Li Ning Company Limited · HKEX:2331
Li Ning — H1 2013 Earnings Presentation
38 slides from Li Ning's earnings presentation, August 2013
Slide 1: 2013 Interim Results
LI-NING LI NING COMPANY LIMITED AIR Fl 2013 INTERIM RESULTS UNLEASHING ru POTENTIAL
Slide 2: Agenda
AGENDA • Vision & Strategy • Transformation Plan Update • Financial Highlights • Open Forum 1
Slide 3: Disclaimer
DISCLAIMER • This presentation incorporates information contained in the interim results announcement (the “Results Announcement”) for the period ended 30 June 2013 of Li Ning Company Limited (the “Company”). This presentation should be read in conjunction with the Results Announcement and is qualif
Slide 4: Our Vision and Strategic Focuses
Our Vision and Strategic Focuses
Slide 5: Building Brand Differentiation Through Key Sponsorships
BUILDING BRAND DIFFERENTIATION Through Key Sponsorships Basketball Digital Running Badminton 4
Slide 6: Building Brand Differentiation: Takes the Stages in Notable Events
BUILDING BRAND DIFFERENTIATION Takes the Stages in Notable Events 5
Slide 7: Product Differentiation
PRODUCT DIFFERENTIATION Enhanced Research & Development Capabilities Footwear Apparel Highest sell-out rate among all running shoes since 2011 LI-NING Bow 2x sell-out rate vs. average AT Dry LI-NING Arc Highest sell-out rate for basketball shoes Super-light Basketball Coffee Charcoal Fabric 6 Shoes
Slide 8: Exciting New Products
EXCITING NEW PRODUCTS 7
Slide 9: Showcasing the 3rd Generation LI-NING Arc
SHOWCASING – The 3rd Generation LI-NING Arc 8
Slide 10: 1H 2013 Key Highlights
1H 2013 KEY HIGHLIGHTS • Industry challenges present opportunity for transformation first mover with knowhow. • First phase of the comprehensive Transformation Plan has achieved favourable results. The worst is behind us. • Performance of H1 2013 - financial results show improvement in some areas bu
Slide 11: Industry Review
INDUSTRY REVIEW Industry Challenges • Industry hangover from over-expansion • Competition from casualwear • Over supply of local brand products, undifferentiated • Changing consumer taste towards more differentiated products Winning brand needs bold differentiated strategy 10
Slide 12: Company Vision
COMPANY VISION To take Li Ning's unique sport heritage, performance DNA and the essence of Chinese athletics and to build a brand champion in China’s sportswear industry 11
Slide 13: The Comprehensive Transformation
THE COMPRESHENSIVE TRANSFORMATION LI-NING is the only company with a combination of unique sports performance brand DNA and world- class management expertise to undertake comprehensive Management and Execution Capabilities transformation of the of the company, including building an innovative retail
Slide 14: Transformation Plan Update
Transformation Plan Update
Slide 15: Transformation Plan: As Launched in July 2012
TRANSFORMATION PLAN As Launched in July 2012 • Focus on core brand sportswear in China • Improve store unit economics • Strategic investments in brand (e.g., • Rationalize network coverage through CBA and Wade) retail profiling • Make competitive products with • Strengthen outlets and direct stores
Slide 16: Transformation Plan: Status Update
TRANSFORMATION PLAN Status Update Focus Initiatives of Transformation Status (7/2013) Plan Blueprint (7/2012) Fixing the Business • Focus on sell through and clearance of channel • 90% + distributors in Channel Revival Plan inventory Channel • Channel inventory down < 7 months • Improve channel prod
Slide 17: Before the Transformation Plan
