Jardine Matheson Holdings Limited
Annual Report 2016

Plain-text annual report

Hotels Hotels Heavy Equipment Heavy Equipment Construction Construction Engineering Engineering Jardine Jardine Aviation Aviation Jardine Pacific Jardine Pacific Transport Services Transport Services Commercial Commercial Property Property Automobiles Automobiles Residential Residential One One Development Development Raffles Quay Raffles Quay Yonghui Yonghui Home Home Furnishings Furnishings Construction Construction Jakarta Land Jakarta Land Hongkong Land Hongkong Land Commercial Commercial Property Property Transport Services Transport Services Health and Health and Beauty Beauty Jardine Matheson Jardine Matheson Reinsurance Reinsurance Engineering Engineering Hotels Hotels Mandarin Oriental Mandarin Oriental Restaurants Restaurants Heavy Equipment Heavy Equipment Commercial Commercial Property Property Construction Construction Hactl Hactl Gammon Gammon Home Furnishings Home Furnishings Toll Roads Toll Roads Zhongsheng Zhongsheng Group Group Restaurants Restaurants Infrastructure Infrastructure Construction Construction Airport Services Airport Services Restaurants Restaurants JEC JEC Zung Fu Zung Fu Automobiles Automobiles Transport Services Transport Services Airport Services Airport Services Hotels Hotels Residential Development Commercial Property Residential Development Commercial Property Jardine Schindler Jardine Schindler Jardine Strategic Jardine Strategic Jardine Motors Jardine Motors JTH JTH Airport Services Airport Services Transport Transport Services Services Commercial Commercial Property Property Health Health and and Beauty Beauty Retail Retail Hotels Hotels Financial Financial Restaurants Restaurants Jardine Jardine Lloyd Thompson Lloyd Thompson Employee Employee Insurance Insurance Services Services Residential Residential Benefits Benefits Reinsurance Reinsurance Development Development Dairy Hypermarkets Dairy Hypermarkets Farm Farm Supermarkets Supermarkets Home Furnishings Home Furnishings Cold Storage Cold Storage Hero Maxim’s Hero Maxim’s MCL LAND MCL LAND Health and Health and Beauty Beauty Tunas Ridean Tunas Ridean Automobiles Automobiles Convenience Stores Convenience Stores Heavy Heavy Equipment Equipment Health and Health and Beauty Beauty Health Health and and Beauty Beauty Transport Transport Services Services Motorcycles Motorcycles Hotels Hotels Hotels Hotels Health Health and Beauty and Beauty Pharmacies Pharmacies Financial Financial Services Services Logistics Logistics Residential Residential Toll Toll Hotels Hotels Roads Roads Logistics Logistics Health Health and and Beauty Beauty JEC JEC JEC JEC Hotels Hotels JEC JEC Health Health and Beauty and Beauty Pharmacies Pharmacies Financial Financial Services Services JEC JEC Health Health and Beauty and Beauty Motorcycles Motorcycles Logistics Logistics Commercial Commercial Property Property JEC JEC Heavy Heavy Equipment Equipment Residential Residential Development Development Toyota Toyota Astra Motor Astra Motor Cycle & Carriage Cycle & Carriage Bintang Bintang Automobiles Automobiles Jardine Cycle Jardine Cycle & Carriage & Carriage THACO THACO Astra Astra Aviva Life Aviva Life Astra Honda Motor Astra Honda Motor Astra Otoparts Astra Otoparts Astra Astra Astra Astra Daihatsu Motor Daihatsu Motor International International Toll Toll Roads Roads Transport Transport Services Services Permata Permata Federal International Federal International Finance Asuransi Finance Asuransi Astra Buana Astra Buana Pamapersada Pamapersada Nusantara Nusantara Astra Sedaya Astra Sedaya Services Services Bank Bank Financial Financial Services Services Heavy Equipment Heavy Equipment Hotels Hotels Mining Mining United Tractors United Tractors Astra Agro Lestari Astra Agro Lestari Astra Graphia Astra Graphia Astra Land Astra Land Marga Mandalasakt Marga Mandalasakt Toll Roads Toll Roads TRAC TRAC Information Technology Information Technology Automobiles Automobiles Hotels Hotels Jardine Matheson Annual Report 2016 Toll Roads TollRoadsToll RoadsHeavy Equipment Toyota Astra MotorAstra Daihatsu Motor Astra Honda Motor AutomobilesAstra OtopartsAstraInternational United TractorsAstra Agro Lestari Astra Graphia Astra LandMarga Mandalasakt TRAC MiningInformation TechnologyHeavyEquipmentHotelsHotelsTransport ServicesResidential DevelopmentRetail Health and Beauty HotelsJardine Motors FarmSupermarkets Hero Maxim’s MCL LAND Employee BenefitsJardine PacificJardine AviationJardine MathesonMandarin OrientalJardine StrategicGammonHactl AutomobilesEngineeringAirport ServicesAirport ServicesInfrastructureConstructionEngineeringConstructionHotelsHotelsHotelsJardine SchindlerZung Fu Zhongsheng GroupResidential DevelopmentCommercial PropertyJardineLloyd ThompsonRestaurantsRestaurantsRestaurantsRestaurantsInsuranceConvenience StoresReinsuranceReinsuranceHeavy Equipment Heavy Equipment HotelsHome FurnishingsHome FurnishingsAutomobilesAutomobiles AstraAviva LifeAstra Sedaya ServicesFederal InternationalFinanceAsuransi Astra Buana PamapersadaNusantara Jardine Cycle & Carriage THACODairyHypermarketsHealth and Beauty Health andBeauty Cycle & Carriage BintangTunas RideanCold Storage JTH JECFinancial ServicesBankPermataServices Financial Transport ServicesTransport ServicesTransport ServicesHongkong Land AutomobilesCommercial PropertyResidentialDevelopmentAirport ServicesConstructionConstruction YonghuiRaffles Quay OneCommercialPropertyJakarta LandHomeFurnishingsHealth andBeauty Health and Beauty Transport ServicesMotorcycles Transport ServicesCommercial PropertyJEC Health and Beauty Toll RoadsJECJECJECJEC Healthand Beauty HotelsLogisticsLogisticsLogisticsMotorcycles Healthand Beauty Financial ServicesFinancialServicesResidentialPharmaciesPharmacies Healthand Beauty HotelsHotelsCommercial PropertyCommercialProperty Residential Development Heavy Equipment www.jardines.com for more information Jardine Matheson Holdings Limited is incorporated in Bermuda and has a standard listing on the London Stock Exchange, with secondary listings in Bermuda and Singapore. Jardine Matheson Limited operates from Hong Kong and provides management services to Group companies. Jardine Matheson Holdings Limited Jardine House Hamilton Bermuda Contents Introduction Highlights Jardine Matheson Group Businesses at a Glance Chairman’s Statement 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 6 8 20 22 27 28 113 114 115 116 122 123 124 Jardine Matheson is a diversified Asian-based group with unsurpassed experience in the region, having been founded in China in 1832. We comprise a broad portfolio of market-leading businesses, which represent a combination of cash generating activities and long-term property assets and are closely aligned to the increasingly prosperous consumers of the region. Where we operate Our operations Our philosophy We operate principally in Greater China and Southeast Asia, where our subsidiaries and affiliates benefit from the support of Jardine Matheson’s extensive knowledge of the region and its long-standing relationships. We are always prepared to take a long-term view when supporting their development and to ensure that they have the financial resources to achieve their goals. In our operations, which employ 430,000 people, we are active in the fields of motor vehicles and related operations, property investment and development, food retailing, home furnishings, engineering and construction, transport services, insurance broking, restaurants, luxury hotels, financial services, heavy equipment, mining and agribusiness. Our businesses aim to produce sustainable returns by providing their customers with high quality products and services. They provide good working conditions for their people, and offer fair remuneration and equal opportunities. They recognize their place in the communities in which they operate and participate fully. 1 Jardine Matheson | Annual Report 2016Highlights • Underlying profit up 2% • Full-year dividend up 3% • Sound trading performances from across Group operations • Regional economies remain resilient • Material increase in value of the Hongkong Land property portfolio Analysis of Underlying Profit of US$1,386m By Business* US$135m 1. Jardine Pacific US$297m 5. Dairy Farm US$110m 2. Jardine Motors US$56m 3. Jardine Lloyd Thompson US$353m 4. Hongkong Land US$36m 6. Mandarin Oriental US$125m 7. Jardine Cycle & Carriage US$312m 8. Astra 1 0 2 3 4 5 6 7 20 40 60 8 80 9% 8% 4% 25% 21% 2% 9% 100 22% By Sector* 25% US$354m Property 12% US$174m Engineering, construction & mining contracting By Geographical Area* 28% US$392m Motor vehicles 2% US$36m Hotels 23% US$323m Retail & restaurants 5% US$74m Insurance broking & financial services 5% US$71m Others 52% Greater China 43% Southeast Asia 5% UK & rest of the world 2 Jardine Matheson | Annual Report 20162016 Financial Highlights US$72,437m Gross revenue US$21,800m Shareholders’ funds US$3,729m Underlying profit before tax US$1,386m Underlying profit attributable to shareholders Results Gross revenue including 100% of associates and joint ventures Revenue 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 US$71,523m Total assets 430,000 People employed US$2,087m Net debt# US$5,692m Total capital investment† 2016 US$m 72,437 37,051 3,729 1,386 2,503 21,800 US$ 3.71 6.69 1.50 58.15 2015 US$m restatedΩ 65,271 37,007 3,507 1,360 1,799 19,886 US$ 3.64 4.82 1.45 53.30 Underlying Earnings per Share (US$) Net Asset Value per Share (US$) 12 13 14 15 16 4.00 4.08 4.13 3.64 3.71 12 13 14 15 16 48.28 49.64 51.60 53.30 58.15 * Based on underlying profit attributable to shareholders before corporate and other interests. # Excluding net debt of financial services companies. † Including expenditure on properties for sale and associates and joint ventures. Ω Restated due to a change in accounting policy as set out in note 1 to the financial statements. + 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. Change % 11 – 6 2 39 10 % 2 39 3 9 3 Jardine Matheson | Annual Report 2016Jardine Matheson Group Businesses at a Glance Jardine Matheson The listed holding company of the Group which oversees a portfolio of market-leading businesses and supports their long-term development. It holds an 84% interest in Jardine Strategic, a listed company holding most of the Group’s major listed interests, including 57% of Jardine Matheson. Jardine Pacific Jardine Motors Jardine Pacific’s diverse portfolio comprises industry leaders in the areas of engineering and construction, airport and transport services, restaurants and IT. Its companies seek to deliver excellent performances and services to their customers and to create value for their business partners and shareholders. (100%)* Jardine Motors is engaged in the sales and service of motor vehicles and related activities. It has operations in Hong Kong, Macau and the United Kingdom, and a large and growing presence in Southern China. It combines a customer-oriented approach with first class products and services. (100%)* Jardine Lloyd Thompson Hongkong Land JLT is one of the world’s leading providers of insurance, reinsurance and employee benefits related advice, brokerage and associated services. A UK-listed group, its deep expertise and entrepreneurial culture give it the insights, creative freedom and tenacity necessary to go beyond the routine and deliver better results for its clients. (42%)* Hongkong Land is a major listed property investment, management and development group that operates under the principles of excellence, integrity and partnership. Its almost 800,000 sq. m. prime office and retail space in Hong Kong, Singapore and other major Asian cities attracts the world’s foremost companies and luxury brands. The group also has a number of high quality residential and mixed-use projects under development in cities across Greater China and Southeast Asia. (50%)† * Figures in brackets show effective ownership by Jardine Matheson as at 2nd March 2017. † Figures in brackets show effective ownership by Jardine Strategic as at 2nd March 2017. 4 Jardine Matheson | Annual Report 2016Dairy Farm Mandarin Oriental Dairy Farm is a leading listed Asian retailer that is active across four divisions, being Food (including supermarkets, hypermarkets and convenience stores), Health and Beauty, Home Furnishings and Restaurants. The group aims to meet the changing needs of Asian consumers by offering leading brands, a compelling retail experience and great value, all provided through responsible operations supported by reliable and trusted supply chains. (78%)† Mandarin Oriental is an international hotel investment and management group with deluxe and first class hotels, resorts and residences in sought-after destinations. The group operates 29 hotels and eight residences in 19 countries and territories, and has a strong pipeline of properties under development. As an innovative industry leader, the group is committed to exceeding its guests’ expectations through exceptional levels of hospitality. (77%)† Jardine Cycle & Carriage Astra International Jardine Cycle & Carriage is a leading Singapore-listed company. In addition to holding just over 50% in Astra International, it is growing its portfolio of motor and other interests in Southeast Asia, including in Indonesia, Vietnam, Singapore, Thailand, Malaysia and Myanmar. The businesses include motor dealerships and financing, engineering, cement production and property. (75%)† Astra is a major listed Indonesian group working through its seven business lines – Automotive; Financial Services; Heavy Equipment and Mining; Agribusiness; Infrastructure and Logistics; Information Technology; and Property. Astra’s philosophy is to be an asset to the nation with an emphasis on sustainable growth, through providing the best services to its customers, a first class working environment and socially responsible outlook. Jardine Cycle & Carriage has a shareholding of just over 50%. 5 Jardine Matheson | Annual Report 2016Chairman’s Statement Sir Henry Keswick Chairman After a steady result for the Jardine Matheson Group in 2016, the current year will see our businesses concentrating on improving their underlying performances and investing in key areas for future growth. Overview The Jardine Matheson Group produced a satisfactory result for the year as most of its businesses traded well. Good performances were seen in Jardine Motors and most of Jardine Pacific’s activities. Dairy Farm made further progress in highly competitive retail markets and steady performances were seen in Hongkong Land’s operations. Astra produced some very good trading results, although its profit growth was held back by provisions in its banking affiliate, while Jardine Cycle & Carriage saw good contributions from its non-Astra interests. The results of both Mandarin Oriental and Jardine Lloyd Thompson suffered from challenges in their respective markets. The Group’s balance sheet benefited from enhanced asset values in Hongkong Land. Performance The Group’s revenue for 2016, including 100% of revenue from associates and joint ventures, was US$72.4 billion, compared with US$65.3 billion in 2015. Jardine Matheson achieved an underlying profit before tax for the year of US$3,729 million, an increase of 6%. The underlying profit attributable to shareholders was up 2% at US$1,386 million, while underlying earnings per share were 2% higher at US$3.71. The profit attributable to shareholders for the year was US$2,503 million, which included the Group’s US$1.1 billion share of an increase in the value of Hongkong Land’s investment property portfolio. This compares with US$1,799 million in 2015, that included a more modest increase in property valuations. The Group’s financial position remains strong with shareholders’ funds up 10% at US$21.8 billion. At the end of 2016, the consolidated net debt excluding financial 6 services companies was US$2.1 billion, representing gearing of 4%, compared with US$3.0 billion at the end of 2015 with gearing of 6%. The Board is recommending a final dividend of US$1.12 per share, which increases the dividend by 3% for the full year to US$1.50 per share. Business Developments With most of the Group’s businesses concentrated in Greater China and Southeast Asia, they benefit from the ongoing economic development of the Region and the demands for products and services from a growing middle class. Despite China’s ongoing economic challenges, its economy saw relatively stable growth during 2016, with retail sales in particular showing promise at the year end. During the year, the Group continued the development of its business networks and operating activities in key commercial centres across the Mainland, and produced good performances in the retail, property and motor sectors. In Southeast Asia, Astra in Indonesia was able to capture market share in the automotive segment with new model launches, while increases in raw material prices should bring further benefits. Jardine Pacific saw steady trading in most of its businesses during 2016, although Gammon’s result was affected by a problem civils contract. The group is seeking expansion opportunities, both in the development of its existing operations and by identifying new interests where it can apply its specialist knowledge and expertise. Jardine Motors enjoyed a very good year as Zung Fu’s mainland China operations achieved increased sales and higher margins. In Hong Kong, Zung Fu is repositioning its sales and service facilities, where proceeds from the disposal of existing properties are being reinvested in new facilities designed to meet the evolving requirements of its customers. Jardine Strategic’s motor dealership affiliate, Zhongsheng, also benefited from the strengthening of the Mainland market and reported much improved profitability. Jardine Lloyd Thompson reported a good result set against the continued challenging economic and trading environment. The weakness of sterling in the second half was a positive factor in JLT’s reported results, although the benefit was largely reversed on consolidation in the Group’s US dollar results. Jardine Matheson | Annual Report 2016Hongkong Land had another good year as its commercial markets remained relatively firm and there was another steady contribution from residential property developments. The value of the group’s commercial portfolio in Hong Kong increased by 12% due to office capitalization rates falling further with strong investment demand and rental growth. The group is currently developing a range of commercial and residential projects in mainland China and Southeast Asia, while its strong financial position with ample liquidity and low gearing is allowing it to pursue further opportunities in its chosen markets. Dairy Farm produced sound profit growth in retail markets that remained highly competitive. Its Hong Kong operations continued to trade well, but challenges persisted for a number of its Southeast Asian banners, particularly in Malaysia. In mainland China, Yonghui saw a strong profit improvement, and its contribution was enhanced by the inclusion of its results for a full twelve months. Dairy Farm is making progress in its transformation to compete effectively in an evolving retail landscape, which it is supporting with investment in its supply chain, IT infrastructure and systems, and in the skills and expertise of its people. Mandarin Oriental’s hotels remained focused on maintaining or enhancing their market leadership positions, but weaker demand in the group’s key cities of Hong Kong, London and Paris meant that its earnings were lower. Mandarin Oriental continues to pursue expansion opportunities around the world and has a number of hotel management contracts at various stages of development. It recently announced a management contract for a new hotel and residences in Honolulu, Hawaii to open in 2020. Jardine Cycle & Carriage produced a satisfactory performance in 2016 as Astra’s results improved, the Indonesian rupiah exchange rate was stable, and there were increased contributions from its other interests. The group is pursuing expansion in Southeast Asia, through supporting the growth of Astra in Indonesia, strengthening its other motor interests, and investing in market-leading companies that provide exposure to new business sectors. Astra had a better year in 2016. Strong performances from its automotive businesses led to increased market shares of 56% for cars and 74% for motorcycles. Most of the group’s financial services businesses performed well, with the principal exception of Permata Bank where a material increase in its loan-loss provisions led to a significant loss. Prospects for Astra’s heavy equipment and mining activities improved in the final quarter as coal prices started to recover. Its agribusiness also benefited from rising crude palm oil prices, although its 2016 performance was hampered by lower production due to the effects of poor weather. Astra continues to seek investment opportunities in Indonesia to expand its existing activities and move into new sectors, and during the year took additional stakes in toll roads and progressed its property development interests. People The strong trading performances achieved by our businesses in the face of uncertain and disruptive markets are a reflection of the hard work, dedication and professionalism of the Group’s 430,000 employees, for which we are most grateful. Jeremy Parr joined the Board in February 2016. James Riley stepped down as Group Finance Director at the end of March 2016 and was succeeded by John Witt. David Hsu joined the Board in May 2016. In August 2016, Adam Keswick moved from Hong Kong to become chairman of Matheson & Co. in London and relinquished his position as Deputy Managing Director in favour of Y.K. Pang. Adam remains on the Board. We were saddened by the death of Lord Leach in June 2016. He made a significant contribution to the Group over 33 years and his intellect and wise counsel will be greatly missed. Outlook After a steady result for the Jardine Matheson Group in 2016, the current year will see our businesses concentrating on improving their underlying performances and investing in key areas for future growth. 7 Jardine Matheson | Annual Report 2016Managing Director’s Review Ben Keswick Managing Director Each business has access to the Group’s financial resources, expertise, people and customers necessary to enable it to compete effectively in rapidly evolving business environments. Jardine Matheson is a diversified group of market-leading operations focused principally on two of the regions that are driving global growth, Greater China and Southeast Asia, although some of its businesses have a more global reach. In 2016, 52% of underlying profit came from Greater China, compared with 43% from Southeast Asia. The main contributors to underlying profit by activity were motor related interests at 28%, property at 25%, and retailing and restaurants at 23%. To support their development, each business has access to the Group’s financial resources, expertise, people and customers necessary to enable it to compete effectively in rapidly evolving business environments. This includes the ability to take advantage of the developments in technology necessary to keep pace with consumer demands. The Group’s operations produced creditable performances in 2016, enabling Jardine Matheson to achieve an underlying profit before tax of US$3,729 million, up 6%. The underlying profit attributable to shareholders rose 2% to US$1,386 million, while underlying earnings per share were 2% higher at US$3.71. The profit attributable to shareholders of US$2,503 million included a US$1,043 million share of Hongkong Land’s increase in the valuation of investment properties and gains on property and business disposals of US$163 million. Partially offsetting these was US$101 million in charges in respect of the impairment in goodwill within Jardine Pacific, which were taken through profit and loss account in line with accounting requirements. The Group’s profit generation, cash flows and retained earnings have supported continued investment enabling high levels of capital expenditure to be combined with low levels of debt. The Group’s capital investment, including expenditure on properties for sale, exceeded US$3.3 billion in 2016, in addition to which its associates and joint ventures had capital investment of US$2.3 billion. Three of Astra’s 8 Total Capital Investment of US$5.7 billion (US$ million) 409 Corporate 71 Jardine Pacific 100 Jardine Motors 93 JLT 1,377 Hongkong Land 430,000 Employees by Business Units 44,000 Jardine Pacific 7,800 Jardine Motors 10,400 JLT 3,400 Hongkong Land 1,633 Astra 830 Jardine Cycle & Carriage 261 Mandarin Oriental 918 Dairy Farm 213,400 Astra 28,000 Jardine Cycle & Carriage 13,000 Mandarin Oriental 110,000 Dairy Farm Forecast middle class consumption in Asia* 2015 2020F 2030F China Rest of Asia ex Japan, India US$ trillion 0 5.0 10.0 15.0 20.0 25.0 * Calculated at purchasing power parity in 2011 pricing in US dollars, published in 2017 by Kharas, Brookings Institution. operations, Permata Bank, Astra Agro Lestari and Acset Indonusa, raised equity through rights issues during the year to enhance their balance sheets and fund growth. The Group’s consolidated net debt at the end of the year, excluding financial services companies, was US$2.1 billion, which compares to US$3.0 billion at the end of 2015, with gearing reducing from 6% to 4%. Jardine Matheson | Annual Report 2016• Underlying profit 5% lower • Most businesses reported steady growth • Gammon’s contribution affected by difficult contract 2016 2015 Change (%) Gross revenue (including 100% of associates and joint ventures) (US$billion) Underlying profit attributable 6.3 6.2 to shareholders (US$million) 135 142 2 (5) Gross revenue (US$ billion) 12 13 14 15 16 5.3 5.4 6.1 6.2 6.3 Underlying Profit Attributable to Shareholders (US$ million) 12 13 14 15 16 110 145 131 142 135 Underlying Profit by Business (excluding Corporate & Other Interests) (US$ million) 18 Gammon 28 JEC 44 Jardine Schindler 17 Transport Services 9 JTH Group 28 Jardine Restaurants Jardine Pacific produced an underlying net profit of US$135 million in 2016, a reduction of 5% largely as a result of the sale of its shipping business in 2015. Most ongoing businesses reported steady growth, although Gammon’s contribution was affected by a difficult contract. The profit attributable to shareholders was US$57 million after taking into account property valuations and goodwill impairments principally against the IT operations. This compares with US$145 million in 2015. Jardine Schindler continued its good performance as it generated stable profits and margins, and further growth in its maintenance portfolio was achieved. JEC also did well to generate improved earnings. Gammon’s contribution was lower following the underperformance of a contract in its civils division. Its order book has remained steady at US$3.8 billion. Jardine Restaurants produced good profit growth in Taiwan, in part deriving from tax benefits, but saw more difficult trading for its Pizza Hut operations in Hong Kong. Jardine Pacific’s continuing Transport Services businesses reported stable contributions, with a slight increase in cargo throughput seen at Hactl. There was a better result from JTH Group despite continuing weak markets, however, following a review of the trading performance of its IT distribution business, a US$73 million goodwill impairment was recorded. 