Half Year 2020 Jardine Matheson Holdings Ltd and Jardine Strategic Holdings Ltd Earnings Presentation
Central Aug 1, 2020 (Thomson StreetEvents) -- Edited Transcript of Jardine Matheson Holdings Ltd earnings conference call or presentation Friday, July 31, 2020 at 3:30:00am GMT
TEXT version of Transcript
* Graham Timothy Baker
Jardine Matheson Holdings Limited - Group Finance Director & Director
* John Raymond Witt
Jardine Matheson Holdings Limited - MD & Director
John Raymond Witt, Jardine Matheson Holdings Limited - MD & Director 
Good morning, and welcome to the Jardine Matheson and Jardine Strategic 2020 Half-Year Results presentation.
In light of the continuing impact of COVID-19, we have again taken the decision to make this presentation by way of webcast. You should be able to see this slide deck on your screen at the same time as we speak, and you can also download the deck if you wish. You will have an opportunity, as normal, to ask us questions. (Operator Instructions)
In today's presentation, I'll start by providing an update on COVID-19 and a summary of my key priorities as Managing Director. I'll summarize some of the key strategic developments which have taken place across the group during the period before providing an overview of our first half performance. I'll then hand over to Graham Baker, our new group Finance Director, who will take us through the performance of the individual group companies. I'll end by sharing my view on the outlook for the rest of 2020.
Let me start by saying a few words about the continuing COVID-19 outbreak, which is creating operational challenges across all our markets as well as disruption and rapid change.
Starting in North Asia. The significant reduction in tourist numbers with 45 million fewer visitors to Hong Kong in the first half compared with the same period last year has significantly impacted our consumer-facing retail, restaurant and hotel businesses in Hong Kong. The pandemic-related restrictions imposed in the region have also led to a number of temporary store, restaurant and dealership closures.
In Southeast Asia, Astra businesses in Indonesia have faced extensive disruption. Automotive factories and dealerships were required to close in April and May, while access to the group's mining activities was significantly restricted. Access to Astra's palm oil plantations was also reduced in the same period, and there was disruption to logistics across our businesses as a result of lockdowns and local government policies. Lockdown restrictions also led to a significant reduction in traffic volumes on Astra's toll road network.
Similar challenges have been faced by our other businesses in the region. Generally, the livelihoods of many of our customers have been badly affected.
Across the group, immense efforts have been made to respond to and address these challenges, and I would like to express thanks to our colleagues and partners for their dedication and resilience throughout this period and as it continues.
Protecting and ensuring the well-being of our people has been a top priority. The extensive actions taken in this respect have included providing personal protection equipment, encouraging flexible working practices and giving colleagues access to support and resources to address mental health concerns.
Our businesses have also been taking action to support suppliers and partners to help them survive the crisis. This has included working with suppliers to help them develop more efficient ways of working and providing rent relief to tenants in our retail portfolios, particularly in Hong Kong and Singapore.
We have been providing extensive support to our businesses to ensure that their balance sheets are resilient, given the uncertainties, which will continue.
Within some of our individual businesses, a number of new or extended facilities have been put into place, and the tenure of existing facilities has been lengthened.
There's also been a close focus on financial discipline with reduction in expenses and CapEx, management and optimization of working capital and efforts to conserve cash across all the businesses.
At the same time, our businesses have participated in government initiatives to support employment.
In addition to these actions, repeated stress testing and scenario planning have helped us set expectations and shape future plans.
Many of our businesses are adjusting their products and services to meet changing customer needs and preferences. Our businesses are starting to make more use of digital platforms. For example, by Astra in its automotive businesses and by Hongkong Land in its development properties, marketing activity, although there remains much to be done.
There's also increasing adoption of multiple delivery channels. Dairy Farm is investing in expanding its online offering and adapting its ranges to align with a shift toward more at-home meeting, while our restaurants group has pivoted quickly toward increasing its delivery services.
Making greater use of technology in the operation of our businesses and increasingly using online channels to deliver value to consumers was already a strategic priority. The pace of change in this area, however, has increased substantially in response to COVID-19, and modernizing our core will be a key priority for the coming months.
These are clearly difficult times, but we are confident in the positive long-term outlook for the region with increasing urbanization and the continuing rise of the Asian consumer continuing.
We also remain confident in the future of Hong Kong as a leading international financial and commercial hub. Its unique advantages, including the depth of its capital markets, extensive investor network, strong rule of law and wide pool of professional services and talents are not easily replicated. As a group with deep roots in Hong Kong, we remain fully committed to it.
For the group, we believe that Jardine remains resilient and well positioned to achieve its long-term growth objectives across the region, reflecting our clear strategic aims, the diversity of our businesses and their underlying business models. By modernizing and strengthening our existing businesses and identifying and taking new opportunities to expand our portfolio, we will create the right engines to achieve sustainable long-term growth.
Before I move on to discussing the group's performance, I want to spend a few minutes talking about the recent senior management changes.
