2011 Annual Results Corporate Presentation - Li-Ning

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2011 Annual Results Corporate Presentation - Li-Ning

Summary of Income Statement(RMB million)FY2011 FY2010 ChangeFor the year ended 31 DecemberRevenue 8,928.5 9,478.5 -5.8%Gross Profit 4,114.5 4,481.6 -8.2%Operating Profit 631.0 1,546.8 -59.2%Profit Attributable to Equity Holders 385.8 1.108.5 -65.2%Earnings per Share (RMB cents) 36.70 105.84 -65.3%Full-year Dividend per Ordinary Share(RMB cents)11.13 42.12 -73.6%Comprising: Final Dividend Nil 19.97 N/AInterim Dividend 11.13 22.15 -49.8%3

Profit Margins and Expense RatiosFY2011 FY2010 ChangeFor the year ended 31 DecemberGross Profit Margin 46.1% 47.3% -1.2p.p.Operating Profit Margin 7.1% 16.3% -9.2p.p.Margin of Profit Attributable to Equity Holders 4.3% 11.7% -7.4p.p.R&D Expenses (as % of revenue) 2.6% 2.6% 0A&P Expenses (as % of revenue) 17.6% 15.1% 2.5p.p.Staff Costs (as % of revenue) 8.7% 7.5% 1.2p.p.Effective Tax Rate 24.9% 25.0% -0.1p.p.4

Key Operational IndicatorsFY2011 FY2010 ChangeFor the year ended 31 DecemberInventory Turnover (Days) 73 52 21Average Trade Receivables Turnover (Days) 76 52 24Average Trade Payables Turnover (Days) 94 71 23Cash Conversion Cycle (Days) 55 33 22Return on Equity (ROE) (full year) 11.3% 36.7% -25.4 p.p.Return on Asset (ROA) (full year) 5.9% 19.0% -13.1 p.p.CAPEX* (RMB million) 387.8 272.3 42.4%* Excluding acquisition expenditures5

Summary of Balance Sheet2011-12-31 2010-12-31 Change(RMB million)Cash and Cash Equivalents 1,196.5 1,470.4 -18.6%Bank Borrowings 838.1 312.2 168.4%Net Cash* 358.4 1,158.2 -69.1%Current Liabilities 3,063.1 2,371.6 29.2%Current Ratio (times) 1.56 1.77 -0.21Total Liabilities to Total Assets Ratio 50.0% 45.8% 4.2p.p.*Net Cash = Cash and Cash Equivalents – Bank Borrowings6

LI-NING Brand Revenue Breakdown by Product CategoryLI-NING Brand Revenue Breakdownby Product CategoryRevenue from LI-NING brandto the Group Total51.7%41.8%50.2%43.8%91.4% 92.1%6.5% 6.0%8.6% 7.9%LI-NING brand apparelLI-NING brand footwearLI-NING brand accessories / equipmentRevenue from LI-NING brandRevenue from other brandsFY2011 FY2010 FY2011 FY2010* The proportion of LI-NING brand footwear has resumed anupward trend since first quarter of 20127

LI-NING Brand Revenue Breakdown by GeographyInternationalMarket1.9%Northern41.7% -7.8%Southern19.8% 0.5%Eastern36.6% -9.8%DomesticMarket98.1%% of Total Change8

Business Review

Rising costsConsumers “trading up”An Analysis of the Sporting Goods IndustryCurrent characteristics of the industryChanges in the businessmodel of sporting goodsindustry driven byContribution from footwear products is gaining importanceProducts priced in mid-to-low range remain the largest product segment at present,yet the sales of products in the mid-to-high range are growing at a faster rateMarket evolved from being “store expansion driven” to “brand/product driven”10LI-NING’s Strategy – Strengthen communications with consumers through sportscategory and brand differentiationSports and product categories• Continue to promote the badminton category as LI-NING’s benchmark sport• Continue to develop the running category• Continue to strengthen brand investment in the basketball categoryBranding• Accentuate the brand personality with unique brand DNA• Leverage strong cast of sports sponsorship resourcesPricing strategy• Adopt a product innovation-led strategy to drive volume growth in the largest productsegment (mid-to-low price range)• Use running and basketball category products to drive proportion of revenuecontributed by mid-to-high range products