BEFORE THE TRANSFORMATION PLAN Building up to the 2012 Challenges Channel Inventory Months Store Count ~9 ~8 ~6 8,255 2009 2010 2011 7,915 A/R Turnover Days 76 47 52 7,249 2009 2010 2011 2009 2010 2011 Operating Cash Flow - RMB million - 1,307 991 16 2009 2010 2011 Network expansion continued despit
Slide 18: Near Term Focus: Fixing the Business
TRANSFORMATION PLAN Near Term Focus: Fixing the Business Fixing the Business 1. Resize the business 2. Revive channels (inventory, network, profitability & cash flow) Management and Execution Capabilities 3. Improve operating cash flow and capital structure 17
Slide 19: Distribution Channel: Channel Revival Plan
DISTRIBUTION CHANNEL Channel Revival Plan Channel Revival Plan Actions Actions • Channel inventory clearance and • Signed up distributors buyback representing over 90% of total • Network rationalization business • Adjustments in channel policies • Significant cash flow and inventory improvement and
Slide 20: Distribution Channel: Inventory Levels Coming Down
DISTRIBUTION CHANNEL Inventory Levels Coming Down Channel Inventory and Turnover Months Absolute inventory decreased ~30% Inventory Inventory Turnover Months YoY by Jun-13 ~ 9 months ~ 8 months < 8 months < 7 months 6 months Dec-11 Jun-12 Dec-12 Jun-13 Healthy Level * Current and next Q products Pre
Slide 21: Distribution Channel: Sales Network Rationalized
DISTRIBUTION CHANNEL Sales Network Rationalized LI-NING Brand Distribution Channel Network is Right Sizing Closed Stores by Ownership 8,255 7,303 27% decline 6,434 6,024 Subdistributors Distributors Self-owned Dec-11 Jun-12 Dec-12 Jun-13 Resizing store base to reverse prior over-expansion 20
Slide 22: Sales Network Rationalized: Channel Structure Becoming Healthier
DISTRIBUTION CHANNEL Sales Network Rationalized Channel Structure Becoming Closed Stores by Ownership Healthier (1H2013) -RMB ‘000/sqm- 2 Closed Stores Existing Stores SSSG: +9% ~31% of Li Ning Brand Revenue 1 Subdistributors Distributors Self-owned 0 Total Subdistributors Distributors Self-owned •
Slide 23: Products and Merchandising: Strong Performance for New Products
PRODUCTS AND MERCHANDISING Strong Performance for New Products Retail Pricing of Sell Out Rates of Current Season Products Current Season Products (average over 3 months in the season, as % tag price) (end of the season, %) ~88% 2011 2012 2013 ~88% 40% 33% ~85% 31% ~85% 1H2010 2H2010 1H2011 2H2011 1
Slide 24: Cost Structure and Cash Flows: Effective Cost Control
COST STRUCTURE AND CASH FLOWS Effective Cost Control - RMB million - Reduction Investment in Transformation - 505 + 261 -157M -128M - 220M +261M 1,611 1,367 1H12 Total Bad debt Lotto Cost reduction Basketball-focus 1H13 Total Expenses provision net impairment marketing resources Expense change and o
Slide 25: Improvements in Operating Cash Flows
COST STRUCTURE AND CASH FLOWS Improvements in Operating Cash Flows A/R Turnover Days EBITDA - RMB million - 109 304 98 58 88 1H2012 2H2012 1H2013 1H2012 FY2012 1H2013 -1,682 Operating Cash Flow - RMB million - -243 -602 1H2012 Improved Reduced sell in and 1H 2013 PF Investments in AP rationalization
Slide 26: Medium Term Goal: Building Industry Leading Platform
TRANSFORMATION PLAN Medium Term Goal: Building Industry Leading Platform Building Industry Leading Platform ManagementTeam Management and Execution Capabilities 25
Slide 27: Management Team: New Additions Fully On Board