9 Jardine Matheson | Annual Report 2016Jardine Motors produced a much improved underlying profit of US$110 million in 2016, 43% higher than the prior year. Zung Fu in mainland China achieved higher sales of Mercedes-Benz passenger cars at enhanced margins and better performances from its after-sales operations. However, it faced declining sales and margins in softer markets in Hong Kong and Macau. Zung Fu is developing a new flagship property on Hong Kong Island, primarily financed by proceeds from the disposal of existing properties, that will combine most of its Mercedes-Benz sales, service and administration activities onto a single site. In the United Kingdom, the dealerships achieved higher vehicle sales and stable margins, but a weaker sterling exchange rate led to a lower earnings contribution. Zhongsheng, one of mainland China’s leading motor dealership groups in which Jardine Strategic now holds a 15.5% interest, announced a significant improvement in profitability in 2016 as a result of increased sales and better margins. • Underlying profit up 43% • Excellent result in mainland China • Softer markets in Hong Kong and Macau • Improved UK sales contribution offset by weaker currency • Significant profit improvement at Zhongsheng 2016 2015 Change (%) Revenue (US$ billion) 5.2 5.2 Underlying profit attributable to shareholders (US$ million) 110 77 – 43 Revenue (US$ billion) 12 13 14 15 16 4.0 4.5 5.1 5.2 5.2 Underlying Profit Attributable to Shareholders (US$ million) 15 59 12 13 14 15 16 97 77 110 Revenue by Geographical Location (US$ million) 2,600 Hong Kong & mainland China Profit by Geographical Location (US$ million) 81 Hong Kong & mainland China 10 2,598 United Kingdom 29 United Kingdom Managing Director’s Review (continued)Jardine Matheson | Annual Report 2016• Underlying trading profit 9% lower at constant rates of exchange • Good performance in Risk and Insurance businesses • Further investment in US Specialty business • Restructuring costs in UK Employee Benefits 2016 2015 Change† (%) Revenue (US$ billion) 1.7 1.8 Underlying profit attributable to shareholders (US$ million) 149 172 9 (1) Revenue (US$ billion) 12 13 14 15 16 1.4 1.5 1.8 1.8 1.7 Underlying Profit Attributable to Shareholders (US$ million) 12 13 14 15 16 169 188 203 172 149 Revenue* by Division (US$ million) 1,287 Risk & Insurance Revenue* by Location of Client 29% United Kingdom 8% Europe 4% Rest of the world 404 Employee Benefits 16% Asia 30% The Americas 13% Australia & New Zealand JLT’s total revenue for 2016 was US$1,698 million, an increase of 9% in its reporting currency. While underlying trading profit was up 3% in its reporting currency at US$260 million, it was 9% lower at constant rates of exchange. This reflects a weaker first-half performance in its UK Employee Benefits business and the development cost of its US Specialty business. On conversion into US dollars and after adjusting for restructuring costs, JLT’s contribution to the Group’s underlying profit was 20% lower than the prior year. JLT’s Risk & Insurance businesses produced a 4% increase in revenues at constant rates of exchange. Good performances were seen in its Specialty and Reinsurance businesses as well as its Asian and Latin American operations, with progress continuing to be made in its new US Specialty business. The revenues of its Employee Benefits operations were down 1% at constant rates of exchange following the impact on the UK Employee Benefits business of structural changes in the industry. The profits of the business started to recover, however, in the second half of the year. The International Employee Benefits operations delivered 5% revenue growth at constant rates of exchange. † Based on the change in UK sterling, being the reporting currency of Jardine Lloyd Thompson. * Excluding investment income. 11 Jardine Matheson | Annual Report 2016• Underlying profit down 6% • Continued strong contribution from commercial portfolio • Steady residential contribution from mainland China and Singapore • Net assets per share up 9% on higher capital values 2016 2015 Change (%) Underlying profit attributable to shareholders (US$ million) 848 905 Gross assets (US$ billion) 33.3 31.1 Net asset value per share (US$) 13.30 12.19 (6) 7 9 Underlying profit attributable to shareholders (US$ million) 12 13 14 15 16 Net Asset Value per Share (US$) 12 13 14 15 16 776 935 930 905 848 11.11 11.41 11.71 12.19 13.30 1.1 million sq. m. Area of commercial investment portfolio under management (including 100% of joint ventures) Hongkong Land’s underlying profit in 2016 was 6% lower at US$848 million. Good results were seen in its commercial portfolio and its residential sector profits were marginally lower, but its overall earnings declined in the absence of a gain recorded in 2015 on a redeveloped property in Hong Kong. The profit attributable to shareholders was US$3,346 million after accounting for net non-trading gains of US$2,498 million recorded on the revaluation of the group’s investment properties. This compares to US$2,012 million in 2015, which included net valuation gains of US$1,107 million. Hongkong Land remains well-financed with net debt of US$2.0 billion at the year end and net gearing of 6%. In commercial property, limited competitive supply in the Hong Kong office leasing market benefited the group’s Central portfolio, with year-end vacancy of 2.2% and rental reversions remaining positive. The retail portion of the portfolio was fully occupied and base rental reversions were largely positive, although the impact of turnover rent led to reduced rental income. The group’s Singapore office portfolio was almost fully let, but the average rent decreased slightly. In mainland China, construction of the group’s luxury retail and hotel complex in Beijing is on target, with the retail component opening later in 2017 and the Mandarin Oriental Hotel due to open in 2018. In Jakarta, the fifth tower at Jakarta Land, the group’s 50%-owned joint venture, is due to complete in 2018. 12 Managing Director’s Review (continued)Jardine Matheson | Annual Report 2016Underlying Operating Profit by Activity (before corporate cost) (US$ million) China 946 Commercial Hong Kong Macau Thailand Vietnam Cambodia Philippines Singapore Indonesia Commercial Office Commercial Retail Residential Trading Gross Assets by Activity 91% Commercial Gross Assets by Location 78% Hong Kong In Hongkong Land’s residential developments, revenue recognized in mainland China during the year, including attributable interests in joint ventures, increased by 34%, but the profit contribution was flat due to the product mix and a weaker Chinese currency. The group’s attributable interest in contracted sales was 38% higher in 2016 at US$1,105 million. The construction of the 50%-owned New Bamboo Grove in Chongqing began in mid-2016 and is progressing well. Results from the Singapore residential business declined marginally due to lower provision write- backs on completed developments. Of Hongkong Land’s other residential interests, the developments in Indonesia and the Philippines are progressing well. 293 Residential 9% Residential 9% Mainland China & Macau 13% Southeast Asia 13 Jardine Matheson | Annual Report 2016• Modest sales growth achieved in challenging markets • Underlying profit up 7% at US$460 million • Food, Home Furnishings and Restaurants deliver higher profits • Additional contribution from Yonghui Superstores 2016 2015 Change (%) Sales including 100% of associates & joint ventures (US$ billion) Sales (US$ billion) 20.4 17.9 11.2 11.1 Underlying profit attributable to shareholders (US$ million) 460 428 14 1 7 Dairy Farm produced sound profit growth despite soft consumer spending and pressure on pricing in most of its markets. Sales by subsidiaries in 2016 were up 1% at US$11.2 billion. Total sales, including 100% of associates and joint ventures, were 14% higher at US$20.4 billion as Yonghui produced stronger growth and an additional three months’ contribution. Dairy Farm’s underlying profit was up 7% at US$460 million, with the increase being largely attributable to improved operating margins in its Food and Home Furnishings divisions and strong contributions from both Yonghui and Maxim’s. The group’s operations continue to generate good net cash flows, although somewhat reduced from 2015 due to timing differences on working capital movements. A further US$190 million was invested in Yonghui in August to maintain Dairy Farm’s shareholding at 19.99%. Underlying Profit Attributable to Shareholders (US$ million) 12 13 14 15 16 444 480 500 428 460 Sales Mix by Format* 56% Supermarkets/ Hypermarkets 14% Convenience Stores Profit Mix by Format# 36% Supermarkets/ Hypermarkets 12% Convenience Stores 19% Health & Beauty 4% Home Furnishings 7% Restaurants 27% Health & Beauty 11% Home Furnishings 14% Restaurants * Including share of associates and joint ventures. # Based on operating profit and share of results of associates and joint ventures, and excluding support office costs. 14 Managing Director’s Review (continued)Jardine Matheson | Annual Report 201611 Asian countries and territories 6.6million Customer transactions per day Over Outlets6,500 Gross trading area5.5million sq. m. Further progress was made by Dairy Farm in pursuit of its strategic objectives in 2016 as it took measures to compete effectively in an evolving retail landscape and grow its market share. Its e-commerce offerings were improved, with initiatives in its Home Furnishings, Food and Health and Beauty operations. Range enhancements were introduced in all of its formats in areas such as fresh produce, ready-to-eat and corporate brands. Dairy Farm is using its scale to provide an increasingly extensive international product range at more attractive prices, while its customers are benefiting from improved store networks and further investment in quality assurance. Dairy Farm’s continuing operations, including associates and joint ventures, added a net 114 stores during the year after the rationalization of some underperforming stores. At 31st December 2016, the group had 6,548 stores in operation in eleven countries and territories, including its interest in 487 Yonghui stores in mainland China. Retail Outlet Numbers by Format† 1,608 Supermarkets/ Hypermarkets 2,231 Convenience Stores † Including 100% of associates and joint ventures. 1,715 Health & Beauty 9 Home Furnishings 985 Restaurants 15 Jardine Matheson | Annual Report 2016• Weak demand persists in key cities • Underlying earnings 37% lower • Phased renovation of London hotel commenced • New management contract in Hawaii 2016 US$m 2015 US$m Change % Combined total revenue of hotels under management 1,324 1,335 (1) Underlying profit attributable to shareholders 57 90 (37) Underlying Profit Attributable to Shareholders (US$ million) 12 13 14 15 16 69 57 93 97 90 Net Asset Value per Share* (US$) 12 13 14 15 16 2.77 2.93 3.02 2.84 3.10 * With freehold and leasehold properties at valuation. Combined Total Revenue of US$1,324 million by Geographical Area (US$ million) 297 Europe 350 The Americas Portfolio of 8,025 Hotel Rooms by Geographical Area 1,270 Europe 1,634 The Americas 16 412 Other Asia 265 Hong Kong 5,121 Asia Mandarin Oriental faced softer demand in many of its key markets throughout 2016 resulting in its underlying profit reducing to US$57 million, compared with the US$90 million in the prior year. Profit attributable to shareholders was US$55 million, compared to US$89 million in 2015. The group’s hotels in Hong Kong, London and Paris were particularly affected by reduced demand, while its London property was also impacted by an 18-month renovation programme which began in September. The group saw a positive trading environment in Tokyo, a return to normal operations in Munich following a public area renovation, and a contribution from the newly acquired equity interest in Mandarin Oriental, Boston. There were, however, weaker performances in Washington D.C. and Jakarta. Mandarin Oriental completed the US$140 million acquisition of its Boston hotel in April 2016. In July, it announced 30 branded residences adjacent to Mandarin Oriental, Bali, both of which are due to open in mid-2018, and in February 2017 it announced a management contract for a new hotel and residences in Honolulu, Hawaii to open in 2020. The group has eleven hotels under development, which are expected to open in the next five years, with the next hotel opening in Doha expected later this year. Mandarin Oriental currently operates 29 hotels and eight residences in 19 countries and territories. Managing Director’s Review (continued)Jardine Matheson | Annual Report 2016• Underlying earnings per share up 3% • Improved contribution from Astra • Strong performance across Direct Motor Interests • Higher contribution from Other Interests 2016 2015 Change (%) Revenue (US$ billion) 15.8 15.7 Underlying profit attributable to shareholders (US$ million) 679 632 – 7 Revenue (US$ billion) 12 13 14 15 16 21.5 19.8 18.7 15.7 15.8 Underlying Profit Attributable to Shareholders (US$ million) 12 13 14 15 16 1,011 889 787 632 679 Underlying Profit (excluding Astra) of US$200 million by Business (US$ million) Other Interests: 22 Siam City Cement 11 Refrigeration Electrical Engineering Direct Motor Interests: 49 Cycle & Carriage Singapore 6 Cycle & Carriage Bintang 18 Tunas Ridean 94 Truong Hai Auto Jardine Cycle & Carriage’s underlying profit was 7% higher at US$679 million. Profit attributable to shareholders was US$702 million after accounting for a net non-trading profit of US$23 million, compared with US$691 million in 2015 after a net non-trading gain of US$59 million. Astra’s contribution of US$500 million was up 6%. The group’s Direct Motor Interests contributed US$167 million, up 18%, while the contribution from its Other Interests was 11% higher at US$33 million. Within the Direct Motor Interests, the 25%-owned Truong Hai Auto Corporation in Vietnam had a good year with its contribution up 10% at US$94 million following a good performance from its automotive operations and initial profits from a new real estate business. Earnings from the wholly-owned Singapore motor operations rose 26% to US$49 million following an increase in the number of certificates of entitlement. In Malaysia, the results of 59%-owned Cycle & Carriage Bintang declined despite increased unit sales as changes in the sales mix led to lower margins. In Indonesia, 44%-owned Tunas Ridean increased its contribution by 94% to US$18 million with higher income from motor car sales and financing. Of the group’s Other Interests, the first full-year’s contribution from 25%-held Siam City Cement Public Company Limited (‘SCCC’) in Thailand of US$22 million was modestly higher as the effect of reduced domestic cement prices was partly offset by contributions from new acquisitions. SCCC is investing some US$1 billion to expand its business with acquisitions in Vietnam, Bangladesh and Sri Lanka, which it will finance in part by a US$480 million rights issue. Jardine Cycle & Carriage’s 23%-owned Refrigeration Electrical Engineering Corporation in Vietnam, contributed US$11 million, an increase of 25% with progress being made in its property development activities. 17 Jardine Matheson | Annual Report 2016• Net earnings per share up 5% • Increased market shares for cars and motorcycles • Heavy equipment and mining result up due to non-recurrence of impairment charge • Agribusiness benefited from improved prices • Significant increase in loan-loss provisions by Permata Bank 2016 2015 Change* (%) Net Revenue# (US$ billion) 13.6 13.7 Profit attributable to shareholders# (US$ million) 1,137 1,075 (2) 5 Motor Vehicle Sales including Associates and Joint Ventures (thousand units) 12 13 14 15 16 605 655 614 510 591 Motorcycle Sales including Associates and Joint Ventures (thousand units) 12 13 14 15 16 4,089 4,697 5,051 4,454 4,381 Profit Attributable to Shareholders of US$1,137 million by Business (US$ million) 688 Automotive 59 Financial Services 227 Heavy Equipment & Mining 20 Infrastructure & Logistics 15 Information Technology 8 Property 120 Agribusiness * Based on the change in Indonesian rupiah, being the reporting currency of Astra. # Reported under Indonesian GAAP. 18 Astra’s underlying profit for 2016 under Indonesian accounting standards was up 4% at Rp14.6 trillion, equivalent to US$1,096 million. Its net profit was up 5% at Rp15.2 trillion, some US$1,137 million. Strong working capital inflows were maintained with net cash, excluding its financial services subsidiaries, of Rp6.2 trillion or US$461 million at 31st December 2016, compared to net cash of Rp1.0 trillion or US$75 million at the end of 2015. Net income from Astra’s automotive businesses in Indonesia rose 23% to US$688 million, largely due to successful new model launches. Astra’s car sales were up 16% at 591,000 units, outperforming the wholesale market increase of 5%, resulting in its market share rising from 50% to 56%. Astra Honda Motor’s domestic motorcycle sales were 2% lower at 4.4 million units, while the wholesale market declined 8%, increasing its market share from 69% to 74%. Net income from Astra Otoparts rose 31% to US$31 million. Net income in financial services was 78% lower at US$59 million, mainly due to a loss in Permata Bank following a significant increase in loan-loss provisions in its commercial loan book, excluding this loss the net income would have risen 7% to US$282 million. To strengthen its capital base, Permata Bank undertook a US$420 million rights issue in June 2016 and plans for a further US$220 million rights issue in the first half of 2017, in respect of which US$110 million has already been advanced by its two major shareholders, Astra and Standard Chartered Bank. Astra’s consumer financing rose 21% in 2016 to US$5.5 billion, while its heavy equipment financing rose 20% to US$352 million. Modest improvement Managing Director’s Review (continued)Jardine Matheson | Annual Report 20162016 New motor car market share56% 2016 New motorcycle market share74% US$5.5bn +21% 2016 New consumer financing US$352m +20% 2016 New heavy equipment financing was seen in Astra’s general insurance company, and by the end of the year its life insurance joint venture, Astra Aviva Life, had reached 228,000 individual life customers and 596,000 participants for its corporate employee benefits programmes. United Tractors’ net income of US$375 million was up 30% over 2015, when an impairment charge was incurred, excluding which the net income in 2016 would have been down 22%. Mining contracting revenue was lower due to the relatively weak coal prices for much of the year. Earnings were also impacted by foreign exchange translation losses. Komatsu heavy equipment sales rose 3%, but parts and service revenue declined. Pamapersada Nusantara’s mining contracting operations saw coal production little changed, while overburden removal was 8% lower. Coal sales at United Tractors’ mining subsidiaries were 48% higher at 6.8 million tonnes. General contractor, Acset Indonusa, reported net income up 63% at US$5 million, and in June 2016 raised US$45 million in a rights issue to support its continued growth. Astra Agro Lestari’s net income increased from US$46 million to US$150 million. Its revenue improved as higher crude palm oil prices offset reduced production due to the impact of poor weather, while the stronger rupiah at the year end benefited the translation of its US dollar monetary liabilities. It completed a US$300 million rights issue in June 2016. Net income from Astra’s infrastructure and logistics activities increased by 35% to US$20 million. Progress continues in the expansion of the group’s toll road interests, which including greenfield developments now extend to 343 kilometres. PAM Lyonnaise Jaya, which operates the western Jakarta water utility system, saw a modest rise in sales volumes. Astra’s contract car hire business produced a better result, while its information technology interests saw a modest decline in net income. Astra’s new property division produced net income of US$8 million, down from US$16 million in 2015 primarily due to lower revaluation gains. Construction is ongoing at the 93%-sold luxury residential development Anandamaya Residences, a 60%-owned joint venture with Hongkong Land in Jakarta’s Central Business District, and at Menara Astra, the adjacent Grade A office tower development. Both are on schedule to complete in 2018. 19 Jardine Matheson | Annual Report 2016People and the Community Jardine Matheson Group companies remain committed to making a positive change in the communities where they operate through charitable initiatives. In Hong Kong and Singapore, Group companies focus their philanthropic activities on the area of mental health through MINDSET, the Group’s in-house charitable programme. Led by the Jardine Ambassadors, young executives drawn from across the Group, the MINDSET programme aims to raise awareness and understanding of mental health issues and to change attitudes, while at the same time providing practical support for charitable initiatives in the sector. In Hong Kong, MINDSET (www.mindset.org.hk) continued to support people in recovery to engage in art projects to foster mental wellness and positive psychology through MINDSET Expression. Its school-based ‘Health in Mind’ programme, operated jointly with the Hong Kong Hospital Authority, aims to raise awareness of mental health issues among young people. MINDSET College, a pilot programme in Hong Kong, established to provide supported education for people in recovery from mental illness and help them develop their potential, is expected to commence its courses in summer 2017. The signature event in Hong Kong, CENTRAL Rat Race, attracted over 460 entrants and raised a record US$423,000 for MINDSET. MINDSET in Singapore (www.mindset.com.sg) officially launched the flagship project ‘MINDSET Learning Hub’ in October 2016 to offer support and job training for recovering individuals. The setup of the Hub is supported by a US$1.5 million pledge from the Group. The MINDSET Challenge 2016 raised over US$267,000, and the first MINDSET Carnival was held on the same day to celebrate MINDSET’s fifth anniversary with the participation of 1,700 staff and service users. MINDSET also won the inaugural Charity Transparency Award at the Singapore Charity Transparency Awards and Charity Governance Awards 2016. In addition, the Group was named a top three finalist in the category of ‘Sustainability Initiatives’ for its contributions to the mental health sector at the British Chamber of Commerce Singapore Annual Business Awards 2016. In Indonesia, Astra continued to offer support to the community in the areas of health, education, environment and entrepreneurship. Astra launched its first Green Energy Summit and implemented energy conservation and efficiency initiatives in its companies in support of Indonesia’s commitment to tackle climate change. The company also initiated the ‘Astra Start-Up Challenge’, a platform that encourages young people to be innovative entrepreneurs. Under its ‘Astra Berseri Village’ programme, Astra helped in the development of rural villages by building facilities such as playgrounds and water treatment plants in order to improve the quality of life. The concept of this programme came from a winner of the SATU Indonesia (Astra’s Unified Spirit of Indonesia) Awards, which aims at recognizing young people’s efforts in contributing to the communities for building a better Indonesia. Jardine Lloyd Thompson’s charitable activities, which were founded on three themes – Knowledge, Wellbeing and Resilience, reflected the company’s business capabilities through the partnership with three charitable organizations, the Udaan Foundation for disadvantaged children in Mumbai, and in the UK the Alzheimer’s Society and the disaster relief specialist, RedR. 20 Jardine Matheson | Annual Report 2016 Encouraging Higher Education In January 2017, 14 students from mainland China, Hong Kong, Malaysia, Singapore and Thailand were awarded scholarships by the Jardine Foundation to pursue their undergraduate studies in the United Kingdom. Meanwhile, the Foundation’s postgraduate scholarship scheme supported 11 scholars from mainland China, Malaysia, Myanmar, Hong Kong and Indonesia for their master’s or doctoral studies commencing in October 2016. Scholarships are available for selected colleges at Oxford and Cambridge Universities, and scholars are chosen for their academic ability, leadership qualities and community participation. Since its establishment, 250 scholarships have been awarded to students from the regions in which the Group operates. (www.jardine-foundation.org) In Indonesia, Astra distributed scholarships through a number of foundations to support students from underdeveloped areas. Over 229,190 scholarship grants were given to recipients in elementary schools up to university level. Some 15,350 schools were funded to improve their educational activities. Meanwhile, in Singapore, Jardine Cycle & Carriage scholarships awarded scholarships to three outstanding business management undergraduates. Providing Expertise Group executives are active on external management boards and professional and advisory bodies where they provide expertise and knowledge. These activities are encouraged as they contribute to the development of the communities and the business sectors in which the Group operates. Two of the 18 Jardine Scholars who participated in the annual Cambridge University Chinese New Year Trust Charity Run, which the Jardine Foundation has supported since 2001. The funds raised will help to improve access to education for children in rural China. Supporting our People The Group supports its people with various management training and development programmes. A good example is the central recruitment of graduates who in addition to pursuing a modular, three-year leadership development programme, also attain a Chartered Institute of Management Accountants qualification. This approach brings a rare balance of management breadth and financial depth, and readies them for leadership positions. Another example is the Director Development Initiative, which provides senior executives with the opportunity to meet chief executives from some of the world’s most admired companies. The Group also conducts a series of development centres every year to identify talent and support the Group’s human resources planning process. In 2016, around 40 executives were transferred between businesses in the Group. 