As announced earlier in the year, I took over from Ben Keswick as Managing Director in mid-June, as we again split the roles of Chairman and Managing Director. As we said when these management changes were announced, we believed they will strengthen and enhance the effectiveness of the group's leadership. I'll take this opportunity to set out my key priorities in this new role.
The months ahead are likely to bring further challenges at pace, but also opportunities. We are clearly in a new environment, and as a group, we will need to adapt. We anticipate that a number of existing businesses will face increasing disruption and change, both in technology and consumer behaviors against the backdrop of an increasingly complex environment.
In order to ensure that all of our businesses are well placed to benefit from these changes and deliver growth, we have made it a priority to invest in and promote innovation, the development of our people and the adoption of sustainable business practices. These are the key enablers of our strategy and are crucial to us achieving sustainable long-term growth.
It is important for us to be both fast-moving and agile in delivering our group strategy in order to meet the pace of change we are facing. We will also need to embrace technology and innovate to a greater degree to be able to match our new economy competitors. Achieving these changes will require continued investment in our people.
We have made the development of an effective group sustainability approach a key priority. Last July, a sustainability leadership council was established with senior level membership from across our group companies and has taken the lead in developing a group sustainability strategy. We're in the process of developing more detailed plans for progressing this agenda, and we have been pleased by the level of commitments seen across our group companies, including the huge enthusiasm and commitment of many of our colleagues.
Ongoing impact of COVID-19 makes social inclusion a particular priority in the short and medium term, and this will be the area that we focus most over 2020.
Generally, a robust financial position and our strong portfolio of businesses with diverse incomes and cash flows will help us to take advantage of future opportunities, but we will also need to foster the entrepreneurial instincts of our colleagues and to leverage new sources of revenue.
It will be important to leverage our long-standing relationships with business partners and other stakeholders across the region.
We will also need to move away from largely transactional relationships we have historically had with our customers to much more comprehensive relationships based on a data-driven knowledge of individual preferences.
I will update you at future presentations on the progress we are making in driving these priorities.
I'll now spend a few minutes highlighting key strategic developments which took place across the group in the period.
As we mentioned in the first half in the full year results, one of the group's key strategic objective is to invest for long-term growth in its core markets. An excellent example of this was Hongkong Land's acquisition of a large prime mixed-use site in the West Bund area of Shanghai announced in March. We expect this project to be a material driver of long-term growth, and it complements our large-scale presence in the other key Asian financial centers of Hong Kong and Singapore. Planning of this project is now underway with completion expected in multiple phases to 2027, with sales expected to commence in 2022.
Since securing the site and subject to relevant approvals by the authorities, Hongkong Land has conditionally reached agreements with 2 strategic partners to jointly develop the sites.
Our financial and operational strength continues to be supported by our investment strategy and approach to capital allocation. We keep our portfolio of businesses under review, and where appropriate, we take action to ensure the group's activities remained aligned with strategic priorities.
In the first half, Astra completed the sale of its stake of just under 45% in Permata Bank for net consideration of USD 1.1 billion. The disposal followed the sale of our interest in JLT last year and was part of a clear strategic intent to sell down the group's 2 major financial services holdings. The transaction has helped to ensure that the business remains well capitalized at both the Astra and Jardine Matheson levels.
Our strategic priorities include modernizing our core business operation to enhance the group's performance. We also need to adapt our businesses to changing consumer behaviors and move towards much more comprehensive relationships, again, underpinned by data. A great example of how we are addressing this challenge was yesterday's launch by Dairy Farm of its new yuu customer loyalty program. The program, which is expected to become Hong Kong's largest such scheme, is an important step in Dairy Farm's drive to modernize its business, both digitally and by using the unique breadth and scale of its businesses to strengthen its revenues and profitability. The yuu program will also enable both Dairy Farm and the other Jardine companies who will be part of the program to take a much more consumer-centric approach based on a far greater level of knowledge of what is important to our customers.
Turning now to an overview of the first half results. Graham will take you through the numbers shortly. But in summary, the group's performance and profitability in the first half were significantly affected by COVID-19. Greater China was mainly affected in the first quarter, while Southeast Asia felt the impact of the pandemic increasingly in the second quarter. The group's revenue reduced by over 20% in the first half compared with the same period last year, and underlying profit nearly halved to $373 million.
With a notable exception of Mandarin Oriental, the group's major businesses remained profitable in the first half, although at materially lower levels than the same period last year.
These are clearly difficult times. But over the past 188 years, Jardines has weathered a number of dramatic economic downturns and emerged stronger by seizing opportunities, which have appeared during these periods of particular challenge. We are confident that the group's strong balance sheet and liquidity and its long-term perspective will position it well to take advantage of the opportunities that may arise from the current situation.
On that note, I will pause and pass you to Graham, who will take us through the results.
Graham Timothy Baker, Jardine Matheson Holdings Limited - Group Finance Director & Director 
Thank you, John, and good morning, everyone. I'm delighted to be at Jardines and here with you today. Though I'm sure I have plenty more to learn in my first couple of months of the group, I have already been struck by the pride, commitment and willingness to embrace change of our people as well as the resilience of the business.
