Jardine Matheson Holdings Limited
Annual Report 2014

Plain-text annual report

p r o C g n i r e e n g n E e n d r a J i i p u o r G s e c i v r e S n o i t a i v A e n d r a J i l t c a H n o i t c u r t s n o C n o m m a G c fi i c a P e n d r a J i i e n d r a J u F g n u Z s r o t o M e n d r a J i n o s e h t a M e n d r a J i i r e l d n h c S e n d r a J i S O J p u o r G t n a r u a t s e R e n d r a i J a n a u B a r t s A i s n a r u s A a t a m r e P k n a B e c n a n i F l a n o i t a n r e t n I l a r e d e F e c n a n i F a y a d e S a r t s A e f i L a v i v A a r t s A n i a e d R s a n u T i g n a t n B e g a i r r a C d n a e l c y C e g a i r r a C & e l c y C e n d r a J i l a t n e i r O n i r a d n a M s r e r e t a C s ’ m i x a M r o t o M u s t a h i a D a r t s A r o t o M a r t s A a t o y o T r o t o M a d n o H a r t s A s t r a p o t O a r t s A l a n o i t a n r e t n I a r t s A O C A H T a i h p a r G a r t s A C A R T i t k a s a l a d n a M a g r a M i r a t s e L o r g A a r t s A a r a t n a s u N a d a s r e p a m a P s r o t c a r T d e t i n U y a u Q s e fl f a R e n O d n a L L C M d n a L g n o k g n o H p u o r G g n e h s g n o h Z c i g e t a r t S e n d r a J i n o s p m o h T d y o l L t e k r a m r e p u S o r e H e g a r o t S d l o C m r a F y r i a D t n e m p o l e v e D e t a t s E l a e R l a r t n e C u f g n a W d n a L a t r a k a J Jardine Matheson Annual Report 2014 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 28 113 114 115 116 122 123 124 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 standard listing on the London Stock Exchange as its primary listing, 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 • Underlying profit* up 2% • Full-year dividend up 4% • Good performances from most of the Group’s businesses • Astra’s contribution reduced by weaker rupiah • New strategic investments in mainland China Results 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 2014 US$m 62,782 4,451 1,534 1,710 19,267 US$ 4.14 4.62 1.45 51.79 2013 US$m 61,380 4,600 1,502 1,566 18,386 US$ 4.09 4.26 1.40 49.84 Analysis of Underlying Profit 2014 2013 By Business Jardine Pacific Jardine Motors Jardine Lloyd Thompson Hongkong Land Dairy Farm Mandarin Oriental Jardine Cycle & Carriage Astra Corporate and other interests Underlying profit By Geographical Area Greater China Southeast Asia United Kingdom Rest of the world Corporate and other interests Underlying profit US$m 131 97 85 384 320 59 50 439 1,565 (31) 1,534 2014 US$m 743 706 80 36 1,565 (31) 1,534 % 8 6 5 25 21 4 3 28 100 % 48 45 5 2 US$m 110 59 76 385 307 56 35 508 1,536 (34) 1,502 2013 US$m 648 803 60 25 % 7 4 5 25 20 4 2 33 100 % 42 52 4 2 100 1,536 100 (34) 1,502 10 11 12 13 14 Underlying Earnings per Share (US$) 10 11 12 13 14 37.98 45.08 48.53 49.84 51.79 Net Asset Value per Share (US$) * 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. # Includes 100% of revenue from associates and joint ventures. 1 Change % 2 (3) 2 9 5 % 1 8 4 4 3.75 4.08 4.01 4.09 4.14 Jardine Matheson | Annual Report 2014Chairman’s Statement Our market-leading businesses are actively pursuing opportunities for growth. Overview Most of the Group’s businesses produced good performances in 2014 despite more challenging trading conditions. There were improved underlying earnings in Jardine Pacific, Jardine Motors, JLT, Dairy Farm and Mandarin Oriental. Hongkong Land did well to maintain its profitability after a record year in 2013 despite lower earnings from residential developments. Astra’s underlying earnings were modestly lower in its reporting currency, but a weaker rupiah reduced materially its contribution in US dollars. Performance The Group’s revenue for 2014, including 100% of revenue from associates and joint ventures, was US$62.8 billion, compared with US$61.4 billion in 2013. The Company’s underlying profit before tax for the year was US$4,451 million, a decrease of 3%. The underlying profit attributable to shareholders was up 2% at US$1,534 million, while underlying earnings per share were 1% higher at US$4.14. The profit attributable to shareholders for the year was US$1,710 million, with the main non-trading item being an increase in the value of Hongkong Land’s investment property portfolio. This compares with US$1,566 million in 2013, which also benefited from a small increase in property valuations. Shareholders’ funds were 5% higher at US$19.3 billion. The Group’s continued profit generation, cash flows and retained earnings have enabled high levels of capital expenditure to be combined with low levels of debt. Total capital investment across the Group, including 100% of 2 associates and joint ventures, exceeded US$5.6 billion in 2014. The consolidated net debt at the end of the year, excluding financial services companies, was US$2.5 billion, representing gearing of 6%, which was modestly lower than at the end of 2013. The Board is recommending a final dividend of US¢107 per share, which represents an increase of 4% for the full year. Business Developments The Group announced two strategic initiatives in mainland China in 2014. In January, Jardine Strategic agreed to invest US$731 million in shares and convertible bonds representing up to a 20% interest in Hong Kong-listed Zhongsheng Group, a leading mainland China motor dealership group. In August, Dairy Farm reached agreement with Yonghui Superstores, one of mainland China’s fastest growing food retailers, to establish a strategic partnership, and upon receipt of regulatory approvals will acquire a shareholding of just below 20% in the company for an investment of some US$925 million. These initiatives, together with Hongkong Land’s ongoing investment in the residential and commercial property sectors, reflect the Group’s increasing commitment to mainland China’s economy. Jardine Pacific produced good profit growth in 2014, supported by strong sales in its recently acquired KFC franchise in Hong Kong and a sustained turnaround at JOS. Increased levels of throughput at the airport enabled Hactl to perform better than expected following the move of a major customer to its own dedicated cargo facility in 2013. The group’s engineering and construction operations recorded steady performances. Jardine Motors enjoyed a much better year with profits increasing 66%. It saw further recovery in mainland China, where Zung Fu now has 33 outlets and a further two under development. In Hong Kong and Macau, its operations achieved good deliveries of new Mercedes-Benz models. In the United Kingdom, where investment is being made to upgrade facilities, its dealerships benefited from increased demand as the economy improved. JLT continued to produce strong organic growth in 2014 and saw good performances from its Reinsurance, Asian, Latin American and Employee Benefits operations. In August, it announced its intention to establish a specialty insurance broking business in the United States, building on the successful business model it has established in other regions. Jardine Matheson | Annual Report 2014Hongkong Land performed well in 2014 as its results were broadly in line with the prior record year. Its commercial portfolio had another good year, although in the residential sector fewer completions in Singapore offset a strong contribution from the remaining Serenade units in Hong Kong and increased completions in mainland China. The group has commercial developments in Beijing, Jakarta and Phnom Penh, and ongoing residential developments in mainland China, Singapore, Indonesia and the Philippines. Dairy Farm produced sales improvement in all of its divisions, but weaker performances in its Food division in Southeast Asia held back profits. The group has embarked upon a number of strategic initiatives that will see it positioned better for sustained growth. It has expanded its activities in mainland China and the Philippines, and is continuing to invest in its existing store networks, supply chain infrastructure, IT systems and people development. build market-leading businesses. Its new life insurance joint venture, Astra Aviva Life, began operating in November 2014, while in the fourth quarter of 2014, United Tractors agreed to acquire a majority stake in listed construction company, PT Acset Indonusa Tbk. It is believed that both new ventures will benefit from Astra’s reach and expertise. Corporate Developments Following shareholder approval at a Special General Meeting held in April, the transfer of the Company’s listing on the Main Market of the London Stock Exchange to the standard listing category was completed on 27th May 2014. People The fine performances achieved by our businesses are a reflection of the hard work, dedication and professionalism of the Group’s 430,000 employees. I would like to thank them all for their excellent contribution. Mandarin Oriental added two hotels in 2014, and now operates 27 hotels. It has a further 17 under development, of which Marrakech, Milan, Beijing and Doha are due to open within the next 18 months. In addition, it operates eight Residences connected to its properties, and is developing a further seven. The group has announced a US$300 million rights issue to provide the capacity to finance the renovation of its London property and reduce debt, while placing it in a strong position to make further investments. Jardine Cycle & Carriage’s non-Astra operations produced an overall increase in earnings, with a particularly good result from Truong Hai Auto Corporation in Vietnam. In February 2015, Jardine Cycle & Carriage increased further its commitment to Vietnam when it raised its shareholding in publicly-listed Refrigeration Electrical Engineering Corporation Group from 19% to 22%. Astra’s underlying profit contribution of US$439 million was 14% lower, principally due to the weakening of the rupiah. Its underlying profit in rupiah was 3% lower as improved results from its agribusiness, contract mining operations and financial services businesses were offset by lower earnings from its automotive business and an impairment charge in relation to its coal mining properties. Astra is seeking to complement the development of its existing activities with investments in new sectors, where it believes that over the longer term it can Jenkin Hui passed away on 4th September 2014 and, on behalf of the Board, I would like to express our appreciation for the significant support that he gave to the Group over many years of service as a non-executive Director. His wise counsel will be missed. Giles White will be retiring as Group General Counsel and as a Director on 31st July 2015, and we would like to thank him for his excellent contribution. We were pleased to welcome Michael Wu to the Board on 5th March 2015. Outlook As we move into 2015 the headwinds that affected a number of our businesses last year continue to put regional economies under pressure. Nevertheless, our market-leading businesses are trading well, they remain strongly financed, and they are actively pursuing opportunities for growth. As a result, we continue to view the future with confidence. Sir Henry Keswick Chairman 11th March 2015 3 Jardine Matheson | Annual Report 2014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, reinsurance and employee benefits related advice, brokerage and associated services, combining specialist knowledge 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 56% of Jardine Matheson. (82%) (Figures in brackets show effective ownership by Jardine Matheson as at 11th March 2015.) Jardine Strategic A listed property group with some 800,000 sq. m. of prime commercial property, principally in Hong Kong and Singapore, and high quality residential developments in Asia. (50%) A listed pan-Asian retail group operating over 6,100 outlets, including supermarkets, hypermarkets, convenience stores, health and beauty 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 17 under development. (73%) A Singapore-listed company with an interest of just over 50% in Astra, a major listed Indonesian conglomerate, and other interests in Southeast Asia. (74%) 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, agribusiness, infrastructure, logistics and others, and information technology. (Figures in brackets show effective ownership by Jardine Strategic as at 11th March 2015.) 4 Jardine Matheson | Annual Report 2014Managing Director’s Review A diversified business group, Jardine Matheson is focused Within the businesses held through Jardine Strategic, principally on Greater China and Southeast Asia, where Hongkong Land maintained a high level of profitability the Group enjoys the advantage of longstanding networks, with strong contributions from both its commercial and although some of its operations have a more global reach. its residential interests. Dairy Farm’s sales and earnings In 2014, the main contributors to the Group’s underlying profit increased in most of its operations, although its Food by activity were property at 25%, motor related interests at businesses in Southeast Asia faced more challenging 22%, and retailing and restaurants at 21%. Some 48% of conditions. Most of Mandarin Oriental’s hotels performed underlying profit came from Greater China, compared with well and there was a further contribution from branding 45% from Southeast Asia, which showed a slight decline from fees on the sale of Residences. The overall results from prior years due to the impact of the weaker rupiah on profit Jardine Cycle & Carriage’s motor businesses were higher. translation. Group companies remain leaders in the fields Astra did well to maintain its rupiah net profit as it of property investment and development, motor vehicles experienced mixed performances within its portfolio. and related activities, retailing and restaurants, engineering and construction, transport services, luxury hotels, financial The Group’s profit attributable to shareholders of services, heavy equipment, mining and agribusiness. US$1,710 million included a US$179 million increase in the valuation of investment properties, and compares with During the year, key Asian economies came under US$1,566 million in 2013 which included an increase of pressure which affected the performances of a number US$113 million in investment property values. of businesses. The underlying profit before tax for 2014 was US$4,451 million, a 3% decrease over the prior With strong operating cash flows, ample committed facilities year. The underlying profit attributable to shareholders and access to the capital markets, the Group has a sound was 2% higher at US$1,534 million, while underlying financial base on which to support investment in developing earnings per share were up 1% at US$4.14. Good trading its leading market positions. Total capital investment across performances continued to be seen in most of the Group’s the Group in 2014 exceeded US$5.6 billion. The consolidated businesses, although the weaker exchange rate reduced net debt at the end of 2014, excluding financial services Astra’s contribution. companies, was US$2.5 billion, representing gearing of 6%, which compares to US$2.6 billion at the end of 2013 and Jardine Pacific recorded steady trading in most of its activities gearing of 6%. and good improvement in profits in its Restaurant business and JOS. Jardine Motors enjoyed an excellent year, while Jardine Lloyd Thompson benefited from good organic growth. 5 Jardine Matheson | Annual Report 2014• Underlying profit up 19% at US$131 million • Engineering and construction earnings were steady • Improved contributions from Restaurants and JOS • Underlying return on average shareholders’ funds of 19% s e s s e n i s u b f o o i l l o f t r o p t c e e s s ’ c i f i c a P e n d r a J i , s r o t c e s y r t s u d n i i f o e g n a r e d w a g n i s s a p m o c n E . a i s A n i s t s e r e t n i d e t s i l - n o n s ’ p u o r G e h t f o r e b m u n t n a c i f i n g i s a s e d u l c n i c i f i c a P e n d r a J i 6 . s w o l f h s a c g n o r t s h t i w s r e d a e l t e k r a m d e t a v i t o m y l h g h s e s i r p m o c i Jardine Matheson | Annual Report 2014 10 11 12 13 14 149 145 172 110 131 Underlying Profit Attributable to Shareholders (US$ million) 10 11 12 13 14 28 29 24 17 19 Underlying Return on Average Shareholders’ Funds (%) Gammon applied its technical expertise and state of the art technology in its implementation of the Harbour Area Treatment Scheme in Hong Kong, resulting in increased efficiencies and enhanced risk and safety management. Underlying profit attributable to shareholders Shareholders’ funds 2014 US$m 131 703 2013 US$m 110 703 Change % 19 – Jardine Pacific’s underlying profit of US$131 million was 19% although difficult trading conditions meant that the franchise higher than in 2013, reflecting good all-round performances was still loss making, while the KFC franchise in Hong Kong and particularly improved results in two of its businesses. acquired in 2013 made a good contribution. Its profit attributable to shareholders was US$137 million, compared with US$112 million in 2013. Shareholders’ funds Despite an increase in cargo throughput at Hong Kong were US$703 million at the end of 2014, and the underlying International Airport, Hactl recorded lower results following return on average shareholders’ funds was 19%. the move of a major customer to its own facility in the second Jardine Schindler continued to perform well, generating stable increase in profits as its joint venture with UASC performed profits and achieving growth in its maintenance portfolio. well. The results from Jardine Aviation Services showed a half of 2013. Jardine Shipping Services achieved a good JEC produced an increase in revenues, but profits declined slight improvement. due to weaker results in Singapore and from its Trane joint venture. Gammon achieved higher earnings, and its order JOS took positive steps to address a number of operational book was maintained at US$4 billion. weaknesses during the year and these have led to the start of a recovery with improvements seen in both revenues Jardine Restaurants produced good profit growth. Its Pizza Hut and earnings. operations in Hong Kong and Taiwan achieved higher sales and profits. There was an improvement at KFC in Taiwan, 7 Jardine Matheson | Annual Report 2014Managing Director’s Review (continued)• Underlying profit increases 66% to US$97 million • Good performances in Hong Kong and the United Kingdom • Higher deliveries and enhanced margins in mainland China d n a e g r a l a d n a , i m o d g n K d e t i n U e h t d n a u a c a M , g n o K g n o H n i s n o i t a r e p o s a h t I i . a n h C n r e h t u o S n i e c n e s e r p g n w o r g i l . s e i t i v i t c a d e t a e r d n a s e l c i h e v r o t o m f o e c i v r e s d n a s e a s e h t n l i d e g a g n e s i s r o t o M e n d r a J i 8 Jardine Matheson | Annual Report 2014 10 11 12 13 14 3,288 4,282 4,053 4,469 5,128 Revenue (US$ million) 10 11 12 13 14 15 58 59 84 97 Underlying Profit Attributable to Shareholders (US$ million) Zung Fu’s operations in mainland China offer a premium service and preferential customer support through a wide network of outlets and service centres specializing in Mercedes-Benz. Hong Kong, Macau and mainland China United Kingdom Corporate Revenue 2014 US$m 2,612 2,516 – 2013 US$m 2,295 2,174 – 5,128 4,469 Underlying profit attributable to shareholders 2014 US$m 2013 US$m 63 35 (1) 97 39 21 (1) 59 Shareholders’ funds 2014 US$m 360 159 4 523 2013 US$m 319 146 17 482 Jardine Motors achieved a much improved underlying profit During the first half of the year, Jardine Strategic invested of US$97 million in 2014, up 66% from the US$59 million US$731 million for a minority interest in Hong Kong-listed recorded in 2013. Zung Fu performed well in mainland China, Zhongsheng Group, which is one of mainland China’s leading despite a challenging trading environment, with higher motor dealership groups. The investment represents an deliveries of Mercedes-Benz passenger cars at enhanced initial 11% equity stake together with convertible bonds. margins. The group remains confident in the potential of On conversion, the Group would hold 20% of Zhongsheng. mainland China’s automotive sector. This investment, which is not yet being equity accounted, is included as part of Corporate and contributed US$13 million Zung Fu continued to trade well in Hong Kong and Macau to the Group’s results for 2014. where it produced an increase in profit. Higher sales of Mercedes-Benz passenger cars were recorded, and there was also a satisfactory performance by Hyundai. Jardine Motors’ dealerships in the United Kingdom had a good year with increased vehicle sales, tighter cost control and modest margin improvements. 9 Jardine Matheson | Annual Report 2014Managing Director’s Review (continued)• Underlying profit up 3% despite difficult rating environment • Good performances from Reinsurance, Asia, Latin America and Employee Benefits • US specialty insurance broking business launched n i l e g d e w o n k t s i l i a i c e p s s e n b m o c y n a p m o c d e t s i l - K U e h T . s e c i v r e s d e t a i c o s s a d n a e g a r e k o r b , e c i v d a l d e t a e r s t i f e n e b e e y o p m e d n a e c n a r u s n e r l i , e c n a r u s n i f o s r e d i v o r p t s e g r a l s ’ d l r o w e h t f o e n o s i T L J 10 i . e d w d l r o w s e c i f f o f o k r o w t e n e v i s n e t x e n a h t i w s t e k r a m e c n a r u s n i l a n o i t a n r e t n i d n a n o d n o L e h t Jardine Matheson | Annual Report 2014 10 11 12 13 14 Total Revenue (US$ million) 10 11 12 13 14 1,152 1,315 1,401 1,533 1,817 132 153 169 188 203 Underlying Profit Attributable to Shareholders (US$ million) JLT has built a strong reputation for its ‘client first’ approach. It has differentiated itself from its competitors by senior management committing their personal attention to each client, with particular emphasis on negotiating the settlement of claims. Total revenue Underlying profit attributable to shareholders * Based on the change in UK sterling, being the reporting currency of Jardine Lloyd Thompson. 2014 US$m 1,817 203 2013 US$m 1,533 188 Change* % 13 3 Jardine Lloyd Thompson’s total revenue for the year was In August, the company announced the expansion of its US$1,817 million, an increase of 13% in its reporting currency. specialty insurance broking activities with the establishment In a year which saw a marked decline in the insurance and of a new business in the United States. This is expected reinsurance rating environment, the company did well to result in a net investment by way of cumulative losses to achieve organic growth of 6%, with particularly good of US$80 million over the period 2014 to 2017, of which performances by its Reinsurance, Asian, Latin American US$8 million were incurred in 2014. and Employee Benefits operations. The Risk & Insurance group, comprising the company’s specialist insurance and Despite tight cost controls and strong revenue growth reinsurance broking businesses, achieved revenue growth across most of the company’s operations, the increase of 13% in 2014 and 3% growth in underlying trading profit. to US$203 million in the company’s reported underlying The Employee Benefits activities saw revenue growth of 11% profit after tax and non-controlling interests was 3% in and its underlying trading profit increased by 17%. sterling terms, due to unfavourable exchange movements and the initial investment in the US specialty business. JLT’s contribution to the Group’s underlying profit, however, was up 12% on conversion into US dollars. 11 Jardine Matheson | Annual Report 2014Managing Director’s Review (continued)• Underlying profit maintained • Another strong year for commercial portfolio • Reduced residential contribution despite increase from mainland China • Stable asset values . a i s A t s a e h t u o S d n a a n h C r e t a e r G n i i l t n e m p o e v e d r e d n u s t c e o r p j l a i t n e d i s e r y t i l a u q h g h i f o r e b m u n a s a h o s l a p u o r g e h T . e r o p a g n S d n a g n o K g n o H n i i y l l a p i c n i r p , s e i t i c n a i s A y e k n i y t r e p o r p l i a t e r y r u x u l d n a e c i f f o e m i r p f o . m . , q s 0 0 0 0 0 8 e m o s h t i w p u o r g d e t s i l j r o a m a s i d n a L g n o k g n o H 12 Jardine Matheson | Annual Report 2014 10 11 12 13 14 35.99 30.25 33.11 39.73 39.52 Underlying Earnings per Share (US¢) 10 11 12 13 14 8.64 10.58 11.11 11.41 11.71 Net Asset Value per Share (US$) 10 11 12 13 14 10.85 11.22 11.64 12.70 13.14 Hong Kong Portfolio Average Monthly Office Rent (US$ per sq. ft) Hongkong Land’s properties are overseen by its own specialist teams who seek to deliver the highest level of property management standards and tenant services, such as the concierge service in LANDMARK. Underlying profit attributable to shareholders (US$ million) Net asset value per share (US$) 2014 930 11.71 2013 935 11.41 Change (%) (1) 3 Hongkong Land reported an underlying profit attributable to portfolio remained fully occupied and saw strong positive shareholders of US$930 million in 2014, only modestly below rent reversions. The market was stable in Singapore, where its record result in 2013. The group’s commercial portfolio had the group’s office portfolio ended the year with vacancy of another strong year, while its residential activities performed 1.7%. Higher rents were achieved at Jakarta Land in Indonesia. well despite fewer completions in Singapore. There was a In Beijing, good progress was made in the development of the net gain of US$397 million on the valuation of investment luxury retail complex at Wangfujing. properties, producing a profit attributable to shareholders of US$1,327 million. This compares to US$1,190 million in Hongkong Land’s residential development activities benefited 2013, which included net valuation gains of US$255 million. from the sale of remaining units at projects in Hong Kong The net asset value per share at the end of 2014 was up 3% at and Macau. Momentum is building in mainland China with US$11.71. Hongkong Land remains well-financed with net debt the first significant contribution from two wholly-owned of US$2.7 billion at the year end and gearing of 10%. projects in Chongqing. In Singapore, group subsidiary The contribution from the group’s Hong Kong commercial Two joint-venture developments in Indonesia are making property portfolio benefited from the positive rent reversions good progress, while in the Philippines a 40%-owned luxury seen in 2013, although reversions became negative in 2014. development in Manila is also proceeding well. Vacancy in the portfolio was 5.4% at the year end. The retail MCL Land completed two fully-sold projects during 2014. 