August 22, 2018 / 11:17 AM / a month ago

UPDATE 1-Li & Fung to spin off logistics business as group profit tumbles

* Revenue falls 9.6 pct, core operating profit down 18 pct

* Says US-China trade war has minimal impact on business

* Plans logistics business spinoff in Hong Kong in H1 2019 (Adds executive comment, market context)

HONG KONG, Aug 22 (Reuters) - Hong Kong’s Li & Fung Ltd , which supplies clothing and other products to retailers worldwide, reported a 45 percent fall in first-half profit after being hit by changing trends in retail and said it would spin off its logistics business.

“We are cautious of the rapidly changing retail environment around the globe and trade war uncertainties,” Chairman William Fung said in Li & Fung’s results’ statement on Wednesday, adding the company would continue to invest in its digital supply chain to give it competitive advantage.

It said it planned to list its logistics business, LF Logistics, in the first half of 2019 in Hong Kong to enhance growth and strengthen financial flexibility.

Li & Fung, which made its name by making clothing and toys for Western retailers, said profit from continuing operations for the six months to June dropped to $50 million from $91 million a year earlier.

Turnover fell to $5.85 billion from a restated $6.47 billion a year ago, while core operating profit decreased to $124 million from a restated $151 million.

The company said the pace of store closures was accelerating this year as retailers move sales to online channels and reduce their retail footprints, destocking store inventory to lower levels.

“We expect the destocking trend to continue until the industry settles into a new inventory equilibrium,” Fung said. “Destocking can be a multi-year process... This means the impact on our business might be spread out.”

Li & Fung expected its supply chain solutions business to continue facing headwinds from destocking for the rest of this year and next year.

The company said the U.S-China trade war could hurt demand but would affect less than 2 percent of its turnover, and the impact has been mitigated by it having production in more than 50 countries.

“With uncertainties of global trade due to recent announced increases in tariffs, we expect brands and retailers will be more cautious in placing orders during the second half of the year,” Fung said.

The sourcing group announced last December that it would divest its struggling furniture, beauty and sweater businesses for $1.1 billion, providing it with financial firepower to build its digital supply chain and logistics businesses. (Reporting by Timothy Chan and Donny Kwok Editing by Manolo Serapio Jr. and Susan Fenton)

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