Li & Fung headquarter in Hong Kong

HONG KONGLi & Fung, the world’s largest supply chain solution provider for brands and retailers, announced on Thursday its interim result for the six months ended June 30.

The century-old company’s turnover decreased by 8.4 percent to $5.35 billion and core operating profit dropped 18.6 percent to $105 million, due to ongoing destocking, customer turnover and customer bankruptcies as brands and retailers continued to face pressure on sales and margins. But its net profit swung back to positive at $21 million.

Spencer Fung, group chief executive officer of Li & Fung, said the turnover decline is stabilizing and beginning to bottom out and company restructuring is on track.

“We are starting to gain momentum and winning market share and new customers due to our operational excellence, global diversified network and 3-D virtual design services,” he added.

The company said its digitalization transformation has continued to make significant progress and logistics business continued its profitable growth momentum in the first six months of 2019. A $300 million investment from Singapore’s Temasek in LF Logistics — valuing the firm at $1.4 billion — is also accelerating the growth of the logistics business and strengthening the capital structure of the group.

“Li & Fung has driven increased wallet share with certain customers and improved customer satisfaction. On the business development side, its leadership in digital services, including end-to-end 3-D virtual design, and the geographic diversity of its more than 50-economy-strong sourcing network have generated an encouraging momentum of new customer wins,” the company said.

At the WWD Apparel and Retail CEO Summit earlier this year, Fung stressed that production would diversify out of China regardless of any trade agreement, but as retailers begin to rethink their entire global sourcing strategy, the company believes its global network of more than 50 production countries, decades-long relationships with factories outside China and ability to move quickly among production countries will put it in a unique position to aid the transitions.

Citing a U.S. women’s wear retailer as an example, Li & Fung said it was able to reduce the retailer’s China penetration from 70 percent in 2019 to 20 percent in 2020 by exploring new production countries with existing vendors, introduce new non-China vendors with available capacity and phase out Chinese vendors that had no offshore production.

Group chairman William Fung said the complex global trading environment presents a big opportunity. “Our ability to leverage this extensive network puts Li & Fung in the best position to help our customers optimize their sourcing and production and minimize tariff impact. The proliferation of bilateral free trade agreements has become the new norm, and this presents Li & Fung with opportunities not seen for the past 20 years,” he said.

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