13 Jardine Matheson | Annual Report 2014Managing Director’s Review (continued)• Sales up 5%, with growth in all divisions, and underlying profit up 4% • Good results from Health & Beauty, Home Furnishings and Restaurants, offset by lower performance in Food • Strategic initiative in mainland China . s t n a r u a t s e r d n a s e r o t s s g n h s i n r u f e m o h i , s e r o t s y t u a e b d n a h t l a e h i , s e r o t s e c n e n e v n o c , s t e k r a m r e p y h , s t e k r a m r e p u s g n d u l c n i i – s t e l t u o 0 0 1 , 6 r e v o s e t a r e p o , s e r u t n e v t n o i j d n a s e t a i c o s s a s t i h t i w r e h t e g o t , p u o r g d e t s i l e h T . r e l i a t e r n a i s A - n a p g n d a e i l a s i m r a F y r i a D 14 Jardine Matheson | Annual Report 2014 10 11 12 13 14 Gross Revenue* (US$ billion) 10 11 12 13 14 9.1 10.4 11.5 12.4 13.1 406 470 444 480 500 Underlying Profit Attributable to Shareholders (US$ million) 10 11 12 13 14 276 243 336 502 462 Capital Expenditure and Investments (gross) (US$ million) Cold Storage in Singapore continues to be a pioneer in local retail by introducing new store concepts and product offerings that cater to the changing aspirations of customers. Gross revenue* (US$ billion) Underlying profit attributable to shareholders (US$ million) * Includes 100% of revenue from associates and joint ventures. 2014 13.1 500 2013 12.4 480 Change (%) 5 4 Dairy Farm’s sales, including 100% of associates and joint In 2014, Dairy Farm made a number of strategic moves, ventures, increased by 5% to US$13.1 billion in 2014 with notably in mainland China and the Philippines. Agreement growth achieved in all divisions. Its underlying profit was up was reached in August to establish a partnership with 4% at US$500 million. The group delivered good like-for-like Yonghui Superstores Co., Ltd and to acquire a shareholding sales growth in its major businesses in Health and Beauty, of just below 20% in the company, subject to regulatory Home Furnishings and Restaurants. While like-for-like sales approvals, for an investment of approximately US$925 million. growth in its Food retailing business in Greater China was Yonghui is one of mainland China’s fastest growing food good, it was much weaker in Southeast Asia. The profit retailers, and both companies have started to work closely attributable to shareholders was US$509 million, which together on joint procurement initiatives and to drive included a net non-trading gain of US$9 million arising mainly operating synergies. In the Philippines, Dairy Farm increased from the disposal of properties. The group’s financial position its interest in Rustan Supercenters to 66%, and entered the remains strong with net cash of US$475 million at the end Health and Beauty market with the acquisition of a 49% of 2014. interest in Rose Pharmacy. In parallel, Dairy Farm continued its investment in existing store networks, supply chain infrastructure, IT systems and people, which are designed to deliver a superior offer to its customers. 15 Jardine Matheson | Annual Report 2014Managing Director’s Review (continued)• Record underlying profit of US$97 million • New hotels opened in Taipei and Bodrum • Four new management contracts, including Bangkok Residences • Major renovation of London hotel announced ’ s e c n e d i s e R l ‘ s a h d n a , t n e m p o e v e d r e d n u 7 1 g n d u l c n i i i , e d w d l r o w s t r o s e r d n a s l e t o h s s a l c t s r i f d n a . s e i t r e p o r p s t i f o r e b m u n a o t d e t c e n n o c l e x u e d 4 4 f o o i l o f t r o p a s a h t I . p u o r g t n e m e g a n a m d n a t n e m t s e v n i l e t o h d e t s i l a s i l a t n e i r O n i r a d n a M 16 Jardine Matheson | Annual Report 2014 10 11 12 13 14 1,026 1,196 1,283 1,361 1,390 Hong Kong Other Asia North America Europe Combined Total Revenue by Geographical Area (US$ million) 10 11 12 13 14 43 58 69 93 97 Underlying Profit Attributable to Shareholders (US$ million) 10 11 12 13 14 2.33 2.70 2.88 3.05 3.14 Net Asset Value per Share* (US$) * With freehold and leasehold properties at valuation. Mandarin Oriental is committed to exceeding its guests’ expectations by delivering services and products that anticipate and fulfil their desires, such as in the recently-opened Mandarin Oriental, Taipei. Combined total revenue of hotels under management Underlying profit attributable to shareholders 2014 US$m 1,390 97 2013 US$m 1,361 93 Change % 2 4 Despite some challenging markets, Mandarin Oriental During the year, Mandarin Oriental opened hotels in Taipei and recorded an underlying profit up US$4 million at Bodrum and also announced management contracts for new US$97 million. The 2013 results had included a one-off hotels under development in Bali, Manila and Dubai as well profit of US$7 million arising on the acquisition of the as Residences to be built opposite the group’s Bangkok hotel. freehold rights of its Paris hotel. Profit attributable to Mandarin Oriental also received US$15 million in branding shareholders was US$97 million in 2014, compared to fees on the sale of Residences in Bodrum. The group is to US$96 million in the prior year. undertake a US$130 million renovation of its London hotel, scheduled to begin in 2016, and has agreed to invest some The group’s two wholly-owned hotels in Hong Kong US$150 million to expand its Munich hotel on an adjacent performed well despite being affected by demonstrations site, with completion expected in 2021. Mandarin Oriental in the city during the final quarter. Tokyo benefited from has announced that it is to raise US$300 million by way of a improved visitor arrivals, but occupancy in the Bangkok rights issue, which Jardine Strategic will underwrite. property suffered from the country’s ongoing political uncertainty. The performances of the group’s other Asian hotels were broadly stable. In Europe, weaker demand in the London property was offset by the further stabilization of the Paris hotel and an improvement in Geneva. The contribution from The Americas was impacted by lower demand in Washington D.C. 17 Jardine Matheson | Annual Report 2014Managing Director’s Review (continued)• Underlying earnings per share down 11% • Decline in Astra’s contribution mainly due to weaker rupiah • Contribution from other interests up 40% , a r t s A n i % 0 5 r e v o t s u j f o t s e r e t n i n a h t i w y n a p m o c d e t s i l - e r o p a g n S a s i i e g a i r r a C & e l c y C e n d r a J i 18 . a i s A t s a e h t u o S n i s t s e r e t n i r e h t o d n a , e t a r e m o g n o c n a i s e n o d n l I d e t s i l j r o a m a Jardine Matheson | Annual Report 2014 10 11 12 13 14 Revenue (US$ billion) 10 11 12 13 14 15.7 20.1 21.5 19.8 18.7 1,019 1,015 811 894 793 Underlying Profit Attributable to Shareholders (US$ million) Jardine Cycle & Carriage prides itself in meeting its customers’ requirements with the assurance that the Mercedes-Benz vehicles are serviced to the highest standards by professionally trained technicians. Revenue (US$ billion) Underlying profit attributable to shareholders (US$ million) Shareholders’ funds (US$ million) 2014 18.7 793 4,623 2013 19.8 894 4,261 Change (%) (6) (11) 8 Jardine Cycle & Carriage’s underlying profit declined by 11% to contribution improved significantly from a low base due US$793 million in 2014. The profit attributable to shareholders to good demand for new models, although margins on was 10% lower at US$820 million. Astra’s contribution to older models remained under pressure. In Indonesia, underlying profit at US$724 million was 15% lower than 2013, Tunas Ridean faced increased competitive pressure in largely due to an 11% decline in the average rupiah exchange the car market and its earnings contribution was down rate. The group’s other interests produced earnings up 40%. 28%. In February 2015, Jardine Cycle & Carriage increased There was a much improved performance at Truong Hai Engineering Corporation Group from 19% to 22% at a cost Auto Corporation in Vietnam, which benefited from strong of US$12 million. It will now be treated as an associate. its interest in Vietnam-listed Refrigeration Electrical vehicle sales, good margins and lower financing costs. Earnings from the Singapore motor operations were up 8% due to higher sales. In Malaysia, Cycle & Carriage Bintang’s 19 Jardine Matheson | Annual Report 2014Managing Director’s Review (continued)• Underlying net profit 3% lower • Unit sales of cars down 6%, while motorcycles up 8% • Lower contribution from automotive and an impairment charge in relation to its coal mining properties • Improvements in its agribusiness, contract mining and financial services • Astra Aviva Life begins trading d n a s c i t s i g o l , e r u t c u r t s a r f n i i i , s s e n i s u b i r g a , g n n m d n a t n e m p u q e y v a e h i , s e c i v r e s l a i c n a n i f l . y g o o n h c e t n o i t a m r o f n i d n a , s r e h t o , r o t c e s e v i t o m o t u a e h t n i s t s e r e t n i h t i w p u o r g n a i s e n o d n I d e i f i s r e v i d d e t s i l a s i a r t s A 20 Jardine Matheson | Annual Report 2014 10 11 12 13 14 426 483 605 655 614 Motor Vehicle Sales including Associates and Joint Ventures (thousand units) 10 11 12 13 14 3,416 4,274 4,089 4,697 5,051 Motorcycle Sales including Associates and Joint Ventures (thousand units) 10 11 12 13 14 22.9 29.2 31.8 30.6 29.5 Gross Revenue* (US$ billion) * Includes 100% of revenue from associates and joint ventures. United Tractors has maintained its leadership position in Indonesia’s heavy equipment market by responding to the needs of its mid-market and retail customers on product support and maintenance. Gross revenue* (US$ billion) Profit attributable to shareholders# (US$ million) Shareholders’ funds# (US$ million) 2014 29.5 1,614 7,686 2013 30.6 1,838 6,886 Change† (%) 8 (1) 14 * Includes 100% of revenue from associates and joint ventures. †Based on the change in Indonesian rupiah, being the reporting currency of Astra. #Reported under Indonesian GAAP. Under Indonesian accounting standards Astra’s underlying profit was down 3% at Rp18.3 trillion, equivalent to US$1,538 million, and its net profit was 1% lower at Rp19.2 trillion, some US$1,614 million. Improvements in its agribusiness, contract mining operations and financial services businesses were offset by lower earnings from its automotive activities and an impairment charge in relation to its coal mining properties. United Tractors’ net income rose 11% after accounting for an impairment charge on the valuation of its coal mining properties, excluding which net income would have risen 43%. There was a decline in Komatsu heavy equipment sales, but its contract mining interests benefited from improved coal volumes on lower stripping ratios and reported a 6% increase in net revenue. United Tractors’ own mining subsidiaries saw net revenue rise 22%, but earnings were impacted by lower coal prices. Discounting in the competitive car market in Indonesia led to lower margins in Astra’s sales operations. The wholesale market for cars declined 2%, while Astra’s sales were 6% lower giving it a reduced market share of 51%. Astra Honda Motor’s sales rose in an expanding motorcycle market, giving it a market share of 64%. Astra Otoparts, in which the group interest was reduced to 80% in 2013, saw higher sales but a decline in net income. Net income from Astra’s financial services businesses rose 11%. Excluding the gain arising from the acquisition of a 50% interest in Astra Aviva Life, however, the increase would have been 1%. There was strong growth in the consumer portfolio, but this was largely offset by a lower contribution from Astra Sedaya Finance, following the sale of a 25% interest to Permata Bank, and reduced earnings at Permata Bank due to an increase in funding costs and non-performing loans. Asuransi Astra Buana benefited from growth in gross written premiums and higher investment earnings. Astra Agro Lestari reported net income up 39% as average crude palm oil prices achieved were 14% higher. Crude palm oil sales decreased following the opening of the company’s refinery in West Sulawesi, which sold 255,000 tonnes of olein during the year. Net income from infrastructure, logistics and others fell by 34%. Progress continues in the development of its toll road interests. Its contract car hire business saw revenues benefit from higher used car sales, but income suffered from lower margins. Development continued at the group’s luxury residential project in Jakarta’s Central Business District, with completion expected in 2018. Astra’s information technology interests produced a 24% increase in net income. Ben Keswick Managing Director 11th March 2015 21 Jardine Matheson | Annual Report 2014Managing Director’s Review (continued)People and the Community Group companies in Hong Kong and Singapore care home, MINDSET Place, maintained full focus their philanthropic activities on the area occupancy of service users with chronic conditions. of mental health through MINDSET, the Group’s (www.mindset.org.hk) in-house charitable programme. Led by the Jardine Ambassadors, young executives drawn from across In Singapore, donations were made to a number of the Group, the MINDSET programme aims to raise projects in 2014, including support for four NGOs awareness and understanding of mental health in running programmes for their service users. issues, while at the same time providing practical MINDSET funded the second year of Raintree support in this under-resourced area. Sanctuary @ Punggol Wellness Centre operated by Silver Ribbon, and financed the building of the In Hong Kong, MINDSET launched a new initiative, MINDSET Rehabilitation Gym in the Institute of Mental MINDSET Expression, in July 2014, where service Health. Work placement positions and job training users from four non-governmental organizations opportunities were arranged for service users. Together engaged in various themed art-based programmes with Group companies the Ambassadors also organized designed to foster mental wellness and positive the Mini-MINDSET Days and Fun Days. ‘The MINDSET psychology. The art programmes include drama and Challenge 2014’, racing up the 33 floors of the Tower 1 of theatre, sand paint, photography and music, and Marina Bay Financial Centre, raised some US$245,000 have received a positive response from service users. for Singapore Anglican Community Services in support The Peer Support Workers Project, launched in 2012, of placement training for its service users. saw its second cohort of service users graduate in May. MINDSET also supported the creative design In Indonesia, Astra continued to offer support to the and refurbishment of the Child and Adolescent community in the areas of education, environment, Psychiatric Ward in Kwai Chung Hospital. income generating activities and health. A village programme, now in its seventh series, was extended MINDSET’s school-based Health in Mind programme, to Surabaya. Astra collaborated with members of undertaken in collaboration with the Hong Kong the villages to generate an activity plan and provide Hospital Authority, continued its work to empower the resources necessary to improve the education, student ‘advocates’ to promote awareness of mental health and environment of the villages. Astra also health issues among young people. The residential helped the residents engage in small commercial . s e v i t a i t i n i l e b a t i r a h c h g u o r h t e t a r e p o y e h t h c i h w n i s e i t i n u m m o c e h t o t k c a b g n i v i g o t d e t t i i m m o c e r a s e n a p m o c p u o r G n o s e h t a M e n d r a J i 22 Jardine Matheson | Annual Report 2014 enterprises. Through SATU Indonesia (Astra’s Unified Spirit for The Group also conducts a series of development centres Indonesia) Awards, Astra gave 25 awards to recognize young every year to identify talent and support the Group’s people’s efforts in contributing to the environment and their human resources planning process. In 2014, more than communities with the aim of building a better Indonesia. 40 executives were transferred between businesses in the Group. In the United Kingdom, Jardine Lloyd Thompson launched a new partnership programme with Kids’ Company to engage its employees in the work of supporting London’s disadvantaged Encouraging Higher Education In January 2015, 13 students from mainland China, Hong children. It has also committed a further three years of support Kong, Malaysia and Singapore were awarded scholarships to Action on Addiction. In India, it has continued its support by the Jardine Foundation to pursue their undergraduate through the Udaan Foundation for disadvantaged children studies in the United Kingdom. Applications are also being in Mumbai. Globally, Jardine Lloyd Thompson encourages considered for postgraduate studies at Oxbridge. In its its employees to engage with local communities through a second year, the postgraduate scholarship scheme has selection of volunteering or fundraising opportunities. supported ten scholars from mainland China, Hong Kong, Indonesia, Singapore, Thailand and Vietnam for their Providing Expertise Group executives are active on external management boards master’s or doctoral studies commencing in October 2014. Scholarships are available for selected colleges at Oxford and professional and advisory bodies where they provide and Cambridge Universities, and scholars are chosen for expertise and knowledge. These activities are encouraged as their academic ability, leadership qualities and community they contribute to the development of the communities and participation. Since its establishment, over 200 scholarships the business sectors in which the Group operates. have been awarded to students from the regions in which Supporting our People The Group supports its people with various management the Group operates. (www.jardine-foundation.org) In Indonesia, Astra distributed scholarships through training and development programmes. A good example a number of foundations to support students from is the central recruitment of graduates who in addition to underdeveloped areas. Over 159,600 scholarship grants pursuing a modular, three-year leadership development were given out to recipients in elementary schools up programme, also attain a Chartered Institute of Management to university level. Some 13,200 schools were funded to Accountants qualification. This approach brings a rare balance improve their educational activities. of management breadth and financial depth, and readies them for leadership positions. Another example is the Director Meanwhile, in Singapore, Jardine Cycle & Carriage Development Initiative, which provides senior executives with scholarships are awarded yearly to three outstanding the opportunity to meet chief executives from some of the business management undergraduates. world’s most admired companies. (Above) Astra’s President Director Prijono Sugiarto is pictured with the children at a village in Surabaya. Staff from JEC and Jardine Shipping join the service users from Singapore Anglican Community Services in an ice-cream making workshop. (Left) In its ninth year, the CENTRAL Rat Race 2014 attracted over 460 entrants and raised US$397,000 for MINDSET. 23 Jardine Matheson | Annual Report 2014Financial Review Accounting Policies The Directors continue to review the appropriateness of the Astra’s underlying operating profit reduced by US$237 million or 12% from 2013, the principal reason for the fall being accounting policies adopted by the Group having regard to an 11% weakening in the average exchange rate for the developments in International Financial Reporting Standards. Indonesian rupiah against the US dollar. In its reporting In 2014, a number of amendments to these standards currency, Astra’s underlying operating profit declined by only became effective and the Group adopted those which are 1% with lower contributions from its automotive activities relevant to the Group’s operations although their overall and an impairment charge of US$231 million in relation to its impact on the Group’s financial statements has been modest. coal mining properties being mitigated by improved results Results In 2014, revenue increased by 1% to US$39.9 billion. in agribusiness, contract mining operations and financial services businesses. Gross revenue, including 100% of revenue from associates The operating profit of US$3,676 million included a number and joint ventures, which is a better measure of the extent of of non-trading items, including a net increase of US$59 million the Group’s operations, increased by 2% to US$62.8 billion. in the fair value of investment properties mainly in Underlying operating profit was US$3,634 million, an sale of certain property interests in Dairy Farm, and a gain increase of US$33 million or 1%. This reflected increased on disposal of an investment in Tata Power of US$16 million contributions from most of the Group’s businesses other offset by a mark-to-market loss of US$17 million on the Hongkong Land and Astra, a gain of US$12 million on the than Astra. convertible component of the Zhongsheng’s bonds held by Jardine Strategic, and a decrease of US$34 million in the fair The underlying operating profit for Hongkong Land increased value of plantations in Astra. by US$150 million as a result of the good performances from its commercial activities mainly in Hong Kong and Net financing charges decreased by US$7 million compared residential development activities mainly in Hong Kong and to 2013 primarily due to the lower level of net debt. Interest mainland China. Dairy Farm’s contribution was in line with cover exclusive of financial services companies remained last year with increased profits from Health and Beauty strong at 29 times, calculated as the sum of underlying and Home Furnishing businesses, partly offset by weaker operating profit and share of results of associates and joint performance from the Food business in Southeast Asia. ventures divided by net financing charges. Jardine Pacific’s results were US$31 million higher due to improved profitability in its Restaurant businesses and a The Group’s share of underlying results of associates turnaround in JOS. Jardine Motors achieved an underlying profit US$62 million above last year with better margins and joint ventures decreased by 17% to US$933 million. The higher contributions from Jardine Lloyd Thompson in mainland China and higher deliveries and margins in Hong Kong and the United Kingdom. Mandarin Oriental was US$9 million higher than 2013 as a result of better of US$9 million due to a good trading performance and Jardine Cycle & Carriage of US$20 million mainly from its motor vehicle joint venture in Vietnam, were more than offset performances from the hotels in Hong Kong and Geneva, by lower contributions from Hongkong Land of US$112 million and the receipt of branding fees of US$15 million upon the resulting from the impact of lower residential property sale of residences in Bodrum. An increase of US$9 million in completions in its joint ventures in Singapore and Astra’s contribution from Jardine Cycle & Carriage came from higher associates and joint ventures of US$96 million, where lower earnings in the Singapore motor operations. A contribution earnings were recorded by its automotive and financial of US$15 million was also obtained from Jardine Strategic’s services businesses and these were further impacted by the investment in the shares and convertible bonds of the Hong weakness of the Indonesian rupiah. Kong-listed Zhongsheng Group. 