Highlights. Core Operating Profit decreased 20% to US$285 million due to challenges in Supply Chain Solutions business

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2 Core Operating Profit decreased 20% to US$285 million due to challenges in Supply Chain Solutions business New management team in place to accelerate Highlights turnaround and digital transformation Leadership in end-to-end 3D virtual design is disrupting traditional supply chains Logistics business continues strong organic growth with COP up 15% Strategic divestment of Product Verticals for US$1.1 billion in April Annual Results LI & FUNG Spencer Fung 1

3 Three-Year Plan

4 Three-Year Plan Goal Our goal is to create the supply chain of the future to help our customers navigate the digital economy and to improve the lives of one billion people in the supply chain Annual Results LI & FUNG Spencer Fung 3

5 Business Simplification & Turnover Evolution US$ B 12.7B 1.2B 3.3B 3.3B 1.9B 1.2B 3.3B 6.4B Divestment + Spin off 2018 Annual Results LI & FUNG Spencer Fung 4

6 Our 3YP Core Themes Speed Innovation Digitalization Data Analytics Productivity Supply Chain Solutions Global Business Development LF Ecosystem 2018 Annual Results LI & FUNG Spencer Fung 5

7 LF Ecosystem Our ecosystem of partners reaches more than US$2 Trillion of retail sales End-to-end sourcing and logistics services augmented by digital services Areas of focus 3D Virtual Design Automation Blockchain Supply Chain Solutions Types of partnership Licenses Strategic Alliances Joint Ventures Investments Speed Innovation Digitalization Data Analytics Productivity Supply Chain Solutions Global Business Development LF Ecosystem 2018 Annual Results LI & FUNG Spencer Fung 6

8 2018 Financial Results 7

9 2018 Results Highlights 2018 US$m 2017 US$m Change % Turnover 12,701 13,534 (6.2%) Total Margin 1,342 1,386 (3.2%) As % of Turnover 10.6% 10.2% Operating Costs 1,057 1, % As % of Turnover 8.3% 7.6% Core Operating Profit (20.0%) As % of Turnover 2.2% 2.6% Adjusted Profit Attributable to Shareholders (1) (15.9%) Turnover impacted by retail destocking, customer turnover and shift in a customer s business model Total margin percentage improved due to increasing contribution of Logistics Operating cost productivity offset by digital investment and Logistics organic growth - SCS + Onshore Wholesale showed 7% productivity improvement (2) Core operating profit decreased by 20% Declared final dividend 4 HK cents (full year dividend 7 HK cents) (1) Profit Attributable to shareholders for Continuing Operations excluding gain on remeasurement of contingent consideration payable (2) Based on combined operating costs of Supply Chain Solutions and Onshore Wholesale before the digital investments, increase in accounts receivable provisions and restructuring costs 2018 Annual Results LI & FUNG Spencer Fung 8

10 2018 Results Net Profit Analysis 2018 US$m 2017 US$m Change % Core Operating Profit (20.0%) Continuing Operations Profit for the Year Distribution to Perpetual Capital Securities (46) (64) (28.1%) Non-Controlling interest 1 1 Profit Attributable to Shareholders excl.: Write-back of Acquisitions Payable (9) (31) Adjusted Profit Attributable to Shareholders (15.9%) Discontinued Operations (1) - Loss Attributable to Shareholders (137) (545) Profit attributable to shareholders decreased by 16%, adjusting for write-back of acquisitions payable Perpetual capital securities distribution decreased by 28% with US$500m perpetual redemption distribution will reduce further to US$34m Losses from Discontinued Operations in 2018 were triggered by realization of prior period foreign exchange non-cash translation losses, final disposal loss and operating loss during stub period (1) The losses were mainly triggered by the realization of prior period foreign exchange non-cash translation losses at the time of closing, final disposal losses and operating loss of the Discontinued Operations during the stub period in 2018 and remeasurement loss in Annual Results LI & FUNG Spencer Fung 9

