2001 final results announcement - Li & Fung

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2001 final results announcement - Li & Fung

LI & FUNG LIMITED(Incorporated in Bermuda with limited liability)ANNOUNCEMENT OF RESULTS FOR THE YEAR ENDED 31 DECEMBER 2001R E S U L T S● Group Turnover +32% to HK$33 billion● Group Profit on Continuing Operations +7% to HK$951 million● Loss on Discontinued Operations (HK$169 million)● Group Net Profit -10% to HK$782 million● Earnings Per Share on Continuing Operations +0.3% to 33.1 cents● Basic Earnings Per Share -15% to 27.3 cents● Dividend Per Share- Final 18.5 cents- Full Year +6% to 26.5 centsH I G H L I G H T S●●●Business continued to grow in a difficult yearFull provision made for the e-commerce venture in the USReached target of doubling profits after tax on continuing operationsfor the 3 Year Plan 1999 - 2001● Started a business alliance to cultivate the Japanese market● Launched new 3 Year Plan 2002 - 2004Target to double profits again over this period2001 R E S U L T SWe are pleased to announce the audited consolidated profit and loss account of the Company and its subsidiaries (the ‘Group’) for the year ended 31December 2001 together with the comparative figures in 2000 and 1999 (consolidated profit and loss account only), covering the current 3-year-plan ofthe Group for the years from 1999 to 2001:Year ended 31 December2001 2000 1999Note HK$’000 HK$’000 HK$’000TurnoverContinuing operations 32,941,392 24,992,227 16,297,501Discontinued operations 87,183 791 —1 33,028,575 24,993,018 16,297,501Cost of Sales (30,116,489) (22,559,654) (14,585,881)Gross profit 2,912,086 2,433,364 1,711,620Other revenues 56,449 75,154 55,006Other income 51,287 50,150 48,225Selling expenses (515,080) (455,168) (354,124)Merchandising expenses (1,562,562) (1,090,867) (710,525)Administrative expenses (251,393) (215,995) (157,317)Provision for investments (24,222) (5,790) —Operating profitContinuing operations 904,520 830,223 592,885Discontinued operations (237,955) (39,375) —2 666,565 790,848 592,885Interest income 112,837 140,330 43,830Interest expenses (12,464) (20,585) (32,243)Share of profits less losses of associated companies 1,443 13,677 9,389Profit before taxation 768,381 924,270 613,861Taxation 3 (55,637) (64,178) (36,638)Profit after taxation 712,744 860,092 577,223Minority interests 69,567 10,296 (2,585)Profit attributable to shareholdersContinuing operations 951,307 893,118 574,638Discontinued operations (168,996) (22,730) —782,311 870,388 574,638Earnings per share 4Continuing operations 33.1 cents 33.0 cents 22.4 centsBasic 27.3 cents 32.2 cents 22.4 centsNotes:1 Segment informationOver 90% of the Group’s turnover and contribution to operating profit are attributable to the export trading of consumer products. An analysis of the Group’s segment turnoverand operating profit for the year by principal market and product respectively are as follows:a) By market segmentTurnoverYear ended 31 DecemberOperating profitYear ended 31 December2001 2000 2001 2000HK$’000 HK$’000 HK$’000 HK$’0004 Earnings per shareThe calculation of basic earnings per share and earnings per share from continuing operations are based on the profit after taxation and minority interests of HK$782,311,000and HK$951,307,000 respectively (2000: HK$870,388,000 and HK$893,118,000) and on the weighted average number of 2,870,679,000 (2000: 2,706,666,000) shares in issueduring the year.In the event that share options outstanding at 31 December 2001 and 2000 respectively were exercised in full, the diluted earnings per share would not be significantly differentfrom the basic earnings per share as disclosed in the consolidated profit and loss account.5 Movement of reservesSharepremiumCapitalreserveExchangereserveContributedsurplusaccountRetainedearnings TotalHK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000At 1 January 2000 as previously reported 730,956 4,959 (37,519) — 50,950 749,346Effect of adopting SSAP 9 (Revised) — — — — 324,650 324,650At 1 January 2000 as restated 730,956 4,959 (37,519) — 375,600 1,073,9961999 final dividend paid — — — — (340,388) (340,388)Share premium on issue of new shares 2,031,486 — — — — 2,031,486Contributed surplus arising from the Consideration Shares to be issued — — — 1,949,663 — 1,949,663Exchange adjustment on translation of the accounts of overseas subsidiariesand associated companies — — (15,871) — — (15,871)Goodwill on acquisition of subsidiaries/ business written off — — — (1,949,663) (156,843) (2,106,506)Profit for the year — — — — 870,388 870,3882000 