Before I focus on performance, let me remind you of the structure of the group. There have been no material changes since 2019 full year results. In addition to the ownership interest shown here, Jardine Strategic holds a 58% interest in its parent, Jardine Matheson.
Turning to the group's results for the first half of the year. As in the past, I'll focus on underlying profit attributable to shareholders, which the group uses as its key earnings performance measure. Underlying profit excludes nontrading items as defined in the group's accounts and is intended to provide a clearer understanding of the ongoing business performance of the group.
For the first half of 2020, revenue from subsidiaries was $15.9 billion, 21% lower than the same period last year.
The group's underlying profit in the period was $373 million, 49% below the first 6 months of 2019.
We booked a nontrading noncash net loss of $1.1 billion in the first half, which I'll return to you shortly. And this compares to a net nontrading gain of $1.5 billion in the same period last year. Accordingly, the group saw a loss attributable to shareholders for the first half of $775 million compared with a profit of $2.3 billion in 2019.
Underlying earnings per share was 48% lower at $1.01.
The Board's declared an interim dividend of $0.44 per share, unchanged from last year. We'll review the final dividend at the end of the second half in the light of trading conditions and outlook.
Turning to the contribution of individual businesses to the group's profit.
Jardine Pacific's performance was slightly down overall compared with the same period last year, but it remains a resilient cash-generative group of businesses.
Jardine Motors saw its results fall materially, with a weaker performance from the U.K. business, and to a lesser extent, from Zung Fu on the Chinese Mainland and in Hong Kong. There was, however, a higher contribution in the period from the investment in Zhongsheng relating to its performance in the second half of 2019.
Hongkong Land's profits were impacted by retail rent relief and fewer scheduled completions of development properties.
Dairy Farm saw its overall profits fall significantly due to reduced contributions from Health and Beauty, Maxim's and Convenience Stores, partly offset by strong performances in the group's retail operations and Home Furnishings business.
Mandarin Oriental recorded a significant loss in the first half as the majority of the group's hotels were closed throughout the second quarter.
In Southeast Asia, Astra's performance was significantly weaker in the period, and JC&C also saw a reduced contribution from THACO and its motors businesses.
As noted in our results announcement, the underlying profit for the period reflects $78 million of support received from a number of governments, principally to support employment. At the same time, the group's companies have invested substantial sums supporting colleagues, customers and communities. And the overall mix of pluses and minuses from COVID-19, of course, remains sharply negative.
Moving to nontrading items during the period. The group saw a net loss in the first half of $1.1 billion compared with a net gain of $1.5 billion in the first half of 2019. The loss primarily reflects the biannual revaluation of investment properties in Hongkong Land, a loss of $933 million, and a similar $222 million revaluation of The Excelsior site in Mandarin Oriental. Both losses were, of course, noncash and unrealized. In the other direction, we also recorded a gain of $120 million on the sale of Astra's interest in Permata Bank.
I'll now turn to the individual operating businesses in more detail before turning to the group's net debt position and consolidated cash flow and then hand back to John to cover the outlook for the second half.
I'll start with the businesses held directly by Jardine Matheson and then cover the group's listed entities, which are held through Jardine Strategic and all of which have issued their own results announcements over the past few days.
Jardine Pacific reported an underlying net profit of $53 million in the first half compared with $56 million last year, a highly resilient and cash-generative performance in current market conditions, reflecting its diversified business portfolio.
Looking at individual businesses, JEC and HACTL, both had a good start to the year, but the other businesses saw their performance decline as a result of the pandemic.
Looking now at our motors businesses. Jardine Motors saw its underlying net profit for the first half fall by 43% to $61 million. Zung Fu on the Chinese mainland experienced a challenging first quarter as factories and showrooms were forced to close due to the pandemic and lower throughput and margins from aftersales services. The second quarter, however, saw a recovery in demand, although the outlook for the rest of the year, of course, remains uncertain.
Zung Fu in Hong Kong also saw lower margins in the period due to weaker consumer sentiment.
We recorded a higher contribution from the investment in Zhongsheng, remembering, of course, that this relates to Zhongsheng's performance for the 6 months from July to December 2019.
Overall, therefore, we saw a relatively solid performance, declining only 14% across China as a whole.
By contrast, the U.K. business was materially impacted by lockdown measures, which forced all of its dealerships to close and the business to incur a loss in the first half. Conditions in the U.K. market are expected to remain challenging in the second half.
Looking now at Jardine Strategic, consolidated underlying profit in the first half of the year fell by 49% to $395 million. Once again, the nontrading loss of $1.4 billion here mainly reflects noncash revaluation losses in Hongkong Land's investment properties and The Excelsior site.
The Board has approved an interim dividend of $0.105 per share, again the same level as last year.
As of 30th of June, the net asset value per share of Jardine Strategic, which is calculated by reference to the market value of its underlying investments, was USD 48.71, down 16% from the end of 2019.