21 Jardine Matheson | Annual Report 2016Financial Review John Witt Group Finance Director Accounting Policies The Directors continue to review the appropriateness of the accounting policies adopted by the Group having regard to developments in International Financial Reporting Standards (‘IFRS’). In 2016, a number of amendments to the Standards became effective and the Group adopted those which are relevant to the Group’s operations. As mentioned in note 1 of the financial statements, the only amendments adopted that impact the consolidated profit and loss account and balance sheet are the amendments to IAS 16 and IAS 41 on Agriculture: Bearer Plants. The adoption of these amendments does not have a material effect on the financial statements, but the comparative financial statements have been restated in accordance with the requirements under IFRS. Results Underlying Profit Underlying Business Performance Revenue Operating profit Net financing charges Share of results of associates and joint ventures Profit before tax Tax Profit after tax Non-controlling interests Underlying profit attributable to shareholders Non-trading items Net profit 2016 US$m 37,051 3,146 (151) 734 3,729 (654) 3,075 (1,689) 1,386 1,117 2,503 US$ 2015 US$m 37,007 2,804 (135) 838 3,507 (624) 2,883 (1,523) 1,360 439 1,799 US$ Underlying earnings per share 3.71 3.64 22 In 2016, revenue was broadly in line with 2015. Gross revenue, including 100% of revenue from associates and joint ventures, which is a measure of the full extent of the Group’s operations, increased by 11% to US$72.4 billion. This increase was largely from Dairy Farm’s associate, Yonghui Superstores in mainland China, Astra’s automotive associates and joint ventures, and Jardine Cycle & Carriage’s associates, Truong Hai Auto Corporation (‘THACO’) in Vietnam and Siam City Cement in Thailand. Operating profit from the Group’s subsidiaries, excluding non-trading items, was US$3,146 million, and increase of US$342 million or 12%. Whilst this represents good overall growth, there was a mixed performance from the Group’s businesses. Astra’s underlying operating profit increased by US$339 million or 31% from 2015, which had included an impairment charge of US$349 million in relation to its coal mining properties. Excluding the effect of this impairment charge, Astra’s 2016 operating profit would have been marginally lower compared with 2015. Lower earnings from United Tractors as a result of relatively weak coal prices were mitigated by higher earnings from Astra’s other major businesses, namely automotive, financial services and agribusiness, which benefited from rising crude palm oil prices and the stronger Rupiah on the translation of its US dollar monetary liabilities. The underlying operating profit for Jardine Motors increased by US$52 million as Zung Fu in mainland China achieved strong sales at higher margins and a better performance from its after-sales operations. This was partly offset by lower earnings in Hong Kong due to lower sales and margins. Jardine Motors’ United Kingdom operations achieved higher vehicle sales and stable margins, but a weaker sterling exchange rate led to a lower contribution in US dollar terms. Dairy Farm’s contribution was US$17 million above 2015 as a result of improved operating margins from its Food business and higher sales in its Home Furnishings business, while its Health and Beauty business reported lower earnings. Jardine Matheson | Annual Report 2016Jardine Cycle & Carriage’s contribution increased by US$8 million mainly resulting from higher earnings in its motor operations in Singapore. Jardine Pacific’s results were US$4 million higher due to better performances in its Restaurant businesses, JEC and JTH, partly offset by the absence of profit from its shipping business which was sold in 2015. decreased by US$14 million mainly due to lower revenue and the restructuring costs in its Employee Benefits business in the United Kingdom and the development costs of its United States Specialty business. The positive impact of the weakness of sterling on Jardine Lloyd Thompson’s results was largely offset upon conversion into US dollars at the Group level. Hongkong Land’s contribution decreased by US$23 million due primarily to the absence of the gain recorded in 2015 on a redeveloped property in Hong Kong. Excluding the effect of this, the contribution from its principal commercial and residential development activities showed a modest increase. Mandarin Oriental’s contribution decreased by US$38 million compared with 2015 primarily due to lower demand affecting its Hong Kong, London and Paris hotels. London was also impacted by its major renovation programme which commenced in September 2016. Net financing charges increased by US$16 million compared to 2015 principally due to the higher levels of average net debt in Astra’s holding company and Dairy Farm during the year. Interest cover exclusive of financial services companies remained strong at 22 times, calculated as the sum of underlying operating profit and share of results of associates and joint ventures divided by net financing charges. The Group’s share of underlying results of associates and joint ventures decreased by US$104 million or 12% to US$734 million. Contributions from Astra’s associates and joint ventures reduced by US$101 million as a result of a significant increase in loan-loss provisions made against Permata Bank’s commercial loan book, partly offset by strong sales performances in Astra’s automotive businesses. The contribution from Hongkong Land’s associates and joint ventures decreased by US$23 million mainly due to the timing of sales in its residential joint venture projects in mainland China. Jardine Pacific’s joint venture contributions fell by US$15 million, with lower earnings in Gammon resulting from the underperformance of a major contract, mitigated by higher contributions from Jardine Schindler and Hactl. The contribution from Jardine Lloyd Thompson In Dairy Farm, the contributions from its associates increased by US$30 million primarily as a result of the strong performance and a full-year contribution from Yonghui Superstores. In addition, Maxim’s results were higher. In Jardine Cycle & Carriage, its contribution from associates and joint ventures was US$22 million higher mainly from THACO, its motor vehicle associate in Vietnam, and Tunas Ridean in Indonesia. The underlying effective tax rate for the year was 24%, which was broadly in line with that of 2015. The Group’s underlying profit attributable to shareholders in 2016 was US$1,386 million (or US$3.71 on an earnings per share basis), 2% higher than in the prior year. Non-trading Items In 2016, the Group had net non-trading gains of US$1,117 million, which included a net increase of US$1,061 million in the fair value of investment properties primarily in Hongkong Land and gains on property disposals of US$158 million, partly offset by impairment charges of US$101 million against goodwill on certain businesses, within Jardine Pacific. Dividends The Board is recommending a final dividend of US$1.12 per share for 2016, providing a total annual dividend of US$1.50 per share, an increase of 3% over 2015. The final dividend will be payable on 11th May 2017, subject to approval at the Annual General Meeting to be held on 4th May 2017, to those persons registered as shareholders on 17th March 2017. The dividends are payable in cash with a scrip alternative. 23 Jardine Matheson | Annual Report 2016Financial Review (continued) Cash Flow Summarized Cash Flow Operating cash flow Dividends from associates and joint ventures Operating activities Capital expenditure and investments, net of disposals 2016 US$m 3,353 597 3,950 (2,063) Cash flow before financing 1,887 2015 US$m 3,455 634 4,089 (3,200) 889 The cash inflow from operating activities for the year was US$3,950 million compared with US$4,089 million in 2015. The decrease of US$139 million from 2015 was principally due to an increase in working capital in Astra’s financial services, heavy equipment and mining businesses, and in Dairy Farm mainly from timing differences on working capital movements. This increase was partly offset by reduced working capital in Jardine Motors and lower net investment by Hongkong Land in residential projects. Capital expenditure and investments for the year before disposals amounted to US$2,594 million and was broadly spread throughout the Group. This included the following: • US$60 million for the purchase of businesses, principally Jardine Motors’ acquisition of various motor dealerships in the United Kingdom for US$46 million; • US$652 million for investments in various associates and joint ventures, the main ones being Dairy Farm’s further investment of US$190 million in Yonghui Superstores to maintain its shareholding at 19.99%; Astra’s subscription to a Permata Bank rights issue and a subsequent equity loan for a combined total of US$240 million; Hongkong Land’s investment of US$70 million in a residential project in Chengdu; Astra’s purchase of and capital injections into certain associates and joint ventures in Indonesia of US$74 million, and Hongkong Land and Astra’s joint investment for a 50% share in a joint venture residential project in Indonesia for US$57 million; • US$294 million for the purchase of other investments, mainly by Astra’s general insurance business; • US$142 million for the purchase of intangible assets, which included US$60 million for the acquisition of contracts in Astra’s general insurance business and US$30 million for leasehold land for use by Astra; • US$996 million for the purchase of tangible assets, which included US$456 million in Astra, (US$175 million of which was for the acquisition of heavy equipment and machinery, predominantly by Pamapersada, US$133 million was for outlet development and additional operational machinery and equipment in Astra’s automotive business, and US$113 million to develop plantation infrastructure in Astra’s agribusiness); US$217 million in Mandarin Oriental (of which US$140 million was for the acquisition of the hotel property in Boston); US$212 million in Dairy Farm and US$55 million in Jardine Motors; and • US$313 million for additions to investment properties in Hongkong Land and Astra, and US$56 million for additions to bearer plants in Astra. In 2015, the Group’s principal capital expenditure and investments consisted of: • US$147 million for Dairy Farm’s acquisition of a 100% interest in a supermarket chain in Macau; • US$912 million for Dairy Farm’s acquisition of a 19.99% interest in Yonghui Superstores; • US$615 million for Jardine Cycle & Carriage’s acquisition of a 25% interest in Siam City Cement in Thailand; • US$315 million for Hongkong Land’s investment in property joint ventures, mainly including the 50% interests in the residential projects in Chongqing and in the Pudong district of Shanghai for US$104 million and US$132 million, respectively; • US$1,093 million for the purchase of tangible assets by Group companies; and • US$233 million for additions to investment properties in Hongkong Land and Astra. 24 Jardine Matheson | Annual Report 2016The Group’s Treasury operations are managed as cost centres and are not permitted to undertake speculative transactions unrelated to underlying financial exposures. Note 2 of the financial statements summarizes the Group’s financial risk factors. Funding The Group is well financed with strong liquidity. Net gearing, excluding net borrowings relating to Astra’s financial services companies, was 4% at 31st December 2016, down from 6% at the end of 2015. Net borrowings, on the same basis, were US$2.1 billion at 31st December 2016 compared with US$3.0 billion at the end of 2015. Astra’s financial services companies had net borrowings of US$3.6 billion at the end of the year compared with US$3.2 billion at the end of 2015. Net Debt* and Total Equity (US$ billion) 3.4 2.6 2.5 3.0 2.1 12 13 14 15 16 Net Debt Total Equity 42.0 42.4 44.5 45.5 49.7 * Excluding net debt of Astra’s financial services companies. At the year end, undrawn committed facilities totalled US$5.4 billion. In addition, the Group had liquid funds of US$5.5 billion. During the year, the Group’s total equity increased by US$4.2 billion to US$49.7 billion. The contribution to the Group’s cash flow from disposals for the year amounted to US$531 million (2015: US$730 million), which principally included US$175 million from the repayment of advances from associates and joint ventures in Hongkong Land, US$204 million from the sale of tangible assets mainly properties in Hong Kong and in the United Kingdom by Jardine Motors, and US$122 million from the sale of other investments by Astra’s general insurance business. The Group also purchased additional shares in Group companies for a total cost of US$362 million (2015: US$275 million), which, according to accounting standards, is presented as financing activities in the Consolidated Cash Flow Statement. The Group’s management also monitors total capital investment across the Group. This exceeded US$5.6 billion in 2016, compared with US$6.5 billion in 2015. These figures include the capital expenditure of associates and joint ventures and expenditure on properties for sale in addition to the capital expenditure outlined above. 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 enhance yield. Appropriate credit guidelines are in place to manage counterparty risk. When economically sensible to do so, borrowings are taken in local currency to hedge foreign exposures on investments. A portion of borrowings is denominated in fixed rates. Adequate headroom in committed facilities is maintained to facilitate the Group’s capacity to pursue new investment opportunities and to provide some protection against market uncertainties. 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 to develop the business. 25 Jardine Matheson | Annual Report 2016Financial Review (continued) The average tenor of the Group’s debt at 31st December 2016 was 4.2 years, broadly unchanged from the end of 2015. 90% of borrowings were non-US dollar denominated and directly related to the Group’s businesses in the countries of the currencies concerned. As at 31st December 2016, approximately 61% of the Group’s borrowings, exclusive of Astra’s financial services companies, were at floating rates and the remaining 39% were at fixed rates including those hedged with derivative instruments with major creditworthy financial institutions. For Astra’s financial services companies, 88% of their borrowings were also at fixed rates. Debt profile as at 31st December 2016 Interest rate* 61% Floating Currency 9% Others 10% USD Maturity 38% < 1 year 14% 1-2 years * Excluding Astra’s financial services companies. 26 Shareholders’ Funds Shareholders’ funds as at 31st December 2016 are analyzed below, by business and by geographical area. There were no significant changes from the prior year. By Business 3% Jardine Pacific 14% Astra 4% Jardine Cycle & Carriage 4% Mandarin Oriental 6% Dairy Farm By Geographical Area 39% Fixed 3% United Kingdom 31% Southeast Asia 3% Jardine Motors 2% Jardine Lloyd Thompson 64% Hongkong Land 4% Rest of the World 62% Greater China Principal Risks and Uncertainties A review of the principal risks and uncertainties facing the Group is set out on page 122. 44% IDR 37% HKD 22% > 5 years 26% 2-5 years Jardine Matheson | Annual Report 2016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 Jardine Strategic, and a director of Matheson & Co., Dairy Farm, Hongkong Land and Mandarin Oriental. He is also vice chairman of the Hong Kong Association. Ben Keswick* Managing Director Mr Ben Keswick joined the Board in 2007 and was appointed as Managing Director in 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. 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, Prudential, Schindler, Shui On Land and Vitasoy and 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 director of the UK-ASEAN Business Council. He is chairman of The Sailors Home and Missions to Seamen in Hong Kong. Jeremy Parr* Mr Parr was appointed to the Board in February 2016, having first joined the Group as Group General Counsel in 2015. He was previously a senior corporate partner with Linklaters, where he was the global head of the firm’s corporate division, based in London. Mr Parr is also a director of Jardine Matheson Limited, Dairy Farm and Mandarin Oriental. Y.K. Pang* Deputy Managing Director Mr Pang joined the Board in 2011 and was appointed Deputy Managing Director in August 2016. He has held a number of senior executive positions in the Group, which he joined in 1984, including chief executive of Hongkong Land between 2007 and 2016. He is chairman of Jardine Pacific and chairman and chief executive of Jardine Motors. Mr Pang is also deputy chairman of Jardine Matheson Limited, and a director of Dairy Farm, Hongkong Land, Jardine Matheson (China), Jardine Strategic, Mandarin Oriental, Yonghui Superstores and Zhongsheng. He is chairman of the Employers’ Federation of Hong Kong and a past chairman of the Hong Kong General Chamber of Commerce. 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. 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. 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. David Hsu* Mr Hsu joined the Board in May 2016, having first joined the Group in 2011. He is chairman of Jardine Matheson (China) with responsibility for supporting the group’s business developments in mainland China, Taiwan and Macau. He was previously chief executive of J.P. Morgan Asset Management in the Asia Pacific Region. Mr Hsu is also a director of Jardine Matheson Limited and Jardine Strategic. John Witt* Mr Witt joined the Board as Group Finance Director in April 2016. He is a Chartered Accountant and has an MBA from INSEAD. He has been with the Jardine Matheson Group since 1993 during which time he has held a number of senior finance positions. Most recently, he was the chief financial officer of Hongkong Land. He is also a director of Jardine Matheson Limited and Dairy Farm. Adam Keswick* Mr Adam Keswick first joined the Group in 2001 before being appointed to the Board in 2007. He was Deputy Managing Director from 2012 to 2016, and became chairman of Matheson & Co. in August 2016. Mr Keswick is also deputy chairman of Jardine Lloyd Thompson and a director of Dairy Farm, Hongkong Land, Jardine Strategic and Mandarin Oriental. He is also a director of Ferrari, and a supervisory board member of Rothschild & Co. 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. 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. Michael Wei Kuo Wu Mr Wu joined the Board in 2015. He is chairman and managing director of Maxim’s Caterers in Hong Kong. He is also a non-executive director of Hang Seng Bank and Hongkong Land, a council member of the Hong Kong University of Science and Technology and a member of the court of the University of Hong Kong. * Executive Director Company Secretary Neil McNamara Registered Office Jardine House, 33-35 Reid Street Hamilton Bermuda 27 Jardine Matheson | Annual Report 2016Consolidated Profit and Loss Account for the year ended 31st December 2016 Underlying business performance 2016 Non-trading items US$m US$m Total US$m 37,051 (33,905) – 93 37,051 (33,812) Underlying business performance US$m restated 37,007 (34,203) 2015 Non-trading items US$m restated Total US$m restated – (59) 37,007 (34,262) – 3,146 (297) 146 (151) 2,573 2,666 – – – 2,573 5,812 (297) 146 (151) – 2,804 (269) 134 (135) 1,043 984 – – – 1,043 3,788 (269) 134 (135) 734 7 741 838 37 875 – 734 3,729 (654) 3,075 (56) (49) 2,617 (5) 2,612 (56) 685 6,346 (659) 5,687 10 & 11 1,386 1,117 2,503 1,495 2,612 3,184 5,687 – 838 3,507 (624) 2,883 1,360 1,523 2,883 72 109 1,093 13 1,106 439 667 1,106 1,689 3,075 US$ 3.71 3.70 US$ US$ 6.69 6.68 3.64 3.64 72 947 4,600 (611) 3,989 1,799 2,190 3,989 US$ 4.82 4.81 Note 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 2016Consolidated Statement of Comprehensive Income for the year ended 31st December 2016 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 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 gain/(loss) arising during the year – transfer to profit and loss Impairment of other investments transfer to profit and loss Cash flow hedges – net (loss)/gain 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 Note 20 12 13 17 2016 US$m 5,687 23 105 2 (10) 120 (25) 95 (139) (3) (142) 113 – 113 – (173) 186 13 1 (213) (228) (133) 5,554 2,310 3,244 5,554 2015 US$m restated 3,989 (79) – – 13 (66) (2) (68) (1,112) 3 (1,109) (1) (132) (133) 188 109 (101) 8 (5) (654) (1,705) (1,773) 2,216 1,121 1,095 2,216 29 Jardine Matheson | Annual Report 2016Consolidated Balance Sheet at 31st December 2016 Assets Intangible assets Tangible assets Investment properties Bearer plants 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 At 31st December Note 12 13 14 15 16 17 18 19 20 21 22 18 17 23 2016 US$m 2,825 6,239 28,609 497 10,595 1,369 2,936 375 5 53,450 2,315 3,281 6,697 65 169 5,314 229 5,543 18,070 3 18,073 2015 US$m restated 2,753 6,086 25,630 485 10,190 1,105 3,263 315 5 49,832 2,763 3,331 5,661 32 180 4,535 247 4,782 16,749 – 16,749 At 1st January 2015 US$m restated 2,679 6,690 24,309 483 8,881 1,354 3,540 305 23 48,264 2,953 3,280 6,068 18 133 4,933 382 5,315 17,767 1 17,768 Total assets 71,523 66,581 66,032 Approved by the Board of Directors Ben Keswick John Witt Directors 2nd March 2017 30 Jardine Matheson | Annual Report 2016Equity Share capital Share premium and capital reserves Revenue and other reserves Own shares held Shareholders’ funds Non-controlling interests Total equity Liabilities Long-term borrowings – non-financial services companies – financial services companies Deferred tax liabilities Pension liabilities Non-current creditors Non-current provisions Non-current liabilities Current creditors Current borrowings – non-financial services companies – financial services companies Current tax liabilities Current provisions Current liabilities Total liabilities At 31st December Note 24 26 28 29 30 19 20 31 32 31 30 32 2016 US$m 178 175 25,547 (4,100) 21,800 27,937 49,737 5,343 1,518 6,861 500 419 440 151 8,371 8,714 2,058 2,265 4,323 266 112 13,415 2015 US$m restated 175 158 23,149 (3,596) 19,886 25,614 45,500 5,199 1,796 6,995 493 416 430 145 8,479 8,261 2,308 1,683 3,991 266 84 12,602 At 1st January 2015 US$m restated 173 138 21,990 (3,105) 19,196 25,289 44,485 5,240 2,176 7,416 590 350 364 138 8,858 8,244 2,176 1,892 4,068 300 77 12,689 21,786 21,081 21,547 Total equity and liabilities 71,523 66,581 66,032 31 Jardine Matheson | Annual Report 2016Consolidated Statement of Changes in Equity for the year ended 31st December 2016 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$m Own shares held US$m Attributable to shareholders of the Company Attributable to non-controlling interests US$m US$m 2016 At 1st January – as previously reported – change in accounting policy for bearer plants – as restated 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 Capital contribution from non-controlling interests Change in interests in subsidiaries Change in interests in associates and joint ventures Transfer At 31st December 2015 At 1st January – as previously reported – change in accounting policy for bearer plants – as restated Total comprehensive income Dividends paid by the Company Dividends paid to non-controlling interests Unclaimed dividends forfeited Issue of shares Employee share option schemes Scrip issued in lieu of dividends Increase in own shares held Subsidiaries acquired Subsidiaries disposed of Capital contribution from non-controlling interests Change in interests in subsidiaries Change in interests in associates and joint ventures Transfer At 31st December 175 – 175 – – – – – – 3 – – – – – 178 173 – 173 – – – – – – 2 – – – – – – – 175 21 – 21 – – – – 1 – (3) – – – – 1 20 20 – 20 – – – – 2 – (2) – – – – – – 1 21 137 – 137 – – – – – 22 – – – – – (4) 155 118 – 118 – – – – – 22 – – – – – – – (3) 137 24,674 (96) 24,578 2,558 (541) – 1 – – 700 – – (74) (2) 3 27,223 22,824 (97) 22,727 1,813 (540) – 1 – – 653 – – – – (51) (27) 2 24,578 Total comprehensive income included in revenue reserves comprises profit attributable to shareholders of the Company of US$2,503 million (2015: US$1,799 million) and net fair value gain on other investments (net of impairment and transfer to profit and loss) of US$94 million (2015: US$64 million). Cumulative net fair value gain on other investments amounted to US$347 million (2015: US$253 million). 