Retail bankruptcies dent Li & Fung turnover
Retail bankruptcies and destocking impacted Li & Fung turnover during the first half of this year, but the world’s largest supply-chain solutions provider returned to profit.
On a like-for-like basis, turnover decreased 8.4 per cent to US$5.356 million as brands and retailers continued to face pressure on sales and margins. However, those factors were offset by growing market share for some of Li & Fung’s key customers and new customer wins.
Core operating profit decreased 18.6 per cent to US$105 million due to a decrease in turnover and total margin in the Supply Chain Solutions business, and continued investment in digitalisation in line with the company’s long-term plan.
However, profit attributable to shareholders swung back to positive, at US$21 million compared with a loss in the same period last year of US$86 million.
“We are facing increasing geo-economic instability and uncertainty,” said group chairman William Fung. “Regardless of other factors, the acceleration of the migration of production out of China will continue given China’s upgrading of its industrial base from a manufacturing exporter to a high-technology service provider.”
Fung said the company has experienced constant fluctuation in global trade over its long history and the current challenge was not entirely new.
“That is why we continued to maintain a well-diversified sourcing network spanning more than 50 economies and avoided over-reliance on any single market, even when the environment appeared benign. This continues to be the right approach. Our ability to leverage this extensive network puts Li & Fung in the best position to help our customers optimise their sourcing and production and minimise tariff impact. The proliferation of bilateral free trade agreements has become the new norm, and this presents Li & Fung with opportunities not seen for the past 20 years.”
Spencer Fung, group CEO of Li & Fung, said the company’s new management team has been focused on restructuring the company and all operational KPIs are now improving for both customers and suppliers.
“We are starting to gain momentum and winning market share and new customers due to our operational excellence, global diversified network and 3D virtual-design services. As a result, turnover decline is stabilising and beginning to bottom out.”
The new management team has been focused on accelerating the company’s turnaround and digital transformation, a strategy already producing positive results, he said.
The digitalisation transformation has continued to make significant progress with more customers approaching Li & Fung for digital services and assistance in integrating digital product development into their work processes. The company is helping brands and retailers “take their own digital leap” into digital design and development, digital planning and assortment, and digital selling.
Meanwhile, the logistics business continued its profitable growth momentum in the first six months of this year. In-country logistics services had strong top-line and bottom-line double-digit growth, the company said.
China continued to lead the way, supported by an upsurge of domestic consumption, especially via e-commerce for which LF Logistics enjoyed first-mover advantage due to its early investment in e-logistics. Accelerated development in LF Logistics’ Asean operations contributed to high growth rates and the new markets of South Korea, Japan and India recorded “impressive results”.
During the half year, Singapore’s Temasek completed a US$300 million investment to take a 21.7-per-cent stake in LF Logistics, valuing the business at $1.4 billion.