Friday, 20 March 2020

Li & Fung plans to privatise, latest year hurt by de-stocking




Supply chain and logistics giant Li & Fung said on Friday that it's planning to go private. The news came as the currently-listed company was announcing its latest results with core operating profit falling almost 23%, although net profit turned positive.


But those figures were overshadowed by the privatization news as it said a vehicle controlled by the Fung family and by global logistics warehouse operator and investor GLP Pte wants to take it over. 

They’ve offered HK1.25 a share for the firm, which represents a premium of around 150% on the stock’s last closing price of HK$0.50, and values it at around US$930 million. The shares were trading at around three times their current value a year ago. 

There are few other details available so far, but it's likely that the sluggish results were a factor in the decision to privatize. For 2019, Li & Fung said its financial performance was “affected by the multi-year trend of de-stocking and customer turnover, as well as record store closures and bankruptcies in the retail industry”. 

This industry pressure was partially offset through market share gains with key customers, particularly in Logistics, which “delivered top-line growth and maintained profitability despite challenging and highly competitive market conditions”. However, "economic challenges have been persistent,” it said.

This meant core operating profit (COP) fell 22.9% to US$228 million on the back of reductions in turnover and margin pressure in the Supply Chain Solutions business. Turnover fell 10.1% to US$11.4 billion due to continued de-stocking by customers, plus store closures and customer bankruptcies, as well as the company exiting a number of higher-risk and non-strategic customers. 

The margin improved 0.1 percentage points to 10.7%, mainly due to the contribution from the higher-margin Logistics business. And operating costs fell 5.3% on productivity gains. Net profit attributable to shareholders was US$17 million, representing a return to profitability. But adjusted profit attributable to shareholders fell by 43.9% to US$74 million.

The company said it’s “financially robust and maintains a strong balance sheet with US$932 million in cash, as well as healthy cash flow and over US$1.5 billion in banking facilities”.

It has also “continued to manage the ongoing impact of the US-China trade war, the increased complexity of global supply chains and, more recently, the COVID-19 pandemic. The strength of its global sourcing and production footprint has helped reduce the effects of these disruptions on its customers”.

CEO Spencer Fung said of all this: “While our financials were affected by strong headwinds in the retail sector and global markets, we achieved important gains in our goal of creating the Supply Chain of the Future in our recently completed three-year plan. We are successfully transforming from a traditional, analog agent into a unique digital supply chain service provider. We now have a leadership position in 3D digital product development and are delivering a suite of value-added services to our customers.”

And he added that the firm is “working around-the-clock with our customers and suppliers during this period of deep uncertainty. Our teams on the ground across the world are actively supporting customers, just as we did during the US-China trade war, to help address the disruptions to their business.”

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