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Li & Fung Parts With Three Product Verticals in Supply Chain Digitization Focus

Li & Fung is clearing some things off of its plate in order to focus on creating the supply chain of the future.

On Thursday, the Hong Kong-based supply chain solutions company said it will divest three of its businesses in a $1.1 billion deal.

Li & Fung Limited has entered into a strategic transaction that will see the company hand over its furniture, sweaters and beauty product verticals to Hony Capital and the Fung Group (which operates Li & Fung).

Li & Fung had established the verticals in 2015 to help it streamline some of its trading business into the three specific product areas, but sustained growth now means its furniture, sweaters and beauty verticals need greater capital investment and management attention, which Li & Fung says will be best handled outside of its direct purview and its “present strategic direction.”

In an interview with Sourcing Journal over the summer, Li & Fung Group CEO Spencer Fung, said the idea behind the verticals was to focus on being the best at those three things in order to “promote, organically, top line, bottom line as well as margin.” The strategy appeared to work as Fung noted at the time that the company’s furniture vertical in particular, was registering double-digit bottom line growth.

“The strategic divestment of the product verticals allows Li & Fung to focus on its core competencies and further strengthens our capital structure,” Fung said in a statement Thursday. “The US$1.1 billion proceeds will allow us to pay a generous dividend to our shareholders and the remaining US$580 million of cash will give us more financial flexibility as we continue to execute our Three-Year Plan goal of building an end-to-end digital supply chain. Our 1H 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.”

For John Zhao, chairman and CEO of Hony Capital and EVP of Legend Holdings, the acquisition will be about sharpening the strategies within each vertical.

“With our value-added services, future success lies in going deeper into their respective product categories,” he said.

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The move follows other recent efforts by Li & Fung to simplify its business and undertake creating the supply chain of the future as a key pillar of its Three-Year Plan through 2019. The company recently launched a five-year partnership with the Clayton Christensen Institute for Disruptive Innovation for a five-year collaboration that’s expected to see the Fung Group into the future for sourcing, gleaning insights on global market shifts and continuously advancing disruptive technologies that will set the tone for tomorrow’s supply chains. The company also recently launched a future facing innovation lab to test ideas for supply chain advancements.

[Read more about Li & Fung’s moves: Fung Group Dives Deeper Into Disruptive Innovation to Advance Supply Chains]

The divestment transaction is expected to close in the first half of 2018.