Li & Fung first-half net profit drops by 69 percent

Hong Kong-based global sourcing firm Li & Fung

announced the interim results for the first half of the year that ended on 30th June 2013 yesterday. Though net profits slumped by 69 percent, the company is confident that the worst is over and is expecting more business in the second half of the year, which is generally the stronger one, especially with the year-end holiday shopping season.

"Following a disappointing year in 2012, we believe the worst is behind us, and we are on track to recovery in 2013. … We continue to focus on gaining market share, improving operating efficiency and, where appropriate, making strategic acquisitions to enhance our overall market position. The Group continued to focus on returning its operating financial performance to the 2011 levels by the end of this year, and on setting the stage for our next Three-Year Plan beginning in 2014," said chairman William Fung in the results statement.

The company's net profit fell by 69 percent from 312.3 million US dollars in the previous year to 96.4 million US dollars. Revenue remained almost exactly the same with 9.129 billion US dollars in the first six months of 2013 as compared to 9.128 billion US dollars for the same period in 2012.

Of the company’s different networks, trading remained solid while logistics experienced a revenue increase of 37.2 percent and distribution recorded growth for Li & Fung Europe and Asia (accounting for 18 and 22 percent, respectively, of the company’s revenue), which offset the slight decline in revenue for Li & Fung USA where the company generates about 60 percent of its sales.

Li & Fung attributed the decrease in revenue in the US mainly to a discontinuation of certain brands toward the end of 2012 but had also been restructuring its US operations in an effort to reduce costs and increase efficiency. Therefore, the company had centralised its merchandising, planning and integrating back-office functions, which is expected to be completed by the end of the year.

The net profit tumbled to its lowest level in eight years and investors have been selling the company’s stock steadily, thus creating a 23 percent decrease in market value. Since an all-time high in 2011, the stock has plunged about 60 percent.

Three years ago, Li & Fung changed its strategy from being a middleman to more of a brand manager and thus making a few (mostly minor) acquisitions; ten in 2012 and five for around 432 million US dollars in the first half of 2013.