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MarketScreener Homepage  >  Equities  >  Hong Kong Stock Exchange  >  Kerry Logistics Network Limited    636   BMG524181036

KERRY LOGISTICS NETWORK LIMITED

(636)
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Kerry Logistics Network : RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2020

08/27/2020 | 12:11am EST

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

(Incorporated in the British Virgin Islands and continued into Bermuda

as an exempted company with limited liability)

Stock Code 636

RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2020

The Board of the Company is pleased to announce the unaudited interim results of the Group for the six months ended 30 June 2020, together with comparative figures for the six months ended 30 June 2019.

GROUP'S FINANCIAL HIGHLIGHTS

  • Revenue increased by 10% year-on-year to HK$21,885 million (2019 1H: HK$19,810 million)
  • Core operating profit increased by 12% to HK$1,489 million (2019 1H: HK$1,330 million)
  • Core net profit jumped by 26% year-on-year to HK$845 million (2019 1H: HK$669 million)
  • Profit attributable to the Shareholders for 2020 1H was HK$1,073 million. Excluding the gain from disposal of two warehouses in Hong Kong in 2019, it represents a remarkable year-on-year growth of 29% (2019 1H normalised: HK$832 million)
  • IL business recorded a segment profit of HK$1,139 million (2019 1H: HK$1,162 million)
    and IFF business recorded HK$403 million (2019 1H: HK$288 million), which represent a slight drop of 2% and an increase of 40%, respectively. The drop in IL segment profit is mainly due to the reduced profit contributed by lesser number of warehouses in Hong Kong year-on-year. Should this impact be normalised, segment profit of IL business should have increased by 2%, including a 6% year-on-year growth of Hong Kong warehouse business
  • Interim dividend of 11 HK cents per Share, to be payable on Friday, 25 September 2020

1

CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT

For the six months ended 30 June 2020

Unaudited

Unaudited

Note

2020

2019

HK$'000

HK$'000

Revenue

2

21,884,967

19,810,329

Direct operating expenses

3

(19,174,211)

(17,284,673)

Gross profit

2,710,756

2,525,656

Other income and net gains

158,569

112,131

Administrative expenses

3

(1,364,576)

(1,331,567)

Operating profit before gain on disposal of warehouses

  and fair value change of investment properties

1,504,749

1,306,220

Gain on disposal of warehouses

-

1,957,540

Change in fair value of investment properties

227,931

205,020

Operating profit

1,732,680

3,468,780

Finance costs

4

(160,103)

(161,724)

Share of results of associates and joint ventures

41,673

45,934

Profit before taxation

1,614,250

3,352,990

Taxation

5

(278,861)

(295,049)

Profit for the period

1,335,389

3,057,941

Profit attributable to:

Company's shareholders

2

1,072,849

2,789,744

Non-controlling interests

262,540

268,197

1,335,389

3,057,941

Earnings per share

7

- Basic

HK$0.61

HK$1.63

- Diluted

HK$0.61

HK$1.63

2

CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 June 2020

Unaudited Unaudited

20202019

HK$'000 HK$'000

Profit for the period

1,335,389

3,057,941

Item that may be reclassified to consolidated   income statement

  Net translation differences on foreign operations(419,306)85,636 Items that will not be reclassified to consolidated

  • income statement
  • Fair value change on financial assets at

  fair value through other comprehensive income

238

8,273

Defined benefit pension plans

- Actuarial gains

1,078

-

  - Deferred income tax

(216)

-

Other comprehensive (loss)/income for the period

(418,206)

93,909

Total comprehensive income for the period

917,183

3,151,850

Total comprehensive income attributable to:

Company's shareholders

706,060

2,880,109

Non-controlling interests

211,123

271,741

917,183

3,151,850

3

CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION

Unaudited

Audited

As at

As at

30 June

31 December

Note

2020

2019

HK$'000

HK$'000

ASSETS AND LIABILITIES

Non-current assets

Intangible assets

4,641,639

4,764,904

Investment properties

10,499,279

10,308,139

  Property, plant and equipment

11,034,478

11,343,539

Right-of-use assets

3,935,372

3,985,642

Associates and joint ventures

1,886,117

1,386,733

  Financial assets at fair value through other

comprehensive income

327,269

150,843

  Investment in convertible bonds

5,704

191,789

Deferred taxation

82,218

73,878

32,412,076

32,205,467

Current assets

  Financial assets at fair value through profit or loss

107,667

119,731

  Investment in convertible bond

347,424

349,194

Inventories

517,888

504,671

Accounts receivable, prepayments and deposits

8

9,636,953

10,148,966

Tax recoverable

25,506

24,849

  Amounts due from fellow subsidiaries

5,427

5,223

  Restricted and pledged bank deposits

21,024

20,622

  Cash and bank balances

6,012,473

5,825,246

16,674,362

16,998,502

Current liabilities

Lease liabilities

973,785

961,585

  Accounts payable, deposits received and

accrued charges

9

7,122,407

7,387,785

  Amounts due to fellow subsidiaries

9,159

9,788

  Amounts due to related companies

21,696

28,729

Taxation

404,580

411,331

Short-term bank loans and current portion of

long-term bank loans

10

3,477,607

1,947,820

Bank overdrafts

150,036

233,750

12,159,270

10,980,788

4

CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION (CONTINUED)

