Kerry Logistics Network Limited (‘Kerry Logistics’ or together with its subsidiaries, the ‘Group’; Stock Code 0636.HK) has announced the Group’s annual results for 2018.
Group’s Financial Highlights
- Turnover surged by 24% to HK$38,139 million (2017: HK$30,788 million)
- Core operating profit rose by 11% to HK$2,364 million (2017: HK$2,128 million)
- Core net profit climbed by 12% to HK$1,326 million (2017: HK$1,183 million)
- Profit attributable to the Shareholders increased by 15% to HK$2,440 million (2017: HK$2,116 million)
- Integrated Logistics (IL) business recorded a 14% rise in segment profit to HK$2,111 million (2017: HK$1,846 million)
- International Freight Forwarding (IFF) business recorded a 7% increase in segment profit to HK$549 million (2017: HK$511 million)
- Dividend Payout Ratio, excluding special dividend, is 32% (2017: 32%)
- Proposed final dividend of 16 HK cents per share, to be payable on Thursday, 20 June 2019
- Potential gain of approximately HK$2 billion estimated from the disposal of two warehouses in Hong Kong by the Group, subject to independent shareholders’ approval and certain conditions for completion
William MA, Group Managing Director of Kerry Logistics, said, “Global economic growth moderated in 2018. The US-instigated trade tension, in particular with Mainland China, reverberated far and wide, casting uncertainties over the global trade landscape. In contrast, the economic growth in emerging Asia, specifically in the Southeast Asian countries, continued its strong momentum. With an unparalleled network in Asia, Kerry Logistics is well-positioned to capitalise on the robust growth in the region. Increasing demand in intra-Asia trade and e-commerce business accelerated the Group’s IL businesses. We recorded a double-digit increase in turnover, core operating profit, and core net profit in 2018, achieving positive growth for the ninth consecutive year.”
IL Growth Boosted
Fuelled by the increased earnings from the Hong Kong logistics operations and the outstanding performances of Kerry Express Thailand as well as Kerry Siam Seaport in Thailand, the IL division registered a 14% rise in segment profit in 2018, generating 79% of the Group’s total segment profit. The IL business is set to remain the main earnings driver in 2019.
In Hong Kong, underpinned by the Group’s leading market position in addition to its strategy to strengthen its expertise in target verticals and deepen its penetration therein, the segment profit of the logistics operations climbed by 37% in 2018. Together with the moderate growth of the warehousing business, the Group’s Hong Kong business accounted for 41% of segment profit for the IL division.
In Mainland China, the segment profit of the IL business recorded a 12% drop in 2018. The China-US trade dispute had significant impact on Chinese export trade in 2018 2H. Customers slowed down their investment and expansion plans which were set out in 2018 1H, resulting in lower-than-expected growth.
In Taiwan, as the impact of the labour law passed in 2016 has been cushioned by internal operation adjustments and improved operation efficiency, the Group’s IL business stabilised with segment profit growth of 4% in 2018.
In Asia, supported by the strong performance of the Group’s business in Thailand through Kerry Express Thailand and Kerry Siam Seaport, the IL segment profit experienced a 37% increase in 2018. The strategic partnership Kerry Express Thailand established in July 2018 with VGI Global Media Public Company Limited, the subsidiary of BTS PLC, enabled it to use BTS Skytrain exclusively to extend its express delivery services and boost same-day delivery service in Bangkok.
IFF Steadily Advanced
The Group’s IFF division attained steady volume growth in 2018 2H as customers have frontloaded their shipment in advance of the trade tariffs being enforced. The IFF division recorded a 7% profit growth and contributed 21% to the Group’s total segment profit in 2018.
In October 2018, the Group consolidated its industrial project logistics services under the Kerry Project Logistics brand to capitalise on the growth potential in the global industrial project logistics market unleashed by China’s Belt and Road Initiative. In the same month, the Group debuted its rail and road multimodal freight service from Lanzhou, China to Islamabad, Pakistan to expand its freight capability from China to South Asia. The new subsidiary of the Group, Kerry Freight Pakistan (Private) Limited, formed in July 2018 gave the Group a direct presence in one of the markets with the highest growth potential in the region.
Asset Portfolio Strengthened
The Group currently manages 60 million square feet of land and logistics facilities worldwide. In Myanmar, Phase one of the inland port in Mandalay and the inland port in Yangon were completed in 2018. In Taiwan, due to a fire accident in February 2019, construction of the 430,000-square-feet logistics centre in Guanyin is expected to complete in 2019 Q4. In Mainland China, the logistics centre in Changsha was completed in 2018, while the one in Wuhan is expected to complete in 2019 Q2. In Thailand, a new fully automated parcel sorting system was installed in Phase two of the Kerry Bangna Logistics Centre in 2018, boosting Kerry Express Thailand’s daily delivery capacity to over 1 million parcels. Phase three of the centre began construction in 2018 Q4.
Deepening Capabilities in Local Markets
The sound performance of the Hong Kong, Taiwan, and Thailand businesses reinforces the Group’s strategy in deepening its capabilities in local markets across various verticals, in particular fashion, F&B, as well as pharmaceuticals and express.
Capturing Emerging Opportunities in Mainland China
The fast-changing logistics landscape in Mainland China called for innovation and flexibility in order to capture and serve new and emerging business models and brands. The Group is making significant efforts in boosting performance through speeding up response time to customers’ evolving needs and tapping into the expanding import sector.
Maintaining Momentum in Asia
Stronger growth is anticipated to persist in Asia, particularly in Southeast Asia and India, owing to increasing domestic consumption and rising investment. Leveraging its established network in Asia to take advantage of the booming intra-Asia trade, the Group’s business growth in Asia is expected to maintain in 2019.
Maximising Shareholder Value
As a part of its long-term strategy of unlocking the value of its warehouse property portfolio to power its enduring expansion and maximise shareholder value, the Group will dispose of, subject to the approval of the independent shareholders of the Company and certain conditions for completion, its warehouses in Chai Wan and Shatin to KPL through an indirect wholly-owned subsidiary of KPL. Upon completion, the total estimated gain of the disposal will be approximately HK$2 billion in aggregate.
George YEO, Chairman of Kerry Logistics, said, “Despite uncertainties, Kerry Logistics did well in 2018 achieving double-digit growth. Looking ahead, we see three major trends affecting global logistics: First, China’s market will continue to grow and become the biggest in the world. Kerry Logistics will broaden and deepen its reach in China selectively. Second, strategic rivalry between China and the US will continue for years to come and disrupt existing global supply chains. In order to serve our customers well, Kerry Logistics must be able to offer a range of network solutions to them. Third, technology is steadily disrupting all aspects of the logistics industry. Kerry Logistics will give emphasis to the use of information technology, blockchain and AI wherever practical in warehouse, fleet, freight, contract, and e-commerce management. We will stay nimble and agile even as our network grows in response to changing threats and opportunities in Asia and the world.”