HONG KONG — Global sourcing firm Li & Fung is not rattled by U.S.-China trade tariffs, assured its chief Spencer Fung, although investors appear unsettled by the protectionist tit-for-tat, with the company’s shares dropping nearly 10 percent in Friday trading.
Shares of the firm closed at 3.88 Hong Kong dollars down 9.98 percent, compared to the broader benchmark Hang Seng Index which fell 2.45 percent.
Reacting to the announcement that the U.S. would move to levy tax on a number of unspecified Chinese goods, and China responding with its own measures, Fung said in a statement to WWD that its large global presence will help shield it from potential impact.
“With a global network of over 15,000 suppliers in over 40 markets, we are well-position to absorb in any shock from trade uncertainty,” Fung said. “We are unique in the industry, in that if there is any change in trade policy, we have the ability to channel production to any market quickly.”
He also added: “While we don’t yet know the detailed list of targets we are already working with our customers and key suppliers to prepare for the possible tariffs.”
The firm reported its earnings for the year ended Dec. 31 on Thursday. On a like-for-like basis, excluding the impact of the divestment of its furniture, sweaters and beauty business, and the 2016 divestment of the Asia consumer and healthcare distribution business, core operating profit increased by 13.3 percent to $356 million.
Group turnover decreased by 8.3 percent to $13.5 billion dragged down by several customers who experienced bankruptcies within the last year.
CLSA’s head of consumer research Mariana Kou noted that the company is moving in the right direction with digitalization and proprietary platforms, although its “near-term outlook is a tad soft in light of destocking.”
“The political environment in the US also poses further uncertainty, although management argues that China only accounts for one-third of its business,” Kou said. Describing 2018 as a transition year, the company topline will still see some pressure, although margins should improve lifted by a swelling logistics business, she said.
For the reporting period, the group’s supply chain solutions division, accounting for 81 percent of turnover for its continuing operations, stabilized throughout the year although still decreasing of 6.2 percent from a year ago to $11 billion. A high number of store closures in the U.S., its biggest market, weighed the segment down and customers remained conservative on their orders–skewing towards smaller orders with shorter lead times.
The logistics side proved better with turnover growing 13.3 percent to $1.03 billion. The firm recently ventured into India and Vietnam, steadily expanding its footprint, and is set to open a second Singapore warehouse facility after higher than anticipated demand.
Its onshore wholesale division fell 2.4 percent to $1.6 billion, which the company said stemmed from an overall “anemic consumer sentiment” especially in Europe.
Li & Fung declared a conditional special dividend of 47.6 Hong Kong cents per share and a final dividend of 2 Hong Kong cents per share.