Corporate Presentation - Li Ning

Corporate Presentation - Li Ning

Agenda• Business Overview• Financial Highlights• Review of Operations• Market Overview• Future Outlook and Strategies• Open Forum1


Business Overview• One of the leading sports brand enterprises in the PRC• LI-NING branded sports products:– Brand building, marketing– Product design, research and development– Franchising model with national retail network– Supply chain management• Product for sport and leisure use:– Footwear– Apparel– Accessories• Co-operate with international sports brands for PRCmarket3

Accolades for Business2006 CCTV the BestEmployer2006 The Best Enterprise’s PublicImage AwardThe Most CreativeOrganization2005 the Most RespectableEnterprise in ChinaGroup CFO, Mr. TAN Wee Seng,honored “Outstanding CFO in China2005”Incorporated into Harvard BusinessSchool case study database forsuccessful marketing and operation inChina sports goods market4

Sustainable and Remarkable Growth(RMB Mn)4,0003,0002,0001,000958.0CAGR: 35.0%1,276.21,878.1Turnover3,180.52,450.5(RMB Mn)400300200100Profit Attributable to Equity Holders294.8CAGR: 44.9%122.494.066.9186.802002 2003 2004 2005 200602002 2003 2004 2005 2006(RMB cents)40Basic EPS3020108.9212.53CAGR: 33.9%13.7818.2528.6502002 2003 2004 2005 20065

Financial HighlightsFor the year ended 31 Dec.2006(RMB Mn)2005(RMB Mn)ChangeTurnover* 3,180.5 2,450.5 29.8%Gross profit 1,508.6 1,126.2 34.0%Gross margin 47.4% 46.0% 1.4%Operating profit 402.5 271.5 48.3%Operating margin 12.7% 11.1% 1.6%Profit attributable to equity holders 294.8 186.8 57.8%Net margin 9.3% 7.6% 1.7%Basic EPS(RMB cents) 28.65 18.25 57.0%DPS (RMB cents)- Final- Interim7.643.805.002.3052.8%65.2%* Turnover of the LI-NING brand which represented 99.6% of total turnover, rose by 35.7%to RMB 3,168.0 million.7

Turnover Analysis by Product Categories1008060As % of turnover4.78.634.40.47.639.3RMB millionLI-NING ApparelLI-NING Footwear2006 20051,673.9 1,280.61,251.0 843.3Change30.7%48.3%40LI-NINGAccessories243.1210.815.3%2052.352.7Other brands*12.5115.8–89.2%02005 2006Total3,180.52,450.529.8%Other BrandsLi Ning Brand AccessoriesLI-NING Brand FootwearLI-NING Brand Apparel* Other brands include the KAPPA and AIGLE brands. Correspondingfigures for 2005 relate to the KAPPA brand (disposed of in August2005), while those for 2006 relate to the AIGLE brand.8

High Profitability44.9%47.5%Margin Overview46.5%46.0%47.4%2002 2003 2004 2005 200610.8%7.0%9.3% 9.6%7.4%6.5%11.1%7.6%12.7%9.3%Gross MarginOperatingMarginNet Margin• Stable gross margin– Continual enhancement inproduct design contributedto maintaining high grossmargin• Operating margin on anuptrend– Effective management ofdistribution expense andadministration expense• Net margin expansion– Increased operatingmargin– Effective taxation planning2002 2003 2004 2005 200610

Key Financial IndicatorsAs at 31 Dec 2006 2005 ChangeInventory Turnover (days) 70 84 -14Avg. A/R Turnover (days) 55 44 11Avg. Trade Payables Turnover(days)67 68 -1Cash Conversion Cycle (days) 58 60 -2R&D Expenses(as % to cost of sales)A&P Expenses(as % to turnover)4.7% 5.3% -0.6%16.4% 15.3% 1.1%Effective Tax Rate 26.4% 31.1% -4.7%11

Strong Balance Sheet(RMB Mn) 2006 2005 ChangeCash and Bank Deposits* 849.2 731.5 16.1%Current Ratio (times) 2.7 3.6 -25.0%Current Liabilities 688.5 404.5 70.2%Non-current Liabilities 59.8 0.0 N/ADebt to Assets Ratio 34.6% 25.6% 9.0%Return on Equity 23.0% 17.2% 5.8%Capex 107.5 51.9 107.1%* Including fixed deposit in bank12

Review ofOperations

A Multi-brand OperatorJointVentureCo-BrandingPrincipal Brand14

Li-Ning BrandFocus on Five Key SportsRunningSoccerBasketballFitnessTennis15

Excellent Capabilities inProduct Design and Development• Expanded HK design centre to20 staff with 4 well-knowninternational designers• Cooperated with 2 US companies in NewHampshire on footwear technology• Launched innovative products with cuttingedge technology– “LI-NING Bow” – anti-shock tech– “Sky Feather” running shoes– “Flying Armor” basketball shoe16

Running - Sponsorship forProfessional Teams & Athlete• Enhanced professional image for the running series• Sponsorship for the domestic and overseas professional teams & athlete– National Athletic Team of the Republic of Sudan– Running teams of Shandong and Gansu provinces– Famous Ethiopian marathon athlete Ambesse Tolossa• Launched, the first professional running website in China,creating an interactive platform for running lovers17

