Li & Fung optimistic on US growth prospects
Consumer demand is stronger than estimated but the European market remains weak, the trading powerhouse Li & Fung said yesterday, revealing a 26 per cent lift in earnings.
Even as the purchasing manager index compiled by HSBC released yesterday pointed to a fifth straight month of contraction in the mainland's manufacturing activity in March, Li & Fung's deputy chairman, William Fung Kwok-lun, said orders from the US for manufacturing in the mainland has been good.
'Based on our orders so far this year, I think US consumer spending may exceed the 1 to 2 per cent growth anticipated by economists,' he said. 'Europe is at the bottom, about one to two years behind the US [in the recovery].'
The company, a global consumer goods procurer and logistics service provider, sourced 58 per cent of its wares from the mainland, last year, up marginally from 57 per cent in 2010.
Although labour costs on the mainland rose over 14 per cent last year, Fung said prices of some materials, such as cotton, have come down, helping to ease the cost pressure.
However, Li & Fung has still been shifting its procurement of lower-margin products from the mainland to more cost-efficient locations such as Bangladesh, and concentrating on more value-added products when procuring from the mainland. Procurement from the mainland grew 24 per cent last year, against a 41 per cent rise in procurement from Bangladesh.Yesterday the company reported a 24 per cent rise in net profit to US$681 million for last year, with revenues rising 26 per cent to US$20 billion.
Core operating profit grew 22 per cent from 2010 to US$882 million. Although last year's growth rate fell short of the 26 per cent average growth required to meet its target to double core operating profit to US$1.5 billion next year from 2010, Fung said the firm would not change its target.
The 19 companies acquired by Li & Fung last year had a combined core operating profit of US$211 million on an annualised basis last year.
On the distribution side, sales to Asia jumped to 12 per cent of the total, from 4 per cent in 2010, partly because of the acquisition of sister company Integrated Distribution Services Group, which distributes medical products, footwear and clothing in Hong Kong.