176 – 176 34 – – – – – – – – – – – 210 176 – 176 – – – – – – – – – – – – – – 176 (14) – (14) (18) – – – – – – – – – – – (32) (10) – (10) (4) – – – – – – – – – – – – – (14) (1,625) 34 (1,591) (264) – – – – – – – – 1 – – (1,854) (929) 26 (903) (688) – – – – – – – – – – – – – (3,596) – (3,596) – – – – – – – (504) – – – – (4,100) (3,105) – (3,105) – – – – – – – (491) – – – – – – 19,948 (62) 19,886 2,310 (541) – 1 1 22 700 (504) – (73) (2) – 21,800 19,267 (71) 19,196 1,121 (540) – 1 2 22 653 (491) – – – (51) (27) – 25,833 (219) 25,614 3,244 97 (778) – – 1 – (73) 83 (251) – – 27,937 25,538 (249) 25,289 1,095 98 (897) – – 2 – (72) 28 (5) 262 (190) 4 – (1,591) (3,596) 19,886 25,614 45,500 Total equity US$m 45,781 (281) 45,500 5,554 (444) (778) 1 1 23 700 (577) 83 (324) (2) – 49,737 44,805 (320) 44,485 2,216 (442) (897) 1 2 24 653 (563) 28 (5) 262 (241) (23) – 32 33 Jardine Matheson | Annual Report 2016Jardine Matheson | Annual Report 2016Consolidated Cash Flow Statement for the year ended 31st December 2016 Operating activities Operating profit Change in fair value of investment properties Depreciation and amortization Other non-cash items (Increase)/decrease 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 other investments Purchase of intangible assets Purchase of tangible assets Additions to investment properties Additions to bearer plants Advance to associates and joint ventures Advance and repayment from associates and joint ventures 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 Change in interests in subsidiaries Drawdown of borrowings Repayment of borrowings Dividends paid by the Company Dividends paid to non-controlling interests Cash flows from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1st January Effect of exchange rate changes Note 33 (a) 33 (b) 33 (c) 33 (d) 33 (e) 33 (f) 33 (g) 33 (h) 33 (i) 33 (j) 2016 US$m 5,812 (2,573) 945 120 (94) 136 (289) (704) 3,353 597 3,950 (60) (652) (294) (142) (996) (313) (56) (81) 175 16 5 122 8 204 1 (2,063) 1 77 (339) 23,629 (23,314) (322) (783) (1,051) 836 4,773 (78) Cash and cash equivalents at 31st December 33 (k) 5,531 2015 US$m restated 3,788 (1,043) 963 620 76 136 (267) (818) 3,455 634 4,089 (215) (1,762) (124) (147) (1,093) (233) (72) (284) 386 4 8 269 2 60 1 (3,200) 2 262 (241) 20,353 (20,337) (352) (906) (1,219) (330) 5,288 (185) 4,773 34 Jardine Matheson | Annual Report 2016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 (‘IFRS’), including International Accounting Standards (‘IAS’) and Interpretations adopted by the International Accounting Standards Board (‘IASB’). 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. (i) Amendments effective in 2016 which are relevant to the Group’s operations: Amendments to IFRS 11 Amendments to IAS 1 Amendments to IAS 16 and IAS 38 Amendments to IAS 16 and IAS 41 Annual Improvements to IFRSs Accounting for Acquisitions of Interests in Joint Operations Disclosure Initiative: Presentation of Financial Statements Clarification of Acceptable Methods of Depreciation and Amortization Agriculture: Bearer Plants 2012 – 2014 Cycle The adoption of the above amendments does not have a significant effect on the Group’s accounting policies and disclosures except for the amendments to IAS 16 and IAS 41, which has resulted in a change in accounting policy for bearer plants. Previously, plantations were measured at each balance sheet date at their fair values. In accordance with the amendments, bearer plants in the plantations are stated at cost less any accumulated depreciation and impairment. The accounting for produce growing on the bearer plants will remain unchanged and is shown at fair value. The amendments have been applied retrospectively and the comparative financial statements have been restated. The effects of adopting amendments to IAS 16 and IAS 41 were as follows: (a) On the consolidated profit and loss for the year ended 31st December 2015 Net operating costs Tax Profit after tax Attributable to: Shareholders of the Company Non-controlling interests There were no changes in basic and diluted earnings per share. (b) On the consolidated statement of comprehensive income for the year ended 31st December 2015 Profit after tax Net exchange translation differences Total comprehensive income for the year Attributable to: Shareholders of the Company Non-controlling interests Increase/(decrease) in profit US$m 9 (2) 7 2 5 Increase in total comprehensive income US$m 7 32 39 10 29 39 35 Jardine Matheson | Annual Report 2016(c) On the consolidated balance sheet Plantations Bearer plants Total assets Revenue and other reserves Non-controlling interests Deferred tax liabilities Total equity and liabilities Increase/(decrease) 31st December 2015 1st January 2015 US$m (859) 485 (374) (62) (219) (93) (374) US$m (908) 483 (425) (71) (249) (105) (425) (ii) New standards and amendments effective after 2016 which are relevant to the Group’s operations and yet to be adopted: Certain new standards and amendments, which are effective after 2016, have been published and will be adopted by the Group from their effective dates. The Group is currently assessing the potential impact of these standards and amendments but expects their adoption will not have a significant effect on the Group’s consolidated financial statements except as set out below. IFRS 9 ‘Financial Instruments’ (effective for accounting periods beginning on or after 1st January 2018), which replaces IAS 39 ‘Financial Instruments: Recognition and Measurement’, addresses the classification and measurement of financial assets and liabilities and includes a new expected credit losses model for financial assets that replaces the incurred loss impairment model used today. A substantially-reformed approach to hedging accounting is introduced. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. The Group does not expect the new guidance to have a significant impact on the classification and measurement of its financial assets and financial liabilities. While the Group is still assessing the impact of how its impairment provisions would be affected by the new impairment model, it may result in an earlier recognition of credit losses. The new hedge accounting rules will align the accounting for hedging instruments closely with the Group’s risk management practices. Nevertheless, the Group does not expect a significant impact on the accounting for its hedging relationships. IFRS 15 ‘Revenue from Contracts with Customers’ (effective for accounting periods beginning on or after 1st January 2018), establishes a comprehensive framework for determining when to recognize revenue and how much revenue to recognize. lFRS 15 replaces IAS 11 ‘Construction Contracts’ and IAS 18 ‘Revenue’ which covers contracts for goods and services. The core principle in that framework is that revenue is recognized when control of a good or service transfers to a customer. 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. The new standard may change the Group’s revenue recognition on certain property sales from completion method to percentage of completion method. The Group is still assessing the impact of the new rules on the Group’s financial statements. IFRS 16 ‘Leases’ (effective for accounting periods beginning on or after 1st January 2019) replaces IAS 17 ‘Leases’ and related interpretations. It will result in lessees bringing almost all their leases onto the balance sheet as the distinction between operating leases and finance leases is removed. The model requires a lessee to recognize a right-of-use asset (the right to use the underlying leased asset) and a lease liability (the obligation to make lease payments) except for leases with a term of less than 12 months or with low-value. The accounting for lessors will not change significantly. IFRS 16 will affect primarily the accounting for the Group’s operating leases. The Group is yet to undertake a detailed assessment on how the new lease model will affect the Group’s profit, classification of cash flows and balance sheet position. 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 pages 4 and 5, and pages 9 to 19. 36 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)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 includes 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. 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. 37 Jardine Matheson | Annual Report 2016Impairment of non-financial assets Assets that have indefinite useful lives are not subject to amortization and are tested for impairment annually and whenever there is an indication that the assets may be impaired. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For the purpose of assessing impairment, assets are grouped at the lowest level for which there is separately identifiable cash flows. Cash- generating units or groups of cash-generating units to which goodwill has been allocated are tested for impairment annually and whenever there is an indication that the units may be impaired. An impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of an asset’s fair value less costs to sell and value in use. Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment annually. Intangible assets (i) Goodwill represents the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the acquisition-date fair value of any previously held equity interest in the acquiree over the acquisition- date fair value of the Group’s share of the net identifiable assets acquired. Non-controlling interests are measured at their proportionate share of the net identifiable assets at the acquisition date. If the cost of acquisition is less than the fair value of the net assets acquired, the difference is recognized directly in profit and loss. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates and joint ventures is included in investment in associates and joint ventures. Goodwill is allocated to cash-generating units or groups of cash-generating units for the purpose of impairment testing and is carried at cost less accumulated impairment loss. The profit or loss on disposal of subsidiaries, associates and joint ventures is stated after deducting the carrying amount of goodwill relating to the entity sold. (ii) Franchise rights, which are rights under franchise agreements, are separately identified intangible assets acquired as part of a business combination. These franchise agreements are deemed to have indefinite lives because either they do not have any term of expiry or their renewal by the Group would be probable and would not involve significant costs, taking into account the history of renewal and the relationships between the franchisee and the contracting parties. The useful lives are reviewed at each balance sheet date. Franchise rights are carried at cost less accumulated impairment loss. (iii) Leasehold land represents payments to third parties to acquire short-term interests in property. These payments are stated at cost and are amortized over the useful life of the lease which includes the renewal period if the lease can be renewed by the Group without significant cost. (iv) Concession rights are operating rights for toll roads under service concession arrangements. The cost of the construction services is amortized based on traffic volume projections. (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 38 14 – 150 years 20 – 30 years shorter of the lease term or useful life period of the lease 2 – 20 years 2 – 25 years Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)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. Bearer plants Bearer plants are stated at cost less any accumulated depreciation and impairment loss. The cost of bearer plants includes costs incurred for field preparation, planting, fertilizing and maintenance, capitalization of borrowing costs incurred on loans used to finance the development of immature bearer plants and an allocation of other indirect costs based on planted hectares. Bearer plants 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. Depreciation of mature bearer plants commences in the year when the bearer plants are mature using the straight-line method over the estimated useful life of 20 years. Agricultural produce growing on bearer plants comprise oil palm fruits which are measured at fair value and are included under current debtors as they are not significant. Changes in fair value are recorded in the profit and loss account. 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. 39 Jardine Matheson | Annual Report 2016Properties for sale Properties for sale, which comprise land and buildings held for resale, are stated at the lower of cost and net realizable value. The cost of properties for sale comprises land costs, and construction and other development costs. Stocks and work in progress Stocks, which principally comprise goods held for resale, are stated at the lower of cost and net realizable value. Cost is determined by the first-in, first-out method. The cost of finished goods and work in progress comprises raw materials, labour and an appropriate proportion of overheads. Debtors Consumer financing debtors and financing lease receivables are measured at amortized cost using the effective interest method. The gross amount due from customers for contract work is stated at cost plus an appropriate proportion of profit, established by reference to the percentage of completion, and after deducting progress payments and provisions for foreseeable losses. Repossessed assets of finance companies are measured at the lower of the carrying amount of the debtors in default and fair value less costs to sell. All other debtors, excluding derivative financial instruments, are measured at amortized cost except where the effect of discounting would be immaterial. Provision for impairment is established when there is objective evidence that the outstanding amounts will not be collected. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the debtor is impaired. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in arriving at operating profit. When a debtor is uncollectible, it is written off against the allowance account. Subsequent recoveries of amount previously written off are credited to profit and loss. Debtors with maturities greater than 12 months after the balance sheet date are classified under non-current assets. Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise deposits with banks and financial institutions, bank and cash balances, and liquid investments, net of bank overdrafts. In the balance sheet, 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. 40 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)Current and deferred tax The tax expense for the year comprises current and deferred tax. Tax is recognized in profit and loss, except to the extent that it relates to items recognized in other comprehensive income or direct in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Group operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred tax is provided, using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying values. Deferred tax is determined using tax rates and laws that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realized or the deferred tax liability is settled. Provision for deferred tax is made on the revaluation of certain non-current assets and, in relation to acquisitions, on the difference between the fair value of the net assets acquired and their tax base. Deferred tax is provided on temporary differences associated with investments in subsidiaries, associates and joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets relating to the carry forward of unused tax losses are recognized to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilized. Employee benefits (i) 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. (ii) 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. 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. 41 Jardine Matheson | Annual Report 2016Changes in the fair value of derivatives that are designated and qualify as fair value hedges and that are highly effective, are recognized in profit and loss, along with any changes in the fair value of the hedged asset or liability that is attributable to the hedged risk. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, the cumulative adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortized to profit and loss over the residual period to maturity. Changes in the fair value of derivatives that are designated and qualify as cash flow hedges and that are highly effective, are recognized in other comprehensive income and accumulated in equity under hedging reserves. Changes in the fair value relating to the ineffective portion is recognized immediately in profit and loss. Where the forecasted transaction or firm commitment results in the recognition of a non-financial asset or of a non-financial liability, the gains and losses previously deferred in hedging reserves are transferred from hedging reserves and included in the initial measurement of the cost of the asset or liability. Otherwise, amounts deferred in hedging reserves are transferred to profit and loss in the same periods during which the hedged firm commitment or forecasted transaction affects profit and loss. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in hedging reserves at that time remains in the hedging reserves and is recognized when the committed or forecasted transaction ultimately is recognized in profit and loss. When a committed or forecasted transaction is no longer expected to occur, the cumulative gain or loss that was reported in hedging reserves is immediately transferred to profit and loss. Certain derivative transactions, while providing effective economic hedges under the Group’s risk management policies, do not qualify for hedge accounting under the specific rules in IAS 39. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting under IAS 39 are recognized immediately in profit and loss. Hedges of net investments in foreign entities are accounted for on a similar basis to that used for cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in other comprehensive income and accumulated in exchange reserves; the gain or loss relating to the ineffective portion is recognized immediately in profit and loss. The fair value of derivatives which are designated and qualify as effective hedges are classified as non-current assets or liabilities if the remaining maturities of the hedged assets or liabilities are greater than 12 months after the balance sheet date. Insurance contracts Insurance contracts are those contracts that transfer significant insurance risk. Premiums on insurance contracts are recognized as revenue proportionately over the period of coverage. The portion of premium received on in-force contracts that relates to unexpired risks at the balance sheet date is reported as the unearned premium liability. Claims and loss adjustment expenses are charged to profit and loss as incurred based on the estimated liabilities for compensation owed to contract holders or third parties damaged by the contract holders. They include direct and indirect claims settlement costs and arise from events that have occurred up to the balance sheet date even if they have not yet been reported to the Group. The Group does not discount its liabilities for unpaid claims. Liabilities for unpaid claims are estimated using the input of assessments for individual cases reported to the Group and statistical 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. 42 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)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; gains and losses arising from the sale of businesses, investments and properties; impairment of non- depreciable intangible assets and other investments; provisions for the closure of businesses; acquisition-related costs in business combinations; and other credits and charges of a non-recurring nature that require inclusion in order to provide additional insight into underlying business performance. Earnings per share Basic earnings per share are calculated on profit attributable to shareholders and on the weighted average number of shares in issue during the year. The weighted average number excludes the Company’s share of the shares held by subsidiaries and the shares held by the Trustee under the Senior Executive Share Incentive Schemes. For the purpose of calculating diluted earnings per share, profit attributable to shareholders is adjusted for the effects of the conversion of dilutive potential ordinary shares of subsidiaries, associates or joint ventures, and the weighted average number of shares is adjusted for the number of shares which are deemed to be issued for no consideration under the Senior Executive Share Incentive Schemes based on the average share price during the year. Dividends Dividends proposed or declared after the balance sheet date are not recognized as a liability at the balance sheet date. The nominal amount of the ordinary shares issued as a result of election for scrip is capitalized out of the share premium account or other reserves, as appropriate. Revenue recognition Revenue is measured at the fair value of the consideration received and receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and sales related taxes. (i) Revenue from the sale of goods, including properties for sale, is recognized on the transfer of significant risks and rewards of ownership, which generally coincides with the time when the goods are delivered to customers. (ii) Receipts under operating leases are accounted for on an accrual basis over the lease terms. (iii) Revenue from a contract to provide services is recognized by reference to the stage of completion of the contract. (iv) Revenue from consumer financing and financing leases is recognized over the term of the respective contracts based on a constant rate of return on the net investment. (v) Interest income is recognized on a time proportion basis taking into account the principal amounts outstanding and the interest rates applicable. (vi) Dividend income is recognized when the right to receive payment is established. Pre-operating costs Pre-operating costs are expensed as they are incurred. 43 Jardine Matheson | Annual Report 2016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 2016 are disclosed in note 34. (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 2016 the Group’s Indonesian rupiah functional entities had United States dollar denominated net monetary assets of US$371 million (2015: US$274 million). At 31st December 2016, 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$28 million higher/lower (2015: US$21 million higher/lower), arising from foreign exchange gains/losses taken on translation. The impact on amounts attributable to the shareholders of the Company would be US$4 million higher/lower (2015: US$3 million higher/lower). This sensitivity analysis ignores any offsetting foreign exchange factors and has been determined assuming that the change in foreign exchange rates had occurred at the balance sheet date. The stated change represents management’s assessment of reasonably possible changes in foreign exchange rates over the period until the next annual balance sheet date. There are no other significant monetary balances held by Group companies at 31st December 2016 that are denominated in a non-functional currency. Differences resulting from the translation of financial statements into the Group’s presentation currency are not taken into consideration. Since the Group manages the interdependencies between foreign exchange risk and interest rate risk of foreign currency borrowings using cross-currency swaps, the sensitivity analysis on financial impacts arising from cross-currency swaps is included in the sensitivity assessment on interest rates under the interest rate risk section. 44 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)Interest rate risk The Group is exposed to interest rate risk through the impact of rate changes on interest bearing liabilities and assets. These exposures are managed partly by using natural hedges that arise from offsetting interest rate sensitive assets and liabilities, and partly through fixed rate borrowings and the use of derivative financial instruments such as interest rate swaps, caps and collars. The Group monitors interest rate exposure on a monthly basis by currency and business unit, taking into consideration proposed financing and hedging arrangements. The Group’s guideline is to maintain 40% to 60% of its gross borrowings, exclusive of the financial services companies, in fixed rate instruments. At 31st December 2016 the Group’s interest rate hedge exclusive of the financial services companies was 39% (2015: 39%), with an average tenor of seven years (2015: 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. At 31st December 2016, 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$16 million (2015: US$7 million) higher/lower, and hedging reserves would have been US$82 million (2015: US$97 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. 