I'll now turn to the principal businesses held by Jardine Strategic. Hongkong Land's underlying profit for the first 6 months was $353 million, down 24% from the equivalent period in 2019. The group's office portfolio in Hong Kong remained resilient, despite subdued leasing activity with vacancy at the end of June of just 5% or 4.5% on a committed basis compared to 2.9% at the end of 2019. We are seeing signs of changes, both in the way people work and the working environment. Hongkong Land is aiming to adapt to these changes through a range of initiatives, including the creation of flexible space and enhancements to the services it offers tenants to meet their changing needs.
The central retail portfolio suffered in the period from deteriorating consumer sentiment, a lack of overseas tourist numbers and antipandemic restrictions. Vacancy, however, was virtually unchanged from the end of 2019.
In Singapore, rental reversions remained positive in the office portfolio, and vacancy was 1.5% at the end of June 2020 or 1% on a committed basis compared with 5% at the end of last year.
Turning to Hongkong Land's development properties. On the Chinese mainland, the profit contribution from development properties in the first half fell as a result of fewer sales completions. However, we are seeing good recovery in market sentiment following the reopening of sales galleries and the resumption of construction activities.
At 30th of June, the group had $2.2 billion in sold but unrecognized contracted sales compared with $1.9 billion at the end of 2019.
The profit contribution from the Singapore development properties business in the first half was also lower than last year as sales galleries and construction activities there were also suspended as a result of the pandemic.
And in the rest of Southeast Asia, construction activities have largely been suspended or curtailed since April, and the market sentiment remains subdued.
Our regular biannual revaluation of the investment properties saw a $2.2 billion decrease in the value of the portfolio in Hongkong Land, leading to a loss attributable to shareholders of $1.8 billion. The drop was primarily driven in the group's central portfolio in Hong Kong, driven by lower open market rents.
Dairy Farm reported sales of $5.2 billion for the period and its subsidiaries, 9% lower than last year. Underlying profit was 40% lower at $105 million. The Grocery Retail business saw profits significantly improve, reflecting the impacts of the pandemic, together with further progress in the group's transformation plan and improvement programs. The ongoing execution of improvement initiatives and the group's space optimization plan produced strong turnaround momentum in Singapore and Malaysia. And there were also encouraging performance from new upscale formats and refreshed stores. Market conditions in Indonesia, however, remained challenging. The divestment of the Wellcome Taiwan business is expected to complete by the end of the year.
In Health and Beauty, however, performance in North Asia was materially affected by a continuing lack of overseas tourist customer in Hong Kong, despite the business initially seeing strong demand for personal protection items.
The Southeast Asia business performed well in the first quarter, but was later impacted as social distancing requirements began to take effect towards the end of the first quarter.
In order to meet the challenges in North Asia, the group is increasing its focus on attracting local customers and on building an effective e-commerce offering. It's also aiming to win back business from supermarkets and other retailers with more competitive pricing and to drive its own brand offering. There's a focus in all markets on increasing the group's share of the health and personal care segments.
In the convenience stores business, pandemic-related restrictions caused store closures on the Chinese mainland and reduced customer numbers in Hong Kong and Singapore. We did see some improvement in performance in Hong Kong and on the Chinese mainland over the course of the first half as restrictions eased, but it is difficult to predict performance for the rest of the year, given our uncertainty over the future progress of the pandemic.
There has been increased focus in the later part of the period on driving more business by offering attractive promotions and by marketing via social media. The rest of Southeast Asia was affected later in the half by the pandemic, and trading conditions there remained difficult.
Maxim's saw a significant fall in customer numbers and a number of temporary store closures in the first quarter in particular, and it reported a loss for the first half. The group's Chinese restaurant and Starbucks outlets were worst affected.
The performance of the business improved over the course of the second quarter, especially on the Chinese mainland as pandemic-related restrictions eased, but the return of restrictions, which reduced customer levels or require further closures of its outlets will impact future performance.
By contrast, Home Furnishings delivered a good performance with strong contributions from new stores, enhancements in the margin mix and lower cost of goods in the period, which outweighed the effect of reduced customer visit numbers and some temporary store closures as a result of the pandemic. There was also strong growth from e-commerce in the period, especially in Indonesia.
Moving now to the group's luxury hotel business. Mandarin Oriental recorded a substantial underlying loss of $102 million for the first half of the year, despite implementing multiple cost management measures. In Europe and America, all of the group's hotels were closed from late March onwards. Hotels in Asia and the Middle East mostly remained open during the first half, but operated at very low occupancy levels once pandemic restrictions and border controls were imposed.
Combined total revenues from hotels under management fell by 57% in the first half compared to the same period last year, with the majority of this decline occurring in the second quarter, which saw an 86% fall.
The group's 100% owned flagship Hong Kong hotel remained open, but with very low occupancy levels for most of the second quarter. The hotel did, however, benefit from the partial recovery in food and beverage business when government measures were relaxed.
