Jardine C&C betting on Asean consumer story

Singapore

NEW car sales in Indonesia are still stuck in a soft patch, but Alex Newbigging, outgoing group managing director of Jardine Cycle & Carriage (JC&C), isn't fretting over the speed bumps.

"The long-term fundamentals remain very exciting in Indonesia. And for the automotive industry, if you look at the penetration levels of automotives, there's a lot of growth to come. We're very optimistic about the automotive industry in Indonesia," Mr Newbigging told The Business Times in his first media interview.

Members of the Jardine Matheson group of companies keep a notoriously low profile.

Though he's helmed JC&C for more than seven years, Mr Newbigging only agreed to his first media interview on the occasion of JC&C's 120th anniversary: "We're 120 years old this year, and that's something we're very excited about.

"I think you only get to be 120 years old if you're good at managing change and adapting."

JC&C owns 50.1 per cent of Indonesian car, car financing, commodities and infrastructure conglomerate Astra International. It is also known for its Cycle & Carriage dealerships that carry brands including Mercedes-Benz in Singapore, Malaysia and Myanmar. In Vietnam, JC&C recently raised its stake in leading carmaker Truong Hai Auto.

Motor distribution may be the group's mainstay, but amid a shifting automotive landscape, JC&C has also stepped up efforts to diversify beyond Astra.

Under Mr Newbigging's charge, JC&C has invested in a handful of large companies across South-east Asia: "We believe that across Asean there is a continuing move towards greater urbanisation, and greater affluence amongst Asean consumers.

"These are the two big overriding themes in which we tend to channel our energies," the 47-year-old Brit explained over a cup of tea at his office above Cycle & Carriage's showrooms at Alexandra Road.

"When I started this role (in 2012), something like 94 per cent of our profits were coming from Astra; 6 per cent from outside of Astra."

In the first half of 2019, non-Astra businesses contributed 23 per cent to JC&C's underlying profit of US$407 million.

In terms of its investment strategy, JC&C likes to partner firms that are leaders in their fields.

"We tend to prefer winners. And we want to make sure we're supporting businesses that are large and have growth behind them," Mr Newbigging said in the recent interview.

Since 2017, JC&C has spent US$1.2 billion accumulating a 10.6 per cent stake in Vinamilk, Vietnam's largest dairy company.

"It's vertically integrated from the farms to the consumer product brands, which is what makes it a very strong company," he said.

JC&C collected US$28 million in dividend income from Vinamilk in the first half of 2019, up from US$24 million in the first half of 2018, as net profit rose 6 per cent.

Vietnam's dairy consumption is at around 19 kg per capita, and could reach 30 kg per capita (similar to Thailand) over the next decade, so there's more room for Vinamilk to grow, he added.

In 2015, following a S$1 billion rights issue, JC&C paid US$615 million for a stake (now 25.5 per cent) in Siam City Cement. It's the second largest cement manufacturer in Thailand, where cement consumption per capita is expected to remain at high levels at 460kg, Mr Newbigging said.

By leveraging up to make acquisitions, the Thailand-listed company has become the number one player in Sri Lanka and number two in South Vietnam.

He added: "When we invested in 2015, the company was exclusively Thailand-focused. And we have supported a strategy led by the Siam City Cement board to regionalise the business."

Another company that he calls "a strong leader in its fields" is Vietnam-listed Refrigeration Electrical Engineering Corp (REE), which JC&C bought into in 2012.

REE operates in power and water utilities, property development and mechanical and electrical services.

Mr Newbigging expects the utilities business to be exciting for REE going forward, as demand for power in Vietnam is expected to triple from 2015 to 2030.

In the last two years, Astra has also become a series E and series F investor in Gojek, pumping a cool US$250 million into the Indonesian ride-hailing platform to fuel its super-app ambitions.

The investment is one of the ways that Astra stays level with the new era of mobility.

Mr Newbigging said: "There are a few big, big things happening. There's a big shift to electric. There's the rise of sharing business models. There're also major investments going into autonomous driving technologies. And then also connectivity in general, whether it's the connected car, or the way that brands connect to customers."

Gojek has all of nine years of operating history while JC&C has 120, but at their essence, the two companies are more similar than you'd think, he adds: "I think the focus on the customer is certainly something in common. JC&C and Astra have always been very customer-centric organisations. Clearly, Gojek is too."

It's also in the context of addressing industry upheaval that Mr Newbigging will leave his post at JC&C to move to Hong Kong, to helm the newly-formed Jardine International Motors or JIM from October. Benjamin Birks will replace him at JC&C.

JIM is a management company set up in May to manage the auto assets of the Jardine group (including those assets owned by JC&C), with the aim of driving a unified strategy across the Jardines' automotive interests in Greater China and South-east Asia, which were previously run quite separately from each other.

"Putting together an organisation that can help to invest in and find the right solutions for this changing industry for the long term will be a part of my new role," Mr Newbigging said.

"There's a lot of activity taking place already, so it's not starting from scratch."

His priorities are to streamline operations across all the auto divisions and bring together "the best of the best practices". This way, all 500 dealerships run by the Jardine group can help partner the automotive brands they represent in the changes that they're making to serve consumers differently in the future, he said.

"We're also developing future-ready talent for the digitalisation of our business and the development of new business models that come out of that."