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Li & Fung Posts 26 Percent Profit Slide; Eyes Spinoff of LF Logistics Business

With 2018 now ended, Li & Fung Ltd. can move from a year of structural change to one focused on its customers and operations. The company is also preparing for a potential spinoff of its LF Logistics business.

In a Nutshell: Profits at the leading supply chain solutions partner for brands and retailers were impacted by store closures and customer bankruptcies, as well as the impact from ongoing investments to position the company for the future. Li & Fung spent 2018 making investments in digitalization for an evolving marketplace that’s become more focused on a speed-enabled supply chain so brands and retailers can reduce their inventory levels. The investments were part of a reorganization of the business in 2018 and was in line with the firm’s three-year plan. In addition to digitalization, there’s also now a new group president, chief operating officer, and Li & Fung has added a chief digital officer as a new position at the company.

The new group president, Joseph Phi, has experience growing LF Logistics organically over the pas decade.

“The strong organic growth of LF Logistics is due to active engagement with our people and close collaboration with our customers,” Phi said. “At Li & Fung, we are well positioned to integrate logistics with our traditional sourcing and supply chain solutions offering. This provides a faster and more digital supply chain, enabling us to cultivate closer and longer-lasting customer partnerships. We are pursuing market share gain and pipeline conversion as the twin drivers for our growth.”

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Operations: Core operating profit fell 20 percent to $285 million. Operating profit was impacted by three things: a 6.2 percent decrease in sales to $12.7 billion attributed to destocking and bankruptcies; total margin in the supply chain solutions business up 0.4 percent to 10.6 percent helped by increased contribution from the higher-margin logistics business; and ongoing digitization investments.

The company said the logistics business grew organically with double-digit increases, boosted by growth momentum in China and rapid expansion in Japan, Korea and India. Li & Fung is considering a separate listing for LF Logistics in 2019, depending on market conditions.

Earnings: Li & Fung posted a 26.2 percent decline in profits to $126 million. The company in April 2018 completed its strategic divestment of product verticals for $1.1 billion. The sale triggered a one-time loss of $114 million. Results for the year were for the company’s continuing operations.

CEO’s Take: Spencer Fung, group CEO, said, “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.”