interim dividend paid — — — — (192,318) (192,318)Reserves 2,762,442 4,959 (53,390) — 40,497 2,754,508Proposed dividend — — — — 515,942 515,942At 31 December 2000 2,762,442 4,959 (53,390) — 556,439 3,270,450At 1 January 2001 as previously reported 2,762,442 4,959 (53,390) — 40,497 2,754,508Effect of adopting SSAP 9 (Revised) — — — — 515,942 515,942At 1 January 2001 as restated 2,762,442 4,959 (53,390) — 556,439 3,270,4502000 final dividend paid — — — — (516,303) (516,303)Share premium on issue of new shares 71,345 — — — — 71,345Transfer from/to retained earnings — 671 — — (671) —Exchange adjustment on translation of the accounts of overseas subsidiariesand associated companies — — (12,515) — — (12,515)Release of goodwill on disposal of subsidiary — — — — 5,637 5,637Profit for the year — — — — 782,311 782,3112001 interim dividend paid — — — — (229,848) (229,848)Reserves 2,833,787 5,630 (65,905) — 64,678 2,838,190Proposed dividend — — — — 532,887 532,887At 31 December 2001 2,833,787 5,630 (65,905) — 597,565 3,371,0776. ComparativesCertain comparative figures have been adjusted to conform with current year’s presentation. In particular, comparatives have been extended in the consolidated profit and lossaccount to disclose the provision for investments which was aggregated with administrative expenses in previous year. In addition, the principal markets under segmentinformation in note 1 above have been reclassified. The directors are in the opinion that the nature of the expenses and the segment information will be reflected more properlyfollowing the extension and reclassification of comparatives.MANAGEMENT DISCUSSION & ANALYSISResults review2001 was a difficult trading year for the Group in the face of recession in its main market of the USA and in particular, after the terrorist attack of September11th. However, due to the timely merger of Colby, turnover still registered an impressive 32% increase for the year (5% excluding Colby).The Group, in March 2000, raised a significant amount of money (US$250 million or HK$1,950 million) to invest in an internet based company StudioDirectin the U.S. The purpose was to try and service a new segment of small to medium sized customers via the internet. However, progress in this venture was notup to expectations and the Group has decided to take the conservative approach to provide fully for its investment of HK$169 million in StudioDirect.Putting aside this discontinued operation, the Group has achieved its 3 Year (1999 - 2001) Plan target of more than doubling both turnover and profits overthis period.Performance on 3 Year Plan (1999 - 2001)TargetAchievedHK$M 1998 2001 2001Group Turnover 14,313 21,500 32,941Profits After Tax 455 910 951These results over the past 3 years were unevenly distributed with 1999 a year of steady growth with 14% increase in turnover and 26% increase in profits.The year 2000 was a banner year which saw increases of over 50% for both turnover and profits. 2001 was a consolidation year in a tough environment witha robust turnover growth of 32% but a modest profit growth (continuing operation) of 7% compared to the previous strong year.The group, with the successful merger with Colby, is still very heavily involved with the U. S. market (75%) but has made some headway in diversifying awayfrom apparel (softgoods) to hardgoods. The breakdown by market and product is as shown above. At the end of 2001, the Group has entered into a businessalliance with Nichimen Corporation of Japan to jointly exploit that very important market in the coming years.Financial PositionThe Group maintains its strong financial position. With cash reserves of over HK$2 billion available for future acquisitions, the Group is virtually debt free andoperates with a current ratio of 1.6. In general, the Management has adopted a very aggressive strategy in pursuing its trading business but manages its financesvery conservatively.The Group has no material contingent liabilities other than trade bills discounted in the ordinary course of business.Staff and OrganizationAfter another 3 years of rapid growth, the Group’s sourcing network is unrivaled in its industry operating 68 offices in 40 countries with a staff about 5,000professionals in our field. We already operate 17 offices in China and will be looking to further penetrate this very important sourcing market in the coming3 Year Plan.ProspectsInitial orders from U. S. customers in early 2002 seem strong and the Group’s business is expected to continue strengthening in 2002, especially in the 2ndhalf.The Group has launched its new 3 Year Plan covering the years 2002 - 2004. Again, our target is to double the profits (recurrent) of the Company over the next3 years, and we plan to maintain our strong track record. The target will be challenging for management and staff, but, along with possible further acquisitions,and barring no further terrorist activity of the scale witnessed last year in New York City, the Group is cautiously optimistic that this goal can be again achieved.FINAL DIVIDEND