45 Jardine Matheson | Annual Report 2016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 2016, 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$357 million (2015: US$283 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 coal, steel rebar and copper. The Group considers the outlook for 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 2016, over 57% (2015: 51%) 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 2016Notes 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 2016, total available borrowing facilities amounted to US$19.4 billion (2015: US$19.5 billion) of which US$11.2 billion (2015: US$11.0 billion) was drawn down. Undrawn committed facilities, in the form of revolving credit and term loan facilities, and undrawn uncommitted facilities totalled US$5.4 billion (2015: US$5.5 billion) and US$2.8 billion (2015: US$3.0 billion), respectively. The following table analyzes the Group’s non-derivative financial liabilities, net-settled derivative financial liabilities and gross-settled derivative financial instruments into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. Derivative financial liabilities are included in the analysis if their contractual maturities are essential for an understanding of the timing of the cash flows. The amounts disclosed in the table are the contractual undiscounted cash flows. Between one and two years Between two and three years Between three and four years Between four and five years Beyond Total five undiscounted cash flows years US$m US$m US$m US$m US$m US$m Within one year US$m 4,797 6,881 1,695 1,684 161 4,477 6,469 1,805 85 2,064 65 1 – – 667 659 – 299 278 – 715 37 – 133 122 – 1,932 84 1,606 65 1,056 24 2 1 – – 1,459 1,444 154 717 700 – 518 498 – 218 203 – At 31st December 2016 Borrowings Creditors Net settled derivative financial instruments Gross settled derivative financial instruments – inflow – outflow Estimated losses on insurance contracts At 31st December 2015 Borrowings Creditors Net settled derivative financial instruments Gross settled derivative financial instruments – inflow – outflow Estimated losses on insurance contracts 550 13 – 68 59 – 711 33 – 133 120 – 2,793 33 12,724 7,114 – 1 1,655 1,644 4,517 4,446 – 161 2,925 87 12,707 6,762 – 3 1,724 1,692 4,769 4,657 – 154 47 Jardine Matheson | Annual Report 2016 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 2016 and 2015 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) 2016 2015 4 11 22 26 6 14 21 27 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 values of listed securities, which are classified as available-for-sale, are 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 values 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 values of other unlisted securities, which are classified as available-for-sale, are 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 2016Notes to the Financial Statements (continued)The table below analyzes financial instruments carried at fair value, by the levels in the fair value measurement hierarchy. 2016 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 2015 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$m 1,327 – 1,327 – – 1,327 – – – – 1,032 – 1,032 – – 1,032 – – – – – 44 44 102 17 163 – (21) (8) (29) – 43 43 273 23 339 – (69) (7) (76) – 56 56 – – 56 (10) – – (10) – 55 55 – – 55 (27) – – (27) There were no transfers among the three categories during the year ended 31st December 2016 and 2015. Total US$m 1,327 100 1,427 102 17 1,546 (10) (21) (8) (39) 1,032 98 1,130 273 23 1,426 (27) (69) (7) (103) 49 Jardine Matheson | Annual Report 2016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 Disposal Payment of contingent consideration Net change in fair value during the year – included in other comprehensive income – included in profit and loss Adjustment of contingent consideration At 31st December 2016 2015 Available-for- sale financial assets Contingent consideration payable US$m US$m 55 (1) 1 – – 1 – – 56 (27) – (1) – – – 15 3 (10) Available-for- sale financial assets Contingent consideration payable US$m 189 (6) 5 (164) – 31 – – 55 US$m (67) (1) (2) – 1 – 42 – (27) 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 2016Notes 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 2016 and 2015 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$m 2016 Assets Other investments Debtors Bank balances and other liquid funds Liabilities Borrowings (excluding finance lease liabilities) Finance lease liabilities Trade and other payables excluding non-financial liabilities 2015 Assets Other investments Debtors Bank balances and other liquid funds Liabilities Borrowings (excluding finance lease liabilities) Finance lease liabilities Trade and other payables excluding non-financial liabilities – 8,271 5,543 13,814 – – – – – 7,417 4,782 12,199 – – – – – 119 – 119 – – (29) (29) – 296 – 296 – – (76) (76) 1,427 – – 1,427 – – – – – – – – (11,129) (55) (7,104) (18,288) 1,130 – – 1,130 – – – – – – – – (10,890) (96) (6,735) (17,721) Total carrying amount US$m Fair value US$m 1,427 8,402 1,427 8,323 5,543 5,543 15,372 15,293 (11,129) (55) (11,214) (55) – 12 – 12 – – (10) (10) (7,143) (7,143) (18,327) (18,412) – 11 – 11 – – 1,130 7,724 1,130 7,644 4,782 4,782 13,636 13,556 (10,890) (96) (11,002) (96) (27) (27) (6,838) (6,838) (17,824) (17,936) 51 Jardine Matheson | Annual Report 2016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 3.20% to 3.85% for office (2015: 3.50% to 4.20%) and 4.50% to 5.50% for retail (2015: 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. 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 2016 on the Group’s indefinite life franchise rights indicated that no impairment charge was necessary. If there is a significant increase in the discount rate and/or a significant adverse change in the projected performance of the business to which these rights attach, it may be necessary to take an impairment charge to profit and loss in the future. In determining when an available-for-sale equity investment is impaired, significant judgement is required. In making this judgement, the Group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost; and the financial health of and near-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flow. 52 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)Income taxes The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. Provision 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 2016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 and 5. 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. 2016 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 2015 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 2,356 (2,294) – 62 (6) – (6) 89 – 89 145 (9) 136 (1) 135 (165) 651 2,463 (2,405) – 58 (7) – (7) 104 – 104 155 (13) 142 – 142 (221) 669 Jardine Motors US$m 5,197 (5,037) – 160 (11) 1 (10) – – – 150 (37) 113 (3) 110 (110) 709 5,207 (5,099) – 108 (12) – (12) – – – 96 (19) 77 – 77 Jardine Lloyd Thompson US$m Hongkong Land US$m – – – – – – – 56 – 56 56 – 56 – 56 1,994 (1,023) – 971 (111) 42 (69) 117 – 117 1,019 (168) 851 (498) 353 Dairy Farm US$m 11,201 (10,749) – 452 (23) 1 (22) 115 – 115 545 (85) 460 (163) 297 – 448 (2,008) 31,314 (641) 1,765 – – – – – – – 70 – 70 70 – 70 – 70 1,932 (938) – 994 (115) 41 (74) 140 – 140 1,060 (151) 909 (535) 374 11,137 (10,702) – 435 (15) 1 (14) 85 – 85 506 (84) 422 (148) 274 Mandarin Oriental US$m 597 (527) – 70 (12) 1 (11) 11 – 11 70 (14) 56 (20) 36 (297) 1,276 607 (499) – 108 (14) 2 (12) 11 – 11 107 (16) 91 (36) 55 Jardine Cycle & Carriage US$m 2,154 (2,075) – 79 (1) 1 – 148 – 148 227 (18) 209 (84) 125 91 1,223 2,016 (1,945) – 71 – – – 126 – 126 197 (16) 181 (76) 105 (419) 578 – 519 (2,341) 28,720 (482) 1,642 (132) 1,335 42 1,106 Corporate and other interests US$m Intersegment transactions Underlying businesses performance US$m US$m – (64) – (64) (2) 8 6 (1) – (1) (59) (3) (62) 24 (38) 582 1,637 – (47) – (47) (4) 6 2 2 – 2 (43) (3) (46) 19 (27) (58) 58 – – – – – – – – – – – – – – (91) (57) 57 – – – – – – – – – – – – – 37,051 (33,905) – 3,146 (297) 146 (151) 734 – 734 3,729 (654) 3,075 (1,689) 1,386 37,007 (34,203) – 2,804 (269) 134 (135) 838 – 838 3,507 (624) 2,883 (1,523) 1,360 506 1,407 – (60) Astra US$m 13,610 (12,194) – 1,416 (131) 92 (39) 199 – 199 1,576 (320) 1,256 (944) 312 461 10,805 13,702 (12,625) – 1,077 (102) 84 (18) 300 – 300 1,359 (322) 1,037 (747) 290 75 9,584 Non- trading items US$m – 93 2,573 2,666 – – – 7 (56) (49) 2,617 (5) 2,612 (1,495) 1,117 – (59) 1,043 984 – – – 37 72 109 1,093 13 1,106 (667) 439 Group US$m 37,051 (33,812) 2,573 5,812 (297) 146 (151) 741 (56) 685 6,346 (659) 5,687 (3,184) 2,503 (2,087) 49,737 37,007 (34,262) 1,043 3,788 (269) 134 (135) 875 72 947 4,600 (611) 3,989 (2,190) 1,799 (2,972) 45,500 * Net (debt)/cash is total borrowings less bank balances and other liquid funds. Net debt of financial services companies amounted to US$3,554 million at 31st December 2016 (2015: US$3,232 million) and relates to Astra. 54 55 Jardine Matheson | Annual Report 2016Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)4 Segment Information (continued) Set out below are analyzes of the Group’s underlying profit attributable to shareholders and non-current assets, by geographical areas: Underlying profit attributable to shareholders: Greater China Southeast Asia United Kingdom Rest of the world Corporate and other interests Non-current assets*: Greater China Southeast Asia United Kingdom Rest of the world * Excluding financial instruments, deferred tax assets and pension assets. 2016 US$m 748 612 52 12 1,424 (38) 1,386 32,659 14,373 673 1,060 48,765 2015 US$m 734 557 78 18 1,387 (27) 1,360 29,869 13,622 772 881 45,144 56 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)5 Revenue By business: Jardine Pacific Jardine Motors Jardine Lloyd Thompson Hongkong Land Dairy Farm Mandarin Oriental Jardine Cycle & Carriage Astra Intersegment transactions By product and service: Property Motor vehicles Retail and restaurants Insurance broking and financial services Engineering, construction and mining contracting Hotels Other By geographical location of customers: Greater China Southeast Asia United Kingdom Rest of the world Gross revenue Revenue 2016 US$m 6,285 5,197 1,698 3,201 20,424 965 6,785 28,156 (274) 72,437 3,184 28,686 21,096 4,730 8,663 964 5,114 72,437 25,352 42,471 3,468 1,146 72,437 2015 US$m 6,173 5,207 1,763 3,114 17,907 959 5,443 25,252 (547) 65,271 3,102 24,659 18,546 4,677 8,323 958 5,006 65,271 22,434 38,231 3,536 1,070 65,271 2016 US$m 2,356 5,197 – 1,994 11,201 597 2,154 13,610 (58) 37,051 1,989 14,437 11,820 1,357 3,839 596 3,013 37,051 12,495 21,612 2,665 279 37,051 2015 US$m 2,463 5,207 – 1,932 11,137 607 2,016 13,702 (57) 37,007 1,930 14,315 11,726 1,284 4,058 606 3,088 37,007 12,218 21,903 2,638 248 37,007 Gross revenue comprises revenue together with 100% of revenue from associates and joint ventures. 57 Jardine Matheson | Annual Report 20166 Net Operating Costs Cost of sales Other operating income Selling and distribution costs Administration expenses Other operating expenses The following credits/(charges) are included in net operating costs: Cost of stocks recognized as expense Cost of properties for sale recognized as expense Amortization of intangible assets Depreciation of tangible assets Depreciation of bearer plants Impairment of intangible assets Impairment of tangible assets Impairment of other investments Write down of stocks and work in progress Reversal of write down of stocks and work in progress Reversal of write down of properties for sale Impairment of debtors Operating expenses arising from investment properties Employee benefit expense – salaries and benefits in kind – share options granted – defined benefit pension plans (refer note 20) – defined contribution pension plans Net foreign exchange losses Operating lease expenses – minimum lease payments – contingent rents – subleases Auditors’ remuneration – audit – non-audit services Dividend and interest income from available-for-sale investments Rental income from properties Net operating costs included the following gains/(losses) from non-trading items: Change in fair value of agricultural produce Asset impairment Sale and closure of businesses Sale of other investments Sale of property interests Restructuring of businesses Loss on dilution of interest in an associate Acquisition-related costs Fair value loss on convertible component of Zhongsheng bonds Value added tax recovery in Jardine Motors 58 2016 US$m (28,232) 659 (4,157) (1,873) (209) (33,812) (25,429) (756) (118) (805) (22) (87) (1) – (51) 36 3 (93) (147) (3,256) (9) (93) (90) (3,448) (10) (1,121) (37) 48 (1,110) (19) (4) (23) 54 38 22 (82) 5 – 151 3 (4) (2) – – 93 2015 US$m (28,394) 763 (4,190) (1,751) (690) (34,262) (25,679) (762) (113) (831) (19) (19) (373) (188) (59) 20 21 (114) (134) (3,117) (10) (88) (87) (3,302) (3) (1,105) (23) 43 (1,085) (19) (4) (23) 53 33 – (176) (8) 126 1 – (2) (2) (1) 3 (59) Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)7 Net Financing Charges Interest expense – bank loans and advances – other Fair value losses on fair value hedges Fair value adjustment on hedged items attributable to the hedged risk Interest capitalized Commitment and other fees Financing charges Financing income 8 Share of Results of Associates and Joint Ventures By business: Jardine Pacific Jardine Lloyd Thompson Hongkong Land Dairy Farm Mandarin Oriental Jardine Cycle & Carriage Astra Corporate and other interests Share of results of associates and joint ventures included the following gains/(losses) from non-trading items: Change in fair value of investment properties Asset impairment Sale and closure of businesses Sale of property interests Litigation costs Restructuring of businesses Results are shown after tax and non-controlling interests in the associates and joint ventures. 2016 US$m (135) (120) (255) (10) 10 – (255) 47 (89) (297) 146 (151) 2015 US$m (123) (125) (248) (1) 1 – (248) 46 (67) (269) 134 (135) 2016 US$m 2015 US$m 71 46 59 119 11 148 232 (1) 685 (56) (18) 3 32 (10) – (49) 103 66 210 85 11 168 302 2 947 72 42 11 – – (16) 109 59 Jardine Matheson | Annual Report 20169 Tax Tax charged to profit and loss is analyzed as follows: Current tax Deferred tax Greater China Southeast Asia United Kingdom Rest of the world Reconciliation between tax expense and tax at the applicable tax rate*: Tax at applicable tax rate Income not subject to tax – change in fair value of investment properties – other items Expenses not deductible for tax purposes – change in fair value of investment properties – other items Tax losses and temporary differences not recognized Utilization of previously unrecognized tax losses and temporary differences Recognition of previously unrecognized tax losses and temporary differences Deferred tax assets written off (Underprovision)/overprovision in prior years Withholding tax Fiscal assets revaluation in Indonesia Land appreciation tax in mainland China Change in tax rate Other Tax relating to components of other comprehensive income is analyzed as follows: Remeasurements of defined benefit plans Cash flow hedges 2016 US$m (718) 59 (659) (259) (389) (6) (5) (659) 2015 US$m (733) 122 (611) (219) (381) (8) (3) (611) (1,077) (710) 433 113 (10) (98) (34) 16 5 (2) (8) (54) 69 (14) 1 1 202 93 (26) (67) (59) 10 – (1) 4 (51) – (5) – (1) (659) (611) (10) 1 (9) 13 (5) 8 Share of tax charge of associates and joint ventures of US$221 million and credit of US$13 million (2015: charge of US$257 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 19.0% (2015: 19.4%) and represents the weighted average of the rates of taxation prevailing in the territories in which the Group operates. 60 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)10 Earnings per Share Basic earnings per share are calculated on profit attributable to shareholders of US$2,503 million (2015: US$1,799 million) and on the weighted average number of 374 million (2015: 373 million) shares in issue during the year. Diluted earnings per share are calculated on profit attributable to shareholders of US$2,502 million (2015: US$1,798 million), which is after adjusting for the effects of the conversion of dilutive potential ordinary shares of subsidiaries, associates or joint ventures, and on the weighted average number of 375 million (2015: 374 million) shares in issue during the year. The weighted average number of shares is arrived at as follows: Weighted average number of shares in issue Company’s share of shares held by subsidiaries Weighted average number of shares for basic earnings per share calculation Adjustment for shares deemed to be issued for no consideration under the Senior Executive Share Incentive Schemes Weighted average number of shares for diluted earnings per share calculation Ordinary shares in millions 2016 708 (334) 374 1 375 2015 696 (323) 373 1 374 Additional basic and diluted earnings per share are also calculated based on underlying profit attributable to shareholders. A reconciliation of earnings is set out below: Profit attributable to shareholders Non-trading items (refer note 11) Underlying profit attributable to US$m 2,503 (1,117) 2016 Basic earnings per share US$ 6.69 Diluted earnings per share US$ 6.68 2015 Basic earnings per share US$ 4.82 Diluted earnings per share US$ 4.81 US$m 1,799 (439) shareholders 1,386 3.71 3.70 1,360 3.64 3.64 61 Jardine Matheson | Annual Report 201611 Non-trading Items By business: Jardine Pacific Jardine Motors Jardine Lloyd Thompson Hongkong Land Dairy Farm Mandarin Oriental Jardine Cycle & Carriage Astra Corporate and other interests An analysis of non-trading items after interest, tax and non-controlling interests is set out below: Change in fair value of investment properties – Hongkong Land – other Change in fair value of agricultural produce Asset impairment Sale and closure of businesses Sale of other investments Sale of property interests Restructuring of businesses Loss on dilution of interest in an associate Acquisition-related costs Litigation costs Fair value loss on convertible component of Zhongsheng bonds Value added tax recovery in Jardine Motors 2016 US$m (78) 143 (10) 1,043 6 (1) (3) 17 – 1,117 1,043 18 1,061 4 (101) 5 – 158 3 (3) (1) (9) – – 1,117 2015 US$m 3 1 (4) 459 (2) (1) 25 11 (53) 439 454 20 474 – (126) 4 104 – (16) (1) (2) – (1) 3 439 62 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)Goodwill US$m Franchise rights US$m Leasehold land Concession rights US$m US$m 1,277 (4) 1,273 (12) 14 – – – – – (83) 1,192 1,278 (86) 1,192 1,130 (4) 1,126 (73) 223 – (1) – (2) 1,273 1,277 (4) 1,273 155 – 155 4 – – – – – – – 159 159 – 159 172 – 172 (17) – – – – – 155 155 – 155 859 (179) 680 16 4 50 (8) 105 (84) (36) – 727 938 (211) 727 898 (163) 735 (70) 4 44 – (33) – 680 859 (179) 680 419 (25) 394 10 – 54 – – – (2) – 456 484 (28) 456 431 (23) 408 (41) – 30 – (3) – 394 419 (25) 394 12 Intangible Assets 2016 Cost Amortization and impairment Net book value at 1st January Exchange differences New subsidiaries Additions Disposal Revaluation surplus before transfer to investment properties Transfer from/(to) investment properties Amortization Impairment charge Net book value at 31st December Cost Amortization and impairment 2015 Cost Amortization and impairment Net book value at 1st January Exchange differences New subsidiaries Additions Disposal Amortization Impairment charge Net book value at 31st December Cost Amortization and impairment Goodwill allocation by business: Jardine Pacific Jardine Motors Dairy Farm Mandarin Oriental Astra Other US$m 434 (183) 251 2 – 124 (2) – – (80) (4) 291 507 (216) 291 385 (147) 238 (14) 6 115 – (77) (17) 251 434 (183) 251 2016 US$m 71 54 708 39 320 Total US$m 3,144 (391) 2,753 20 18 228 (10) 105 (84) (118) (87) 2,825 3,366 (541) 2,825 3,016 (337) 2,679 (215) 233 189 (1) (113) (19) 2,753 3,144 (391) 2,753 2015 US$m 153 51 718 40 311 1,192 1,273 63 Jardine Matheson | Annual Report 2016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 between 21% and 28% and average growth rate between 2% to 5% to extrapolate cash flows, which vary across the group’s business segments and geographical locations, over a five-year period and thereafter, and are based on management expectations for the market development; and pre-tax discount rates between 6% and 16% 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 primarily 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$57 million and heavy equipment of US$101 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 2016 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 between 3% and 4%. Pre-tax discount rates between 14% and 16%, 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 2016, the carrying amount of leasehold land pledged as security for borrowings amounted to US$4 million (2015: US$7 million) (refer note 30). The amortization charges are all recognized in arriving at operating profit and are included in cost of sales, selling and distribution costs and administration expenses. The remaining amortization periods for intangible assets are as follows: Leasehold land Concession rights Computer software Other up to 83 years by traffic volume over 29 to 31 years up to 9 years various 64 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)Freehold properties Leasehold properties Leasehold improve- ments Mining properties Plant & machinery Furniture, equipment & motor vehicles US$m US$m US$m US$m US$m US$m 901 (98) 803 (59) 22 154 (22) 2,843 (549) 2,294 – 2 213 (10) 1,178 (701) 477 (23) – 197 (6) 1,040 (688) 352 1 – – – 3,490 (2,232) 1,258 18 2 338 (8) 2,119 (1,217) 902 12 1 224 (18) Total US$m 11,571 (5,485) 6,086 (51) 27 1,126 (64) – 2 – – – – 2 13 Tangible Assets 2016 Cost Depreciation and impairment Net book value at 1st January Exchange differences New subsidiaries Additions Disposals Revaluation surplus before transfer to investment properties Transfer from/(to) investment properties, and stocks and work in progress Depreciation charge Impairment charge Reclassified to non-current assets held for sale – (11) – (2) (12) (98) – – – (109) – – 536 – (10) – – – (332) (1) (67) (245) – (79) (805) (1) – – (2) 343 1,275 809 6,239 Net book value at 31st December 885 2,391 Cost Depreciation and impairment 988 (103) 3,030 (639) 1,377 (841) 1,058 (715) 3,769 (2,494) 1,951 (1,142) 12,173 (5,934) 885 2,391 536 343 1,275 809 6,239 2015 Cost Depreciation and impairment Net book value at 1st January Exchange differences New subsidiaries Additions Disposals Transfer to stocks and work in progress Depreciation charge Impairment charge Net book value at 31st December Cost Depreciation and impairment 983 (94) 889 (76) – 18 (16) – (10) (2) 803 901 (98) 803 2,580 (520) 2,060 (147) 5 465 (1) – (85) (3) 2,294 2,843 (549) 2,294 1,167 (671) 496 (21) 2 110 (6) – (103) (1) 477 1,178 (701) 1,076 (340) 736 (18) 6 – – – (20) (352) 352 1,040 3,612 (2,121) 1,491 (130) 21 251 (4) (3) (353) (15) 1,258 3,490 2,234 (1,216) 1,018 (85) 1 304 (29) (47) (260) – 11,652 (4,962) 6,690 (477) 35 1,148 (56) (50) (831) (373) 902 6,086 2,119 11,571 (688) (2,232) (1,217) (5,485) 477 352 1,258 902 6,086 65 Jardine Matheson | Annual Report 201613 Tangible Assets (continued) In 2015, as a result of the decline in coal prices as well as the subdued outlook, management had performed an impairment review of the carrying amount of the mining properties and other tangible assets, and concluded that an impairment had occurred. An impairment charge of US$370 million had been included in the 2015 profit and loss in the line ‘Other operating expenses’. In 2016, no further impairment was recognized in view of the increase in coal price over the year, while management assumptions about the long-term price trend remain largely unchanged. The impairment review relating to mining properties is performed by comparing the carrying amount of the cash-generating units of the mining properties with the recoverable amount. The cash-generating unit is determined based on the location of the mining properties and the extent that they share infrastructure. 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. The recoverable amount of US$337 million at 31st December 2015, net of deferred tax, was determined based on the fair value less costs of disposal, using a discounted cash flow method with unobservable inputs. Major assumptions used in the valuation were coal price per tonne of US$52 to US$72 and post-tax discount rate of 12.8%. Freehold properties include a hotel property of US$112 million (2015: US$105 million), which is stated net of a grant of US$22 million (2015: US$23 million). Net book value of leasehold properties, plant and machinery and motor vehicles acquired under finance leases amounted to US$266 million, US$14 million and US$44 million (2015: US$276 million, US$41 million and US$45 million), respectively. Rental income from properties and other tangible assets amounted to US$281 million (2015: US$304 million) including contingent rents of US$3 million (2015: US$3 million). Future minimum rental payments receivable under non-cancellable leases are as follows: Within one year Between one and two years Between two and five years Beyond five years 2016 US$m 122 67 69 6 264 2015 US$m 118 64 48 10 240 At 31st December 2016, the carrying amount of tangible assets pledged as security for borrowings amounted to US$466 million (2015: US$555 million) (refer note 30). 66 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued) 14 Investment Properties 2016 At 1st January Exchange differences Additions Disposal Transfer from/(to) intangible assets and tangible assets Change in fair value At 31st December Freehold properties Leasehold properties 2015 At 1st January Exchange differences Additions Disposal Transfer from properties for sale Change in fair value At 31st December Freehold properties Leasehold properties Completed commercial properties Under development commercial properties Completed residential properties US$m US$m US$m 24,128 (22) 133 (1) 96 2,577 851 (43) 242 – – (31) 26,911 1,019 22,922 (33) 95 (1) – 1,145 24,128 834 (45) 185 – – (123) 851 651 (1) 2 – – 27 679 553 (2) 1 – 78 21 651 Total US$m 25,630 (66) 377 (1) 96 2,573 28,609 159 28,450 28,609 24,309 (80) 281 (1) 78 1,043 25,630 135 25,495 25,630 The Group measures its investment properties at fair value. The fair values of the Group’s investment properties at 31st December 2016 and 2015, 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 of residential properties 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. Fair value measurements of commercial properties 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. 67 Jardine Matheson | Annual Report 2016Investment Properties (continued) 14 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 at 31st December 2016: Commercial properties Fair value US$m Valuation method Completed Hong Kong 26,096 Income capitalization Singapore 518 Income capitalization Vietnam and Cambodia 51 Discounted cash flow Total 26,665 Range of significant unobservable inputs Prevailing market rent per month Capitalization/ discount rates US$ % 4.8 to 39.1 per square foot 5.4 to 7.9 per square foot 21.0 to 50.9 per square metre 3.20 to 5.50 3.50 to 5.50 13.00 to 15.00 Under development Mainland China Cambodia Total 676 128 804 Residual Residual 104.7 per square metre 30.0 to 59.0 per square metre 6.00 10.50 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$860 million (2015: US$850 million) including contingent rents of US$10 million (2015: US$11 million). Future minimum rental payments receivable under non-cancellable leases are as follows: Within one year Between one and two years Between two and five years Beyond five years 2016 US$m 770 527 580 341 2015 US$m 768 545 502 362 2,218 2,177 Generally the Group’s operating leases in respect of investment properties are for terms of three or more years. At 31st December 2016, the carrying amount of investment properties pledged as security for borrowings amounted to US$676 million (2015: US$638 million) (refer note 30). 