the right to repossess the assets whenever its customers default on their installments obligations. It usually exercises its right if monthly installments are overdue for 30 days for motor vehicles and 60 days for motorcycles. Management has considered the balances against which collective impairment provision is made as impaired. The maturity analysis of consumer financing debtors at 31st December is as follows: 2012 US$m 3,268 1,359 772 5,399 2,535 1,113 684 4,332 2012 US$m 1,085 310 (310) 1,085 (132) 953 2011 US$m 2,887 1,394 749 5,030 2,162 1,124 667 3,953 2011 US$m 910 248 (248) 910 (112) 798 Including related finance income Within one year Between one and two years Between two and five years Excluding related finance income Within one year Between one and two years Between two and five years Financing lease receivables An analysis of financing lease receivables is set out below: Lease receivables Guaranteed residual value Security deposits Gross investment Unearned lease income Net investment 70 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)19 Debtors (continued) The maturity analyses of financing lease receivables at 31st December are as follows: Within one year Between one and two years Between two and five years 2012 2011 Gross investment Net investment Gross investment Net investment US$m US$m US$m US$m 613 341 131 1,085 524 306 123 953 506 304 100 910 428 275 95 798 The fair value of the financing debtors is US$5,273 million (2011: US$4,551 million). The fair value of the non-current financing debtors are determined based on cash flows discounted using rates of 8% to 29% per annum (2011: 8% to 29% per annum). Financing debtors are due within five years (2011: five years) from the balance sheet date and the interest rates range from 7% to 43% per annum (2011: 7% to 46% per annum). Trade and other debtors The average credit period on sale of goods and services varies among Group businesses and is generally not more than 60 days. Before accepting any new customer, the individual Group business assesses the potential customer’s credit quality and sets credit limits by customer using internal credit scoring systems. These limits and scoring are reviewed periodically. An allowance for impairment of trade and other debtors is made based on the estimated irrecoverable amount. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payment are considered indicators that the debtor is impaired. At 31st December 2012, trade debtors of US$82 million (2011: US$60 million) and other debtors of US$12 million (2011: US$11 million) were impaired. The amounts of the provisions were US$27 million (2011: US$26 million) and US$10 million (2011: US$11 million), respectively. It was assessed that a portion of the debtors is expected to be recovered. The ageing analysis of these debtors is as follows: Below 30 days Between 31 and 60 days Between 61 and 90 days Over 90 days Trade debtors Other debtors 2012 US$m 1 3 3 75 82 2011 US$m 1 1 3 55 60 2012 US$m 1 – 1 10 12 At 31st December 2012, trade debtors of US$592 million (2011: US$763 million) and other debtors of US$63 million (2011: US$29 million), respectively, were past due but not impaired. The ageing analysis of these debtors is as follows: Below 30 days Between 31 and 60 days Between 61 and 90 days Over 90 days Trade debtors Other debtors 2012 US$m 285 201 56 50 592 2011 US$m 361 250 111 41 763 2012 US$m 11 4 12 36 63 2011 US$m 1 – – 10 11 2011 US$m 8 6 1 14 29 71 Jardine Matheson | Annual Report 201219 Debtors (continued) The risk of trade and other debtors that are neither past due nor impaired at 31st December 2012 becoming impaired is low as they have a good track record with the Group. Based on past experience, management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. Other debtors Other debtors are further analyzed as follows: Derivative financial instruments Restricted bank balances and deposits Loans to employees Other amounts due from associates and joint ventures Repossessed assets of finance companies Reinsurers’ share of estimated losses on insurance contracts Other receivables Financial assets Prepayments Rental and other deposits Other 2012 US$m 144 10 40 111 14 61 301 681 686 186 87 2011 US$m 132 10 39 159 12 73 175 600 635 160 107 1,640 1,502 Restricted bank balances and deposits comprise cash and time deposits which are either restricted for interest payments or placed as margin deposits for letter of credit facilities obtained by certain subsidiaries and guarantee deposits to third parties. Repossessed assets of finance companies represent collateral obtained from customers towards settlement of automobile and motorcycle receivables which are in default. The fair value of the collateral held amounted to US$14 million (2011: US$12 million). The finance company is given the right by the customers to sell the repossessed collateral. Any excess of proceeds from the sale over the outstanding receivables is refunded to the customer. Movements in the provisions for impairment are as follows: Consumer financing debtors Financing lease receivables Trade debtors Other debtors 2012 US$m (206) 14 – (115) – 89 2011 US$m (178) 3 – (112) – 81 2012 US$m 2011 US$m 2012 US$m 2011 US$m 2012 US$m 2011 US$m (19) 2 – (20) – – (15) 1 – (5) – – (26) – – (12) 3 8 (24) – (2) (8) 5 3 (11) – – (1) 2 – (13) – – (3) 2 3 At 1st January Exchange differences New subsidiaries Additional provisions Unused amounts reversed Amounts written off At 31st December (218) (206) (37) (19) (27) (26) (10) (11) At 31st December 2012, the carrying amount of consumer financing debtors, financing lease receivables and trade debtors pledged as security for borrowings amounted to US$2,150 million, US$318 million and US$1 million (2011: US$2,017 million, US$353 million and US$1 million), respectively (refer note 32). 72 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued) 20 Deferred Tax Assets/(Liabilities) Accelerated tax depreciation US$m Fair value gains/ losses US$m Losses US$m Employee benefits US$m Provisions and other temporary differences US$m 2012 At 1st January Exchange differences New subsidiaries Credited to profit and loss Credited to other comprehensive income Transfer from current tax assets Reclassification At 31st December Deferred tax assets Deferred tax liabilities 2011 At 1st January Exchange differences New subsidiaries Credited to profit and loss Credited to other comprehensive income At 31st December Deferred tax assets Deferred tax liabilities (170) (2) – (9) – – 1 (180) 81 (261) (180) (169) – 1 (2) – (170) 57 (227) (170) (515) 23 (123) 19 1 – – (595) (47) (548) (595) (400) 7 (107) (14) (1) (515) (54) (461) (515) 23 – – 12 – – – 35 22 13 35 20 – – 3 – 23 16 7 23 53 (3) – 11 20 – 10 91 77 14 91 27 – – 4 22 53 44 9 53 137 (8) – (8) – 1 (11) 111 129 (18) 111 83 (3) – 57 – 137 118 19 137 Total US$m (472) 10 (123) 25 21 1 – (538) 262 (800) (538) (439) 4 (106) 48 21 (472) 181 (653) (472) Deferred tax balances predominantly comprise non-current items. Deferred tax assets and liabilities are netted when the taxes relate to the same taxation authority and where offsetting is allowed. Deferred tax assets of US$111 million (2011: US$97 million) arising from unused tax losses of US$483 million (2011: US$417 million) have not been recognized in the financial statements. Included in the unused tax losses, US$232 million have no expiry date and the balance will expire at various dates up to and including 2021. Deferred tax liabilities of US$349 million (2011: US$290 million) arising on temporary differences associated with investments in subsidiaries of US$3,270 million (2011: US$2,899 million) have not been recognized as there is no current intention of remitting the retained earnings of these subsidiaries to the holding companies in the foreseeable future. 73 Jardine Matheson | Annual Report 2012 21 Pension Plans The Group has a number of defined benefit pension plans, covering all the main territories in which it operates with the major plans relating to employees in Hong Kong, Indonesia and the United Kingdom. Most of the pension plans are final salary defined benefit plans and are either funded or unfunded. The assets of the funded plans are held independently of the Group’s assets in separate trustee administered funds. The Group’s major plans are valued by independent actuaries annually using the projected unit credit method. The principal actuarial assumptions used for accounting purposes at 31st December are as follows: Discount rate applied to pension obligations at 31st December Expected return on plan assets at 1st January Future salary increases 2012 Weighted average 2011 Weighted average % 4.5 7.0 5.0 % 5.4 7.5 5.1 The expected return on plan assets is determined on the basis of long-term average returns on global equities of 5.2% to 13.1% per annum and global bonds of 2% to 10% per annum, and the long-term benchmark allocation of assets between equities and bonds in each plan. The amounts recognized in the consolidated balance sheet are as follows: 2012 US$m 977 (1,077) (100) (250) 15 (335) 28 (363) (335) 898 9 – 62 41 36 4 (71) (1) (1) 977 2011 US$m 898 (948) (50) (192) 17 (225) 34 (259) (225) 924 (3) 1 70 (81) 27 4 (45) – 1 898 Fair value of plan assets Present value of funded obligations Present value of unfunded obligations Unrecognized past service cost Net pension liabilities Analysis of net pension liabilities: Pension assets Pension liabilities Movements in the fair value of plan assets: At 1st January Exchange differences New subsidiaries Expected return on plan assets Actuarial gains/(losses) Contributions from sponsoring companies Contributions from plan members Benefits paid Curtailment and settlement Transfer to other plans At 31st December 74 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)21 Pension Plans (continued) Movements in the present value of obligations: At 1st January Exchange differences New subsidiaries Current service cost Interest cost Contributions from plan members Actuarial losses Benefits paid Curtailment and settlement Plan amendment Transfer to other plans At 31st December The analysis of the fair value of plan assets at 31st December is as follows: Equity instruments Debt instruments Other assets The five year history of experience adjustments is as follows: Fair value of plan assets Present value of obligations Deficit Experience adjustments on plan assets Percentage of plan assets (%) Experience adjustments on plan obligations Percentage of plan obligations (%) 2012 US$m 977 (1,327) (350) 41 4 (22) (2) 2011 US$m 898 (1,140) (242) (81) (9) (23) (2) 2010 US$m 924 (1,015) (91) 35 4 22 2 The estimated amount of contributions expected to be paid to the plans in 2013 is US$57 million. 