Trading Network (sourcing), Logistics Network (transportation) and Distribution Network (design, sales, marketing and wholesale distribution) accounted for 70 percent, 2 percent, and 28 percent respectively of the Group’s sales in 2012. Sales at the trading unit fell 12 percent in Europe and grew 5 percent in the U.S., while overall unit volume grew 10 percent to more than offset an 8 percent decline in average price.
In line with the Group’s profit alert announced on Jan. 11, 2013, core operating profit declined by 42 percent to $511 million in 2012, largely due to costs of restructuring LF USA’s business and reduction in the number of brands distributed in the US.
Profit attributable to shareholders was $617 million, representing a decrease of 9.4 percent compared to 2011. Basic earnings per share was 58.1 HK cents (7.45 cents), a decrease of 11.6 percent compared to 65.8 HK cents (8.43 cents) in 2011.
“We recognized that our biggest management challenge was the restructuring of LF USA, which became more costly than originally envisioned,” said Bruce Rockowitz, group president and CEO of Li & Fung Limited. ‘We took swift, decisive action to address the issue and also introduced strict cost control measures across the Group.”
He added, “We target to realize the benefits of these measures by this year. Meanwhile, we are putting into place the optimum organization to support the business of LF USA for the longer term.”
“The Group’s revenues tend to be skewed towards the second half of the year, which is traditionally when consumers in Western markets spend the most. This is no exception for this year as our customers assess economic trends and observe prevailing market conditions,” he said.
2012 more challenging than anticiapted
Rokowitz observed that the global economic environment in 2012 had been more demanding than expected and the retail business was impacted by lackluster consumer sentiment in the US and Europe.“Despite this market condition, we are encouraged by the number of new customers attracted to us for the scale and depth of our operations. We believe the trend for outsourcing will continue as more and more retailers and fashion brands appreciate the competitive advantages offered by one-stop-shop supply chain solutions,” he concluded.
Dr. William K Fung, Group Chairman of Li & Fung Limited, said, “We remain resolute about the fundamental strengths of our core trading business, in which Li & Fung has excelled for over a century of constant change both in the global economy and how trade is conducted.”
He continued, “The distribution business performed weakly in 2012, which was the main factor taking the Group as a whole off its profit growth trend-line. To ameliorate this anomaly, we will continue to adjust our business model and seek out new opportunities. At the same time, we are encouraged by the prospects for our logistics business whose customer base is growing nicely.”
“We are confident about the prospects offered by our three interconnected Business Networks, especially in Asia, in driving Li & Fung’s growth in 2013 and beyond. We will also continue to look for strategic acquisition opportunities to complement our organic growth,” he concluded.
Li & Fung said Bangladesh overtook Vietnam as its second largest sourcing country in terms of volume. The company, which provides sourcing, logistics and distribution services for some of the largest U.S. and European apparel brands and retailers, listed its top 10 sourcing countries and their percentage increase in production volume in 2012 as:
China: + 6 percent
Bangladesh: +3 percent
Vietnam: +20 percent
Indonesia: - 8 percent
India: +4 percent
Turkey: -6 percent
Cambodia: -1 percent
Phillipines: +3 percent
Thailand: - 20 percent
Guatemala: -14 percent
( Source Li and fung through SportsOneSource )