68 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)15 Bearer Plants The Group’s bearer plants are primarily for the production of palm oil. Movements during the year: Cost – as previously reported – change in accounting policy (refer note 1(c)) – as restated Depreciation – as previously reported – change in accounting policy (refer note 1(c)) – as restated Net book value at 1st January Exchange differences New subsidiaries Additions Disposals Depreciation charge Net book value at 31st December Immature bearer plants Mature bearer plants Cost Accumulated depreciation 2016 US$m 2015 US$m 859 (263) 596 – (111) (111) 485 13 9 61 (49) (22) 497 151 346 497 629 (132) 497 908 (321) 587 – (104) (104) 483 (48) – 76 (7) (19) 485 188 297 485 596 (111) 485 The Group’s bearer plants had not been pledged as security for borrowings at 31st December 2016 and 2015. 69 Jardine Matheson | Annual Report 20162016 US$m 254 635 221 89 1,199 1,207 2,406 998 3,404 618 93 711 6,350 7,061 130 7,191 2015 US$m 296 464 152 79 991 1,055 2,046 1,115 3,161 580 75 655 6,228 6,883 146 7,029 10,595 10,190 357 448 4,413 1,464 168 1,037 2,675 33 344 519 4,601 1,295 168 926 2,310 27 10,595 10,190 16 Associates and Joint Ventures Listed associates – Jardine Lloyd Thompson – Yonghui – Siam City Cement – other Unlisted associates Share of attributable net assets Goodwill on acquisition Listed joint ventures – Bank Permata – PT Tunas Ridean Unlisted joint ventures Share of attributable net assets Goodwill on acquisition By business: Jardine Pacific Jardine Lloyd Thompson Hongkong Land Dairy Farm Mandarin Oriental Jardine Cycle & Carriage Astra Corporate and other interests 70 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)16 Associates and Joint Ventures (continued) Movements of associates and joint ventures during the year: At 1st January Share of results after tax and non-controlling interests Share of other comprehensive expense after tax and non-controlling interests Dividends received Acquisitions, increases in attributable interests and advances Disposals, decreases in attributable interests and repayment of advances Employee share options schemes Other At 31st December Fair value of listed associates/joint ventures Associates Joint ventures 2016 US$m 2015 US$m 2016 US$m 2015 US$m 3,161 402 (156) (232) 222 (5) 14 (2) 3,404 3,122 1,496 417 (185) (233) 1,676 (21) 14 (3) 3,161 3,240 7,029 283 (82) (365) 424 (103) – 5 7,191 651 7,385 530 (471) (401) 351 (388) – 23 7,029 469 (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 2016 and 2015: Name of entity Nature of business Jardine Lloyd Thompson Group plc (‘Jardine Lloyd Thompson’) Yonghui Superstores Co., Limited (‘Yonghui’) Insurance and reinsurance broking, risk management and employee benefit services Supermarkets and hypermarkets Siam City Cement Public Company Limited (‘Siam City Cement’) Cement manufacturer PT Astra Daihatsu Motor Automotive Country of incorporation/ principal place of business/ place of listing United Kingdom/ Worldwide/ London Mainland China/ Mainland China/ Shanghai Thailand/ Thailand/ Thailand Indonesia/ Indonesia/ Unlisted % of ownership interest 2016 42 2015 42 20 25 32 20 25 32 71 Jardine Matheson | Annual Report 201616 Associates and Joint Ventures (continued) Summarized financial information for material associates Summarized balance sheets at 31st December (unless otherwise indicated): 2016 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 Non-controlling interests Net assets 2015 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 Non-controlling interests Net assets Jardine Lloyd Thompson US$m Yonghui† US$m Siam City Cement US$m PT Astra Daihatsu Motor US$m 1,194 1,969 1,643 1,155 876 2,031 (864) (260) (1,124) (108) (1,562) (1,670) (28) 1,705 1,153 2,858 – (21) (21) (68) (1,487) (1,555) (9) 403 3,242 99 250 349 (179) (132) (311) (585) (210) (795) – 886 1,193 1,991 1,068 1,335 786 2,121 (911) (221) (1,132) (42) (1,650) (1,692) (27) 1,022 910 1,932 – (13) (13) (54) (1,491) (1,545) (8) 463 2,357 65 182 247 (29) (203) (232) (35) (160) (195) – 888 620 672 317 989 – (54) (54) – (562) (562) – 993 571 483 301 784 – (43) (43) – (375) (375) – 937 Total US$m 5,426 3,631 2,596 6,227 (1,043) (467) (1,510) (761) (3,821) (4,582) (37) 5,524 4,823 2,905 2,179 5,084 (940) (480) (1,420) (131) (3,676) (3,807) (35) 4,645 * Financial liabilities exclude trade and other payables and provisions, which are presented under other current and non-current liabilities. † Based on summarized balance sheets at 30th September 2016 and 2015. 72 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)16 Associates and Joint Ventures (continued) Summarized statements of comprehensive income for the year ended 31st December (unless otherwise indicated): 2016 Revenue Depreciation and amortization Interest income Interest expense Profit from underlying business performance Income tax expense Profit after tax from underlying business performance Loss after tax from non-trading items Profit after tax Other comprehensive income/(expense) Total comprehensive income Dividends received from associates 2015 Revenue Depreciation and amortization Interest income Interest expense Profit from underlying business performance Income tax expense Profit after tax from underlying business performance Loss after tax from non-trading items Profit after tax Other comprehensive income/(expense) Total comprehensive income Dividends received from associates Jardine Lloyd Thompson US$m Yonghui† US$m Siam City Cement US$m PT Astra Daihatsu Motor US$m 1,698 (67) 3 (33) 232 (70) 162 (40) 122 17 139 38 1,763 (65) 2 (37) 259 (72) 187 (14) 173 13 186 40 7,292 (197) 20 (12) 168 (45) 123 – 123 1 124 18 3,218 (64) 9 (5) 49 (8) 41 – 41 (4) 37 16 969 (54) 1 (21) 129 (28) 101 – 101 (12) 89 24 660 (32) 1 (10) 114 (21) 93 – 93 – 93 25 3,807 (110) 25 – 356 (92) 264 – 264 2 266 75 3,337 (95) 30 – 329 (79) 250 – 250 (1) 249 59 Total US$m 13,766 (428) 49 (66) 885 (235) 650 (40) 610 8 618 155 8,978 (256) 42 (52) 751 (180) 571 (14) 557 8 565 140 † Based on summarized statements of comprehensive income for the twelve months ended 30th September 2016 in 2016 and based on six months ended 30th September 2015 in 2015. The information contained in the summarized balance sheets and statements of comprehensive income reflect the amounts presented in the financial statements of the associates adjusted for differences in accounting policies between the Group and the associates, and fair value of the associates at the time of acquisition. For associates acquired during 2016, the fair value of the identifiable assets and liabilities at the acquisition date is provisional and will be finalized within one year after the acquisition date. 73 Jardine Matheson | Annual Report 201616 Associates and Joint Ventures (continued) Reconciliation of the summarized financial information Reconciliation of the summarized financial information presented to the carrying amount of the Group’s interests in its material associates for the year ended 31st December: 2016 Net assets Adjustment for shares purchased for employee benefit plans Adjusted net assets Interest in associates (%) Group’s share of net assets in associates Goodwill Other Carrying value Fair value 2015 Net assets Adjustment for shares purchased for employee benefit plans Adjusted net assets Interest in associates (%) Group’s share of net assets in associates Goodwill Other Carrying value Fair value Jardine Lloyd Thompson US$m Yonghui US$m Siam City Cement US$m PT Astra Daihatsu Motor US$m 403 208 611 42 255 193 – 448 1,064 463 243 706 42 296 223 – 519 1,206 3,242 – 3,242 20 648 388 (13) 1,023 1,352 2,357 – 2,357 20 471 417 (7) 881 1,265 886 – 886 25 221 345 – 566 435 888 – 888 25 221 343 – 564 514 993 – 993 32 317 – – 317 N/A 937 – 937 32 299 – – 299 N/A Total US$m 5,524 208 5,732 1,441 926 (13) 2,354 2,851 4,645 243 4,888 1,287 983 (7) 2,263 2,985 74 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)16 Associates and Joint Ventures (continued) The Group has interests in a number of individually immaterial associates. The following table analyzes, in aggregate, the share of profit and other comprehensive expense 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 2016 US$m 209 (9) 200 1,050 2016 US$m 21 2015 US$m 240 (21) 219 898 2015 US$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 2016 and 2015: Nature of business Country of incorporation and principal place of business % of ownership interest 2015 2016 Hongkong Land Property investment Macau – Properties Sub F, Ltd – BFC Development LLP Property investment Singapore – Central Boulevard Development Pte Ltd Property investment Singapore Property investment Singapore – One Raffles Quay Pte Ltd Astra – PT Astra Honda Motor – PT Bank Permata Tbk Indonesia Indonesia Automotive Commercial and retail bank 49 33 33 33 50 45 49 33 33 33 50 45 As at 31st December 2016, the fair value of the Group’s interest in PT Bank Permata Tbk, which is listed on the Indonesian Stock Exchange, was US$411 million (2015: US$363 million) and the carrying amount of the Group’s interest was US$654 million (2015: US$616 million). 75 Jardine Matheson | Annual Report 201616 Associates and Joint Ventures (continued) Summarized financial information for material joint ventures Set out below are the summarized financial information for the Group’s material joint ventures. Summarized balance sheets at 31st December: Central Boulevard Properties Development Development Pte Ltd Sub F, Ltd BFC LLP US$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 2016 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 1,374 3,301 2,547 2,526 1,479 3,502 14,729 44 32 76 (16) (144) (160) – (42) (42) 11 3 14 32 9 41 (1,175) – (1,175) (1,118) (20) (1,138) – (64) (64) (6) (31) (37) 15 1 16 (717) (184) (901) (4) (47) (51) 432 388 820 – (229) (229) – (664) (664) 1,677 7,086 8,763 (486) (47) (533) 2,211 7,519 9,730 (3,512) (624) (4,136) – (10,350) (10,350) (10) (11,198) (11,208) Net assets 1,248 2,076 1,413 1,590 1,406 1,382 9,115 2015 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 1,574 3,373 2,605 2,580 1,395 5,199 16,726 20 48 68 (35) (166) (201) (1) (38) (39) 8 5 13 41 14 55 (1,196) – (1,196) (1,135) (19) (1,154) (1) (65) (66) (6) (38) (44) 11 1 12 (727) (188) (915) (3) (44) (47) 213 376 589 – (221) (221) – (583) (583) 1,750 6,236 7,986 (473) (80) (553) 2,043 6,680 8,723 (3,566) (674) (4,240) (149) (11,180) (11,329) (160) (11,948) (12,108) Net assets 1,402 2,124 1,462 1,630 1,180 1,303 9,101 * Financial liabilities exclude trade and other payables and provisions, which are presented under other current and non-current liabilities. 76 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued) 16 Associates and Joint Ventures (continued) 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 2016 Revenue Depreciation and amortization Interest income Interest expense Profit/(loss) from underlying business performance Income tax expense Profit/(loss) after tax from underlying business performance Loss after tax from non-trading items Profit/(loss) after tax Other comprehensive income/(expense) Total comprehensive income/(expense) Dividends received from joint ventures 2015 Revenue Depreciation and amortization Interest income Interest expense Profit/(loss) from underlying business performance Income tax expense Profit/(loss) after tax from underlying business performance Profit after tax from non-trading items Profit/(loss) after tax Other comprehensive income/(expense) Total comprehensive income/(expense) Dividends received from joint ventures 86 (8) – (1) 45 (5) 40 (169) (129) 168 – – (46) 85 (14) 71 (4) 67 106 – – (29) 51 (8) 43 (4) 39 121 – – (22) 71 (12) 59 (3) 56 (1) (33) (37) (36) 4,560 (134) 24 – 580 (125) 455 – 455 3 1,226 (19) – – (661) 162 (499) – (499) Total US$m 6,267 (161) 24 (98) 171 (2) 169 (180) (11) (7) (111) (130) 12 94 (7) – (2) 47 (6) 41 2 43 1 44 26 34 27 161 – – (52) 70 (12) 58 43 101 2 17 192 – – (24) 90 (15) 75 113 188 20 20 120 – – (22) 64 (11) 53 30 83 458 (506) (122) 131 – 207 4,257 (106) 20 – 425 (104) 321 – 321 1,332 (19) – – (15) (3) (18) – (18) 6,156 (132) 20 (100) 681 (151) 530 188 718 (148) (96) (110) (2) (4) (359) (47) 20 92 42 (27) 319 (22) 359 18 123 6 235 The information contained in the summarized balance sheets and statements of comprehensive income reflect the amounts presented in the financial statements of the joint ventures adjusted for differences in accounting policies between the Group and the joint ventures, and fair value of the joint ventures at the time of acquisition. 77 Jardine Matheson | Annual Report 2016 16 Associates and Joint Ventures (continued) Reconciliation of the summarized financial information Reconciliation of the summarized financial information presented to the carrying amount of the Group’s interests in its material joint ventures for the year ended 31st December: Central Boulevard Properties Development Development Pte Ltd Sub F, Ltd BFC LLP US$m US$m US$m 2016 Net assets Shareholders’ loans Adjusted net assets Interest in joint ventures (%) Group’s share of net assets in joint ventures Goodwill Carrying value 2015 Net assets Shareholders’ loans Adjusted net assets Interest in joint ventures (%) Group’s share of net assets in joint ventures Goodwill Carrying value 1,248 16 1,264 49 619 – 619 1,402 35 1,437 49 704 – 704 2,076 1,175 3,251 33 1,084 – 1,084 2,124 1,196 3,320 33 1,107 – 1,107 1,413 – 1,413 33 471 – 471 1,462 – 1,462 33 487 – 487 One Raffles Quay Pte Ltd US$m 1,590 93 1,683 33 561 – 561 1,630 95 1,725 33 575 – 575 PT Astra Honda Motor US$m PT Bank Permata Tbk US$m 1,406 – 1,406 50 703 – 703 1,180 – 1,180 50 590 – 590 1,382 – 1,382 45 617 37 654 1,303 – 1,303 45 580 36 616 Total US$m 9,115 1,284 10,399 4,055 37 4,092 9,101 1,326 10,427 4,043 36 4,079 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 2016 US$m 304 (116) 188 3,099 2016 US$m 453 2015 US$m 233 (104) 129 2,950 2015 US$m 492 There were no contingent liabilities relating to the Group’s interest in the joint ventures at 31st December 2016 and 2015. 78 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued) 17 Other Investments Available-for-sale financial assets Listed securities – Asia Commercial Bank – Rothschild & Co – Schindler Holdings – The Bank of N.T. Butterfield & Son – Zhongsheng – other Unlisted securities Held-to-maturity financial assets Listed securities Non-current Current Analysis by geographical area of operation: Greater China Southeast Asia Rest of the world Movements during the year: At 1st January Exchange differences Additions Disposals and capital repayments Unwinding of discount Change in fair value At 31st December 2016 US$m 58 114 222 75 297 561 1,327 100 1,427 7 1,434 1,369 65 1,434 402 613 419 2015 US$m 60 108 217 47 147 453 1,032 98 1,130 7 1,137 1,105 32 1,137 259 498 380 1,434 1,137 1,137 8 292 (115) (1) 113 1,434 1,372 (48) 123 (307) (2) (1) 1,137 In 2014, a wholly-owned subsidiary of Jardine Strategic 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 subsidiary to further increase its interest upon exercising the bonds. An impairment charge of US$188 million was made against the investment in Zhongsheng through profit and loss during 2015 as a result of a prolonged decline in its market value. The market value of Zhongsheng had increased in 2016 and the fair value gain was recognized in other comprehensive income. 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 2016. Profit on sale of these assets in 2015 amounted to US$126 million and was credited to profit and loss. The fair value of held-to-maturity financial assets was US$7 million (2015: US$7 million). 79 Jardine Matheson | Annual Report 201618 Debtors Consumer financing debtors – gross – provision for impairment Financing lease receivables – gross investment – unearned finance income – net investment – provision for impairment Financing debtors Trade debtors – third parties – associates – joint ventures – provision for impairment Other debtors – third parties – associates – joint ventures – provision for impairment Non-current Current Analysis by geographical area of operation: Greater China Southeast Asia United Kingdom Rest of the world Fair value: Consumer financing debtors Financing lease receivables Financing debtors Trade debtors Other debtors* * Excluding prepayments, rental and other deposits, and other non-financial debtors. 80 2016 US$m 4,660 (182) 4,478 398 (51) 347 (14) 333 4,811 2,423 26 96 2,545 (48) 2,497 2,237 7 91 2,335 (10) 2,325 9,633 2,936 6,697 9,633 1,457 7,962 105 109 9,633 4,444 335 4,779 2,497 1,047 8,323 2015 US$m 4,079 (183) 3,896 542 (67) 475 (14) 461 4,357 2,191 21 52 2,264 (59) 2,205 2,229 3 140 2,372 (10) 2,362 8,924 3,263 5,661 8,924 1,357 7,399 93 75 8,924 3,834 469 4,303 2,205 1,136 7,644 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)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 4% to 14% (2015: 4% 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 irrecoverable amount by reference to past default experience. The Group has the right to repossess the assets whenever its customers default on their instalment obligations. It usually exercises its right if monthly instalments 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: Including related finance income Within one year Between one and two years Between two and five years Beyond five years Excluding related finance income Within one year Between one and two years Between two and five years Beyond 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 2016 US$m 3,188 1,672 1,135 – 5,995 2,357 1,324 979 – 4,660 2016 US$m 398 201 (201) 398 (51) 347 2015 US$m 2,856 1,489 855 6 5,206 2,132 1,193 749 5 4,079 2015 US$m 542 228 (228) 542 (67) 475 81 Jardine Matheson | Annual Report 201618 Debtors (continued) The maturity analyzes of financing lease receivables at 31st December are as follows: Within one year Between one and two years Between two and five years 2016 2015 Gross investment Net investment Gross investment Net investment US$m US$m US$m US$m 251 105 42 398 213 95 39 347 320 174 48 542 272 158 45 475 The fair value of the financing debtors is US$4,779 million (2015: US$4,303 million). The fair value of financing debtors is determined based on a discounted cash flow method using unobservable inputs, which are mainly rates of 6% to 34% per annum (2015: 6% to 33% per annum). The higher the rates, the lower the fair value. Financing debtors are due within five years (2015: five years) from the balance sheet date and the interest rates range from 6% to 34% per annum (2015: 6% to 33% 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 2016, consumer financing debtors of US$44 million (2015: US$32 million), financing lease receivables of US$16 million (2015: US$18 million), trade debtors of US$78 million (2015: US$103 million) and other debtors of US$11 million (2015: US$15 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. At 31st December 2016, consumer financing debtors of US$385 million (2015: US$350 million), financing lease receivable of US$90 million (2015: US$135 million), trade debtors of US$626 million (2015: US$663 million) and other debtors of US$50 million (2015: US$18 million), respectively, were past due but not impaired. The ageing analysis of these debtors is as follows: Trade debtors Other debtors 2016 US$m 266 119 65 176 626 2015 US$m 318 137 72 136 663 2016 US$m 2015 US$m 9 8 1 32 50 8 2 3 5 18 Consumer financing debtors 2015 2016 US$m Financing lease receivables 2015 2016 US$m US$m 283 56 11 – 350 US$m 86 37 7 5 135 61 21 8 – 90 Below 30 days Between 31 and 60 days Between 61 and 90 days Over 90 days 311 62 12 – 385 82 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)18 Debtors (continued) The risk of trade and other debtors that are neither past due nor impaired at 31st December 2016 becoming impaired is low as they have a good track record with the Group. Based on past experience, management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. Other debtors Other debtors are further analyzed as follows: Convertible bonds in Zhongsheng Derivative financial instruments Restricted bank balances and deposits Loans to employees Other amounts due from associates Other amounts due from joint ventures Repossessed assets of finance companies Other receivables Financial assets Prepayments Reinsurers’ share of estimated losses on insurance contracts Rental and other deposits Other 2016 US$m 397 119 68 37 7 91 25 350 1,094 796 76 207 152 2,325 2015 US$m 391 296 48 34 3 140 26 224 1,162 836 79 210 75 2,362 The convertible bonds in Zhongsheng with a nominal value of HK$3,092 million (US$399 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$12.96 per share on or after the date falling 180 days after the issue date of 25th April 2014 up to the close of business on the date falling 10 days prior to the maturity. The bonds will mature on 25th April 2017. Movements in the provisions for impairment are as follows: Consumer financing debtors 2015 2016 US$m Financing lease receivables 2015 2016 US$m At 1st January Exchange differences Additional provisions Unused amounts reversed Amounts written off (183) (4) (95) – 100 US$m (202) 20 (94) – 93 (14) 1 (8) 1 6 At 31st December (182) (183) (14) Trade debtors Other debtors 2016 US$m 2015 US$m 2016 US$m 2015 US$m (59) (1) (13) 22 3 (48) (44) 4 (35) 13 3 (59) (10) – (1) 1 – (11) 1 (1) – 1 (10) (10) US$m (29) 2 – 3 10 (14) At 31st December 2016, the carrying amount of consumer financing debtors, financing lease receivables, trade debtors and other debtors pledged as security for borrowings amounted to US$1,783 million, US$86 million, nil and US$9 million (2015: US$1,703 million, US$134 million, US$1 million and US$6 million), respectively (refer note 30). 83 Jardine Matheson | Annual Report 201619 Deferred Tax Assets/(Liabilities) Accelerated tax depreciation Fair value gains/ losses US$m US$m Losses US$m Provisions and other temporary differences Employee benefits US$m US$m 2016 At 1st January – as previously reported – change in accounting policy for bearer plants – as restated Exchange differences Credited/(charged) to profit and loss Credited/(charged) to other comprehensive income Other At 31st December Deferred tax assets Deferred tax liabilities 2015 At 1st January – as previously reported – change in accounting policy for bearer plants – as restated Exchange differences New subsidiaries Credited to profit and loss Credited/(charged) to other comprehensive income Other At 31st December Deferred tax assets Deferred tax liabilities (155) (338) 8 (147) 3 79 – – (65) 159 (224) (65) 88 (250) (4) – 1 – (253) (50) (203) (253) (155) (440) 9 (146) (1) – – – – (147) 98 (245) (147) 99 (341) 15 (4) 85 (5) – (250) (44) (206) (250) 36 – 36 – (6) – – 30 30 – 30 33 – 33 (2) – 5 – – 36 28 8 36 99 – 99 1 6 (10) – 96 90 6 96 84 – 84 (7) – 9 13 – 99 83 16 99 87 (3) 84 4 (20) – (1) 67 146 (79) 67 88 (3) 85 (10) – 23 – (14) 84 150 (66) 84 Total US$m (271) 93 (178) 4 59 (9) (1) (125) 375 (500) (125) (390) 105 (285) (5) (4) 122 8 (14) (178) 315 (493) (178) 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$157 million (2015: US$156 million) arising from unused tax losses of US$648 million (2015: US$650 million) have not been recognized in the financial statements. Included in the unused tax losses, US$246 million have no expiry date and the balance will expire at various dates up to and including 2036. Deferred tax liabilities of US$480 million (2015: US$462 million) arising on temporary differences associated with investments in subsidiaries of US$4,800 million (2015: US$4,623 million) have not been recognized as there is no current intention of remitting the retained earnings of these subsidiaries to the holding companies in the foreseeable future. 