2012 US$m (1,140) – – (57) (59) (4) (145) 78 1 (2) 1 (1,327) 2012 US$m 497 387 93 977 2009 US$m 858 (960) (102) 118 14 (46) (5) 2011 US$m (1,015) 5 (1) (50) (59) (4) (69) 52 – 2 (1) (1,140) 2011 US$m 438 363 97 898 2008 US$m 637 (765) (128) (277) (44) 34 4 75 Jardine Matheson | Annual Report 201221 Pension Plans (continued) The amounts recognized in profit and loss are as follows: Current service cost Interest cost Expected return on plan assets Past service cost Actual return/(loss) on plan assets in the year 2012 US$m 57 59 (62) 2 56 103 2011 US$m 50 59 (70) – 39 (11) The above amounts are all recognized in arriving at operating profit and are included in cost of sales, selling and distribution costs and administration expenses. 22 Properties for Sale Properties in the course of development Completed properties 2012 US$m 2,416 97 2,513 2011 US$m 1,374 147 1,521 As at 31st December 2012, properties in the course of development amounting to US$1,774 million (2011: US$1,347 million) were not scheduled for completion within the next twelve months. At 31st December 2012, the carrying amount of properties for sale pledged as security for borrowings amounted to US$315 million (2011: nil) (refer note 32). 23 Stocks and Work in Progress Finished goods Work in progress Raw materials Spare parts Other 2012 US$m 2,998 52 110 136 123 3,419 2011 US$m 2,980 43 87 72 94 3,276 At 31st December 2012, the carrying amount of stocks and work in progress pledged as security for borrowings amounted to US$2 million (2011: US$2 million)(refer note 32). 76 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)24 Bank Balances and Other Liquid Funds Deposits with banks and financial institutions Bank balances Cash balances Analysis by currency: Chinese renminbi Euro Hong Kong dollar Indonesian rupiah Japanese yen Malaysian ringgit New Taiwan dollar Singapore dollar Thailand baht United Kingdom sterling United States dollar Other 2012 US$m 2,825 1,349 124 4,298 271 36 310 872 20 82 45 333 15 23 2,265 26 4,298 2011 US$m 2,684 1,396 105 4,185 156 24 537 1,065 19 130 53 219 17 29 1,909 27 4,185 The weighted average interest rate on deposits with banks and financial institutions is 1.5% (2011: 2.3%) per annum. 25 Non-current Assets Classified as Held for Sale The major class of assets classified as held for sale is set out below: Tangible assets 2012 US$m 8 2011 US$m 47 At 31st December 2012, the non-current assets classified as held for sale included Dairy Farm’s interest in a piece of land in Malaysia and one retail property in Singapore. The sale of these properties is expected to be completed in 2013 at amounts not materially different from their carrying values. At 31st December 2011, the non-current assets classified as held for sale included Dairy Farm’s interest in two retail properties in Malaysia and one retail property in Singapore. The Malaysian properties remained unsold and were reclassified to tangible assets during 2012. 77 Jardine Matheson | Annual Report 201226 Share Capital Authorized: 1,000,000,000 shares of US¢25 each Issued and fully paid: At 1st January Scrip issued in lieu of dividends At 31st December 2012 US$m 250 2012 US$m 165 3 168 2011 US$m 250 2011 US$m 162 3 165 Ordinary shares in millions 2012 2011 659 11 670 648 11 659 27 Senior Executive Share Incentive Schemes The Senior Executive Share Incentive Schemes were set up in order to provide selected executives with options to purchase ordinary shares in the Company. The exercise price of the granted options is based on the average market price for the five trading days immediately preceding the date of grant of the options. Options are vested in tranches over a period of up to five years and are exercisable for up to ten years following the date of grant. Prior to the adoption of the 2005 Plan on 5th May 2005, ordinary shares were issued on the date of grant of the options to the Trustee of the Schemes, Clare Investment Overseas (PTC) Limited, a wholly-owned subsidiary, which holds the ordinary shares until the options are exercised. Under the 2005 Plan, ordinary shares may be issued upon exercise of the options. The shares issued under the Schemes held on trust by the wholly-owned subsidiary are, for presentation purposes, netted off the Company’s share capital in the consolidated balance sheet and the premium attached to them is netted off the share premium account (refer note 28). Movements for the year: At 1st January Granted Exercised At 31st December 2012 2011 Weighted average exercise price US$ 28.2 51.2 21.5 34.5 Options in millions 2.2 0.5 (0.4) 2.3 Weighted average exercise price US$ 22.8 46.6 11.5 28.2 Options in millions 1.8 0.5 (0.1) 2.2 The average share price during the year was US$53.7 (2011: US$49.8) per share. 78 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)27 Senior Executive Share Incentive Schemes (continued) Outstanding at 31st December: Expiry date 2015 2016 2017 2018 2019 2020 2021 2022 Total outstanding of which exercisable Exercise price US$ 18.2 – 18.4 18.2 21.7 27.3 16.7 – 24.5 32.2 45.7 – 46.8 51.2 Options in millions 2012 2011 0.1 0.1 0.2 0.3 0.3 0.3 0.5 0.5 2.3 0.8 0.1 0.1 0.6 0.3 0.3 0.3 0.5 – 2.2 0.8 The fair value of options granted during the year, determined using the Trinomial valuation model, was US$7 million (2011: US$6 million). The significant inputs into the model, based on the weighted average number of options issued, were share price of US$50.4 (2011: US$45.4) at the grant dates, exercise price shown above, expected volatility based on the last seven years of 32.1% (2011: 32.1%), dividend yield of 2.6% (2011: 2.2%), option life disclosed above, and annual risk-free interest rate of 1.4% (2011: 2.7%). Options are assumed to be exercised at the end of the seventh year following the date of grant. 28 Share Premium and Capital Reserves 2012 At 1st January Capitalization arising on scrip issued in lieu of dividends Employee share option schemes – exercise of share options – value of employee services Transfer At 31st December Outstanding under employee share option schemes 2011 At 1st January Capitalization arising on scrip issued in lieu of dividends Employee share option schemes – exercise of share options – value of employee services At 31st December Outstanding under employee share option schemes Share premium US$m Capital reserves US$m 11 (3) 8 – 2 18 (2) 16 13 (3) 1 – 11 (3) 8 74 – – 17 (2) 89 – 89 59 – – 15 74 – 74 Total US$m 85 (3) 8 17 – 107 (2) 105 72 (3) 1 15 85 (3) 82 Capital reserves represent the value of employee services under the Group’s employee share option schemes. At 31st December 2012, US$12 million (2011: US$10 million) relate to the Company’s Senior Executive Share Incentive Schemes. 79 Jardine Matheson | Annual Report 201229 Dividends Final dividend in respect of 2011 of US¢92.00 (2010: US¢85.00) per share Interim dividend in respect of 2012 of US¢35.00 (2011: US¢33.00) per share Company’s share of dividends paid on the shares held by subsidiaries Shareholders elected to receive scrip in respect of the following: Final dividend in respect of previous year Interim dividend in respect of current year 2012 US$m 606 234 840 (378) 462 417 157 574 2011 US$m 551 216 767 (340) 427 376 147 523 A final dividend in respect of 2012 of US¢100.00 (2011: US¢92.00) per share amounting to a total of US$670 million (2011: US$606 million) is proposed by the Board. The dividend proposed will not be accounted for until it has been approved at the Annual General Meeting. The net amount after deducting the Company’s share of the dividends payable on the shares held by subsidiaries of US$305 million (2011: US$273 million) will be accounted for as an appropriation of revenue reserves in the year ending 31st December 2013. 30 Own Shares Held Own shares held of US$2,234 million (2011: US$1,855 million) represent the Company’s share of the cost of 370 million (2011: 361 million) ordinary shares in the Company held by subsidiaries and are deducted in arriving at shareholders’ funds. 31 Non-controlling Interests By business: Hongkong Land Dairy Farm Mandarin Oriental Jardine Cycle & Carriage Astra Jardine Strategic Other Less own shares held attributable to non-controlling interests 2012 US$m 15,438 516 379 190 7,786 733 29 25,071 (488) 24,583 2011 US$m 14,547 378 362 211 7,193 590 31 23,312 (406) 22,906 80 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)32 Borrowings Current – bank overdrafts – other bank advances – other advances Current portion of long-term borrowings – bank loans – bonds and notes – finance lease liabilities – other loans Long-term borrowings – bank loans – bonds and notes – finance lease liabilities – other loans 2012 2011 Carrying amount US$m 45 1,018 21 1,084 1,935 497 54 49 2,535 3,619 3,188 4,580 96 32 7,896 Fair value US$m 45 1,018 21 1,084 1,935 497 54 49 2,535 3,619 3,201 4,680 96 32 8,009 Carrying amount US$m 27 967 5 999 1,414 494 47 63 2,018 3,017 4,002 2,925 59 64 7,050 Fair value US$m 27 967 5 999 1,414 494 47 63 2,018 3,017 4,024 2,976 59 64 7,123 11,515 11,628 10,067 10,140 The fair values are based on market prices or are estimated using the expected future payments discounted at market interest rates ranging from 0.3% to 12.8% (2011: 0.6% to 13.0%) per annum. The fair value of current borrowings approximates their carrying amount, as the impact of discounting is not significant. Secured Unsecured 2012 US$m 4,971 6,544 2011 US$m 4,475 5,592 11,515 10,067 Secured borrowings at 31st December 2012 included Hongkong Land’s bank borrowings of US$157 million (2011: nil) which were secured against its properties for sale, Mandarin Oriental’s bank borrowings of US$553 million (2011: US$541 million) which were secured against its tangible assets, and Astra’s bonds and notes of US$1,883 million (2011: US$1,155 million) which were secured against its various assets as described below and bank borrowings of US$2,378 million (2011: US$2,779 million) which were secured against its various assets. 81 Jardine Matheson | Annual Report 201232 Borrowings (continued) Fixed rate borrowings Weighted average interest rates Weighted average period outstanding Floating rate borrowings By currency: 2012 Chinese renminbi Euro Hong Kong dollar Indonesian rupiah Japanese yen Malaysian ringgit New Taiwan dollar Singapore dollar Swiss franc United Kingdom sterling United States dollar Other 2011 Chinese renminbi Euro Hong Kong dollar Indonesian rupiah Japanese yen Malaysian ringgit New Taiwan dollar Singapore dollar Swiss franc United Kingdom sterling United States dollar Other % 5.5 5.9 2.8 8.3 1.3 4.3 3.8 2.4 1.5 2.8 2.3 2.5 7.6 5.9 2.2 9.2 1.2 4.5 2.4 2.5 1.7 2.7 2.7 2.5 Years US$m US$m – 0.7 10.2 1.5 0.4 0.2 2.5 4.0 19.3 1.5 2.1 0.2 – 1.7 9.7 1.7 2.5 0.8 0.4 4.6 20.3 2.5 1.5 0.2 – 7 1,865 4,295 – 62 1 605 3 32 453 3 7,326 – 8 1,260 3,636 2 110 17 621 2 31 489 2 6,178 148 – 1,658 634 37 71 7 736 51 131 712 4 4,189 256 – 1,627 610 37 81 6 497 44 140 586 5 3,889 Total US$m 148 7 3,523 4,929 37 133 8 1,341 54 163 1,165 7 11,515 256 8 2,887 4,246 39 191 23 1,118 46 171 1,075 7 10,067 The weighted average interest rates and period of fixed rate borrowings are stated after taking into account hedging transactions. 