Kerry Logistics Network Limited (‘Kerry Logistics’ or together with its subsidiaries, the ‘Group’; Stock Code 0636.HK) recently announced the Group’s interim results for the six months ended 30 June 2019.
The Group’s Financial Highlights
- Turnover increased by 13% to HK$19,810 million (2018 1H: HK$17,461 million)
- Core operating profit increased by 9% to HK$1,330 million (2018 1H: HK$1,216 million)
- Core net profit dropped slightly by 4% to HK$669 million (2018 1H: HK$700 million)
- Profit attributable to the Shareholders, including the gain from disposal of two warehouses in Hong Kong of HK$1,958 million, increased by 194% to HK$2,790 million (2018 1H: HK$948 million)
- Integrated Logistics (‘IL’) business recorded a segment profit of HK$1,162 million (2018 1H: HK$1,107 million) and International Freight Forwarding (‘IFF’) business recorded HK$288 million (2018 1H: HK$235 million), which represent an increase of 5% and 22%, respectively
- Special dividend of 35 HK cents per Share was paid on Tuesday, 23 July 2019. Interim dividend of 9 HK cents per Share, to be payable on Friday, 27 September 2019
William MA, Group Managing Director of Kerry Logistics, said, “Global economic growth has markedly slowed down in 2019 1H, with weakened trade and manufacturing. The ongoing international trade disputes and unresolved negotiations have created further adverse conditions and accelerated changes in the global supply chains. Rising political and social turmoil in Hong Kong added pressure to the already softening economy. In view of the slower world economy, the Group continued its efforts in strengthening its service capabilities, expanding its network coverage and building its business scale in order to give itself a competitive advantage in adapting to the changing global logistics landscape.”
IL Profit Rose
Buoyed by positive performance of its Hong Kong business and continued expansion in Taiwan, coupled with the steady growth of its operation in Asia, the Group’s IL division recorded a moderate increase in segment profit, which accounted for 80% of the Group’s total segment profit in 2019 1H.
In Hong Kong, supported by new customer wins across various industries and business growth of some of the key accounts in the fashion and food and beverage industries, the segment profit of the logistics operations remained in an upward trend by rising 18% in 2019 1H.
In Mainland China, benefitting from shifting the focus to multiple higher-growth verticals including pharmaceutical, imported food and beverage and automotive parts to minimise impact from global trade volatility, the segment profit of the Group’s IL business turned around in 2019 1H.
In Taiwan, driven by Kerry Pharma and the newly acquired Science Park Logistics, the IL profit grew by 11% in 2019 1H. Kerry Pharma, as the sole certified pharmaceutical logistics provider in Taiwan, has continued to expand in the niche market. The acquisition of Science Park Logistics in January 2019 strengthened the Group’s capability in serving high-tech customers.
In Asia, the growth momentum of the Group’s business moderated in 2019 1H. While Kerry Express Thailand continued to expand its service coverage and business scale across Thailand, the profit growth was slower. The performance of the Thailand operation remained robust. Kerry Express Thailand’s daily delivery quantity has grown to more than 1 million parcels, and the number of service points has doubled (compared to 2018 Q4) to 10,000 locations. Segment profit in Asia increased by 7% during the period. The increment was only moderate as the Group is still financing the Kerry Express operations in Malaysia, Vietnam and Indonesia, which incurred an aggregated loss of approximately HK$40 million during the period.
IFF Volume Swelled
Riding on the increased trade from Mainland China to other Southeast Asian countries and within Asia, the IFF division achieved a 22% growth in segment profit, which contributed 20% to the Group’s total segment profit in 2019 1H.
Facility Portfolio Enhanced
In Mainland China, the logistics centre in Wuhan was completed in 2019 Q2. In Taiwan, the 154,000-sq-ft transit hub in Xinshi District commenced operation in 2019 Q2, and the 430,000-sq-ft logistics centre in Guanyin is expected to complete in 2019 Q4. In Thailand, construction of Phase three of the Kerry Bangna Logistics Centre began in 2018 Q4, and is expected to complete in 2020 Q1.
Asset Monetised
In June 2019, the disposal of the Group’s warehouses in Chai Wan and Shatin to a subsidiary of Kerry Properties Limited was completed. The total gain of the disposal was approximately HK$2 billion. The Group will continue to actively consider opportunities to unlock the value of its assets on the balance sheet, which will provide capital for strategic investments and ongoing expansion, and crystallise value for its shareholders.
Softening Asia Growth
Recent events in Hong Kong are creating unfavourable conditions for the Group’s business in 2019 2H. However, the Group believes that the stronger results elsewhere in Asia should be able to offset the weak performance in Hong Kong. In particular, Taiwan will remain one of the growth drivers in Asia in 2019 2H.
Enriching Business Mix
Following the extension of its business into new verticals such as coffee trading and distribution, and the expansion of its service in pharmaceutical and food-related cold chain to tap into emerging business segments, the Group will keep on diversifying its business capabilities in local markets to position itself for growth opportunities in various sectors.
Seizing E-Commerce Growth
E-commerce has increasingly gained prevalence as a mode of consumption. In view of the strong growth impetus in cross-border e-commerce, in particular the exports from Mainland China and the intra-Asia e-commerce trade, the Group will pursue further strategic setups that will optimally deploy its resources to seize the e-commerce growth potential in the region.
Pursuing Asset-Lighter Model
Taking into account the positive profit growth and expansion potential in the IFF division, the Group will continue to focus on expanding its less asset-heavy IFF business both organically and through mergers and acquisitions.
William Ma concluded, “Global economic growth is expected to remain weak in 2020, as policy uncertainties and geopolitical tensions continue to cloud the trade environment. The current political and social disquiet in Hong Kong, which is the Group’s key market, is expected to adversely impact the Group’s performance in 2019 2H. Nevertheless, the Group is in a resilient position to withstand difficult market conditions, sustained by its expanding global network and diverse range of businesses. Taking into consideration the challenging market outlook, the Group will remain watchful and keep reinforcing its foundation through enhancing its service capabilities, expanding its network presence and enlarging its business scale.”