Unaudited

Audited

As at

As at

30 June

31 December

Note

2020

2019

HK$'000

HK$'000

Non-current liabilities

Loans from non-controlling interests

223,362

223,805

Long-term bank loans

10

5,364,965

6,173,790

Lease liabilities

2,414,282

2,545,880

Deferred taxation

659,692

656,212

Retirement benefit obligations

136,472

124,389

Other non-current liabilities

139,689

1,424,610

8,938,462

11,148,686

ASSETS LESS LIABILITIES

27,988,706

27,074,495

EQUITY

Capital and reserves attributable to

the Company's shareholders

Share capital

896,994

858,102

  Share premium and other reserves

2,352,294

2,992,215

Retained profits

21,043,880

20,325,662

24,293,168

24,175,979

  Put option written on non-controlling interests

(4,593)

(1,162,630)

24,288,575

23,013,349

Non-controlling interests

3,700,131

4,061,146

TOTAL EQUITY

27,988,706

27,074,495

5

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1 BASIS OF PREPARATION AND ACCOUNTING POLICIES

The Company was incorporated in the British Virgin Islands in 1991 and migrated to Bermuda to become an exempted company with limited liability in 2000. The address of its registered office is Victoria Place, 5th Floor, 31 Victoria Street, Hamilton HM 10, Bermuda.

The Company is an investment holding company and its subsidiaries are principally engaged in the provision of logistics, freight and warehouse leasing and operations services. The Company's shares are listed on The Stock Exchange of Hong Kong Limited.

These unaudited condensed consolidated interim financial statements are prepared in accordance with HKAS 34 'Interim Financial Reporting' issued by the HKICPA and the disclosure requirements of Appendix 16 to the Listing Rules.

These unaudited condensed consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2019, which have been prepared in accordance with HKFRS. The accounting policies used in the preparation of these condensed consolidated interim financial statements are consistent with those used in the annual financial statements for the year ended 31 December 2019.

The following new amendments to existing standards that are effective for the accounting period of the Group beginning on 1 January 2020 have been published:

  • Amendments to HKAS 1, "Presentation of financial statements"
  • HKAS 8, "Accounting policies, changes in accounting estimates and errors"
  • Amendments to HKFRS 3, "Definition of a business"
  • Amendments to HKFRS 7, HKFRS 9 and HKFRS 39, "Interest Rate Benchmark Reform"

The Group has early adopted amendments to HKFRS 16 "Covid-19-Related Rent Concessions" which is mandatory and effective for annual accounting period on or after 1 June 2020, and applied practical expedient to recognise all its Covid-19 related rent concessions in the profit and loss, rather than to spread the impact over the remaining lease terms.

In the current interim period, the Group has applied, for the first time, the above new amendments to existing standards issued by the HKICPA. The adoption of the above amendments of existing standards had no material impact on the Group's accounting policies and did not require retrospective adjustments.

The Group has not yet adopted the following new standards and amendments to existing standards and interpretations that have been issued by the HKICPA but are not yet effective.

6

Amendments to HKAS 1, "Classification of Liabilities as Current or Non-current"1

Amendments to HKAS 16, "Property, Plant and Equipment: Proceeds before intended use" 1

Amendments to HKAS 37, "Onerous Contracts - Cost of Fulfilling a Contract" 1

Amendments to HKFRS 3, "Reference to the Conceptual Framework" 1

Annual Improvements to HKFRS Standards 2018-20201

HKFRS 17, "Insurance contract"2

Amendments to HKAS 28 (2011) and HKFRS 10, "Sales or contribution of assets between an investor and its associate or joint venture"3

1

2

3

Effective date for annual periods beginning on or after 1 January 2022 Effective date for annual periods beginning on or after 1 January 2023 Effective date to be determined

The Group will adopt the above new standards and amendments to existing standards and interpretations as and when they become effective. None of the above is expected to have a significant effect on the condensed consolidated interim financial statements of the Group.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

The preparation of condensed consolidated interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the annual financial statements for the year ended 31 December 2019 except for the adoption of new standards as set out above. The Directors have considered the existing and potential impact arising from the global COVID-19 pandemic in the preparation of the condensed consolidated interim financial statements. The Group has based its assumptions and estimates on circumstances and conditions available when the condensed consolidated interim financial statements were prepared. Given the unprecedented macro conditions, actual results could differ significantly from those assumptions and estimates. The Directors will remain alert and cautious on the ongoing development of COVID-19 that may cause further volatility and uncertainty in the global financial market and economy, and will take necessary measures to address the impact arising therefrom.

7

2 PRINCIPAL ACTIVITIES AND SEGMENTAL ANALYSIS OF OPERATIONS

An analysis of the Group's financial results by operating segment and geographical area for the six months ended 30 June 2020, together with comparative figures for the six months ended 30 June 2019, as restated, is as follows:

For the six months ended 30 June

Integrated logistics

International

Logistics operations

Hong Kong warehouse

freight forwarding

Elimination

Consolidation

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

HK$'000

HK$'000

HK$'000

HK$'000

HK$'000

HK$'000

HK$'000

HK$'000

HK$'000

HK$'000

(reclassified)

(reclassified)

(reclassified)

(reclassified)

(reclassified)

Revenue

Revenue

9,279,982

9,339,537

97,253

179,124

12,507,732

10,291,668

-

-

21,884,967

19,810,329

Inter-segment revenue

230,804

198,916

248,166

217,790

2,902,311

2,150,447

(3,381,281)

(2,567,153)

-

-

9,510,786

9,538,453

345,419

396,914

15,410,043

12,442,115

(3,381,281)

(2,567,153)

21,884,967

19,810,329

Revenue by geographical area:

Hong Kong

2,389,650

2,234,053

345,419

396,914

1,268,018

925,347

(792,544)

(688,975)

3,210,543

2,867,339

Mainland China

1,934,785

2,329,498

-

-

5,667,769

3,965,044

(1,410,152)

(1,087,940)

