Li & Fung has revealed it will strategically divest $1.1 billion via the sale of three of its newly created product verticals: furniture, sweater and beauty.
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The global trading and sourcing company said the businesses have headed off to three separate buyers. A 45 percent stake has gone to private equity firm Hony Capital; 45 percent to Fung Holdings 1937 Limited and 10 percent to Fung Investments Limited FIL. However, the deal will not officially close until the first half of 2018.
Spencer Fung, group CEO of Li & Fung said that the divestment of the product verticals allows the firm to focus on its core competencies and further strengthen the firm’s capital structure.
“The $1.1 billion proceeds will allow us to pay a generous dividend to our shareholders and the remaining $580 million of cash will give us more financial flexibility as we continue to execute our Three-Year Plan goal of building an end-to-end digital supply chain,” said Fung.
“Our first-half results were solid and our customers and vendor partners are responding very positively to our new digital solutions. We are very excited to be creating a future supply chain that does not yet exist in the market,” Fung added
As outlined by Fung, the company will offer a special dividend of $520 million paid out in cash to shareholders and the remaining will be reinvested back into the company.
The disposal will incur a one-time accounting loss of $610 million but management assured it would not impact future cash flow or financial and operating performance, it said.
Founded in 2015, the three verticals recorded revenues of $1.87 billion for the year ended September 30 and witnessed an operating profit of $89 million.
However, during their short two-year life span, all three have seen declines. In 2016, the trio registered $92 million in core operating profit and the year before that $103 million.
“Further growth in these product categories necessitates expansion upstream and downstream, requiring capital investment and management attention,” said the company.
Moving forward, Li & Fung will continue to operate its supply chain solutions, logistics and onshore wholesale business.