Li & Fung expects higher profit growth in 2013

Group to shift from manufacturing focus to consumer products market

Li & Fung Group Limited, a supply chain solutions provider for global retailers, expected profit growth in the second half of 2012 to be better than the first half, forecasting 2013 to be even better than this year.

The company, which held an investment analysts presentation on Thursday, detailed the business performances of its trading, logistics and distribution segments.

File photo of Bruce Rockowitz, president of Li & Fung Ltd, speaking at a company news conference. [Photo/Agencies]

The supply chain manager for global retailers, including Wal-Mart Stores Inc and Target Corporation, said on Thursday that while it expects a single-digit organic growth in the United States, it predicts a double-digit drop in Europe.

"The trading business performance is stable and we expect the newly-created Direct Sourcing Group to record profits this year and have better business growth next year," Li & Fung Group Managing Director Bruce Rockowitz said at the analysts' meeting.

"The logistics business is expanding rapidly and is expected to register robust growth in 2013," Rockowitz added. "The distribution business however will be impacted by the weak global consumption market. (But) this business segment's profit margin will gradually rise back to the 2010 level," he added.

Looking ahead, Li & Fung will shift its business focus from traditional manufacturing activities toward the consumer products market such as food, beauty and luxurious fashion and accessories businesses. "The beauty business' core operating profit in 2013 will be three-fold of the 2010 level and this business will become a major profit contributor to the group in the future," Rockowitz noted.

Li & Fung envisaged that its core operating profit, or COP, will reach $1.5 billion by the end of 2013, with trading and distribution businesses each contributing $700 million COP, and the logistics sector $100 million COP.

The company's US market segment is performing poorly as this market's profit margin is expected to decrease by 150 basis points for the whole of 2012. The US business' profit margin is hovering around 30 percent in the first half of 2012, representing a 32.7 percent lower level than in the same period in 2011.

Rockowitz admitted that the US fiscal cliff issue will dampen the US market sentiment. The company will not consider acquisitions in the US until it completes restructuring of its US operations.

LF USA will incur $70 million restructuring cost, but the move can achieve a $60 million cost savings in 2012. In 2013, the restructuring cost will be $30 million, but it can save $40 million operating cost.

The company disclosed that it had acquired Hong Kong-based sweater maker Brilliant Global Ltd and expects it to record a $150 million turnover in 2012 and $300 million in 2016, respectively.

"The company may face difficulties in finding more suitable acquisitions to propel profit growth in the future," Tengard Fund Management Investment Manager Patrick Shum told China Daily. "The market is questioning whether this profit growth model propelled by acquisitions can be sustained in the future."

Li & Fung share price tumbled 3 percent in Hong Kong to HK$12.66 ($1.63) a share, lagging a 1.5 percent drop in the broader index on Thursday.

oswald@chinadailyhk.com