Li & Fung profit soars as brand spin-off eyed
Trader to create new company to house its licensee brands
Global trading group Li & Fung said operating profit for 2013 soared 70 per cent to US$871 million as it announced an acquisition to change its business mix and said it is seeking to spin off its licensee brands business into a separate public company sometime this year.
The core operating profit for the year ended December beat a consensus of 15 analysts compiled by Bloomberg which forecast operating profit of US$813 million. Profit attributable to shareholders was US$725 million, a gain of 17 per cent from a year ago. Turnover increased 3 per cent to US$20.75 billion.
The group said it would acquire China Container Line, a sea-freight forwarding firm, the first major logistics acquisition since it acquired IDS in 2010. Li & Fung supplies some of the world's largest firms including Wal-Mart, Target and Inditex.
"Our focus has been in-country logistics, moving goods within Asian markets and working for major brands and retailers in this part of the world," chief executive Bruce Rockowitz said. "With the new acquisition, we will now be firmly in the freight forwarding business. If you look historically, our core business is trading.
"There's a huge synergy with freight forwarding and our trading business. Our business was 10 per cent freight forwarding and 90 per cent in-country logistics. After the acquisition we'll be 50-50." The logistics business will add more than 500,000 20-foot equivalent unit (teu) containers to the current 50,000.
If the spin-off is approved, the new company called Global Brands Group will be listed in Hong Kong. Global carries more than 300 brands such as Cole Haan, Tommy Hilfiger, and Disney. Shares will be distributed in specie, meaning no capital will be raised.
"We developed a branding business because we wanted to develop the top 10 retailers in the US. Li & Fung will go back to its core. It's less volatile. The branded business has gone through a difficult time," Rockowitz said.
If the listing goes through, Rockowitz will step down from his position at Li & Fung to head up the new company. Spencer Theodore Fung, currently the chief operating officer and son of honorary chairman Victor Fung Kwok-king, will take Rockowitz's place.
The company said that by 2016 it wants its trading core operating profit to be larger than the entire group's operating profit today, double that produced by the logistics business and more than double that of its Global Brands Group which stands at just under US$134 million. In its previous three-year plan, the firm had set a goal of US$1.5 billion operating profit by last year but was hit hard in 2012 by weak consumer demand in Europe and the US.
In January, Forbes ranked the Fung brothers jointly as the tenth richest Hongkongers with a net worth of US$4.7 billion. Li & Fung was founded by their grandfather Fung Pak-liu as a porcelain and silk export business in 1906. Shares of Li & Fung moved up 0.98 per cent yesterday to end at HK$10.30, beating the Hang Seng Index which fell 1.79 per cent.
In the aftermath of a fire at a textile factory and the collapse of a factory building in Bangladesh, Rockowitz said "factories need help to bring them up on the compliance side".