Li & Fung is a listed company in Hong Kong, therefore it should comply with the relevant regulation, e.g. Listing Rules, HK Companies Ordinance and Hong Kong Financial Reporting Standards. Now we are going to discuss whether the information provided in its interim reports for the period ended 30 June 2010 is comply with the relevant regulation and sufficient to enable investors to make investment decisions.
Management Discussion & Analysis
In this aspect, basically the disclosure of Li & Fung is complied with the relevant regulation. The section of “Management Discussion and Analysis” contained the basic information including the business review, discussion and analysis of the performance, significant investment and event and the material factors underlying its result and financial position.
• It mentioned the turnover of first half of 2010 increased by 12%, reflecting the effects of nascent economic recovery in US together with contributions from previous acquisitions and outsourcing deals, however the management did not explain how the acquisitions contribution the company? What kind of acquisitions are they?
• The management disclosed the group entered into a landmark sourcing arrangement with Wal-Mart Stores, and made five small acquisitions and two large acquisitions during the period, however they did not mention the funding of them, the future prospects of the acquisitions, why the management take this decisions.
• The management addressed that US continued to be the Group’s key export market, representing 67% of total turnover, however they didn’t mention how they eliminate and assess the risk come from the US economy. As after the financial tsunami, US economy is in very difficult position, every policy from US government (e.g. quantitative easing, interest rate policy) would affect the group. Therefore the management should discuss and analysis more deeply about the relationship between the company and US, let the investors know what they are thinking. • According to the report, in May the group issued a US400 million bond and July will issue extra US350 million for further business development and acquisitions; however they didn’t disclose how they use the money? How is funding policy of the company? What is the planning and thinking regards to the management?
• As 2010 is the final year of the current three year plan, it’s only half year left and very difficult for the company to achieve the target. However no more further information provided by the management, whether the management changed the target, or they have another plan. The management should let the investor have more information to lessen the tension.
All of the above issues would affect the investor to make right decisions. It is suggested that the management should provide an understanding of the facts and circumstances that resulted in the recognition of material, unusual and infrequent items e.g. the seven major acquisitions, the outsourcing deal and the licensing deals…… The discussion on business risk and the risk management together with the interpretation of conditions and events that shaped the information contained in the report should be also be disclosed, e.g. as US is the major market of Li & Fung, they should provide further information regards the impact of the USD falls and the weak US economy. As Li & Fung is sourcing in the developing country e.g. PRC, how is the business environment and currency status of these country is also important. Besides, as the employees are one of the most important “assets” of the group, the employment policy and the key relationship with employees (also the customers & suppliers) are concerned by the investors. Finally the trends in the industry and business are also recommended, as the current three year plan announced in 2008, it support the share price of Li & Fung for long time. If no reasonable explanation to support why the target can’t be achieve,...
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