82 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)32 Borrowings (continued) The exposure of the Group’s borrowings to interest rate changes and the contractual repricing dates at 31st December after taking into account hedging transactions are as follows: Within one year Between one and two years Between two and three years Between three and four years Between four and five years Beyond five years The finance lease liabilities are as follows: Within one year Between one and five years Future finance charges on finance leases Present value of finance lease liabilities Current Non-current 2012 US$m 6,252 1,899 1,324 123 245 1,672 2011 US$m 5,780 1,393 1,309 573 30 982 11,515 10,067 Present value of finance lease liabilities 2012 US$m 54 96 150 54 96 150 2011 US$m 47 59 106 47 59 106 Minimum lease payments 2011 2012 US$m US$m 56 98 154 (4) 150 50 61 111 (5) 106 83 Jardine Matheson | Annual Report 201232 Borrowings (continued) An analysis of the carrying amount of the bonds and notes at 31st December is as follows: 2012 2011 Current Non-current Current Non-current US$m US$m US$m US$m – – – – – – – – – – – – – – – – – – – – – – – – – – – 18 25 77 61 – 41 50 103 – 10 57 19 16 – 20 – – 497 – 528 308 45 25 39 39 73 64 122 64 74 52 497 39 26 38 619 39 99 61 26 103 25 10 32 – 28 136 436 97 – 52 193 310 – 30 98 48 64 – 20 – 21 57 – – – – – – – – – – – – – – – – – – – – – – – – – 29 58 65 – – 60 22 68 – 33 11 – 27 – 11 20 33 – – 545 290 41 25 39 39 70 64 115 64 72 – – – – 38 606 39 – – – 103 25 – 32 – 49 160 – – – 99 255 – – 43 – 72 – – 40 – – 4,580 494 2,925 Hongkong Land 2.75% convertible bonds Hongkong Land 5.50% notes Hongkong Land 3.65% notes Hongkong Land 3.86% notes Hongkong Land 4.135% notes Hongkong Land 4.1875% notes Hongkong Land 4.25% notes Hongkong Land 4.22% notes Hongkong Land 4.24% notes Hongkong Land 3.43% notes Hongkong Land 3.95% notes Hongkong Land 4.28% notes Hongkong Land 3.86% notes Hongkong Land 4.50% notes Hongkong Land 3.00% notes Hongkong Land 2.90% notes Hongkong Land 4.10% notes Hongkong Land 4.50% notes Hongkong Land 3.75% notes Hongkong Land 4.00% notes Hongkong Land 4.04% notes Hongkong Land 3.95% notes Hongkong Land 4.11% notes Hongkong Land 4.125% notes Hongkong Land 4.00% partly paid notes Hongkong Land 5.25% notes Astra Sedaya Finance X bonds Astra Sedaya Finance XI bonds Astra Sedaya Finance XII bonds Astra Sedaya Finance Berkelanjutan I Tahap I bonds Astra Sedaya Finance Berkelanjutan I Tahap II bonds Federal International Finance IX bonds Federal International Finance X bonds Federal International Finance XI bonds Federal International Finance Berkelanjutan I Tahap I bonds Federal International Finance III notes San Finance I bonds San Finance II bonds Serasi Auto Raya II bonds Serasi Auto Raya III bonds Serasi Auto Raya II notes Shogun bonds FIF Surya Artha Nusantara Finance I notes Surya Artha Nusantara Finance II notes 84 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)32 Borrowings (continued) Details of the bonds and notes outstanding at 31st December 2012 are as follows: Hongkong Land 5.50% notes 3.65% 10-year notes 3.86% 8-year notes 4.135% 10-year notes 4.1875% 10-year notes 4.25% 10-year notes 4.22% 10-year notes 4.24% 10-year notes 3.43% 10-year notes 3.95% 10-year notes 4.28% 12-year notes 3.86% 10-year notes 4.50% 10-year notes 3.00% 10-year notes 2.90% 10-year notes 4.10% 15-year notes 4.50% 15-year notes 3.75% 15-year notes 4.00% 15-year notes 4.04% 15-year notes 3.95% 15-year notes 4.11% 20-year notes 4.125% 20-year notes 4.00% 20-year partly paid notes 5.25% 30-year notes Astra Astra Sedaya Finance XI bonds Astra Sedaya Finance XII bonds Astra Sedaya Finance Berkelanjutan I Tahap I bonds Astra Sedaya Finance Berkelanjutan I Tahap II bonds Federal International Finance X bonds Federal International Finance XI bonds Federal International Finance Berkelanjutan I Tahap I bonds San Finance I bonds San Finance II bonds Serasi Auto Raya II bonds Serasi Auto Raya III bonds Shogun bonds FIF Surya Artha Nusantara Finance II notes Maturity Interest rates % Nominal values 2014 2015 2017 2019 2019 2019 2020 2020 2020 2020 2021 2022 2022 2022 2022 2025 2025 2026 2027 2027 2027 2030 2031 2032 2040 2014 2015 2017 2014 2014 2014 2015 2014 2015 2015 2016 2014 2014 5.50 3.65 3.86 4.135 4.1875 4.25 4.22 4.24 3.43 3.95 4.28 3.86 4.50 3.00 2.90 4.10 4.50 3.75 4.00 4.04 3.95 4.11 4.125 4.00 5.25 10.4 – 10.9 8.9 – 10.0 6.6 – 8.6 6.65 – 7.5 10.15 – 10.55 8.8 – 9.6 6.4 – 7.65 8.9 – 9.3 7.2 – 8.4 9.1 – 10.2 6.9 – 8.75 9.0 – 9.25 8.35 US$500 million S$375 million S$50 million HK$200 million HK$300 million HK$300 million HK$500 million HK$500 million S$150 million HK$500 million HK$500 million HK$410 million US$500 million HK$305 million HK$200 million HK$300 million US$600 million HK$302 million HK$785 million HK$473 million HK$200 million HK$800 million HK$200 million HK$240 million HK$250 million Rp445 billion Rp1,560 billion Rp4,975 billion Rp1,530 billion Rp900 billion Rp2,349 billion Rp4,000 billion Rp395 billion Rp1,500 billion Rp655 billion Rp780 billion US$40 million Rp200 billion 85 Jardine Matheson | Annual Report 201232 Borrowings (continued) The Hongkong Land bonds and medium term notes were issued by several wholly-owned subsidiaries of Hongkong Land. During the year, the nominal amount of the medium term note programme increased from US$3,000 million to US$5,000 million. The Astra Sedaya Finance bonds were issued by a wholly-owned subsidiary of Astra and are collateralized by fiduciary guarantee over financing debtors of the subsidiary amounting to 60% of the total outstanding principal of the bonds. The Federal International Finance bonds were issued by a wholly-owned subsidiary of Astra and are collateralized by fiduciary guarantee over financing debtors of the subsidiary amounting to 60% of the total outstanding principal of the bonds. The San Finance bonds and Surya Artha Nusantara Finance notes were issued by a partly-owned subsidiary of Astra and are collateralized by fiduciary guarantee over net investment in finance leases of the subsidiary amounting to 60% of the total outstanding principal of the bonds and notes. The Serasi Auto Raya bonds were unsecured and issued by a wholly-owned subsidiary of Astra. The Shogun bonds FIF were issued by a wholly-owned subsidiary of Astra and are collateralized by fiduciary guarantee over financing debtors of the subsidiary amounting to 60% of the total outstanding principal of the bonds. 86 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)33 Creditors Trade creditors – third parties – associates and joint ventures Accruals Other amounts due to associates and joint ventures Rental and other refundable deposits Derivative financial instruments Other creditors Financial liabilities Gross estimated losses on insurance contracts Net amount due to customers for contract work Proceeds from properties for sale received in advance Rental income received in advance Other income received in advance Deferred warranty income Unearned premiums on insurance contracts Other Non-current Current Analysis by geographical area of operation: Greater China Southeast Asia United Kingdom Rest of the world 2012 US$m 3,437 309 3,746 1,590 148 521 45 447 6,497 129 28 672 19 197 24 351 11 7,928 388 7,540 7,928 2,593 4,968 211 156 7,928 2011 US$m 3,800 310 4,110 1,581 147 468 54 200 6,560 133 23 315 18 174 28 313 – 7,564 289 7,275 7,564 2,317 4,852 241 154 7,564 Derivative financial instruments are stated at fair value. Other creditors are stated at amortized cost. The fair values of these creditors approximate their carrying amounts. 87 Jardine Matheson | Annual Report 201234 Provisions 2012 At 1st January Exchange differences Additional provisions Unused amounts reversed Utilized At 31st December Non-current Current 2011 At 1st January Exchange differences Additional provisions Unused amounts reversed Utilized At 31st December Non-current Current Motor vehicle warranties Closure cost provisions Obligations Reinstatement and restoration costs under onerous leases Statutory employee entitlements US$m US$m US$m US$m US$m Others US$m Total US$m 23 2 8 – (4) 29 – 29 29 21 – 6 – (4) 23 – 23 23 10 – 3 (3) (4) 6 – 6 6 10 – 4 (1) (3) 10 – 10 10 3 – 1 – (1) 3 2 1 3 3 – 1 – (1) 3 2 1 3 39 – 3 (2) – 40 36 4 40 37 (1) 4 (1) – 39 36 3 39 84 (5) 28 – (1) 106 93 13 106 68 (1) 20 – (3) 84 70 14 84 10 – 3 (2) (1) 10 5 5 10 10 – 3 (1) (2) 10 4 6 10 169 (3) 46 (7) (11) 194 136 58 194 149 (2) 38 (3) (13) 169 112 57 169 Motor vehicle warranties are estimated liabilities that fall due under the warranty terms offered on sale of new and used vehicles beyond that which is reimbursed by the manufacturers. Closure cost provisions are established when legal or constructive obligations arise on closure or disposal of businesses. Provisions are made for obligations under onerous operating leases when the properties are not used by the Group and the net costs of exiting from the leases exceed the economic benefits expected to be received. Other provisions principally comprise provisions in respect of indemnities on disposal of businesses and legal claims. 