24 Jardine Matheson | Annual Report 2014The overall contribution from the Group’s associates and joint Summarized Cash Flow ventures included a number of non-trading items, among which were increases in the fair value of investment properties held by Hongkong Land’s associates and joint ventures of US$392 million and negative goodwill of US$37 million arising on the creation of the Astra Aviva Life joint venture. The underlying effective tax rate for the year was 24%, which is broadly in line with that of 2013. Underlying profit attributable to shareholders at US$1,534 million was US$32 million higher than the prior year. The increase was due to increases from Jardine Pacific, Jardine Motors, Jardine Lloyd Thompson, Dairy Farm and Jardine Cycle & Carriage, partly offset by a decrease in contribution from Astra. Hongkong Land and Mandarin Oriental were broadly in line with 2013. Astra reported a net profit 1% lower than 2013 in its reporting currency. After reclassifying certain items to non-trading for Group reporting purposes and adjusting for exchange movements, Astra’s contribution to the Group shows a decrease of 14%. Had Astra’s earnings been translated using the same rate as applied in 2013, Astra’s contribution to the Group’s underlying earnings would have been US$58 million higher than reported. Underlying earnings per share increased by 1% to US$4.14. The profit attributable to shareholders for the year of US$1,710 million included a surplus on the revaluation of Operating cash flow Dividends from associates and joint ventures Operating activities Capital expenditure and investments Cash flow before financing 2014 US$m 2,656 698 3,354 (2,303) 1,051 2013 US$m 3,550 650 4,200 (2,372) 1,828 Cash Flow The cash inflow from operating activities for the year was US$3,354 million. This represented a decrease of US$846 million on 2013 principally due to higher development expenditure on residential projects in Hongkong Land and an increase in working capital in Astra mainly in its heavy equipment business. Capital expenditure for the year before disposals amounted to US$3,125 million and was broadly spread throughout the Group. This included the following: • US$53 million for the purchase of subsidiaries, the main ones being the acquisition of an additional 16% interest in a supermarket and hypermarket chain in the Philippines by Dairy Farm and the acquisition by Astra of a 100% interest in an oil palm plantation company; investment properties, mainly in Hongkong Land, a gain on • US$390 million for various joint ventures the main ones the sale of property interests in Dairy Farm, negative goodwill being Hongkong Land’s purchase of, and capital injections on acquisition of a joint venture in Astra, and gain on disposal into, joint ventures in mainland China and the Philippines, of an investment in Tata Power offset by a mark-to-market Dairy Farm’s acquisition of a 49% interest in a health and loss on the convertible component of Zhongsheng’s bonds beauty business in the Philippines, and Astra’s subscription held by Jardine Strategic, and a decrease in the fair value to PT Bank Permata’s rights issue and capital injections into of plantations in Astra. Earnings per share were US$4.62, a number of associates and joint ventures; an increase of 8%. Dividends The Board is recommending a final dividend of US$1.07 per share, giving a total dividend of US$1.45 per share for the year, payable on 13th May 2015 to those persons registered as shareholders on 20th March 2015. The dividends are payable in cash with a scrip alternative. • US$732 million for Jardine Strategic’s investment in shares and convertible bonds representing an initial 11.1% interest and up to 20% upon conversion in the Hong Kong-listed Zhongsheng Group, a leading mainland China motor dealership group; and US$184 million for the purchase of other investments mainly by Astra’s general insurance business; 25 Jardine Matheson | Annual Report 2014Financial Review (continued) 2.3 2.4 3.4 2.6 2.5 10 11 12 13 14 31.9 39.2 42.4 42.8 44.8 Net Debt* and Total Equity (US$ billion) Net Debt Total Equity * Excluding net debt of financial services companies. The Group’s management also looks at total capital investment across the Group. This exceeded US$5.6 billion in 2014 against US$5.8 billion in 2013. These figures include the capital expenditure of associates and joint ventures and expenditure on properties for sale together with the capital expenditure outlined above. Funding At the year end, undrawn committed facilities totalled US$6.1 billion. In addition, the Group had available liquid funds of US$5.3 billion. Net borrowings, excluding those relating to Astra’s financial services companies, were US$2.5 billion, representing 6% of total equity. Astra’s financial services • US$279 million for the purchase of intangible assets, companies had net borrowings of US$3.7 billion. The Group’s which included US$67 million for leasehold land mainly total equity increased by US$2.0 billion to US$44.8 billion for use by Astra as motor dealerships, US$69 million during the year. for the construction and improvement of toll roads and US$63 million for the acquisition of contracts in Astra’s The average tenor of the Group’s debt at 31st December 2014 general insurance business; • US$1,158 million for the purchase of tangible assets, which included US$112 million in Jardine Motors, US$297 million in Dairy Farm, US$45 million in Mandarin Oriental, and US$647 million in Astra. US$206 million of this was for the acquisition of heavy equipment and machinery, predominantly by Pamapersada Nusantara in response to capacity expansion in its mine contracting business, US$182 million was mainly for outlet development and additional operational machinery and equipment in Astra’s automotive business, and US$190 million was to develop plantation infrastructure in Astra’s agribusiness; and was 4.9 years compared with 4.5 years at the end of 2013. US dollar denominated borrowings comprised 8% 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 2014 approximately 55% of the Group’s borrowings, exclusive of financial services companies, were at floating rates and the remaining 45% were at fixed rates hedged with derivative instruments with major creditworthy financial institutions. Overall, the Group’s funding arrangements are designed to keep an appropriate balance between equity and debt from banks and capital markets, both short and long term, to give flexibility • US$232 million for additions to investment properties in to develop the business. Hongkong Land and Astra, and US$82 million for additions to plantations in Astra. The contribution to the Group’s cash flow from disposals for the year amounted to US$822 million which included US$481 million from the repayment of advances from associates and joint ventures in Hongkong Land, and Treasury Policy The Group manages its exposure to financial risk using a variety of techniques and instruments. The main objectives are to limit foreign exchange and interest rate risks to provide a degree of certainty about costs. The investment of the Group’s cash resources is managed so as to minimize risk while seeking to US$217 million from the sale of its stake in Tata Power by enhance yield. Jardine Strategic and other investments by Astra’s general insurance business. The Group also purchased additional shares in Group companies for a total cost of US$141 million and Astra sold part of its interest in PT Astra Sedaya Finance for US$185 million, which are both presented as financing activities in 2014 in the cash flow statement. 26 Principal Risks and Uncertainties A review of the principal risks and uncertainties facing the Group is set out on page 122. James Riley Group Finance Director 11th March 2015 Jardine Matheson | Annual Report 2014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. a commissioner of Astra. Mr Nightingale also 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 chairman of The Sailors Home and Missions to Seamen in Hong Kong. Ben Keswick* Managing Director Mr Ben Keswick joined the Board in 2007 and was appointed as Managing Director in 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 2012. He has an MBA from INSEAD. Mr Keswick is chairman of Jardine Matheson Limited and Jardine Cycle & Carriage and a commissioner of Astra. He is also chairman and managing director of Dairy Farm, Hongkong Land and Mandarin Oriental, managing director of Jardine Strategic 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 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, Mandarin Oriental and Zhongsheng Group Holdings. 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. 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., Dairy Farm, Hongkong Land, Jardine Strategic and Mandarin Oriental. Lord Leach of Fairford* Lord Leach joined the Board in 1984 after a career in 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. 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 2012. He is also a director of Dairy Farm, Hongkong Land, Jardine Cycle & Carriage, Jardine Strategic, Mandarin Oriental, China Xintiandi, Prudential and Schindler and * Executive Director 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 both the Employers’ Federation of Hong Kong and 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 2013. He began his career at KPMG, before joining SG Warburg (later UBS Warburg) in 1985. From 2002 to 2006 he was in the United Kingdom Treasury 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, Mandarin Oriental and Jardine Lloyd Thompson. He is also chairman of the China-Britain Business Council. 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. Michael Wei Kuo Wu Mr Wu joined the Board in March 2015 and is a director of Hongkong Land. He is chairman and managing director of Maxim’s Caterers in Hong Kong. He is also a non-executive director of Hang Seng Bank, a council member of the Hong Kong University of Science and Technology and a member of the court of the University of Hong Kong. Company Secretary and Registered Office John C. Lang Jardine House, 33-35 Reid Street Hamilton Bermuda 27 Jardine Matheson | Annual Report 2014Consolidated Profit and Loss Account for the year ended 31st December 2014 Underlying business performance 2014 Non-trading items Note US$m US$m Underlying business performance 2013 Non-trading items US$m US$m Total US$m 39,921 (36,287) – (17) 39,921 (36,304) 39,465 (35,864) – 3,634 (279) 163 (116) 59 42 – – – 59 3,676 (279) 163 (116) – 3,601 (260) 137 (123) – (31) (60) (91) – – – Total US$m 39,465 (35,895) (60) 3,510 (260) 137 (123) 933 23 956 1,122 (32) 1,090 – 933 4,451 (839) 3,612 2,078 3,612 US$ 4.14 4.13 394 417 459 (1) 458 176 282 458 394 1,350 4,910 (840) 4,070 1,710 2,360 4,070 – 1,122 4,600 (835) 3,765 1,502 2,263 3,765 US$ US$ 4.62 4.61 4.09 4.07 352 320 229 (9) 220 64 156 220 352 1,442 4,829 (844) 3,985 1,566 2,419 3,985 US$ 4.26 4.25 10 & 11 1,534 5 6 7 8 9 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 Profit before tax Tax Profit after tax Attributable to: Shareholders of the Company Non-controlling interests Earnings per share – basic – diluted 10 28 Jardine Matheson | Annual Report 2014 Consolidated Statement of Comprehensive Income for the year ended 31st December 2014 Note 20 12 13 17 Profit for the year Other comprehensive income/(expense) Items that will not be reclassified to profit or loss: Remeasurements of defined benefit plans Net revaluation surplus before transfer to investment properties – intangible assets – tangible assets Tax on items that will not be reclassified Share of other comprehensive (expense)/income of associates and joint ventures Items that may be reclassified subsequently to profit or loss: Net exchange translation differences – net loss arising during the year – transfer to profit and loss Revaluation of other investments – net loss arising during the year – transfer to profit and loss Impairment of other investments transfer to profit and loss Cash flow hedges – net loss arising during the year – transfer to profit and loss Tax relating to items that may be reclassified Share of other comprehensive expense of associates and joint ventures Other comprehensive expense for the year, net of tax Total comprehensive income for the year Attributable to: Shareholders of the Company Non-controlling interests 2014 US$m 4,070 (60) 20 – 11 (29) (41) (70) (415) 7 (408) (78) (19) (97) – (107) 102 (5) 3 (251) (758) (828) 3,242 1,245 1,997 3,242 2013 US$m 3,985 90 2 1 (19) 74 12 86 (1,793) (1) (1,794) (28) (11) (39) 55 (40) 77 37 (8) (637) (2,386) (2,300) 1,685 994 691 1,685 29 Jardine Matheson | Annual Report 2014Note 12 13 14 15 16 17 18 19 20 21 22 18 17 23 2014 US$m 2,679 6,690 24,309 908 8,881 1,354 3,540 305 23 48,689 2,953 3,280 6,068 18 133 4,933 382 5,315 17,767 1 17,768 2013 US$m 2,333 6,823 24,088 856 8,694 1,129 2,811 264 51 47,049 2,670 3,015 5,733 17 130 4,930 284 5,214 16,779 7 16,786 66,457 63,835 Consolidated Balance Sheet at 31st December 2014 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 11th March 2015 30 Jardine Matheson | Annual Report 2014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 24 26 28 29 30 19 20 31 32 31 30 32 2014 US$m 173 138 22,061 (3,105) 19,267 25,538 44,805 5,240 2,176 7,416 695 350 364 138 8,963 8,244 2,176 1,892 4,068 300 77 12,689 2013 US$m 170 119 20,761 (2,664) 18,386 24,396 42,782 4,799 1,674 6,473 733 294 390 134 8,024 7,921 2,732 2,079 4,811 226 71 13,029 21,652 21,053 66,457 63,835 31 Jardine Matheson | Annual Report 2014Consolidated Statement of Changes in Equity for the year ended 31st December 2014 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 2014 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 Capital contribution from non-controlling interests Change in interests in subsidiaries Change in interests in associates and joint ventures Transfer At 31st December 2013 At 1st January Total comprehensive income Dividends paid by the Company Dividends paid to non-controlling interests Issue of shares Employee share option schemes Scrip issued in lieu of dividends Increase in own shares held Subsidiaries acquired Subsidiaries disposed of Capital contribution from non-controlling interests Change in interests in subsidiaries Change in interests in associates and joint ventures Transfer At 31st December 170 – – – – – – 3 – – – – – – 173 168 – – – – – 2 – – – – – – – 170 19 – – – – 2 – (3) – – – – – 2 20 16 – – – 3 – (2) – – – – – – 2 19 100 – – – – – 21 – – – – – – (3) 118 89 – – – – 21 – – – – – – – (10) 100 21,224 1,545 (521) – – – – 619 – – – (30) (14) 1 22,824 19,545 1,673 (503) – 1 – 626 – – – – (123) (3) 8 21,224 Total comprehensive income included in revenue reserves comprises profit attributable to shareholders of the Company of US$1,710 million (2013: US$1,566 million) and net fair value loss on other investments of US$80 million (2013: net fair value gain on other investments (net of impairment and transfer to profit and loss) of US$43 million). Cumulative net fair value gain on other investments amounted to US$189 million (2013: US$269 million). 169 7 – – – – – – – – – – – – 176 168 1 – – – – – – – – – – – – 169 7 (17) – – – – – – – – – – – – (10) (19) 26 – – – – – – – – – – – – 7 (639) (290) – – – – – – – – – – – – (929) 67 (706) – – – – – – – – – – – – (639) Own shares held US$m (2,664) – – – – – – – (441) – – – – – (3,105) (2,234) – – – – – – (430) – – – – – – (2,664) Attributable to shareholders of the Company Attributable to non-controlling interests US$m US$m 18,386 1,245 (521) – – 2 21 619 (441) – – (30) (14) – 19,267 17,800 994 (503) – 4 21 626 (430) – – – (123) (3) – 18,386 24,396 1,997 94 (940) 1 – 2 – (94) 1 4 77 – – 25,538 24,573 691 90 (996) – 3 – (78) 54 (1) 75 (15) – – 24,396 Total equity US$m 42,782 3,242 (427) (940) 1 2 23 619 (535) 1 4 47 (14) – 44,805 42,373 1,685 (413) (996) 4 24 626 (508) 54 (1) 75 (138) (3) – 42,782 32 33 Jardine Matheson | Annual Report 2014Jardine Matheson | Annual Report 2014Consolidated Cash Flow Statement for the year ended 31st December 2014 Operating activities Operating profit Change in fair value of investment properties Depreciation and amortization Other non-cash items Increase in working capital Interest received Interest and other financing charges paid Tax paid Dividends from associates and joint ventures Cash flows from operating activities Investing activities Purchase of subsidiaries Purchase of associates and joint ventures Purchase of shares and convertible bonds in Zhongsheng Purchase of other investments Purchase of intangible assets Purchase of tangible assets Additions to investment properties Additions to plantations Advance to associates, joint ventures and others Advance and repayment from associates, joint ventures and others Sale of subsidiaries Sale of associates and joint ventures Sale of other investments Sale of intangible assets Sale of tangible assets Sale of investment properties Cash flows from investing activities Financing activities Issue of shares Capital contribution from non-controlling interests Advance from non-controlling interests Change in interests in subsidiaries Drawdown of borrowings Repayment of borrowings Dividends paid by the Company Dividends paid to non-controlling interests Cash flows from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1st January Effect of exchange rate changes Note 33 (a) 33 (b) 33 (c) 33 (d) 33 (e) 33 (f) 33 (g) 33 (h) 33 (i) 33 (j) 2014 US$m 3,676 (59) 1,007 403 (1,410) 171 (303) (829) 2,656 698 3,354 (53) (390) (732) (184) (279) (1,158) (232) (82) (15) 481 1 17 217 1 105 – (2,303) 2 4 – 44 20,863 (20,576) (343) (940) (946) 105 5,189 (6) Cash and cash equivalents at 31st December 33 (k) 5,288 2013 US$m 3,510 60 1,039 309 (258) 131 (271) (970) 3,550 650 4,200 (127) (492) – (107) (296) (1,506) (229) (65) (6) 219 39 – 109 8 80 1 (2,372) 4 75 1 (114) 16,632 (15,973) (295) (996) (666) 1,162 4,253 (226) 5,189 34 Jardine Matheson | Annual Report 2014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 on a going concern basis and under the historical cost convention except as disclosed in the accounting policies below. Amendments and interpretation effective in 2014 which are relevant to the Group’s operations: Amendments to IAS 32 Amendments to IAS 36 Amendments to IAS 39 IFRIC 21 Offsetting Financial Assets and Financial Liabilities Recoverable Amount Disclosures for Non-Financial Assets Novation of Derivatives and Continuation of Hedge Accounting Levies The adoption of these amendments and interpretation does not have a material impact on the Group’s accounting policies and disclosures. Amendments to IAS 32 ‘Offsetting Financial Assets and Financial Liabilities’ 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. Specifically, the amendments clarify the meaning of ‘currently has a legally enforceable right of offset’ and ‘simultaneous realization and settlement’. Amendments to IAS 36 ‘Recoverable Amount Disclosures for Non-Financial Assets’ set out the changes to the disclosures when recoverable amount is determined based on fair value less costs of disposal. The key amendments are (a) to remove the requirement to disclose recoverable amount when a cash generating unit (‘CGU’) contains goodwill or indefinite lived intangible assets but there has been no impairment, (b) to require disclosure of the recoverable amount of an asset or CGU when an impairment loss has been recognized or reversed, and (c) to require detailed disclosure of how the fair value less costs of disposal has been measured when an impairment loss has been recognized or reversed. Amendments to IAS 39 ‘Novation of Derivatives and Continuation of Hedge Accounting’ provide relief from discontinuing hedge accounting when novation of a hedging instrument to a central counterparty meets specified criteria. IFRIC 21 ‘Levies’ sets out the accounting for an obligation to pay a levy that is not income tax. The interpretation clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy. The following standards and amendments which are effective after 2014, are relevant to the Group’s operations and yet to be adopted: IFRS 9 IFRS 15 Amendments to IAS 1 Amendments to IFRS 10 and IAS 28 Amendments to IFRS 11 Amendments to IAS 16 and IAS 38 Amendments to IAS 16 and IAS 41 Amendments to IAS 19 Annual Improvements to IFRSs Financial Instruments Revenue from Contracts with Customers Presentation of Financial Statements Sale or Contribution of Assets between an Investor and its Associate or Joint Venture Accounting for Acquisitions of Interests in Joint Operations Clarification of Acceptable Methods of Depreciation and Amortization Agriculture: Bearer Plants Defined Benefit Plans: Employee Contributions 2010 – 2012 Cycle 2011 – 2013 Cycle 2012 – 2014 Cycle Effective for accounting periods beginning on or after 1st January 2018 1st January 2017 1st January 2016 1st January 2016 1st January 2016 1st January 2016 1st January 2016 1st July 2014 1st July 2014 1st July 2014 1st January 2016 35 Jardine Matheson | Annual Report 2014The Group is currently assessing the impact of these new standards and amendments. The Group will adopt these new standards and amendments from their respective effective dates. A complete set of IFRS 9 ‘Financial Instruments’ has been published which replaces IAS 39 ‘Financial Instruments: Recognition and Measurement’. This complete version includes new guidance on the classification and measurement of financial assets and liabilities. It also includes an expected credit losses model that replaces the incurred loss impairment model used today. A substantially-reformed approach to hedging accounting is also introduced. There are three categories for financial assets under IFRS 9: amortized cost, fair value through other comprehensive income and fair value through profit or loss. The measurement principles of each category are similar to the current requirements under IAS 39. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Classification determines how financial assets and financial liabilities are accounted for in financial statements and, in particular, how they are measured on an ongoing basis. IFRS 9 introduces a new expected-loss impairment model which replaces the ‘incurred loss’ model in IAS 39. A loss event will no longer need to occur before an impairment allowance is recognized. In practice, the new rules mean that entities will have to record a day one loss equal to the 12-month expected credit loss on initial recognition of financial assets that are not credit impaired (or lifetime expected credit loss for trade receivables). IFRS 9 contains a ‘three stage’ approach which is based on the change in credit quality of financial assets since initial recognition. Assets move through the three stages as credit quality changes and the stages dictate how an entity measures impairment losses and applies the effective interest rate method. Where there has been a significant increase in credit risk, impairment is measured using lifetime expected credit loss rather than 12-month expected credit loss. The model also applies to certain loan commitments and financial guarantees, and includes operational simplifications for lease and trade receivables. IFRS 9 introduces a substantially-reformed model for hedge accounting that aligns the accounting treatment with risk management activities, enabling entities to better reflect in their financial statements how they manage risks associated with financial instruments. Additional disclosures about risk management activity and the effect of hedge accounting on the financial statements are required. IFRS 15 ‘Revenue from Contracts with Customers’ is a new standard which contains a single model that applies to contracts with customers and two approaches to recognizing revenue, that is at a point in time or over time. lFRS 15 replaces IAS 11 ‘Construction Contracts’, IAS 18 ‘Revenue’, IFRIC 13 ‘Customer Loyalty Programmes’, IFRIC 15 ‘Agreements for the Construction of Real Estate’, IFRIC 18 ‘Transfers of Assets from Customers’ and SIC-31 ‘Revenue - Barter Transactions Involving Advertising Services’. The core principle of IFRS 15 is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services. The new standard will also result in new disclosure requirements on revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements. Amendments to IAS 1 ‘Presentation of Financial Statements’ are part of the International Accounting Standards Board’s initiatives to improve the effectiveness of disclosure in financial reporting. Amendments to IAS 1 clarify that companies shall apply professional judgments in determining what information to disclose and how to structure it in the financial statements. The amendments include narrow-focus improvements in the guidance on materiality, disaggregation and subtotals, note structure, disclosure of accounting policies and presentation of items of other comprehensive income arising from equity accounted investments. Amendments to IFRS 10 ‘Consolidated Financial Statements’ and IAS 28 ‘Investments in Associates and Joint Ventures’ clarify the accounting treatment for sales or contribution of assets between an investor and its associates or joint ventures. The accounting treatment depends on whether the non-monetary assets sold or contributed to an associate or joint venture constitute a ‘business’. Full gain or loss will be recognized by the investor where the non-monetary assets constitute a ‘business’. If the assets do not meet the definition of a business, the gain or loss is recognized by the investor to the extent of the other investors’ interests. 36 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)Amendments to IFRS 11 ‘Joint Arrangements’ introduce new guidance on the accounting for the acquisition of an interest in a joint operation that constitutes a business. Acquirers of such interests shall apply all of the principles on business combinations accounting in IFRS 3 ‘Business Combinations’, and other IFRSs, that do not conflict with the guidance in IFRS 11 and disclose the information that is required in those IFRSs in relation to business combinations. Amendments to IAS 16 ‘Property, Plant and Equipment’ and IAS 38 ‘Intangible Assets’ clarify that the use of revenue-based methods to calculate the depreciation or amortization of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The amendments to IAS 38 further clarify that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption however, can be rebutted in certain limited circumstances. Amendments to IAS 16 ‘Property, Plant and Equipment’ and IAS 41 ‘Agriculture’ provide definition to a bearer plant and require bearer plants to be accounted for in the same way as property, plant and equipment in IAS 16, because their operation is similar to that of manufacturing. Consequently, the amendments include them within the scope of IAS 16, instead of IAS 41. The produce growing on bearer plants will remain within the scope of IAS 41. Amendments to IAS 19 ‘Employee Benefits’ regarding defined benefit plans apply to contributions from employees or third parties to defined benefit plans. The objective of the amendments is to simplify the accounting for contributions that are independent of the number of years of employee service, for example, employee contributions that are calculated according to a fixed percentage of salary. Annual Improvements to IFRSs 2010 – 2012 Cycle, 2011 – 2013 Cycle and 2012 – 2014 Cycle comprise a number of non-urgent but necessary amendments. None of these amendments is likely to have a significant impact on the consolidated financial statements of the Group. 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) A subsidiary is an entity over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. 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) An associate is an entity, not being a subsidiary or joint venture, over which the Group exercises significant influence. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. Associates and joint ventures are included on the equity basis of accounting. 37 Jardine Matheson | Annual Report 2014Profits and losses resulting from upstream and downstream transactions between the Group and its associates and joint ventures are recognized in the consolidated financial statements only to the extent of unrelated investor’s interests in the associates and joint ventures. (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. 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. 38 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)(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. 