March 21, 2013 / 11:51 AM / 5 years ago

UPDATE 1-Li & Fung cuts 2013 profit target, focus on key brands

By Donny Kwok

HONG KONG, March 21 (Reuters) - 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 handle.”

The company made 10 acquisitions in 2012 and what it buys this year would depend on what is available, he added.


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 revenues.

“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.

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