6,192,402

5,206,602

Taiwan

1,521,120

1,419,383

-

-

281,075

216,751

(132,374)

(92,355)

1,669,821

1,543,779

Asia

3,603,331

3,480,671

-

-

2,268,743

2,102,474

(731,595)

(409,663)

5,140,479

5,173,482

Americas

-

-

-

-

3,092,540

2,887,338

(152,629)

(239,097)

2,939,911

2,648,241

EMEA

-

-

-

-

2,591,075

2,165,350

(147,181)

(34,259)

2,443,894

2,131,091

Oceania

61,900

74,848

-

-

240,823

179,811

(14,806)

(14,864)

287,917

239,795

9,510,786

9,538,453

345,419

396,914

15,410,043

12,442,115

(3,381,281)

(2,567,153)

21,884,967

19,810,329

Segment profit by geographical area:

Hong Kong

219,987

195,177

233,531

269,766

85,068

27,030

-

-

538,586

491,973

Mainland China

98,120

156,087

-

-

126,184

87,334

-

-

224,304

243,421

Taiwan

240,126

217,102

-

-

17,317

12,864

-

-

257,443

229,966

Asia

344,012

324,160

-

-

50,886

68,465

-

-

394,898

392,625

Americas

-

-

-

-

98,343

96,922

-

-

98,343

96,922

EMEA

-

-

-

-

13,423

(11,336)

-

-

13,423

(11,336)

Oceania

2,658

(430)

-

-

12,149

6,407

-

-

14,807

5,977

904,903

892,096

233,531

269,766

403,370

287,686

-

-

1,541,804

1,449,548

Less: Unallocated administrative expenses#

(52,790)

(119,991)

Core operating profit

1,489,014

1,329,557

Finance income

15,735

18,515

Finance costs

(160,103)

(161,724)

  Share of results of associates and

41,673

45,934

  joint ventures

Profit before taxation*

1,386,319

1,232,282

Taxation*

(278,528)

(295,300)

Profit for the period*

1,107,791

936,982

Non-controlling interests*

(262,347)

(267,784)

Core net profit

845,444

669,198

Change in fair value of investment

227,931

205,020

properties

Deferred tax on change in fair value

(333)

251

of investment properties

Less: Non-controlling interests' share

  of after-tax change in fair value

(193)

(413)

  of investment properties

Gain on disposal of warehouses

-

1,957,540

Goodwill impairment

-

(41,852)

Profit attributable to the

1,072,849

2,789,744

Company's shareholders

Normalised profit attributable to

1,072,849

832,204

the Company's shareholders**

Depreciation and amortisation

875,333

686,131

23,608

26,443

169,407

135,504

1,068,348

848,078

  • Excluding the change in fair value of investment properties and its related deferred tax, gain on disposal of warehouses and goodwill impairment
  • Excluding the gain on disposal of warehouses in Hong Kong in 2019
  • Certain of the net gain from settlement of put options written on non-controlling interests was included in unallocated administrative expenses.

8

Management has determined the operating segments based on the reports reviewed by the executive directors. The executive directors assess the performance of the three principal activities of the Group, namely logistics operations, Hong Kong warehouse and international freight forwarding, in each geographical area.

Logistics operations segment derives revenue from provision of logistics services and sales of goods.

Hong Kong warehouse segment derives revenue from provision of warehouse leasing, general storage and other ancillary services.

International freight forwarding segment derives revenue primarily from provision of freight forwarding services.

Segment revenue and profit derived from geographical areas are based on the geographical location of the operation.

The executive directors assess the performance of the operating segments by geographical area based on segment profit.

The executive directors also assess the performance of the Group based on core operating profit, which is the profit before taxation excluding interest income, finance costs, share of results of associates and joint ventures and also core net profit, which is the profit attributable to Company's shareholders before the after-tax effect of change in fair value of investment properties, goodwill impairment and gain on disposal of warehouses.

In August 2019, the Group acquired a majority interest in Turkey's ASAV Logistics Services Inc. to further the expansion of its global network and further consolidate the Group's network and capabilities in the Europe, Middle East and Africa ("EMEA") Region. For segment presentation purpose, EMEA is presented as an operating division for the current segmental analysis of operations.

Prior period corresponding segment information that is presented for comparative purpose has been reclassified from geographical areas previously presented as Asia, Europe and others to conform the reclassification of operations in Asia, EMEA and Oceania segments adopted in current period. The reclassifications have no impact on the profit for the current and comparative periods nor on the assets and liabilities of the Group as at 30 June 2020 and 31 December 2019.

In the following table, revenue of the Group from contracts with customers is disaggregated by timing of satisfaction of performance obligations. The table also includes a reconciliation to the segment information in respect of revenue of the Group that is disclosed in the operating segment note.

For the six months ended 30 June

Revenue

2020

Revenue

2019

recognised

Revenue

recognised

Revenue

at a point

recognised

Rental

at a point

recognised

Rental

By operating segment

in time

over time

income

Total

in time

over time

income

Total

HK$'000

HK$'000

HK$'000

HK$'000

HK$'000

HK$'000

HK$'000

HK$'000

Revenue from contracts

  • with customers Integrated logistics

- Logistics operations

716,078

8,505,839

58,065

9,279,982

920,916

8,364,395

54,226

9,339,537

  - Hong Kong warehouse

-

3,029

94,224

97,253

-

68,645

110,479

179,124

International freight

forwarding

-

12,507,732

-

12,507,732

-

10,291,668

-

10,291,668

716,078

21,016,600

152,289

21,884,967

920,916

18,724,708

164,705

19,810,329

9

For the six months ended 30 June

2020

2019

Revenue

Revenue

recognised

Revenue

recognised

Revenue

at a point

recognised

Rental

at a point

recognised

Rental

By geographical area

in time

over time

income

Total

in time

over time

income

Total

HK$'000

HK$'000

HK$'000

HK$'000

HK$'000

HK$'000

HK$'000

HK$'000

(reclassified)