11 Supply Chain Solutions (SCS) Change US$m US$m % Turnover 9,933 10,989 (9.6%) Total Margin (11.8%) As % of Turnover 6.5% 6.7% Operating Costs (0.9%) As % of Turnover 5.0% 4.6% Core Operating Profit (36.1%) As % of Turnover 1.5% 2.1% 2018 Geographical Market Turnover US$m Turnover decreased 9.6% due to retail destocking, customer turnover and shift in a customer s business model - 2H turnover decline decelerated Growth in off-price channels and hardgoods categories Total margin impacted by mix shift and margin pressure in trading-as-principal business Productivity offset by digital platform investment COP decreased by 36.1% 2018 Annual Results LI & FUNG Spencer Fung 10

12 Logistics Change US$m US$m % Turnover 1,133 1, % Total Margin % As % of Turnover 34.4% 34.3% Operating Costs % As % of Turnover 26.8% 27.0% Core Operating Profit % As % of Turnover 7.6% 7.3% Turnover increased by 10.2% driven by new business wins and inroads into new markets and verticals In-country logistics benefited from strong consumption growth, in particular e-commerce, in China and rest of Asia Global freight management impacted by slowdown in global trade COP increased by 14.6% and COP margin expanded by 30 bps 2018 Geographical Market Turnover US$m 2018 Annual Results LI & FUNG Spencer Fung 11

13 Onshore Wholesale Change US$m US$m % Turnover 1,667 1, % Total Margin % As % of Turnover 18.3% 19.4% Operating Costs % As % of Turnover 15.1% 15.9% Core Operating Profit (0.3%) As % of Turnover 3.2% 3.4% 2018 Geographical Market Turnover US$m Turnover increased by 7.4% with recovery at major US customers and growth in Asia business UK market continued to be weak given Brexit concerns Total margin pressure from promotional retail environment globally and weak sentiment in the UK Operating costs as a percentage of turnover improved by 80 bps as it began to adopt a leaner structure Core operating profit is largely flat year-on-year 2018 Annual Results LI & FUNG Spencer Fung 12

14 Capital Structure Dec 2018 US$m Dec 2017 US$m Bonds Bank Loans Total Debt 1, Cash Net Debt Total Equity 1,869 2,914 Total Capital (1) 2,282 3,342 Gearing Ratio (2) 18% 13% Maintained strong balance sheet; - Cash balance increased to US$612m - Net debt decreased to US$413m Redeemed US$500m perpetual and distribution will reduce further from US$49m (2018) to US$34m (2019) Gearing ratio remained conservative at 18% Total available bank facilities was US$1.9b, with US$1.6b undrawn, of which US$826m was unused committed lines Maintained excess cash and liquidity to maintain flexibility and manage near-term operations and debt maturity profile (1) Sum of net debt and total equity (2) Net debt divided by total capital 2018 Annual Results LI & FUNG Spencer Fung 13

15 SCS Restructuring 2018 Annual Results LI & FUNG Spencer Fung 14

16 Aggressive Plan to Respond to Changing Environment Challenges What s Needed Responses Customer needs are changing Bring greater focus on core customers Reorganized account management teams Production base shifting Improve global KPIs & productivity Chief Operating Officer to lead global production platform End-to-End Digital Supply Chain Speed up development Chief Digital Officer to accelerate digitalization 2018 Annual Results LI & FUNG Spencer Fung 15

17 Structure - Focused Reorganization Siloed Teams Focused Teams Business Leader Account Management - Business Development - Production - Digitalization Account Business Management Development Sourcing & Production Platform Digital Platform 2018 Annual Results LI & FUNG Spencer Fung 16

18 People - New Management Team Joseph Phi, Group President 20 years with the Fung Group 9 years with Li & Fung and Executive Board 10+ years of high double-digit organic growth & strong track record Wilson Zhu, COO Sourcing & Production Platform 32 years of experience Deep knowledge of China and the US 15 years as a Li & Fung customer Strong track record on execution Darren Palfrey, CDO Digital Platform 20 years of experience in retail and logistics Previously started digital supply chain software company 2018 Annual Results LI & FUNG Spencer Fung 17

