Kerry Logistics Network recorded a 194 per cent rise in profit attributable to shareholders, of HKD 2.79 billion (USD 355.9 million) in the first six months of 2019, year-on-year, but warns its second half results will bear the scars of Hong Kong’s ongoing civil unrest.
The first half 2019 results are significantly up on H1 2018’s figure of HKD 948 million, but also includes a gain of (HKD 1.96 billion) from the disposal of two warehouses in Hong Kong.
Turnover increased by 13 per cent to HKD 19.81 billion and core operating profit increased by 9.0 per cent to HKD 1.33 billion.
William Ma, group managing director of Kerry Logistics, says: “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.
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.” – William Ma, group managing director of Kerry Logistics.
“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,” Ma says.
Looking ahead Ma says: “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,” Ma adds.
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 Integrated Logistics (IL) division recorded a moderate increase in segment profit, which accounted for 80% per cent 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 per cent in 2019 1H, Kerry says.
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 per cent 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, it says.
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 1.0 million parcels, and the number of service points has doubled (compared to 2018 Q4) to 10,000 locations.
Segment profit in Asia increased by 7.0 per cent 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 HKD 40 million during the period, according to Kerry.
Riding on the increased trade from Mainland China to other Southeast Asian countries and within Asia, the IFF division achieved a 22 per cent growth in segment profit, which contributed 20 per cent to the Group’s total segment profit in 2019 1H.
In Mainland China, the logistics centre in Wuhan was completed in 2019 Q2. In Taiwan, the 14,300 sqm transit hub in Xinshi District commenced operation in 2019 Q2, and the 39,950 sqm 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.
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, Kerry says.
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 says it will keep on diversifying its business capabilities in local markets to position itself for growth opportunities in various sectors.
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.
And taking into account the positive profit growth and expansion potential in the IFF division, the Group says it will continue to focus on expanding its less asset-heavy IFF business both organically and through mergers and acquisitions.