Kerry Logistics’ 2014 1H Core Net Profit up 8% to HK$490 million<br>Driven by Solid Growth in Segment Profit and Margin

Kerry Logistics’ 2014 1H Core Net Profit up 8% to HK$490 million
Driven by Solid Growth in Segment Profit and Margin

2014-08-18 Hong Kong

Kerry Logistics Network Limited (“Kerry Logistics” or the “Group”; Stock Code 636), a leading logistics service provider in Asia, today announced the Group’s interim results for 2014.

Group’s Financial Highlights

  • Turnover up 5% to HK$9,984 million (2013 1H: HK$9,522 million)
  • Core net profit up 8% to HK$490 million (2013 1H: HK$455 million)
  • Segment profit for Integrated Logistics (“IL”) business grew strongly by 14% to HK$687 million (2013 1H: HK$605 million)
  • Segment profit for International Freight Forwarding (“IFF”) business up 8% to HK$174 million (2013 1H: HK$161 million)
  • Share of results of associates down to HK$44 million (2013 1H: HK$72 million)
  • Net valuation gains of HK$144 million on investment properties (2013 1H: HK$449 million)
  • Interim dividend of 6 HK cents per share recommended

William MA, Group Managing Director and Executive Director of Kerry Logistics, said, “2014 was a year of growth and consolidation for Kerry Logistics and we are off to a good start. We are actively enhancing our service capabilities in IL businesses in Greater China and ASEAN countries, while restructuring our IFF businesses in Europe and the Americas for greater operational efficiencies. We continue to seek development and acquisition opportunities across the globe. Despite flat global demand in products, we have maintained strong growth with improved segment profit and margin.”

Integrated Logistics—Expanding Network and Scope
During the period, the IL segment maintained solid growth on the back of expanding network and coverage in Greater China and ASEAN countries, and with more higher-margin value-added services and new customer wins. As of 30 June 2014, Kerry Logistics managed a logistics facility portfolio of 42 million square feet, of which 22 million square feet are self-owned.

In Mainland China, the Group managed 14 million square feet of logistics facilities, which are supported by a network of more than 200 subsidiaries, branches and representative offices, serving more than 2,600 delivery zones. During the period, the Group completed two new logistics centres in Zhengzhou and Kunshan, with the latter built for Daimler and Mercedes-Benz. In addition, the Group kicked off construction for another logistics centre in Chengdu and prepared to build a new logistics facility in Xian in 2014 Q4. As a leading international third-party logistics service provider in Greater China, the Group improved its margin significantly by fulfilling the stringent requirements of highly complex supply chains of various industries. The Group is expected to benefit from a newly passed consumer protection law in Mainland China featuring a provision for returns of goods purchased. This will generate opportunities for reverse logistics through the increase in merchandise returns cargo for the Group’s B2B customers.

In Hong Kong, turnover generated by the logistics operations increased by 24% in 2014 1H. In January 2014, the Group launched Kerry Pharma in Hong Kong to tap into the ever-growing pharmaceutical and healthcare market. Kerry Logistics also expanded into the automotive sector by being appointed to provide automotive parts logistics services to several renowned automotive brands in Hong Kong. Other new customers included international brands from the fashion and lifestyle, food and beverage, as well as the FMCG sectors.

In Taiwan, the Group made further inroads in reforming its organisational structure and business model, to strengthen its operations and improve profit margins. It also enhanced its logistics capabilities in the pharmaceutical and healthcare sector by attaining the Good Distribution Practice from the Taiwan Food and Drug Administration through its subsidiary, as well as by upgrading its facilities to offer consumers cost-effective and reliable delivery of medical supplies.

Within ASEAN, Thailand and Vietnam continued to be the growth drivers for the Group. In Thailand, the political instability had a short-term effect on the Group’s operations and its business resumed to normal towards the end of 2014 1H. During the period, Kerry Express (Thailand) was one of the fastest-growing businesses with a network of over 80 distribution centres and depots. The second phase of the new logistics centre in Rayong was completed in the 2014 Q1. To develop Kerry Siam Seaport into a key cargo gateway for the growing trade in ASEAN, a new warehouse and a new Inland Container Depot were added. In Vietnam, the Group increased its controlled interest in its express arm to 96%. The Group will continue to strengthen its service capabilities by expanding into new market sectors and into third-tier townships and villages with more service locations, as well as by optimising its local delivery network to tap into the growing e-commerce business.

The Group’s regional logistics hub in Singapore commenced operations in 2013. It now provides integrated logistics and a wide range of value-added services to several luxury fashion brands and an electronics customer. In other parts of ASEAN, the Group has been actively pursuing development opportunities in Cambodia, Indonesia, Malaysia, Myanmar and The Philippines.

Kerry Logistics’ Hong Kong warehouse portfolio comprised nine warehouses with a combined GFA of 5.1 million square feet. It maintained nearly full occupancy and achieved double-digit growth in rentals for successful contract renewals. Its contribution is expected to grow steadily.

International Freight Forwarding—Consolidating Amid Recovery
The Group’s IFF business recorded volume growth in 2014 1H with improved segment profit margin. During the period, the Group restructured its business in Europe which has helped to deliver satisfactory results. In addition, Kerry Logistics increased its controlled interests in the Kerry Asia Road Transport business in Malaysia and Thailand to 100%, to further integrate the operations there into the Group’s global network. The Group expanded its IFF operation in Australia and New Zealand by confirming to form new JVs, as well as in West Africa by setting up a new office in Senegal. While the Group intensely strengthened its business and operations and identified expansion opportunities in Europe and the Americas, the United Kingdom, Spain and Sweden were among the top three countries outside Asia which achieved outstanding performance.

George YEO, Chairman of Kerry Logistics, said, “The flat global demand is likely to extend to 2015. Nevertheless, our extensive network and exposure in a wide spectrum of industries will enable us to explore new business opportunities for further service enhancement and market penetration. We expect to maintain our growth, buoyed by the continued rise of Asia’s middle-class consumption. We will further strengthen our IL and IFF businesses through continuous improvement, developing our network and securing acquisition opportunities. Our positioning as ‘Asia Specialist, China Focus, Global Network’ will continue to help us consolidate our position as a leading Asia-based logistics service provider, to deliver solid growth and returns to the Shareholders.”

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