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Li & Fung Profit Falls 14% in “Toughest Ever Trading Period”

Profits are sliding, turnover is down and margins are taking a hit at Li & Fung.

It’s been a tough first half for the leading global sourcing firm, which reported its interim results Thursday.

“2016 is one of the toughest trading periods we have ever seen,” Spencer Fung, Li & Fung group chief executive officer, said. “Retailers are extremely challenged right now. They are grappling with the impact of e-commerce, a pervasive promotional environment and high levels of inventory. This translated to a lower order volume for our business during the first six months of the year.”

Total turnover for the six months ended June 30, fell 6.4% to $8.07 billion. Operating profit in the period dropped 14.2% to $156 million, and earnings per share came in at 6.7 Hong Kong cents (87 U.S. cents). Total margin fell 7.8% over the same time last year.

William Fung, Li & Fung group chairman, said, “The retail environment continues to be very weak. In the first half of 2016 we have seen disruption to production markets, an uncertain trade policy environment and historically low freight rates.”

But difficulties aside, Li & Fung said it’s focused on the things it can change to improve its position long-term.

“We are gaining share of wallet with our existing customers. Our operating and business development efforts are gaining traction and our investment in high growth areas is yielding returns,” Spencer Fung said. “We are winning new customers and there is a strong pipeline of new business. We have a solid foundation for our business, on which we will continue to build.”

Logistics—including in-country, e-logistics and global freight management—are one of those high growth areas that continues to see multi-year double digit growth. The home and furniture area has also been showing signs of good growth, as has the company’s Vendor Support Services, which is gradually rolling out to vendors to help them navigate supply chain complexity and compliance.

Turning to customers that have been driving growth, Li & Fung said its relationship with Ascena has developed further on top of Ann Inc. and the Kaufhof business has started to be transferred.

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In looking ahead and formulating its three-year plan for 2017 to 2019, Li & Fung intends to create a culture of innovation.

“Speed, innovation and digitalization of the supply chain will be at the heart of the new plan,” Spencer Fung said. “Despite challenges in the surrounding environment we are excited and optimistic about the next phase in our evolution. As a company we are looking forward to making a positive impact from the consumer to the factory worker in supply chains around the world.”