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 – 25 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 commercial properties are calculated on the discounted net rental income allowing for reversionary potential. The market value of residential properties are arrived at by reference to market evidence of transaction prices for similar properties. 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, based on a discounted cash flow method using unobservable inputs. 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. 39 Jardine Matheson | Annual Report 2014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 and are recognized in profit and loss. (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. 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. 40 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)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, 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. 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. 41 Jardine Matheson | Annual Report 2014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 arising from experience adjustments and changes in actuarial assumptions are recognized in other comprehensive income in the year in which they occur. Past service costs are recognized immediately in profit and loss. 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. 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. 42 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)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 analyzes for the claims incurred but not reported. 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. Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty. 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. 43 Jardine Matheson | Annual Report 2014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. 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 2014 are disclosed in note 34. 44 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)(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 2014 the Group’s Indonesian rupiah functional entities had United States dollar denominated net monetary assets of US$176 million (2013: net monetary liabilities of US$159 million). At 31st December 2014, 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 higher/lower (2013: US$12 million lower/ higher), arising from foreign exchange gains/losses taken on translation. The impact on amounts attributable to the shareholders of the Company would be US$2 million higher/lower (2013: US$3 million lower/ higher). 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 2014 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. 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 2014 the Group’s interest rate hedge exclusive of the financial services companies was 45% (2013: 43%), with an average tenor of eight years (2013: eight 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 30. 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 within the Group’s guideline. 45 Jardine Matheson | Annual Report 2014At 31st December 2014, 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$26 million (2013: US$27 million) higher/lower, and hedging reserves would have been US$111 million (2013: US$84 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 17. Available-for-sale investments are unhedged. At 31st December 2014, 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$343 million (2013: US$287 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 2014, over 66% (2013: 68%) 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. 46 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)(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 2014, total available borrowing facilities amounted to US$20.4 billion (2013: US$20.2 billion) of which US$11.5 billion (2013: US$11.3 billion) was drawn down. Undrawn committed facilities, in the form of revolving credit and term loan facilities, and undrawn uncommitted facilities totalled US$6.1 billion (2013: US$6.5 billion) and US$2.8 billion (2013: US$2.4 billion), respectively. The following table analyzes the Group’s non-derivative financial liabilities, net-settled derivative financial liabilities and gross-settled derivative financial instruments into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. Derivative financial liabilities are included in the analysis if their contractual maturities are essential for an understanding of the timing of the cash flows. The amounts disclosed in the table are the contractual undiscounted cash flows. Between one and two years Between two and three years Between three and four years Between four and five years Beyond Total five undiscounted cash flows years US$m US$m US$m US$m US$m US$m Within one year US$m 4,466 6,495 2,405 163 1,516 67 3 1 – 2,046 2,050 143 5,172 6,352 835 824 – 488 476 – 2,169 86 1,475 52 7 2 1 1,919 1,774 110 443 370 – 171 149 – At 31st December 2014 Borrowings Creditors Net settled derivative financial instruments Gross settled derivative financial instruments – inflow – outflow Estimated losses on insurance contracts At 31st December 2013 Borrowings Creditors Net settled derivative financial instruments Gross settled derivative financial instruments – inflow – outflow Estimated losses on insurance contracts 603 28 – 100 86 – 791 32 – 53 44 – 949 20 2 151 141 – 371 27 – 53 44 – 3,320 99 13,259 6,872 – 6 1,858 1,815 5,478 5,392 – 143 2,983 90 12,961 6,639 – 10 1,499 1,475 4,138 3,856 – 110 47 Jardine Matheson | Annual Report 2014 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 2014 and 2013 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) 2014 2013 6 14 29 39 6 14 30 38 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 derivative financial instruments are determined using rates quoted by the Group’s bankers at the balance sheet date. The rates for interest rate swaps and caps, cross-currency swaps, forward foreign exchange contracts and credit default swaps are calculated by reference to market interest rates and foreign exchange rates. The fair value of unlisted investments, which are classified as available-for-sale and mainly include club and school debentures, are determined using prices quoted by brokers at the balance sheet date. (c) Inputs for assets or liabilities that are not based on observable market data (‘unobservable inputs’) The fair value of other unlisted securities, which are classified as available-for-sale, is determined using valuation techniques by reference to observable current market transactions (including price-to earnings and price-to book ratios of listed securities of entities engaged in similar industries) or the market prices of the underlying investments with certain degree of entity specific estimates. The fair value of convertible component of convertible bonds held is made reference to the quoted price of the underlying shares and estimation on volatility. There were no changes in valuation techniques during the year. 48 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)The table below analyzes financial instruments carried at fair value, by the levels in the fair value measurement hierarchy. 2014 Assets Available-for-sale financial assets – listed securities – unlisted investments Derivative designated at fair value – through other comprehensive income – through profit and loss Liabilities Contingent consideration payable Derivative designated at fair value – through other comprehensive income – through profit and loss 2013 Assets Available-for-sale financial assets – listed securities – unlisted investments Derivative designated at fair value – through other comprehensive income – through profit and loss Liabilities Contingent consideration payable Derivative designated at fair value – through other comprehensive income – through profit and loss Quoted prices in active markets Observable current market transactions Unobservable inputs US$m US$m US$m 1,140 – 1,140 – – 1,140 – – – – 943 – 943 – – 943 – – – – – 43 43 184 20 247 – (33) (10) (43) – 42 42 285 9 336 – (25) (34) (59) – 189 189 – – 189 (67) – – (67) – 161 161 – – 161 (66) – – (66) There were no transfers among the three categories during the year ended 31st December 2014. Total US$m 1,140 232 1,372 184 20 1,576 (67) (33) (10) (110) 943 203 1,146 285 9 1,440 (66) (25) (34) (125) 49 Jardine Matheson | Annual Report 2014Movements of financial instruments which are valued based on unobservable inputs during the year ended 31st December are as follows: At 1st January Exchange differences Additions Capital repayment Payment of contingent consideration Net change in fair value during the year – included in other comprehensive income – included in profit and loss At 31st December 2014 2013 Available-for- sale financial assets Contingent consideration payable Available-for- sale financial assets Contingent consideration payable US$m US$m US$m US$m 161 (2) 2 – – 28 – 189 66 – – – (1) – 2 67 134 (5) 6 (2) – 28 – 161 68 – – – (2) – – 66 The contingent consideration payable mainly arose from Astra’s acquisition of a 60% interest in PT Duta Nurcahya in 2012 and represents the fair value of service fee payable for mining services to be provided by the vendor. (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. 50 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)Financial instruments by category The fair values of financial assets and financial liabilities, together with carrying amounts at 31st December 2014 and 2013 are as follows: Loans and receivables Derivatives used for hedging Available- for-sale Other financial instruments fair value through profit and loss Other financial instruments at amortized cost US$m US$m US$m US$m US$m 2014 Assets Other investments Debtors Bank balances and other liquid funds Liabilities Borrowings (excluding finance lease liabilities) Finance lease liabilities Trade and other payables excluding non-financial liabilities 2013 Assets Other investments Debtors Bank balances and other liquid funds Liabilities Borrowings (excluding finance lease liabilities) Finance lease liabilities Trade and other payables excluding non-financial liabilities – 8,308 5,315 13,623 – – – – – 7,336 5,214 12,550 – – – – – 204 – 204 – – (43) (43) – 294 – 294 – – (59) (59) 1,372 – – 1,372 – – – – – – – – (11,400) (84) (6,805) (18,289) 1,146 – – 1,146 – – – – – – – – (11,161) (123) (6,573) (17,857) Total carrying amount US$m Fair value US$m 1,372 8,525 1,372 8,455 5,315 5,315 15,212 15,142 (11,400) (84) (11,471) (84) – 13 – 13 – – (67) (67) (6,915) (6,915) (18,399) (18,470) – 14 – 14 – – 1,146 7,644 1,146 7,239 5,214 5,214 14,004 13,599 (11,161) (123) (11,075) (123) (66) (66) (6,698) (6,698) (17,982) (17,896) 51 Jardine Matheson | Annual Report 2014 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. On initial acquisition or acquisition of further interests in an entity, an assessment of the level of control or influence exercised by the Group is required. For entities where the Group has a shareholding of less than 50%, an assessment of the Group’s level of voting rights, board representation and other indicators of influence is performed to consider whether the Group has de facto control, requiring consolidation of that entity, or significant influence, requiring classification as an associate. 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. For investment properties in Hong Kong and Singapore, capitalization rates in the range of 3.50% to 4.45% for office (2013: 3.50% to 4.45%) and 4.50% to 5.50% for retail (2013: 4.50% to 5.50%) 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 rate. 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 2014 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. 52 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)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. 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 for 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 discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations. 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. 53 Jardine Matheson | Annual Report 2014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. 2014 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 2013 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 2,576 (2,530) – 46 (6) – (6) 105 – 105 145 (14) 131 – 131 (225) 706 2,346 (2,332) – 14 (6) – (6) 112 – 112 120 (10) 110 – 110 (255) 706 Jardine Motors US$m 5,128 (4,982) – 146 (13) – (13) – – – 133 (34) 99 (2) 97 (177) 554 4,469 (4,386) – 83 (13) 1 (12) – – – 71 (13) 58 1 59 (117) 514 Jardine Lloyd Thompson US$m Hongkong Land US$m Dairy Farm US$m Mandarin Oriental US$m – – – – – – – 85 – 85 85 – 85 – 85 – 513 – – – – – – – 76 – 76 76 – 76 – 76 – 553 1,876 (809) – 1,067 (114) 45 (69) 123 – 123 1,121 (188) 933 (549) 384 (2,657) 27,598 1,857 (940) – 917 (106) 42 (64) 235 – 235 1,088 (149) 939 (554) 385 11,008 (10,484) – 524 (9) 7 (2) 69 – 69 591 (93) 498 (178) 320 475 1,724 10,357 (9,835) – 522 (11) 8 (3) 69 – 69 588 (102) 486 (179) 307 (3,025) 26,899 638 1,585 680 (559) – 121 (20) 3 (17) 12 – 12 116 (19) 97 (38) 59 (403) 1,065 669 (557) – 112 (17) 2 (15) 17 – 17 114 (20) 94 (38) 56 (479) 1,099 Jardine Cycle & Carriage US$m 1,680 (1,629) – 51 – – – 47 – 47 98 (11) 87 (37) 50 60 382 1,348 (1,306) – 42 (1) – (1) 27 – 27 68 (7) 61 (26) 35 17 357 Astra US$m 16,995 (15,259) – 1,736 (116) 102 (14) 490 – 490 2,212 (476) 1,736 (1,297) 439 (266) 10,497 18,440 (16,467) – 1,973 (105) 78 (27) 586 – 586 2,532 (530) 2,002 (1,494) 508 (303) 9,590 Corporate and other interests US$m Intersegment transactions Underlying businesses performance Non-trading items US$m US$m US$m – (57) – (57) (1) 6 5 2 – 2 (50) (4) (54) 23 (31) 710 1,829 – (62) – (62) (1) 6 5 – – – (57) (4) (61) 27 (34) (22) 22 – – – – – – – – – – – – – – (63) (21) 21 – – – – – – – – – – – – – 39,921 (36,287) – 3,634 (279) 163 (116) 933 – 933 4,451 (839) 3,612 (2,078) 1,534 39,465 (35,864) – 3,601 (260) 137 (123) 1,122 – 1,122 4,600 (835) 3,765 (2,263) 1,502 – (17) 59 42 – – – 23 394 417 459 (1) 458 (282) 176 – (31) (60) (91) – – – (32) 352 320 229 (9) 220 (156) 64 922 1,541 1 (62) Group US$m 39,921 (36,304) 59 3,676 (279) 163 (116) 956 394 1,350 4,910 (840) 4,070 (2,360) 1,710 (2,483) 44,805 39,465 (35,895) (60) 3,510 (260) 137 (123) 1,090 352 1,442 4,829 (844) 3,985 (2,419) 1,566 (2,601) 42,782 * Net (debt)/cash is total borrowings less bank balances and other liquid funds. Net debt of financial services companies amounted to US$3,686 million at 31st December 2014 (2013: US$3,469 million) and relates to Astra. 54 55 Jardine Matheson | Annual Report 2014Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)4 Segment Information (continued) Set out below are analyzes of the Group’s underlying profit attributable to shareholders and non-current assets, by geographical areas: Underlying profit attributable to shareholders: Greater China Southeast Asia United Kingdom Rest of the world Corporate and other interests Non-current assets*: Greater China Southeast Asia United Kingdom Rest of the world * Excluding financial instruments, deferred tax assets and pension assets. 2014 US$m 743 706 80 36 1,565 (31) 1,534 27,449 14,347 768 903 43,467 2013 US$m 648 803 60 25 1,536 (34) 1,502 26,978 14,012 755 1,049 42,794 56 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)5 Revenue By business: Jardine Pacific Jardine Motors Jardine Lloyd Thompson Hongkong Land Dairy Farm Mandarin Oriental Jardine Cycle & Carriage Astra Intersegment transactions By product and service: Agribusiness Engineering and construction Mining Financial services Logistics and IT services Motor vehicles Property and hotels Restaurants Retail By geographical location of customers: Greater China Southeast Asia United Kingdom Rest of the world Gross revenue Revenue 2014 US$m 6,125 5,128 1,817 3,125 13,103 1,044 3,633 29,461 (654) 62,782 2,232 4,976 3,224 4,812 2,715 26,701 4,393 2,373 11,356 62,782 17,376 40,745 3,573 1,088 62,782 2013 US$m 5,380 4,469 1,532 3,643 12,432 1,035 3,019 30,646 (776) 61,380 1,200 4,625 3,341 4,358 2,707 27,352 4,896 2,020 10,881 61,380 15,243 42,083 3,106 948 61,380 2014 US$m 2,576 5,128 – 1,876 11,008 680 1,680 16,995 (22) 39,921 1,372 1,668 3,224 1,330 2,246 15,809 2,690 574 11,008 39,921 12,069 24,951 2,608 293 39,921 Gross revenue comprises revenue together with 100% of revenue from associates and joint ventures. 2013 US$m 2,346 4,469 – 1,857 10,357 669 1,348 18,440 (21) 39,465 1,200 1,866 3,341 1,374 2,223 16,045 2,638 421 10,357 39,465 10,847 26,079 2,264 275 39,465 57 Jardine Matheson | Annual Report 20146 Net Operating Costs Cost of sales Other operating income Selling and distribution costs Administration expenses Other operating expenses The following credits/(charges) are included in net operating costs: Cost of stocks recognized as expense Cost of properties for sale recognized as expense Amortization of intangible assets Depreciation of tangible assets Impairment of tangible assets Impairment of other investments Write down of stocks and work in progress Reversal of write down of stocks and work in progress Reversal of write down of properties for sale Impairment of debtors Operating expenses arising from investment properties Employee benefit expense – salaries and benefits in kind – share options granted – defined benefit pension plans (refer note 20) – defined contribution pension plans Net foreign exchange losses Operating lease expenses – minimum lease payments – contingent rents – subleases Auditors’ remuneration – audit – non-audit services Dividend and interest income from available-for-sale investments Rental income from properties Net operating costs included the following gains/(losses) from non-trading items: Decrease in fair value of plantations Asset impairment Sale and closure of businesses Sale of other investments Sale of property interests Fair value loss on convertible component of Zhongsheng bonds Expenses relating to transfer of listing segment of group companies’ shares Other 58 2014 US$m (30,575) 566 (4,129) (1,844) (322) (36,304) (27,688) (616) (109) (898) (231) – (57) 26 56 (129) (149) (3,159) (11) (80) (87) (3,337) (8) (1,072) (27) 54 (1,045) (18) (6) (24) 50 32 (34) 10 6 16 12 (17) (5) (5) (17) 2013 US$m (30,663) 532 (3,848) (1,738) (178) (35,895) (27,525) (719) (96) (943) (1) (55) (59) 19 12 (117) (142) (3,032) (11) (77) (77) (3,197) (16) (983) (26) 55 (954) (18) (6) (24) 52 33 (15) (55) 10 – 29 – – – (31) Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)7 Net Financing Charges Interest expense – bank loans and advances – other Fair value gains/(losses) on fair value hedges Fair value adjustment on hedged items attributable to the hedged risk Interest capitalized Commitment and other fees Financing charges Financing income 8 Share of Results of Associates and Joint Ventures By business: Jardine Pacific Jardine Lloyd Thompson Hongkong Land Dairy Farm Mandarin Oriental Jardine Cycle & Carriage Astra 2014 US$m (116) (135) (251) 28 (28) – (251) 41 (69) (279) 163 (116) 2014 US$m 104 72 516 69 12 47 530 2013 US$m (132) (118) (250) (73) 73 – (250) 28 (38) (260) 137 (123) 2013 US$m 112 67 586 66 21 27 563 Share of results of associates and joint ventures included the following gains/(losses) from non-trading items: Increase in fair value of investment properties Asset impairment Restructuring of businesses Negative goodwill on acquisition of business Results are shown after tax and non-controlling interests in the associates and joint ventures. 1,350 1,442 394 (1) (13) 37 417 352 (20) (12) – 320 59 Jardine Matheson | Annual Report 2014 9 Tax Tax charged to profit and loss is analyzed as follows: Current tax Deferred tax Greater China Southeast Asia United Kingdom Rest of the world Reconciliation between tax expense and tax at the applicable tax rate*: Tax at applicable tax rate Income not subject to tax – change in fair value of investment properties – other items Expenses not deductible for tax purposes – change in fair value of investment properties – other items Tax losses and temporary differences not recognized Utilization of previously unrecognized tax losses and temporary differences Recognition of previously unrecognized tax losses and temporary differences Deferred tax assets written off Over/(under) provision in prior years Withholding tax Other Tax relating to components of other comprehensive income is analyzed as follows: Remeasurements of employee benefit plans Cash flow hedges 2014 US$m (900) 60 (840) (302) (525) (10) (3) (840) 2013 US$m (905) 61 (844) (212) (618) (8) (6) (844) (731) (685) 19 55 (15) (58) (30) 7 – (1) 6 (62) (30) (840) 11 3 14 25 41 (42) (103) (31) 6 4 (2) (1) (54) (2) (844) (19) (8) (27) Share of tax charge of associates and joint ventures of US$321 million and credit of US$13 million (2013: charge of US$374 million and US$4 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 20.5% (2013: 20.2%) 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 mainly caused by a change in the geographic mix of the Group’s profits. 60 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)10 Earnings per Share Basic earnings per share are calculated on profit attributable to shareholders of US$1,710 million (2013: US$1,566 million) and on the weighted average number of 370 million (2013: 368 million) shares in issue during the year. Diluted earnings per share are calculated on profit attributable to shareholders of US$1,710 million (2013: US$1,565 million), which is after adjusting for the effects of the conversion of dilutive potential ordinary shares of subsidiaries, associates or joint ventures, and on the weighted average number of 371 million (2013: 369 million) shares in issue during the year. The weighted average number of shares is arrived at as follows: Weighted average number of shares in issue Company’s share of shares held by subsidiaries Weighted average number of shares for basic earnings per share calculation Adjustment for shares deemed to be issued for no consideration under the Senior Executive Share Incentive Schemes Weighted average number of shares for diluted earnings per share calculation Ordinary shares in millions 2014 685 (315) 370 1 371 2013 675 (307) 368 1 369 Additional basic and diluted earnings per share are also calculated based on underlying profit attributable to shareholders. A reconciliation of earnings is set out below: 2014 Basic earnings per share US$ 4.62 Diluted earnings per share US$ 4.61 US$m 1,710 (176) 2013 Basic earnings per share US$ 4.26 Diluted earnings per share US$ 4.25 US$m 1,566 (64) 1,534 4.14 4.13 1,502 4.09 4.07 Profit attributable to shareholders Non-trading items (refer note 11) Underlying profit attributable to shareholders 61 Jardine Matheson | Annual Report 201411 Non-trading Items By business: Jardine Pacific Jardine Motors Jardine Lloyd Thompson Hongkong Land Dairy Farm Mandarin Oriental Jardine Cycle & Carriage Astra Corporate and other interests An analysis of non-trading items after interest, tax and non-controlling interests is set out below: Increase in fair value of investment properties – Hongkong Land – other Decrease in fair value of plantations Asset impairment Sale and closure of businesses Sale of other investments Sale of property interests Restructuring of businesses Fair value loss on convertible component of Zhongsheng bonds Expenses relating to transfer of listing segment of group companies’ shares Negative goodwill on acquisition of business Other 2014 US$m 2013 US$m 7 (2) (13) 164 6 – (1) 18 (3) 176 161 18 179 (5) 2 3 14 7 (14) (14) (4) 11 (3) 176 2 (3) (9) 105 13 2 – (1) (45) 64 105 8 113 (2) (50) 3 – 14 (14) – – – – 64 62 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued) Goodwill US$m Franchise rights US$m Leasehold land Concession rights US$m US$m 1,030 (4) 1,026 (27) 127 – – – – 1,126 1,130 (4) 1,126 1,079 (5) 1,074 (115) 69 – (2) – – – 1,026 1,030 (4) 1,026 177 (2) 175 (4) – 1 – – – 172 172 – 172 220 – 220 (45) – – – – – – 175 177 (2) 175 754 (137) 617 (18) 2 187 20 (40) (33) 735 898 (163) 735 781 (138) 643 (142) 42 106 (7) 2 4 (31) 617 754 (137) 617 357 (17) 340 (11) – 85 – – (6) 408 431 (23) 408 384 (17) 367 (83) – 61 – – – (5) 340 357 (17) 340 12 Intangible Assets 2014 Cost Amortization and impairment Net book value at 1st January Exchange differences New subsidiaries Additions Revaluation surplus before transfer to investment properties Transfer to investment properties and properties for sale Amortization Net book value at 31st December Cost Amortization and impairment 2013 Cost Amortization and impairment Net book value at 1st January Exchange differences New subsidiaries Additions Disposals Revaluation surplus before transfer to investment properties Transfer from investment properties Amortization Net book value at 31st December Cost Amortization and impairment Goodwill allocation by business: Jardine Pacific Jardine Motors Dairy Farm Mandarin Oriental Astra Other US$m 296 (121) 175 (5) 10 128 Total US$m 2,614 (281) 2,333 (65) 139 401 – 20 – (70) 238 385 (147) 238 271 (109) 162 (23) 17 80 (1) – – (60) 175 296 (121) 175 2014 US$m 152 49 575 40 310 (40) (109) 2,679 3,016 (337) 2,679 2,735 (269) 2,466 (408) 128 247 (10) 2 4 (96) 2,333 2,614 (281) 2,333 2013 US$m 152 52 466 40 316 1,126 1,026 63 Jardine Matheson | Annual Report 2014 Intangible Assets (continued) 12 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 23% and 30% and growth rates of up to 8% 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 18% 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 has occurred. Goodwill relating to Astra represents goodwill arising from acquisition of shares in Astra which is regarded as an operating segment. 