Propelled by Strong Asia Trade and Increasing Volume in the Region
2018-08-30 Hong Kong
Kerry Logistics Network Limited (‘Kerry Logistics’ or together with its subsidiaries, the ‘Group’; Stock Code 0636.HK) today announced the Group’s interim results for the six months ended 30 June 2018.
The Group’s Financial Highlights
- Turnover increased by 27% to HK$17,461 million (2017 1H: HK$13,705 million)
- Core operating profit increased by 19% to HK$1,216 million (2017 1H: HK$1,019 million)
- Core net profit increased by 22% to HK$700 million (2017 1H: HK$576 million)
- Profit attributable to the Shareholders increased by 20% to HK$948 million (2017 1H: HK$788 million)
- Integrated Logistics (‘IL’) business recorded a segment profit of HK$1,107 million (2017 1H: HK$884 million) and International Freight Forwarding (‘IFF’) business recorded HK$235 million (2017 1H: HK$222 million), which represent an increase of 25% and 6%, respectively
- Interim dividend of 9 HK cents per Share, together with a special dividend of 12 HK cents per Share, totalling 21 HK cents per Share, to be payable on Friday, 5 October, 2018
William Ma, Group Managing Director of Kerry Logistics, said, “Although the world economy experienced growth in 2018 1H, global demand has been flat. Nevertheless, the China-US trade dispute has caused manufacturing capacities to shift from Mainland China to other Asian countries, bringing about an increase in shipping volume and production activities in Asia. Southeast Asia, in particular, has enjoyed the fastest growth in the region. Leveraging the strongest network in Asia and our diversified business portfolio, the Group achieved double digit growth in turnover, core operating profit, and core net profit in 2018 1H.”
IL Development Accelerated
Having benefitted from the booming intra-Asia trade and e-commerce business, the IL division achieved a 25% rise in segment profit in 2018 1H. The IL business in Hong Kong, Taiwan, and Asia as a whole is expected to remain a major earnings driver for the rest of the year.
In Hong Kong, driven by stable growth in revenue from existing customers and new customer gains, the segment profit of the logistics business grew by 71% in 2018 1H. The Group’s business in Taiwan saw a profit recovery in 2018 1H, and the IL segment profit is expected to pick up in 2018 2H.
Sustained by strong intra-Asia trade and increasing shipping volumes in the region resulting from the China-US trade tensions, the IL segment profit of Asia posted a 54% growth in 2018 1H. In Thailand, the Group’s IL segment profit recorded an 84% growth riding on the flourishing e-commerce business. In July 2018, Kerry Express Thailand entered into a strategic partnership with VGI Global Media Public Company Limited (‘VGI’), the subsidiary of Bangkok Mass Transit System Public Company Limited, and becomes the only express logistics partner of VGI and Bangkok Mass Transit System. Furthermore, the seaport business in Thailand has shown encouraging improvement following the berth extension at the Kerry Siam Seaport since March 2018.
In Mainland China, rising labour costs, subpar performance of certain customers in the electronics sector, and the China-US trade conflict continued to undermine the Group’s business. Despite its decelerating pace of growth, the decline in its profit eased in 2018 1H.
IFF Momentum Maintained
Supported by stable trade activities, the IFF division maintained growth in volume in 2018 1H, particularly in the North American and Indian Peninsula regions, resulting in a 6% increase in segment profit. Nevertheless, both profit and profit margin contributed by the IFF division have contracted as a result of the drop in performance in Mainland China.
Adhering to its long-term IFF strategy to expand its coverage worldwide, the Group acquired the Johannesburg-based Shipping and Airfreight Services (Pty) Ltd in May 2018 to expand its service offerings in South Africa.
In June 2018, the Group strengthened its project logistics capabilities through the acquisition of a majority stake in the Milan-based Saga Italia S.p.A., which is specialised in project logistics, heavy lift services, and material management. In the same month, the Group deepened its rail and road freight capabilities by launching new cross-border rail and trucking services from Mainland China through Kazakhstan to Caucasus and Turkey, so as to capture the growing trades in new markets and Europe.
In July 2018, the Group’s member company Globalink and Georgia’s Anaklia City JSC signed a memorandum of understanding to cooperate in the development of the Anaklia Deep Sea Port and Special Economic Zone in Georgia. The port, scheduled for opening in 2020, is expected to become one of the largest in the Black Sea region.
The Group also established new subsidiary Kerry Freight Pakistan (Private) Limited to extend its foothold in Pakistan and leverage its first mover advantage along the China-Pakistan Economic Corridor.
Asset Portfolio Broadened
Berth extension at the Kerry Siam Seaport in Thailand was completed in 2018 Q1 with its total length increased to 2.8 km. Phase two of the Kerry Bangna Logistics Centre in Thailand was completed in 2018 Q1. Moreover, Phase one of the inland ports in Mandalay, Myanmar was completed in 2018 Q2. Logistics facilities in Changsha and Wuhan, Mainland China, and Guanyin, Taiwan are under construction.
Asset Value Unleashed
While strategically strengthening its asset portfolio, the Group also considered different options to unleash the value of its current portfolio. In Mainland China, the Group disposed of the underperforming Kerry Chengdu Logistics Centre, in Shuangliu County, Chengdu in May 2018. In July 2018, the Group disposed of a 17% interest in Kerry Express Thailand to VGI.
George Yeo, Chairman of Kerry Logistics, concluded, “The ongoing trade spat between Mainland China and the US is reshaping trade routes and global supply chains. While the trade volume between the two economies is expected to reduce in the near future, certain markets in Asia are likely to benefit conversely from the increased intra-Asia trade as customers look for alternative supply sources beyond Mainland China and the US. Moreover, Asia has been experiencing the fastest trade volume growth for both imports and exports driven by rising domestic consumption and increased investment. We expect our Asian business to continue to grow and contribute to a major part of the Group’s profit in three to five years’ time. Leveraging our expanding global network and solid coverage particularly in South and Southeast Asia, we are optimistic to maintain growth in the remainder of the year through exploiting new business opportunities and promising prospects in Asia and new markets along the Belt and Road trade paths.”