HONG KONG — Luen Thai Holdings Ltd., a major Asian apparel manufacturer, reported a 6.6 percent rise in revenue to $590.2 million for 2005, but net profit was down 56 percent to $13.2 million.
Gross profit also fell by 12 percent to $110.8 million, while operating profit dropped 40 percent to $23.1 million. The declines were attributed to higher operating and airfreight costs, as well as the reinstatement of quota on certain categories in 2005 from China, where Luen Thai conducts a sizable portion of its sourcing.
The company, which counts Polo Ralph Lauren, Liz Claiborne, Nike, Gap Inc. and Armani among its clients, said its 2005 results were an exception because of uncertainties resulting from trade disputes that eventually culminated in safeguard quotas from the U.S. and European Union being placed on a wide range of Chinese apparel and textile categories.
Sunny Tan, the company’s chief financial officer, said 2005 “has been quite a traumatic year,” but “it’s a transitional case” that has stabilized for 2006. The U.S. and EU both crafted import restraint agreements with China that cover this year that helped stabilize sourcing strategies. Tan said rules and regulations can change overnight, but it takes companies some time to adapt.
Luen Thai spent 2005 expanding into other apparel product categories through acquisitions and joint ventures, which helped to open the door to other distribution and production facilities worldwide. In May, the company acquired a 71 percent stake in Partner Joy Group Ltd., which gives Luen Thai a leg up in the sweater sector. Partner Joy has three wholly owned subsidiaries in Hong Kong.
This year, the company took a 50 percent share, with an option to increase its stake down the road, in On Time International. The apparel design and trading company that caters to European customers has production capabilities in India, Bangladesh and Indonesia, as well as diverse product lines from China-based products, said Henry Tan, Luen Thai’s chief executive officer.
With China at the center of trade disputes, Luen Thai hasn’t hesitated to continue expanding its Dongguan “Supply Chain City” megafactory. There are now more than 9,000 workers based there and the company plans to hire 5,000 more in the coming 18 months.
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While they have had higher-than-expected start-up costs, outward processing arrangements have remained an important part of the company’s multiproduct and multicountry strategy. The company has two OPA facilities: one each in Macau and Hong Kong.
Through these arrangements, goods that are partly assembled in mainland China and finished in those special administrative regions can be shipped to the U.S. and EU quota-free.
Luen Thai shipments out of its Hong Kong OPA totaled 6.5 percent in 2005, while its Macau OPA saw 8 percent. The Philippines had a decrease in shipments by 3 percentage points to 22 percent, while Saipan had a more than 14 percentage point drop to 18.4 percent. China shipments increased by more than 4 percentage points to almost 43 percent.