Costs up sharply in record year for revenues at CJ Logistics

2018 was a record year for CJ Logistics (formerly CJ Korea Express), which has been adding well over KRW1 trillion ($890m) annually in sales, on average, ever since 2015. To scale up, it is using a mix of capital deployment tools, boosting inorganic growth via M&A, with deals mainly targeting expansion close to its home market.

South Korea’s largest logistics company said in 2018 it secured “new customers and opportunities by applying [the] industry trends such as automation and costumer consolidation.”

In what was a rather opaque and convoluted trading update for a company of its size, its financials showed rising sales to KRW9.2 trillion ($8.2bn) from KRW7.1 trillion, up 29.7% annually, with direct cost of sales (COGS) outpacing top-line growth by 240 basis points. COGS shot up 32.1% to almost KRW8.4 trillion from KRW6.4 trillion in 2017.

Group gross profit stood at KRW828bn, up 9.5% annually, with operating income growing only 3% to KRW242.7bn from KRW235.7bn one year earlier.

Net profit at KRW51bn was higher than one year earlier, both on a reported and adjusted basis, however implying a lowly 0.56% net income margin. Net earnings rose 33% for the year, on a reported basis.

Most of its group revenues are generated by global logistics activities (40.2% of group total sales), with contract logistics (CL) and parcel each representing about one quarter of total global sales.

In CL, it achieved cost reductions and higher profitability, thanks to the divestment of loss-making assets, while the downturn in the stevedoring business persisted. Meanwhile, parcel profitability was down on one-off costs, and volumes were under some pressure.

Financial details were scant for most units, but global activities, it said, benefitted from acquisitions, with growth recorded both overseas and domestically.

Group capital expenditure at KRW441bn are expected to fall to KRW306bn in 2019, based on annual guidance.

Its balance sheet carries KRW7.8bn of total assets, with stable gross cash and cash equivalents at KRW198bn (against KRW192bn at the end of the third quarter), and only mildly rising receivables, while payables were flat in the fourth quarter against Q3 numbers.

Total group borrowings amounted to KRW2.8bn, which suggests a net leverage ratio – as gauged by net debt/trailing EBITDA – in the region of 7x, which is high, based on our estimates.

Source: Transport Intelligence

Author: Alessandro Pasetti