QEX Logistics faces challenging six months after revenue fall

QEX Logistics founder and chief executive Ronnie Xue. Photo / Supplied

QEX Logistics expects a challenging first half, with sales for the past two months down 23 per cent but a lift in activity expected in June and July.

The logistics company, which exports Kiwi products such as baby food and health supplements to individual Chinese consumers, said trading in April and May is traditionally quiet and sales in May last year were boosted by clearance sales of discounted stock.

It sees both challenges and opportunities in the wake of the Covid-19 pandemic.

"Demand for milk powder and other New Zealand products remains strong in China, despite the uncertain global economic environment," the company said in its full-year result announcement.

QEX shares fell 1.6 per cent to 60 cents, taking their loss so far this year to 25 per cent.

"The company today reported a 38 per cent slide in net profit to $1.2m for the year to March 31. It attributed the decline to weaker margins in the first half of the year and costs establishing a new base in Sydney. Pre-tax profit dropped 42 per cent to $1.67m, within its May guidance of between 1.5m to $1.7m."

Revenue increased 5.7 per cent to $62.8m and earnings before interest, tax, depreciation and amortisation fell 8.5 per cent to $3m.

In Australia, where the firm opened a new Sydney warehouse in February, revenue climbed to almost $5m, from $370,000 the year before.

QEX said that in the first four months of the year, the company significantly discounted stock to clear shelves of old product after a supplier rebranded its products. That, and aggressive pricing by rivals, put pressure on the company's margins.

Sales and margins improved in the second half of the year, in-part due to the company doubling the quantity of milk powder sourced directly from key supplier Danone. That was enough to absorb the costs of establishing the new base in Sydney, while also dealing with the impact of the pandemic.

QEX said its deep connections to the Chinese market and its trade channels enabled it to adapt quickly to rapidly shifting conditions.

Its own bonded warehouse - which allows the company to hold inventory in Shanghai without paying import taxes - meant it could respond quickly when demand increased as China lifted restrictions. Air freight capacity was significantly reduced, but QEX mitigated that risk by establishing freight routes through surrounding Asian countries.

Parcel volumes fell as New Zealand entered lockdown, which stopped some international commerce and reduced the number of Chinese tourists shipping items home.

QEX said its Sydney base is now well established and is delivering revenue. Unlocking growth there will be a key priority for the current year.

This article has been edited to adjust comaprison to net profit from pre-tax profit