There was a recovery in occupancy levels to some 40% in June at the hotels on the Chinese mainland, and elsewhere there's been a gradual reopening of some hotels in anticipation of some local and regional demand. As part of its efforts to attract increasing numbers of guests, the group is focusing on offering unmatched levels of guest care and hygiene.
Overall, a material recovery in business levels and luxury travel is not expected until 2021 at the earliest, and a significant further loss is therefore likely in the second half of the year. The group's pipeline of new properties, however, remains active, and we remain committed to it.
Despite the challenges faced by Mandarin Oriental, its liquidity position remains strong, and it has sufficient cash reserves and undrawn loan facilities to sustain it through an extended period of further weak performance.
Turning now to the group's other business interests in Southeast Asia. Jardine Cycle & Carriage reported an underlying profit for the period of $138 million, a fall of 66% against last year. Profit attributable to shareholders fell by 30% to $301 million. Southeast Asia felt the impact of COVID-19 later than North Asia, and we expect the pandemic to continue to have an adverse effect on the performance of our businesses there for the rest of the year.
Excluding the gain on sale of its investment in Permata Bank, Astra's profit contribution to JC&C fell by 47% to $171 million. There were significantly weaker performances from its automotive, financial services and heavy equipment and mining operations, partially offset by agribusiness.
JC&C's Direct Motor Interests was significantly impacted and made a loss as operations were forced to close during the second quarter due to lockdown restrictions.
The contribution by Cycle & Carriage Singapore was 95% lower than the same period last year as the business was impacted by a material reduction in the overall passenger car market in Singapore, and its market share also fell.
Tunas Ridean's contribution was 70% lower due to weaker performances across its automotive, consumer finance and rental operations.
In Malaysia, Cycle & Carriage Bintang reported a higher loss than in the same period last year as sales and margins both fell.
In other strategic interests, THACO saw a 30% reduction in unit sales and a decline in margins as a result of the difficult market conditions.
The contribution from Siam City Cement in Thailand was down just 5%, however, driven by weaker domestic performance.
The contribution from Refrigeration Electrical Engineering Corporation in Vietnam was also lower, with underperformance from its power and water investments and its M&E business, partially offset by stronger real estate contributions.
Vinamilk produced dividend income of $12 million in the period. This compares with $28 million in the same period last year, which included the 2019 interim dividend. The interim dividend for 2020 will be recognized later in the year. The business reported a slightly better profit in the first half in local currency terms.
JC&C's corporate costs were significantly higher than the same period last year. This was due to a foreign exchange loss from the translation of foreign currency loans in the first half of 2020 compared to a gain recognized last year.
Turning now to Astra. Excluding the gain on the disposal of its investment in Permata Bank, Astra reported net profit equivalent to $372 million under Indonesian accounting standards, 44% lower in its reporting currency.
The pandemic containment measures implemented across Indonesia caused several -- sorry, severe disruption to Astra's operations, including the temporary closure of its automotive manufacturing and distribution operations.
Continued low coal prices also impacted Astra's heavy equipment, mining contracting and mining businesses, although gold sales were more resilient.
Looking at the performance of the individual businesses within Astra in a little more detail. Net income from Astra's automotive business fell by 79%, mainly due to a substantial fall in sales volumes, especially in the second quarter. The overall wholesale car and motorcycle markets contracted by 46% and 42%, respectively, and Astra sales fell in both sectors. It maintained its market share in the 4-wheel sector at around 53%, however, and increased its market share in the 2-wheel sector from 75% to 77%. Market conditions are expected to remain difficult for the remainder of the year.
The group's components business reported a net loss of $20 million compared with a profit of $17 million in the same period last year due to lower revenues from the original equipment manufacturer and replacement market segments.
The contribution from Astra's Financial Services division fell by 25% to $142 million, mainly due to increased loan loss provisions to cover higher nonperforming loan losses in the group's consumer and heavy equipment-focused finance businesses.
Responding to government policy, we also provided support to many of our customers with restructuring of their loans.
Consumer finance businesses saw a 16% decrease in the amounts financed, and the profit contribution from car-focused and motorcycle-focused finance companies declined by 24% and 25%, respectively.
Heavy equipment-focused finance operations saw a 14% decrease in the amounts financed and a 30% fall in profit contribution.
Astra completed the sale of its 44.56% stake in Permata Bank in May for $1.1 billion.
Astra's heavy equipment, mining, construction and energy division saw a 29% fall in profit. This was caused by a 56% reduction in heavy equipment sales as well as lower parts and service revenues, together with 10% lower overburden removal volume and 8% lower coal production by the group's mining contracting operations. Market conditions are expected to remain challenging for the rest of the year.
The group's mining -- gold mining operations produced a resilient performance, however, with gold sales of 186,000 ounces, just 4% lower than the same period last year.
Astra's agribusiness division performed significantly better with net profit of $21 million due to higher crude oil -- crude palm oil prices, especially in the first quarter.
Astra's infrastructure and logistics division reported a net loss in the first half compared to a small profit for the same period in 2019, mainly due to lower toll road revenues.
