CJ Korea Express levers up to chase growth

CJ Korea Express reported a solid set of results in 2016, and is expected to speed up heavy investment to chase growth in 2017.

Revenues rose 20.3% to almost KRW6.1 trillion ($5.3bn) in 2016 from KRW5 trillion one year earlier. Cost of sales, meanwhile, soared 20.1% to KRW5.4bn, yielding a gross profit of KRW671bn, up 22.2% year-on-year, which implied a gross margin of 11% versus 10.8% in 2015.

Operating income rose 22.4% to KRW228.4bn, which implied a 3.7% operating margin, broadly in line with one year earlier. Pre-tax-profit and net income came in at KRW91bn and KRW68.2bn, up 13.3% and 39.2% respectively.

Based on its level of underlying cash flows, the balance sheet looked a tad stretched at the end of 2016, especially given a gross cash position of KRW138bn against borrowings of KRW1.76 trillion (up from KRW1.4 trillion on 31 December 2015), which comfortably exceeded the value of its current assets.

Contract logistics (CL) turned over 37.7% of total annual sales, followed by global activities at 31.2% and parcel at 31.1%. 

Fourth-quarter trends were broadly encouraging in terms of growth, although the picture was mixed as far as its underlying profitability, as gauged by gross profit margins, was concerned.

CL revenues in the fourth quarter rose 11.8% to KRW615bn, but gross profit fell, impacting margins, down to 10.6% from 12.7% one year earlier. One-off costs also hindered performance, although the group said it had secured “additional margin accretive volume from cold-chain, retail and pharma clients”, while cost-cutting measures continued.

The parcel business saw fourth-quarter sales rise 14.6% to KRW507.8bn from KRW443bn in one year earlier, which helped its gross profit rise 4.3% to KRW48.3bn, although gross profit margins dropped to 9.5% from 10.4% one year earlier. Capacity expansion determined higher costs, while it said that “parcel size/weight control went off to handle optimised volume” as competition on pricing temporarily intensified.

Finally, its global activities, boosted by inorganic growth, reported fourth-quarter revenues of KRW510bn, up 48% year-on-year. The unit’s gross profit shot up by 88.1% to KRW56.8bn, with gross profit margin surging 230 basis points to 11.1%. It consolidated CJ Rokin, Century Logistics and CJ Speedex, and highlighted the higher profitability of the freight forwarding business, thanks to new orders and careful cost management.

To bulk up the unit, it said it was targeting “quality companies overseas”, as acquisitions.

Capex at group level came in at KRW227.3bn, representing 3.7% of annual sales, but is expected to rise to KRW438.6bn this year as it continues to pursue an aggressive growth strategy across its three business units. 

Source: Transport Intelligence, March 2, 2017

Author: Alessandro Pasetti