Li & Fung reported sales rose 2.9 percent in the first half ended
June 30, to $8.71 billion from $8.47 billion. Earnings jumped 45.0
percent to $210 million from $145 million.

Li & Fung said in
its statement, “2014 is a year of transition and investment. We have
reorganized our three Networks and completed the spin-off of Global
Brands and made investments in our operations to position the Group for
organic growth. As Global Brands was spun-off in July 2014, we have
restated our financials and reclassified Global Brands as discontinued
operations in the interim results of 2014. Our discussion of the results
therefore does not include contribution from Global Brands for the six
months ended both 30 June 2013 and 30 June 2014.

Li & Fung
achieved solid results in the first half of 2014 amidst a mixed economic
landscape. We delivered modest growth in turnover and total margin. As
with previous Three-Year Plans, the first year is when we invest in
people and initiatives that usually result in increase in operating
costs as we gear up to reach our Three-Year Plan targets set for 2016.
While we are in vesting in new employees in new markets and services,
new offices, and IT infrastructure to support the organic growth in the
business over the next three years, the investments will negatively
impact our core operating profit in 2014.

Key financial
highlights for the six months ended 30 June 2014, as compared to the
same period in the previous year, are as follows:
• Total turnover
increased by 3 percent to US$8,710 million on the back of moderate
growth in the Trading Network and a 44 percent increase in turnover in
the Logistics Network
• Total margin was largely stable and increased by 1 percent to US$995 million, due to softness in our Principal business
•
Core operating profit decreased by 9 percent to US$227 million, and
core operating profit margin decrea sed from 2.9 percent to 2.6 percent,
mainly as a result of strategic additional expenditure on people,
infrastructure and service initiatives geared towards delivering on the
full Three – Year Plan
• Profit attributable to shareholders
(excluding results from discontinued operations) increased by 45 percent
to US$210 million, which included a non – cash gain of US$98 million on
the write – back of contingent considerations.

For the six months ended 30 June 2014, the Trading Network accounted for 96 percent of the Group’s turnover and 92  percent of core operating profit. Softgoods and hardgoods accounted for 64 percent and 36 percent of the Trading Network’s turnover respectively.  

Geographically, the US continued to be the Group’s key export market, representing 60.0 percent of total turnover and up slightly from 59.6 percent in the same period last year. Overall US turnover grew by 3.5 percent, mainly driven by the strong growth in retail sales of key customers in home furniture and kids wear products. Europe stayed flat at 18.2 percent of total turnover (versus 18.0 percent in first half 2013) with turnover growing by 4.2 percent as compared to last year, leveraging on the growth of the European business of Global Brands.

Rest of world accounted for 21.8 percent of total turnover (versus 22.4 percent in first half 2013). Asia accounted for 13.6 percent of total turnover, slightly down from 14.3 percent in the same period last year. China alone accounted for 7.8 percent against 8.2 percent last year, mainly from the slower growth in the wholesale business in the first six months of the year , but this was offset by new customer wins in our Trading business and contribution of our new freight – forwarding acquisition . The rest of Asia accounted for 5.8 percent of total turnover down from 6.1 percent in the first half 2013 due to the slower growth of the region combined with political uncertainties in Thailand in the first half. Turnover percentage in the rest of the regions remained flat at 8.2 percent (versus 8.1 percent in first half 2013) as Canada, Australasia and Central and Latin America continued to deliver steady growth from their respective underlying economies whilst South Africa and Middle East reported a decline.  

As part of our current Three-Year Plan reorganization, Li & Fung has begun investing in resources and operating expenses for Vendor Support Services, as well as for new products, services and infrastructure to drive the geographic expansion of our operating groups. We have also incurred one – time reorganization costs relating to redundancies and asset write – offs to formulate our current multi-channel sourcing platform and facilitate the spin-off of Global Brands. The first half of 2014 was characterized by a general weakness in retail sales and uncertain political and macroeconomic conditions.

The outlook of our key markets, US and Europe, continues to be uncertain and we expect market conditions to remain challenging. We have witnessed customers buying c loser and closer to the season. While we have good visibility in back-to-school and early holiday season orders, we have less visibility in Q4 and Spring season orders. Most customers are delaying order decisions until they get better indications about c onsumer confidence in Q3. Furthermore, the recent Russia and Ukraine crisis has reduced foreign travel by Russian nationals, which is starting to impact the European retail markets favored by Russian tourists.

This development is still in the early stages and we are monitoring the situation carefully. In China, which remains Asia’s most important economy, the government’s focus on fighting corruption and its pull back on being an export driven economy is impacting consumption in the short term. However, we still see ample opportunities in this market over the long term. In the second half of 2014, we will continue to focus our efforts on capturing market share and new customer wins to provide catalysts for further strengthening our business. At the same tim e, we will continue to implement our plans for organic growth and invest in key strategic areas to support our Three-Year Plan. 

The full report is here.