88 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued) 35 Notes to Consolidated Cash Flow Statement (a) Depreciation and amortization By business: Jardine Pacific Jardine Motors Hongkong Land Dairy Farm Mandarin Oriental Jardine Cycle & Carriage Astra (b) Other non-cash items By nature: Profit on sale of subsidiaries Profit on sale of other investments Profit on sale of leasehold land Profit on sale of intangible assets Profit on sale of tangible assets Profit on sale of investment properties Loss on sale of repossessed assets Loss on sale of plantations and related assets Decrease/(increase) in fair value of plantations Impairment of intangible assets Impairment of tangible assets Impairment of debtors Write down of stocks and work in progress Reversal of write down of stocks and work in progress Reversal of write down of properties for sale Change in provisions Net foreign exchange losses/(gains) Options granted under employee share option schemes Gain on One Hyde Park lease space Supplier income adjustment relating to prior years By business: Jardine Pacific Jardine Motors Hongkong Land Dairy Farm Jardine Cycle & Carriage Astra Corporate and other interests 2012 US$m 25 20 2 192 54 9 724 1,026 2012 US$m (3) (83) (3) (2) (7) (2) 78 5 52 – 4 143 44 (27) (7) 33 29 10 – 67 331 5 4 (9) 84 (58) 301 4 331 2011 US$m 25 16 1 182 50 9 631 914 2011 US$m (1) (23) – – (17) (2) 81 4 (37) 1 – 121 35 (14) (44) 33 (19) 8 (10) – 116 (12) 7 (44) 9 9 144 3 116 89 Jardine Matheson | Annual Report 201235 Notes to Consolidated Cash Flow Statement (continued) (c) Increase in working capital Increase in properties for sale Increase in stocks and work in progress Increase in debtors Increase in creditors Increase in pension obligations (d) Purchase of subsidiaries Intangible assets Tangible assets Deferred tax assets Current assets Long-term borrowings Deferred tax liabilities Current liabilities Non-controlling interests Fair value of identifiable net assets acquired Adjustment for non-controlling interests Goodwill Total consideration Adjustment for contingent consideration Payment for contingent consideration Adjustment for deferred consideration Payment for deferred consideration Consideration paid in previous year Carrying value of associates and joint ventures Cash and cash equivalents of subsidiaries acquired Net cash outflow 2012 US$m (908) (323) (1,103) 216 17 (2,101) 2012 Fair value US$m 4 496 – 27 – (123) (6) (38) 360 (114) 33 279 (65) 3 (1) 5 (63) – (4) 154 2011 US$m (299) (782) (2,422) 1,359 5 (2,139) 2011 Fair value US$m 159 418 1 364 (4) (107) (313) – 518 (140) 113 491 (7) – (6) – (42) (7) (66) 363 Net cash outflow for purchase of subsidiaries in 2012 included US$19 million for Jardine Pacific’s acquisition of a 100% interest in Thermal, a specialist air-conditioning and mechanical ventilation engineering contracting business in Singapore in February 2012; US$32 million for Dairy Farm’s acquisition of a 70% interest in the Lucky supermarket chain in Cambodia in March 2012, and US$43 million and US$52 million for Astra’s acquisition of a 60% interest in PT Duta Nurcahya, a mining company completed in April 2012 and a 100% interest in PT Borneo Berkat Makmur, a mining company completed in September 2012, respectively. The total purchase consideration of PT Duta Nurcahya amounted to US$171 million and included contingent consideration of US$65 million which represents the fair value of service fee payable for mining services to be provided by the vendor. US$63 million of the consideration was prepaid in 2011. The goodwill arising from the acquisition of the Lucky supermarket chain amounted to US$25 million and was attributable to its leading market position in Cambodia and retail market. 90 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)35 Notes to Consolidated Cash Flow Statement (continued) (d) Purchase of subsidiaries (continued) Net cash outflow for purchase of subsidiaries in 2011 included US$102 million and US$8 million for Jardine Pacific’s acquisition of 100% of certain IT distribution businesses of SiS International Holdings (‘SiS’) in January 2011 and the increase in its interest from 25% to 100% in Pizza Hut Vietnam in January 2011, respectively; US$44 million for Jardine Motors’ acquisition of 100% of Wayside Group (‘Wayside’), a motor retail group in the United Kingdom, in May 2011; US$5 million for Jardine Cycle & Carriage’s acquisition of 100% of Lowe Motor, a motor retail group in Malaysia, in May 2011; and US$147 million and US$67 million for Astra’s acquisition of 60% of PT Asmin Bara Bronang, a coal mine concession company, in May 2011, and 95% of Marga Hanurata Intrinsic, a toll road company, in August 2011, respectively; less a net cash inflow of US$10 million for Astra’s acquisition of an additional 11% of PT Fuji Technica Indonesia, a dies manufacturer in Indonesia, in June 2011. Jardine Pacific’s wholly owned subsidiary, JOS, acquired 100% of the IT distribution businesses of SiS in Hong Kong, Singapore and Malaysia. The goodwill arising from the acquisition amounted to US$69 million and was attributable to the acquired businesses’ strong distribution network and partnership with manufacturers, and the synergies expected to be achieved from integrating the acquired businesses with JOS. The contingent consideration arrangement requires JOS to pay the former owners an additional consideration which is equivalent to a pre-agreed percentage of the adjusted profit of the enlarged IT distribution business of JOS for each of the two years ending 31st December 2011 and 2012, and subject to a minimum payment of US$1.5 million and up to a maximum of US$4.5 million in each year. At the date of acquisition of SiS, the contingent consideration was estimated at US$7 million. The goodwill arising from the acquisition of Wayside amounted to US$33 million and was attributable to the acquired businesses’ strong regional dealership network and the synergies expected to be achieved from the geographical and organization integration with the existing businesses. None of the goodwill is expected to be deductible for tax purposes. Revenue and profit after tax since acquisition in respect of subsidiaries acquired during the year amounted to US$61 million and US$1 million, respectively. Had the acquisitions occurred on 1st January 2012, consolidated revenue and consolidated profit after tax for the year ended 31st December 2012 would have been US$39,613 million and US$4,462 million, respectively. (e) The Group increased its interest in Jardine Lloyd Thompson from 32% to 42% through a partial cash offer, which became wholly unconditional in November 2011, at a total cost of US$273 million and purchase of shares amounting to US$3 million in the open market in 2011. (f ) Purchase of other associates and joint ventures in 2012 included US$112 million in Dairy Farm, mainly for its acquisition of a 50% interest in Rustan Supercenters Inc. in the Philippines; and US$10 million, US$8 million, US$14 million and US$95 million for Astra’s capital injections into PT Komatsu Astra Finance, PT Toyota Astra Finance and PT AT Indonesia, and subscription to Bank Permata’s rights issue, respectively. Purchase of other associates and joint ventures in 2011 included US$17 million for Jardine Pacific’s acquisition of a 25% interest in KFC Vietnam; US$5 million for Dairy Farm’s additional capital injection into Foodworld India; US$19 million for Jardine Cycle & Carriage’s acquisition of an additional 4% interest in Truong Hai Auto Corporation; US$6 million and US$21 million for Astra’s acquisition of a 26% interest in PT TD Automotive Compressor Indonesia and a 20% interest in PT Bukit Enim Energi, respectively; and US$6 million for Jardine Strategic’s capital injection into JRE Asia Capital. (g) Purchase of other investments in 2011 and 2012 mainly included acquisition of securities by Jardine Cycle & Carriage and Astra. (h) Advance to associates, joint ventures and others in 2012 mainly included Hongkong Land’s loans to its property joint ventures of US$348 million and Mandarin Oriental’s loan to Mandarin Oriental, New York of US$19 million. Advance to associates, joint ventures and others in 2011 mainly included Hongkong Land’s loans to its property joint ventures of US$258 million. 91 Jardine Matheson | Annual Report 201235 Notes to Consolidated Cash Flow Statement (continued) (i) Repayment from associates, joint ventures and others in 2012 mainly included repayment from Jardine Pacific’s associate, HACTL, of US$10 million and Hongkong Land’s property joint ventures of US$58 million. Repayment from associates, joint ventures and others in 2011 mainly included repayment from Hongkong Land’s property joint ventures of US$111 million. (j) Sale of subsidiaries Intangible assets Tangible assets Current assets Current liabilities Net assets Adjustment for non-controlling interests Net assets disposed of Profit on disposal Sale proceeds Adjustment for deferred consideration Cash and cash equivalents of subsidiaries disposed of Net cash inflow 2012 US$m 2011 US$m 2 – 9 (4) 7 (1) 6 2 8 1 2 11 2 2 6 (9) 1 – 1 1 2 2 – 4 The revenue and profit after tax in respect of subsidiaries disposed of during the year amounted to US$3 million and nil, respectively. (k) Sale of other investments in 2012 mainly included Jardine Cycle & Carriage’s sale of securities of US$134 million, Astra’s sale of securities of US$192 million and Jardine Strategic’s partial sale of its interest in Paris Orléans of US$93 million. Sale of other investments in 2011 mainly included Astra’s sale of securities. 92 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)35 Notes to Consolidated Cash Flow Statement (continued) (l) Change in interests in subsidiaries Increase in attributable interests – Hongkong Land – Jardine Cycle & Carriage – Jardine Strategic – other Decrease in attributable interests 2012 US$m – 132 – 35 (139) 28 2011 US$m 239 97 189 1 – 526 Increase in attributable interests in other subsidiaries in 2012 included US$4 million and US$5 million for Astra’s acquisition of additional 10% and 43% interests in PT Swadharma Bakti Sedaya Finance and PT Staco Estika Sedaya Finance, respectively, and US$24 million advance payment for its acquisition of an additional 15% interest in PT Asmin Bara Bronang. Decrease in attributable interests comprised Dairy Farm’s reduced interest in PT Hero Supermarket from 94% to 81%. (m) Analysis of balances of cash and cash equivalents Bank balances and other liquid funds (refer note 24) Bank overdrafts (refer note 32) 2012 US$m 4,298 (45) 4,253 2011 US$m 4,185 (27) 4,158 93 Jardine Matheson | Annual Report 201236 Derivative Financial Instruments The fair values of derivative financial instruments at 31st December are as follows: Designated as cash flow hedges – forward foreign exchange contracts – interest rate swaps and caps – cross currency swaps Designated as fair value hedges – forward foreign exchange contracts – interest rate swaps – cross currency swaps 2012 2011 Positive fair value US$m Negative fair value US$m Positive fair value US$m Negative fair value US$m 1 – 99 100 – 14 30 44 2 24 18 44 – – 1 1 2 – 59 61 1 10 60 71 1 33 20 54 – – – – Forward foreign exchange contracts The contract amounts of the outstanding forward foreign exchange contracts at 31st December 2012 were US$350 million (2011: US$318 million). Interest rate swaps and caps The notional principal amounts of the outstanding interest rate swap and cap contracts at 31st December 2012 were US$1,155 million (2011: US$1,291 million). At 31st December 2012 the fixed interest rates relating to interest rate swaps and caps vary from 0.6% to 7.0% (2011: 0.7% to 11.9%) per annum. The fair values of interest rate swaps are based on the estimated cash flows discounted at market rates ranging from 0.2% to 3.2% (2011: 0.2% to 4.9%) per annum. Cross currency swaps The contract amounts of the outstanding cross currency swap contracts at 31st December 2012 totalled US$3,170 million (2011: US$2,815 million). 