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$61 million and heavy equipment of US$109 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 2014 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 23% and 26%, 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 2014, the carrying amount of leasehold land pledged as security for borrowings amounted to US$9 million (2013: US$10 million) (refer note 30). The amortization charges are all recognized in arriving at operating profit and are included in cost of sales, selling and distribution costs and administration expenses. The remaining amortization periods for intangible assets are as follows: up to 85 years 30 – 33 years up to 8 years up to 40 years Leasehold land Concession rights Computer software Other 64 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)13 Tangible Assets Freehold properties Leasehold properties Leasehold improve- ments Mining properties Plant & machinery Furniture, equipment & motor vehicles US$m US$m US$m US$m US$m US$m 2014 Cost Depreciation and impairment Net book value at 1st January Exchange differences New subsidiaries Additions Disposals Transfer to stock and work in progress Depreciation charge Impairment charge Reclassified to non-current assets held for sale Net book value at 31st December Cost Depreciation and impairment 2013 Cost Depreciation and impairment Net book value at 1st January Exchange differences New subsidiaries Additions Disposals Revaluation surplus before transfer to investment properties Transfer to investment properties, and stock and work in progress Depreciation charge Impairment charge Reclassified to non-current assets held for sale Net book value at 31st December 1,037 (92) 945 (73) – 55 (26) – (11) – (1) 889 983 (94) 889 651 (82) 569 33 4 364 (15) – – (10) – – 945 Cost Depreciation and impairment 1,037 (92) 2,322 (453) 1,869 (52) 29 300 (1) – (85) – – 2,060 2,580 (520) 2,060 2,296 (433) 1,863 (235) 35 312 (23) 1 (2) (79) – (3) 1,869 2,322 (453) Total US$m 11,191 (4,368) 6,823 (211) 82 1,231 (58) (47) (898) (231) 3,507 (1,945) 1,562 (35) 1 379 (9) (3) (404) – 2,118 (1,131) 987 (32) 31 370 (19) (44) (275) – 1,087 (100) 987 1 – – – – (21) (231) – 736 1,120 (647) 473 (20) 21 127 (3) – (102) – – 496 1,167 (671) – – (1) 1,491 1,018 6,690 1,076 (340) 3,612 (2,121) 2,234 (1,216) 11,652 (4,962) 496 736 1,491 1,018 6,690 1,026 (590) 436 (15) 6 146 (5) – – (95) – – 473 1,191 (92) 1,099 (104) – 17 – – – (25) – – 987 1,120 (647) 1,087 (100) 3,690 (1,879) 1,811 (317) 35 499 (5) 2,261 (1,118) 1,143 (194) 2 398 (22) 11,115 (4,194) 6,921 (832) 82 1,736 (70) – – 1 (3) (457) (1) – 1,562 3,507 (1,945) (63) (277) – – 987 2,118 (1,131) (68) (943) (1) (3) 6,823 11,191 (4,368) 945 1,869 473 987 1,562 987 6,823 In 2014, as a result of the decline in coal prices as well as the subdued outlook, management has performed an impairment review of the carrying amount of the mining properties, and concluded that an impairment has occurred. An impairment charge of US$231 million had been included in profit and loss in the line ‘Other operating expenses’. 65 Jardine Matheson | Annual Report 2014 13 Tangible Assets (continued) The impairment review was performed by comparing the carrying amount of the cash-generating units of the mining properties with the recoverable amount. The cash-generating units are determined based on the location of the mining properties and the extent that they share infrastructure. The recoverable amount of US$696 million, net of deferred tax, is determined based on fair value less costs of disposal, using a discounted cash flow method with unobservable inputs. Major assumptions used in the valuation are coal price per tonne of US$65 to US$90 and post-tax discount rate of 12.5%. The periods used in the cash flow forecast are based on the depletion of reserves or the expiration of the concession period, whichever is earlier. Cash flows beyond five years are extrapolated using an estimated growth rate of 2.2%. The growth rate does not exceed the long-term average growth rate for the business in which the cash-generating units operate. Freehold properties include a hotel property of US$96 million (2013: US$99 million), which is stated net of a grant of US$24 million (2013: US$25 million). Net book value of leasehold properties, plant and machinery and motor vehicles acquired under finance leases amounted to US$322 million, US$64 million and US$3 million (2013: US$326 million, US$92 million and nil), respectively. Rental income from properties and other tangible assets amounted to US$353 million (2013: US$347 million) including contingent rents of US$3 million (2013: US$3 million). Future minimum rental payments receivable under non-cancellable leases are as follows: Within one year Between one and two years Between two and five years Beyond five years 2014 US$m 156 92 76 15 339 2013 US$m 146 81 89 22 338 At 31st December 2014, the carrying amount of tangible assets pledged as security for borrowings amounted to US$620 million (2013: US$782 million) (refer note 30). 66 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)14 Investment Properties 2014 At 1st January Exchange differences Additions Transfer from intangible assets Net increase in fair value At 31st December Freehold properties Leasehold properties 2013 At 1st January Exchange differences Additions Disposals Transfer to completed commercial properties Transfer from/(to) intangible assets and tangible assets Net decrease in fair value At 31st December Freehold properties Leasehold properties Completed commercial properties Under development commercial properties Completed residential properties US$m US$m US$m 22,868 (37) 25 32 34 22,922 22,753 (46) 49 (12) 172 5 (53) 22,868 682 (17) 157 – 12 834 666 9 192 – (172) (7) (6) 682 538 (1) 3 – 13 553 542 (4) 1 – – – (1) 538 Total US$m 24,088 (55) 185 32 59 24,309 75 24,234 24,309 23,961 (41) 242 (12) – (2) (60) 24,088 55 24,033 24,088 The Group measures its investment properties at fair value. The fair values of the Group’s investment properties at 31st December 2014 and 2013, which were principally held by Hongkong Land, have been determined on the basis of valuations carried out by independent valuers who hold a recognized relevant professional qualification and have recent experience in the locations and segments of the investment properties valued. Hongkong Land employed Jones Lang LaSalle to value its commercial investment properties in Hong Kong, mainland China, 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 Council and the HKIS Valuation Standards issued by the Hong Kong Institute of Surveyors, were arrived at by reference to the net income, allowing for reversionary potential, of each property. The valuations are comprehensively reviewed by Hongkong Land. Fair value measurements using no significant non-observable inputs Fair values of completed residential properties are generally derived using the direct comparison method. This valuation method is based on comparing the property to be valued directly with other comparable properties, which have recently transacted. However, given the heterogeneous nature of real estate properties, appropriate adjustments are usually required to allow for any qualitative differences that may affect the price likely to be achieved by the property under consideration. 67 Jardine Matheson | Annual Report 2014Investment Properties (continued) 14 Fair value measurements using significant unobservable inputs Fair values of completed commercial properties in Hong Kong and Singapore are generally derived using the income capitalization method. This valuation method is based on the capitalization of the net income and reversionary income potential by adopting appropriate capitalization rates, which are derived from analysis of sale transactions and valuers’ interpretation of prevailing investor requirements or expectations. The prevailing market rents adopted in the valuation have reference to valuers’ view of recent lettings, within the subject properties and other comparable properties. Fair values of completed commercial properties in Vietnam and Cambodia are generally derived using the discounted cash flow method. The net present value of the income stream is estimated by applying an appropriate discount rate which reflects the risk profile. Fair values of under development commercial properties are generally derived using the residual method. This valuation method is essentially a means of valuing the land by reference to its development potential by deducting development costs together with developer’s profit and risk from the estimated capital value of the proposed development assuming completion as at the date of valuation. The Group’s policy is to recognize transfers between fair value measurements as of the date of the event or change in circumstances that caused the transfer. Information about fair value measurements of Hongkong Land’s investment properties using significant unobservable inputs: Commercial Property Fair value at 31st December 2014 US$m Range of significant unobservable inputs Valuation method Prevailing market rent per month Capitalization/ discount rates US$ % Completed Hong Kong 22,159 Income capitalization Singapore 586 Income capitalization Vietnam and Cambodia 53 Discounted cash flow Total 22,798 4.4 to 38.9 per square foot 5.8 to 9.6 per square foot 21.0 to 26.0 per square metre 3.65 to 5.50 3.50 to 5.50 15.00 to 16.00 Under development Mainland China Cambodia Total 714 41 755 Residual Residual 158.5 per square metre 35.0 to 86.0 per square metre 5.25 16.00 68 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)Investment Properties (continued) 14 Prevailing market rents are estimated based on independent valuers’ view of recent lettings, within the subject properties and other comparable properties. The higher the rents, the higher the fair value. Capitalization and discount rates are estimated by independent valuers based on the risk profile of the properties being valued. The lower the rates, the higher the fair value. Rental income from investment properties amounted to US$842 million (2013: US$811 million) including contingent rents of US$14 million (2013: US$15 million). Future minimum rental payments receivable under non-cancellable leases are as follows: Within one year Between one and two years Between two and five years Beyond five years 2014 US$m 723 521 471 97 1,812 2013 US$m 714 468 429 64 1,675 Generally the Group’s operating leases in respect of investment properties are for terms of three or more years. The Group’s investment properties had not been pledged as security for borrowings at 31st December 2013 and 2014. 69 Jardine Matheson | Annual Report 201415 Plantations The Group’s plantation assets are primarily for the production of palm oil. Movements during the year: At 1st January Exchange differences New subsidiaries Additions Disposals Net decrease in fair value At 31st December Immature plantations Mature plantations Planted area: Immature plantations Mature plantations 2014 US$m 856 (20) 27 86 (7) (34) 908 166 742 908 2013 US$m 1,026 (219) – 69 (5) (15) 856 105 751 856 Hectares Hectares 35,904 192,795 228,699 33,147 187,382 220,529 The plantations were valued internally at their fair values less point of sale costs, based on a discounted cash flow method using unobservable inputs. The major unobservable inputs used in the valuation are: Crude palm oil price per tonne (US$) Effective annual price inflation (for the first five years) (%) Effective annual cost inflation (for the first five years) (%) Post-tax discount rates (%) 2014 2013 941 7* 7* 14 909 9* 7* 14 The higher the crude palm oil price per tonne and the higher the effective annual price inflation, the higher the fair value. The higher the effective annual cost inflation and the higher the post-tax discount rates, the lower the fair value. Changes in unrealized loss for the year for plantations held at the end of the year amounted to US$34 million (2013: US$15 million) and have been included in profit and loss in the line ‘Other operating expenses’. During the year, the Group harvested 4.1 million (2013: 3.7 million) tonnes of produce from the plantations with a fair value at the point of harvest less point of sale costs of US$626 million (2013: US$482 million). The Group’s plantations had not been pledged as security for borrowings at 31st December 2013 and 2014. * 0% inflation thereafter. 70 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)16 Associates and Joint Ventures Listed associates – Jardine Lloyd Thompson – OHTL Unlisted associates Share of attributable net assets Goodwill on acquisition Listed joint ventures – Bank Permata – PT Tunas Ridean Unlisted joint ventures Share of attributable net assets Goodwill on acquisition By business: Jardine Pacific Jardine Motors Jardine Lloyd Thompson Hongkong Land Dairy Farm Mandarin Oriental Jardine Cycle & Carriage Astra Corporate and other interests 2014 US$m 283 19 302 944 1,246 250 1,496 651 76 727 6,508 7,235 150 7,385 8,881 373 – 513 4,884 391 106 203 2,394 17 8,881 2013 US$m 313 20 333 873 1,206 261 1,467 556 71 627 6,458 7,085 142 7,227 8,694 386 1 553 4,914 372 116 169 2,166 17 8,694 Movements of associates and joint ventures during the year: At 1st January Share of results after tax and non-controlling interests Negative goodwill on acquisition of business Share of other comprehensive expense after tax and non-controlling interests Dividends received Acquisitions, increases in attributable interests and advances Disposals, decreases in attributable interests and repayment of advances Reclassification of associates and joint ventures as subsidiaries Employee share options schemes At 31st December Fair value of listed associates/joint ventures Associates Joint ventures 2014 US$m 1,467 315 – (91) (194) (11) (3) – 13 1,496 1,310 2013 US$m 1,396 303 – (113) (139) 19 (11) – 12 1,467 1,553 2014 US$m 7,227 1,035 (37) (201) (504) 441 (481) (95) – 7,385 760 2013 US$m 6,720 1,139 – (512) (511) 494 (103) – – 7,227 598 71 Jardine Matheson | Annual Report 201416 Associates and Joint Ventures (continued) (a) Investment in associates The material associates of the Group are listed below. These associates have share capital consisting solely of ordinary shares, which are held directly by the Group. Nature of investments in material associates in 2014 and 2013: Name of entity Nature of business Country of incorporation/ principal place of business % of ownership interest 2013 2014 Jardine Lloyd Thompson Group plc PT Astra Daihatsu Motor Insurance and reinsurance broking, risk management and employee benefit services Automotive United Kingdom/Worldwide 42 Indonesia/Indonesia 32 42 32 As at 31st December 2014, the fair value of the Group’s interest in Jardine Lloyd Thompson Group plc (‘Jardine Lloyd Thompson’), which is listed on the London Stock Exchange, was US$1,227 million (2013: US$1,475 million) and the carrying amount of the Group’s interest was US$513 million (2013: US$553 million). Summarized financial information for material associates Summarized balance sheet at 31st December Jardine Lloyd Thompson 2013 2014 PT Astra Daihatsu Motor 2013 2014 Non-current assets Current assets Cash and cash equivalents Other current assets Total current assets Non-current liabilities Financial liabilities* Other non-current liabilities* US$m 1,277 1,357 778 2,135 (691) (335) US$m 1,237 1,241 697 1,938 (787) (244) Total non-current liabilities (1,026) (1,031) Current liabilities Financial liabilities* Other current liabilities* Total current liabilities Non-controlling interests Net assets (263) (1,641) (1,904) (28) 454 (25) (1,525) (1,550) (32) 562 US$m 630 479 335 814 – (42) (42) – (432) (432) – 970 US$m 610 474 407 881 – (41) (41) (1) (525) (526) – 924 Total 2013 US$m 1,847 1,715 1,104 2,819 2014 US$m 1,907 1,836 1,113 2,949 (691) (377) (787) (285) (1,068) (1,072) (263) (2,073) (2,336) (28) 1,424 (26) (2,050) (2,076) (32) 1,486 * Financial liabilities exclude trade and other payables and provisions, which are presented under other current and non-current liabilities. 72 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)16 Associates and Joint Ventures (continued) Summarized statement of comprehensive income for the year ended 31st December Jardine Lloyd Thompson 2013 2014 PT Astra Daihatsu Motor 2013 2014 Revenue Depreciation and amortization Interest income Interest expense Profit from underlying business performance Income tax expense Profit after tax from underlying business performance Profit after tax from non-trading items Profit after tax Other comprehensive income Total comprehensive income Dividends received from associates US$m 1,817 (46) 3 (38) 301 (78) 223 (30) 193 (97) 96 41 US$m 1,533 (39) 2 (27) 278 (73) 205 (28) 177 (49) 128 35 US$m 4,012 (99) 47 – 380 (89) 291 – 291 (21) 270 71 Total 2013 US$m 6,093 (149) 35 (27) 737 (193) 544 (28) 516 (268) 248 2014 US$m 5,829 (145) 50 (38) 681 (167) 514 (30) 484 (118) 366 US$m 4,560 (110) 33 – 459 (120) 339 – 339 (219) 120 32 112 67 The information above reflects the amounts presented in the financial statements of the associates adjusted for differences in accounting policies between the Group and the associates, and fair value of the associates at the time of acquisition. Reconciliation of the summarized financial information Reconciliation of the summarized financial information presented to the carrying amount of the Group’s interests in its material associates for the year ended 31st December: Net assets Adjustment for shares purchased for employee benefit plans Adjusted net assets Interest in associates (%) Group’s share of net assets in associates Goodwill Carrying value Jardine Lloyd Thompson 2013 2014 PT Astra Daihatsu Motor 2013 2014 US$m 454 221 675 42 283 230 513 US$m 562 192 754 42 313 240 553 US$m 970 – 970 32 309 – 309 US$m 924 – 924 32 295 – 295 Total 2013 US$m 1,486 192 1,678 608 240 848 2014 US$m 1,424 221 1,645 592 230 822 73 Jardine Matheson | Annual Report 2014  Associates and Joint Ventures (continued) 16 The Group has interests in a number of individually immaterial associates. The following table analyzes, in aggregate, the share of profit and other comprehensive income and carrying amount of these associates. Share of profit Share of other comprehensive expense Share of total comprehensive income Carrying amount of interests in these associates Contingent liabilities relating to the Group’s interest in associates Financial guarantee in respect of facilities made available to an associate 2014 US$m 150 (12) 138 674 2014 US$m 22 2013 US$m 128 (35) 93 619 2013 US$m 21 (b) Investment in joint ventures The material joint ventures of the Group are listed below. These joint ventures have share capital consisting solely of ordinary shares, which are held directly by the Group. Nature of investments in material joint ventures in 2014 and 2013: Nature of business Country of incorporation and principal place of business % of ownership interest 2013 2014 Hongkong Land Property investment – Properties Sub F, Ltd – BFC Development LLP Property investment – Central Boulevard Development Pte Ltd Property investment – One Raffles Quay Pte Ltd Property investment Astra – PT Astra Honda Motor – PT Bank Permata Tbk Automotive Commercial and foreign exchange bank Macau Singapore Singapore Singapore Indonesia Indonesia 49 33 33 33 50 45 49 33 33 33 50 45 As at 31st December 2014, the fair value of the Group’s interest in PT Bank Permata Tbk, which is listed on the Indonesian Stock Exchange, was US$641 million (2013: US$492 million) and the carrying amount of the Group’s interest was US$690 million (2013: US$596 million). All other joint ventures in the above table are unlisted. 74 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued) Associates and Joint Ventures (continued) 16 Summarized financial information for material joint ventures Set out below are the summarized financial information for the Group’s material joint ventures. Summarized balance sheets at 31st December Central Boulevard Properties Development Development Pte Ltd Sub F, Ltd BFC LLP US$m US$m US$m One Raffles Quay Pte Ltd US$m PT Astra Honda Motor US$m PT Bank Permata Tbk US$m Total US$m 2014 Non-current assets Current assets Cash and cash equivalents Other current assets Total current assets Non-current liabilities Financial liabilities* Other non-current liabilities* Total non-current liabilities Current liabilities Financial liabilities* Other current liabilities* Total current liabilities 1,575 3,581 2,676 2,726 1,384 5,453 17,395 38 59 97 (54) (158) (212) (1) (48) (49) 28 12 40 (1,291) – (1,291) (3) (96) (99) 55 70 125 (1,214) (14) (1,228) (6) (70) (76) 11 2 13 (787) (196) (983) (11) (36) (47) 303 444 747 – (247) (247) – (655) (655) 1,476 8,059 9,535 (678) (96) (774) 1,911 8,646 10,557 (4,024) (711) (4,735) (58) (12,696) (12,754) (79) (13,601) (13,680) Net assets 1,411 2,231 1,497 1,709 1,229 1,460 9,537 2013 Non-current assets Current assets Cash and cash equivalents Other current assets Total current assets Non-current liabilities Financial liabilities* Other non-current liabilities* Total non-current liabilities Current liabilities Financial liabilities* Other current liabilities* Total current liabilities 1,170 3,595 2,467 2,758 1,199 4,932 16,121 29 111 140 (91) (109) (200) (3) (49) (52) 12 14 26 (1,331) – (1,331) (1) (87) (88) 117 142 259 (1,275) (15) (1,290) (8) (168) (176) 18 1 19 (823) (196) (1,019) (6) (42) (48) 376 396 772 – (247) (247) – (588) (588) 1,692 7,071 8,763 (687) (86) (773) 2,244 7,735 9,979 (4,207) (653) (4,860) (26) (11,650) (11,676) (44) (12,584) (12,628) Net assets 1,058 2,202 1,260 1,710 1,136 1,246 8,612 * Financial liabilities exclude trade and other payables and provisions, which are presented under other current and non-current liabilities. 75 Jardine Matheson | Annual Report 2014  Associates and Joint Ventures (continued) 16 Summarized statements of comprehensive income for the year ended 31st December Central Boulevard Properties Development Development Pte Ltd Sub F, Ltd BFC LLP US$m US$m US$m One Raffles Quay Pte Ltd US$m PT Astra Honda Motor US$m PT Bank Permata Tbk US$m 128 – – (22) 72 (12) 60 75 135 (68) 67 4,973 (89) 36 – 540 (131) 409 – 409 (29) 380 1,426 (20) – – 172 (39) 133 – 133 (29) 104 Total US$m 6,955 (116) 36 (93) 1,022 (216) 806 929 1,735 (273) 1,462 164 – – (47) 83 (13) 70 136 206 (92) 114 124 – – (21) 70 (11) 59 356 415 (55) 360 29 41 22 143 7 283 165 – – (48) 77 9 86 206 292 852 – – (25) 391 (66) 325 129 454 126 – – (23) 72 (12) 60 149 209 4,947 (90) 28 – 601 (145) 456 – 456 1,249 (18) – – 216 (54) 162 – 162 7,491 (117) 28 (100) 1,452 (280) 1,172 639 1,811 (70) (35) (52) (282) (291) (730) 2014 Revenue Depreciation and amortization Interest income Interest expense Profit from underlying business performance Income tax expense Profit after tax from underlying business performance Profit after tax from non-trading items Profit after tax Other comprehensive expense Total comprehensive income Dividends received from joint ventures 2013 Revenue Depreciation and amortization Interest income Interest expense Profit from underlying business performance Income tax expense Profit after tax from underlying business performance Profit after tax from non-trading items Profit after tax Other comprehensive expense Total comprehensive income/(expense) Dividends received from joint ventures 140 (7) – (3) 85 (10) 75 362 437 – 437 41 152 (9) – (4) 95 (12) 83 155 238 – 238 222 419 157 – 30 62 24 174 152 (129) 1,081 – 268 The information above reflects the amounts presented in the financial statements of the joint ventures adjusted for differences in accounting policies between the Group and the joint ventures, and fair value of the joint ventures at the time of acquisition. 76 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)  Associates and Joint Ventures (continued) 16 Reconciliation of the summarized financial information Reconciliation of the summarized financial information presented to the carrying amount of the Group’s interests in its material joint ventures for the year ended 31st December Central Boulevard Properties Development Development Pte Ltd Sub F, Ltd BFC LLP US$m US$m US$m 2014 Net assets Shareholders’ loans Adjusted net assets Interest in joint ventures (%) Group’s share of net assets in joint ventures Goodwill Carrying value 2013 Net assets Shareholders’ loans Adjusted net assets Interest in joint ventures (%) Group’s share of net assets in joint ventures Goodwill Carrying value 1,411 55 1,466 49 718 – 718 1,058 93 1,151 49 564 – 564 2,231 1,291 3,522 33 1,174 – 1,174 2,202 1,332 3,534 33 1,178 – 1,178 1,497 – 1,497 33 499 – 499 1,260 1,276 2,536 33 845 – 845 One Raffles Quay Pte Ltd US$m 1,709 102 1,811 33 604 – 604 1,710 107 1,817 33 605 – 605 PT Astra Honda Motor US$m PT Bank Permata Tbk US$m 1,229 – 1,229 50 615 – 615 1,136 – 1,136 50 568 – 568 1,460 – 1,460 45 650 40 690 1,246 – 1,246 45 556 40 596 Total US$m 9,537 1,448 10,985 4,260 40 4,300 8,612 2,808 11,420 4,316 40 4,356 The Group has interests in a number of individually immaterial joint ventures. The following table analyzes, in aggregate, the share of profit and other comprehensive income and carrying amount of these joint ventures. Share of profit Share of other comprehensive expense Share of total comprehensive income Carrying amount of interests in these joint ventures Commitments and contingent liabilities in respect of joint ventures The Group has the following commitments relating to its joint ventures as at 31st December: Commitment to provide funding if called 2014 US$m 305 (99) 206 3,085 2014 US$m 188 2013 US$m 404 (165) 239 2,871 2013 US$m 387 There were no contingent liabilities relating to the Group’s interest in the joint ventures at 31st December 2014 and 2013. 77 Jardine Matheson | Annual Report 2014 17 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 – Zhongsheng – other Unlisted securities Non-current Current Analysis by geographical area of operation: Greater China Southeast Asia Rest of the world Movements during the year: At 1st January Exchange differences Additions Disposals and capital repayments Unwinding of discount Net revaluation deficit At 31st December 2014 US$m 49 91 183 – 47 215 555 1,140 232 1,372 1,354 18 1,372 313 730 329 2013 US$m 51 104 188 103 35 – 462 943 203 1,146 1,129 17 1,146 102 711 333 1,372 1,146 1,146 (16) 522 (200) (2) (78) 1,372 1,254 (90) 127 (115) (2) (28) 1,146 In 2014, a wholly-owned subsidiary purchased new shares in Zhongsheng Group Holdings Limited (‘Zhongsheng’) which represents an initial 11% equity interest. Together with the convertible bonds held (refer note 18), this investment would enable the wholly-owned subsidiary to increase its interest to 20% upon fully exercising the bonds. Movements of available-for-sale financial assets which were valued based on unobservable inputs during the year are disclosed in note 2. There was no sale of these assets in 2014 and 2013. No held-to-maturity financial assets were held at 31st December 2014 and 2013. 78 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)18 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. 