For the first half of 2006, profit attributable to shareholders reached HK$764 million ($98.5 million), an increase of 24% over the same period in 2005. The Groups turnover increased by 19% to HK$28 billion ($3.6 billion). This increase is above the targeted annual growth rate outlined in the Three-Year Plan.
2006 is the second year of the Groups Three-Year Plan 2005-2007. The
Group is pleased to report strong growth in line with the plan.The
strength and resilience of our flexible business model enabled the Group to
continue to flourish despite uncertain market conditions. During the period
under review, consumer markets were faced with rising interest and energy
costs. There were also significant changes in the global trade regulatory
environment for textile products in general, with the implications for China
having particular significance for the Groups business.
Also of concern
was the impact of the recently announced movement of the renminbi to the
US dollar. These changes proved positive to the Groups business as our
wide network enabled our customers to retain global sourcing flexibility in
this environment.
The Total Margin rate increased from 10% to 10.6% of turnover during the
first half of 2006, a consequence of the Groups strategy to create more
added-value for our customers along the supply chain, as well as the
development of our onshore US business.
The Groups buying power fueled by its extensive sourcing network led to
lower prices to our customers. Both gross and net margins continued to
get stronger, in spite of a generally deflationary environment.
Core operating profits increased 35% due to strong organic growth
augmented by successful acquisitions. The Group is also continuing to
invest in additional staff and systems to strengthen our back office
infrastructure to cater for this expected growth in the current Three-Year
Plan.
The softgoods business accounted for 69% of turnover in the first half of
2006, with turnover and operating profit increasing by 17% and 38%
respectively.
The proliferation of bilateral agreements with the United States
and Europe continues and the Group is in a good position to capitalize on
this trend given our wide sourcing coverage in over 40 countries. Growth in
the softgoods business was also boosted by contributions from acquisitions
made in 2005.
Turnover from the hardgoods business grew by 26% for the first half of
2006 and accounted for 31% of the Groups turnover. Operating profit
increased by 20% over last year. The lower rate of growth of operating
profit compared to turnover can be primarily attributed to the seasonal
skew of hardgoods towards the second half of the year, making the first
half comparison for this segment less important as a measure of profitability
for the full year.
Geographically, the United States continued to be the Groups major export
market, accounting for 71% of turnover for the first half of 2006. Other
important markets were Europe, Canada and Australasia, accounting for
18%, 5% and 3% of turnover respectively. These proportions were relatively
unchanged from the same period last year, indicating steady business growth
in all its key markets.
Finally, the rest of the world remained at a turnover share of 2%. The
Group continues to focus on developing Japan where we have good
relationships with several large retailers which could help to grow our
business there in due course.
Due to International Sources, a very successful acquisition in 2004, our
business in Mexico, Central and Latin America doubled from a small base
on the back of this business.
The Group continues to look for strategic acquisitions and to seek
outsourcing deals with major retails and brands globally.
A key component of the Groups current Three-Year Plan is our two-pronged
approach to acquisitions. Apart from seeking larger acquisitions, which can
materially accelerate business growth, the Group has put in place efforts to
systematically seek and acquire small-to-medium sized companies as a
means to strategically strengthen very specific areas of the Groups business.
In a market with a very large proportion of smaller players, this will enable
us to make acquisitions a regular part of our growth. This strategy is mainly
funded internally by our net cash balance, as well as our strong cash flow
from operations. In the arena of large acquisitions, the Group is open to
raising funds externally from banking, bond and equity markets to capture
large valuable acquisition opportunities and to optimize the Groups capital
structure.
In the first half of the year, the Group acquired Oxford Womenswear Group,
a design intensive producer of budget and moderately priced, private-label
womens apparel collections. This acquisition is in the private label area
and is in line with the Groups strategy of accelerating growth through
opportunities that complement the Groups core sourcing business including
development and marketing in the United States.
The Group completed the formal acquisition procedures for Rosetti Handbag
and Accessories Ltd. on 31 July 2006. The total cash consideration for the
purchase was approximately US$162 million and was financed by Li &
Fungs internal cash reserves and bank borrowings. The Rosetti handbag
business comprises the design, arrangement for the manufacture of, import,
marketing and sale of womens handbags, purses and related accessories
for its own brand, as well as licensed and private labels for United States
retailers including department stores, mass-merchants and specialty stores.
Finally, the Group completed the integration of five acquisitions made in
2005. PromOcean, a corporate premium and promotional productions supply
company based in Europe; Comet Feuerwerk GmbH, a fireworks company
in Germany; Briefly Stated, an apparel company in the United States; Young
Stuff, a US-based fashion items wholesaler; and Tropicanusa, a furniture
sourcing agent based in Indonesia, all enjoyed a smooth and successful
integration.
