Li & Fung said the company was affected by the "rapidly changing" retail landscape in the year under review

Li & Fung said the company was affected by the "rapidly changing" retail landscape in the year under review

Sourcing giant Li & Fung says a rapidly changing retail landscape that saw record levels of store closures and customer bankruptcies took a toll on its last financial year, with core operating profit down by 20%.

In a trading update for the 12 months to 31 December 2018, the Hong-Kong based supply chain solutions provider said adjusted profit attributable to shareholders decreased 15.9% to US$117m. Profit attributable to shareholders for continuing operations decreased by 26.2% to $126m.

Core operating profit dropped 20% to $285m, due largely 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 was down 6.2% to $12.7bn, mainly due to customers' ongoing destocking, customer turnover and bankruptcies, while total margin percentage improved by 0.4% to 10.6%, primarily a result of the increased contribution from the higher-margin logistics business.

The firm's logistics business, however, continued to grow organically with turnover and core operating profit increasing 10.2% and 14.6% to $1.13bn and $86m respectively. 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 contributed to the gains. 

The group is now preparaing for the potential spin off and separate listing of LF Logistics in 2019.

"2018 was a demanding year and we've made a fundamental reorgansation of our business in line with our Three-Year Plan to build the Supply Chain of the Future," Spencer Fung, group CEO of Li & Fung, said. "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."

Li & Fung said the "rapidly changing" retail landscape, with record store closures and customer bankruptcies, weighed on its performance. However, investments in a speed-enabled supply chain have helped its customers reduce their inventory levels – although this also produced short-term negative impacts on the company's turnover.

Meanwhile, the group said the ongoing US-China trade war had had a minimal impact on Li & Fung's business due to the company's "diversified sourcing network outside of China."

Group chairman, William Fung, added: "With ongoing trade uncertainties, we continue to help existing and new customers optimise their production across over 50 countries of export. This provides the best defense against fluctuations in trade policy and mitigates any negative impact from tariff increases. I am confident that our new leadership team and organisational structure will help us drive productivity, strengthen customer relationships and, in turn, grow market share."