HONG KONG — Li & Fung Ltd. posted a 17 percent increase in net profit for full-year 2013, helped by a turnaround in the group’s LF USA business. The company also revealed a possible spin-off of its global brands and licensing business on the Hong Kong Stock Exchange.
Li & Fung’s net profit for the 12-month period ended in December totaled $725 million, while revenues increased 3 percent to $20.7 billion.
The company said that preparation for the proposed spin-off is under way, and that it aims for a listing later this year. If approved, Bruce Rockowitz, Li & Fung’s group president and chief executive officer, will become ceo of the Global Brands Group. Spencer Fung, currently chief operating officer, would take over as ceo of Li & Fung.
“We feel by having two separate public companies, each one can focus on its roots and what it does right and what it does best,” Rockowitz said at a press conference Thursday.
“When you look at Li & Fung, we were historically a sourcing company. We developed a branding business because we wanted to develop the top 10 retailers in the United States. Our core is taking care of other people’s brands. It’s less volatile,” he explained.
The brands business, on the other hand, “has gone through a difficult time,” he acknowledged, but Li & Fung has built up a “great” portfolio and “we hope to make sure that the things that went wrong in the past don’t go wrong in the future. It is more volatile, but it’s a higher-margin business, so I think it’s an opportunity for investors to make their decision,” he continued.
Li & Fung’s trading network, its largest business unit, making up 62 percent of overall profit, reported a 1 percent increase in revenue, totaling $16.3 billion. The unit’s core operating profit rose 3 percent to $539.4 million.
The trading network business depends heavily on Chinese factories, which analysts say has become a source of concern, given rising labor costs. Rockowitz acknowledged rising operating costs in China but said that the country would continue to be a key market.
“China is developing; it’s moving from the coast into the interior. And I can say that, while some factories are definitely moving out of China, they are also moving to the interior of China, and they keep reinventing themselves,” he said. China is the largest market for sourcing, while Vietnam is the second largest and Bangladesh is third. RELATED STORY: Li & Fung Defends 'Middleman' Model >>
Li & Fung’s other two major business units, its distribution network and logistics network, also reported improvements in core operating profit and revenue.
The distribution network, which includes LF USA, reported core operating profit of $295.5 million, against a loss of $38.9 million the previous year. Li & Fung said the LF USA business “recovered and produced positive results through margin expansion and cost control.”
Core operating profit at the company’s logistics network unit jumped 50 percent to $35.8 million. Revenues rose 30 percent to $526.3 million, thanks to gains from partnerships plus new business.
Li & Fung noted it had “emerged stronger following a challenging 2012” and that it returned to 2011 operating levels.
“It wasn’t a very strong economic environment in 2013 and that was really the overriding theme, at least economically. In fact, if you go back to October, that was after back to school, that was quite poor, then the U.S. government had a shutdown and that time we were very concerned and we became, I’d say, more pessimistic about the year. We made up a lot of ground in the second half of the year in 2013,” Rockowitz said.
Looking forward, he said he is somewhat positive, noting that “the market itself has been incrementally better overall and slowly getting better, but it’s still not robust.”
The Hong Kong-based company also released a new three-year plan, emphasizing organic growth and investments in its operating platform and infrastructure. Under the plan, Li & Fung’s trading network aims to achieve a core operating profit that exceeds the company’s entire current core operating profit. The firm also aims to double the core operating profit of its logistics business.
Rockowitz highlighted that the company would be putting less emphasis on acquisitions in the future.
“When you look at the past three-year plans, we’ve done a lot of acquisitions, no doubt. Now we have our platform, we have scale in many areas; now we are in a position to leverage what we have and grow organically. Our three-year plan is really based on organic growth. Having said that, there will be some acquisitions.”
Li & Fung made 10 acquisitions in all of 2013 — a “relatively small” number for the company. So far in 2014, the company acquired The Licensing Company Limited, a global licensing agent in Europe.
“These collections continue to build on that vision, empowering differently abled adults to express themselves through fashion,” said @tommyhilfiger of his line of adaptive apparel, which launches today. The line consists of 37 men’s and 34 women’s styles based upon the pieces from the spring Tommy Hilfiger sportswear collection. #wwdnews
“Stranger Things” is getting a new cast member for season 2. Meet @sadiesink_, the 15-year-old who will be joining the Netflix series for its new season. You may recognize her from “The Glass Castle” with Brie Larson and Woody Harrelson, but the Texas native’s next role goes in an entirely different direction. She describes her character, Max, as “a rough and tumble skater girl [who] becomes friends with the boys at school.” The second season debuts on October 27. (📷: @jgreenery) #wwdeye
Amid the Harvey Weinstein controversy, there’s another sector that’s being put under the spotlight for sexual abuse: the modeling industry. While rumors about abuse and sexual harassment of female and male models — and the photographers, agents and others who perpetrated it — have circulated within the fashion world for years, model @cameronrussell started posting stories from models on Instagram last week about abusive situations they’ve encountered — from sexual harassment and molestation to attempted rape. Over 75 have weighed in so far. Read more on WWD.com. Link in bio. #wwdnews
To celebrate its 16th anniversary, @dylanscandybar tapped designers and celebrities to create mosaics out of candy. The mosaics will be auctioned off to support the philanthropic cause of each participant’s choice. Pictured here is the mural created by @aliceandolivia's Stacey Bendet. For a first look at some of the other artwork being unveiled tonight, go to WWD.com. #wwdeye
The annual Veuve Clicquot Polo Classic in Pacific Palisades this weekend drew Kate Hudson, Tracee Ellis Ross, Laura Dern and more. See pictures of the star-studded event on WWD.com. (📷: @chelsealaurenla) #wwdeye
In his new book “Hollywood Royale,” Andy Warhol’s Protégé Matthew Rolston celebrates the Eighties revival of Hollywood glamour. Featuring more than 100 portraits taken by Rolston from 1977 to 1993, the book contains photos of icons like Michael Jackson, Cyndi Lauper, and @drewbarrymore, pictured here in 1991. “Hollywood Royale,” out today, will be accompanied by an exhibition opening at Los Angeles’ Fahey/Klein Gallery on March 1. #wwdeye
"Nowadays when life is not so happy with everything going on in the world, I think people come to me for a little bit of whimsy and color and fun." - Designer Rebecca De Ravenel on her cult-favorite jewelry line. (📸 : @vsteves) #wwd40
“Everyone is talking about how the retail industry is struggling, but I think it’s an incredible time because brands who are doing something different and innovative are setting themselves up for the future,” said @adamgoldston, who founded the luxury athletic brand @apl with his brother @ryangoldsten. The Goldston’s are part of WWD’s 40 under 40: a group of industry notables. See the rest of the list on WWD.com. (📷: @vsteves) #wwd40
@eyeswoon blogger Athena Calderone debuted her first-ever cookbook, “Cook Beautiful,” which is heavily centered on the presentation and visual expression of food. Pictured here are her miso glazed carrots from the book. Get the recipe on WWD.com. (📷: @johnny_miller_) #wwdeye