Hong Kong, 12 August 2010 - Integrated Distribution Services Group Limited ("the Group" or "IDS"; SEHK: 2387), an integrated distribution and logistics services provider, today announced its interim results for the six-month period ended 30 June 2010. Asia reported outstanding growth of 22.1% in operating profit, up from US$24.20 million in the first half of 2009 to US$29.54 million for the first six months of this year. However, this was partly offset by operating losses registered in the US and UK. As a consequence, the Group reported core operating profit of US$9.34 million for the period, representing modest growth of 4.6% year-on-year.
After factoring in significantly lower one-off gains against last year (a US$5.4 million decrease), profit attributable to shareholders in the first half of 2010 amounted to US$12.43 million, against US$18.46 million for the same period in 2009, Earnings per share for the period was 3.86 US cents (or 30.00 HK cents), compared to 5.81 US cents (or 45.04 HK cents) in 2009. The Board of Directors declared an interim dividend of 9 HK cents per share.
During the first six months of 2010 the Group's revenue grew 11.2% to US$941.54 million compared to US$846.66 million from the first half of 2009. Greater China, ASEAN and the UK all registered growth, whilst in the US revenue was flat against last year.
"I am glad to report that although the US market remained very challenging, the Group continued to register robust growth in Asia. We also saw encouraging progress in the UK, which is on track for a turnaround this year," said Mr. Ben Chang, Group Managing Director of the IDS Group.
After taking all one-off items into account, which included a US$8.50 million gain from the divestment of the Group's final 10% interest in Slumberland Asia Pacific (SAP), operating profit for the first half of 2010 was US$19.81 million. This was 20.1% below the US$24.80 million recorded during the same period last year, which included a substantially higher amount of one-off gains.
During the first half of 2010, IDS made good progress in securing new contracts, including the logistics hub operation for UK fashion retailer Monsoon, logistics service for women's wear brand Raffaella in the US, distribution service for Servier, logistics service for Puma and an expanded scope of service for GSK. The Taiwan and Philippines teams also won major accolades from Shell and Unilever respectively.
"Our focus on operations excellence and long-term customer partnership continue to be our cornerstones for success," said Mr. Chang. "Sustained economic recovery in Asia and a stronger emphasis on boosting consumption in China would benefit our performance in the second half. Continuing weak market sentiment in the US and slow European recovery remain key challenges. but we remain confident that our efforts to turn around the US and UK businesses will result in stronger financial performance in the second half of 2010."
Operations Review
Greater China
Greater China enjoyed an excellent first half. During the period under review, revenue increased by 11.1%, from US$397.3 million to US$441.5 million, whilst operating profit saw 32.9% growth, rising from US$11.59 million to US$15.40 million. Buoyed by strong domestic consumption, IDS China recorded solid year-on-year increases in both revenue and operating profit of 29.9% and 27.2% respectively. Hong Kong reported a commendable 9.8% growth in operating profit, which was mainly attributed to new business with customers such as Colgate, Friesland Campina and Fonterra that were launched in the second half of 2009.
Backed by the steady growth of the Shell distribution business and the addition of the Roots operation that was acquired in September 2009, the Taiwan business more than doubled the operating profit it recorded in the first half of 2009.
"It is particular noteworthy that the growth in Greater China was substantially organic in nature and momentum remains strong," said Mr. Joseph Phi, President of the IDS Group. "With the Hong Kong and China operations now integrated as one, we are beginning to see strong synergies in business development and management strength. The opportunities are exciting."
ASEAN
The ASEAN region registered a 12.1% increase in revenue, up from US$402.6 million in the first half of 2009 to US$451.5 million over the same period this year. Operating profit grew at the same rate, up from US$12.61 million to US$14.14 million year-on-year. Strong performances were registered in Thailand and Malaysia, whilst Indonesia made a strong turnaround.
Despite the political unrest in Thailand that dampened domestic consumption, IDS' business continued to thrive on strong operating leverage and solid customer partnerships. Operating profit for the first half of 2010 grew 29.8% against the same period last year on the back of 17.7% growth in revenue. The performance of the Manufacturing business was outstanding due to productivity improvement and robust volume growth.
The construction of a 60,000-square-foot facility dedicated to the manufacturing of F&N's chilled products in Malaysia was completed in August. Installation of production lines will take place in September to prepare for the commencement of the facility's commercial run in the fourth quarter.
After a significant turnaround two years ago, the Group further optimized the customer portfolio under the distribution business in the Philippines by shedding unprofitable business and contracts with potential risks. Although the exercise incurred additional costs, it should ensure substantial improvement in the quality of earnings to support sustainable growth.
US & UK
Backed by a rebound in the freight business and higher throughput volume due to a strengthened partnership with Marks & Spencer, IDS' UK performance improved significantly. Operating loss during the period narrowed to US$0.76 million from US$1.79 million. The Group is upgrading the Sheffield facility to become a paperless, state of the art e-commerce and piece-pick operation for Republic, a major UK high-street retailer serving over 120 stores. Following completion, which is targeted for the third quarter, the facility will help Republic handle rapidly growing demand from its e-commerce site. It will also be a reference site to demonstrate IDS' capability in e-fulfillment services.
Operating performance amidst a weak US market environment remains challenging and difficult. Volumes remained very soft in the first half despite a substantial increase in business volume from Li & Fung (LF USA) and additional revenue from the freight forwarding business that was acquired in late 2009. In addition, an unexpected surge in throughput volume during the start-up of one of the LF USA businesses in the first quarter resulted in a temporary increase in labor costs. Although this was later stabilized, it still led to a significant increase in operating expenses. Coupled with lower business volume from other non-Li & Fung businesses due to bankruptcies, exits or volume shortfalls, operating losses in the US for the first half of 2010 increased to US$10.34 million.
The Group's outlook for the second half is more positive. New business and additional savings in occupancy over the next six months due to the expired leases of two facilities will improve performance. Also, the recently opened 650,000-square-foot facility on the West Coast equipped with an automated sortation system should help drive new business and create tremendous opportunities for improvement in labor productivity.
"Our major projects in the US, UK and parts of Asia will substantially enhance our infrastructure network and capabilities," said Mr. Chang. "These will drive business growth as well as productivity gains across the Group. I am confident that our performance in Asia will continue to be robust, whilst the US and UK will show good improvement in the second half of 2010."
About Integrated Distribution Services Group Limited
Integrated Distribution Services Group Limited ("IDS Group") is a leading integrated distribution and logistics services provider specializing in Value-Chain Logistics. Using Logistics as its fundamental enabler, IDS offers a full menu of services covering distribution, logistics and manufacturing to a wide spectrum of customers in the consumer, healthcare, footwear & apparel, retail and garment industries. Headquartered in Hong Kong, the IDS Group has an extensive logistics and distribution network in Greater China, ASEAN countries, the US and UK, offering customized services to over 400 customers including an array of multinational brands. The IDS Group is a member of the Li & Fung Group.
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