BasketballStrategic Alliances with NBA• Enhanced international profile andprofessional image of the LI-NINGbrand• Joint marketing campaigns withNBA Jam Van tour in China• 5-year cooperation agreement withShaquille O’Neal in the greaterChina market to strengthen thecompetitiveness of the LI-NINGbrand in the middle- to high-endmarket while enhancing itsinfluence in the international arena• Entered into agreement with 2other NBA players, Damon Jonesand Chuck Hayes.18

Basketball - Cooperation withCUBA & world famous national teams• Strategic alliances with China University Basketball Association• Sponsored Argentine National Men’s and Women’s Basketball Teams• Sponsored Spanish National Men’s and Women’s Basketball Teams• Sponsored KFC 3-on-3 youth basketball tournament19

Soccer & Tennis• 10-year cooperation with the Federationof University Sports of China• Jointly launched the new LI-NINGChina University Football League(“CUFL”), which involves the largestnumber of universities with the highestlevel of skills and exerts the mostextensive influence in the PRC• 7-year cooperation agreement withAssociate Tennis Professional (“ATP”)as an Official partner of ATP in thegreater China market (Hong Kong,Macau and Taiwan inclusive)20

Four Gold Medal National Teams• Table Tennis• Diving• Gymnastics• Shooting• Major internationalsports events:– The 2008 Beijing OlympicGames– The 2006 Doha AsianGames21

Cooperation with SwedishOlympic Committee• Four-year term– 2008 Beijing Olympics– 2010 Vancouver Winter Olympics• Provide specially designed sportswear– Award presentation ceremonies– Competition ground• Authorized to sell Olympicsrelated products in Sweden22

Cooperation with CCTVNational Sports Channel• Two-year agreement with CCTV National Sports TV Channel (CCTV-5)– All hosts and reporters presenting on CCTV-5 will put on apparelsponsored by Li Ning– Cooperation period: 1 Jan 2007 to 31 December 200823

LI-NING Brand Outlets2006 As a % oftotal no.of storesin 20062005 2004Franchised stores 3,860 89.8% 3,005 2,272Directly-managed Retail stores 138 3.2% 111 117Directly-managed concession counters 299 7.0% 257 233Total 4,297 100.0% 3,373 2,62224 24

4th Generation Stores25

Supply Chain Management• Organized 4 large-scale trade fairs for distributors to shorten the cycle fromproduct development to order placements per annum• Achieved 100% futures contract for top franchisees.• Reformed the traditional supply chain model with advanced informationtechnology systems, E-POS system to exercise stringent inventory controland accelerate time-to-market• Implemented sales management system to offer a real time platform tomonitor sales performance and enable efficient data collection26

JV with• Established a long-term alliance via the formation of a joint venture withexclusive rights to manufacture, market, distribute and sell AIGLE productsfor 50 years• 36 stores in 19 cities of PRC27

Co-Branding with ATP and SHAQ28


Market AnalysisRMB 41billionRMB 62billion• Market growth fuelled by increasingconsumption power and the 2008 BeijingOlympics• According to the analysis, the 2nd and 3rdtier cities offer exponential growth potentialin the next few years in China2006 2008EChina’s sports goods market value• Products for running, basketball, soccer,tennis and fitness will be increasinglyimportant in the market, along with theincreasing popularity of these sportactivitiesSource: Company survey, Investment banks & Consulting company estimate,Remarks: Including footwear & Apparel, excluding the accessories30

Market Drivers879.5 UD$1507.5 US$• In next few years the disposableincome annual growth rate will be near9% *.• The Growing consumption power willfuel the growth of mid ranged and highend products.2001 2006China urban resident percapita disposable income*• With China’s urbanization, rising sportspopulation and growing number ofbusiness centers in China, the sportsgoods market is expected to maintainrobust growth200 million370 million460 million*Source: National Development and Reform Commission,National Bureau of Statistics of China,Company estimate2000 2006 2010(E)China urban population*31

Future Plansand Strategies

Future StrategiesBrandingMulti-brand operatorProducts ProductsStrengthen Product R&DNetwork ExpansionIncrease market penetrationSupply chainmanagementSpeed up time-to-market33

Multi-brand Operator• Seek opportunities for long-term cooperation with reputableinternational brands• Facilitate the entry of international brands into the PRC market34

Product Design, R&D• Emphasis on product design and technology application35

Network Expansion• Metropolitan and 1st tier cities:– Strengthen brand marketing– Launch flagship stores at primelocations– Enhance management to achievesame store sales growth withsupports of better store image,better products, better retailefficiency, etc• 2nd and 3rd tier cities– Increase penetration andcoverageLi Ning Retail OutletExpansion PlanAs at year end dateTotal2007 5,0002008 5,6002009 6,10036

Vision, Mission & Core ValuesVisionA world’s leadingbrand in the sportsgoods industryMissionThrough sports,we inspire in peoplethe desire andpower to makebreakthroughsCore ValuesAthleticism,Integrity,professionalism,passion,breakthroughs,and trust37

Open Forum38

IR ContactTo know more about Li Ning Company Limited, please visithttp://www.lining.com enquiries, please contact:Investor Relations DepartmentTel: +86 21 5879 7298Email: investor@lining.com39

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