Principal markets:North America 24,762,981 17,404,552 707,405 592,383Europe 6,731,966 6,616,403 187,017 219,919Southern Hemisphere 1,003,023 714,655 24,487 17,788East Asia 443,422 256,617 9,833 5,92332,941,392 24,992,227 928,742 836,013Discontinued operations - StudioDirect (note below) 87,183 791 (237,955) (39,375)Provision for investments — — (24,222) (5,790)33,028,575 24,993,018 666,565 790,848b) By product segmentTurnoverYear ended 31 DecemberOperating profitYear ended 31 December2001 2000 2001 2000HK$’000 HK$’000 HK$’000 HK$’000Softgoods 23,804,901 19,498,693 756,289 665,155Hardgoods 9,136,491 5,493,534 172,453 170,85832,941,392 24,992,227 928,742 836,013Discontinued operations - StudioDirect (note below) 87,183 791 (237,955) (39,375)Provision for investments — — (24,222) (5,790)33,028,575 24,993,018 666,565 790,848Note: The discontinued operations represent the Group’s investment in a new trading operation in United States, StudioDirect, which was based on using the internet to dealwith small and medium sized customers who were not normally big enough for the Group to serve profitably. As prospect of this operation as an internet business is notup to management’s expectation, the Group decided to discontinue this operation and reduce its shareholding to 15%.2 Operating profitOperating profit is stated after charging depreciation and amortisation amounting to HK$120,378,000 (2000: HK$95,939,000).3 Taxation2001 2000HK$’000HK$’000The taxation charges comprise:Hong Kong profits tax 35,658 40,636Overseas taxation 21,439 14,307Deferred taxation (3,248) 5,85353,849 60,796Share of taxation attributable to associated companies- Hong Kong 1,727 1,409- Overseas 61 1,9731,788 3,38255,637 64,178Hong Kong profits tax has been provided at the rate of 16% (2000: 16%) on the estimated assessable profit for the year. Taxation on overseas profits has been calculated on theestimated assessable profit for the year at the rates of taxation prevailing in the countries in which the Group operates.FINAL DIVIDENDThe Board of Directors recommended to pay to the shareholders a final dividend of 18.5 cents (2000: 18 cents) per share for the year ended 31 December 2001absorbing a total of HK$532,887,000 (2000:HK$515,942,000). An interim dividend of 8 cents (2000: 7 cents) were paid by the Company on 6 September 2001.CLOSURE OF REGISTER OF MEMBERSThe Register of Members will be closed from 6 May 2002 to 10 May 2002, both days inclusive, during which period no transfer of shares will be effected. Inorder to qualify for the final dividend, all transfers accompanied by the relevant share certificates must be lodged with the Company’s Hong Kong branchregistrars, Abacus Share Registrars Limited at 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong not later than 4:00 p.m. on 3 May 2002.Dividend warrants will be despatched immediately after the holding of the Annual General Meeting on 10 May 2002 subject to shareholders’ approval ofpayment of the final dividend.CORPORATE GOVERNANCEThe Board of Directors is committed to principles of corporate governance consistent with prudent enhancement and management of shareholder value.In order to reinforce independence, accountability and responsibility, the role of the Group Chairman is separate from the role of the Group Managing Director.The Board has established the Nomination Committee, the Audit Committee, the Risk Management Committee and the Compensation Committee with definedterms of reference. All committees are chaired by non-executive directors.Full details on the subject of corporate governance are set out in the Company’s 2001 Annual Report.AUDIT COMMITTEEThe Audit Committee is composed of a majority of independent non-executive directors. During the last 12 months, the Committee met three times to reviewwith senior management and the Company’s internal and external auditors the accounting principles and practices adopted by the Group and to discussauditing, internal control and risk management and financial reporting matters (including the interim and annual financial statements for 