(reclassified)

Revenue from contracts

  with customers

Hong Kong

715,060

2,400,958

94,525

3,210,543

919,881

1,836,979

110,479

2,867,339

Mainland China

1,018

6,145,798

45,586

6,192,402

1,035

5,166,835

38,732

5,206,602

Taiwan

-

1,669,821

-

1,669,821

-

1,543,779

-

1,543,779

Asia

-

5,128,301

12,178

5,140,479

-

5,157,988

15,494

5,173,482

Americas

-

2,939,911

-

2,939,911

-

2,648,241

-

2,648,241

EMEA

-

2,443,894

-

2,443,894

-

2,131,091

-

2,131,091

Oceania

-

287,917

-

287,917

-

239,795

-

239,795

716,078

21,016,600

152,289

21,884,967

920,916

18,724,708

164,705

19,810,329

An analysis of the Group's segment non-current assets by geographical area is as follows:

Segment

non-current assets#

As at

As at

30 June

31 December

2020

2019

HK$'000

HK$'000

(reclassified)

Hong Kong

10,534,170

10,363,487

Mainland China

6,111,612

6,121,817

Taiwan

5,087,952

4,989,208

Asia

7,724,848

7,688,488

Americas

1,043,854

1,070,729

EMEA

1,330,348

1,376,073

Oceania

164,101

179,155

31,996,885

31,788,957

  • Other than financial assets at fair value through other comprehensive income, investment in convertible bonds and deferred taxation.

10

3 EXPENSES BY NATURE

Expenses included in direct operating expenses and administrative expenses are analysed as follows:

Six months ended 30 June

2020

2019

HK$'000

HK$'000

Business tax and other taxes

5,514

5,527

Cost of goods sold

607,924

806,239

Freight and transportation costs

15,046,800

13,280,794

Depreciation of property, plant and equipment

430,329

396,471

Depreciation of right-of-use assets

567,975

386,525

Amortisation of intangible assets

70,044

65,082

Provision for impairment of receivables

49,997

12,207

Reversal of provision for impairment of receivables

(4,432)

(350)

Expenses relating to short-term and low-value leases

101,160

269,976

Employee benefit expenses (note)

3,180,979

2,947,448

Note:

Government grants amounting to HK$23,906,000 which have been recognised and deducted in employee benefit expenses for the six months ended 30 June 2020.

4

FINANCE COSTS

Six months ended 30 June

2020

2019

HK$'000

HK$'000

Interest expenses on bank loans and overdrafts

105,282

137,258

Interest expenses on lease liabilities

54,821

24,466

160,103

161,724

11

5

TAXATION

Six months ended 30 June

2020

2019

HK$'000

HK$'000

Hong Kong profits tax

- Current

89,094

79,157

  - Overprovision in prior years

(56)

(24)

- Deferred

(1,554)

(4,128)

87,484

75,005

PRC taxation

- Current

33,986

29,828

  - Underprovision in prior years

1,925

930

- Deferred

10,968

24,447

46,879

55,205

Overseas taxation

- Current

188,834

162,134

  - (Overprovision)/underprovision in prior years

(29,865)

2,426

- Deferred

(14,471)

279

144,498

164,839

278,861

295,049

HONG KONG AND OVERSEAS PROFITS TAX

Hong Kong profits tax has been provided at the rate of 16.5% (2019: 16.5%) for the six months ended 30 June 2020 on the estimated assessable profit for the period. Income tax on the overseas profits has been calculated on the estimated assessable profit for the period at the rates of taxation prevailing in the overseas countries in which the Group operates.

PRC ENTERPRISE INCOME TAX

PRC enterprise income tax has been provided at the rate of 25% (2019: 25%) on the estimated assessable profit for the period.

WITHHOLDING TAX ON DISTRIBUTED/UNDISTRIBUTED PROFITS

Withholding tax in the Group's associates and joint ventures is levied on the undistributed earnings for the period at the rates of taxation prevailing in the PRC and overseas countries. Withholding tax on undistributed earnings of the Group's certain subsidiaries are not provided as the Directors consider that the timing of reversal of the related temporary differences can be controlled and the temporary differences will not reverse in the foreseeable future.

12

  1. DIVIDENDS
    The Directors have declared an interim dividend of 11 HK cents per share for the six months ended 30 June 2020 (for the six months ended 30 June 2019: an interim dividend of 9 HK cents and a special dividend of 35 HK cents), which is payable on Friday, 25 September 2020 to shareholders whose names appear on the registers of members of the Company on Friday, 11 September 2020. These financial statements do not reflect this dividend payable.
  2. EARNINGS PER SHARE
    The calculation of the basic and diluted earnings per share is as follows:
    BASIC

Six months ended 30 June

2020

2019

Adjusted weighted average number of ordinary shares

  in issue ('000)

1,756,140

1,708,928

Profit attributable to the Company's shareholders

  (HK$'000)

1,072,849

2,789,744

Basic earnings per share (HK$)

0.61

1.63

DILUTED

Six months ended 30 June

2020

2019

Adjusted weighted average number of

  ordinary shares in issue ('000)

1,756,140

1,708,928

Adjustment for share options ('000)

1,368

5,038

Weighted average number of shares for the purpose of

  calculating diluted earnings per share ('000)

1,757,508

1,713,966

Profit attributable to the Company's shareholders

  (HK$'000)