94 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)37 Commitments Capital commitments: Authorized not contracted Contracted not provided Operating lease commitments: Total commitments under operating leases – due within one year – due between one and two years – due between two and three years – due between three and four years – due between four and five years – due beyond five years 2012 US$m 1,957 328 2,285 778 587 385 262 197 1,234 3,443 2011 US$m 2,164 813 2,977 738 547 346 222 182 1,254 3,289 Total future sublease payments receivable relating to the above operating leases amounted to US$45 million (2011: US$46 million). In addition, the Group has operating lease commitments with rentals determined in relation to sales. It is not possible to quantify accurately future rentals payable under such leases. 38 Contingent Liabilities Various Group companies are involved in litigation arising in the ordinary course of their respective businesses. Having reviewed outstanding claims and taking into account legal advice received, the Directors are of the opinion that adequate provisions have been made in the financial statements. 95 Jardine Matheson | Annual Report 201239 Related Party Transactions In the normal course of business the Group undertakes a variety of transactions with certain of its associates and joint ventures. The more significant of such transactions are described below. The Group purchases motor vehicles and spare parts from its associates and joint ventures in Indonesia including PT Toyota- Astra Motor, PT Astra Honda Motor and PT Astra Daihatsu Motor. Total cost of motor vehicles and spare parts purchased in 2012 amounted to US$8,466 million (2011: US$7,115 million). The Group also sells motor vehicles and spare parts to its associates and joint ventures in Indonesia including PT Astra Honda Motor, PT Astra Daihatsu Motor and PT Tunas Ridean. Total revenue from sale of motor vehicles and spare parts in 2012 amounted to US$1,166 million (2011: US$988 million). The Group uses Jardine Lloyd Thompson to place certain of its insurance. Brokerage fees and commissions, net of rebates, paid by the Group in 2012 to Jardine Lloyd Thompson were US$5 million (2011: US$4 million). The Group manages five associate hotels (2011: five associate hotels). Management fees received by the Group in 2012 from these managed hotels amounted to US$15 million (2011: US$12 million). Bank Permata provides banking services to the Group. The Group’s deposits with Bank Permata at 31st December 2012 amounted to US$398 million (2011: US$401 million). Amounts of outstanding balances with associates and joint ventures are included in debtors and creditors, as appropriate (refer notes 19 and 33). Details of Directors’ remuneration (being the key management personnel compensation) are shown on page 102 under the heading of Directors’ Appointment, Retirement, Remuneration and Service Contracts. 40 Summarized Balance Sheet of the Company Included below is certain summarized balance sheet information of the Company disclosed in accordance with Bermuda law. Subsidiaries Share capital (refer note 26) Share premium and capital reserves (refer note 28) Revenue and other reserves Shareholders’ funds Current liabilities Total equity and liabilities Subsidiaries are shown at cost less amounts provided. 2012 US$m 884 168 30 675 873 11 884 2011 US$m 1,137 165 21 940 1,126 11 1,137 41 Post Balance Sheet Event On 8th February 2013, the Group’s subsidiary, Mandarin Oriental, completed the acquisition of the freehold interest in the building housing Mandarin Oriental, Paris and two retail units from a third party for €290 million (US$389 million). Mandarin Oriental had paid a €10 million (US$13 million) advance deposit prior to the year end, with the remaining balance of €280 million (US$376 million) paid in February 2013. At the balance sheet date (i.e. prior to the acquisition), Mandarin Oriental had a 12-year lease on the hotel which commenced on 18th April 2011 with an option to renew for a further 12 years, while the retail units were leased by the vendor to third party tenants. 96 Jardine Matheson | Annual Report 2012Notes to the Financial Statements (continued)42 Principal Subsidiaries and Associate The principal subsidiaries and associate of the Group at 31st December 2012 are set out below. Dairy Farm International Holdings Ltd Country of incorporation Particulars of issued capital Bermuda USD 75,031,061 ordinary Attributable interests 2012 2011 % 64 64 % Nature of business Supermarkets, hypermarkets, health and beauty stores, convenience stores, home furnishings stores and restaurants Property development & investment, leasing & management A 50.1% interest in PT Astra International Tbk and motor trading Insurance and reinsurance broking, risk management and employee benefit services Hongkong Land Holdings Ltd Bermuda USD 235,280,678 ordinary 41 41 Jardine Cycle & Carriage Ltd Singapore SGD 355,712,660 ordinary 59 58 Jardine Lloyd Thompson Group plc* England GBP 10,998,040 ordinary 42 42 Jardine Matheson Ltd Bermuda USD 12,000 ordinary Jardine Motors Group Holdings Ltd Bermuda USD 8,947,702 ordinary 100 100 100 Group management 100 Motor trading Jardine Pacific Holdings Ltd Bermuda USD 62,500,000 ordinary 100 100 Engineering & construction, transport services, restaurants, property and IT services Jardine Strategic Holdings Ltd† Bermuda USD 56,007,236 ordinary Mandarin Oriental International Ltd Bermuda USD 50,019,937 ordinary Matheson & Co., Ltd England GBP 20,000,000 ordinary PT Astra International Tbk Indonesia IDRm 2,024,178 ordinary 82 61 100 30 82 Holding 61 Hotel management & ownership 100 Holding and management 29 Automotive, financial services, agribusiness, heavy equipment and mining, infrastructure and logistics, and information technology Attributable interests represent the proportional holdings of the Company, held directly or through its subsidiaries, in the issued share capitals of the respective companies, after the deduction of any shares held by the trustees of the employee share option schemes of any such company and any shares in any such company owned by its wholly-owned subsidiaries. The financial statements of Jardine Lloyd Thompson can be accessed through the internet at its website. * Associate. All other companies are subsidiaries. † Jardine Strategic held 55% (2011: 55%) of the share capital of the Company. 97 Jardine Matheson | Annual Report 2012 Independent Auditors’ Report To the members of Jardine Matheson Holdings Limited Report on the Financial Statements We have audited the accompanying consolidated financial statements of Jardine Matheson Holdings Limited and its subsidiaries (the ‘Group’) which comprise the Consolidated Balance Sheet as at 31st December 2012 and the Consolidated Profit and Loss Account, Consolidated Statement of Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated Cash Flow Statement for the year then ended and a summary of significant accounting policies and other explanatory notes. Directors’ Responsibility for the Financial Statements The Company’s Directors are responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards and with the requirements of Section 90 of the Bermuda Companies Act. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Group as at 31st December 2012, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards and with the requirements of the Bermuda Companies Act. Report on Legal and Regulatory Requirements We have nothing to report in respect of the following matters that under the UK Listing Rules we are required to review: • Directors’ Statement in relation to going concern; and • the part of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of the UK Corporate Governance Code specified for our review. Other Matters This report, including the opinion, has been prepared for and only for the Company’s members as a body in accordance with Section 90 of the Bermuda Companies Act and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. PricewaterhouseCoopers LLP Chartered Accountants London United Kingdom 8th March 2013 98 Jardine Matheson | Annual Report 2012Five Year Summary Profit and Loss Revenue Profit attributable to shareholders Underlying profit attributable to shareholders Earnings per share (US$) Underlying earnings per share (US$) Dividends per share (US$) Balance Sheet Total assets Total liabilities Total equity Shareholders’ funds Net debt (excluding net debt of financial services companies) Net asset value per share (US$) Cash Flow Cash flows from operating activities Cash flows from investing activities Net cash flow before financing Cash flow per share from operating activities (US$) 2012 US$m 39,593 1,688 1,479 4.63 4.06 1.35 2012 US$m 63,460 (21,074) 42,386 17,803 3,413 48.54 2012 US$m 2,729 (2,784) (55) 2011 US$m 37,967 3,449 1,495 9.53 4.13 1.25 2011 US$m 58,297 (19,035) 39,262 16,356 2,432 45.09 2011 US$m 2,674 (2,675) (1) 2010 US$m 30,053 3,084 1,364 8.58 3.80 1.15 2010 US$m 48,076 (16,116) 31,960 13,710 2,252 37.99 2010 US$m 2,210 (1,372) 838 2009 US$m 22,501 1,731 1,016 4.87 2.86 0.90 2009 US$m 38,835 (13,695) 25,140 10,694 2,200 29.87 2009 US$m 2,786 (122) 2,664 2008 US$m 22,362 619 826 1.75 2.34 0.75 2008 US$m 22,694 (8,453) 14,241 8,896 545 25.13 2008 US$m 2,091 (1,409) 682 7.48 7.38 6.15 7.83 5.92 99 Jardine Matheson | Annual Report 2012Responsibility Statement The Directors of the Company confirm to the best of their knowledge that: (a) the consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, including International Accounting Standards and Interpretations adopted by the International Accounting Standards Board; and (b) the sections of this Report, including the Chairman’s Statement, Managing Director’s Review and Principal Risks and Uncertainties, which constitute the management report include a fair review of all information required to be disclosed by the Disclosure and Transparency Rules 4.1.8 to 4.1.11 issued by the Financial Services Authority of the United Kingdom. For and on behalf of the Board Ben Keswick James Riley Directors 8th March 2013 100 Jardine Matheson | Annual Report 2012Corporate Governance Jardine Matheson Holdings Limited is incorporated in Bermuda. The majority of the Group’s business interests are in Asia. The Company’s equity shares have a premium listing on the London Stock Exchange, and secondary listings in Bermuda and Singapore. The Company’s share capital is 55%-owned by Jardine Strategic Holdings Limited, a Bermuda incorporated 82%-owned subsidiary of the Company similarly listed in London, Bermuda and Singapore. The Company attaches importance to the corporate stability that is fundamental