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MANAGEMENT DISCUSSION AND ANALYSIS
RESULTS REVIEW
The Group’s turnover in the first six months of 2012 increased by 4% to US$9,128 million (approximately HK$71 billion), reflecting
market share gains in USA and tough market conditions in Europe.
The Group continues to pursue growth with its twin strategy of organic and acquisitions growth. The Group has about 7,700
customers and is continuously obtaining new customers. In addition, the Group’s Distribution Network has continued to make
inroads in capturing growing Asian markets through LF Asia.
Furthermore, cross-selling momentum continues amongst all three Business Networks of Trading, Logistics and Distribution. The
Group is confident that with its established market leadership, Li & Fung is in a unique position to gain market share in the coming
years.
• Total margin increased by 5% to US$1,322 million, increasing as a percentage of turnover from 14.3% to 14.5%
• Profit attributable to shareholders reached US$312 million, representing an increase of 33% compared to same period of 2011
• Core operating profit decreased by 22% to US$221 million; core operating profit margin decreased from 3.2% to 2.4%
Core operating profit decreased due to slower than expected turnaround of LF USA’s business and the investment into LF Asia’s
Fashion & Home platform. While core operating profit is relatively weak in the first half of 2012, the Group is very focused on taking
the necessary steps to improve the second half results and set the stage for 2013, the last year of its current Three-Year Plan.
Profit attributable to shareholders increased by 33% to US$312 million, reflecting a write-back of estimated contingent
considerations for two previous acquisitions made in 2010. The write-back was due to the actual and latest estimated contingent
payments of purchase considerations being below our estimations as at 31 December 2011.
SEGMENTAL ANALYSIS
THREE NETWORKS SEGMENTATION
The Group’s business is organized according to three Business Networks: Trading, Logistics and Distribution.
The Trading Network represented 70% of total turnover, and was up 4% from the same period last year. The Trading Network
continued to gain market share throughout the first half of the year and its margin continued to hold up. The growth also reflected
positive contribution from two large acquisitions last year: Loyaltex and True Innovations. Core operating profit decreased 3% from
last year, reflecting higher operating costs associated with recent acquisitions compared to same period last year.
The Logistics Network accounted for 2% of total turnover, and increased 5% from the same period last year. Core operating profit
grew by 82% from the same period last year. The business has experienced a remarkable turnaround since being acquired by
Li & Fung. It has leveraged the existing customer base of the Group and grown organically by adding new customers via cross
Network selling.
The Distribution Network represented 28% of total turnover, and it saw an increase of 6% compared to the same period last year.
Core operating profit dropped by 78% from the same period last year, reflecting that the margin for the LF USA business has been
negatively impacted by the higher cost of leather and hardware for the footwear and handbag business, as well as the fact that
expenses increased due to LF USA’s restructuring cost, plus investment into LF Asia’s Fashion & Home platform. LF Asia continues
to track well in building a platform for branded consumer products in Asia.
SOFTGOODS & HARDGOODS SEGMENTATION
For the first six months of 2012, softgoods and hardgoods accounted for 64% and 34% of turnover respectively. Logistics
represented approximately 2%. Softgoods turnover grew 4%, which was largely due to the organic growth of some existing
customers, together with contributions from acquisitions such as Fishman & Tobin, Crimzon Rose, Loyaltex and TVMania.
Turnover from the hardgoods business increased by 4%, which was attributed mainly to the organic growth of some existing
customers, together with contributions from acquisitions such as Exim Designs and True Innovations.
6 LI & FUNG LIMITED | INTERIM REPORT 2012