2011 - Li & Fung Limited

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MANAGEMENT DISCUSSION & ANALYSIS (CONTINUED) In May, Li & Fung acquired Hampshire Designers, Inc., the women’s division of Hampshire Group Limited in the US. The acquisition includes Designers Originals, Mercer Street Studio and Hampshire Studio, and it is expected to further expand the Group’s women’s knitwear and woven product offerings and capabilities. In August, Li & Fung acquired Fishman & Tobin, a children’s apparel company and a key supplier to the boy’s dresswear market, specialized in boy’s dresswear, boys and girls school uniforms, boys sportswear and men’s dresswear. This acquisition is a significant step in expanding the Group’s licensed brands portfolio to dressier boys’ and girls’ apparel. Crimzon Rose International was also acquired in August and is one of the leading companies that designs, sources, markets and distributes costume jewelry and accessories under its own brands or licenses. Major brands include Crimzon, Erica Lyons, Daisy Fuentes, Elements, Lolita and Pure Expressions. This acquisition will add a jewelry platform to Li & Fung’s Distribution business in the U.S. while strengthening its sourcing capability in this product category. In September, Li & Fung acquired Midway Enterprises (Guangzhou) Ltd., Wonderful World (HK) Ltd. and Wonderful World Overseas Limited from The Roly Group. They operate children apparel and toys businesses in Greater China. This marks Li & Fung’s first acquisition for LF Asia since the expansion of its Distribution business to Asia in 2011. The acquisition dramatically strengthens LF Asia’s brands and licensing portfolio and enables LF Asia to expand its business into new markets and product categories, including the children’s marketplace in China. 18 LI & FUNG LIMITED | ANNUAL REPORT 2011 LICENSING DEAL In December, the Group signed master license agreement with USPA – U.S. Polo Association. According to the agreement, LF Asia will take over the management of the USPA brand in China, Hong Kong and Macau including all hardgoods and softgoods for the trademark of USPA. DISPOSAL OF PROPERTIES AND MEDICAL EQUIPMENT BUSINESSES (CONNECTED TRANSACTIONS) In June, the Group announced the disposal of IDS Group’s medical equipment businesses to Li & Fung Distribution Limited, a wholly owned subsidiary of Li & Fung (1937) Limited, which is a substantial shareholder of the Group. The reason for disposal was that the medical equipment businesses, which involved the distribution of durable medical equipment and required provision of long-term maintenance services, were not consistent with the Group’s overall consumer goods business strategy. This disposal generated a gain of approximately US$45 million for the Group. At the same time, the Group also announced the sale of two properties in Turkey and Taiwan as well as a property company in China, and a leaseback of the property in Turkey. The Group believes the disposal and leaseback allow the Group to achieve its asset light strategy while obtaining a long lease for the Group’s use. The disposal resulted in a gain of approximately US$14 million.
THE NEW THREE-YEAR PLAN 2011–2013 The period under review was the first year of the current Three-Year Plan (2011–2013). The targets of this new Three-Year Plan 2011–2013 are to achieve Core Operating Profit of US$1.5 billion by 2013, with Trading, Logistics and Distribution expected to contribute US$0.7 billion, US$0.1 billion and US$0.7 billion respectively. Our long-established market position across the supply chain network puts us in an unique position to optimize opportunities for remarkable growth in the future. Li & Fung will also continue to monitor market conditions to ensure the continuing strength of its franchise, and to meet its responsibilities to all stakeholders, including customers, employees, vendors and shareholders. Li & Fung has maintained strong credit ratings from Moody’s and Standard & Poor’s, at A3 (stable) and A- (stable) respectively. The Group continues to enjoy healthy cash flow and has strong credit ratios. For details, please refer to the following “Financial Position and Liquidity” section. PEOPLE As of the end of 2011, the Group had a total workforce of 29,624, of whom 4,518 were based in Hong Kong and 25,106 were located overseas and in mainland China. At Li & Fung we recognized that our asset base resides in the talent, enterprise and creativity of our people. We believe that investing in our people is about investing in the future and our goal is to inspire people and build a culture and environment in which they can grow and succeed. MANAGEMENT DISCUSSION & ANALYSIS (CONTINUED) EMPLOYEE ENGAGEMENT In September 2011, we launched our first Employee Engagement Survey with the objective of assessing our engagement with our employees and their customer orientation, and finding out more about our strengths and opportunities for improvement across our business units and countries. The survey, which was web-based and implemented through a third-party to safeguard the anonymity of the respondents, consisted of 56, close-ended questions and one, open-ended question. Out of the 14,490 employees who received the survey request, 