to the Group’s ability to pursue a long-term strategy in Asian markets. It is committed to high standards of governance. Its approach, however, developed over many years, differs from that envisaged by the UK Corporate Governance Code (the ‘UK Code’), which was originally introduced as a guide for United Kingdom incorporated companies listed on the London Stock Exchange. As provided in the Listing Rules issued by the Financial Services Authority in the United Kingdom, the Company’s premium listed status requires that this Report address how the main principles of the UK Code have been applied by the Company, and explain the reasons for the different approach adopted by the Company as compared to the UK Code’s provisions. The Company’s governance differs from that contemplated by provisions of the UK Code on board balance and refreshment, director independence, board evaluation procedures, nomination and remuneration committees and the appointment of a senior independent director. The Management of the Group The Company is the parent company of the Jardine Matheson Group. Its management is therefore concerned both with the direct management of Jardine Matheson’s own activities, and with the oversight of the operations of other listed companies within the wider Group. Management is delegated to the appropriate level, and co-ordination with the Group’s listed subsidiaries is undertaken by the board of Group management company, Jardine Matheson Limited (‘JML’). JML meets regularly in Hong Kong and is chaired by the Managing Director. Its six other members, whose names appear on page 108 of this Report, include the Deputy Managing Director, the Group Finance Director, the Group Strategy Director and the Group General Counsel. In addition, as part of the Company’s tiered approach to oversight and management, certain Directors who do not serve on the board of JML and who are based outside Asia make regular visits to Asia and Bermuda where they participate in four annual Group strategic reviews. All of these reviews precede the Board meetings. These Directors are not directly involved in the operational management of the Group’s business activities, but their knowledge and close oversight of the Group’s affairs reinforces the process by which business is reviewed before consideration by the Board. The Board The Company currently has a Board of 14 Directors; ten are executive and four are non-executive. Their names and brief biographies appear on page 27 of this Report. The composition and operation of the Board reflect the Group’s commitment to its long-term strategy, the Company’s shareholding structure and the Group’s tiered approach to oversight and management as described above. These factors explain the balance on the Board between executive and non-executive Directors, the stability of the Board, the absence of nomination and remuneration committees and the conduct of Board evaluation procedures. The Board regards Asian business experience and relationships as more valuable attributes of its non-executive Directors than formal independence criteria. Accordingly the Board has not designated a ‘senior independent director’ as set out in the UK Code. Recommendations and decisions on remuneration result from consultations between the Chairman and the Managing Director as well as other Directors as they consider appropriate. Among the matters which the Board decides are the Group’s business strategy, its annual budget, dividends and major corporate activities. The Board is scheduled to hold four meetings in 2013 and ad hoc procedures are adopted to deal with urgent matters. In 2012 one meeting was held in Bermuda and three were held in Asia. All current Directors who held office in 2012 attended all four Board meetings, save that Jenkin Hui attended two meetings. The Board receives high quality, up to date information for each of its meetings. This information is approved by the Company’s management before circulation, and is then the subject of a strategy review in a cycle of meetings (in Bermuda or Asia, as appropriate) prior to consideration by the Board itself. Responsibility for implementing the Group’s strategy within designated financial parameters is delegated to JML. The division of responsibilities between the Chairman and the Managing Director is well established. The Chairman’s role is to lead the Board as it oversees the Group’s strategic and financial direction. The role of Managing Director, with the support of the Deputy Managing Director, is to implement the strategy set by the Board and to manage the Group’s operations. An important part of this is undertaken in his capacity as chairman of the board of JML. Directors’ Appointment, Retirement, Remuneration and Service Contracts Candidates for appointment as executive Directors of the Company, as executive directors of JML or as senior executives elsewhere in the Group may be sourced internally or externally using the services of specialist executive search firms. The aim is to appoint individuals who combine international best practice with adaptability to Asian markets. 101 Jardine Matheson | Annual Report 2012Corporate Governance (continued) Each new Director is appointed by the Board and, in accordance with Bye-law 91 of the Company’s Bye-laws, each new Director is subject to retirement at the first Annual General Meeting after appointment. Thereafter, the Director will be subject to retirement by rotation pursuant to Bye-law 84 whereby one-third of the Directors retire at the Annual General Meeting each year. These provisions apply to both executive and non-executive Directors, but the requirement to retire by rotation pursuant to Bye-law 84 does not extend to the Chairman or Managing Director. Lord Sassoon was appointed as a Director of the Company with effect from 14th January 2013. On 1st April 2012, Ben Keswick succeeded Anthony Nightingale as Managing Director (the latter remaining as a non-executive Director of the Company). Adam Keswick was appointed Deputy Managing Director with effect from 1st April 2012. In accordance with Bye-law 84, Jenkin Hui, Lord Leach of Fairford and Giles White retire by rotation at the Annual General Meeting and, being eligible, offer themselves for re-election. In accordance with Bye-law 91, Lord Sassoon will also retire and, being eligible, offers himself for re-election. Lord Leach of Fairford, Lord Sassoon and Giles White each has a service contract with a subsidiary of the Company that has a notice period of six months. Jenkin Hui does not have a service contract with the Company or its subsidiaries. The Company’s policy is to offer competitive remuneration packages to its senior executives. It is recognized that, due to the nature of the Group and its diverse geographic base, a number of its senior executives are required to be offered international terms and the nature of the remuneration packages is designed to reflect this. Executive Directors joining from outside the Group are normally offered an initial fixed term service contract, reflecting the requirement for them to relocate. These contracts will be expected to reduce to a notice period of not more than one year after the initial term. Certain Directors are discretionary objects under a trust created in 1947 (the ‘1947 Trust’) which holds 35,915,991 ordinary shares in the Company representing 5.36% of the Company’s issued share capital. Under the terms of the 1947 Trust, its income is to be distributed to senior executive officers and employees of the Company and its wholly-owned subsidiaries. Such distribution is made by the trustee after consultation between the Chairman and the Managing Director and such other Directors as they consider appropriate. Directors’ fees which are payable to the Chairman and all Directors (other than full-time salaried Directors) are decided upon by shareholders in general meeting as provided for by the Company’s Bye-laws. A motion to increase the fees payable to Directors (other than full-time salaried Directors) to US$50,000 each per annum and the fee payable to the Chairman to US$75,000 per annum with effect from 1st January 2013 will be proposed at the forthcoming Annual General Meeting. For the year ended 31st December 2012, the Directors received from the Group US$16.6 million (2011: US$15.4 million) in Directors’ fees and employee benefits, being US$0.2 million (2011: US$0.2 million) in Directors’ fees, US$13.6 million (2011: US$13.2 million) in short-term employee benefits including salary, bonuses, accommodation and deemed benefits in kind, US$1.5 million (2011: US$1.3 million) in post-employment benefits and US$1.3 million (2011: US$0.7 million) in share-based payments. The 1947 Trust also made distributions to Directors amounting to US$44.3 million (2011: US$41.3 million). The information set out in this paragraph forms part of the audited financial statements. Senior executive share incentive schemes have also been established to provide longer-term incentives for executive Directors and senior managers. Share options are granted by the scheme trustee after consultation between the Chairman and the Managing Director as well as other Directors as they consider appropriate. Share options are granted at the then prevailing market prices and the scheme rules provide that they normally vest after the third anniversary of the date of grant. Grants may be made in a number of instalments. Share options are not granted to non-executive Directors. The Company purchases insurance to cover its Directors against their costs in defending themselves in civil proceedings taken against them in that capacity and in respect of damages resulting from the unsuccessful defence of any proceedings. To the extent permitted by law, the Company also indemnifies its Directors. Neither the insurance nor the indemnity provides cover where the Director has acted fraudulently or dishonestly. Directors’ Responsibilities in respect of the Financial Statements The Directors are required under the Bermuda Companies Act 1981 to prepare financial statements for each financial year and to present them annually to the Company’s shareholders at the Annual General Meeting. The financial statements should present fairly in accordance with International Financial Reporting Standards (‘IFRS’) the financial position of the Group at the end of the year and the results of its operations and its cash flows for the year then ended. The Directors consider that applicable accounting policies under IFRS, applied on a consistent basis and supported by prudent and reasonable judgments and estimates, have been followed in preparing the financial statements. 