1,072,849

2,789,744

Diluted earnings per share (HK$)

0.61

1.63

13

8 ACCOUNTS RECEIVABLE, PREPAYMENTS AND DEPOSITS

Included in accounts receivable, prepayments and deposits are trade receivables. The Group maintains a defined credit policy. The ageing analysis of trade receivables based on the date of the invoice and net of provision for impairment is as follows:

As at

As at

30 June

31 December

2020

2019

HK$'000

HK$'000

Below 1 month

4,652,124

4,706,129

Between 1 month and 3 months

2,027,126

2,631,011

Over 3 months

698,213

639,044

Total trade receivables, net

7,377,463

7,976,184

Prepayments, deposits and other receivables

2,259,490

2,172,782

9,636,953

10,148,966

9 ACCOUNTS PAYABLE, DEPOSITS RECEIVED AND ACCRUED CHARGES

Included in accounts payable, deposits received and accrued charges are trade payables. The ageing analysis of trade payables based on the date of the invoice is as follows:

As at

As at

30 June

31 December

2020

2019

HK$'000

HK$'000

Below 1 month

2,240,298

2,482,882

Between 1 month and 3 months

843,847

1,012,311

Over 3 months

563,047

465,361

Total trade payables

3,647,192

3,960,554

Deposits received, accrued charges and other payables

3,475,215

3,427,231

7,122,407

7,387,785

14

10 BANK LOANS

As at

As at

30 June

31 December

2020

2019

HK$'000

HK$'000

Non-current

- unsecured

4,650,558

5,364,880

- secured

714,407

808,910

5,364,965

6,173,790

Current

- unsecured

3,279,841

1,737,193

- secured

197,766

210,627

3,477,607

1,947,820

Total bank loans

8,842,572

8,121,610

11 COMMITMENTS

As at 30 June 2020, the Group had capital commitments in respect of property, plant and equipment and acquisition of subsidiaries not provided for in these financial statements as follows:

As at

As at

30 June

31 December

2020

2019

HK$'000

HK$'000

Contracted but not provided for

937,950

715,865

12 PLEDGE OF ASSETS

As at 30 June 2020, the Group's total bank loans of HK$8,842,572,000 (31 December 2019: HK$8,121,610,000) included an aggregate amount of HK$912,173,000 (31 December 2019: HK$1,019,537,000) which are secured. The Group's total bank overdrafts of HK$150,036,000 (31 December 2019: HK$233,750,000) included an aggregate amount of HK$12,779,000 (31 December 2019: HK$50,076,000) which are secured. The securities provided for the secured banking facilities available to the Group are as follows:

  1. legal charges over certain investment properties, leasehold land and land use rights, construction in progress and buildings and port facilities of the Group with an aggregate net book value of HK$2,628,001,000 (31 December 2019: HK$2,866,665,000);
  2. assignments of insurance proceeds of certain properties of the Group; and
  3. certain balances of restricted and pledged deposits of the Group.

15

RESULTS OVERVIEW

The Group recorded an increase in revenue of 10% to HK$21,885 million in 2020 1H (2019 1H: HK$19,810 million). Core operating profit went up 12% to HK$1,489 million (2019 1H: HK$1,330 million). Core net profit increased by 26% to HK$845 million (2019 1H: HK$669 million). Profit attributable to the Shareholders was HK$1,073 million. After taking out the HK$1,958 million gain from disposal of two warehouses in Hong Kong recorded in 2019 1H, the year-on-year growth is 29%.

2020 1H

2019 1H

HK$ million

HK$ million

Segment profit

IL

- Logistics operations

905

892

+1%

- Hong Kong warehouse

234

270

-13%*

1,139

1,162

-2%**

IFF

403

288

+40%

1,542

1,450

Unallocated administrative expenses

(53)

(120)

Core operating profit

1,489

1,330

+12%

Core net profit

845

669

+26%

Change in fair value of investment properties,

  net of deferred tax

228

205

Goodwill impairment

-

(42)

Profit attributable to the Shareholders,

  excluding gain from disposal of two warehouses

  in Hong Kong in 2019 1H

1,073

832

***

+29%

  • Normalised year-on-year change is +6%
  • Normalised year-on-year change is +2%
  • Statutory profit attributable to the Shareholders in 2019 1H was HK$2,790 million

(Normalisation involved excluding the operating profit generated from the two warehouses in Hong Kong which were sold in 2019 1H)

16

MANAGEMENT DISCUSSION AND ANALYSIS

BUSINESS REVIEW

MARKET OVERVIEW

The COVID-19 outbreak has brought a monumental change to the fundamentals of life, from how we live and work to how we produce and consume. The daily number of confirmed and fatal cases currently stands at 200,000 and 5,000, respectively, with no end to the pandemic in sight, nor hint of what the "new normal" will look like.

The pandemic has brought about waves of unemployment, driven by lockdowns and social distancing measures and travel restrictions across the globe. To counter this, individual governments have introduced various large-scale relief efforts, upending the demand for various types of products.

In such highly volatile and uncertain environments, logistics has maintained its unrivalled importance: it leveraged its strength to contain the pandemic through delivering much needed medical supplies and products helping to enforce social distancing. It also supported societies to quickly adapt to a new way of work and living by fulfilling the surging demand for stay-at-home products.

Kerry Logistics' 2020 1H results clearly demonstrated its business diversity, adaptability and agility. The Group has not only adapted through the pandemic but achieved promising growth amidst heightened volatility and widespread downturn across industries.