19 Account Management AM BD Increased focus on strategic customers DP SPP Joint KPIs with customers Customer satisfaction measured regularly Focused on growing market share Tied incentives to KPIs 2018 Annual Results LI & FUNG Spencer Fung 18

20 Business Development AM BD Robust pipeline with more sizable targets DP Digital supply chain and global network attracting new prospects SPP Conversion rate accelerating 2018: $1b+ Potential $1b+ Potential 2019: $XXXm Prospect: $1b+ Potential $XXXm Supply Chain Global Business Speed Innovation Digitalization Data Analytics Productivity LF Ecosystem Solutions Development 2018 Annual Results LI & FUNG Spencer Fung 19

21 Sourcing & Production Platform AM BD DP All production offices report under COO SPP KPIs will be harmonized & elevated globally Focused on operational excellence Breaking down silos allows true leverage of Li & Fung buying power & scale Successful pilot in India delivered 9% CAGR positive jaws 2018 Annual Results LI & FUNG Spencer Fung 20

22 Production Platform Case Study I India AM BD Bridging the silos allowed productivity increase Improved service won many new customers True leverage of L&F buying power SPP DP * * Topline: +4.8% CAGR 115 Positive Jaws +28% Cost: - 4.4% CAGR % CAGR * Both metrics rebased to 100 in 2015 to illustrate progress over 3 years Topline MPC Index 2018 Annual Results LI & FUNG Spencer Fung 21

23 Diversified Sourcing Strategy AM BD Largest network in the industry helping retailers mitigate DP risks with increased tariffs SPP Global network about 50 production countries years of deep relationships with local vendors, regulators and business communities Proven ability to move quickly among countries of production Total Sourcing Business from China: 2016: 54% 2017: 53% 2018: 51% Americas Brazil El Salvador Guatemala Haiti Mexico Nicaragua Peru USA Africa Egypt Kenya Lesotho Madagascar Mauritius Tunisia Europe Austria France Germany Italy Latvia Luxembourg Macedonia Poland Portugal Romania Spain Switzerland Turkey Ukraine UK Asia Bangladesh Cambodia China Hong Kong India Indonesia Israel Japan Jordan Korea Macau Malaysia Myanmar Pakistan Philippines Singapore Sri Lanka Taiwan Thailand Vietnam 2018 Annual Results LI & FUNG Spencer Fung 22

24 Leadership in 3D Virtual Design AM SPP BD DP Team size: Customers: No. of Design Styles: >6X >12X >60X * Since Q Speed Innovation Digitalization Data Analytics Productivity Supply Chain Solutions Global Business Development LF Ecosystem 2018 Annual Results LI & FUNG Spencer Fung 23

25 3D Virtual Design AM BD All in US$ SPP DP APPAREL $ 2.4T (1) Global Apparel Sales * (1) McKinsey Insights (The state of fashion) 2018 Annual Results LI & FUNG Spencer Fung 24

26 3D Virtual Design AM BD Analog vs Digital SPP DP Cost: 1.2% (includes sampling, transportation, model, photoshooting, store mock up...) * Analog LF Digital COST SAVING: 50+ % + SPEED: 12 WEEKS SAVING (30 + %) * Based on management estimate 2018 Annual Results LI & FUNG Spencer Fung 25

27 3D Virtual Design Market Size AM SPP BD DP Global apparel sales: $2.4T 1.2% cost on analog services: $30B 50% cost savings: $15B Estimated market size is $15B and constantly expanding 2018 Annual Results LI & FUNG Spencer Fung 26