2001 beforerecommending them to the Board for approval).INTERNAL CONTROLThe internal controls and accounting systems of the Group are designed to provide reasonable assurance that assets are safeguarded against unauthorised useor disposition, that transactions are executed in accordance with management’s authorisation and that the accounting records are reliable for preparing financialinformation used within the business or for publication and maintaining accountability for assets and liabilities. Qualified personnel throughout the Groupmaintain and monitor these internal accounting controls on an ongoing basis. The Group’s Corporate Governance Division, under the supervision of theGroup’s Chief Compliance Officer, independently reviews these controls, evaluates their adequacy, effectiveness and compliance and reports to the AuditCommittee.COMPLIANCE WITH THE CODE OF BEST PRACTICE OF THE LISTING RULESThe Company has complied with the Code of Best Practice as set out in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchangeof Hong Kong Limited (the “Listing Rules”) throughout the year ended 31 December 2001.CORPORATE SOCIAL RESPONSIBILITYThe Company has adopted and implemented a stringent Code of Conduct program for the Company’s approved suppliers and is currently a corporate memberof Business for Social Responsibility (BSR), a US based organisation whose purpose is to foster high working standards amongst suppliers.The Company is also a participant in the Global Compact initiative launched at United Nations Headquarters in July 2000, and fully supported its nine universalprinciples in the areas of human rights, labour standards and the environment.PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIESThe Company has not redeemed any of its listed securities during the year. Neither the Company nor any of its subsidiaries has purchased or sold any of theCompany’s listed securities during the year.PUBLICATION OF DETAILED RESULTS ANNOUNCEMENT ON THE STOCK EXCHANGE’S WEBSITEA detailed results announcement containing all the information in respect of the Company required by paragraphs 45(1) to 45(3) of Appendix 16 of the ListingRules will be published on The Stock Exchange of Hong Kong Limited’s web-site (http://www.hkex.com.hk) on or before 10 April 2002.By Order of the BoardVictor Fung Kwok KingChairmanHong Kong, 21 March 2002www.lifung.comwww.irasia.com/listco/hk/lifungNOTICE OF ANNUAL GENERAL MEETINGNOTICE IS HEREBY GIVEN that the Annual General Meeting of the Company will be held at Chater Rooms I-II, Conference Room Level (B1), The Ritz-Carlton,Hong Kong, 3 Connaught Road, Central, Hong Kong on 10 May 2002 at 12:00 noon for the following purposes:1. To receive and consider the Audited Consolidated Accounts and the Reports of the Directors and the Auditors for the year ended 31 December2001;2. To declare a final dividend in respect of the year ended 31 December 2001;3. To re-elect Directors;4. To determine the Directors’ fees;5. To re-appoint Auditors and authorise the Board of Directors to fix their remuneration;6. As special business, to consider and, if thought fit, pass the following resolution as an ordinary resolution:“THAT:(a) subject to paragraph (c), the exercise by the Directors of the Company during the Relevant Period of all the powers of the Companyto allot, issue and deal with additional shares in the capital of the Company and to make or grant offers, agreements and options whichmight require the exercise of such powers be generally and unconditionally approved;(b) the approval in paragraph (a) shall authorise the Directors of the Company during the Relevant Period to make or grant offers,agreements and options which might require the exercise of such powers after the end of the Relevant Period;(c) the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally to be allotted (whether pursuant toan option or otherwise) by the Directors of the Company pursuant to the approval in paragraph (a), otherwise than pursuant to (i) aRights Issue; (ii) the exercise of options granted under any share option scheme adopted by the Company or (iii) any scrip dividendor similar arrangement providing for the allotment of shares in lieu of the whole or part of a dividend on shares of the Company inaccordance with the Bye-laws of the Company, shall not exceed the aggregate of (aa) 20 per cent. of the aggregate nominal amount ofthe share capital of the Company in issue on the date of this Resolution plus (bb) (if the Directors of the Company are so authorisedby a separate ordinary resolution