IL REMAINED SOLID

Taking away the impact of having fewer warehouses in Hong Kong during the period, Kerry Logistics' IL division recorded a 2% segment profit growth in 2020 1H. The pandemic and its resultant widespread lockdowns have caused a drastic drop in the demand in a large number of non-essential products and thus affected the global manufacturing market. As a result, warehouse operations in Asia has been severely impacted, but a strong growth in the last-mile fulfilment and e-commerce logistics resulted in a positive growth for the IL division.

HONG KONG OPERATION ROBUST

The Hong Kong IL division recorded a 13% growth in its logistics operations. The division switched its business strategy from serving general consumption and regional distribution centres to fulfilling pandemic-related institutional demands and quickly expanding the essential supply sectors. Contribution of the Hong Kong warehouse business decreased as a result of the disposal of two warehouses in 2019 1H.

MAINLAND CHINA RECOVERY IN PROGRESS

The IL division in Mainland China reported a 37% decrease in the segment profit in 2020 1H. This was due to lockdowns and the Group's active participation in a wide range of relief work. Business activities have started to pick up since April 2020 as work gradually resumed in late March. Kerry Logistics remains optimistic that its full year results will improve, buoyed by a swift recovery of the domestic consumer segment in Mainland China and the Group's capabilities to continue seizing new business opportunities as the pandemic unfolds.

17

TAIWAN STAYED VIGOROUS

The IL business in Taiwan registered an 11% year-on-year rise in segment profit, driven by its strong last-mile capabilities and the strong performance of Science Park Logistics' bonded operations as well as leveraging its leading position in pharmaceutical logistics in Taiwan.

ASIA EX GREATER CHINA SEIZED OPPORTUNITIES

The Group was able to record a 6% growth in the IL segment profit in Asia, riding on the substantial growth of its e-commerce and last-mile operations. The performance of Kerry Express Thailand was particularly vigorous, with 36% growth in its bottom line during 2020 1H. This was achieved despite a long period of lockdown across countries, severely affecting domestic consumption, B2B businesses and contract logistics activities.

To further extend the Group's last-mile and e-commerce capabilities, the Group has invested in a 42% effective interest in one of the biggest private express companies in Vietnam, which is handling approximately 800,000 parcels a day. The investment was completed in May 2020.

IFF SHOWED ITS STRENGTH

The Group's IFF division achieved an outstanding performance in 2020 1H. Segment profit of the IFF division registered a 40% increase. Contribution of the IFF business to the Group's total segment profit has grown from 20% previously to 26% in 2020 1H.

The global freight forwarding market was among the hardest hit sectors, made more severe due to travel bans. The pandemic has caused a global air and ocean capacity crunch, drastic drop in volume, high rate volatility and an increase in customs and trade constraints.

However, Kerry Logistics leveraged its unique market position as one of the very few Asia-based global freight forwarders, with broad exposure in key gateways across continents and ability to capture new business opportunities as the pandemic spread.

AIR FREIGHT SURGED

Backed by its excellent track record in the industry, the support of carriers, its customs clearance capacity and extensive coverage of major air transit hubs across different regions, the Group's air freight business, from Asia to the world, surged from March to May 2020. It also conducted more than 370 charter flights, from Asia to worldwide (including Latin America) and within EMEA.

OCEAN FREIGHT PICKED UP

The Group's ocean freight business caught up in mid-May and June 2020 as customers replenished their dwindling inventories. As the pandemic continues to spread, global demand for medical, essential and stay-at-home products will extend into 2020 Q3.

NEW LAND FREIGHT VOLUME GAINED

In response to reduced capacity in air and ocean freight, the Group utilised its unique Eurasian road and rail freight network to devise alternative solutions for customers to cope with the new situation. It saw a sizeable volume surge for land-bridge services between China and Europe, China and Indochina Peninsula.

18

APEX ACQUISITION COMPLETED

The Group completed the acquisition of the remaining 49% in Apex in March 2020. Apex's business recorded a 6% growth in volume against the market trend of 7% contraction between January and July 2020, becoming the number one NVOCC from Asia to the US.

ASSET OPTIMISATION CONTINUED

In July 2020, the Group completed the disposal of its warehousing operation in Adelaide, Australia. Currently, the Group has entered into a definitive agreement to divest its entire interest in the Singapore-headquarteredKerry-ITS Group, which is expected to complete by the end of this year. The Group will continue to review and optimise the composition of its asset portfolio.

OUTLOOK

The COVID-19 pandemic has resulted in a wave of unemployment, global travel restrictions and a decrease in demand for non-essential products: signs of a looming global recession. Coupled with rising nationalism, protectionism and geopolitical tensions, the coming 18 months will bring unprecedented chaos to the global supply chain. As industries adjust and plan for the "new normal", emphasis will be placed on speed and capabilities rather than on pricing. Activities from upstream sectors have already started to drive changes downstream.

Logistics demands from various governments, institutions, private enterprises and individuals have swelled as the pandemic rages on. The Group's medium-term strategy will have to adapt and prepare for the "new normal", this includes enhancing Kerry Logistics' exposure in e-commerce and humanitarian logistics.

COVID-19 has also elicited a vigorous response from various pharmaceutical companies and the global scientific community to develop a vaccine to end the ferocious pandemic. By combining and leveraging its extensive experience in solutions-based approach to deliver medical supplies as well as in handling of pharmaceutical products, the Group will be in a strong position to play an important role in the global distribution of the much anticipated vaccine.

The Group is also set to strengthen and expand the capabilities of its Kerry Project Logistics division worldwide to seize new opportunities, especially among various governments looking to increase infrastructure spending as a means to drive economic recovery.

While the world braces for the beginning of one of the biggest global recessions in history, the role of logistics is becoming ever more invaluable and essential. As long as Kerry Logistics maintains its business diversity, adaptability and agility, it will continue to grow and bring value to stakeholders.

