By Donny Kwok
HONG KONG, March 21 Global supply chain manager
Li & Fung cut by almost half its 2013 operating profit
target and said on Thursday it would focus on acquiring key
brands to fuel growth.
Li & Fung, which supplies global retailers, including Kohl's
Corp, Wal-Mart Stores Inc and Target Corp
, said it aimed to achieve an operating profit this year
similar to the $882 million it had made in 2011. Li & Fung had
set a target of $1.5 billion operating profit this year.
"We are unable to make it," Chairman William Fung said when
asked about the three-year operating profit target.
"We are trying to get close to our 2011 target," he told a
news conference after the company announced its 2012 earnings.
Li & Fung switched its strategy three years ago to become
less of a middleman and more of a brand-management business as
major clients sourced more goods straight from manufacturers and
economic uncertainty in its main markets, the United States and
Europe, weakened retail sales.
But many of its acquisitions have failed to impress
investors. Some analysts blamed the three-year profit growth
target for pressuring management into buying a lot of
little-known brands rather than quality names.
Chief Executive Officer Bruce Rockowitz told the Hong Kong
news conference the company would focus on buying big brands.
"Our acquisition strategy stays the same. We are looking for
quality instead of quantity," he said. "Big brands are easier to
The company made 10 acquisitions in 2012 and what it buys
this year would depend on what is available, he added.
LESS IS MORE
Li & Fung's operating profit fell 42 percent to $511
million, in line with a warning the company issued in January.
Full-year net profit fell 9.4 percent to $617 million in
2012 from $681 million in 2011, hit by restructuring costs and
provisions tied to its U.S. distribution business, LF USA.
The net profit lagged market expectations of a $629 million
profit, according to Thomson Reuters Starmine SmartEstimate. The
United States and Europe make up about 80 percent of Li & Fung's
"We are confident that the re-structuring of the LF USA
distribution business will be completed by 2013 and the Group
can look forward to returning to operating at the 2011 levels,"
Fung said in the earnings statement.
Li & Fung was among the best annual performers on the Hong
Kong Stock Exchange between 2007 and 2011. The stock has so far
plunged 61 percent from an all-time high hit in 2011.
In January, Credit Suisse said it appeared that some
companies Li & Fung had acquired in the past few years had
failed to meet earnings targets.
Li & Fung signed four acquisitions for its trading network
unit, which represents about 70 percent of the group's turnover,
and six licensing deals in the first half of 2012, building on
19 acquisitions in 2011.
In January, it made its first major acquisition since
raising $1 billion in equity and a perpetual bond last year,
paying $190 million for Lornamead, which owns personal care
brands, including Yardley cosmetics and hair products Finesse
and Aqua Net.