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Li & Fung First Half Profit Misses Estimates as Revenue Disappoints

Hong-Kong-based Li & Fung Limited, supplier of global apparel, accessories and footwear manufacturing and sourcing services, posted revenue and profit in the first half of 2014 that missed analysts’ expectations.

Total revenue increased by 3 percent to $8.7 billion in the January to July 2014 period, driven primarily by growth in the logistics business, which logged a 44 percent increase. The trading business has been challenged by a reported slowdown in orders, particularly in Europe, where the impact of the Ukraine crisis on Russian travel is being felt, and by pricing pressure in the U.S., where the consumer appetite for value continues to intensify.

In China, according to company executives, the government’s focus on fighting corruption and its pull-back on exports is also impacting current business. Spencer Fung, group chief executive officer of Li & Fung, made a point of saying that these are short-term issues, “Our trading business continues to be solid and our logistics business delivered robust organic growth, particularly throughout Asia, through new business wins and successful cross-selling opportunities,” he said.

Investments in infrastructure as part of the Company’s new Three-Year Plan, unveiled in March of this year, impacted core operating profit, which decreased 9 percent to $227 million, slightly below analyst estimates. Net income, or profit attributable to shareholders, increased by 45 percent to $210 million, including a one-time non-cash accounting gain of $98 million. Basic earnings per share (excluding loss of discontinued operations) are 19.6 HK cents (equivalent to $2.51), an increase of 45 percent compared to the same period in 2013.

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The Board of Directors has approved an interim dividend of 13 cents HK (equivalent to $0.017) per share.

The company spun off its Global Brands business in July as part of the three-year growth strategy. Global Brands, which distributes brands including Cole Haan, Tommy Hilfiger, Disney, Calvin Klein and Juicy Couture, reported separately that its first-half net loss widened to $98 million from $49 million a year earlier, as costs rose on investment in developing new licenses.

“The successful spin-off of Global Brands has paved the way for Li & Fung to focus on our core strengths of trading and logistics, as the world’s leading global supply chain manager,” William Fung, group chairman of Li & Fung said. “As in previous three year plans, our first year in our plan is always a period of investment for the company. 2014 is as well an important time of transition for Li & Fung. We have reorganized our business, strengthened our management team and set the stage for our next phase of organic growth.”