Moving from the operating company's trading performance to the group's overall net debt position. At 30th of June 2020, the group's net debt, excluding financial services, was $5.4 billion, and gearing was 9% compared to 7% at the 2019 year-end.
In Hongkong Land, net debt increased to $5.6 billion at the 30th of June from $3.6 billion at the year-end, primarily due to land payments for the West Bund site, net of an advance received from a partner to jointly develop the site subject to approvals by the relevant authorities.
Dairy Farm's net debt at the 30th of June was $1.1 billion compared with $821 million at year-end, with the increase driven by higher working capital.
Mandarin Oriental saw its net debt increased from $300 million at the end of 2019 to $412 million at the end of the first half, reflecting capital expenditure in the period mainly in relation to the renovation of the Madrid hotel and the redevelopment of The Excelsior as well as the trading losses incurred by the business.
At Jardine Cycle & Carriage, consolidated net debt, excluding Astra's Financial Services subsidiaries, fell from $3 billion at the end of 2019 to $1.3 billion, mainly due to the receipt of proceeds from the sale of Astra's interest in Permata Bank.
The net debt within Astra's Financial Services subsidiaries decreased slightly to $3.2 billion.
Let me end by making a couple of observations on cash and liquidity.
Firstly, despite lower operating profits in the first half than in the first half of 2019, cash from operations rose marginally, driven by improved working capital, particularly in Astra. Working capital is, of course, a priority across the business, and we also benefited from completion of important projects such as the Jakarta-Cikampek elevated toll road in United Tractors.
We've also been disciplined in managing all capital expenditure carefully in the first half of 2020 while continuing to progress with major priority investments for the long term, such as the West Bund development.
Finally, liquidity has, of course, benefited from the well-timed disposals at attractive valuations of Jardine Lloyd Thompson in 2019 and Permata Bank in the first half of this year.
Overall, therefore, with gearing of 9% and $14 billion available from cash and undrawn committed borrowing facilities, the group is in a strong financial position with significant capacity to finance future growth.
That concludes my summary of the performance and financial position of the group. Thank you.
(Operator Instructions) And then hand back to John.
John Raymond Witt, Jardine Matheson Holdings Limited - MD & Director 
Thank you, Graham. Turning to the outlook.
Looking forward, the pandemic continues to create uncertainty, and we will, therefore, expect trading conditions for the rest of the year to continue to be challenging.
As we have mentioned, there have been some signs of recovery in certain of the group's businesses in the second quarter, particularly on the Chinese mainland, which is benefiting Hongkong Land's development properties business as well as our automotive businesses there.
However, the possibility of further waves of the pandemic makes it difficult to predict performance in the second half.
We are focusing on identifying the potential opportunities which should emerge from the situation to drive future growth. And we believe that the group's strong balance sheet and liquidity and its long-term perspective will position it well to take advantage of these opportunities as they arise.
With that, we conclude the presentation and can take any questions you have. Thank you very much.
Questions and Answers
John Raymond Witt, Jardine Matheson Holdings Limited - MD & Director 
And as I turn to the questions, we have a question coming in. I will read the question out.
Since early 2019, the group has held a substantial amount of cash at the parent level. What are the reasons why this has not been deployed much for almost 2 years? For example, is this due to a lack of suitable investment opportunities from the corporate perspective? Or does the group find valuations of potential investment targets too rich?
I'll respond to this question. So time does fly, but I think it's only maybe 18 months since we closed on the JLT sale, which led to the very significant cash proceeds realized at the center of the group. But I think in respect to the question, it does very much capture our thinking. In 2019, coming through into 2020, essentially pre-COVID, we did -- we were very much active in the market, in our markets, be it from Indonesia through to Mainland China. But the -- what was for sale, what was for sale at attractive prices was a fairly limited universe of businesses.
Coming into the COVID period, I think if there's an initial expectation, our expectations included, in terms of potential opportunities coming out of this environment, I think our initial view is that it is too early both in Mainland China, and again, certainly too early in Southeast Asia. We view ourselves as remaining very disciplined as investors. We have development resources on the ground in Shanghai, here in Hong Kong, supporting Greater China, in Singapore and also in Jakarta, very much focused on Indonesia. So the network of contacts is very much there. But I think we will continue to have to be patient for a little while longer. Certainly, though, the intention is to put that cash to work, but again, only when we're happy with the return risk ratios, how it fits into our overall portfolio strategy.
Another question. Should we view Astra's auto financial service businesses, et cetera, stand-alone businesses or complementary businesses, which serves a bigger picture to build the auto business ecosystem across value chains, toll roads, auto manufacturing, auto financing, a dealership ride-hailing with Gojek? Thank you.
