Temasek invests $300m in Li & Fung's logistics unit

Temasek will take a 21.7% stake in LF Logistics, valuing the business at approximately $1.4 billion. Li & Fung, which has interests spanning sourcing, distribution and retail, announced last year that it had appointed advisors to work on an IPO. Explaining its decision to postpone the offering until further notice, the company cited “current market conditions and geopolitical uncertainties.”

The spin-out is one of several initiatives pursued by Li & Fung to strengthen its capital structure and financial flexibility in the face of challenging market conditions. In late 2017, the company divested three verticals – furniture, beauty, and apparel – in a deal worth $1.1 billion. Hony Capital took a 45% in the business, with the two Fung family-controlled entities holding the remainder.

The proceeds of the Temasek investment will go towards future capital expenditure, repaying bank debt, and accelerating the growth of LF Logistics. Li & Fung supplies clothing and other consumer goods to retailers globally and logistics services have evolved as part of the company’s supply chain. There are two key business segments: pan-Asia in-country logistics and global freight management.

LF Logistics claims to manage 26 million square feet of space, with an annual growth rate of 35%. It provides services to more than 400 companies and delivers 100 million units of consumer products each day. Turnover reached $1.13 billion in 2018, up from $1.03 billion the previous year. Over the same period, net profit rose from $49.4 million to $62.7 million.

Li & Fung has narrowed its business in recent years to focus on supply chain solutions, logistics, and onshore wholesale services. This intended to help the company meet the needs of a global economy that prioritizes speed to market, mobile-enabled and mass-customized products and services, and digitization.

Turnover fell 6.2% year-on-year to $12.7 billion in 2018, but Li & Fung said US-China trade tensions had minimal impact due to the company’s diversified sourcing strategy. Rather, destocking, store closures and bankruptcies among retailers globally – but principally in the US, which accounts for two-thirds of turnover – are to blame. “It has become clear that the old retail operating model is no longer successful in today’s retail landscape,” Li & Fung said in its annual report.

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• Topics
• Greater China
• Expansion
• Support services
• Consumer
• Temasek Holdings
• Asia
• Logistics
• Hong Kong (China)
• Growth capital