2014 US$m 4,401 (202) 4,199 805 (95) 710 (29) 681 4,880 2,569 79 2,648 (44) 2,604 2,021 114 2,135 (11) 2,124 9,608 3,540 6,068 9,608 1,288 8,160 89 71 9,608 4,136 687 4,823 2,604 1,028 8,455 2013 US$m 3,915 (183) 3,732 889 (102) 787 (33) 754 4,486 2,401 78 2,479 (29) 2,450 1,511 108 1,619 (11) 1,608 8,544 2,811 5,733 8,544 858 7,550 82 54 8,544 3,368 713 4,081 2,450 708 7,239 79 Jardine Matheson | Annual Report 201418 Debtors (continued) Trade and other debtors excluding derivative financial instruments are stated at amortized cost. The fair value of these debtors other than convertible bonds in Zhongsheng and short-term debtors is estimated using the expected future receipts discounted at market rates ranging from 6% to 16% (2013: 6% to 15%) per annum. The fair value of convertible bonds in Zhongsheng is estimated by reference to market interest rate and the quoted price of the underlying shares. The fair value of short-term debtors approximates their carrying amounts. Derivative financial instruments are stated at fair value. Financing debtors Financing debtors comprise consumer financing debtors and financing lease receivables. They 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 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 installment 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: 2014 US$m 2,917 1,650 1,051 5,618 2,152 1,315 934 4,401 2014 US$m 805 262 (262) 805 (95) 710 2013 US$m 2,654 1,387 853 4,894 2,027 1,122 766 3,915 2013 US$m 889 300 (300) 889 (102) 787 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 80 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)18 Debtors (continued) The maturity analyzes of financing lease receivables at 31st December are as follows: Within one year Between one and two years Between two and five years Beyond five years 2014 2013 Gross investment Net investment Gross investment Net investment US$m US$m US$m US$m 458 246 100 1 805 395 221 93 1 710 514 273 102 – 889 444 247 96 – 787 The fair value of the financing debtors is US$4,823 million (2013: US$4,081 million). The fair value of financing debtors is determined based on a discounted cash flow method using unobservable inputs, which are mainly rates of 9% to 33% per annum (2013: 9% to 32% per annum). The higher the rates, the lower the fair value. Financing debtors are due within five years (2013: five years) from the balance sheet date and the interest rates range from 6% to 33% per annum (2013: 12% to 32% 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. 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 of trade and other debtors is made based on the estimated irrecoverable amount. At 31st December 2014, consumer financing debtors of US$42 million (2013: US$31 million), financing lease receivables of US$56 million (2013: US$133 million), trade debtors of US$80 million (2013: US$116 million) and other debtors of US$11 million (2013: US$14 million) were impaired. The impaired consumer financing debtors and financing lease receivables were covered by provisions for impairment of these debtors which are assessed collectively. The amounts of the provisions for trade debtors and other debtors were US$44 million (2013: US$29 million) and US$11 million (2013: US$11 million), respectively. It was assessed that a portion of the debtors is expected to be recovered. At 31st December 2014, consumer financing debtors of US$379 million (2013: US$315 million), financing lease receivable of US$148 million (2013: US$182 million), trade debtors of US$795 million (2013: US$662 million) and other debtors of US$24 million (2013: US$87 million), respectively, were past due but not impaired. The ageing analysis of these debtors is as follows: Below 30 days Between 31 and 60 days Between 61 and 90 days Over 90 days Consumer financing debtors Financing lease receivables Trade debtors Other debtors 2014 US$m 307 61 11 – 379 2013 US$m 265 44 6 – 315 2014 US$m 123 17 3 5 148 2013 US$m 174 8 – – 182 2014 US$m 383 178 93 141 795 2013 US$m 350 173 87 52 662 2014 US$m 2013 US$m 11 4 1 8 24 9 2 2 74 87 81 Jardine Matheson | Annual Report 201418 Debtors (continued) The risk of trade and other debtors that are neither past due nor impaired at 31st December 2014 becoming impaired is low as they have a good track record with the Group. Based on past experience, management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. Other debtors Other debtors are further analyzed as follows: Convertible bonds in Zhongsheng Derivative financial instruments Restricted bank balances and deposits Loans to employees Other amounts due from associates and joint ventures Repossessed assets of finance companies Other receivables Financial assets Prepayments Reinsurers’ share of estimated losses on insurance contracts Rental and other deposits Other 2014 US$m 385 204 50 38 114 19 231 1,041 692 72 215 104 2,124 2013 US$m – 294 7 33 108 14 252 708 555 47 183 115 1,608 The convertible bonds in Zhongsheng with a nominal value of HK$3,092 million, held by a wholly-owned subsidiary, carry interest at 2.85% per annum and are unsecured. The bonds are convertible, at the option of the holders, into ordinary shares of Zhongsheng at a conversion price of HK$12.96 per share on or after the date falling 180 days after the issue date of 25th April 2014 up to the close of business on the date falling 10 days prior to the maturity. The bonds will mature on 25th April 2017. Movements in the provisions for impairment are as follows: Consumer financing debtors Financing lease receivables Trade debtors Other debtors 2014 US$m (183) 5 (102) – 78 2013 US$m (218) 47 (97) – 85 2014 US$m 2013 US$m 2014 US$m 2013 US$m 2014 US$m 2013 US$m (33) (1) (4) – 9 (37) 7 (5) – 2 (29) 1 (31) 9 6 (27) 4 (15) 3 6 (11) – (2) 1 1 (10) – (3) – 2 At 1st January Exchange differences Additional provisions Unused amounts reversed Amounts written off At 31st December (202) (183) (29) (33) (44) (29) (11) (11) At 31st December 2014, the carrying amount of consumer financing debtors, financing lease receivables, trade debtors and other debtors pledged as security for borrowings amounted to US$2,257 million, US$187 million, US$1 million and US$6 million (2013: US$1,951 million, US$221 million, US$1 million and US$6 million), respectively (refer note 30). 82 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued) 19 Deferred Tax Assets/(Liabilities) 2014 At 1st January Exchange differences New subsidiaries Credited/(charged) to profit and loss Credited to other comprehensive income At 31st December Deferred tax assets Deferred tax liabilities 2013 At 1st January Exchange differences New subsidiaries Credited/(charged) to profit and loss Charged to other comprehensive income At 31st December Deferred tax assets Deferred tax liabilities Accelerated tax depreciation US$m Fair value gains/ losses US$m Losses US$m Employee benefits US$m Provisions and other temporary differences US$m (162) 3 – 4 – (155) 99 (254) (155) (180) 1 – 17 – (162) 79 (241) (162) (526) 4 – 79 3 (440) (40) (400) (440) (595) 85 (7) (1) (8) (526) (45) (481) (526) 33 (2) – 2 – 33 22 11 33 35 (3) 3 (2) – 33 25 8 33 66 (2) 1 8 11 84 72 12 84 95 (17) – 7 (19) 66 60 6 66 120 (2) 3 (33) – 88 152 (64) 88 111 (31) – 40 – 120 145 (25) 120 Total US$m (469) 1 4 60 14 (390) 305 (695) (390) (534) 35 (4) 61 (27) (469) 264 (733) (469) 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$127 million (2013: US$121 million) arising from unused tax losses of US$545 million (2013: US$527 million) have not been recognized in the financial statements. Included in the unused tax losses, US$242 million have no expiry date and the balance will expire at various dates up to and including 2024. Deferred tax liabilities of US$436 million (2013: US$386 million) arising on temporary differences associated with investments in subsidiaries of US$4,360 million (2013: US$3,863 million) have not been recognized as there is no current intention of remitting the retained earnings of these subsidiaries to the holding companies in the foreseeable future. 83 Jardine Matheson | Annual Report 2014 20 Pension Plans The Group operates defined benefit pension plans in the main territories in which it operates, with the major plans in Hong Kong and the United Kingdom. Most of the pension plans are final salary defined benefits, calculated based on a members’ length of service and their salaries in the final years leading up to retirement. In Hong Kong, the pension benefits are usually paid in one lump sum. With the exception of certain plans in Hong Kong, all the defined benefit plans are closed to new members. In addition, although all plans are impacted by the discount rate, liabilities in Hong Kong are driven by salary growth, whilst the United Kingdom plans are driven by inflationary rates. The Group’s defined benefit plans are either funded or unfunded, with the assets of the funded plans held independently of the Group’s assets in separate trustee administered funds. Plan assets held in trusts are governed by local regulations and practices in each country. Responsibility for governance of the plans, including investment decisions and contribution schedules, lies jointly with the company and the boards of trustees. The Group’s major plans are valued by independent actuaries annually using the projected unit credit method. The amounts recognized in the consolidated balance sheet are as follows: Fair value of plan assets Present value of funded obligations Present value of unfunded obligations Net pension liabilities Analysis of net pension liabilities: Pension assets Pension liabilities 2014 US$m 1,006 (1,097) (91) (236) (327) 23 (350) (327) 2013 US$m 1,002 (1,043) (41) (202) (243) 51 (294) (243) 84 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)20 Pension Plans (continued) The movement in the net pension liabilities is as follows: 2014 At 1st January Current service cost Interest income/(expense) Past service cost and gains on settlements Administration expenses Exchange differences New subsidiaries Remeasurements – return on plan assets, excluding amounts included in interest income – change in financial assumptions – experience losses Contributions from employers Contributions from plan participants Benefit payments Settlements Transfer from other plans At 31st December 2013 At 1st January Current service cost Interest income/(expense) Past service cost and gains on settlements Administration expenses Exchange differences New subsidiaries Remeasurements – return on plan assets, excluding amounts included in interest income – change in financial assumptions – experience losses Contributions from employers Contributions from plan participants Benefit payments Transfer from other plans At 31st December Fair value of plan assets US$m Present value of obligation US$m 1,002 – 47 – (2) 45 1,047 (23) – 17 – – 17 36 4 (67) (7) (1) (1,245) (57) (63) (5) – (125) (1,370) 33 (3) – (51) (26) (77) – (4) 80 7 1 Total US$m (243) (57) (16) (5) (2) (80) (323) 10 (3) 17 (51) (26) (60) 36 – 13 – – 1,006 (1,333) (327) 977 – 38 – (1) 37 1,014 (20) – 37 – – 37 38 4 (73) 2 (1,327) (67) (55) 8 – (114) (1,441) 72 (5) – 103 (50) 53 – (4) 82 (2) (350) (67) (17) 8 (1) (77) (427) 52 (5) 37 103 (50) 90 38 – 9 – 1,002 (1,245) (243) 85 Jardine Matheson | Annual Report 201420 Pension Plans (continued) The weighted average duration of the defined benefit obligation at 31st December 2014 is 12 years (2013: 12 years). Expected maturity analysis of undiscounted pension benefits at 31st December is as follows: Less than a year Between one and two years Between two and five years Beyond five years 2014 US$m 100 90 309 6,607 7,106 The principal actuarial assumptions used for accounting purposes at 31st December are as follows: Hong Kong United Kingdom Others 2014 % 3.4 5.0 N/A 2013 % 4.4 5.0 N/A 2014 % 3.4 – 2.9 2013 % 4.4 – 3.5 2014 % 8.1 7.5 N/A Discount rate Salary growth rate Inflation rate 2013 US$m 91 89 281 5,683 6,144 2013 % 7.1 6.9 N/A Life expectancy for pensioners in the United Kingdom plans at the age of 65 for male and female are 22 years and 24 years, respectively (2013: 22 years and 24 years). As participants of the plans relating to Hong Kong usually take lump sum amounts upon retirement, mortality rate is not a principal assumption for these plans. The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is: Discount rate Salary growth rate Inflation rate Change in assumption Impact on defined benefit obligation Decrease in Increase in assumption assumption % 1 1 1 US$m (138) 82 28 US$m 166 (70) (21) The above sensitivity analyzes are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the pension liability recognized within the balance sheet. 86 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)20 Pension Plans (continued) The analysis of the fair value of plan assets at 31st December is as follows: Asia Pacific US$m Europe US$m North America US$m Global US$m Total US$m 2014 Quoted investments Equity instruments Debt instruments – government – corporate bonds – investment grade Investment funds Unquoted investments Debt instruments – government – corporate bonds – investment grade – non-investment grade Investment funds Total investments Cash and cash equivalents Benefits payable and other 122 38 20 58 18 198 12 1 – 1 13 1 14 212 64 1 133 134 109 307 33 5 10 15 48 – 48 355 15 – – – 141 156 14 8 16 24 38 – 38 194 13 – – – 27 40 3 – – – 3 167 170 210 214 39 153 192 295 701 62 14 26 40 102 168 270 971 34 1 1,006 87 Jardine Matheson | Annual Report 2014 20 Pension Plans (continued) Asia Pacific US$m Europe US$m North America US$m Global US$m Total US$m 2013 Quoted investments Equity instruments Debt instruments – government – corporate bonds – investment grade Investment funds Unquoted investments Debt instruments – government – corporate bonds – investment grade – non-investment grade Investment funds Total investments Cash and cash equivalents Benefits payable and other 148 40 21 61 17 226 9 2 – 2 11 1 12 238 63 1 110 111 117 291 30 10 1 11 41 – 41 332 14 – – – 147 161 12 22 3 25 37 – 37 198 11 – – – 36 47 6 – – – 6 163 169 216 236 41 131 172 317 725 57 34 4 38 95 164 259 984 22 (4) 1,002 The defined benefit plans in Hong Kong have 3 strategic asset allocations for its open and closed plans. The open plans have an equity/debt allocation of 70/30 whilst the closed plans have either a 60/40 or 55/45 split. The strategic asset allocation is derived from the asset-liability modeling (‘ALM’) review, done triennially to ensure the plans can meet future funding and solvency requirements. The last ALM review was completed in 2012, with the revised strategic asset allocation adopted in 2013 and 2014. The next ALM review is scheduled for 2015. As at 31st December 2014, the Hong Kong plans had assets of US$520 million (2013: US$523 million). These assets were invested 18% in Asia Pacific, 19% in Europe and 32% in North America (2013: 22%, 20% and 32%, respectively). Within Asia Pacific, 81% was invested in Hong Kong equities. In 2014, 55% and 45% of the investments were in quoted and unquoted instruments, respectively. In 2013, the split was 58% and 42%. The high percentage of quoted instruments provides liquidity to fund drawdowns and benefit payments. Within the quoted equity allocation, the plan is well diversified in terms of sectors, with the top three being financials, industrials and consumer goods with a combined fair value of US$52 million. In 2013 the top three sectors were financials, properties and technology with a combined fair value of US$54 million. 88 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued) 20 Pension Plans (continued) In the United Kingdom, the defined benefit plans have strategic asset allocations of 60/40 for Matheson & Co. and 50/50 for Jardine Motors’ equity/debt. The majority of the equity investments are in passive funds with a significant percentage in developed economies. Matheson & Co. has 87% of their investments in developed and 13% in emerging economies. This is largely similar to 2013. The regional splits are 9% in Asia Pacific, 45% in Europe, 14% in North America and 32% globally. In 2014, 70% of their investments were in quoted instruments, which is the same as 2013. Jardine Motors had 95% of the investments in developed economies and all of their investments were in quoted instruments, similar to 2013. Their regional splits are 7% in Asia Pacific, 82% in Europe, 6% in North America and 5% globally. The top three sectors of the quoted equity instruments at the end of both 2014 and 2013 were financials, consumer goods and industrials, with combined fair values of US$56 million and US$51 million, respectively. Through its defined benefit pension plans, the Group is expected to be exposed to a number of risks such as asset volatility, changes in bond yields, inflation risk and life expectancy, the most significant of which are detailed below: Asset volatility The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if plan assets underperform this yield, this will create a deficit. The Group’s defined benefit plans hold a percentage of equities, which are expected to outperform corporate bonds in the long-term, whilst generating volatility and risk in the short-term. In Hong Kong, where the Group has open and closed plans, the assets and liabilities mix are distinct to reduce the level of investment risk to each plan. The open and closed plans reduced their equity exposure and increased investments in government and corporate bonds in the fourth quarter of 2014. The open plans retained a higher exposure to equities to generate higher returns to meet pension obligations. Management believes that the long-term nature of the plan liabilities and the strength of the Group supports a level of equity investment as part of the Group’s long-term strategy to manage the plans efficiently. Changes in bond yields A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans’ bond holdings. Inflation risk Only the Group’s United Kingdom plans’ benefit obligations are linked to inflation, specifically CPI, where a higher CPI leads to higher liabilities. Although CPI has remained benign in 2014, the long-term outlook is for a higher inflation assumption. The rest of the Group’s plan assets are unaffected by inflation. Life expectancy Life expectancy risk is only applicable to the United Kingdom plans, where increase in longevity assumptions results in an increase in the plan’s liabilities. The Hong Kong plans provide for a lump-sum benefit payment at retirement. The Group ensures that the investment positions are managed within an ALM framework that is developed to achieve long-term returns that are in line with the obligations under the pension schemes. Within the ALM framework, the Group’s objective is to match assets to the pension obligations by investing in a well-diversified portfolio that generates sufficient risk-adjusted returns that match the benefit payments. The Group also actively monitors the duration and the expected yield of the investments to ensure it matches the expected cash outflows arising from the pension obligations. Investments across the plans are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets. The Group maintains an active and regular contribution schedule across all the plans. The contributions to all its plans in 2014 were US$36 million and the estimated amount of contributions expected to be paid to all its plans in 2015 is US$45 million. 89 Jardine Matheson | Annual Report 201421 Properties for Sale Properties in the course of development Completed properties 2014 US$m 2,724 229 2,953 2013 US$m 2,570 100 2,670 As at 31st December 2014, properties in the course of development amounting to US$2,164 million (2013: US$1,890 million) were not scheduled for completion within the next twelve months. At 31st December 2014, the carrying amount of properties for sale pledged as security for borrowings amounted to US$732 million (2013: US$711 million) (refer note 30). 22 Stocks and Work in Progress Finished goods Work in progress Raw materials Spare parts Other 2014 US$m 2,944 47 70 110 109 3,280 2013 US$m 2,722 43 76 85 89 3,015 At 31st December 2014, the carrying amount of stocks and work in progress pledged as security for borrowings amounted to US$2 million (2013: US$2 million) (refer note 30). 90 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)23 Bank Balances and Other Liquid Funds Deposits with banks and financial institutions Bank balances Cash balances Analysis by currency: Chinese renminbi Euro Hong Kong dollar Indonesian rupiah Japanese yen Malaysian ringgit New Taiwan dollar Philippine peso Singapore dollar Thailand baht United Kingdom sterling United States dollar Other 2014 US$m 3,543 1,659 113 5,315 401 42 336 1,049 19 49 52 21 396 24 32 2,864 30 5,315 The weighted average interest rate on deposits with banks and financial institutions is 2.1% (2013: 2.8%) per annum. 24 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 2014 US$m 250 2014 US$m 170 3 173 Ordinary shares in millions 2014 2013 681 10 691 670 11 681 2013 US$m 3,958 1,161 95 5,214 508 60 388 1,208 20 73 40 7 355 13 29 2,498 15 5,214 2013 US$m 250 2013 US$m 168 2 170 91 Jardine Matheson | Annual Report 2014 25 Senior Executive Share Incentive Schemes The Senior Executive Share Incentive Schemes (the ‘Schemes’) were set up in order to provide selected executives with options to purchase ordinary shares in the Company. The exercise price of the granted options is based on the average market price for the five trading days immediately preceding the date of grant of the options. Options are vested in tranches over a period of up to five years and are exercisable for up to ten years following the date of grant. Prior to the adoption of the 2005 Plan on 5th May 2005, ordinary shares were issued on the date of grant of the options to the Trustee of the Schemes, Clare Investment Overseas (PTC) Limited, a wholly-owned subsidiary, which holds the ordinary shares until the options are exercised. Under the 2005 Plan, ordinary shares may be issued upon exercise of the options. The shares issued under the Schemes held on trust by the wholly-owned subsidiary are, for presentation purposes, netted off the Company’s share capital in the consolidated balance sheet and the premium attached to them is netted off the share premium account (refer note 26). Movements during the year: At 1st January Granted Exercised Cancelled At 31st December 2014 2013 Weighted average exercise price US$ 41.4 59.6 28.8 48.5 44.3 Options in millions 2.4 0.2 (0.2) (0.1) 2.3 Weighted average exercise price US$ 34.5 64.9 20.6 – 41.4 Options in millions 2.3 0.4 (0.3) – 2.4 The average share price during the year was US$60.1 (2013: US$58.7) per share. Outstanding at 31st December: Expiry date 2016 2017 2018 2019 2020 2021 2022 2023 2024 Total outstanding of which exercisable Exercise price US$ 18.2 21.7 27.3 16.7 – 24.5 32.2 45.7 – 46.8 51.2 64.9 59.6 Options in millions 2014 2013 0.1 0.2 0.2 0.1 0.3 0.3 0.5 0.4 0.2 2.3 0.8 0.1 0.2 0.2 0.3 0.3 0.4 0.5 0.4 – 2.4 0.7 The fair value of options granted during the year, determined using the Trinomial valuation model, was US$3 million (2013: US$7 million). The significant inputs into the model, based on the weighted average number of options issued, were share price of US$59.0 (2013: US$64.6) at the grant dates, exercise price shown above, expected volatility based on the last seven years of 32.1% (2013: 32.3%), dividend yield of 2.4% (2013: 2.1%), option life disclosed above, and annual risk-free interest rate of 2.1% (2013: 1.3%). Options are assumed to be exercised at the end of the seventh year following the date of grant. 92 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)26 Share Premium and Capital Reserves 2014 At 1st January Capitalization arising on scrip issued in lieu of dividends Employee share option schemes – exercise of share options – value of employee services Transfer At 31st December 2013 At 1st January Capitalization arising on scrip issued in lieu of dividends Employee share option schemes – exercise of share options – value of employee services Transfer At 31st December Share premium US$m Capital reserves US$m 19 (3) 2 – 2 20 18 (2) 1 – 2 19 100 – – 21 (3) 118 89 – – 21 (10) 100 Total US$m 119 (3) 2 21 (1) 138 107 (2) 1 21 (8) 119 Capital reserves represent the value of employee services under the Group’s employee share option schemes. At 31st December 2014, US$19 million (2013: US$16 million) related to the Company’s Senior Executive Share Incentive Schemes. 93 Jardine Matheson | Annual Report 201427 Dividends Final dividend in respect of 2013 of US¢103.00 (2012: US¢100.00) per share Interim dividend in respect of 2014 of US¢38.00 (2013: US¢37.00) per share Company’s share of dividends paid on the shares held by subsidiaries Shareholders elected to receive scrip in respect of the following: Final dividend in respect of previous year Interim dividend in respect of current year 2014 US$m 701 261 962 (441) 521 449 170 619 2013 US$m 670 251 921 (418) 503 453 173 626 A final dividend in respect of 2014 of US¢107.00 (2013: US¢103.00) per share amounting to a total of US$739 million (2013: US$701 million) is proposed by the Board. The dividend proposed will not be accounted for until it has been approved at the 2015 Annual General Meeting. The net amount after deducting the Company’s share of the dividends payable on the shares held by subsidiaries of US$341 million (2013: US$321 million) will be accounted for as an appropriation of revenue reserves in the year ending 31st December 2015. 28 Own Shares Held Own shares held of US$3,105 million (2013: US$2,664 million) represent the Company’s share of the cost of 386 million (2013: 378 million) ordinary shares in the Company held by subsidiaries and are deducted in arriving at shareholders’ funds. 