Food
The world’s largest sourcing company by revenue is a barometer for the state of global trade and the Chinese manufacturing industry and has had its profits and turnover squeezed in recent years amid tough market conditions.
“The global economy looks challenging,” Spencer Fung, chief executive of the family-led company, said on Thursday as the group reported another drop in profits and revenue last year. “For 2016, the consumer sector is likely to remain weak and factory deflation will continue.”
Revenue fell 2.4 per cent to $18.8bn in the year to December 31, while net profit attributable to shareholders shrank 4.6 per cent to $421m, marginally ahead of analysts’ expectations.
Mr Fung, who is the great-grandson of the company’s founder, said 2015 had been another difficult year for the business. Li & Fung’s traditional role as a middleman between factories and retailers has been disrupted by the growth of ecommerce and fast-changing consumer tastes.
“Our major markets in the US, Europe and Asia all experienced strong headwinds,” he said, noting that the price of shipping a container from China had fallen as much as 75 per cent in some cases because of lower demand.
Shares in Li & Fung have fallen 36 per cent in the past year as investors remain concerned about its ability to overcome the structural changes in the retail and manufacturing industries at a time when the global economy is struggling.
Mr Fung said the company managed to increase the volume of products it shipped last year, but that falling factory-gate prices in China meant revenues fell in value terms.
He said that this deflation, which is of concern to the Chinese government, was likely to continue this year because of sluggish consumer demand in the US and Europe, and low commodity prices.
Facing a difficult environment in its core sourcing business, Li & Fung has been expanding into areas such as ecommerce logistics.
Revenue at its logistics arm rose 6.7 per cent last year, as it capitalised on the rapid growth of ecommerce in China, where cheap smartphones and convenient online payments systems have helped retailers expand their internet business.
With sourcing still accounting for 95 per cent of the company’s turnover, the logistics business was unlikely to provide much respite for Li & Fung in the next few years.
But Mr Fung said the company’s efforts to move into logistics would pay dividends in the longer term, given Li & Fung’s broad global footprint in manufacturing nations such as China, Vietnam and Bangladesh, as well as key end markets such as the US and Europe.
“The changes happening [in] retail are impacting everyone along the value chain,” he said. “Our customers are looking to us to help them navigate these changes with innovative products and increased speed to market.”