11,237 completed the survey, representing a response rate of 78%. The survey helped management to understand the views of employees and to receive useful feedback. We have formed a Corporate Engagement Team in conjunction with business executives to communicate the survey results across the company and to identify follow-up actions. In addition, our business executives will champion improvement initiatives that focus on the three themes of Communication, Career and People Care. WELL-BEING, OCCUPATIONAL HEALTH AND SAFETY AND HUMAN RIGHTS We aim to provide a safe, healthy and respectful workplace by adhering to our policies and codes, raising awareness, sharing tips and experiences, and providing training for our employees. The health and well-being of all of our people globally is at the top of our agenda. Our Useful Tips on health and well-being play a vital role in sharing knowledge to our employees through daily email messages and our internal e-platform. The tips cover issues relevant to occupational health (e.g. desk ergonomics, heavy-lifting postures and precautions, stretching exercises) and well-being (e.g. ways to stay positive, quick stress relievers at workplace). LI & FUNG LIMITED | ANNUAL REPORT 2011 19
Page 1: LI & FUNG LIMITED (Incorporated in
Page 4 and 5: CORPORATE INFORMATION NON-EXECUTIVE
Page 6 and 7: THE AMERICAS Guatemala City Lima Ma
Page 8 and 9: CHAIRMAN’S STATEMENT Victor Fung
Page 10 and 11: CHAIRMAN’S STATEMENT (CONTINUED)
Page 12 and 13: CONSUMER NEEDS THE SUPPLY CHAIN CON
Page 14 and 15: MANAGEMENT DISCUSSION & ANALYSIS Wi
Page 16 and 17: MANAGEMENT DISCUSSION & ANALYSIS (C
Page 26 and 27: CORPORATE GOVERNANCE The Board of D
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Page 42 and 43: SUSTAINABILITY OVERVIEW In 2011, we
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Page 55 and 56: REPORT OF THE DIRECTORS The directo
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Page 59 and 60: SUBSIDIARIES Details of the Company
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Page 67 and 68: OPINION INDEPENDENT AUDITOR’S REP
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CONSOLIDATED BALANCE SHEET As at 31
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BALANCE SHEET As at 31 December 201
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CONSOLIDATED STATEMENT OF CHANGES I
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NOTES TO THE ACCOUNTS 1 BASIS OF PR
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NOTES TO THE ACCOUNTS (CONTINUED) 1
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2 CRITICAL ACCOUNTING ESTIMATES AND
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3 SEGMENT INFORMATION (CONTINUED) Y
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3 SEGMENT INFORMATION (CONTINUED) N
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4 OPERATING PROFIT (CONTINUED) The
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6 TAXATION (CONTINUED) NOTES TO THE
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10 STAFF COSTS INCLUDING DIRECTORS
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11 DIRECTORS’ AND SENIOR MANAGEME
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12 INTANGIBLE ASSETS Brand Buying a
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12 INTANGIBLE ASSETS (CONTINUED) NO
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13 PROPERTY, PLANT AND EQUIPMENT (C
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17 AVAILABLE-FOR-SALE FINANCIAL ASS
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19 DUE FROM/(TO) RELATED COMPANIES
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21 TRADE AND OTHER RECEIVABLES (CON
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22 CASH AND CASH EQUIVALENTS NOTES
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24 BANK BORROWINGS (CONTINUED) The
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26 RESERVES (a) THE GROUP NOTES TO
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26 RESERVES (CONTINUED) (b) THE COM
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27 LONG-TERM LIABILITIES NOTES TO T
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27 LONG-TERM LIABILITIES (CONTINUED
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28 POST-EMPLOYMENT BENEFIT OBLIGATI
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29 DEFERRED TAXATION (CONTINUED) NO
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30 NOTES TO THE CONSOLIDATED CASH F
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30 NOTES TO THE CONSOLIDATED CASH F
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31 BUSINESS COMBINATIONS (CONTINUED
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31 BUSINESS COMBINATIONS (CONTINUED
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36 FINANCIAL RISK MANAGEMENT NOTES
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36 FINANCIAL RISK MANAGEMENT (CONTI
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38 FAIR VALUE ESTIMATION NOTES TO T
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41 PRINCIPAL SUBSIDIARIES AND ASSOC
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LIFUNG TOWER 888 Cheung Sha Wan Roa
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