Li & Fung warns of tough second half after 9pc fall in core operating profit

Li & Fung, the world's largest sourcing company, reported a 9 per cent decline in core operating profit to US$227 million in the first half of the year and the firm expects a tough second half in the United States, which is still its key export market.

"Core operating profit margin decreased from 2.9 per cent to 2.6 per cent in the first half, mainly as a result of strategic additional expenditure on people, infrastructure and service initiatives," the company said in a statement. The pressure on core operating profit margin came from increased investment in the first year of the company's three-year plan, aimed at boosting its profits by 2016.

Traditionally the company performs better in the second half. But this year, that may not be the case as retail sales in the United States, which contributed 60 per cent of its total turnover, are expected to be weak in the period.

"Some big retailers have released their results earlier this week. Many of them said the second half would be quite tough," said Spencer Fung, who spoke as the company's chief executive for the first time at its results briefing. "But our businesses still have growth and our order book is still healthy."

American supermarket giant Wal-Mart Stores, a customer of Li & Fung, cut its forecast for full-year earnings from continuing operations to US$4.90 to US$5.15 per share from US$5.10 to US$5.45 earlier this month, citing higher costs and increased investment in its online business.

Total turnover of Li & Fung increased 3 per cent to US$8.7 billion in the first half. Net profit jumped 45 per cent to US$201 million, due to a non-cash gain of US$98 million, mainly from contingent considerations.