Kerry Logistics Network Limited (Kerry Logistics) signalled confidence it would be able to weather through the "storm in 2023" despite declines recorded in some of its businesses in the first half of the year which reflected an overall slowdown in the industry for the period.
The outlook came as the Group announced its interim results for the six months that ended June 30, 2023, where it saw revenue drop by 47% year-on-year to HK$25,315 million (2022 1H: HK$48,034 million) and core operating profit decreased by 84% to HK$568 million (2022 1H: HK$3,461 million).
Kerry Logistics' January to June performance also showed a core net profit decline of 85% year-on-year to HK$368 million (2022 1H: HK$2,372 million).
For the period, the Hong Kong-headquartered global 3PL said its Integrated Logistics (IL) business remained stable — and even recorded growth.
Kerry Logistics said its IL business recorded a segment profit of HK$718 million (2022 1H: HK$717 million) in the first half.
Meanwhile, its International Freight Forwarding (IFF) segment delivered a segment profit of HK$621 million (2022 1H: HK$3,398 million) — recording an 82% decline, while E-commerce and Express (E&E) business recorded a segment loss of HK$505 million (2022 1H: HK$393 million) for the period.
[Source: Kerry Logistics]
"In 2023 1H, global trade volume and growth remained subdued. Freight rates and volume stayed depressed while supply chain demand remained stagnant," said Vic Cheung, managing director of Kerry Logistics Network.
He noted that during the three years ended December 31, 2022, KLN Group's flexible and innovative supply chain solutions enabled it to benefit from the supply and demand mismatch during the pandemic and achieved exceptionally good results.
"However, the extraordinary circumstances in 2021 and 2022 proved an anomaly that distorted year-on-year comparisons for logistics companies, including KLN Group," Cheung added. "After the particularly difficult 2023 Q1, the Group's overall performance has bottomed out."
The Kerry executive explained, however, that although the Group's core net profit reported a decrease of 85% in year-on-year terms, the performance in 2023 Q2 recorded more than 30% quarter-on-quarter growth.
"The Group's resilience, agility and unique position in Asia are expected to carry it through the storm in 2023," Cheung further said.
Integrated Logistics remained stable
Kerry Logistics said the overall IL businesses remained stable in the first half of 2023.
The Group also noted that the economic activities in Asia have gradually picked up, with its IL business in Mainland China and the Kerry Siam Seaport in Thailand recording satisfactory results.
"Yet, the Group's IL business in Hong Kong did not grow proportionally due to a sharp decline in the demand for pandemic-related services," the report added, noting that nevertheless, the Hong Kong business is expected to improve riding on the economic reopening, further rebound in retail sales and new customer wins.
While the E-commerce division continued to register a segment loss, the global 3PL noted that Kerry Express Thailand — the major contributor of the E&E business — is expected to stabilise in Q4 2024.
The IFF division of the Kerry Group also reported a downturn in the first half of 2023, which was mainly caused by weak global demand, slower-than-expected recovery in Asia exports and plunged freight rates.
"As the global logistics market continues to normalise and returns to pre-pandemic levels, both air and ocean freight rates have been going down since 2022 Q3 from the historical highs in 2021, causing further contraction in profit margin compared to that of the corresponding period in 2022," the company explained.
It added that the Trans-Pacific trade lane remains the major contributor to the Group's IFF division, which accounted for more than 80% of the business.
Kerry noted that it is expected that when the market turns around, the IFF division is also likely to outperform the market.
2023 shaping to be a tough year
"2023 is shaping up to be a tough year for the global logistics industry. Yet, the extreme circumstances under the pandemic are gradually fading in global logistics activities, and there are signs of improvement in both freight rates and volumes in KLN Group's key markets," Cheung, the managing director of Kerry Logistics Network, said.
"Using the pre-pandemic FY 2019 as the base, we are confident to deliver healthy and sustainable Compound Annual Growth Rate (CAGR) growth in segment profits in our IL and IFF divisions."
"We are also optimistic that the stable performance of the IL business is likely to keep up the momentum in 2023 2H. Within the E&E segment, Kerry Express Thailand is expected to stabilise in 2024 Q4."
Cheung further said that throughout the pandemic, the KLN Group has supported its customers continually and consistently with flexible alternatives and ad-hoc solutions.
"The Group's unwavering commitment to serving customers well under unprecedented market conditions has deepened customers' trust in the Group, which will enable us to capture opportunities when the market recovers," he added.