SPIN-OFF OF KERRY EXPRESS THAILAND IN PROGRESS

On 25 August 2020, Kerry Express Thailand received the notice of acceptance of the listing application in respect of the Proposed Spin-off from the SEC. The spin-off remains in progress.

E-COMMERCE GROWTH SET TO GO

The widespread lockdowns and social distancing measures being implemented globally have further driven consumers to online shopping and created spikes in all types of e-commerce activities. Leveraging its strengths in domestic and cross-bordere-commerce logistics, Kerry Logistics will continue to expand its infrastructure and enhance its service capabilities to capture the booming demands from micro-fulfilment to destination clearance and last-mile management. The Group anticipates strong business to continue going forward.

19

FINANCIAL REVIEW

The Group has centralised financing policies which apply to all business units within the network. The policies are reviewed on a periodical basis along with the change in market situation and financial position of the Group.

Most of the Group's assets and liabilities are denominated in different functional currencies of the overseas subsidiaries' respective countries. The Group generally does not enter into foreign exchange hedges in respect of its long-term equity investments in overseas subsidiaries, associates and joint ventures. For the foreign currency exposure arising from business activities, certain subsidiaries used forward contracts to hedge their foreign exchange exposure from trading transactions during the period, the amount of which was insignificant to the Group. The Group will continue to closely monitor its foreign exchange position and if necessary, hedge its foreign exchange exposure by entering into appropriate hedging instruments. As at 30 June 2020, total foreign currency borrowings amounted to the equivalent of HK$5,783 million (including HK$2,916 million denominated in New Taiwan Dollar and HK$1,084 million denominated in United States Dollar), which represented approximately 65% of the Group's total bank loans of HK$8,843 million.

Out of the Group's total bank loans as at 30 June 2020, HK$3,478 million (representing approximately 39%) was repayable within one year, HK$2,788 million (representing approximately 32%) in the second year and HK$2,577 million (representing approximately 29%) in the third to fifth years. The Group maintains most of its bank loans on an unsecured basis, with unsecured debt accounting for approximately 90% of total bank loans. In relation to the secured bank loans of HK$912 million as at 30 June 2020, the securities provided include legal charges over certain non-current assets with aggregate net book value of HK$2,628 million, assignments of insurance proceeds of certain properties, and certain balances of restricted and pledged deposits. A majority of the bank loans were borrowed at floating interest rates and were not held for hedging purposes.

As at 30 June 2020, the gearing ratio for the Group was 37.0% (31 December 2019: 34.6%). The ratio was calculated as total bank loans and overdrafts, divided by equity attributable to the Shareholders excluding put options written on non-controlling interests.

As at 30 June 2020, the Group had total undrawn bank loan and overdraft facilities of HK$10,650 million which may be used to fund material capital expenditure. The Group will also continue to secure financing as and when the need arises.

As at 30 June 2020, the Group had no material contingent liabilities.

STAFF AND REMUNERATION POLICIES

As at 30 June 2020, the Group had approximately 43,600 employees. The remuneration to employees includes salaries maintained at competitive levels while bonuses are granted on a discretionary basis. The Group provides training to its staff to enhance technical and product knowledge. The Group's remuneration policies are formulated based on the performance of individual employees. Other employee benefits include provident fund, insurance, medical, sponsorship for educational or training programmes and share option schemes.

CORPORATE GOVERNANCE AND OTHER INFORMATION

COMPLIANCE WITH THE CG CODE

The Company has applied the principles and code provisions as set out in the CG Code and its corporate governance practices are based on such principles and code provisions as set out in the CG Code. The Directors consider that during the six months ended 30 June 2020, the Company has complied with the code provisions as set out in the CG Code.

20

MODEL CODE FOR SECURITIES TRANSACTIONS

The Company has adopted the Model Code. Specific enquiries have been made to all the Directors (including Mr CHEUNG Ping Chuen Vicky, the Executive Director, appointment effective from 1 April 2020) and the Directors have confirmed that they have complied with the Model Code

  1. during the six months ended 30 June 2020; or (ii) during the period from their respective appointment dates and up to 30 June 2020, as the case may be.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES

During the six months ended 30 June 2020, the Company repurchased a total of 900,000 Shares at prices ranging from HK$10.12 to HK$10.40 on the Stock Exchange at an aggregate consideration of HK$9,276,460. All 900,000 Shares repurchased were subsequently cancelled. Save as disclosed above, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company's listed securities during the six months ended 30 June 2020.

SHARE OPTIONS

The Company has adopted the Pre-IPO Share Option Scheme and the Post-IPO Share Option Scheme on 25 November 2013. The aforesaid schemes are designed to motivate executives and key employees and other persons who may make a contribution to the Group, and enables the Group to attract and retain individuals with experience and ability and to reward them for their contributions.

As at 30 June 2020, a total of 17,124,500 options granted under the Pre-IPO Share Option Scheme were outstanding and no option granted under the Post-IPO Share Option Scheme was outstanding.

REVIEW OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

The unaudited condensed consolidated interim financial statements have been reviewed by the Company's independent auditor, PricewaterhouseCoopers, in accordance with the Hong Kong Standard on Review Engagements 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" and by the audit and compliance committee of the Company. The review report of the independent auditor will be included in the interim report to be sent to the Shareholders.

EVENTS AFTER THE LATEST ANNUAL REPORT

There were no significant events affecting the Company nor any of its subsidiaries after the latest annual report requiring disclosure in this announcement.