29 Non-controlling Interests By business: Hongkong Land Dairy Farm Mandarin Oriental Jardine Cycle & Carriage Astra Jardine Strategic Other Less own shares held attributable to non-controlling interests 2014 US$m 16,212 641 382 180 7,773 983 28 26,199 (661) 25,538 2013 US$m 15,798 592 396 180 7,112 858 27 24,963 (567) 24,396 94 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)29 Non-controlling Interests (continued) Summarized financial information on subsidiaries with material non-controlling interests Set out below are the summarized financial information for each subsidiary that has non-controlling interests that are material to the Group. Summarized balance sheet at 31st December 2014 Current Assets Liabilities Total current net assets/(liabilities) Non-current Assets Liabilities Total non-current net assets Non-controlling interests Net assets 2013 Current Assets Liabilities Total current net assets/(liabilities) Non-current Assets Liabilities Total non-current net assets Non-controlling interests Net assets Hongkong Land US$m Dairy Farm US$m Mandarin Oriental US$m Astra US$m Jardine Strategic US$m 4,890 (1,832) 3,058 28,742 (4,202) 24,540 (50) 27,548 4,367 (2,192) 2,175 28,629 (3,905) 24,724 (42) 26,857 1,930 (2,565) (635) 2,386 (228) 2,158 (94) 1,429 1,931 (2,426) (495) 2,032 (160) 1,872 (96) 1,281 426 (371) 55 1,482 (576) 906 (5) 7,805 (5,895) 1,910 11,957 (3,579) 8,378 (2,138) 16,208 (11,086) 5,122 48,575 (8,659) 39,916 (21,845) 956 8,150 23,193 397 (715) (318) 1,621 (308) 1,313 (6) 989 7,241 (5,827) 1,414 11,162 (3,198) 7,964 (1,943) 15,323 (11,472) 3,851 46,685 (7,646) 39,039 (20,862) 7,435 22,028 95 Jardine Matheson | Annual Report 201429 Non-controlling Interests (continued) Summarized profit and loss for the year ended 31st December 2014 Profit after tax from underlying business performance Profit after tax from non-trading items Profit after tax Other comprehensive expense Total comprehensive income Total comprehensive income/(expense) allocated to non-controlling interests Dividends paid to non-controlling interests 2013 Profit after tax from underlying business performance Profit after tax from non-trading items Profit after tax Other comprehensive (expense)/income Total comprehensive income Total comprehensive income/(expense) allocated to non-controlling interests Dividends paid to non-controlling interests Hongkong Land US$m Dairy Farm US$m Mandarin Oriental US$m Astra US$m Jardine Strategic US$m 933 409 1,342 (216) 1,126 13 (5) 939 261 1,200 (78) 1,122 13 (7) 498 10 508 (53) 455 (2) – 487 26 513 (123) 390 (7) – 97 – 97 (63) 34 (1) – 94 3 97 11 108 – – 1,773 53 1,826 (228) 1,598 223 (123) 2,039 39 2,078 (2,065) 13 (141) (129) 3,444 461 3,905 (764) 3,141 1,779 (896) 3,626 224 3,850 (2,322) 1,528 555 (951) 96 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)29 Non-controlling Interests (continued) Summarized cash flows at 31st December 2014 Cash flows from operating activities Cash generated from operations Interest received Interest and other financing charges paid Tax paid Other operating cash flows Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1st January Effect of exchange rate changes Cash and cash equivalents at 31st December 2013 Cash flows from operating activities Cash generated from operations Interest received Interest and other financing charges paid Tax paid Other operating cash flows Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1st January Effect of exchange rate changes Cash and cash equivalents at 31st December Hongkong Land US$m Dairy Farm US$m Mandarin Oriental US$m Astra US$m Jardine Strategic US$m 1,091 51 (132) (134) (177) 699 88 (516) 271 1,402 (15) 1,658 835 40 (117) (139) 289 908 (378) (117) 413 981 8 1,402 534 7 (8) (94) 237 676 (432) (293) (49) 711 (5) 657 551 7 (11) (95) 231 683 (285) (316) 82 665 (36) 711 121 2 (24) (21) 82 160 (46) (99) 15 316 (7) 324 112 2 (18) (19) 80 157 (422) 132 (133) 453 (4) 316 1,741 102 (115) (494) 304 1,538 (1,182) (242) 114 1,522 30 1,666 2,033 76 (106) (628) 900 2,275 (1,144) (536) 595 1,118 (191) 1,522 3,408 172 (284) (791) 657 3,162 (2,189) (815) 158 4,895 (3) 5,050 3,334 133 (253) (933) 1,527 3,808 (2,230) (376) 1,202 3,918 (225) 4,895 The information above is the amount before inter-company eliminations. 97 Jardine Matheson | Annual Report 201430 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 Carrying amount US$m 27 1,176 32 1,235 1,806 967 36 24 2,833 4,068 3,448 3,914 48 6 7,416 2014 2013 Fair value US$m 27 1,176 32 1,235 1,806 967 36 24 2,833 4,068 3,456 3,977 48 6 7,487 Carrying amount US$m 25 1,387 39 1,451 2,018 1,261 43 38 3,360 4,811 2,558 3,810 80 25 6,473 Fair value US$m 25 1,387 39 1,451 2,018 1,261 43 38 3,360 4,811 2,560 3,723 80 24 6,387 11,484 11,555 11,284 11,198 The fair values are based on market prices or are estimated using the expected future payments discounted at market interest rates ranging from 0.2% to 11.5% (2013: 0.5% to 11.8%) per annum. This is in line with the definition of ‘observable current market transactions’ under the fair value measurement hierarchy. The fair value of current borrowings approximates their carrying amount, as the impact of discounting is not significant. Secured Unsecured 2014 US$m 4,911 6,573 2013 US$m 4,460 6,824 11,484 11,284 Secured borrowings at 31st December 2014 included Hongkong Land’s bank borrowings of US$212 million (2013: US$230 million) which were secured against its properties for sale, Mandarin Oriental’s bank borrowings of US$517 million (2013: US$555 million) which were secured against its tangible assets, and Astra’s bonds and notes of US$1,624 million (2013: US$1,753 million) which were secured against its various assets as described below and bank borrowings of US$2,558 million (2013: US$1,922 million) which were secured against its various assets. 98 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)30 Borrowings (continued) Fixed rate borrowings Weighted average interest rates Weighted average period outstanding Floating rate borrowings By currency: 2014 Chinese renminbi Euro Hong Kong dollar Indonesian rupiah Japanese yen Malaysian ringgit New Taiwan dollar Philippine peso Singapore dollar Swiss franc United Kingdom sterling United States dollar Other 2013 Chinese renminbi Euro Hong Kong dollar Indonesian rupiah Japanese yen Malaysian ringgit New Taiwan dollar Singapore dollar Swiss franc United Kingdom sterling United States dollar Other % 5.3 1.6 3.3 9.1 1.0 4.1 2.0 3.5 2.2 1.8 1.6 2.1 5.9 5.2 1.8 2.9 7.6 1.2 4.0 1.9 2.1 1.2 2.6 2.3 3.7 Years US$m US$m – 2.4 10.1 1.5 – – 2.9 0.8 2.5 17.0 – 1.4 0.6 – 3.4 10.1 1.3 – 0.1 0.4 3.4 18.0 0.5 1.6 0.4 – 4 2,142 4,218 – – – 78 475 2 – 259 5 7,183 – 6 2,038 3,632 – – 1 510 2 33 351 8 6,581 100 182 1,559 712 21 87 10 24 792 12 175 626 1 4,301 147 207 1,745 885 29 140 9 794 54 130 560 3 4,703 The weighted average interest rates and period of fixed rate borrowings are stated after taking into account hedging transactions. Total US$m 100 186 3,701 4,930 21 87 10 102 1,267 14 175 885 6 11,484 147 213 3,783 4,517 29 140 10 1,304 56 163 911 11 11,284 99 Jardine Matheson | Annual Report 201430 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 2014 US$m 6,755 1,346 1,061 69 167 2,086 2013 US$m 6,954 1,456 695 242 1 1,936 11,484 11,284 Present value of finance lease liabilities 2014 US$m 36 48 84 36 48 84 2013 US$m 43 80 123 43 80 123 Minimum lease payments 2013 2014 US$m US$m 38 50 88 (4) 84 46 83 129 (6) 123 100 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)30 Borrowings (continued) Details of the bonds and notes outstanding at 31st December 2014 are as follows: Maturity Interest rates % Nominal values US$m US$m US$m US$m 2014 2013 Current Non- current Current Non- current Hongkong Land 5.50% 10-year 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 3.95% 10-year notes 3.95% 10-year notes 4.625% 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 3.15% 15-year notes 4.22% 15-year notes 4.40% 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 Sedaya Finance XI bonds XII bonds Berkelanjutan I Tahap I bonds Berkelanjutan I Tahap II bonds Berkelanjutan I Tahap III bonds Berkelanjutan II Tahap I bonds Berkelanjutan II Tahap II bonds Berkelanjutan II Tahap III bonds Berkelanjutan II Tahap IV bonds Singapore Dollars Guaranteed bonds 2014 2015 2017 2019 2019 2019 2020 2020 2020 2020 2021 2022 2022 2022 2022 2023 2023 2024 2025 2025 2026 2027 2027 2027 2028 2028 2029 2030 2031 2032 2040 2014 2015 2017 2014 2016 2016 2017 2018 2017 2017 US$500 million 5.50 S$375 million 3.65 S$50 million 3.86 HK$200 million 4.135 HK$300 million 4.1875 HK$300 million 4.25 HK$500 million 4.22 HK$500 million 4.24 S$150 million 3.43 HK$500 million 3.95 HK$500 million 4.28 HK$410 million 3.86 US$500 million 4.50 HK$305 million 3.00 2.90 HK$200 million 3.95 HK$1,100 million HK$300 million 3.95 US$400 million 4.625 HK$300 million 4.10 US$600 million 4.50 HK$302 million 3.75 HK$785 million 4.00 HK$473 million 4.04 HK$200 million 3.95 HK$300 million 3.15 HK$325 million 4.22 HK$400 million 4.40 HK$800 million 4.11 HK$200 million 4.125 HK$240 million 4.00 HK$250 million 5.25 10.9 10.0 8.0 – 8.6 7.5 7.75 7.25 – 7.75 9.5 – 9.75 9.6 – 10.6 9.6 – 10.5 Rp270 billion Rp580 billion Rp4,250 billion Rp941 billion Rp1,120 billion Rp1,050 billion Rp1,255 billion Rp1,950 billion Rp2,500 billion – 285 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 46 155 – – 8 – 91 79 – – 39 25 39 39 69 64 113 64 69 52 484 39 26 141 39 409 38 616 39 99 61 26 38 42 51 103 25 30 32 – – 181 – 90 69 98 62 115 2.12 Rp942 billion – 74 507 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 22 61 – 77 29 53 44 – – – – 297 42 25 39 39 68 64 118 64 67 52 462 39 26 141 39 – 38 617 39 99 61 26 38 42 – 103 25 20 32 – 47 343 – 92 78 100 – – – 101 Jardine Matheson | Annual Report 201430 Borrowings (continued) Details of the bonds and notes outstanding at 31st December 2014 are as follows (continued): Maturity Interest rates % Nominal values US$m US$m US$m US$m 2014 2013 Current Non- current Current Non- current Federal International Finance X bonds XI bonds Berkelanjutan I Tahap I bonds Berkelanjutan I Tahap II bonds Berkelanjutan I Tahap III bonds Shogun bonds SAN Finance I bonds II bonds Berkelanjutan I Tahap I bonds Berkelanjutan I Tahap II bonds Surya Artha Nusantara Finance II notes Serasi Auto Raya II bonds III bonds 2014 2014 2015 2016 2017 2014 2014 2015 2016 2017 2014 2015 2016 10.55 9.6 7.65 7.75 9.6 – 10.5 7.9 – 9.25 Rp500 billion Rp1,869 billion Rp1,635 billion Rp1,690 billion Rp1,550 billion US$20 million 9.3 8.4 9.75 10.5 Rp294 billion Rp807 billion Rp391 billion Rp1,000 billion 8.35 Rp200 billion 10.2 8.3 – 8.75 Rp470 billion Rp289 billion – – 131 – 58 – – 65 – – – 38 11 – – – 136 60 – – – 29 77 – – 12 41 153 109 58 – 20 24 11 9 – 16 – 27 – – 134 138 – – – 66 28 – – 38 24 967 3,914 1,261 3,810 The Astra Sedaya Finance bonds were issued by a partly-owned subsidiary of Astra and are collateralized by fiduciary guarantee over financing debtors of the subsidiary amounting to 60% of the total outstanding principal of the bonds. The Federal International Finance bonds were issued by a wholly-owned subsidiary of Astra and are collateralized by fiduciary guarantee over financing debtors of the subsidiary amounting to 60% of the total outstanding principal of the bonds. The SAN Finance bonds were issued by a partly-owned subsidiary of Astra and are collateralized by fiduciary guarantee over net investment in finance leases of the subsidiary amounting to 60% of the total outstanding principal of the bonds. The Serasi Auto Raya bonds were unsecured and issued by a wholly-owned subsidiary of Astra. 102 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued) 31 Creditors Trade creditors – third parties – associates and joint ventures Accruals Other amounts due to associates and joint ventures Rental and other refundable deposits Contingent consideration payable Derivative financial instruments Other creditors Financial liabilities Gross estimated losses on insurance contracts Net amount due to customers for contract work Proceeds from properties for sale received in advance Rental income received in advance Other income received in advance Deferred warranty income Unearned premiums on insurance contracts Other Non-current Current Analysis by geographical area of operation: Greater China Southeast Asia United Kingdom Rest of the world 2014 US$m 3,944 227 4,171 1,626 188 420 67 43 400 6,915 143 48 697 26 214 17 357 191 8,608 364 8,244 8,608 3,055 5,136 229 188 8,608 2013 US$m 3,826 224 4,050 1,592 207 361 66 59 363 6,698 110 38 678 26 193 24 341 203 8,311 390 7,921 8,311 3,125 4,799 221 166 8,311 Derivative financial instruments are stated at fair value. Other creditors are stated at amortized cost. The fair values of these creditors approximate their carrying amounts. 103 Jardine Matheson | Annual Report 201432 Provisions 2014 At 1st January Exchange differences Additional provisions Unused amounts reversed Utilized At 31st December Non-current Current 2013 At 1st January Exchange differences New subsidiaries Additional provisions Unused amounts reversed Utilized At 31st December Non-current Current Motor vehicle warranties Closure cost provisions Obligations under onerous leases Reinstate- ment and restoration costs Statutory employee entitlements US$m US$m US$m US$m US$m Others US$m Total US$m 32 (2) 9 – (4) 35 – 35 35 29 (1) – 7 – (3) 32 – 32 32 9 – 2 (2) (4) 5 1 4 5 6 – – 6 (1) (2) 9 – 9 9 10 (1) 3 – – 12 10 2 12 3 – – 9 (1) (1) 10 6 4 10 46 (2) 4 (1) (1) 46 41 5 46 40 (2) 4 7 – (3) 46 40 6 46 96 (2) 9 – (2) 101 75 26 101 106 (23) 4 9 – – 96 80 16 96 12 – 7 (1) (2) 16 11 5 16 10 (1) – 4 – (1) 12 8 4 12 205 (7) 34 (4) (13) 215 138 77 215 194 (27) 8 42 (2) (10) 205 134 71 205 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. 104 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued) 33 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 associates and joint ventures Profit on sale of other investments Profit on sale of tangible assets Loss on sale of repossessed assets Loss on sale of plantations and related assets Decrease in fair value of plantations Impairment of tangible assets Impairment of other investments 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 Options granted under employee share option schemes Other By business: Jardine Pacific Jardine Motors Hongkong Land Dairy Farm Mandarin Oriental Jardine Cycle & Carriage Astra Corporate and other interests 2014 US$m 32 27 2 203 65 11 667 2013 US$m 26 21 2 197 60 10 723 1,007 1,039 2014 US$m 2013 US$m – (4) (36) (37) 52 4 34 231 – 129 57 (26) (56) 14 27 11 3 403 2 (5) (65) 4 2 14 462 (11) 403 (13) – (11) (33) 56 1 15 1 55 117 59 (19) (12) 14 68 11 – 309 8 (2) (12) – (3) 14 244 60 309 105 Jardine Matheson | Annual Report 201433 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 Plantations Associates and joint ventures Non-current debtors Deferred tax assets Current assets Deferred tax liabilities Pension liabilities Non-current provisions Current liabilities Non-current borrowings Non-controlling interests Fair value of identifiable net assets acquired Adjustment for non-controlling interests Goodwill Total consideration Payment for contingent consideration Adjustment for deferred consideration Payment for deferred consideration Carrying value of associates and joint ventures Cash and cash equivalents of subsidiaries acquired Net cash outflow 2014 US$m (340) (449) (1,039) 388 30 (1,410) 2014 Fair value US$m 12 82 27 – 38 4 75 – (3) – (125) (80) (1) 29 – 127 156 1 – 2 (95) (11) 53 2013 US$m (160) (94) (901) 867 30 (258) 2013 Fair value US$m 59 82 – 9 5 – 89 (4) (5) (6) (80) – – 149 (54) 69 164 2 (2) 1 – (38) 127 For the subsidiaries acquired during 2014, the fair value of the identifiable assets and liabilities at the acquisition date is provisional and will be finalized within one year after the acquisition dates. The fair value of the identifiable assets and liabilities at the acquisition dates of certain subsidiaries acquired during 2013 as included in the comparative figures was provisional. The fair value was finalized in 2014. As the difference between the provisional and the finalized fair value was not material, the comparative figures have not been adjusted. Net cash outflow for purchase of subsidiaries in 2014 included US$23 million for Dairy Farm’s increased interest from 50% to 66% in Rustan Supercenters, Inc. (‘Rustan’), which operates a supermarket and hypermarket chain in the Philippines, in August 2014, and US$26 million for Astra’s acquisition of a 100% interest in PT Palma Plantasindo, an oil palm plantation company, in July 2014. 106 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)33 Notes to Consolidated Cash Flow Statement (continued) (d) Purchase of subsidiaries (continued) The goodwill arising from the acquisition of Rustan amounted to US$125 million was attributable to its leading market position and retail network in the Philippines. Net cash outflow in 2013 included US$39 million for Jardine Pacific’s acquisition of a 100% interest in Birdland (Hong Kong) Limited which operates the KFC franchised restaurants in Hong Kong and Macau (‘KFC Hong Kong’), in November 2013, US$42 million and US$31 million for Astra’s acquisition of a 100% interest in PT Pelabuhan Penajam Banua Taka, a port business in Indonesia, in January 2013, and a 51% interest in PT Pakoakuina, a producer of wheel rims for both motor cars and motorcycles, in April 2013, respectively. The goodwill arising from the acquisition of KFC Hong Kong amounted to US$42 million and was attributable to its market share in quick service restaurants in Hong Kong and the benefit to strengthen the Group’s operating capability of KFC franchise in the region. None of the goodwill is expected to be deductible for tax purposes. Revenue and loss after tax since acquisition in respect of subsidiaries acquired during the year amounted to US$178 million and US$9 million, respectively. Had the acquisitions occurred on 1st January 2014, consolidated revenue and consolidated profit after tax for the year ended 31st December 2014 would have been US$40,203 million and US$4,064 million, respectively. (e) Purchase of associates and joint ventures in 2014 included US$36 million and US$150 million for Hongkong Land’s investments in the Philippines and mainland China, respectively, US$92 million for Dairy Farm’s acquisition of a 49% interest in Rose Pharmacy, Inc., which operates health and beauty business in the Philippines, and US$56 million and US$41 million for Astra’s subscription to PT Bank Permata’s rights issue and capital injections into certain associates and joint ventures in Indonesia, respectively. Purchase in 2013 included US$394 million for Hongkong Land’s investments in new joint ventures mainly in China and Indonesia, and US$65 million for Astra’s capital injections into certain associates and joint ventures in Indonesia. (f ) Purchase of other investments in 2014 and 2013 mainly included acquisition of securities by Astra. (g) Advance and repayment from associates, joint ventures and others in 2014 and 2013 mainly included advance and repayment from Hongkong Land’s property joint ventures. (h) Sale of subsidiaries in 2013 included US$25 million from Jardine Motors’ sale of its dealerships in North London and Hampshire and US$9 million from Astra’s disposal of its 100% interest in PT Suryaraya Prawira. (i) Sale of other investments in 2014 comprised US$119 million for Jardine Strategic’s sale of Tata Power and US$98 million for Astra’s sale of securities. Sale in 2013 comprised Astra’s sale of securities. 107 Jardine Matheson | Annual Report 201433 Notes to Consolidated Cash Flow Statement (continued) (j) Change in interests in subsidiaries Increase in attributable interests – Jardine Cycle & Carriage – Jardine Strategic – other Decrease in attributable interests 2014 US$m (120) – (21) 185 44 2013 US$m (136) (182) (56) 260 (114) Increase in attributable interests in other subsidiaries in 2014 included US$10 million for Jardine Motors’ acquisition of an additional 40% interest in Dongguan Huaxing, increasing its controlling interest to 100% and US$5 million for Astra’s acquisition of an additional 5% interest in PT Marga Harjaya Infrastruktur, increasing its controlling interest to 100%. Increase in 2013 included US$51 million for Astra’s acquisition of an additional 15% interest in PT Asmin Bara Bronang, increasing its controlling interest to 75%. Decrease in attributable interests in 2014 comprised Astra’s sale of a 25% interest in PT Astra Sedaya Finance to PT Bank Permata, reducing its controlling interest to 75%. Decrease in 2013 comprised Astra’s reduction in its interest in PT Astra Otoparts from 96% to 80%. (k) Analysis of balances of cash and cash equivalents Bank balances and other liquid funds (refer note 23) Bank overdrafts (refer note 30) 2014 US$m 5,315 (27) 5,288 2013 US$m 5,214 (25) 5,189 108 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)34 Derivative Financial Instruments The fair values of derivative financial instruments at 31st December are as follows: Designated as cash flow hedges – forward foreign exchange contracts – interest rate swaps – cross currency swaps Designated as fair value hedges – interest rate swaps – cross currency swaps Non-qualifying as hedges – interest rate caps 2014 2013 Positive fair value US$m Negative fair value US$m Positive fair value US$m Negative fair value US$m 2 – 181 183 6 14 20 1 17 4 12 33 – 10 10 – 2 – 283 285 5 4 9 – – 10 14 24 – 35 35 – Forward foreign exchange contracts The contract amounts of the outstanding forward foreign exchange contracts at 31st December 2014 were US$624 million (2013: US$224 million). Interest rate swaps and caps The notional principal amounts of the outstanding interest rate swap and cap contracts at 31st December 2014 were US$632 million (2013: US$888 million). At 31st December 2014 the fixed interest rates relating to interest rate swaps and caps vary from 0.6% to 3.5% (2013: 0.6% to 7.0%) 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 2.0% (2013: 0.2% to 2.6%) per annum. Cross currency swaps The contract amounts of the outstanding cross currency swap contracts at 31st December 2014 totalled US$4,026 million (2013: US$3,167 million). 109 Jardine Matheson | Annual Report 201435 Commitments Capital commitments: Authorized not contracted – joint ventures – other Contracted not provided – joint ventures – other 2014 US$m 12 1,082 1,094 188 780 968 2013 US$m – 1,348 1,348 387 429 816 2,062 2,164 In addition, Dairy Farm entered into an agreement in August 2014 to acquire, by way of subscription of new shares, 19.99% of the enlarged share capital of Yonghui Superstores Co., Ltd (‘Yonghui’) for a consideration of RMB5.7 billion (approximately US$925 million). Listed on the Shanghai Stock Exchange, Yonghui is a hypermarket and supermarket operator in mainland China. The investment requires certain regulatory approvals in mainland China. The regulatory approval process is expected to complete in the first half of 2015. Operating lease commitments: Total commitments under operating leases – due within one year – due between one and two years – due between two and three years – due between three and four years – due between four and five years – due beyond five years 2014 US$m 863 605 383 218 146 730 2013 US$m 809 575 343 200 143 766 2,945 2,836 Total future sublease payments receivable relating to the above operating leases amounted to US$48 million (2013: US$50 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. 36 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. 110 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued)37 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 2014 amounted to US$7,059 million (2013: US$8,019 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 2014 amounted to US$1,071 million (2013: US$1,174 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 2014 to Jardine Lloyd Thompson were US$5 million (2013: US$5 million). The Group manages five associate hotels (2013: five associate hotels). Management fees received by the Group in 2014 from these managed hotels amounted to US$14 million (2013: US$15 million). PT Bank Permata provides banking services to the Group. The Group’s deposits with PT Bank Permata at 31st December 2014 amounted to US$411 million (2013: US$652 million). Amounts of outstanding balances with associates and joint ventures are included in debtors and creditors, as appropriate (refer notes 18 and 31). Details of Directors’ remuneration (being the key management personnel compensation) are shown on page 117 under the heading of Directors’ Appointment, Retirement, Remuneration and Service Contracts. 38 Summarized Balance Sheet of the Company Included below is certain summarized balance sheet information of the Company disclosed in accordance with Bermuda law. Subsidiaries Share capital (refer note 24) Share premium and capital reserves (refer note 26) Revenue and other reserves Shareholders’ funds Current liabilities Total equity and liabilities Subsidiaries are shown at cost less amounts provided. 2014 US$m 789 173 39 562 774 15 789 2013 US$m 1,111 170 35 892 1,097 14 1,111 39 Post Balance Sheet Event Mandarin Oriental announced its intention to raise US$300 million by way of a rights issue in April 2015. The proceeds of the rights issue will be used to pay down debt, thereby providing the company with the capacity to finance renovation of its London hotel and place it in a position to make further investments in line with its development strategy. Jardine Strategic has committed to take up its entitlement and fully underwrite the offer. 111 Jardine Matheson | Annual Report 201440 Principal Subsidiaries The Group’s principal subsidiaries at 31st December 2014 are set out below: Proportion of ordinary shares and voting powers at 31st December 2014 held by Attributable interests 2014 2013 the Group Dairy Farm International Holdings Ltd Hongkong Land Holdings Ltd Jardine Cycle & Carriage Ltd Jardine Matheson Ltd Jardine Motors Group Holdings Ltd Jardine Pacific Holdings Ltd Country of incorporation/ principal place of business Bermuda/ Greater China and Southeast Asia % 64 % 64 Nature of business Supermarkets, hypermarkets, convenience stores, health and beauty stores, home furnishings stores and restaurants Bermuda/ Greater China and Southeast Asia Property development & investment, leasing & management Singapore/ Southeast Asia A 50.1% interest in PT Astra International Tbk and motor trading 41 41 61 60 Bermuda/ Hong Kong Bermuda/ Greater China and United Kingdom Bermuda/ Greater China and Southeast Asia Group management 100 100 100 Motor trading 100 100 100* 100 100 100 Engineering & construction, transport services, restaurants, property and IT services Jardine Strategic Holdings Ltd† Bermuda/ Holding 82 83 Mandarin Oriental International Ltd Matheson & Co., Ltd Greater China and Southeast Asia Bermuda/ Worldwide Hotel management & ownership 61 61 England/ United Kingdom Holding and management 100 100 31 30 PT Astra International Tbk Indonesia/ Indonesia Automotive, financial services, agribusiness, heavy equipment and mining, infrastructure and logistics, and information technology All subsidiaries are included in the consolidation. non-controlling interests % 22 50 26 – – – 18 27 – 50 % 78 50 74 82 73 100 50 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. * Jardine Motors is directly held by the Company. All other subsidiaries are held through subsidiaries. † Jardine Strategic held 56% (2013: 56%) of the share capital of the Company. 