Leveraging on Brand StrengthsAdvertising & marketingSports eventMarketing promotionRunningBasketball2011 BWF World SuperseriesLI-NING Supreme 5 MixedDoubles Badminton CupFINA World ChampionshipsWorld GymnasticsChampionshipsTable Tennis World CupLaunch of LI-NING ARCproductsLaunch of LI-NING 8thGeneration ultralightrunning shoesLaunch of “The StrongerYou Are, The Stronger IBecome” basketballproductsKey strategies in 2012Roll out integrated marketing activitieswith the Olympics themePromote marketing and salessurrounding the product technologyplatformStrengthen brand marketing execution andfocus on key product categories such asbadminton, running and basketball11

Seizing Opportunities in London 2012 Olympic GamesGetting prepared for theLondon 2012 Olympic GamesAttended brick unveiling ceremony of theIOC Olympic Museum and activated owncountdown timer for the London 2012Olympic Games on 26 July 2011Full exposure of LI-NING brandContinuously support and sponsor five goldmedal-winningChinese National TeamsTop-notch sponsorship resources:Swedish Olympic DelegationSpanish National Basketball TeamArgentina National Basketball TeamEritrea Track & Field National Team,which is renowned for long distancerunning12

Top Endorsement ResourcesTop-notch Athletes / Sports Teams /Sports ClubsTournamentsOther important sponsorship resourcesBadmintonChinese National Badminton Team*Lin DanBadminton China Open / ChinaBadminton Masters / China BadmintonClub Super League / China NationalBadminton Cup / Singapore BadmintonOpenShanghai Badminton Team / BayiBadminton Team / GuangdongBadminton Team / Singapore NationalBadminton Team / Australia NationalBadminton Team / New Zealand NationalBadminton Team / Jan O Jorgensen /Boonsak PonsanaTrack & Field /RunningAsafa Powell / Yelena IsinbaevaAndreas Thorkildsen / Christian Taylor/ Ngonidzashe MakushaBeijing International Running Festival11 Domestic Track & Field TeamsEritrea National T&F TeamDomestic AthletesBasketballShaquille O’ Neal / Baron Davis / JoseCalderon / Evan Turner / SpanishNational Basketball Team* / ArgentinaNational Basketball Team*NBLLI-NING China Basketball Training CampShanghai Sharks Basketball ClubZhejiang Guangsha Basketball ClubChina Youth Basketball TeamOther Domestic PlayersOlympicChampion TeamsChinese National Table Tennis Team*/ Chinese National Diving Team* /Chinese National Shooting Team* /Chinese National Gymnastics Team*USA Diving Team*Swedish Olympic Delegation*USA Diver David BoudiaTennisMarin Cilic / Ivan Ljubicic / Peng Shuai/ Yan ZiATP Yang Tsung-hua / Pliskova Twins /Zheng SaisaiWoman’s Fitness Lesmills China LI-NING Yoga Workshop Nirvana Yoga / CSI Bally / Physical Club ofShenzhenFootballChinese University Football League*These sports teams will attend the 2012 London Olympic Games wearing LI-NING branded gear13

Pressing Ahead with Distribution Channel ReformsProgress in 2011Proactively controlled pace of store opening andfocused effort on the reforms of distribution channelstructureDedicated more effort to building clearance channelsInitiated the repurchase of part of the inventory fromdistributorsImproved management efficiency of distributionchannels and continued consolidation andmanagement of sub-distributorsPlan in 2012Establish clearance channels at a reasonable and fast pace toachieve practical and healthy store structureBig push on promotion of the new sixth-generation storesAccelerate the construction of brand image stores andbenchmarking storesStep up the development of shopping mall channelsStrengthen the performance assessment of sub-distributorsNo. ofAs at 31Dec2011LI-NINGBrandFactoryOutletsLI-NINGBrandDiscountStoresSixth-GenerationLI-NING brandStoresConsolidatedSub-Distributors269 358 219 425149,0008,8008,6008,4008,2008,0007,800LI-NING Brand Stores Number Target8,8508,6508,4508,2552011 2012E 2013E 2014E