CLOSURE OF REGISTERS OF MEMBERS

The Registers of Members will be closed on Friday, 11 September 2020 in order to determine the entitlement of the Shareholders to the interim dividend. All share transfers accompanied by the relevant share certificates and transfer forms must be lodged with the Company's Hong Kong branch share registrar and transfer office, Tricor Investor Services Limited at Level 54, Hopewell Centre, 183 Queen's Road East, Hong Kong before 4:30 p.m. on Thursday, 10 September 2020. The interim dividend is payable on Friday, 25 September 2020 to the Shareholders whose names appear on the Registers of Members on Friday, 11 September 2020.

21

PUBLICATION OF INTERIM RESULTS ANNOUNCEMENT AND INTERIM REPORT

This announcement is published on the websites of the Stock Exchange (www.hkexnews.hk) and the Company (www.kerrylogistics.com).

The interim report for the six months period containing all the information required by Appendix 16 to the Listing Rules will be despatched to the Shareholders and published on the websites of the Stock Exchange and the Company in due course.

DEFINITIONS

"1H"

first half

"Apex"

14 US subsidiaries of KLN Investment (US) LLC, an indirect

wholly-owned subsidiary of the Company

"Asia"

Asia continent, for the purpose of this announcement only,

excludes Greater China and Middle East

"B2B"

business-to-business

"Board"

the board of Directors

"CG Code"

the Corporate Governance Code contained in Appendix 14 to

the Listing Rules

"Company"

Kerry Logistics Network Limited, incorporated in the British

Virgin Islands and continued into Bermuda to become an

exempted company with limited liability, the Shares of which

are listed on the Main Board of the Stock Exchange

"Director(s)"

director(s) of the Company

"EMEA"

Europe, Middle East and Africa

"Greater China"

Mainland China, Hong Kong, Macau and Taiwan

"Group" or "Kerry Logistics"

the Company and its subsidiaries

"HK$"

Hong Kong dollars, the lawful currency of Hong Kong

"HKAS"

Hong Kong Accounting Standards

"HKFRS"

Hong Kong Financial Reporting Standards

"HKICPA"

Hong Kong Institute of Certified Public Accountants

"Hong Kong"

Hong Kong Special Administrative Region of Mainland China

"IFF"

international freight forwarding

"IL"

integrated logistics

"Kerry Express Thailand"

Kerry Express (Thailand) Public Company Limited, incorporated

in Thailand

"Kerry-ITS Group"

Kerry-ITS Holdings Pte. Ltd. and its subsidiaries

22

"Listing Rules"

the Rules Governing the Listing of Securities on the Stock

Exchange, as amended from time to time

"Macau"

Macao Special Administrative Region of Mainland China

"Mainland China" or "PRC"

The People's Republic of China and, for the purpose of this

announcement only, excludes Hong Kong, Macau and Taiwan

"Model Code"

the Model Code for Securities Transactions by Directors of

Listed Issuers as set out in Appendix 10 to the Listing Rules

"NVOCC"

non-vessel operating common carrier

"Oceania"

Australia and New Zealand, for the purpose of this

announcement only

"Post-IPO Share Option Scheme"

post-IPO share option scheme of the Company

"Pre-IPO Share Option Scheme"

pre-IPO share option scheme of the Company

"Proposed Spin-off"

the proposed spin-off and separate listing of Kerry Express

Thailand shares on The Stock Exchange of Thailand

"Q3"

third quarter

"Registers of Members"

registers of members of the Company

"Science Park Logistics"

Science Park Logistics Co., Ltd., incorporated under the

laws of Taiwan with limited liability by shares, a deemed

subsidiary of the Company

"SEC"

The Securities and Exchange Commission of Thailand

"Share(s)"

share(s) of nominal value of HK $ 0 . 50 each of the

Company, or, if there has been a subdivision, consolidation,

reclassification or reconstruction of the share capital of the

Company, shares forming part of the ordinary share capital of

the Company

"Shareholders"

the holders of the Shares

"Stock Exchange"

The Stock Exchange of Hong Kong Limited

"US"

the United States of America, its territories and possessions,

any State of the United States, and the District of Columbia

By Order of the Board

KUOK Khoon Hua

Chairman

Hong Kong, 27 August 2020

As at the date of this announcement, the Directors of the Company are:

Executive Directors:

Mr KUOK Khoon Hua, Mr MA Wing Kai William, Mr CHEUNG Ping Chuen Vicky and Mr NG Kin Hang

Non-executive Director:

Ms TONG Shao Ming

Independent Non-executive Directors:

Ms KHOO Shulamite N K, Ms WONG Yu Pok Marina, Mr YEO Philip Liat Kok and Mr ZHANG Yi Kevin

23

Disclaimer

Kerry Logistics Network Ltd. published this content on 27 August 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 August 2020 04:11:07 UTC


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Sales 2020 46 236 M 5 965 M 5 965 M
Net income 2020 1 959 M 253 M 253 M
Net Debt 2020 2 745 M 354 M 354 M
P/E ratio 2020 14,0x
Yield 2020 3,01%
Capitalization 28 505 M 3 677 M 3 677 M
EV / Sales 2020 0,68x
EV / Sales 2021 0,60x
Nbr of Employees 43 600
Free-Float 34,8%
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Mean consensus OUTPERFORM
Number of Analysts 8
Average target price 18,11 HKD
Last Close Price 15,86 HKD
Spread / Highest target 32,4%
Spread / Average Target 14,2%
Spread / Lowest Target -6,68%
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Managers and Directors
NameTitle
Wing Kai Ma Group Managing Director & Executive Director
Khoon Hua Kuok Executive Chairman
Chi Wai Cheng Chief Financial Officer
Wai Shun Lee Director-Information Technology
Yu Pok Wong Independent Non-Executive Director