112 Jardine Matheson | Annual Report 2014Notes to the Financial Statements (continued) Independent Auditors’ Report To the members of Jardine Matheson Holdings Limited Report on the Consolidated Financial Statements Our opinion In our opinion, Jardine Matheson Holdings Limited’s consolidated financial statements (the ‘financial statements’) present fairly, in all material respects, the financial position of the Group as at 31st December 2014 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (‘IFRSs’) and The Companies Act 1981 (Bermuda). What we have audited Jardine Matheson Holdings Limited’s financial statements comprise: • the Consolidated Balance Sheet as at 31st December 2014; • the Consolidated Profit and Loss Account and the Consolidated Statement of Comprehensive Income for the year then ended; • the Consolidated Cash Flow Statement for the year then ended; • the Consolidated Statement of Changes in Equity for the year then ended; and • the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information. The financial reporting framework that has been applied in the preparation of the financial statements is applicable law in Bermuda and IFRSs as issued by the International Accounting Standards Board (‘IASB’). In applying the financial reporting framework, the Directors have made a number of subjective judgements, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events. Responsibilities for the Financial Statements and the Audit Our responsibilities and those of the Directors As explained more fully in the Responsibilities Statement on page 115, the Directors are responsible for the preparation and fair presentation of the financial statements in accordance with IFRSs and The Companies Act 1981 (Bermuda). Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland) (‘ISAs (UK & Ireland)’). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Section 90 of The Companies Act 1981 (Bermuda) and for no other purpose. We do not, in giving these opinions, 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. What an audit of financial statements involves We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: • whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; • the reasonableness of significant accounting estimates made by the Directors; and • the overall presentation of the financial statements. We primarily focus our work in these areas by assessing the Directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements. We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 11th March 2015 (a) The maintenance and integrity of the Jardine Matheson Holdings Limited website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. (b) Legislation in Bermuda governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 113 Jardine Matheson | Annual Report 2014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$) Cash Flow Cash flows from operating activities Cash flows from investing activities Net cash flow before financing Cash flow per share from operating activities (US$) 2014 US$m 39,921 1,710 1,534 4.62 4.14 1.45 2014 US$m 66,457 (21,652) 44,805 19,267 2,483 51.79 2014 US$m 3,354 (2,303) 1,051 2013 US$m 39,465 1,566 1,502 4.26 4.09 1.40 2013 US$m 63,835 (21,053) 42,782 18,386 2,601 49.84 2013 US$m 4,200 (2,372) 1,828 2012 US$m 39,593 1,671 1,462 4.58 4.01 1.35 2012 US$m 63,461 (21,088) 42,373 17,800 3,413 48.53 2012 US$m 2,729 (2,784) (55) 2011 US$m 37,967 3,432 1,478 9.48 4.08 1.25 2011 US$m 58,297 (19,050) 39,247 16,352 2,432 45.08 2011 US$m 2,674 (2,675) (1) 2010 US$m 30,053 3,068 1,348 8.54 3.75 1.15 2010 US$m 48,075 (16,132) 31,943 13,706 2,252 37.98 2010 US$m 2,210 (1,372) 838 9.06 11.42 7.48 7.38 6.15 * Figures prior to 2013 have been restated due to a change in accounting policy upon adoption of IAS 19 (amended 2011) ‘Employee Benefits’. 114 Jardine Matheson | Annual Report 2014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 Conduct Authority of the United Kingdom. For and on behalf of the Board Ben Keswick James Riley Directors 11th March 2015 115 Jardine Matheson | Annual Report 2014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 standard listing on the Main Market of the London Stock Exchange, and secondary listings in Bermuda and Singapore. At a Special General Meeting held on 8th April 2014 shareholders approved the transfer of the Company’s shares to a standard listing from a premium listing on the London Stock Exchange and this transfer took effect on 27th May 2014. The Company’s share capital is 56%-owned by Jardine Strategic Holdings Limited (‘Jardine Strategic’), a Bermuda incorporated 82%-owned subsidiary of the Company similarly listed in London, Bermuda and Singapore. The Disclosure and Transparency Rules (the ‘DTRs’) issued by the Financial Conduct Authority of the United Kingdom (the ‘FCA’) require that this Report address all relevant information about the corporate governance practices applied beyond the requirements under Bermuda law. 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 based on its approach developed over many years. At the time of its transfer from a premium listing to a standard listing the Company advised that it intended to maintain certain governance principles, including in relation to significant transactions, related party transactions, pre-emption rights over the issue of new shares and securities dealing rules, that would otherwise no longer apply to the Company. These are more fully described in ‘Further Governance Principles’ below. 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. The structural relationship between the Group companies is considered to be a key element to the Group’s success. By coordinating objectives, establishing common values and standards and sharing experience, contacts and business relationships, the Group aims to optimize opportunities across the Asian countries in which it operates. The Company’s system of governance is based on a well-tried approach to oversight and management, in which the individual subsidiaries and affiliates benefit from the Group’s strategic guidance and professional expertise, while at the same time, the independence of their boards is respected and clear operational accountability rests with their executive management teams. The Directors have the full power to manage the business affairs of the Company, with the exception of matters reserved to be exercised by the Company in general meeting under Bermuda legislation or the Company’s Bye-laws. Among the matters on which the Board decides are the Group’s business strategy, its annual budget, dividends and major corporate activities. Operational management is delegated to the appropriate level, and coordination with the Group’s listed subsidiaries is undertaken by the board of the Group management company, Jardine Matheson Limited (‘JML’). The JML board meets regularly in Hong Kong and is chaired by the Managing Director. It currently has six other members, whose names appear on page 124 of this Report, which include the Deputy Managing Director, the Group Finance Director, the Group Strategy Director and the Group General Counsel. The Board The Company currently has a Board of 14 Directors. Their names and brief biographies appear on page 27 of this Report. The Board composition and operation provide stability, allowing the Company to take a long-term view as it seeks to grow its business and pursue investment opportunities. 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 by the Managing Director in his capacity as chairman of the board of JML to which responsibility for implementing the Group’s strategy within designated financial parameters has been delegated. The Board is scheduled to hold four meetings in 2015 and ad hoc procedures are adopted to deal with urgent matters. In 2014 one meeting was held in Bermuda and three were held in Asia. The Board receives high quality, up to date information for each of its meetings. In addition, certain Directors who are not members of the board of JML and who are based outside Asia regularly visit Asia and Bermuda to discuss the Group’s business, as well as to participate in the four annual Group strategic reviews that precede the regular 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 at Board meetings. 116 Jardine Matheson | Annual Report 2014Directors’ Appointment, Retirement, Remuneration and Service Contracts Candidates for appointment as executive Directors of the Company or as executive directors of JML may be sourced internally or externally, including by using the services of specialist executive search firms. The aim is to appoint individuals who combine international best practice with familiarity of or adaptability to Asian markets. When appointing non-executive Directors, the Board pays particular attention to the Asian business experience and relationships that they can bring. Each new Director is appointed by the Board and, in accordance with the Company’s Bye-laws, each new Director is subject to retirement at the first annual general meeting after appointment. Thereafter, Directors are subject to retirement by rotation under the Bye-laws 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 does not extend to the Chairman or Managing Director. On 5th March 2015 Michael Wei Kuo Wu was appointed as a Director of the Company. In accordance with Bye-law 84, Anthony Nightingale, Y.K. Pang and Percy Weatherall retire by rotation at this year’s Annual General Meeting and, being eligible, offer themselves for re-election. In accordance with Bye-law 91, Michael Wei Kuo Wu will also retire, and, being eligible, offers himself for re-election. Y.K. Pang has a service contract with a subsidiary of the Company that has a notice period of six months. Anthony Nightingale, Percy Weatherall and Michael Wei Kuo Wu do not have service contracts with the Company or its subsidiaries. Jenkin Hui, who had been a Director of the Company since 2003, passed away on 4th September 2014. Giles White is to retire from the Board on 31st July 2015. 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 to reflect any requirement for them to relocate. Recommendations and decisions on remuneration and other benefits payable or made available to executive Directors result from consultations between the Chairman and the Managing Director as well as with other Directors as may be considered appropriate. Directors’ fees which are payable to the Chairman and all other 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$55,000 each per annum and the fee for the Chairman to US$80,000 per annum with effect from 1st January 2015 will be proposed at the forthcoming Annual General Meeting. 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 5.20% 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. For the year ended 31st December 2014, the Directors received US$66.2 million (2013: US$64.3 million) in aggregate being distributions from the 1947 Trust of US$48.8 million (2013: US$47.3 million) and Directors’ fees and employee benefits from the Group of US$17.4 million (2013: US$17.0 million). Directors’ fees and employee benefits included US$0.3 million (2013: US$0.3 million) in Directors’ fees, US$13.6 million (2013: US$13.4 million) in short-term employee benefits including salary, bonuses, accommodation and deemed benefits in kind, US$1.6 million (2013: US$1.5 million) in post-employment benefits and US$1.8 million (2013: US$1.8 million) in share-based payments. Share-based long-term incentive plans have also been established to provide incentives for executive Directors and senior managers. Share options are granted at the then prevailing market prices and 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. 117 Jardine Matheson | Annual Report 2014Corporate Governance (continued) Audit Committee The Board has established an Audit Committee, the current members of which are Lord Leach of Fairford, Anthony Nightingale and Percy Weatherall; they have extensive knowledge of the Group but are not directly involved in operational management. 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. The Audit Committee meets and reports to the Board semi-annually. 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 any new accounting policies, is undertaken by the Audit Committee with the executive management and a report is received from the external auditors. 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 also keeps under review the nature, scope and results of the audits conducted by the internal audit function and the findings of the various Group audit committees. The Audit Committee’s responsibilities extend to reviewing the effectiveness of both the internal and the external audit functions; considering the independence and objectivity of the external auditors; and reviewing and approving the level and nature of non-audit work performed by the external auditors. The terms of reference of the Audit Committee can be found on the Company’s website at www.jardines.com. Risk Management and Internal Control The Board has overall responsibility for the Group’s systems of risk management and internal control. The Board has delegated to the Audit Committee responsibility for reviewing areas of risk and uncertainty, the operation and effectiveness of the Group’s systems of internal control and the procedures by which these are monitored. The Audit Committee considers the systems and procedures on a regular basis, and reports to the Board semi-annually. The systems of internal control are 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. 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 independent of 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 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 is set out in the Group’s Code of Conduct, which is a set of guidelines to which every employee must adhere, and 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. The principal risks and uncertainties facing the Company are set out on page 122. 118 Jardine Matheson | Annual Report 2014Directors’ Responsibilities in respect of the Financial Statements The Directors are required under the Bermuda Companies Act 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 are required to 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. The financial statements have been prepared on a going concern basis. 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. 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 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. Directors’ Share Interests The Directors of the Company in office on 11th March 2015 had interests (within the meaning of the DTRs) 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 Giles White Notes: (a) Includes 1,950,004 ordinary shares held by a family trust, the trustees of which are connected persons of Ben Keswick, Adam Keswick, Simon Keswick 11,020,432 42,103,007(a) (b) (c) 35,578,343(a) (b) 11,804,402(a) (c) 1,164,024 112,305 1,157,335 315,000 253,912 36,786,014(a) (b) 48,447 and Percy Weatherall. (b) Includes 30,659,530 ordinary shares held by family trusts, the trustee of which is a connected person of Ben Keswick, Adam Keswick and Percy Weatherall. (c) Includes 6,898,390 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 40,000 ordinary shares, respectively, issued pursuant to the Company’s Senior Executive Share Incentive Schemes. 119 Jardine Matheson | Annual Report 2014Corporate Governance (continued) 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 386,470,216 ordinary shares carrying 55.95% of the voting rights; and (ii) the 1947 Trust is interested in 35,915,991 ordinary shares carrying 5.20% 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 11th March 2015. There were no contracts of significance with corporate substantial shareholders during the year under review. Further Governance Principles In May 2014 the Company’s primary listing on the London Stock Exchange was transferred from a premium listing to a standard listing on the Main Market. Under a standard listing, the Company is subject to the UK Listing Rules (other than those which apply only to companies with a premium listing), the DTRs, the UK Prospectus Rules and the market abuse provisions of the UK Financial Services and Markets Act. The Company, therefore, is bound by the rules in relation to continuous disclosure, periodic financial reporting, disclosure of interests in shares and market abuse, including the rules governing insider dealing, market manipulation and the disclosure of price sensitive information. The Company is also subject to regulatory oversight from the FCA, as the Company’s principal securities regulator, and is required to comply with the Admission and Disclosure Standards of the Main Market of the London Stock Exchange. The main areas of the UK Listing Rules that no longer apply to the Company are in respect of significant transactions, related party transactions, pre-emption rights over the issue of new shares, share repurchases and the need to comply or explain non- compliance with the UK Corporate Governance Code. At the time of the move to a standard listing, however, the Company stated that it intended to maintain certain governance principles in the following areas: 1. When assessing a significant transaction, being a larger transaction which would be classified as a class 1 transaction under the provisions of the UK Listing Rules (having regard to the basis on which such provisions were applied to the Company on the date of transfer to a standard listing), the Company will engage an independent financial adviser to provide a fairness opinion on the terms of the transaction. 2. In the event of a related party transaction, being a transaction with a related party which would require a sponsor to provide a fair and reasonable opinion under the provisions of the UK Listing Rules (having regard to the basis on which such provisions were applied to the Company on the date of transfer to a standard listing), the Company will engage an independent financial adviser to confirm that the terms of the transaction are fair and reasonable as far as the shareholders of the Company are concerned. 3. Further, as soon as the terms of a significant transaction or a related party transaction are agreed, an announcement will be issued by the Company providing such details of the transaction as are necessary for investors to evaluate the effect of the transaction on the Company. 4. At each annual general meeting, the Company will seek shareholder approval to issue new shares on a non-pre-emptive basis for up to 33% of the Company’s issued share capital, of which up to 5% can be issued for cash consideration. 5. The Company will continue to adhere to its Securities Dealing Rules, which follow the UK Model Code as applied to the Company on the date of transfer to a standard listing. 6. The Company will continue its policies and practices in respect of risk management and internal controls. 120 Jardine Matheson | Annual Report 2014Related Party Transactions Details of transactions with related parties entered into by the Company during the course of the year are included in note 37 to the financial statements on page 111. Securities Purchase Arrangements The Directors have the power under the Bermuda Companies Act and the Company’s Memorandum of Association to purchase the Company’s shares. Any shares so purchased shall be treated as cancelled. The Board considers on a regular basis the possibility for share repurchases or the acquisition of further shares in Group companies, including shares in Jardine Strategic. When doing so, it considers the potential for the enhancement of earnings or asset values per share. At the Annual General Meeting held on 8th May 2014, shareholders approved 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 in accordance with the UK Listing Rules applicable to the Company’s premium listing status at the time. As such an authority is no longer required by the Company’s standard listing obligations, its renewal is not being sought at the forthcoming Annual General Meeting. The Company will, however, remain subject to the UK market abuse regime. Takeover Code The Company is subject to a Takeover Code, based on London’s City Code on Takeovers and Mergers. The Takeover Code provides an orderly framework within which takeovers can be conducted and the interests of shareholders protected. The Takeover Code has statutory backing, being established under the Acts of incorporation of the Company in Bermuda. Annual General Meeting The 2015 Annual General Meeting will be held at Rosewood Tucker’s Point, Bermuda on 7th May 2015. 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. A corporate website is maintained containing a wide range of information of interest to investors at www.jardines.com. Power to amend Bye-laws The Bye-laws of the Company can be amended by the shareholders by way of a special resolution at a general meeting of the Company. 121 Jardine Matheson | Annual Report 2014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 page 118 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 Conduct 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 51. 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. 122 Jardine Matheson | Annual Report 2014Shareholder Information Financial Calendar 2014 full-year results announced Shares quoted ex-dividend on the Singapore Exchange Shares quoted ex-dividend on the London Stock Exchange Share registers closed 2014 final dividend scrip election period closes Annual General Meeting to be held 2014 final dividend payable 2015 half-year results to be announced Shares quoted ex-dividend on the Singapore Exchange Shares quoted ex-dividend on the London Stock Exchange Share registers to be closed 2015 interim dividend scrip election period closes 2015 interim dividend payable * Subject to change 5th March 2015 18th March 2015 19th March 2015 23rd to 27th March 2015 24th April 2015 7th May 2015 13th May 2015 31st July 2015* 19th August 2015* 20th August 2015* 24th to 28th August 2015* 25th September 2015* 14th October 2015* 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 2014 final dividend by notifying the United Kingdom transfer agent in writing by 24th April 2015. The sterling equivalent of dividends declared in United States dollars will be calculated by reference to a rate prevailing on 29th April 2015. 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 Asset Services 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. 123 Jardine Matheson | Annual Report 2014Telephone Email Website (852) 2843 8288 jml@jardines.com www.jardines.com Group Corporate Secretary N.M. McNamara 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 The St Botolph Building 138 Houndsditch London EC3A 7AW United Kingdom 8th Floor One Exchange Square Central Hong Kong 11th 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 Jl. Gaya Motor Raya No. 8 Sunter II, Jakarta 14330 Indonesia Telephone Email Website (44 20) 7816 8100 enquiries@matheson.co.uk www.matheson.co.uk Lord Leach of Fairford Telephone Email (852) 2579 2888 jpl@jardines.com Ben Birks Telephone Email (852) 2579 2888 jmg@jardines.com Adam Keswick Telephone Email Website (44 20) 7528 4444 info@jltgroup.com www.jltgroup.com Dominic Burke Telephone Email Website (852) 2842 8428 gpobox@hkland.com www.hkland.com Y.K. Pang Telephone Email Website (852) 2299 1888 groupcomm@dairy-farm.com.hk www.dairyfarmgroup.com Graham D. Allan Telephone Email Website (852) 2895 9288 asia-enquiry@mohg.com www.mandarinoriental.com Edouard Ettedgui Telephone Email Website (65) 6473 3122 corporate.affairs@jcclgroup.com www.jcclgroup.com Alex Newbigging Telephone Email Website (62 21) 652 2555 purel@ai.astra.co.id www.astra.co.id Prijono Sugiarto 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 PT Astra International Tbk 124 Jardine Matheson | Annual Report 2014Bermuda Jardine Matheson International Services Ltd 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. 4th Floor, Jardine House 33-35 Reid Street Hamilton HM 12 P.O. Box HM 1068 Hamilton HM EX 1st Floor, Central Mansion I No. 1A, Street 102 Sangkat Wat Phnom Khan Daun Penh Phnom Penh 12202 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 3702, China World Office 1 China World Trade Centre No. 1 Jianguomenwai Avenue Chaoyang District Beijing 100004 Suite 7.01, Level 7 Wisma E&C No. 2 Lorong Dungun Kiri Bukit Damansara 50490 Kuala Lumpur No. 1/4 Parami Road, Level 2 Hlaing Township Yangon Atrium Building Strawinskylaan 3007 1077 ZX Amsterdam Telephone (1 441) 292 0515 John C. Lang Telephone (855 23) 986 804 John Brinsden Telephone (852) 2843 8288 Ben Keswick Telephone (62 21) 522 8981/2 Jonathan Chang Telephone (86 10) 6505 2801 David Hsu Telephone (60 3) 2094 2168 Datuk Syed Tamim Mohamed Telephone (95 1) 661 083 Peter Beynon Telephone (31 20) 470 0258 Pim Bertels Philippines Jardine Matheson Ltd (Representative Office) 2nd Floor, 111 Paseo de Roxas Building Paseo de Roxas corner Legaspi Street Legaspi Village, Makati City 1229 Telephone (63 2) 706 8503 A.B. Colayco Singapore Jardine Matheson (Singapore) Ltd 239 Alexandra Road, 3rd Floor Singapore 159930 Telephone (65) 6220 4254 Y.C. Boon Taiwan Jardine, Matheson & Co., Ltd Thailand Jardine Matheson (Thailand) Ltd United Kingdom Matheson & Co., Ltd Vietnam Jardine Matheson Ltd 6th Floor, 39 Jinan Road Section 2, Taipei 10059 21-03, 21st Floor, Times Square Building 246 Sukhumvit Road, KIong Toey Bangkok 10110 Telephone (886 2) 2393 1166 Liang Chang Telephone (66 2) 254 0674 Dr Pisit Leeahtam 3 Lombard Street London EC3V 9AQ 5th Floor, CJ Building 6 Le Thanh Ton Street District 1, Ho Chi Minh City Telephone (44 20) 7816 8100 Lord Leach of Fairford Telephone (84 8) 3822 2340 Alain Cany www.jardines.com 

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