84 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)20 Pension Plans The Group operates defined benefit pension plans in the main territories in which it operates, with the major plans in Hong Kong and the United Kingdom. Most of the pension plans are final salary defined benefits, calculated based on members’ length of service and their salaries in the final years leading up to retirement. In Hong Kong, the pension benefits are usually paid in one lump sum. With the exception of certain plans in Hong Kong, all the defined benefit plans are closed to new members. In addition, although all plans are impacted by the discount rate, liabilities in Hong Kong are driven by salary growth, whilst the United Kingdom plans are driven by inflationary rates. The Group’s defined benefit plans are either funded or unfunded, with the assets of the funded plans held independently of the Group’s assets in separate trustee administered funds. Plan assets held in trusts are governed by local regulations and practices in each country. Responsibility for governance of the plans, including investment decisions and contribution schedules, lies jointly with the company and the boards of trustees. The Group’s major plans are valued by independent actuaries annually using the projected unit credit method. The amounts recognized in the consolidated balance sheet are as follows: Fair value of plan assets Present value of funded obligations Present value of unfunded obligations Net pension liabilities Analysis of net pension liabilities: Pension assets Pension liabilities 2016 US$m 901 (1,104) (203) (211) (414) 5 (419) (414) 2015 US$m 926 (1,127) (201) (210) (411) 5 (416) (411) 85 Jardine Matheson | Annual Report 201620 Pension Plans (continued) The movement in the net pension liabilities is as follows: 2016 At 1st January Current service cost Interest income/(expense) Past service cost and gains on settlements Administration expenses Exchange differences Remeasurements – return on plan assets, excluding amounts included in interest income – change in financial assumptions – experience gains Contributions from employers Contributions from plan participants Benefit payments Settlements At 31st December 2015 At 1st January Current service cost Interest income/(expense) Past service cost and gains on settlements Administration expenses Exchange differences Disposal Remeasurements – return on plan assets, excluding amounts included in interest income – change in financial assumptions – experience losses Contributions from employers Contributions from plan participants Benefit payments Settlements Transfer from other plans At 31st December Fair value of plan assets US$m Present value of obligations US$m 926 – 34 – (3) 31 957 (56) 41 – – 41 50 4 (86) (9) (1,337) (67) (59) 2 – (124) (1,461) 59 – (37) 19 (18) – (4) 100 9 Total US$m (411) (67) (25) 2 (3) (93) (504) 3 41 (37) 19 23 50 – 14 – 901 (1,315) (414) 1,006 – 38 – (3) 35 1,041 (28) (3) (56) – – (56) 43 4 (70) (6) 1 (1,333) (66) (56) (1) – (123) (1,456) 54 3 – 4 (27) (23) – (4) 84 6 (1) (327) (66) (18) (1) (3) (88) (415) 26 – (56) 4 (27) (79) 43 – 14 – – 926 (1,337) (411) 86 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)20 Pension Plans (continued) The weighted average duration of the defined benefit obligations at 31st December 2016 is 12 years (2015: 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 2016 US$m 89 93 304 5,683 6,169 The principal actuarial assumptions used for accounting purposes at 31st December are as follows: Hong Kong United Kingdom Others 2016 % 3.3 4.8 N/A 2015 % 3.0 5.0 N/A 2016 % 2.6 – 3.4 2015 % 3.7 – 2.9 2016 % 7.3 6.2 N/A Discount rate Salary growth rate Inflation rate 2015 US$m 112 85 314 6,724 7,235 2015 % 8.4 7.6 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 (2015: 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 obligations to changes in the weighted principal assumptions is: Discount rate Salary growth rate Inflation rate Change in assumption % 1 1 1 (Increase)/decrease on defined benefit obligations Increase in assumption US$m 136 (92) (21) Decrease in assumption US$m (165) 77 17 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 obligations to significant actuarial assumptions the same method (present value of the defined benefit obligations 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. 87 Jardine Matheson | Annual Report 2016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$m 2016 Quoted investments Equity instruments Debt instruments – government – corporate bonds – investment grade Investment funds Unquoted investments Investment funds Total investments Cash and cash equivalents Benefits payable and other 87 49 20 69 73 229 8 237 46 – 88 88 124 258 4 262 10 – 4 4 110 124 2 126 10 2 – 2 46 58 172 230 153 51 112 163 353 669 186 855 48 (2) 901 88 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued) 20 Pension Plans (continued) Asia Pacific US$m Europe US$m North America US$m Global US$m Total US$m 2015 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 106 34 18 52 50 208 7 2 – 2 9 7 16 224 51 – 105 105 122 278 16 8 1 9 25 3 28 306 11 1 – 1 117 129 7 13 3 16 23 2 25 154 10 – – – 16 26 2 – – – 2 175 177 203 178 35 123 158 305 641 32 23 4 27 59 187 246 887 41 (2) 926 The defined benefit plans in Hong Kong have two 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 a 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 2015, with modified strategic asset allocations adopted in 2015. The next ALM review is scheduled for 2018. As at 31st December 2016, the Hong Kong plans had assets of US$471 million (2015: US$481 million). These assets were invested 27% in Asia Pacific, 10% in Europe and 21% in North America (2015: 25%, 14% and 27%, respectively). Within Asia Pacific, 49% (2015: 58%) was invested in Hong Kong equities. 66% (2015: 55%) and 34% (2015: 45%) of the investments were in quoted and unquoted instruments, respectively. 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, technology and industrials, with a combined fair value of US$38 million (2015: US$ 46 million). 89 Jardine Matheson | Annual Report 2016 20 Pension Plans (continued) In the United Kingdom, the defined benefit plans have strategic asset allocations for equities, fixed income and diversified growth funds of 40/30/30 for Matheson & Co. and 40/40/20 for Jardine Motors. The majority of the equity investments are in passive funds with a significant percentage in developed economies. Matheson & Co. has 87% (2015: 89%) of their investments in developed and 13% (2015: 11%) in emerging economies. The regional splits are 10% (2015: 9%) in Asia Pacific, 45% (2015: 44%) in Europe, 14% (2015: 14%) in North America and 31% (2015: 33%) globally. All of their investments were in quoted instruments, unchanged from 2015. Jardine Motors had 95% of the investments in developed economies and all of their investments were in quoted instruments, similar to 2015. Their regional splits are 5% in Asia Pacific, 85% in Europe, 5% in North America and 5% globally, also similar to 2015. The top three sectors of the quoted equity instruments at the end of both 2016 and 2015 were financials, consumer goods and industrials, with combined fair values of US$39 million and US$46 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. In 2016, the plans rebalanced from their overweight allocations in hedge funds to their underweight allocations in equities, bonds and cash. The plans also restructured their fixed income portfolios by reducing the allocation to global bonds and increasing the allocation to cash and Asian bonds to reduce risks. 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 2016, 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 mainly 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 2016 were US$50 million and the estimated amount of contributions expected to be paid to all its plans in 2017 is US$50 million. 90 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)21 Properties for Sale Properties in the course of development Completed properties 2016 US$m 2,052 263 2,315 2015 US$m 2,661 102 2,763 As at 31st December 2016, properties in the course of development amounting to US$1,484 million (2015: US$2,067 million) were not scheduled for completion within the next twelve months. At 31st December 2016, the Group’s properties for sale had not been pledged as security for borrowings (2015: US$796 million) (refer note 30). 22 Stocks and Work in Progress Finished goods Work in progress Raw materials Spare parts Other 2016 US$m 3,013 41 65 80 82 3,281 2015 US$m 3,052 41 63 89 86 3,331 At 31st December 2016, the Group’s stocks and work in progress had not been pledged as security for borrowings (2015: US$1 million) (refer note 30). 91 Jardine Matheson | Annual Report 201623 Bank Balances and Other Liquid Funds Deposits with banks and financial institutions Bank balances Cash balances Analysis by currency: Chinese renminbi Euro Hong Kong dollar Indonesian rupiah Japanese yen Macau patacas Malaysian ringgit New Taiwan dollar Philippine peso Singapore dollar United Kingdom sterling United States dollar Other 2016 US$m 2,532 2,893 118 5,543 1,188 19 193 1,771 20 29 74 58 26 501 38 1,598 28 5,543 2015 US$m 3,026 1,654 102 4,782 934 49 167 920 37 26 25 52 20 473 38 2,006 35 4,782 The weighted average interest rate on deposits with banks and financial institutions is 1.8% (2015: 2.7%) per annum. 2016 US$m 250 2016 US$m 175 3 178 2015 US$m 250 2015 US$m 173 2 175 Ordinary shares in millions 2016 2015 702 12 714 691 11 702 24 Share Capital Authorized: 1,000,000,000 shares of US¢25 each Issued and fully paid: At 1st January Scrip issued in lieu of dividends At 31st December 92 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)25 Share-based Long-term Incentive Plans Share-based long-term incentive plans (‘LTIP’) have been put in place to provide incentives for selected executives. Awards take the form of share options to purchase ordinary shares in the Company with exercise prices based on the then prevailing market prices, however, share awards which will vest free of payment may also be made. Awards normally vest on or after the third anniversary of the date of grant and may be subject to the achievement of performance conditions. The 2015 LTIP was adopted by the Company on 5th March 2015. During 2016, awards were granted in the form of options with exercise prices based on the then prevailing market prices, and no free shares were granted. Prior to the adoption of the 2015 LTIP, The Jardine Matheson International Share Option Plan 2005 and The Jardine Matheson Holdings Limited Approved Share Option Plan 2005 provided selected executives with options to purchase ordinary shares in the Company. The exercise prices of the options granted during 2016, and in prior years, were based on the average market prices for the five trading days immediately preceding the dates of grant of the options. Options normally vest in tranches over a period of three to five years, and are exercisable for up to ten years following the date of grant. Movements during the year: At 1st January Granted Exercised At 31st December 2016 2015 Weighted average exercise price US$ 48.0 54.0 26.0 51.3 Options in millions 2.2 0.7 (0.2) 2.7 Weighted average exercise price US$ 44.3 61.1 23.5 48.0 Options in millions 2.3 0.2 (0.3) 2.2 The average share price during the year was US$57.4 (2015: US$56.4) per share. Outstanding at 31st December: Expiry date 2016 2017 2018 2020 2021 2022 2023 2024 2025 2026 Total outstanding of which exercisable Exercise price US$ 18.2 21.7 27.3 32.2 45.7 – 46.8 51.2 64.9 59.6 52.8 – 63.4 53.9 – 56.6 Options in millions 2016 2015 – 0.1 0.1 0.2 0.3 0.5 0.4 0.2 0.2 0.7 2.7 1.2 0.1 0.1 0.2 0.2 0.3 0.5 0.4 0.2 0.2 – 2.2 1.0 The fair value of options granted during the year, determined using the Trinomial valuation model, was US$8 million (2015: US$3 million). The significant inputs into the model, based on the weighted average number of options issued, were share price of US$54.4 (2015: US$61.0) at the grant dates, exercise price shown above, expected volatility based on the last seven years of 23.9% (2015: 28.6%), dividend yield of 2.7% (2015: 2.4%), option life disclosed above, and annual risk-free interest rate of 1.7% (2015: 1.8%). Options are assumed to be exercised at the end of the seventh year following the date of grant. 93 Jardine Matheson | Annual Report 201626 Share Premium and Capital Reserves 2016 At 1st January Capitalization arising on scrip issued in lieu of dividends Employee share option schemes – exercise of share options – value of employee services Transfer At 31st December 2015 At 1st January Capitalization arising on scrip issued in lieu of dividends Employee share option schemes – exercise of share options – value of employee services Transfer At 31st December Share premium US$m Capital reserves US$m 21 (3) 1 – 1 20 20 (2) 2 – 1 21 137 – – 22 (4) 155 118 – – 22 (3) 137 Total US$m 158 (3) 1 22 (3) 175 138 (2) 2 22 (2) 158 Capital reserves represent the value of employee services under the Group’s employee share option schemes. At 31st December 2016, US$26 million (2015: US$22 million) related to the Company’s Senior Executive Share Incentive Schemes. 27 Dividends Final dividend in respect of 2015 of US¢107.00 (2014: US¢107.00) per share Interim dividend in respect of 2016 of US¢38.00 (2015: US¢38.00) per share Company’s share of dividends paid on the shares held by subsidiaries Shareholders elected to receive scrip in respect of the following: Final dividend in respect of previous year Interim dividend in respect of current year 2016 US$m 752 270 1,022 (481) 541 515 185 700 2015 US$m 739 266 1,005 (465) 540 480 173 653 A final dividend in respect of 2016 of US¢112.00 (2015: US¢107.00) per share amounting to a total of US$800 million (2015: US$752 million) is proposed by the Board. The dividend proposed will not be accounted for until it has been approved at the 2017 Annual General Meeting. The net amount after deducting the Company’s share of the dividends payable on the shares held by subsidiaries of US$382 million (2015: US$352 million) will be accounted for as an appropriation of revenue reserves in the year ending 31st December 2017. 94 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)28 Own Shares Held Own shares held of US$4,100 million (2015: US$3,596 million) represent the Company’s share of the cost of 406 million (2015: 396 million) ordinary shares in the Company held by subsidiaries and are deducted in arriving at shareholders’ funds. 29 Non-controlling Interests By business: Hongkong Land Dairy Farm Mandarin Oriental Jardine Cycle & Carriage Astra Jardine Strategic Other Less own shares held attributable to non-controlling interests 2016 US$m 18,224 631 417 534 7,893 1,019 25 28,743 (806) 27,937 2015 US$m 16,808 597 481 491 7,016 932 22 26,347 (733) 25,614 Summarized financial information on subsidiaries with material non-controlling interests Set out below are the summarized financial information for each subsidiary that has non-controlling interests that are material to the Group. Summarized balance sheets at 31st December: Hongkong Land US$m Dairy Farm US$m Mandarin Oriental US$m Astra US$m Jardine Strategic US$m 2016 Current Assets Liabilities Total current net assets/(liabilities) Non-current Assets Liabilities Total non-current net assets Net assets Non-controlling interests 2015 Current Assets Liabilities Total current net assets/(liabilities) Non-current Assets Liabilities Total non-current net assets Net assets Non-controlling interests 4,616 (1,791) 2,825 32,339 (3,850) 28,489 31,314 20 4,647 (1,722) 2,925 29,725 (3,930) 25,795 28,720 35 1,628 (2,782) (1,154) 3,512 (779) 2,733 1,579 74 1,440 (3,150) (1,710) 3,380 (215) 3,165 1,455 79 288 (151) 137 1,573 (537) 1,036 8,267 (6,616) 1,651 11,462 (2,501) 8,961 1,173 10,612 4 2,094 406 (152) 254 1,477 (499) 978 1,232 5 7,616 (5,513) 2,103 10,445 (3,152) 7,293 9,396 1,788 16,124 (11,758) 4,366 53,784 (7,944) 45,840 50,206 24,064 14,959 (10,892) 4,067 49,790 (7,995) 41,795 45,862 21,943 95 Jardine Matheson | Annual Report 201629 Non-controlling Interests (continued) Summarized profit and loss for the year ended 31st December: 2016 Revenue Profit after tax from underlying business performance Profit/(loss) after tax from non-trading items Profit after tax Other comprehensive (expense)/income Total comprehensive income Total comprehensive (expense)/income allocated to non-controlling interests Dividends paid to non-controlling interests 2015 Revenue Profit after tax from underlying business performance Profit/(loss) after tax from non-trading items Profit after tax Other comprehensive (expense)/income Total comprehensive income Total comprehensive (expense)/income 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$m 1,994 11,201 597 13,610 29,552 851 2,494 3,345 (295) 3,050 (5) (4) 460 10 470 (68) 402 4 (4) 56 (2) 54 (58) (4) (1) – 1,283 57 1,340 125 1,465 243 (101) 2,917 2,586 5,503 (56) 5,447 2,824 (726) 1,932 11,137 607 13,702 29,391 909 1,097 2,006 (432) 1,574 (9) (6) 422 (4) 418 (192) 226 (17) – 90 (1) 89 (60) 29 – – 1,049 38 1,087 14 1,101 2,733 1,106 3,839 (1,728) 2,111 73 (137) 913 (851) 96 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)29 Non-controlling Interests (continued) Summarized cash flows at 31st December: 2016 Cash flows from operating activities Cash generated from operations Interest received Interest and other financing charges paid Tax paid Other operating cash flows Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1st January Effect of exchange rate changes Cash and cash equivalents at 31st December 2015 Cash flows from operating activities Cash generated from operations Interest received Interest and other financing charges paid Tax paid Other operating cash flows Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1st January Effect of exchange rate changes Cash and cash equivalents at 31st December Hongkong Land US$m Dairy Farm US$m Mandarin Oriental US$m Astra US$m Jardine Strategic US$m 3,522 36 (111) (141) (2,210) 1,096 (245) (442) 409 1,566 (77) 1,898 2,008 41 (119) (175) (859) 896 (146) (795) (45) 1,658 (47) 1,566 459 1 (22) (85) 190 543 (428) (43) 72 257 (6) 323 431 2 (15) (90) 372 700 (1,365) 277 (388) 657 (12) 257 68 1 (10) (19) 68 108 (223) (7) (122) 309 (4) 183 107 2 (12) (19) 62 140 (124) (23) (7) 324 (8) 309 1,731 88 (126) (365) 287 1,615 (1,138) (273) 204 1,963 18 2,185 1,113 83 (98) (449) 1,480 2,129 (812) (920) 397 1,666 (100) 1,963 5,447 135 (272) (660) (1,235) 3,415 (2,110) (707) 598 4,568 (75) 5,091 3,562 136 (248) (784) 1,306 3,972 (2,927) (1,341) (296) 5,050 (186) 4,568 The information above is the amount before inter-company eliminations. 97 Jardine Matheson | Annual Report 2016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 2016 2015 Carrying amount US$m 12 2,028 34 2,074 1,313 874 51 11 2,249 4,323 2,876 3,962 4 19 6,861 Fair value US$m 12 2,028 34 2,074 1,313 874 51 11 2,249 4,323 2,882 4,041 4 19 6,946 Carrying amount US$m 9 1,917 14 1,940 1,481 533 31 6 2,051 3,991 2,916 4,009 65 5 6,995 Fair value US$m 9 1,917 14 1,940 1,481 533 31 6 2,051 3,991 2,922 4,115 65 5 7,107 11,184 11,269 10,986 11,098 The fair values are based on market prices or are estimated using the expected future payments discounted at market interest rates ranging from 0.1% to 12.0% (2015: 0.1% to 11.3%) 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 2016 US$m 3,942 7,242 2015 US$m 3,760 7,226 11,184 10,986 Secured borrowings at 31st December 2016 included Hongkong Land’s bank borrowings of US$265 million which were secured against its investment properties (2015: US$195 million, against investment properties and properties for sale), Mandarin Oriental’s bank borrowings of US$476 million (2015: US$436 million) which were secured against its tangible assets, and Astra’s bonds and notes of US$1,617 million (2015: US$1,328 million) which were secured against its various assets as summarized on the next page and bank borrowings of US$1,584 million (2015: US$1,801 million) which were secured against its various assets. 98 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)30 Borrowings (continued) By currency: 2016 Chinese renminbi Hong Kong dollar Indonesian rupiah Malaysian ringgit Philippine peso Singapore dollar United Kingdom sterling United States dollar Other 2015 Chinese renminbi Hong Kong dollar Indonesian rupiah Malaysian ringgit Philippine peso Singapore dollar United Kingdom sterling United States dollar Other Fixed rate borrowings Weighted average interest rates Weighted average period outstanding Floating rate borrowings % 5.0 3.2 8.6 4.1 3.1 2.7 1.3 2.1 2.4 5.6 3.1 8.6 3.9 3.6 3.0 1.6 1.5 3.3 Years US$m US$m – 8.2 1.2 – – 3.2 – 1.7 10.6 – 9.1 1.3 – 0.9 4.2 – 1.4 4.5 – 2,128 3,589 – – 181 – 341 3 6,242 – 2,142 3,500 – 74 183 – 235 8 6,142 278 2,016 1,292 194 91 204 108 753 6 4,942 249 1,860 867 85 20 415 86 1,256 6 4,844 Total US$m 278 4,144 4,881 194 91 385 108 1,094 9 11,184 249 4,002 4,367 85 94 598 86 1,491 14 10,986 The weighted average interest rates and period of fixed rate borrowings are stated after taking into account hedging transactions. 99 Jardine Matheson | Annual Report 2016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 2016 US$m 7,008 1,040 1,045 247 – 1,844 2015 US$m 6,518 1,285 869 234 235 1,845 11,184 10,986 Present value of finance lease liabilities 2015 2016 US$m US$m 51 4 55 51 4 55 31 65 96 31 65 96 Minimum lease payments 2015 2016 US$m US$m 53 4 57 (2) 55 33 71 104 (8) 96 100 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)30 Borrowings (continued) Details of the bonds and notes outstanding at 31st December 2016 are as follows: Maturity Interest rates % Nominal values US$m US$m US$m US$m 2016 2015 Current Non- current Current Non- current Hongkong Land 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 notes 5.25% 30-year notes 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 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$250 million 5.25 Astra Sedaya Finance 2017 Berkelanjutan I Tahap I bonds 2016 Berkelanjutan I Tahap III bonds 2016 Berkelanjutan II Tahap I bonds Berkelanjutan II Tahap II bonds 2017 Berkelanjutan II Tahap III bonds 2018 Berkelanjutan II Tahap IV bonds 2017 2018 Berkelanjutan II Tahap V bonds Berkelanjutan III Tahap I bonds 2019 Berkelanjutan III Tahap II bonds 2019 Singapore Dollars Guaranteed bonds Euro Medium Term Note 2017 2018 8.6 7.75 7.75 9.75 10.5 – 10.6 10.5 9.25 7.95 – 8.5 7.25 – 7.95 Rp2,250 billion Rp1,120 billion Rp950 billion Rp370 billion Rp778 billion Rp1,430 billion Rp775 billion Rp2,000 billion Rp1,640 billion 2.12 2.88 Rp930 billion Rp4,031 billion 35 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 167 – – 28 52 106 – 57 63 69 – – 25 39 39 67 64 104 64 67 52 488 39 26 141 39 406 38 614 39 99 61 26 38 42 51 103 25 30 32 – – – – 6 – 58 91 59 – 300 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 81 62 63 – – 54 – – – – 36 25 39 39 69 64 106 64 70 52 488 39 26 141 39 408 38 615 39 99 61 26 38 42 51 103 25 30 32 163 – – 24 56 103 56 – – 70 300 101 Jardine Matheson | Annual Report 201630 Borrowings (continued) Details of the bonds and notes outstanding at 31st December 2016 are as follows (continued): Maturity Interest rates % Nominal values US$m US$m US$m US$m 2016 2015 Current Non- current Current Non- current Federal International Finance 2016 Berkelanjutan I Tahap II bonds 2017 Berkelanjutan I Tahap III bonds 2018 Berkelanjutan II Tahap I bonds 2018 Berkelanjutan II Tahap II bonds Berkelanjutan II Tahap III bonds 2019 Berkelanjutan II Tahap IV bonds 2019 SAN Finance Berkelanjutan I Tahap I bonds Berkelanjutan I Tahap II bonds Berkelanjutan I Tahap III bonds Berkelanjutan II Tahap I bonds Serasi Auto Raya III bonds Astra Otoparts (‘AOP’) Medium Term Notes 2016 2017 2018 2019 2016 7.75 10.5 9.25 9.25 8.5 – 9.15 7.25 – 7.95 Rp1,690 billion Rp745 billion Rp1,971 billion Rp587 billion Rp3,300 billion Rp2,025 billion 9.75 10.5 9.4 8.25 – 9.0 Rp391 billion Rp1,000 billion Rp443 billion Rp1,530 billion 8.75 Rp148 billion AOP Medium Term Note Seri B 2019 9.0 Rp350 billion – 55 – – 65 65 – 74 – 38 – – – – 146 43 180 86 – – 33 76 – 26 122 – 68 49 – – 24 – – – 10 – – 54 142 43 – – – 65 29 – – – 874 3,962 533 4,009 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 ASF Euro Medium Term Note were unsecured. 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 financing debtors of the subsidiary amounting to 60% of the total outstanding principal of the bonds. The AOP Medium Term Notes were unsecured and issued by a wholly-owned subsidiary of Astra. 102 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)31 Creditors Trade creditors – third parties – associates – joint ventures Accruals Other amounts due to 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 2016 US$m 4,123 81 194 4,398 1,677 175 421 10 29 433 7,143 161 42 943 29 221 12 352 251 9,154 440 8,714 9,154 3,385 5,292 282 195 9,154 2015 US$m 3,939 60 178 4,177 1,586 154 392 27 76 426 6,838 154 39 892 20 204 12 313 219 8,691 430 8,261 8,691 3,287 4,916 299 189 8,691 Derivative financial instruments are stated at fair value. Other creditors are stated at amortized cost. The fair values of these creditors approximate their carrying amounts. 103 Jardine Matheson | Annual Report 201632 Provisions 2016 At 1st January Exchange differences Additional provisions Unused amounts reversed Utilized At 31st December Non-current Current 2015 At 1st January Exchange differences Additional provisions Unused amounts reversed Utilized At 31st December Non-current Current Motor vehicle warranties Closure cost provisions Obligations under onerous leases Reinstate- ment and restoration costs Statutory employee entitlements US$m US$m US$m US$m US$m Others US$m Total US$m 39 (1) 12 – (4) 46 – 46 46 35 (3) 11 (1) (3) 39 – 39 39 8 – 7 (3) (4) 8 1 7 8 5 – 7 (2) (2) 8 1 7 8 16 (1) 2 – – 17 11 6 17 12 (3) 7 – – 16 13 3 16 45 (1) 10 – (2) 52 45 7 52 46 (4) 4 – (1) 45 40 5 45 101 3 7 (1) (2) 108 84 24 108 101 (9) 10 – (1) 101 74 27 101 20 – 15 (1) (2) 32 10 22 32 16 (1) 10 – (5) 20 17 3 20 229 – 53 (5) (14) 263 151 112 263 215 (20) 49 (3) (12) 229 145 84 229 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 2016Notes 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)/loss on sale of subsidiaries Profit on sale of other investments Profit on sale of tangible assets Loss on sale of repossessed assets Loss on sale of bearer plants and related assets Fair value gain on reclassification of properties Fair value gain on contingent consideration Fair value gain on agricultural produce Impairment of intangible assets 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 impairment of joint ventures Reversal of write down of properties for sale Change in provisions Net foreign exchange (gains)/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 2016 US$m 31 30 3 213 60 10 598 945 2016 US$m (16) (7) (143) 60 38 – (15) (22) 87 1 – 93 51 (36) – (3) 36 (15) 9 2 120 75 (145) (5) 8 3 18 161 5 120 2015 US$m 30 30 3 212 53 10 625 963 2015 US$m 6 (133) (8) 67 3 (63) (42) – 19 373 188 114 59 (20) (14) (21) 31 50 10 1 620 21 (2) (98) 25 2 16 589 67 620 105 Jardine Matheson | Annual Report 201633 Notes to Consolidated Cash Flow Statement (continued) (c) (Increase)/decrease in working capital Increase in concession rights Decrease in properties for sale Increase in stocks and work in progress (Increase)/decrease in debtors Increase in creditors Increase in pension obligations (d) Purchase of subsidiaries Intangible assets Tangible assets Bearer plants Non-current debtors Current assets Deferred tax liabilities Current liabilities Long-term borrowings Fair value of identifiable net assets acquired Adjustment for non-controlling interests Goodwill Total consideration Deposit paid Adjustment for contingent consideration Payment for contingent consideration Adjustment for deferred consideration Cash and cash equivalents of subsidiaries acquired Net cash outflow 2016 US$m (61) 350 (75) (917) 580 29 (94) 2015 US$m (29) 14 (404) 39 425 31 76 2016 Fair value US$m 2015 Fair value US$m 4 27 9 – 11 – (17) – 34 – 14 48 12 (1) 1 – – 60 10 35 – 2 116 (4) (91) (3) 65 (28) 223 260 – – 1 (26) (20) 215 For the subsidiaries acquired during 2016, the fair values of the identifiable assets and liabilities at the acquisition dates are provisional and will be finalized within one year after the acquisition dates. The fair values of the identifiable assets and liabilities at the acquisition dates of certain subsidiaries acquired during 2015 as included in the comparative figures were provisional. The fair values were finalized in 2016. As the difference between the provisional and the finalized fair values were not material, the comparative figures have not been adjusted. Net cash outflow for purchase of subsidiaries in 2016 included US$46 million for Jardine Motors’ acquisition of various motor dealership businesses in the United Kingdom during the second quarter of 2016, and US$12 million deposit paid for Astra’s acquisition of an 80% interest in PT Suprabari Mapanindo Mineral, a coal mining company, to be completed in 2017. Goodwill arising from the acquisition of motor dealership businesses was attributable to the expected synergies with its existing retail network. None of the goodwill is expected to be deductible for tax purposes. 