In respect of the Astra businesses, I would say that's true generally. Astra is one of the largest, most prominently placed companies in Indonesia, very much does think about this as the sort of Astra value chain. And the initial value chain was very much created by the automobiles, the 4-wheel, the 2-wheel and then the consumer finance businesses very much to support those businesses. Frankly, that has generally worked very well for us. I think in these very challenging times, it's worked even better. We're able to coordinate the 2 businesses together. They're able to share information on market conditions. The consumer finance businesses are able to make good decisions on credit even while remaining relatively conservative in this environment. So that works relatively well.
The toll roads, I think this comes into its strength really by clearly, ultimately developing a demand for 4-wheels, more opportunities to use transportation. But I think more strategically at a more macro level, these toll roads, we view and very much in support of the government's own initiative, as huge enablers of the Indonesian economy. More transportation, particularly on Java, better, more efficient transportation will lead to higher economic growth, and that higher economic growth then comes back to car sales and the consumer finance businesses. So there is a circularity in this that is both direct and indirect.
Relationship with Gojek has been a very interesting one for us. In many ways, Astra represents the very traditional businesses in Indonesia. Gojek is very much a very important tech, new economy company for Indonesia overall. So the fact that our 2 businesses work together, I think, presents significant opportunities for us in the future.
But I think currently, at a very, I suppose, basic level, we now have a joint venture that provides automobiles for Gojek businesses, for Gojek drivers, and this is something that we will very much continue. Clearly, there's a good deal of support possible from the consumer finance companies. But there, I think we also have some indirect views. Astra, if I talked about modernizing the core, Astra has very much embraced modernizing the core, bringing digital to the fore in both its back office and front-facing, customer-facing businesses, but we have a lot to learn as well. And by participating as, I would say, an active shareholder in Gojek, I think there's much to be learned. So there, it fits with the traditional pieces, but I think we're extending it more.
Clearly, the businesses under United Tractors are very different, very different management focus, but clearly have provided value to Astra over a long period of time.
Another question. With reference to Slide 19, analysis of net borrowings, we see that they're -- at the end of June 2020 compared with the end of June 2019, there was a significant fall in cash at Jardine Matheson Corporate and a rise at Jardine Strategic Corporate. Maybe we have some insight on what drove this change in the last 6 months and how much -- how might this change going forward?
That one, you want to cover, Graham?
Graham Timothy Baker, Jardine Matheson Holdings Limited - Group Finance Director & Director 
Sure. I'll pick up, and obviously, John, anything that you want to add, please feel free. I mean I think that the simple answer really is that the main driver of that is the receipt and the payment of dividends. And depending on the timing of those and how much is or isn't taken in script dictates what cash moves between the strategic and the parent company, Jardine Matheson Holdings and then what goes out indeed to the Jardine Matheson shareholder base. So I think that's the principle driver. I wouldn't say anything more at this level. In terms of whether that will change going forward, I think we obviously keep an eye on it. But it's nothing that I think is anything that needs to trouble anybody.
John Raymond Witt, Jardine Matheson Holdings Limited - MD & Director 
Okay. And I'm just turning to the next question. The Jardine group, on a consolidated basis, has plenty of available credit facilities, but shouldn't we be looking at liquidity on an individual subsidiary level if credit facilities cannot be shared across between subsidiaries? I'm particularly worried about Mandarin Oriental. How many months can Mandarin stay afloat in a near 0 revenue scenario? Any risk to breaching covenants, if any?
I'd say -- taking parts of this question, certainly at a group level, our long-standing principle has been to ensure that each of our businesses are operating within their own balance sheets. And we've looked to conservatively finance our businesses, ensure liquidity is there and very much stress test it. And if that is the general principle, we've certainly been sort of doubly checking our assumptions over the past few months, given that COVID has provoked, as this question says, a very significant, unheard of 95% drops in revenue. And for any group business, and Mandarin Oriental, despite its record losses, is no exception to this. We are confident of Mandarin Oriental's ability to weather this COVID crisis and absolutely have assumed in that analysis that this is -- continues for some time to come.
I would say that from a management perspective, the good news is hotels are beginning to reopen. There are hotels now open in Europe. Hotels in Asia largely stayed put. We see strong, relatively speaking, occupancy is coming back at the mainland hotels. I think the Mandarin would project, although very difficult in this environment to make certain statements on it, but that most hotels would be fully operational by the end of the third quarter. But clearly, this is something that we will be watching very clearly. And I think in terms of the return of travel, the leisure traveler, I think the common consensus view such that it is that the leisure travel will bounce as soon as conditions return, maybe a bit more attention is on the amplitude of the return of the business travelers. But again, sort of our principle operating way of the group is to continue to look at each of these businesses, and we will do so and ensure our businesses are prepared to meet the challenges as they arise. Finally, as this was a question in respect to Mandarin Oriental, well-supported balance sheet coming into this.
Next couple of questions. When you talk about embracing technology, from a capital-allocation perspective, how will you achieve this? Will M&A be part of this? Will you go out and look to acquire more technology-driven businesses? Or will the focus be on organically growing the capabilities of your existing business?
