Plan Three Years And Three Years, Hongkong Big Wheel Li Feng Slowly Subsiding, Even Two Years Hard To Save Themselves.

For three years and three years, the global supply chain giant Li & Fung Ltd. (0494.HK), Hongkong's pride, which symbolizes China and even the global economy, has almost failed to see any success in its final three year pformation plan.

At the 2016 performance meeting, Li Feng put forward the new three year plan of "speed", "innovation" and "digitalization", focusing on the flexible reform of the supply chain. The chairman of the group sighed at that time. In 2016, it was a "difficult year" and "never seen StoreClosure in history" (Putonghua: never seen so many stores).

Looking back at 2017 and 2018, Li Feng's main customers gathered in the North American market, and the number of retailers was increasing.

While Li Fung is constantly stripping assets, it also blocks the decline in core earnings and continues to record two years of losses.

In today's 2018 performance, Li Feng is the first to declare that supply chain solution business is facing challenges.

The Hongkong company said the de stocking trend in 2017 continued to affect the company's supply chain solution business turnover in 2018, and the retailer sales and gross margin pressure remained severe, which is bound to pass to the company.

In 2018, the turnover of Li Feng supply chain solution business was 9 billion 933 million US dollars, down 9.6% compared with 10 billion 989 million US dollars in 2017. Among them, the US, Europe, Asia and other markets accounted for 78%, 12%, 2% and 8% respectively, and four market revenues all regressed, respectively, down 7%, 15%, 45% and 7%, of which Europe and Asia decreased mainly due to the pformation from a service contract to a joint venture.

The supply chain solution business plunged 11.8% in 2018, from 733 million US dollars to 647 million US dollars, gross profit margin dropped 20 basis points to 6.5%, core operating profit 145 million US dollars, down 36.1% compared with 2017 227 million US dollars, core business profit margin 1.5%, year-on-year drop, 60 basis points.

The supply chain solution business, which accounts for 78% of the group's turnover and 51% of the core profit, almost determines the trend of Li Feng's performance. In 2018, its core profit dropped 20%, from 355 million 900 thousand US dollars to 284 million 700 thousand US dollars.

However, the group's annual losses narrowed to 10 million 981 thousand US dollars. In 2017, a net loss of $374 million 600 thousand was recorded for the termination of the loss business. The net profit from continuing operations fell from $170 million 400 thousand to US $125 million 800 thousand for the year. After adjustment, net profit decreased by 15.9% to 117 million US dollars in the year and 139 million US dollars in 2017.

The Group intends to send 4 Hong Kong cents at the end of the year, double the number in 2017.

The group pointed out that retail businesses around the world had not experienced speed changes before. Although the US retail industry recorded the strongest growth in recent years, at the same time, the US retailers' failures accelerated to reach the level of the financial crisis in 2008. In addition, the tastes of consumers also changed rapidly, and consumers had little loyalty, which led to frequent changes in the market share. For example, the application of retail technology such as social data analysis would make the retailer's products seamless with the production.

Although these changes are targeted at the three year plan of the group, most retailers and brands are forced to expedite the supply chain and reduce inventories. Some of them are faced with the financial difficulties of bankruptcy. This has a negative impact on the business of Li Fung. In general, 2018 is a difficult year for most of the group's customers.

At the end of 2017, Li Feng announced the sale of furniture, beauty products and sweaters for three major products with a price of US $1 billion 100 million or HK $8 billion 536 million, focusing more on core service departments focusing on supply chain solutions and logistics businesses.

After completing the paction in April 2018, Li Feng sent a special interest rate of $520 million to shareholders and repurchased $500 million of perpetual bonds.

After the sale of the three major products business, the group product division is left on the wholesale business.

The business earned $1 billion 667 million last year, an annual growth of 7.4%, of which the US, Europe and Asia accounted for 31%, 59% and 8% respectively.

The US market revenue recorded a growth of 9.1% due to strong economy and consumption. In Britain, Europe's market turnover decreased by 1.7%, while the Asia Pacific market increased by two times, mainly because the base was too small.

The wholesale business on the shore was basically flat at the core business profit period of 53 million US dollars in 2018, the core operating profit rate decreased by 20 basis points to 3.2%, and gross margin dropped by 110 basis points to 18.3%.

While announces the China Daily, Li Feng said it would divest its LF Logistics, which is expected to visit the HKEx in the first half of the year.

The logistics based service business increased revenue by 1 billion 133 million US dollars in 2018, compared with 1 billion 28 million US dollars in 2017 by 10.2%, of which 65% occurred in China, compared with 57% in China last year, and 33% in other Asian markets.

Gross profit increased by 10.6% to US $390 million last year, 353 million US dollars in 2017, gross profit margin edged up 10 basis points to 34.4%, core business profit increased 14.6% to 86 million US dollars, and core operating profit margin 7.6% improved by 30 basis points per year.

In 2018, it also recorded a 6.2% decline in turnover from $13 billion 534 million 200 thousand to $12 billion 700 million 700 thousand.

On the basis of the three year plan, in 2018, Li Feng launched a large-scale reorganization plan, which changed the previous vertical structure with slow response and changed to a customer centered structure, and appointed senior management.

The purpose of the reorganization is to set up a customer focused management team to consolidate the customer relationship; the procurement and production platform to achieve excellent operation; and speed up the digitalization.

The customer management team set up a special operation group according to customer groups and products to centrally serve and increase the market share of existing brands and retail customers.

The procurement and production platform has been pformed from an operation group as a center to a regional or national center. It was led by the chief operating officer of the group in October last year. The chief executive director disrupt the internal separation of the group and set up a procurement and production platform with the capability to operate more and more all over the world.

At the same time, the group appointed a chief digital director in January to speed up the company's digital construction.

By the end of December, the total liabilities of Li & Fung increased from US $777 million to US $1 billion 25 million, of which most of US $752 million was due at 2020, but net cash increased from $349 million to US $612 million and net liabilities decreased from 428 million US dollars to us $413 million.

On Thursday's closing, Li & Fung shares fell 1.44% to HK $1.370, leaving only HK $11 billion 654 million in market capitalization.