106 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)33 Notes to Consolidated Cash Flow Statement (continued) (d) Purchase of subsidiaries (continued) Revenue since acquisition in respect of subsidiaries acquired during the year amounted to US$116 million with insignificant contribution to profit after tax. Had the acquisitions occurred on 1st January 2016, consolidated revenue for the year ended 31st December 2016 would have been US$37,138 million. There was no impact on the consolidated profit after tax for the year ended 31st December 2016. Net cash outflow in 2015 included US$147 million for Dairy Farm’s acquisition of a 100% interest in San Miu Supermarket Limited (‘San Miu’), which operates a supermarket chain in Macau, in March 2015, and US$57 million for Astra’s acquisition of a 50.1% interest in PT Acset Indonusa, a construction company in Indonesia, in January 2015. The goodwill arising from the acquisition of San Miu amounted to US$182 million and was attributable to its leading market position and retail network in Macau. The goodwill arising from the acquisition of PT Acset Indonusa of US$33 million was attributable to the expected synergies from combining its operations with Astra’s existing businesses. None of the goodwill is expected to be deductible for tax purposes. (e) Purchase of associates and joint ventures in 2016 included US$190 million for Dairy Farm’s further investment in Yonghui, US$240 million for Astra’s subscription to rights issue and capital advance to PT Bank Permata, US$70 million for Hongkong Land’s investment in mainland China, US$74 million for Astra’s investment in Indonesia, and US$57 million for Hongkong Land’s and Astra’s 50% joint investment in an Indonesian residential project. Purchase in 2015 included US$100 million for Hongkong Land’s investment in mainland China, US$912 million for Dairy Farm’s acquisition of a 19.99% interest in Yonghui, US$615 million for Jardine Cycle & Carriage’s acquisition of a 24.9% interest in Siam City Cement Public Company Limited, a cement manufacturer in Thailand, and US$65 million for Astra’s acquisition of 25% interest in PT Trans Marga Jateng, a toll road operator in Indonesia. (f) Purchase of other investments in 2016 mainly included US$208 million for Astra’s acquisition of securities and US$84 million for Jardine Strategic’s acquisition of an additional 4% interest in Zhongsheng. Purchase in 2015 mainly included acquisition of securities by Astra. (g) Advance to associates and joint ventures in 2016 mainly included Hongkong Land’s advance to its property joint ventures. Advance in 2015 comprised US$215 million for Hongkong Land’s advance to its property joint ventures and US$69 million for Mandarin Oriental’s loan to its hotel joint venture. (h) Advance and repayment from associates and joint ventures in 2016 and 2015 mainly included advance and repayment from Hongkong Land’s property joint ventures. (i) Sale of other investments in 2016 comprised Astra’s sale of securities. Sale in 2015 mainly included US$102 million for Astra’s sale of securities and US$166 million for Jardine Strategic’s sale of ACLEDA Bank. 107 Jardine Matheson | Annual Report 2016 33 Notes to Consolidated Cash Flow Statement (continued) (j) Change in interests in subsidiaries Increase in attributable interests – Jardine Strategic – Mandarin Oriental – Jardine Cycle & Carriage – other Decrease in attributable interests 2016 US$m (235) (67) (23) (37) 23 (339) 2015 US$m (215) – (41) (19) 34 (241) Increase in attributable interests in other subsidiaries in 2016 included US$35 million for Hongkong Land’s acquisition of an additional 5% interest in Hongkong Land Macau Property Company Limited, increasing its controlling interest to 100%. Increase in 2015 included US$18 million for Dairy Farm’s acquisition of an additional 2.86% interest in PT Hero Supermarket. Decrease in attributable interests in other subsidiaries in 2016 comprised US$15 million for Hongkong Land’s sale of a 6% interest in Wangfu Central Real Estate Development Company Limited, reducing its controlling interest to 84%, and US$8 million for Astra’s sale of a 20% interest in PT Balai Lelang Serasi, reducing its controlling interest to 70%. Decrease in 2015 comprised Dairy Farm’s sale of a 15% economic interest in GCH Retail (Malaysia) Sdn Bhd, reducing its controlling interest to 85%. (k) Analysis of balances of cash and cash equivalents Bank balances and other liquid funds (refer note 23) Bank overdrafts (refer note 30) 2016 US$m 5,543 (12) 5,531 2015 US$m 4,782 (9) 4,773 108 Jardine Matheson | Annual Report 2016Notes to the Financial Statements (continued)34 Derivative Financial Instruments The fair values of derivative financial instruments at 31st December are as follows: Designated as cash flow hedges – forward foreign exchange contracts – interest rate swaps and caps – cross currency swaps Designated as fair value hedges – interest rate swaps and caps – cross currency swaps Non-qualifying as hedges – forward foreign exchange contracts 2016 2015 Positive fair value US$m Negative fair value US$m Positive fair value US$m Negative fair value US$m – 2 100 102 3 14 17 – 2 – 19 21 – 8 8 1 1 – 272 273 6 17 23 – 1 3 65 69 – 7 7 – Forward foreign exchange contracts The contract amounts of the outstanding forward foreign exchange contracts at 31st December 2016 were US$658 million (2015: US$111 million). Interest rate swaps and caps The notional principal amounts of the outstanding interest rate swap and cap contracts at 31st December 2016 were US$604 million (2015: US$562 million). At 31st December 2016, the fixed interest rates relating to interest rate swaps and caps vary from 0.9% to 3.5% (2015: 0.6% to 3.3%) per annum. The fair values of interest rate swaps are based on the estimated cash flows discounted at market rates ranging from 0.7% to 2.3% (2015: 0.2% to 2.1%) per annum. Cross currency swaps The contract amounts of the outstanding cross currency swap contracts at 31st December 2016 totalled US$3,241 million (2015: US$3,814 million). 109 Jardine Matheson | Annual Report 201635 Commitments Capital commitments: Authorized not contracted – joint ventures – other Contracted not provided – joint ventures – other 2016 US$m – 1,065 1,065 453 600 1,053 2,118 2015 US$m 1 1,220 1,221 491 649 1,140 2,361 At 31st December 2015, Dairy Farm had an investment commitment of RMB1.3 billion (approximately US$199 million) to further invest in Yonghui. The transaction was completed in August 2016 at a consideration of US$190 million with Dairy Farm’s interest in Yonghui remains at 19.99%. Operating lease commitments: Total commitments under operating leases – due within one year – due between one and two years – due between two and three years – due between three and four years – due between four and five years – due beyond five years 2016 US$m 2015 US$m 916 649 337 195 150 522 862 611 376 202 147 610 2,769 2,808 Total future sublease payments receivable relating to the above operating leases amounted to US$42 million (2015: US$42 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 2016Notes 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 2016 amounted to US$5,325 million (2015: US$5,471 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 2016 amounted to US$601 million (2015: US$841 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 2016 to Jardine Lloyd Thompson were US$5 million (2015: US$5 million). The Group manages six (2015: six) associate and joint venture hotels. Management fees received by the Group in 2016 from these managed hotels amounted to US$13 million (2015: US$13 million). PT Bank Permata provides banking services to the Group. The Group’s deposits with PT Bank Permata at 31st December 2016 amounted to US$328 million (2015: US$417 million). Amounts of outstanding balances with associates and joint ventures are included in debtors and creditors, as appropriate (refer notes 18 and 31). Details of Directors’ remuneration (being the key management personnel compensation) are shown on page 117 under the heading of Directors’ Appointment, Retirement, Remuneration and Service Contracts. 38 Summarized Balance Sheet of the Company Included below is certain summarized balance sheet information of the Company disclosed in accordance with Bermuda law. Subsidiaries Share capital (refer note 24) Share premium and capital reserves (refer note 26) Revenue and other reserves Shareholders’ funds Current liabilities Total equity and liabilities Subsidiaries are shown at cost less amounts provided. 2016 US$m 741 178 46 499 723 18 741 2015 US$m 1,061 175 43 826 1,044 17 1,061 111 Jardine Matheson | Annual Report 2016Proportion of ordinary shares and voting powers at 31st December 2016 held by non-controlling interests the Group 39 Principal Subsidiaries The Group’s principal subsidiaries at 31st December 2016 are set out below: Dairy Farm International Holdings Ltd Country of incorporation/ principal place of business Bermuda/ Greater China and Southeast Asia Hongkong Land Holdings Ltd Bermuda/ Jardine Cycle & Carriage Ltd Jardine Matheson Ltd Jardine Motors Group Holdings Ltd Jardine Pacific Holdings Ltd Greater China and Southeast Asia Singapore/ Southeast Asia Bermuda/ Hong Kong Bermuda/ Greater China and United Kingdom Bermuda/ Greater China and Southeast Asia Attributable interests 2016 % 65 2015 % 64 42 42 63 62 Nature of business Supermarkets, hypermarkets, convenience stores, health and beauty stores, home furnishings stores and restaurants Property development & investment, leasing & management A 50.1% interest in PT Astra International Tbk, motor trading and construction % 78 50 75 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 84 83 Mandarin Oriental International Ltd Matheson & Co., Ltd Greater China and Southeast Asia Bermuda/ Worldwide Hotel management & ownership England/ United Kingdom Holding and management PT Astra International Tbk Indonesia/ Indonesia Automotive, financial services, agribusiness, heavy equipment and mining, infrastructure and logistics, information technology, and property 65 61 100 100 31 31 84 77 100 50 % 22 50 25 – – – 16 23 – 50 All subsidiaries are included in the consolidation. 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 57% (2015: 56%) of the share capital of the Company. 112 Jardine Matheson | Annual Report 2016Notes 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 2016 and of its financial performance and its cash flows for the year then ended; and • have been properly prepared in accordance with International Financial Reporting Standards (‘IFRSs’) and The Companies Act 1981 (Bermuda). What we have audited The financial statements, included within the Annual Report, comprise: • the Consolidated Balance Sheet as at 31st December 2016; • 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 set out 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 opinion, has been prepared for and only for the Company’s members as a body for in accordance with Section 90 of the Companies Act 1981 (Bermuda) and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come, including without limitation under any contractual obligations of the Company, 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 London United Kingdom 2nd March 2017 (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 2016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$) Cash Flow Cash flows from operating activities Cash flows from investing activities Net cash flow before financing Cash flow per share from operating 2016 US$m 37,051 2,503 1,386 6.69 3.71 1.50 2016 US$m 71,523 (21,786) 49,737 21,800 2,087 58.15 2016 US$m 3,950 (2,063) 1,887 2015 US$m 37,007 1,799 1,360 4.82 3.64 1.45 2015 US$m 66,581 (21,081) 45,500 19,886 2,972 53.30 2015 US$m 4,089 (3,200) 889 2014 US$m 39,921 1,712 1,531 4.62 4.13 1.45 2014 US$m 66,032 (21,547) 44,485 19,196 2,483 51.60 2014 US$m 3,285 (2,234) 1,051 2013 US$m 39,465 1,565 1,499 4.26 4.08 1.40 2013 US$m 63,387 (20,942) 42,445 18,313 2,601 49.64 2013 US$m 4,133 (2,305) 1,828 2012 US$m 39,593 1,678 1,459 4.60 4.00 1.35 2012 US$m 62,898 (20,948) 41,950 17,711 3,413 48.28 2012 US$m 2,674 (2,729) (55) activities (US$) 10.56 10.96 8.87 11.24 7.33 * Figures prior to 2016 have been restated due to a change in accounting policy upon adoption of the amendments to IAS 16 and IAS 41 ‘Agriculture: Bearer Plants’. Figures for 2012 have been restated due to a change in accounting policy upon adoption of IAS 19 (amended 2011) ‘Employee Benefits’. 114 Jardine Matheson | Annual Report 2016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 Guidance 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 John Witt Directors 2nd March 2017 115 Jardine Matheson | Annual Report 2016Corporate Governance Jardine Matheson Holdings Limited is incorporated in Bermuda. The majority of the Group’s business interests are in Greater China and Southeast 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. The Company’s share capital is 57%-owned by Jardine Strategic Holdings Limited (‘Jardine Strategic’), a Bermuda incorporated 84%-owned subsidiary of the Company similarly listed in London, Bermuda and Singapore. The Disclosure Guidance 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 its Asian markets. It is committed to high standards of governance based on its approach developed over many years. 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 five 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 2017 and ad hoc procedures are adopted to deal with urgent matters. In 2016 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 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 2016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 so appointed 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. Jeremy Parr was appointed as a Director of the Company with effect from 1st February 2016. James Riley stepped down as Group Finance Director on 31st March 2016 and John Witt joined the Board in his place on 1st April 2016. David Hsu was appointed as a Director of the Company with effect from 5th May 2016. On 1st August 2016, Y.K. Pang succeeded Adam Keswick as Deputy Managing Director (the latter remaining as a Director of the Company). In accordance with Bye-law 84, Adam Keswick, Simon Keswick and Dr Richard Lee retire by rotation at this year’s Annual General Meeting and, being eligible, offer themselves for re-election. In accordance with Bye-law 91, David Hsu will also retire, and, being eligible, offers himself for re-election. David Hsu, Adam Keswick and Simon Keswick each has a service contract with a subsidiary of the Company that has a notice period of six months. Dr Richard Lee does not have a service contract with the Company or its subsidiaries. Lord Leach of Fairford, who had been a Director of the Company since 1984, passed away on 12th June 2016. 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 may be 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$60,000 each per annum and the fee for the Chairman to US$85,000 per annum with effect from 1st January 2017 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 5.03% 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 2016, the Directors received US$68.9 million (2015: US$67.0 million) in aggregate being distributions from the 1947 Trust of US$52.1 million (2015: US$50.4 million) and Directors’ fees and employee benefits from the Group of US$16.8 million (2015: US$16.6 million). Directors’ fees and employee benefits included US$0.4 million (2015: US$0.4 million) in Directors’ fees, US$13.4 million (2015: US$13.4 million) in short-term employee benefits including salary, bonuses, accommodation and deemed benefits in kind, US$1.5 million (2015: US$1.6 million) in post-employment benefits and US$1.5 million (2015: US$1.2 million) in share-based payments. The information set out in this paragraph forms part of the audited financial statements. 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 on or 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. 117 Jardine Matheson | Annual Report 2016Corporate Governance (continued) 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. Audit Committee The Board has established an Audit Committee, the current members of which are Anthony Nightingale, Adam Keswick and Lord Sassoon; 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 providing oversight in respect of risk management activities. The Audit Committee considers the Group’s principal risks and uncertainties and potential changes to the risk profile, and reviews the operation and effectiveness of the Group’s systems of internal control and the procedures by which these risks are monitored and mitigated. 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 2016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 2nd March 2017 had interests (within the meaning of the EU Market Abuse Regulation (‘MAR’), which applies to the Company as it is listed on the London Stock Exchange) 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’ closely associated persons (as that term is used under MAR). Sir Henry Keswick Ben Keswick Y.K. Pang Mark Greenberg David Hsu Adam Keswick Simon Keswick Dr Richard Lee Anthony Nightingale Percy Weatherall 11,578,123 43,309,613(a) (b) (c) 315,000 43,678 35,237 36,162,168(a) (b) 2,778,046(a) (c) 117,987 1,186,780 36,551,841(a) (b) Notes: (a) Includes 1,950,004 ordinary shares held by a family trust, the trustees of which are closely associated persons of Ben Keswick, Adam Keswick, Simon Keswick and Percy Weatherall. (b) Includes 31,318,946 ordinary shares held by family trusts, the trustee of which is a closely associated person of Ben Keswick, Adam Keswick and Percy Weatherall. (c) Includes 473,571 ordinary shares held by a family trust, the trustee of which is a closely associated person of Ben Keswick and Simon Keswick. In addition, Ben Keswick, Y.K. Pang, Mark Greenberg, David Hsu, Adam Keswick, Jeremy Parr, Lord Sassoon and John Witt held options in respect of 240,000, 180,000, 190,000, 96,667, 130,000, 50,000, 75,000 and 190,000 ordinary shares, respectively, issued pursuant to the Company’s share-based long-term incentive plans. 119 Jardine Matheson | Annual Report 2016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 406,027,584 ordinary shares carrying 56.84% of the voting rights; and (ii) the 1947 Trust is interested in 35,915,991 ordinary shares carrying 5.03% 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 2nd March 2017. There were no contracts of significance with corporate substantial shareholders during the year under review. Governance Principles The Company’s primary listing on the London Stock Exchange is 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 MAR. 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 inside 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. When shareholders approved the Company’s move to a standard listing from a premium listing in 2014, the Company stated that it intended to maintain certain governance principles on the same basis as was then applicable to the Company’s premium listing, as follows: 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, 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, 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. These rules, which were based on the UK Model Code, have since been revised to follow the provisions of MAR with respect to market abuse and disclosure of interests in shares. 6. The Company will continue its policies and practices in respect of risk management and internal controls. 120 Jardine Matheson | Annual Report 2016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 and, therefore, reduce the issued share capital of the Company. 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. When purchasing such shares, the Company is subject to the provisions of MAR. 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 2017 Annual General Meeting will be held at Rosewood Tucker’s Point, Bermuda on 4th May 2017. 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 2016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 Guidance 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 evolving rapidly, and failure to compete effectively in terms of price, tender terms, product specification, application of new technologies or levels of service can have an adverse effect on earnings or market share. Significant pressure from such competition may also lead to reduced margins. The quality and safety of the products and services provided by the Group’s businesses are important and there is an associated risk if they are below standard, while the potential impact on a number of the Group’s businesses of the disruption to IT systems or infrastructure, whether by cyber-crime or other reasons, may be significant. The steps taken by the Group to manage its exposure to financial risk are set out in the Financial Review on pages 25 to 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 2016Shareholder Information Financial Calendar 2016 full-year results announced Shares quoted ex-dividend on the Singapore Exchange Shares quoted ex-dividend on the London Stock Exchange Share registers closed 2016 final dividend scrip election period closes Annual General Meeting to be held 2016 final dividend payable 2017 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 2017 interim dividend scrip election period closes 2017 interim dividend payable * Subject to change 2nd March 2017 15th March 2017 16th March 2017 20th to 24th March 2017 21st April 2017 4th May 2017 11th May 2017 4th August 2017* 23rd August 2017* 24th August 2017* 28th August to 1st September 2017* 29th September 2017* 19th October 2017* Dividends The dividends will be available in cash with a scrip alternative. Shareholders will receive their cash 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 2016 final dividend by notifying the United Kingdom transfer agent in writing by 21st April 2017. The sterling equivalent of dividends declared in United States dollars will be calculated by reference to a rate prevailing on 26th April 2017. Shareholders holding their shares through CREST in the United Kingdom will receive their cash dividends in sterling only. Shareholders holding their shares through The Central Depository (Pte) Limited (‘CDP’) in Singapore will receive their cash dividends in United States dollars unless they elect, through CDP, to receive Singapore dollars. 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 Limited P.O. Box HM 1068 Hamilton HM EX Bermuda Jersey Branch Registrar Capita Registrars (Jersey) Limited 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, United Kingdom Singapore Branch Registrar M & C Services Private Limited 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 2016Group Offices Jardine Matheson Ltd 48th Floor, Jardine House G.P.O. Box 70 Hong Kong Telephone Email Website (852) 2843 8288 jml@jardines.com www.jardines.com Directors Ben Keswick, Chairman Y.K. Pang, Deputy Chairman Mark Greenberg David Hsu Jeremy Parr John Witt 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 Group Corporate Secretary Neil McNamara Telephone Email Website (44 20) 7816 8100 enquiries@matheson.co.uk www.matheson.co.uk Adam Keswick Telephone Email (852) 2579 2888 jpl@jardines.com Anna Cheung Telephone Email (852) 2579 2888 jmg@jardines.com Y.K. Pang Telephone Email Website (44 20) 7528 4444 corporate_communications@jltgroup.com www.jlt.com Dominic Burke Telephone Email Website (852) 2842 8428 gpobox@hkland.com www.hkland.com Robert Wong 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 James Riley Telephone Email Website (65) 6473 3122 corporate.affairs@jcclgroup.com www.jcclgroup.com Alex Newbigging Jl. Gaya Motor Raya No. 8 Sunter II, Jakarta 14330 Indonesia Telephone Email Website (62 21) 652 2555 purel@ai.astra.co.id www.astra.co.id Prijono Sugiarto 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 2016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 7th Floor, Exchange Square No. 19 & 20 Street 106 Sangkat Wat Phnom Khan Daun Penh Phnom Penh 48th Floor, Jardine House G.P.O. Box 70 Hong Kong Telephone (1 441) 292 0515 Philip Barnes Telephone (855 23) 986 804 Peter Beynon Telephone (852) 2843 8288 Ben Keswick Level 17, World Trade Centre I Jalan Jendral Sudirman Kav. 29-31 Jakarta 12920 Telephone (62 21) 522 8981/2 Jonathan Chang 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 (86 10) 6505 2801 David Hsu Telephone (60 3) 2094 2168 Rossana Annizah Binti Ahmad Rashid 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 Ltd (Representative Office) Thailand Jardine Matheson (Thailand) Ltd United Kingdom Matheson & Co., Ltd Vietnam Jardine Matheson Ltd 6th Floor, 39 Jinan Road Section 2, Taipei 10059 Telephone (886 2) 2393 1166 Liang Chang 21-03, 21st Floor, Times Square Building 246 Sukhumvit Road, KIong Toey Bangkok 10110 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 Adam Keswick Telephone (84 8) 3822 2340 Alain Cany www.jardines.com 

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