Li & Fung off target as markets take profit toll
Clothing and toy supplier Li & Fung said it would miss targets under its three-year plan after reporting a profit drop for the first time in four years due to sluggish major markets and the surging cost of a restructuring scheme.
It posted a worse-than-expected net profit of US$617 million for the year to December, down 9 per cent year on year. Turnover grew 1 per cent to US$20.2 billion, also lower than market estimates.
Chief executive Bruce Rockowitz said yesterday that Li & Fung would not be able to achieve the plan it set for 2011 to 2013. The goal was for US$1.5 billion in operating profit this year.
Li & Fung's core operating profit was only US$511 million last year, compared with US$882 million a year earlier.
The world's largest supplier of clothes and toys to retailers has been hit by the weak economy in the United States, which represents 62 per cent of its total turnover. The European consumer market, which accounted for 19 per cent of the turnover, was also slack during the reporting period.
As part of its restructuring plan in the US market, the company has decided to operate fewer brands.
Under the plan, it needed to pay compensation to terminate contracts with brand owners, which caused a rise in costs. Mounting margin pressure on certain licensed brands and fewer brands distributed in the US also dragged down operating profit, it said.
"We know where we have a problem and are moving aggressively to fix it," group chairman William Fung said. He said the restructuring project would be completed this year and he expected core operating profit to return to the 2011 level in 2013.
Fung said the company would continue to work to reduce costs and increase revenue, but it had no plan to cut management remuneration. It would also retain a dividend payout ratio of 60 to 65 per cent.
The company also appointed former Hang Seng Bank chief executive Margaret Leung Ko May-yee as an independent non-executive director, effective from next month.
Li & Fung shares rose 1.2 per cent to close at HK$10.56 yesterday before announcement of the annual results. The firm proposed a final dividend of 16 HK cents per share for the period.