Li & Fung Limited

Contents 2 Corporate Information 3 Business Profile 4 Coordinated Global Network 6 Key Financial Highlights 7 Management Discussion & Analysis 7 Chairman’s Statement 10 Managing Director’s Report 15 Corporate Governance 22 Directors and Senior Management 28 Information for Investors 29 Report of the Directors 38 Auditors’ Report 39 Statement of Accounts 90 Ten-Year Financial Summary 91 History and Milestones Corporate Information Non-executive Directors Executive Directors Victor FUNG Kwok King, Chairman William FUNG Kwok Lun, Managing Director Paul Edward SELWAY-SWIFT * Henry CHAN Allan WONG Chi Yun * Danny LAU Sai Wing Franklin Warren McFARLAN * Annabella LEUNG Wai Ping Makoto YASUDA * Bruce Philip ROCKOWITZ LAU Butt Farn Leslie BOYD (Steven Murray SMALL — alternate to Mr Leslie BOYD) * independent non-executive directors Chief Compliance Officer Chief Financial Officer James SIU Kai Lau Frank LEONG Kwok Yee Company Secretary Terry WAN Mei Chow Legal Advisors Principal Bankers Johnson Stokes & Master The Hongkong and Shanghai 17th Floor, Prince’s Building, 10 Chater Road Banking Corporation Limited Hong Kong Citibank, N.A. Registered Office Cedar House, 41 Cedar Avenue JP Morgan Chase Bank Hamilton HM12, Bermuda Principal Place of Business Auditors 11th Floor, LiFung Tower PricewaterhouseCoopers 888 Cheung Sha Wan Road Certified Public Accountants Kowloon, Hong Kong 22nd Floor, Prince’s Building, Central, Hong Kong Li & Fung Limited Annual Report 2002 2 Business Profile Li & Fung Limited and its subsidiaries (“Li & Fung”) is a premier global trading group managing the supply chain for high-volume, time-sensitive consumer goods. Garments make up a large part of the Li & Fung business which also covers the sourcing of hard goods such as fashion accessories, gifts, handicrafts, home products, promotional merchandise, toys, sporting goods, footwear and travel goods. As a Supply Chain Manager across many producers and countries, Li & Fung provides the convenience of a one-stop shop for customers through a Total Value-Added Package: from product design and development, through raw material and factory sourcing, production planning and management, quality assurance and export documentation to shipping consolidation. Founded in Guangzhou in 1906, Li & Fung is today headquartered in Hong Kong from where it co-ordinates the manufacture of goods through a network of 65 sourcing offices in 38 countries. While cost considerations have resulted in the concentration of manufacturing activities in Asia, recent years have seen an expansion of Li & Fung’s quick-response capabilities in areas like the Mediterranean, Eastern Europe and Central America that are closer to customers in Europe and the US. Instead of owning any production facilities, Li & Fung manages a large number of quality-conscious, cost-effective producers who can deliver to a deadline for its customers. Li & Fung is a member of the Li & Fung Group of companies which also includes privately-held Retailing and Distribution businesses. With an annual turnover of around US$4.8 billion, Li & Fung employs about 5,300 people worldwide. 3 Li & Fung Limited Annual Report 2002 NORTH ASIA Beijing EUROPE & THE Dalian MEDITERRANEAN Dongguan Amsterdam Guangzhou Cairo Hepu Denizli Hong Kong Florence Huizhou Istanbul Liuyang Izmir Longhua Leeds Macau Manchester Nanjing Oporto Ningbo Romania Qingdao Tunis Seoul Turin Shanghai Shantou SOUTH ASIA Shenzhen Bahrain Karachi Taipei Bangalore Kathmandu Tokyo Chennai Lahore Zhanjiang Colombo Mumbai Zhongshan Dhaka New Dehli Jordan Sharjah SOUTHEAST ASIA Bangkok Ho Chi Minh City Jakarta Johor Bahru Manila Phnom Penh Saipan Singapore Yangon SOUTH AFRICA Durban Madagascar Mauritius Li & Fung Offices Li & Fung Limited Annual Report 2002 4 THE AMERICAS Boston Dominican Republic Florida Guadalajara Guatemala Honduras New York Nicaragua 5 Li & Fung Limited Annual Report 2002 Key Financial Highlights 2002 2001 Growth HK$’000 HK$’000 Turnover Continuing operations 37,281,360 32,941,392 13.2% Discontinued operations — 87,183 37,281,360 33,028,575 12.9% Operating profit Continuing operations 1,134,605 904,520 25.4% Discontinued operations — (237,955) 1,134,605 666,565 70.2% As percentage of turnover Continuing operations 3.04% 2.75% Group total 3.04% 2.02% Profit attributable to shareholders Continuing operations 1,080,468 951,307 13.6% Discontinued operations — (168,996) 1,080,468 782,311 38.1% As percentage of turnover Continuing operations 2.90% 2.89% Group total 2.90% 2.37% As percentage of shareholders’ funds 28.4% 22.72% Earnings per share Basic 37.4 cents 27.3 cents37.0% Continuing operations 37.4 cents 33.1 cents13.0% Dividend per share 30.5 cents 26.5 cents15.1% Shareholders’ funds 3,798,020 3,443,051 Net assets per share HK$1.31 HK$1.20 Turnover* by Export Markets HK$ million 76% 19% 3% 2% 02 37,281 1st Yr 75% 21% 1% 3% 01 32,941 70% 26% 1% 3% 00 24,992 North America 3-Year Plans Europe 69% 27% 1% 3% East Asia 99 16,298 S Hemisphere 0 10,000 20,000 30,000 40,000 * Continuing operations Turnover* by Product HK$ million 68% 32% 02 37,281 1st Yr 72% 28% 01 32,941 78% 22% 00 24,992 3-Year Plans 75% 25% Softgoods 99 16,298 Hardgoods 0 10,000 20,000 30,000 40,000 * Continuing operations Li & Fung Limited Annual Report 2002 6 Management Discussion & Analysis Chairman’s Statement Victor FUNG Kwok King Introduction I am pleased to report that 2002 was a year of progress for Li & Fung Limited (the “Group”) and significant growth was achieved despite a slow first half. A bigger and stronger Li & Fung emerged as a result of several initiatives including the successful Janco acquisition, effective business alliances and major operational improvements during the course of the year. In particular, the Group’s efforts to expand the hard goods business is yielding the expected benefits. Performance In 2002, Group turnover rose by 13% to HK$37.3 billion. Profit attributable to shareholders amounted to HK$1.08 billion, passing the billion dollar mark for the first time and representing a 38% increase over the HK$782 million of 2001. Earnings per share on continuing operations were 37.4 HK cents, compared to 33.1 HK cents in 2001. 7 Li & Fung Limited Annual Report 2002 Management Discussion & Analysis (continued) The Board of Directors has proposed a commensurate increase in final dividend to 22 HK Earnings per share* Dividend per share cents per share. That, together with an interim dividend of 8.5 HK cents, will give a total HK cents dividend of 30.5 HK cents per share for the whole year (2001 total: 26.5 HK cents per 40 share). 37.4 35 33.1 33.0 Market & Business 30.5 30 26.5 In the early part of 2002, the global economy faced uncertainties arising from the events of 25.0 25 September 11, and economic recovery was affected. Consumer propensity to spend was 22.4 20 weakened and that in turn had an adverse impact on global demand for consumer goods. 17.0 15 The Group therefore experienced a slow start in the first half of 2002 but saw a strong recovery in the second half, supported in large part by the Group’s position as a leading 10 global Supply Chain Management partner in competitive retail markets. 5 With the successful acquisition and integration of Janco, today’s enlarged Li & Fung Group 0 99 00 0102 is more diversified in terms of product mix, geographical coverage and customer base, and 1st Yr 3-Year Plans enjoys substantial economies of scale. The Group’s list of successful acquisitions to date Earnings per share* includes Inchcape Buying Services, Swire & Maclaine and Camberley. Of major significance Dividend per share was the acquisition and integration of the Colby business in 2000/2001. With the Janco * Continuing operations acquisition last year, all these acquisitions are contributing substantially to the Group’s turnover and profit growth. Janco’s strengths in the hard goods sector and its emphasis on large food retailers who are rapidly expanding their non-food offerings, provides impetus for growth. Dividend Payout* The Group will continue with its diversification strategy in order to further open up new % customer segments and opportunities that, in turn, allow for turnover growth. 100 The Group has had a consistent policy of embracing information technology for greater 82 80 efficiencies across all aspects of the Group’s business and operations. Information technology 79 79 80 • • • • • • • • provides critical connectivity in the Group’s extensive supply chain network and provides • • • • • • • • • • • • customized, quality support for our customers and their time-sensitive needs. To this end, • • • • • • • • 60 • • • • the Group’s collaboration with Microsoft, started in July 2002, has already brought about • • • • • • • • • • • • tangible benefits. The Group will therefore continue to invest in new technologies so as to • • • • • • • • 40 • • • • enhance its supply chain services and further extend its leadership position in global Supply • • • • • • • • • • • • Chain Management. • • • • • • • • • • • • 20 • • • • • • • • The Group’s continuing strong financial position, with cash on hand of HK$2.4 billion, will • • • • • • • • • • • • allow for further investments across all fronts. • • • • 0 • • • • 99• 00• 01• 02• 1st Yr 3-Year Plans Looking Ahead * Continuing operations The Middle East conflict could have a dampening effect on consumer sentiment, and business activity may be affected across the globe. Given these difficult circumstances, the Group will actively try to minimize any resultant negative impact. Li & Fung Limited Annual Report 2002 8 Management Discussion & Analysis (continued) Conflict aside, major opportunities continue to exist in the US and European markets, and the Group’s growing presence in Asia and Australia also means the creation of new opportunities. The Group has consciously been stepping up activities in its East Asia and Southern Hemisphere regions so as to open up additional possibilities and to maximize the Group’s potential.

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