28 LF Logistics 2018 Annual Results LI & FUNG Spencer Fung 27

29 Our Network 17 jurisdictions (incl. US and UK) Korea 221 Distribution centers China Japan» 25 million square feet DC space Pakistan India Bangladesh Taiwan» 500,000 TEUs handled per annum Hong Kong Philippines >9,000 staff Thailand Cambodia Vietnam Malaysia Singapore Indonesia 2018 Annual Results LI & FUNG Spencer Fung 28

30 2018 In Retrospect Strong momentum for In-Country Logistics in China New O2O business models fueling e-logistics Solid progress across all ASEAN countries Korea and Japan exceeded expectations; India is on track Global Freight affected by global trade slowdown and depressed freight rates 2018 Annual Results LI & FUNG Spencer Fung 29

31 2018 Singles Day 28 brands 17 sites 24 / 7 from 11th to 18th Nov 32% ORDER 34% UNIT 2018 Annual Results LI & FUNG Spencer Fung 30

32 Innovation: Goods to Man Picking System Robots x 50 units 7,000 sqm operating foot print 3 times faster than human picking 2018 Annual Results LI & FUNG Spencer Fung 31

33 Innovation: Automation Goods to Man Systems Semi-Automated Vehicles Drones Sustainability Systems Pallet Shuttle Systems Augmented Reality Systems 2018 Annual Results LI & FUNG Spencer Fung 32

34 Innovation: Data Analytics & Systems WMS Dashboards WMS UI Enhancements Labor Management System Time study results 31 total cases 9 minutes, 29 seconds ~ 186 cs/mnhr 1 3 Optimized picking would cut this pick time in half Dock Slotting Optimization TMS Mobile Apps GFM Visibility Tracking 2018 Annual Results LI & FUNG Spencer Fung 33

35 Strong Track Record US$m Turnover US$m COP 1,200 CAGR 18% 100 CAGR 25% 1, '11 '12 '13 '14 '15 '16 '17 '18 0 '11 '12 '13 '14 '15 '16 '17 ' Annual Results LI & FUNG Spencer Fung 34

36 LF Logistics IPO LF Logistics: Independent access to 494.HK capital markets & flexibility to execute growth strategy Controlling shareholder LF Logistics (To be listed on HKEx) 1 Public Float Li & Fung: Unlock value in Logistics business & enhance capital structure of the Group Li & Fung will remain controlling shareholder of LF Logistics and consolidate its results 1. Spin-off and listing are subject to HKEx approval, market conditions and other factors 2018 Annual Results LI & FUNG Spencer Fung 35

37 Macro environment continues to be challenging SCS restructuring provides focus on customers & performance Outlook Topline stabilizing and converting new customers Production platform will leverage scale and increase productivity Digital services starting to generate new revenue Onshore Wholesale Business continues to recover LF Logistics continues strong momentum with multiple growth drivers 2018 Annual Results LI & FUNG Spencer Fung 36

38 Disclaimer The information contained in this presentation is intended solely for your personal reference. Such information is subject to change without notice and no representation or warranty express or implied is made as to, and no reliance, should be placed on, the fairness, accuracy, completeness or correctness of the information contained in this presentation. This presentation does not intend to provide, and you may not rely on this presentation as providing, a complete or comprehensive analysis of the Company s financial or trading position or prospects. None of the Company nor any of its respective affiliates, advisors or representatives shall have any liability (in negligence or otherwise) whatsoever for any loss or damage howsoever arising from any use of this presentation or its contents or otherwise arising in connection with this presentation. This presentation contains projections and forward looking statements that may reflect the Company s current views with respect to future events and financial performance. Readers are cautioned not to place undue reliance on these forward-looking statements which are subject to various risks and uncertainties and no assurance can be given that actual results will be consistent with these forwardlooking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This presentation does not constitute an offer or invitation to purchase or subscribe for any securities or financial instruments or the provision of any investment advice, and no part of it shall form the basis of or be relied upon in connection with any contract, commitment or investment decision in relation thereto, nor does this presentation constitute a recommendation regarding the securities or financial instruments of the Company Annual Results LI & FUNG Spencer Fung 37