Li & Fung Reports Lower Profit In 2018

Company Performance

Li & Fung Reports Lower Profit In 2018

Core Operating Profit decreased 20% to US$ 285 million due to challenges in Supply Chain Solutions business
New management team in place to accelerate turnaround and digital transformation
Leadership in end-to-end 3D virtual design is disrupting traditional supply chains
Logistics business continues strong organic growth with COP up 15%
Strategic divestment of Product Verticals for US$ 1.1 billion in April 2018

Rapidly changing retail landscape with record store closures and customer bankruptcies has impacted Li & Fung’s bottomline in 2018. The company’s investments in a speed-enabled supply chain helped its customers to reduce their inventory levels, but has produced short-term negative impacts on the company’s turnover. The ongoing US-China trade war had a minimal impact on Li & Fung’s business due to the company’s diversified sourcing network outside of China. On a like-for-like basis and excluding the impact of the strategic divestment of the three product verticals in April 2018, which triggered a one-off disposal loss of US$ 114 million, core operating profit (“COP”) of Continuing Operations decreased by 20% to US$ 285 million. This was largely due to decreases in turnover and total margin in the Supply Chain Solutions business, as well as continued investment in digitalisation in line with the company’s long-term strategic plan. Turnover decreased by 6.2% to US$ 12.7 billion, mainly due to customers’ ongoing destocking, customer turnover and bankruptcies. Total margin percentage improved by 0.4% to 10.6%, primarily a result of the increased contribution from the higher-margin Logistics business. Adjusted Profit Attributable to Shareholders decreased 15.9% to US$ 117 million, excluding gain on remeasurement of contingent consideration payable. Profit attributable to shareholders for Continuing Operations decreased by 26.2% to US$ 126 million. The Board of Directors has proposed a final dividend of 4 HK cents (2017: 2 HK cents). This brings the full-year total dividend to 7 HK cents per share. Spencer Fung, Group CEO of Li & Fung, said: “2018 was a demanding year and we’ve made a fundamental reorganisation of our business in line with our three-year plan to build the supply chain of the future. We initiated a structural change with a new management team to focus on our core customers and operational excellence. This includes a new Group President, a new Chief Operating Officer and an entirely new Chief Digital Officer position. We have the right strategy, and now the right structure and people in place. With all three elements in place we have built the right foundation for the future. I am confident that we are on the right track.” The Logistics business continued to grow organically with double digit increases. With strong demand for in-country logistics services, turnover and COP increased 10.2% and 14.6% to US$ 1.13 billion and US$ 86 million respectively. The growth of the Logistics business continued to be driven by strong growth momentum in China; e-logistics growth; accelerating growth in ASEAN across all services; and rapid expansion in the newer geographies of Japan, Korea and India. To further accelerate the pace of its growth, preparation is underway for the potential spin-off and separate listing of LF Logistics to take place in 2019 depending on market conditions and other factors. In addition, 2018 was a turnaround year for the Onshore Wholesale business in the Americas, Europe and Asia with its turnover increasing by 7.4% to US$ 1.7 billion with recovery at major US customers and growth in the Asia onshore wholesale business. Furthermore, operating costs as a percentage of turnover improved by 80 basis points.