Li & Fung answers the doubters

PUBLISHED : Thursday, 23 June, 2011, 12:00am
UPDATED : Thursday, 23 June, 2011, 12:00am

Trading company Li & Fung is planning five acquisitions aimed at raising its profits and extending its reach in Europe.

The announcement of the deals scotched market rumours that the group had slowed down its pace of acquisitions, which had triggered fears of slower growth and pushed the stock price down.

In a four-hour meeting with about 50 analysts yesterday, the group said the five deals would expand its trading and distribution networks, and that it recorded revenue of US$660 million and a pre-tax profit of US$80 million last year.

Li & Fung chief executive Bruce Rockowitz (pictured) did not divulge how much the company would spend on the acquisitions but said these were valued at a price-earnings ratio of 6.5 times and would contribute to the group's bottom line by as early as the second half of this year.

'There is a myth in the market that we don't do acquisitions,' Rockowitz said in the webcast. 'Every president is focusing on smaller roll-up deals. We've seen many opportunities, which will continue in the second half of this year.'

Acquisition remained a key strategy to fuel the group's growth as it seeks to double its core operating profit to US$1.5 billion and build three pillar divisions - trading, distribution and logistics - by 2013, he said.

Of the deals in question, 'the most strategic' is for TVMania, which is the largest pan-European supplier of character products such as Hello Kitty and Mickey Mouse and will serve as a platform for Li & Fung to build its network across Europe.

Other possible candidates include sourcing firm Loyaltex Apparel, which supplies to 900 stores in the US, Canada and Puerto Rico; Collection 2000, a British-based cosmetics and beauty products distributor; and Exim Designs, a furniture trading firm based in Thailand.

Li & Fung aims to grow its Asia business to US$1 billion in sales and make it profitable by 2013, as higher investment in the region meant it would lose money this year, Rockowitz said.

Rick Darling, president of Li & Fung's business in the US, said the group's retail sales remained flat in the US while gross profit margins were under pressure.

As cost inflation continues to bite, Li & Fung executive deputy chairman William Fung Kwok-lun said, one of its priorities was to focus on cutting costs to improve its efficiency.

He hinted the group's net profit in the first half of this year would account for 30 per cent of the full-year total, down from the 40 per cent in previous years, as mergers and acquisitions jack up costs.

An analyst with a European brokerage who attended the marathon meeting welcomed the group's increased transparency about its operations but declined to say if she would upgrade the stock.

Li & Fung shares rose 70 HK cents, or 4.72 per cent, to HK$15.52 yesterday after the meeting. In the three days to May 27, they slipped 7.2 per cent after a UBS research report slashed its target share price to HK$9.