Li & Fung takes profit hit
Li & Fung has blamed an 18 per cent slide in annual profit on tighter retail margins and transitional costs associated with repositioning the business.
Turnover for the internationally renowned consumer goods design, development, sourcing, logistics and retail business rose 1.4 per cent, driven by growing customer bases in its trading and logistics arms.
But the company said “heavy promotions by retailers” and a shift in mix of business impacted margins across supply chains.
“2014 was a year of transition and investment for Li & Fung. The successful spin-off of Global Brands has allowed us to focus on ways to create value for our customers across our core businesses of Trading and Logistics and this positions us well for the future,” said Spencer Fung, group CEO.
Due to the Global Brands spin-off last July, the company has reclassified that business as ‘discontinued operations’ and removed its contribution from the figures for the year to December 31 and the previous period to allow accurate comparisons of the ongoing business activity.
Li & Fung put a positive spin on the 2014 results, describing them as “solid against a challenging macroeconomic environment”.
“Despite difficult retail conditions in a number of key markets, the business delivered overall growth in turnover. As part of the transition and in line with investments historically made in the first year of a new Three-Year Plan, the company took the opportunity to invest in strategic initiatives for future growth. The increase in top-line turnover was offset by reduced margins and required investments which had an adverse impact on core operating profit,” the company said in a statement.
William Fung, group chairman said 2014 was a challenging year for both the company’s customers and retail generally.
“We navigated difficult global market conditions and made necessary investments for the future.”
Spencer Fung added: “In spite of tough headwinds, our core customers in our trading business grew and our logistics business continued to have high growth. We fully expect that the investments we have made will position the company for growth in the short, medium and long term.”
The company’s total turnover was US$19.288 billion, but the logistics division achieved a stunning 66 per cent increase. The trading business was stable.
Total margin decreased by 2.2 per cent due to an overall reduction in margin across the supply chain as a result of brands and retailers conducting heavy promotional sales. In addition, total margin was also impacted negatively by the shift in the mix of our business from principal to the lower margin agency business.
The company made investments across a number of initiatives to strengthen and improve its core business aligned to its Three-Year Plan goals of building a sustainable enterprise, simplifying the business and accelerating organic growth. Strategic areas of investment included strengthening the logistics network and also adding significant freight forwarding capabilities through the China Container Line (CCL) acquisition.
The company also made investments in setting up the new Vendor Support Services unit which it expects will gain traction in the coming years. Further investments included new talent and expertise, presence in new markets, new product categories, and support infrastructure to drive organic growth in the business over the coming years.
Excluding the result of Global Brands, profit attributable to shareholders decreased by 12 per cent to US$539 million.
Concluded Spencer Fung: “As we enter into 2015, we remain focused on executing our growth strategies with the added benefit of a simpler and more nimble operating model. We are committed to creating value for our customers and developing key product expertise to position us for future opportunities. Despite ongoing economic uncertainty, we are confident that we have taken the right steps to ensure we are well positioned to build a long-term sustainable business. We have tremendous opportunities ahead of us for the remainder of our Three-Year Plan and beyond.”