2008 Interim Results Corporate Presentation - Li Ning

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2008 Interim Results Corporate Presentation - Li Ning

Stock code: 2331We Define Our Games2008 Interim ResultsAnnouncementAugust 2008

AgendaFinancial HighlightsBusiness ReviewFuture PlansOpen Forum1

Financial Highlights2

Five Years of Solid GrowthRMB Mil5,0004,0003,0002,0001,0001,878.1CAGR: 40.4%788.72,450.51,104.33,180.51,371.94,348.7Revenue1,909.43,060.0RMB Mil500400300200100Profit Attributable to Equity Holders122.4CAGR: 57.0%54.9186.878.3294.8129.9473.6198.3333.702004 2005 2006 2007 200802004 2005 2006 2007 2008RMB CentsBasic EPSRMB MilOperating Cash Flows504030CAGR: 45.1%28.6545.8332.24600500400300CAGR: 104.5%293.4392.9575.0201013.7818.257.28 7.6512.6619.212001000134.432.9138.6107.0149.402004 2005 2006 2007 2008-100-43.22004 2005 2006 2007 2008Full year1st half3

Financial Highlights1H2008 1H2007(RMB Mil) (RMB Mil)Six months ended 30 JuneChangeRevenue 3,060.8 1,909.4 60.3%Gross Profit 1,482.2 930.4 59.3%Operating Profit 452.6 266.6 69.7%EBITDA 495.3 299.2 65.5%Profit attributable to equity holders 333.7 198.3 68.3%Basic EPS (RMB cents) 32.24 19.21 67.8%Interim DPS (RMB cents) 9.63 5.76 67.2%4

Revenue Analysis by Product Categories%100%Stable Growth of Footwear Products as of Total Revenue1.8% 1.9%12.2% 8.0% 7.8% 6.3% 5.5%80%60%57.6%58.8%53.2%52.0%47.3%Other Brands (AIGLE and Z-DO)LI-NING Brand Accessories40%LI-NING Brand Apparel20%0%45.3%38.4% 39.9%30.2% 33.2%1H04 1H05 1H06 1H07 1H08LI-NING Brand FootwearGross profit margin of LI-NING brand products 1H2008 1H2007 ChangeSix months ended 30 JuneLI-NING Brand Footwear 46.1% 48.3% -2.2 p.p.LI-NING Brand Apparel 50.7% 48.7% +2.0 p.p.LI-NING Brand Accessories 49.1% 52.0% -2.9 p.p.LI-NING Brand Overall 48.5% 48.8% -0.3 p.p.5

Li-NingBrand Revenue Analysisby GeographyNorthern Region40.7% 75.8%International Market1.1%57.7%Eastern Region38.9% 59.8%Southern Region17.4% 33.0%Domestic Market98.9%60.1%% of total revenue revenue growth6

Healthy Profit Margins%Gross Profit Margin48.1%48.7%48.7% 48.4%45.8% 45.8%1H03 1H04 1H05 1H06 1H07 1H08%Operating Margin%Net Margin14.0%14.8%10.4%10.9%12.6%9.5%10.7%11.3%10.2%7.2%7.0%7.1%1H03 1H04 1H05 1H06 1H07 1H081H03 1H04 1H05 1H06 1H07 1H087

Key Financial Indicators1H20081H2007ChangeSix months ended 30 JuneInventory Turnover (days) 61 71 -10Avg. Trade Receivable Turnover (days) 47 55 -8Avg. Trade Payables Turnover (days) 71 69 2Cash Conversion Cycle (days) 37 57 -20R&D Expenses (as % to cost of sales) 5.8% 5.2% 0.6 p.p.A&P Expenses (as % to revenue) 18.7% 17.1% 1.6 p.p.Human Resource Cost (as % to revenue) 6.6% 7.8% -1.2 p.p.Effective tax rate (%) 25.4% 25.5% -0.1 p.p.8

Solid Financial Position & Cash Flow1H2008 1H2007(RMB Mil) (RMB Mil)Six months ended 30 JuneChangeCash and Cash Equivalents(Including fixed deposits)1,429.3 821.1 74.1%Current Liabilities 1,956.0 729.8 168.0%Non-Current Liabilities 50.3 56.2 -10.5%CAPEX 99.7 81.7 22.0%Total Liabilities to Total Assets Ratio 51.4% 33.9% +17.5 p.p.Return on Equity (half-year) 18.3% 13.5% +4.8 p.p.9

Business Review10

The Winning WayBrandingProduct R&DDesignDistributionManagementSupply ChainManagement11

Olympics-related PromotionsOlympics-concept campaignsSponsored LI-NING branded gear toChina’s National gold medal winning teamsand other international teams at the BeijingOlympics 2008CCTV partnership - reporters for thenetwork appeared in LI-NING brandedproducts during the Games12

Olympics-related PromotionsEstablished flagship stores with higher standard in Olympics host andco-host citiesOlympics promotion events targeting shopping malls across China“Hero’s Assembly - LI-NING China Tour 2008”LI-NING Sports Park13