of the shareholders of the Company) the nominal amount of share capital of the Company repurchasedby the Company subsequent to the passing of resolution 7 as set out below (up to a maximum equivalent to 10 per cent. of the aggregatenominal amount of the share capital of the Company in issue on the date of this Resolution), and the said approval shall be limitedaccordingly; and(d) for the purposes of this Resolution:“Relevant Period” means the period from the passing of this Resolution until whichever is the earlier of:(i) the conclusion of the next Annual General Meeting of the Company;(ii) the expiration of the period within which the next Annual General Meeting of the Company is required by the Companies Act1981 of Bermuda (as amended) to be held; and(iii) the revocation or variation of the authority given under this Resolution by ordinary resolution of the shareholders in generalmeeting; and“Rights Issue” means an offer of shares open for a period fixed by the Directors of the Company to holders of ordinary shares on theregister on a fixed record date in proportion to their then holdings of such shares (subject to such exclusion or other arrangements asthe Directors of the Company may deem necessary or expedient in relation to fractional entitlements or having regard to any restrictionsor obligations under the laws of, or the requirements of any recognised regulatory body or any stock exchange in any territory outsideHong Kong).”;7. As special business, to consider and, if thought fit, pass the following resolution as an ordinary resolution:“THAT:(a)(b)(c)subject to paragraph (b) below, the exercise by the Directors of the Company during the Relevant Period of all the powers of theCompany to purchase shares of the Company be generally and unconditionally approved;the aggregate nominal amount of shares which may be purchased on The Stock Exchange of Hong Kong Limited or any other stockexchange recognised for this purpose by the Securities and Futures Commission of Hong Kong and The Stock Exchange of Hong KongLimited under the Hong Kong Code on Share Repurchases pursuant to the approval in paragraph (a) above shall not exceed 10 per cent.of the aggregate nominal amount of the share capital of the Company in issue on the date of this Resolution, and the said approval shallbe limited accordingly;for the purpose of this Resolution:“Relevant Period” means the period from the passing of this Resolution until whichever is the earlier of:(i)(ii)(iii)the conclusion of the next Annual General Meeting of the Company;the expiration of the period within which the next Annual General Meeting of the Company is required by the Companies Act1981 of Bermuda (as amended) to be held; andthe revocation or variation of the authority given under this Resolution by ordinary resolution of the shareholders in generalmeeting.”;8. As special business, to consider and, if thought fit, pass the following resolution as an ordinary resolution:“THAT:the Directors of the Company be authorised to exercise the powers of the Company referred to in paragraph (a) of the resolution set out asresolution 6 in the notice of this meeting in respect of the share capital of the Company referred to subparagraph (bb) of paragraph (c) of suchresolution.”;9. To transact any other ordinary business of the Company.Hong Kong, 21 March 2002Notes:By Order of the BoardTerry Wan Mei ChowCompany Secretary(1) A member entitled to attend and vote at the above Meeting may appoint one or more proxies to attend and vote instead of him. A proxy need not be a member of the Company.(2) In order to be valid, the instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that poweror authority shall be deposited at the principal place of business of the Company at 11th Floor, LiFung Tower, 888 Cheung Sha Wan Road, Kowloon, Hong Kong not less than48 hours before the time for holding the Meeting.(3) The Register of Members will be closed from 6 May 2002 to 10 May 2002 (both days inclusive) during which period no transfer of shares will be registered. In order to qualifyfor the proposed final dividend, all transfers accompanied by the relevant share certificates must be lodged with the Company’s Hong Kong branch registrars, Abacus ShareRegistrars Limited, at 5th Floor, Wing On Centre, 111 Connanught Road Central, Hong Kong not later than 4:00 p.m. on 3 May 2002.(4) An explanatory statement containing further details regarding Resolutions 6 to 8 above will be sent to members together with the 2001 Annual Report.

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