The answer to that must be that it will be a combination of both of those. I would say I would probably add a third element to that. Clearly, when I say modernize the core, that will involve technology. You heard in my comments on Dairy Farm, and for those of you who attended the analyst presentation on Dairy Farm, there were 2 talking about significant parts of technology that they are being introduced into the business. This absolutely must happen across the businesses. We are not going to achieve growth targets if we simply do so based on M&A activity. M&A clearly is an important part of looking at the overall portfolio and driving future growth.
And the third leg that I was hinting at earlier is very much looking to bring a capability, maybe technology, I'll call it new economy capability perhaps in a broader sense, into the group, yet recognizing that the group, too, has very strong customer bases in many of its off-line businesses. And really, the idea is to really combine these 2 together. This is still just as an example, and these are very small examples, but I think very important ones for the future of the group is a business in Indonesia called [Malkhas]. Malkhas essentially is a joint venture between Astra's consumer finance businesses as well as we lab the fintech company based here in Hong Kong but with operations throughout China. And the idea is to marry technology with Astra's great knowledge of Indonesia, existing customer base to form a new business. The objective is clearly to have a new business in and of its own right, but also to begin to use that -- the fruits of that collaboration in Astra's other businesses, particularly in this case, the consumer finance business. So I very much want to see more of this. And part of the digital Jardine's initiatives over these next few months will be very much to drive this sort of thinking forward.
The second question is, can you talk more about the sustainability leadership council? What are the key objectives? And how are they empowered to drive change?
As I said in the presentation, this is a very important area for the group. I think traditionally, we had taken a very federal, decentralized approach to the concept and the actions of sustainability. Why we had done that is because of the diversity of the group, the diversity of our businesses, the diversity of the countries that they were operating on. And there was a sense that to be substantive and to accomplish substantive things much better, the individual businesses pay attention to the issues of sustainability.
I think the purpose of the sustainability council was really to begin to bring all of these initiatives that we see across the group forward to put it into some degree of framework that we could begin to talk about coherently at a group level. These are important issues for many of our stakeholders of Jardine Matheson group. So it's important that we begin to, in a coherent way, talk about these issues and ensure from a Jardine Matheson perspective that sufficient attention is devoted to these important areas.
So the sustainability council, the concept was to bring representatives from our principle group businesses together to share best practice. Many businesses are very advanced in this from the types of frameworks they're using to the activities they're doing on the ground. So very much to share best practice that was relevant to other group companies, but also as a group, very much as we do in other areas to focus on very specific areas. The GDPR framework has meant to really focus as a group. Social inclusion, climate change and responsible consumption are really the 3 areas that the sustainability council is focusing most of their thinking. So the idea is to have certain initiatives being driven from the group, have a framework for all of the group's activities and very much ensure that there is a clear communication from the top, that sustainability is important for all of our businesses. That's the sustainability council, very much work to continue.
The next question. We've seen net cash at Jardine Matheson holdco level has reduced to $433 million and Jardine Strategic increased. Can you explain what drove that movement?
I think Graham, you've answered that question really down to the dividend movements between those 2 companies.
Next question. As COVID-19 crisis encourages you to reexamine all business models, has that reassessment been extended to hotels? Would Mandarin consider going more asset-light or, where possible, different usage for assets? The question is whether the luxury hotel business model can justify itself in terms of return on capital if the downturns more than offset the good years.
I think this is an interesting topic and one which we will have to consider carefully as we see the overall return of travel and the return to normalcy and what emerges, I would say, in a post-COVID world. I think we need to keep our eyes on the ground and, frankly, across each of our businesses to watch, to hear what different thinking is, not to perhaps move hastily, but nonetheless, not to keep our minds in a sort of pre-COVID world either.
Mandarin has been moving its business model toward much more management going forward than ownership. I suppose, the notable exception was the acquisition, but even there, at a 50-50 joint venture in Madrid. Why in Madrid? More difficult to secure management contracts in these very important European cities, important from a leisure standpoint. But if I look at most of the pipeline, Mandarin Oriental's strategy is very much focused on building the management company. And that very much will continue.
I would say that while the resilience, relatively speaking, of the management company, we and the industry had always been aware of, I think even in the COVID environment, as said, that even the management company model isn't particularly resilient when revenues go down to sort of 5% of their normal levels. Many of the management fees are meant to, on a cost recovery basis, fund important significant activities, sales and marketing activities across the hotels. But clearly, an activity which has meant to have a reasonable funds flow coming in based on revenue. Revenue going down by 15% is already very significant from a profit standpoint, not so significant if you're on a cost recovery basis. Revenues going from 100% down to 5% means there's a significant degree of cost base suddenly exposed. So the management company model, too, doesn't have the complete resilience that many thought it would do. But I think, again, to emphasize, Mandarin Oriental strategy is to focus on the management company business. As ever, across the wider group, we will continue to look at how to best use assets and indeed in individual businesses.
And I think, yes, I think that brings us to the end of the questions. Very much thank you for joining us this morning. Thank you for participating with the questions. Keep well, and we look forward to seeing you in person as things evolve for the positive. Thank you very much.