Enhancing Product CompetitivenessStrengthen product quality while fusinginnovative features that are aligned withthe brand’s positioning and DNAStrengthen the development of producttechnology platformsFine-tune product pricing structure to offerconsumers value-for-moneyResearch & Development and Design Centres in Beijing andHong KongProducts for Professional Sponsorships – Develop superiorsports gear for professional athletesFootwear products• Improve innovation of technology platform• Develop product familiesApparel products• AT Technology Platform• Optimize fabric integration and improve standards forcolour and pattern designBadminton Racket• “3D Breaking-free Technology Platform” and “Air StreamSystem Technology Platform”15

Supply Chain ManagementProduction facilities in Jingmen, HubeiThe base continued to scale upwardsThe “LI-NING Logistics Centre” inJingmen is at implementation andtesting phase. It is expected to begintrial run in the first half of 2012Strengthen supplier educationPut greater effort in educatingsuppliers in fulfilling socialresponsibilities in the supply chain aswell as management of chemicalsCo-published “The Joint Roadmaptowards Zero Discharge of HazardousChemicals by 2020” with otherleading brandsDevised “Restricted Substance List forApparel, Footwear and AccessoriesProducts”Jingmen16

Other BrandsReinforce its competitive edge in Table Tennis andmaintain collaborative relationships with top-notchtable tennis athletes and clubsStrengthen product research and developmentSame-store sales exhibited a persistent trend ofsignificant growthEnhanced placement of advertising in outdoormedia and travel magazinesStrengthen retail managementContinue to comprehensively enhance Kason’sbrand positioning, product structure, researchand development and sales channelRaise brand awareness through differentiated andintegrated marketing initiativesSeek to adjust business model in 2012 to alignwith the Group’s overall strategiesThe Group has decided to discontinue the business of Z-DO brand andits development plan for the Double Happiness branded footwear andapparel in order to better focus its efforts and resources on the coreLI-NING brand business.17

Outlook &Future Strategies

Outlook in 2012Challenges faced by the industryInventory problem at the retail end remains severeThe interaction among suppliers, brands and distributors during industry transformation willinfluence value allocationMain tasksAdjust SG&A expenses structure, enhance operational efficiency• Reduce staff costs• Reduce daily operating expenses, consulting fees, etc.• Maintain an appropriate level of investment in brand marketingAdjust product structure and increase product gross profit marginContinue to clear inventory at the retail endPress ahead with distribution channel reform and increasing retail efficiency in second- to fourth-tier citiesSeize the market opportunity presented by the London 2012 Olympic Games to enhance brand image19

Adhering to Long Term StrategiesStrict adherence to brand positioning and essence of sportsFuse brand positioning and effective use of sports marketing resources toachieve brand differentiationEnsure creativity is converted into effective communication, highlight brandpersonality and accentuate Chinese conceptPress ahead with distribution channel reforms and strengthen distributor/sub-distributor’s management capabilityPursue an SSSG-led growth modelExercise better sell-through management to drive sell-in growthPersistent improvement in product R&D and designMake better value for money a strategic priorityEnhance supply chain efficiencyDeliver better economies of scale from supply chain and increase flexibility20

Vision, Mission and Core ValuesVisionMissionCore ValuesA world’s leading brandin the sporting goodsindustryThrough sports, weinspire people thedesire and power tomake breakthroughsLive for DreamIntegrity and commitment“We” CultureAchieving excellenceConsumer orientedBreakthrough21

Open Forum

Investor Relations Contactshttp://www.lining.comhttp://www.li-ning.comhttp://www.irasia.com/listco/hk/lining/http://www.hkex.com.hkinvestor@li-ning.com.cn23

DisclaimerThis presentation incorporates information contained in the annual results announcement (the “ResultsAnnouncement”) for the period ended 31 December 2011 of Li Ning Company Limited (the “Company”).This presentation should be read in conjunction with the Results Announcement and is qualified in itsentirety by the more detailed information and financial information contained in the ResultsAnnouncement.Other than the information contained in the Results Announcement, you may not reproduce or distributethis presentation, in whole or in part, and you may not disclose any of the contents of this presentation oruse any information herein for any purpose without the Company’s prior written consent. You herebyagree to the foregoing by accepting delivery of this presentation.The contents of this presentation have not been reviewed or approved by any regulatory authority in HongKong or elsewhere. The contents of this presentation are not investment, legal or tax advice. You areadvised to exercise caution in perusing the contents of this presentation. If you are in any doubt about anyof the contents of this presentation, you should obtain independent professional advice.24

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