Fung restructure boosts cash for supply chain ambition

Li & Fung has announced a spin-off of parts of its retail sourcing business to a subsidiary under its parent group’s control, raising cash to invest in its supply chain ambitions.

A consortium 55 per cent-owned and controlled by Fung Group companies has paid US$1.1 billion for Li & Fung’s furniture, jumpers and beauty business. The balance of the consortium is owned by Chinese private investment firm Hony Capital, itself controlled by Legend Holdings.

Of the cash received, $580 million will be used to give Li & Fung “more financial flexibility” says CEO Spencer Fung, as the company continues with a three-year plan to build an end-to-end digital supply chain. The balance of the cash will be paid out to shareholders via a special dividend.

“It is a very strategic deal,” explained Fung. “The proceeds will allow the company to continue the simplification of its businesses and execute our three-year plan.

“Our first half results were solid and our customers and vendor partners are responding very positively to our new digital solutions. We are very excited to be creating a future supply chain that does not yet exist in the market.”

Hony chairman and CEO John Zhao said his company’s value-added services would help Li & Fung deliver success by “going deeper into their respective product categories”.

Spencer Fung, meanwhile, described the divestment as a continuation of the company’s strategy to simplify its business following the spin-off of Global Brands Group in 2014 and the divestment of the consumer and healthcare distribution business of LF Asia last year.

“The company’s senior management will continue to focus its resources in creating the supply chain of the future to enable the company to deliver long-term shareholder value as it transforms into a digital company.”

In the first half of the current financial year, Li & Fung’s net profit rose 39.6 per cent to $101 million.

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