Li & Fung said a challenging macroeconomic and retail environment, which saw continued destocking, store closures and bankruptcies among its core retail and brand customers, weighed on earnings and sales in the first half of fiscal 2018.

In a trading update for the six months ended 30 June, the Hong-Kong based supply chain solutions provider said adjusted profit attributable to shareholders for continuing operations was down 19.2% to US$50m on a like-for-like basis.

Core operating profit dropped 18% to $124m, due largely to a drop in turnover and total margin in the company’s supply chain solutions business given the shifting retail environment and customer destocking.

Turnover was down 9.6% to $5.85bn, while total margin as a percentage of turnover was 10.5%.

The firm’s logistics business, however, continued to report a stellar performance in the period, with turnover and core operating profit increasing 10.9% and 15.1% to $543m and $38m respectively. Li & Fung says it has decided to seek a separate listing of its logistics business on the Hong Kong Stock Exchange, and is expected to remain as the controlling shareholder. The listing is expected to take place in the first half of 2019.

China continued to lead the way in logistics as it benefited from an upsurge in domestic consumption, especially via e-commerce. The Rest of Asia operations advanced aggressively and new markets including Korea, Japan and India also recorded impressive results.

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“Our customers continued to face a constantly changing retail environment and that in turn affected our performance in the first half,” said group CEO Spencer Fung. “We have announced an aggressive plan to bring greater focus on customers, business development, production platform and digital initiatives. Our speed and digital modules have helped our customers achieve better operational results by increasing sell-through, reducing mark-downs and improving inventory levels, and we want to accelerate our digital strategy.”

Group chairman William Fung added that the US-China trade war has had a minimal impact on the business and has been mitigated by the company’s 50-plus countries of production.

“Our breadth and long-term relations in these markets is one of our core competences and strengths in our traditional sourcing business. Additionally, we have accelerated our investment in our digital strategy and we will deliver a fully-integrated digital platform connecting suppliers, customers and other partners with end-to-end visibility and data analytics. This will serve as the nucleus of our future service offering enabling Li & Fung to provide improved, faster supply chain services beyond traditional sourcing.”

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