MANAGEMENT TEAM New Additions Fully On Board Founder / Chairman Vice Chairman Introduce outstanding talents to build a strong management team NEW NEW Chief Supply Chief Chief Human Chief Finance Acting Chief Chief Product Chain Chief Designer Marketing Resources Officer Sales Officer Officer Officer
Slide 28: Branding and Marketing: Consolidating Leadership in Core Sports
BRANDING AND MARKETING Consolidating Leadership in Core Sports (Example: Basketball) Building Professionalism and Reputation of the Brand Expand Domestic Market Through Extensive Local Media Coverage Strengthen Brand Stickiness Among Core Consumers Consolidating leadership position in core sports su
Slide 29: Products and Merchandising: Innovative Merchandising Model
PRODUCTS AND MERCHANDISING Innovative Merchandising Model A+ / QR/QS Product Contribution (% of Sell In ) Trade Fair Selling Period 0% 31% 40% 4Q12 1Q13 2Q13 1.Prescriptive Order A+ / QR/QS* Product Performance (Sell Out Rates %) Top quartile QS projects having 100% better 2. Quick Replenishment (QR
Slide 30: Products and Merchandising: Improved SKU Efficiency
PRODUCTS AND MERCHANDISING Improved SKU efficiency No. of SKU Sales per SKU per store ~ - 15% ~ +10% 1H12 1H13 1H12 1H13 ~ - 20% ~ +50% 2H12 1H13 2H12 1H13 SKU reduction increased productivity, simplicity and profitability 29
Slide 31: Retail Business Model (RBM)
RETAIL BUSINESS MODEL (RBM) Building Capabilities for Future Business Quick Replenishment for 1H2013 Same Store Sales Products in Store Growth Rate difference in SSSG vs. non-RBM • Increase product sales • Avoid inventory backlog +24ppt • Provide reference point for new season fast response Fast Res
Slide 32: Financial Highlights
LI-NING J days Financial Highlights 4 hah
Slide 33: Summary of Income Statement
SUMMARY OF INCOME STATEMENT 1H2012 1H2013 (Restated*) (RMB (RMBmillion) million) YoY Change For the 6 months ended 30 June Revenue 2,905.9 3,855.4 -24.6% Gross Profit 1,266.5 1,666.0 -24.0% Distribution costs -1,209.5 -1,144.4 5.7% Administrative expenses -157.4 -466.8 -66.3% Other income and other
Slide 34: Profit Margins and Expense Ratios
PROFIT MARGINS AND EXPENSE RATIOS 1H2012 1H2013 (Restated) YoY Change For the 6 months ended 30 June Gross Profit Margin 43.6% 43.2% 0.4p.p. Operating Profit Margin -1.3% 4.7% -6.0p.p. EBITDA Margin 2.0% 7.9% -5.9p.p. Margin of (Loss) /Profit Attributable to -6.3% 1.1% -7.4p.p. Equity Holders R&D Ex
Slide 35: Key Operational Indicators
KEY OPERATIONAL INDICATORS 1H2012 1H2013 (Restated) YoY Change For the 6 months ended 30 June Average Inventory Turnover (Days) 96 93 3 Average Trade Receivables Turnover (Days) 88 109 -21 Average Trade Payables Turnover (Days) 91 111 -20 Cash Conversion Cycle (Days) 93 91 2 Return on Equity (ROE) (
Slide 36: Summary of Balance Sheet
SUMMARY OF BALANCE SHEET 2012-12-31 (RMB(RMB Million) million) 2013-06-30 Change (restated) Cash and Cash Equivalents 1,617.5 1,241.3 30.3% Bank Borrowings 793.0 1,447.2 -45.2% Convertible Bonds Liabilities 644.1 664.1 -3.0% Net Cash* 180.4 -870.0 N/A Current Liabilities 2,244.9 3,264.1 -31.2% Curre
Slide 37: Our Other Brands
OUR OTHER BRANDS Other Brands • Continued to adopt • Stable progress was achieved, including "sponsorship of sports increased sales in existing stores and stars and sports events" positive business momentum for newly as its core marketing opened stores. and promotion strategy. • Remain one of the le
Slide 38: Open Forum
OPEN FORUM Investor Relations Department Tel: +86 21 2326 7366 Email: investor@li-ning.com.cn Brunswick Group Limited Tel: +852 3512 5000 Email: LNCIR@brunswickgroup.com Please visit our websites: http://www. lining.com http://www. li-ning.com.cn