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Li & Fung Operating Profit Dropped 18% in 2014 on Decreased Margins

Global sourcing firm Li & Fung Limited announced its annual results for 2014 Thursday, reporting an 18 percent drop in core operating profit owed to decreased margins and increased operating costs.

Li & Fung spent last year shifting strategies and making investments to position the company for growth, and though turnover increased by 1.4%, heavy promotions by retailers and the changing business mix impacted margins across supply chains, leading to a 2.2% dip in total margin for the year.

“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,” Spencer Fung, Li & Fung group chief executive officer, said.

The company invested in initiatives to strengthen its core business as outlined in its Three-Year Plan, including building a sustainable enterprise, simplifying the business and accelerating organic growth. Li & Fung also invested in upgrading its Logistics network and added “significant” freight forwarding capabilities through the China Container Line (CCL) acquisition. A new Vendor Support Services unit, expected to gain traction in the coming years, new talent, presence in new markets, new product categories and infrastructure for fueling organic growth, were also areas Li & Fung spent money to improve.

Despite 2014’s challenging retail environment, the group’s total turnover rose by 1.4% to $19.3 billion, though offset by reduced margins and required investments, which led to the dip in core operating profit. Total turnover in Logistics increased 66 percent and the Trading business was stable.

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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.”

In 2014—excluding the results of Global Brands—profit attributable to shareholders decreased 12 percent to $539 million. Basic earnings per share was 50 HK cents ($0.06), down from 57 HK cents ($0.07) in 2013.

“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,” Fung said. “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.”

(After the Global Brands spin-off in July 2014, Li & Fung Limited reclassified Global Brands as Discontinued Operations, and its results and financial position does not include contribution from Global Brands for the year-ended both Dec. 31, 2013 and Dec. 31 2014).