102 Jardine Matheson | Annual Report 2012Going Concern The Directors are required to consider whether it is appropriate to prepare financial statements on the basis that the Company and the Group are going concerns. The Group prepares comprehensive financial forecasts and, based on these forecasts, cash resources and existing credit facilities, the Directors consider that the Company and the Group have adequate resources to continue in business for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements. Code of Conduct The Group conducts business in a professional, ethical and even-handed manner. Its ethical standards are clearly set out in its Code of Conduct, a set of guidelines to which every employee must adhere. The code requires that all Group companies comply with all laws of general application, all rules and regulations that are industry specific and proper standards of business conduct. The code prohibits the giving or receiving of illicit payments, and requires all employees to be treated fairly, impartially and with respect. It also requires that all managers must be fully aware of their obligations under the Code of Conduct and establish procedures to ensure compliance at all levels within their organizations. The Group has in place procedures by which employees can raise, in confidence, matters of serious concern in areas such as financial reporting or compliance. Risk Management and Internal Control The Board has overall responsibility for the Group’s system of risk management and internal control. The system of internal control is designed to manage, rather than eliminate, business risk; to help safeguard the Group’s assets against fraud and other irregularities; and to give reasonable, but not absolute, assurance against material financial misstatement or loss. The principal risks and uncertainties facing the Company are set out on page 106. The Board has delegated to the Audit Committee responsibility for reviewing areas of risk and uncertainty, the operation and effectiveness of the Group’s system of internal control and the procedures by which these are monitored. The Audit Committee considers the system and procedures on a regular basis, and reports to the Board semi-annually. The members of the Audit Committee are Lord Leach of Fairford, Anthony Nightingale and Percy Weatherall; they have extensive knowledge of the Group while at the same time not being directly involved in operational management. Simon Keswick stepped down as a member of the Audit Committee on 8th March 2013. The Board considers that the members of the Audit Committee have, collectively, the requisite skills, knowledge and experience to enable it to discharge its responsibilities in a proper manner. All current members of the Audit Committee attended both its meetings during the year, save that Anthony Nightingale, who was appointed a member of the committee in June 2012, attended in that capacity the one Audit Committee meeting which was held following his appointment. The Company’s Managing Director, Deputy Managing Director, Group Finance Director, Group Strategy Director and Group General Counsel, together with representatives of the internal and external auditors, also attend the Audit Committee meetings by invitation. Executive management oversees the implementation of the systems of internal control within the Group’s operating companies, the responsibility for which rests with each company’s board and its own executive management. The effectiveness of these systems is monitored by the internal audit function, which is outside the operating companies, and by a series of audit committees that operate in each major business unit across the Group. The internal audit function also monitors the approach taken by the business units to risk. The findings of the internal audit function and recommendations for any corrective action required are reported to the relevant audit committee and, if appropriate, to the Audit Committee of the Company. The Audit Committee also reviews the effectiveness of the internal audit function. The Group has in place an organizational structure with defined lines of responsibility and delegation of authority. Across the Group there are established policies and procedures for financial planning and budgeting; for information and reporting systems; for assessment of risk; and for monitoring the Group’s operations and performance. The information systems in place are designed to ensure that the financial information reported is reliable and up to date. The Company’s policy on commercial conduct underpins the Group’s internal control process, particularly in the area of compliance. The policy, as set out in the Code of Conduct, is reinforced and monitored by an annual compliance certification process. The Audit Committee has also been given the responsibility to oversee the effectiveness of the formal procedures for employees to raise any matters of serious concern and is required to review any reports made under those procedures that are referred to it by the internal audit function. 103 Jardine Matheson | Annual Report 2012Corporate Governance (continued) Prior to completion and announcement of the half-year and year-end results, a review of the Company’s financial information and any issues raised in connection with the preparation of the results, including the adoption of new accounting policies, is undertaken by the Audit Committee with the executive management and a report is received from the external auditors. The Audit Committee also assesses any reports on frauds identified during the period under review. The external auditors also have access to the full Board and other senior executives, and to the boards of the Group’s operating companies. The Audit Committee keeps under review the nature, scope and results of the external audit, the audits conducted by the internal audit function and the findings of the various Group audit committees. The Audit Committee also keeps under review the independence and objectivity of the external auditors, and as part of that process considers and approves the level and nature of non-audit work performed. The terms of reference of the Audit Committee can be found on the Company’s website at www.jardines.com. Directors’ Share Interests The Directors of the Company in office on 25th March 2013 had interests (within the meaning of the Disclosure and Transparency Rules (‘DTRs’) of the Financial Services Authority (the ‘FSA’) of the United Kingdom) as set out below in the ordinary share capital of the Company. These interests included those notified to the Company in respect of the Directors’ connected persons (as that term is used in the DTRs in relation to companies incorporated outside the United Kingdom). Sir Henry Keswick Ben Keswick Adam Keswick Simon Keswick Lord Leach of Fairford Dr Richard Lee Anthony Nightingale Y.K. Pang James Riley Percy Weatherall Notes: (a) Includes 2,000,004 ordinary shares held by a family trust, the trustees of which are connected persons of Ben Keswick, Adam Keswick, Simon Keswick 10,544,386 41,205,869(a) (b) (c) 34,959,086(a) (b) 11,635,027(a) (c) 1,113,742 107,454 1,125,762 315,000 242,945 36,216,302(a) (b) and Percy Weatherall. (b) Includes 30,087,765 ordinary shares held by family trusts, the trustee of which is a connected person of Ben Keswick, Adam Keswick and Percy Weatherall. (c) Includes 6,624,516 ordinary shares held by family trusts, the trustees of which are connected persons of Ben Keswick and Simon Keswick. In addition, Ben Keswick, Adam Keswick, Mark Greenberg, Y.K. Pang, James Riley, Lord Sassoon and Giles White held options in respect of 220,000, 80,000, 240,000, 100,000, 40,000, 75,000 and 140,000 ordinary shares, respectively, issued pursuant to the Company’s Senior Executive Share Incentive Schemes. Substantial Shareholders As a non-UK issuer, the Company is subject to the DTRs pursuant to which a person must in certain circumstances notify the Company of the percentage of voting rights attaching to the share capital of the Company that he holds. The obligation to notify arises if that person acquires or disposes of shares in the Company which results in the percentage of voting rights which he holds reaching, exceeding or falling below 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75%. The Company has been informed of the following holdings of voting rights of 5% or more attaching to the Company’s issued ordinary share capital: (i) Jardine Strategic and its subsidiary undertakings are directly and indirectly interested in 372,348,372 ordinary shares carrying 55.53% of the voting rights; and (ii) the 1947 Trust is interested in 35,915,991 ordinary shares carrying 5.36% of the voting rights. Apart from these shareholdings, the Company is not aware of any holders of voting rights of 5% or more attaching to the issued ordinary share capital of the Company as at 25th March 2013. There were no contracts of significance with corporate substantial shareholders during the year under review. 104 Jardine Matheson | Annual Report 2012Relations with Shareholders The 2013 Annual General Meeting will be held at The Fairmont Southampton, Bermuda on 16th May 2013. The full text of the resolutions and explanatory notes in respect of the meeting are contained in the Notice of Meeting which accompanies this Report. All shareholders are invited to attend the Annual General Meeting and participate in communicating with the Company. The Company holds regular meetings with institutional shareholders. A corporate website is maintained containing a wide range of information of interest to investors at www.jardines.com. Securities Purchase Arrangements At the Annual General Meeting held on 10th May 2012, shareholders renewed the approval of a general mandate authorizing the Directors to effect purchases by the Company or its subsidiaries of the Company’s own ordinary shares of less than 15% in aggregate of its issued share capital. Arrangements under which Shareholders have agreed to Waive Dividends Clare Investment Overseas (PTC) Limited has waived the interim dividend and has undertaken to waive the recommended final dividend for 2012 in respect of the ordinary shares in which it is interested as the Trustee of the Company’s Senior Executive Share Incentive Schemes. Related Party Transactions Details of transactions with related parties entered into by the Company during the course of the year are included in note 39 to the financial statements on page 96. There were no transactions entered into by the Company during the course of the year to which the related party transaction rules of the FSA in the United Kingdom apply. 