William Fung, managing director of Li & Fung Ltd, flashes the "v" sign at the company's 2009 annual results news conference in Hong Kong Wednesday. Li & Fung Ltd's profit rose 39 percent last year after the biggest supplier for retailers including Wal-Mart Stores Inc cut costs and acquired smaller rivals. Edmond Tang / China Daily

39% jump in profits, advance orders, strong sourcing network stoke supplier's optimism

Li & Fung Ltd forecast a "best-ever year" this year after the global outsourcing giant saw its net profit grow by 39 percent to a record HK$3.37 billion in 2009 by cutting costs and expanding higher-margin businesses.

"While we are still in the early months of the year, Li & Fung has been receiving orders for the months of July to September, which indicates that 2010 will be a very strong year for us," Managing Director William Fung told a press briefing yesterday.

Having successfully set up a strong operating platform globally, "We will see a best-ever year in 2010," echoed Bruce Rockowitz, president of the firm.

While admitting that the company's operating targets for this year seem challenging at present, "we remain committed to them," Rockowitz said.

Under its current three-year operating plan for 2008-2010, the company has committed to achieve a turnover of US$20 billion and a core operating profit of US$1 billion this year.

The company cited an improving operating environment and a strong sourcing network for its optimism.

"We expect the business environment to be increasingly positive," said Fung, who strongly believes that there won't be a double dip in the global economy despite the fact that many others have fretted about that possibility.

The group currently operates a sourcing network of over 80 offices covering over 40 economies across North America, Europe and Asia.

Li & Fung also counts on its new outsourcing arrangement with Wal-Mart Stores Inc, the world's largest retailer.

In January 28, Li & Fung entered into an agreement to supply clothes and other consumer goods to Wal-Mart until at least 2016.

The new pact, details of which are still being worked out currently, is expected to generate additional sales of at least US$2 billion in the first year, Rockowitz said yesterday.

Wal-Mart will become Li & Fung's biggest client if it buys an additional US$2 billion worth of goods, according to estimates by analysts.

Meanwhile, Li & Fung expects its total turnover to return to strong growth this year after posting a small decline in 2009.

Turnover for 2009 fell 6 percent to HK$104.5 billion from the previous year, reflecting sluggish markets amid the global downturn, a number of customer insolvencies and the current tactic of many other customers, viz., maintaining tight inventory levels, the company said.

The company also expects profit margins to continue to trend up in the coming years as it continues to reduce operating costs by diversifying its sourcing markets to countries that have lower production costs. It currently sources about 54 percent of its goods from China.

Li & Fung plans to expand its operations further by acquisitions in the coming years, Rockowitz said.

The pipeline of deals remains very strong, and many of them focus on the high-potential health and beauty, footwear and European onshore businesses, he added.

As for other upcoming moves, Managing Director Fung revealed that the company expects to unveil some deals in the coming two months.

(HK Edition 03/25/2010 page2)