William MA, Group Managing Director of Kerry Logistics, said, “2014 was a year of consolidation and integration for Kerry Logistics. Through organic growth, investments and strategic acquisitions, we continued to expand our operating scale, strengthen our service capabilities and extend our network coverage during the year. Resources were deployed to integrate newly acquired businesses into our existing network and system, enhancing service offerings and increasing efficiencies. These efforts produced double-digit growth in both our core operating profit and core net profit, as well as improved margins in all our business segments.”
Expanding Scale through Continued Investments
The Group continued to enrich its logistics facility portfolio during the year. As at 31 December 2014, it managed a logistics facility portfolio of 45 million square feet, of which 23 million square feet were self-owned.
In Mainland China, the Group completed the development of two new logistics centres in Zhengzhou and Kunshan, and commenced construction of two other facilities in Chengdu and Xi’an, adding a total of 1.6 million square feet of logistics facilities to its portfolio in the country. It also purchased a parcel of land with a site area of 728,000 square feet in Shanghai for the development of a new flagship facility of 1.1 million square feet to cope with the expansion of its IL business in the city. Upon completion, it will be the largest logistics facility of the Group in Mainland China.
Within ASEAN, the Group has been building new facilities in Thailand to capture rising opportunities in this dynamic market. Phase 2 of the new logistics centre in Rayong was completed during the year. Phase 1 of the Kerry Bangna Logistics Centre is currently under construction and will serve as a new sorting centre for Kerry Express and a fulfilment centre for e-commerce customers upon completion. In addition, the Group added a new warehouse and a new Inland Container Depot in Kerry Siam Seaport to develop the port into a key cargo gateway for the growing trade in the region. In Cambodia, the Group is planning to construct a 160,000 square feet bonded warehouse on its newly acquired land at a Free Trade and Special Economic Zone in 2015.
Group’s Financial Highlights
• Turnover increased by 6% to HK$21,115 million (2013: HK$19,969 million)
• Core operating profit increased by 14% to HK$1,612 million (2013: HK$1,413 million)
• Core net profit increased by 10% to HK$976 million (2013: HK$886 million)
• Integrated Logistics (“IL”) business achieved a 12% increase in segment profit to HK$1,409 million (2013: HK$1,258 million)
• International Freight Forwarding (“IFF”) business recorded a 11% increase in segment profit to HK$378 million (2013: HK$342 million)
• All segments recorded improved margins in 2014
• Full-year dividend payout ratio increased to 24% (2013: 21%)
• Final dividend of 8 HK cents per share recommended
Enhancing Capabilities by Service Scope Extension
In 2014, the Group’s IL segment maintained solid growth on the back of expanding network and coverage in Greater China and ASEAN countries, with more higher-margin value-added services and new customer wins. The Group’s logistics operations achieved a segment profit margin of 10% in 2014. Turnover and segment profit of the logistics operations in Hong Kong also increased by 22% and 28% year-on-year respectively.
In Hong Kong, the Group launched Kerry Pharma to tap into the ever-growing pharmaceutical and healthcare market by setting up a brand-new GMP compliant secondary packaging facility and obtaining the WHO GDP certificate for the provision of warehousing, distribution and secondary packaging services for pharmaceutical products. It also expanded into the automotive sector in Hong Kong and was appointed to provide parts logistics services to several internationally renowned automotive brands. Across the Taiwan Strait, the Group has built a service network supported by ten service hubs that covers the whole island, and became the only logistics company attained SGS WHO GDP international quality accreditation as well as GDP from the Taiwan Food and Drug Administration.
Riding on the success of the fast-growing Kerry Express (Thailand), the Group took further steps to build an ASEAN-wide regional express platform through acquiring a local express company in Cambodia and expanding the business into Singapore, Malaysia, Indonesia and the Philippines. To strengthen its ASEAN-wide cross-border road transportation network, Kerry Logistics took full control of the KART business in Malaysia and Thailand, further integrating the operations in the two countries into its KART network. The Group also formed a new joint venture with shareholders of PT Puninar Saranaraya, one of Indonesia’s largest logistics companies, in March 2015 for growth of IL business in Indonesia.
Extending Coverage through New Market Expansion
During the year, the Group restructured its business in Europe which contributed to satisfactory results in tandem with the gradual economic recovery in the region. As part of the Group’s long-term IFF strategy to build a global network across six continents, it has also expanded the reach and capacity of its IFF business through acquisitions and the formation of new joint-ventures in the Middle East, Canada, New Zealand and Senegal. The stable growth of the IFF business was accompanied by increased profitability and volume. While the segment profit increased by 11%, the segment profit margin rose to 3%, bringing it closer to the international average.
Hong Kong Warehouse – Unlocking Asset Values and Maximising Returns
Kerry Logistics’ Hong Kong warehouse portfolio comprised nine warehouses with a combined GFA of 5.1 million square feet. It maintained nearly full occupancy with segment profit margin increased to 59.7% and achieved double-digit growth in rentals for successful contract renewals. The Group expects to see continuous stable growth from this business riding on its 9% growth in segment profit in 2014.
In a bid to unleash the potential of its facility portfolio and to address actual community needs, the Group submitted an application to the Town Planning Board of Hong Kong in the first quarter of 2015 to convert one of its Hong Kong warehouse facilities into a columbarium. Subject to approval, the investment, excluding land premium to be paid to the government, is estimated to be around HK$2 billion.
George YEO, Chairman of Kerry Logistics, said, “The integration of China’s economy with its neighbours is a major trend seen by the increasing intra-Asian trade and growing cross-border logistics. The combined economy in the region is becoming the central growth pole in the world. With our unique position as ‘Asia Specialist, China Focus, Global Network’, we aspire to be a major logistics provider for the new Silk Road. We will continue to grow our IL and IFF businesses through continuous improvements in operating efficiencies, service offerings, network coverage, and securing suitable acquisition opportunities in target markets. Our extensive exposure in the region and a broader international customer base will enable us to ride economic cycles and sustain long-term growth to reward our shareholders.”