105 Jardine Matheson | Annual Report 2012Principal Risks and Uncertainties The Board has overall responsibility for risk management and internal control. The process by which the Group identifies and manages risk is set out in more detail on pages 103 and 104 of the Corporate Governance section of this Report. The following are the principal risks and uncertainties facing the Company as required to be disclosed pursuant to the Disclosure and Transparency Rules issued by the Financial Services Authority of the United Kingdom and are in addition to the matters referred to in the Chairman’s Statement and Managing Director’s Review. Economic Risk Most of the Group’s businesses are exposed to the risk of negative developments in global and regional economies and financial markets, either directly or through the impact on the Group’s joint venture partners, franchisors, bankers, suppliers or customers. These developments can result in recession, inflation, deflation, currency fluctuations, restrictions in the availability of credit, business failures, or increases in financing costs, oil prices and in the cost of raw materials. Such developments might increase operating costs, reduce revenues, lower asset values or result in the Group’s businesses being unable to meet in full their strategic objectives. Commercial Risk and Financial Risk Risks are an integral part of normal commercial practices, and where practicable steps are taken to mitigate such risks. These risks are further pronounced when operating in volatile markets. A number of the Group’s businesses make significant investment decisions in respect of developments or projects that take time to come to fruition and achieve the desired returns and are, therefore, subject to market risks. The Group’s businesses operate in areas that are highly competitive, and failure to compete effectively in terms of price, product specification or levels of service can have an adverse effect on earnings. Significant pressure from such competition may lead to reduced margins. The quality and safety of the products and services provided by the Group’s businesses are also important and there is an associated risk if they are below standard. The steps taken by the Group to manage its exposure to financial risk are set out in the Financial Review on page 26 and note 2 to the financial statements on pages 44 to 49. Concessions, Franchises and Key Contracts A number of the Group’s businesses and projects are reliant on concessions, franchises, management or other key contracts. Cancellation, expiry or termination, or the renegotiation of any such concession, franchise, management or other key contracts, could have an adverse effect on the financial condition and results of operations of certain subsidiaries, associates and joint ventures of the Group. Regulatory and Political Risk The Group’s businesses are subject to a number of regulatory environments in the territories in which they operate. Changes in the regulatory approach to such matters as foreign ownership of assets and businesses, exchange controls, planning controls, emission regulations, tax rules and employment legislation have the potential to impact the operations and profitability of the Group’s businesses. Changes in the political environment in such territories can also affect the Group’s businesses. Terrorism, Pandemic and Natural Disasters A number of the Group’s operations are vulnerable to the effects of terrorism, either directly through the impact of an act of terrorism or indirectly through the impact of generally reduced economic activity in response to the threat of or an actual act of terrorism. All Group businesses would be impacted by a global or regional pandemic which could be expected to seriously affect economic activity and the ability of our businesses to operate smoothly. In addition, many of the territories in which the Group operates can experience from time to time natural disasters such as earthquakes and typhoons. 106 Jardine Matheson | Annual Report 2012Shareholder Information Financial Calendar 2012 full-year results announced Share registers closed 2012 final dividend scrip election period closes Annual General Meeting to be held 2012 final dividend payable 2013 half-year results to be announced Share registers to be closed 2013 interim dividend scrip election period closes 2013 interim dividend payable * Subject to change 8th March 2013 25th to 29th March 2013 26th April 2013 16th May 2013 22nd May 2013 2nd August 2013* 26th to 30th August 2013* 27th September 2013* 16th October 2013* Dividends Shareholders will receive their dividends in United States dollars, unless they are registered on the Jersey branch register where they will have the option to elect for sterling. These shareholders may make new currency elections for the 2012 final dividend by notifying the United Kingdom transfer agent in writing by 26th April 2013. The sterling equivalent of dividends declared in United States dollars will be calculated by reference to a rate prevailing on 8th May 2013. Shareholders holding their shares through The Central Depository (Pte) Ltd (‘CDP’) in Singapore will receive United States dollars unless they elect, through CDP, to receive Singapore dollars. Shareholders, including those who hold their shares through CDP, may also elect to receive a scrip alternative to their dividends. Registrars and Transfer Agent Shareholders should address all correspondence with regard to their shareholdings or dividends to the appropriate registrar or transfer agent. Principal Registrar Jardine Matheson International Services Ltd P.O. Box HM 1068 Hamilton HM EX Bermuda Jersey Branch Registrar Capita Registrars (Jersey) Ltd 12 Castle Street St Helier, Jersey JE2 3RT Channel Islands United Kingdom Transfer Agent Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU, England Singapore Branch Registrar M & C Services Private Ltd 112 Robinson Road #05-01 Singapore 068902 Press releases and other financial information can be accessed through the internet at www.jardines.com. 107 Jardine Matheson | Annual Report 2012Group Offices Jardine Matheson Ltd Matheson & Co., Ltd Jardine Pacific Ltd Jardine Motors Group Ltd Jardine Lloyd Thompson Group plc Hongkong Land Ltd Dairy Farm Management Services Ltd Mandarin Oriental Hotel Group International Ltd Jardine Cycle & Carriage Ltd 48th Floor, Jardine House G.P.O. Box 70 Hong Kong Directors Ben Keswick, Chairman Adam Keswick, Deputy Chairman Mark Greenberg David Hsu Y.K. Pang James Riley Giles White 3 Lombard Street London EC3V 9AQ United Kingdom 25th Floor, Devon House Taikoo Place 979 King’s Road Quarry Bay Hong Kong 25th Floor, Devon House Taikoo Place 979 King’s Road Quarry Bay Hong Kong 6 Crutched Friars London EC3N 2PH United Kingdom 8th Floor One Exchange Square Central Hong Kong 7th Floor, Devon House Taikoo Place 979 King’s Road Quarry Bay Hong Kong 7th Floor 281 Gloucester Road Causeway Bay Hong Kong 239 Alexandra Road Singapore 159930 PT Astra International Tbk Jl. Gaya Motor Raya No. 8 Sunter II, Jakarta 14330 Indonesia 108 Telephone Facsimile Email Website (852) 2843 8288 (852) 2845 9005 jml@jardines.com www.jardines.com Group Corporate Secretary N.M. McNamara Telephone Facsimile Email Website (44 20) 7816 8100 (44 20) 7623 5024 enquiries@matheson.co.uk www.matheson.co.uk Lord Leach of Fairford Telephone Facsimile Email (852) 2579 2888 (852) 2856 9674 jpl@jardines.com Ben Birks Telephone Facsimile Email (852) 2579 2888 (852) 2856 9674 jmg@jardines.com Adam Keswick Telephone Facsimile Email Website Telephone Facsimile Email Website Telephone Facsimile Email Website Telephone Facsimile Email Website Telephone Facsimile Email Website Telephone Facsimile Email Website (44 20) 7528 4444 (44 20) 7528 4185 info@jltgroup.com www.jltgroup.com Dominic Burke (852) 2842 8428 (852) 2845 9226 gpobox@hkland.com www.hkland.com Y.K. Pang (852) 2299 1888 (852) 2299 4888 groupcomm@dairy-farm.com.hk www.dairyfarmgroup.com Graham D. Allan (852) 2895 9288 (852) 2837 3500 asia-enquiry@mohg.com www.mandarinoriental.com Edouard Ettedgui (65) 6473 3122 (65) 6475 7088 corporate.affairs@jcclgroup.com www.jcclgroup.com Alex Newbigging (62 21) 652 2555 (62 21) 651 2058 purel@ai.astra.co.id www.astra.co.id Prijono Sugiarto Jardine Matheson | Annual Report 2012Bermuda Jardine Matheson International Services Ltd 4th Floor, Jardine House 33-35 Reid Street Hamilton HM 12 P.O. Box HM 1068 Hamilton HM EX Telephone Facsimile (1 441) 292 0515 (1 441) 292 4072 John C. Lang #015, Colonial Mansion II No. 1A, Street 102 Sangkat Wat Phnom, Khan Daun Penh Phnom Penh Telephone Facsimile (855) 23 986 804 (855) 23 986 804 John Brinsden Cambodia Jardine Matheson Ltd (Representative Office) Hong Kong SAR Jardine Matheson Ltd Indonesia Jardine Matheson Ltd (Representative Office) Mainland China Jardine Matheson (China) Ltd (Representative Office) Malaysia Jardine Matheson (Malaysia) Sdn Bhd Myanmar Jardine Matheson Management (SEA) Pte. Ltd Netherlands Jardine Matheson Europe B.V. Philippines Jardine Matheson Ltd (Representative Office) 48th Floor, Jardine House G.P.O. Box 70 Hong Kong Level 17, World Trade Centre I Jalan Jendral Sudirman Kav. 29-31 Jakarta 12920 Rm 528, 5/F, China World Office 1 China World Trade Centre No. 1 Jianguomenwai Avenue Chaoyang District, Beijing 100004 Tingkat 4, Bangunan Setia 1 15 Lorong Dungun Bukit Damansara 50490 Kuala Lumpur 290 (R) U Wisara Road Kamayut Yangon, Myanmar Atrium Building Strawinskylaan 3007 1077 ZX Amsterdam 25/F Philamlife Tower 8767 Paseo de Roxas 1226 Makati City Singapore Jardine Matheson (Singapore) Ltd 239 Alexandra Road, 3rd Floor Singapore 159930 Taiwan Jardine, Matheson & Co., Ltd 6th Floor, 39 Jinan Road Section 2, Taipei 10059 Telephone Facsimile (852) 2843 8288 (852) 2845 9005 Ben Keswick Telephone Facsimile (62 21) 522 8981/2 (62 21) 522 8983 Jonathan Chang Telephone Facsimile (8610) 6505 2801 (8610) 6505 2805 Adam C.N. Williams Telephone Facsimile (603) 2094 2168 (603) 2093 5168 Datuk Syed Tamim Mohamed Telephone (95 94) 2000 4585 Dr Wong Yit Fan Telephone Facsimile (31 20) 470 0258 (31 20) 470 0323 Pim Bertels Telephone Facsimile Telephone Facsimile (632) 706 8573 (632) 885 7078 A.B. Colayco (65) 6220 4254 (65) 6323 0694 Y.C. Boon Telephone Facsimile (8862) 2393 1166 (8862) 2394 5625 Liang Chang Thailand Jardine Matheson (Thailand) Ltd 21-03, 21st Floor, Times Square Building 246 Sukhumvit Road, KIong Toey Bangkok 10110 Telephone Facsimile (662) 254 0674 (662) 254 0677 Dr Pisit Leeahtam United Kingdom Matheson & Co., Ltd Vietnam Jardine Matheson Ltd 3 Lombard Street London EC3V 9AQ 5th Floor, Gemadept Tower 6 Le Thanh Ton Street District 1, Ho Chi Minh City Telephone Facsimile (44 20) 7816 8100 (44 20) 7623 5024 Lord Leach of Fairford Telephone Facsimile (848) 3822 2340 (848) 3823 0030 Alain Cany www.jardines.com 

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