Other Innovative Marketing ActivitiesTennis: ATP partnership, Sponsorship of Ivan LjubicicBasketball: “LI-NING-SHAQ”Women’s fitness: Partnership withBeijing Nirvana YogaLocal community sports: CUFL, CUBA14

Unparalleled Product R&D and DesignDeveloped hi-tech kits for China’s 4 National gold medal-winning teamsCollaboration with MichelinApplied “LI-NING BOW” to basketballand tennis footwear productsLaunched the fifth generation super-lightand ventilated running shoesR&D centers in Mainland China, HKand Oregon, the United StatesAT Dry Smart technology15

Effective Sales Channel ManagementAggressive expansion in 2 nd and 3 rd tier cities, in which 57% of the newstores are established in these citiesStrengthened the DSR team, continuous improvement in retail managementand same-store-sales growthSet up flagship store in Olympicshost and co-host citiesLaunched 5 th generation storesNo. of store 2008-6-30 2007-12-31 2007-6-30LI-NING Brand 5,853 5,233 4,358Other Brands* 540 443 224* Other brands include Z-DO and AIGLE,16

Flexible and Efficient Supply ChainManagementOrganized 2 trade fairs for LI-NING and 3 for other brands in 1H08Improved product planning, reduced SKU and consolidated theusage of raw materialsStreamlined the logistics model to shorten transit time for deliveriesSet up a centralized procurement centre to lower procurement costs17

Replicate Core Competencies throughMulti-brand OperationPositioning Principal Brand High-end Outdoor Sub-Brand Top Table TennisSports BrandBrandItalian SportsFashion BrandProductCategoryProfessional andsports lifestyleOutdoor andcasual wearClassic andsports lifestyleTable tennisequipmentFocus on tennisand soccerFocused on5 major sportsChannel Nationwide coverage Metropolitan Hypermarkets Sports stadium,Aggressive push inand 1 st tier citiesdepartment stores,and sports2 nd and 3 rd tier citiesequipment storesMetropolitan and1 st tier cities18

— High-end Outdoor Sports BrandTargets metropolitan and 1 st tier citiesStronger retail level support with special emphasis on consumer communicationsLeverage on the Group’s distribution management experienceProduct localization to cater the tastes andpreferences of the Chinese market by tapping intothe Group’s supply chain management expertiseand in-depth market knowledgeTarget to breakeven in end of 200919

— Targets Hypermarket ChannelLeverage on the Group’s strengths in supply chain management,product development and channel managementEstablished footprint in 114 cities, with 70 distributors and 506storesAdopts a strategy of low pricing and high quality, branded productsto enjoy the first mover advantage in the hypermarket channel20

— World’s s Top Table Tennis BrandCompleted acquisition in July 2008Specialize in table tennis equipment:• Racket• Table•Ball• Rubber & GlueLeverage on the Group’s strengths in productdesign for footwear and apparel and supply chainmanagement to complete Double Happiness’sproduct offeringTap into the Group’s distribution managementexpertise to develop co-branded LI-NING –Double Happiness table tennis equipment21

— Sports Fashion BrandExclusive license for 20 years in ChinaTap into the rapidly growing sports fashion market in ChinaLeverage on the Group’s supply chain and distribution management expertise22

Outlook and FuturePlans23

Robust Growth inChina’s s Sporting Goods Sector1Strong momentum after 2008 Beijing Olympics2Urbanization and growth in disposable incomespur strong demand in 2nd and 3rd tier cities3Sports lifestyle segment has a higher growthpotential than professional sports segment4Indoor Sports like badminton and table-tennis are mostpopular sports in China, after running and basketball24

The Next Level —Branding and Products1Revamp brand’s DNA to clearly define the Group’spositioning and target consumers2Establish a benchmark sports category forthe LI-NING brand3Strengthen product Design and R&D4Adopt multi-brand strategy to cater to theneeds of different market segments25

The Next Level —Distribution ManagementTwo-pronged strategy:franchise model while deepeningengagement with end-consumersObjectives:• Metropolitan and 1 st tier cities:targets same-store-sales growth• 2 nd and 3 rd tier cities: targets furtherpenetration and same-store-salesgrowthLI-NING Store Expansion PlanAs at Year End No. of Stores2008 6,2002009 7,0002010 7,8002013 Over 10,000By 2013, the plans to establishover 10,000 stores with storeefficiency more than doubled ascompared to 200726

The Next Level —Supply Chain Management1Streamline the supply chain management to cater to theneeds and characteristics of our multi-brand portfolio2Further improve cost and overall efficiency3Gear the supply chain for international expansion27

The Next Level —International Expansion2009-2013: preparation stage, focus more on developingcapabilities for international expansion:• Talent• Supply chain• Product design• Branding• The expansion modeBy 2018: become one ofthe world’s top 5sports brands,with revenue contribution of20% from international business28

Vision, Mission & Core ValuesThrough sports,we inspire in peoplethe desire andpower to makebreakthroughsMISSIONA world’s leadingbrand in the sportsgoods industryVISIONAthleticism,integrity,professionalism,passion,breakthroughs,and trustCORE VALUES29

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