Li & Fung profit jumps to $170 million


(Source: Inside Retail Asia | August 28, 2017)

Global supply-chain manager Li & Fung saw its half-year core operating profit jump by 11.9 percent to US$170 million.

Profit attributable to shareholders increased by 51.3 percent to $101 million, while total margin percentage increased by 0.1 point on a like-for-like basis to 11.5 percent.

Excluding the impact of the strategic divestment of the group’s Asia consumer and healthcare distribution business, turnover decreased by 2.1 percent to $7.3 billion. On a reported basis, the fall was 9 percent.

“Subdued retail sentiment resulting from economic and geopolitical uncertainties continued to weigh on our brand and retail customers,” the group says.

Its first half was the first execution period of its three-year plan (2017-2019). “At the core of this plan is our goal to build the supply chain of the future.”

Accounting for 73 percent of total turnover, its supply-chain business offers end-to-end services from product design and development to raw material and factory sourcing, as well as manufacturing control.

Diversified clients

Li & Fung says its diversified customer base includes brands, specialty stores, department stores, big-box retailers, e-commerce players, hypermarkets, off-price retailers and clubs. “We also converted our vendor base of more than 15,000 to a new customer base for services that can improve their efficiencies and compliance levels.”

Previously its principal-to-principal business under its trading network, products has became an independent business segment under the group’s new structure. It mainly comprises sweaters, furniture and beauty verticals as well as onshore wholesale businesses, each with its own management team.

“Our sweater vertical also announced a joint venture with South Ocean Knitters Holdings [Hong Kong], combining the resources of both entities to become one of the largest and most innovative knitwear suppliers globally,” says the group.

Turnover for the segment fell by 8.1 percent, however, to $1.5 billion, “largely because of anaemic consumer sentiment and an unstable economic environment”.

Core operating profit tumbled by 28.6 percent to $33 million while the core operating profit margin eased by 0.7 points to 2.2 percent. Total margin decreased by 7 percent to $318 million.

The US remained the largest contributor to the business, accounting for 65 percent of total turnover. Asia accounted for 10 percent.

Four verticals

The group’s logistics business focusses on four core verticals: footwear and apparel, fast-moving consumer goods, F&B and healthcare.

In April the group opened a 1 million sqft distribution hub in Singapore, the largest bonded warehouse in Asia. It has 212 distribution centres around the world and 21.5 million sqft of warehouse space. India, Japan, Korea and Vietnam have joined the network to take the group’s reach to 17 markets.

“Our global network of more than 15,000 vendors, spanning more than 40 economies, allows for flexibility when moving orders from one production country,” says Li & Fung. During the first half, its top three sourcing countries continued to be China, Vietnam and Bangladesh.

“While China accounted for more than 50 percent of our sourcing unit volume, we have sizable sourcing operations in Vietnam, Bangladesh, Indonesia, India, Cambodia and other countries.”

Meanwhile, the group’s strong balance sheet, including $1 billion raised last year via the strategic divestment of its Asia consumer healthcare and distribution business, has provided it with maximum flexibility to fund future growth, the group says. This includes $150 million for digitalisation over the next three years.


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