Aug 13, 2009
Li & Fung profit growth slows, committed to targets
Aug 13, 2009
HONG KONG, Aug 13 (Reuters) - Consumer goods exporter Li & Fung Ltd (0494.HK) on Thursday said profit would improve in the second half of the year after a weak first half amid early signs of an improving global economy, giving it confidence to reaffirm targets in its three-year plan.
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"Although the external operating environment is undoubtedly challenging, we remain committed to our current three-year plan 2008-2010 targets," Chairman Victor Fung said in a statement.
The targets -- which some analysts have said the company might have difficulty meeting -- include annual turnover of $20 billion, and a core operating profit of $1 billion. Turnover in the first half of 2009 totaled HK$46.3 billion ($6 billion).
President and executive director Bruce Rockowitz told a media briefing that he expected Li & Fung's profit to improve in the second half of the year from the first, and that 2009 Christmas sales so far had improved from last year's weak showing.
The company, whose customers include U.S. retail giants Wal-Mart (WMT.N) and Target (TGT.N), is relying on acquisitions and new outsourcing deals to meet its targets. It said it is also well on track to cost cutting initiative in 2009.
Li & Fung has completed three small roll-up acquisitions in China and the U.K. so far this year.
"We see more acquisition and outsoucring opportunities and are looking at many," group managing director William Fung told a news conference. "Big acquisitions are expected to come later this year or early next year."
Li & Fung posted a net profit of HK$1.4 billion (US$179 million) for the year to June against HK$1.24 billion a year earlier. Its HK$46.3 billion in revenue was down slightly from HK$47.4 billion a year earlier.
The profit matched analysts expectations and represented 12.9 percent growth from a year earlier, but down from the 18 percent growth in the same period of 2008, as the company's customers struggled with weak demand.
Analysts said the first half of 2009 was one of the most challenging times in Li & Fung's recent business history, as it grappled with a contraction in U.S. consumer demand and the insolvency of a major client, Arcandor (AROG.DE), one of Germany's top retailers.
Li & Fung said in June that Arcandor's insolvency would impact the company's three-year plan to boost sales to $20 billion., and it is expected to see more bankruptcy provisions for its customers.
William Fung told the news conference that he expected flat growth from existing customers in 2009.
Analysts projected Li & Fung's business outlook would remain cloudy despite recent signs that the global downturn is easing.
In February, Li & Fung agreed to pay $83 million to become Liz Claiborne's (LIZ.N) primary sourcing agent for apparel and accessories. It has also entered into an outsourcing deal with money-losing U.S. retailer Talbots Inc (TLB.N).
William Fung said he expected the agreement to take effect in September, with sourcing volume from Talbots this year expected to be $300 million-$400 million.
In May, Li & Fung said it planned to expand its health, beauty and cosmetics (HBC) business through acquisitions, and was looking at HBC-related acqusitions in the cosmetics business in the U.S. and Europe.
The Hong Kong-listed exporter, which in May raised $350 million in a share sale, had said it expected to sign more outsourcing deals as cash-strapped retailers in the United States looked to cut costs in the economic downturn.
Shares of Li & Fung surged 56.6 percent in first half period, outperforming a 27.7 percent rise in the broader market .HSI. Its shares closed up 3.46 percent on Thursday before the results were announced.
(By Donny Kwok. Additional reporting by Fion Li; Editing by Chris Lewis)
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