Li & Fung profit falls 47 pct in tough global retail market

Li & Fung Ltd, which supplies clothing and other products to retailers around the world, on Wednesday reported a 47 percent fall in 2016 net profit and said tough conditions in the global retail industry would put pressure on its business.

Li & Fung, which made its name by making clothing and toys for Western retailers, is battling a difficult economic climate as well as competition from online rivals.

The company said in a statement a highly promotional environment was likely to continue in all markets, and retail destocking would persist.

"I expect an unprecedented number of bankruptcies and store closures in the years to come," chief executive officer Spencer Fung told a news conference, referring to the global retail industry. "I remain cautious as (the) operating environment is deteriorating."

The group said it aimed to achieve low double digit growth in revenue and core operating profit by 2019.

Li & Fung said an immediate first step to improve its performance was to reorganise the company into two parts, one focused on services and the other on products.

CEO Fung said the company had no plans to spin off any part of its business at present but would continue to simplify its structure.

Li & Fung said its net profit for 2016 fell to $223 million, from $421 million a year earlier, missing expectations.

Analysts were expecting a profit of $246 million, according to Thomson Reuters SmartEstimate data.

Revenue fell 11 percent to $16.8 billion from a year earlier, while core operating profit dropped 19.6 percent to $412 million.

Li & Fung has refocused on its core supply chain business following the sale of its loss-making brand-licensing and distribution business in 2014, which helped to increase its cash flow and control operating costs.

Li & Fung's shares closed 0.5 percent lower ahead of the earnings announcement, lagging a 0.2 percent rise in the benchmark Hang Seng Index.

Hong Kong's stock index compiler in February said it would remove Li & Fung as a constituent of the Hang Seng Index, replacing it with Geely Automobile Holdings Ltd, sending Li & Fung's shares to a 14 year low.