Li Ning strategy for the long term remains intact

Li Ning Company Limited will be holding discussions with analysts and investors on the estimated results of the Group for the year 2010 as well as future prospects and strategies ahead of publication of its announcement of the annual results for the year ended 31 December 2010.

Retail sales for the fourth quarter of 2010
Due to the ongoing distribution channel reform the Group has been conducting and the late arrival of winter, the same-store sales growth of LI-NING brand products for the fourth quarter of 2010 increased by approximately 3.6% as compared with the corresponding period of 2009, and approximately 3.9% for the full-year of 2010.

As at the end of 2010, the total number of LI-NING brand stores had exceeded the 7,900 target. The retail discount rate offered for the fourth quarter of 2010 was approximately 22%.

Estimated result for year 2010

The estimated key financial results of the Group for the year ended 31 December 2010 are as follows:
• The revenue growth rate of LI-NING brand products for 2010 is expected to be broadly in line with that of the China sporting goods industry.
• Due to changes in the market environment, the aggregate revenue of the Group’s other brands, including Double Happiness, Lotto, Z-DO, AIGLE and Kason recorded relatively slow growth, bringing down the Group’s total revenue growth for 2010. It is estimated that contribution from other brands to the Group’s total revenue in 2010 would maintain at about the same level as in 2009.
• Due to characteristics of the table tennis equipment business, Double Happiness, being the largest business among the Group’s other brands, saw a mid to high single digit growth in its revenue for 2010. Its contribution to the Group’s total revenue was at about the same level as in 2009.
• The Group’s gross profit margin and net profit margin for 2010 were broadly in line with levels achieved in 2009.
• New store openings fell short of the target set at the beginning of 2010. Meanwhile, the Group was still conducting tests and fine-tuning the new image portrayed in the sixth-generation stores. The number of stores under renovation was fewer than that in the previous years. As a result, the Group spent less than what was originally budgeted on provision of support to stores. Advertising and promotion (A&P) expenses as a percentage of revenue for 2010 was close to 15%.
• In light of the retail environment in 2010, the Group intensified its support to distributors, resulting in an increase in account receivable days. Nonetheless, our bad debts were still maintained at low levels. As the Group continued to strengthen its supply chain management, the inventory turnover days in 2010 exhibited an ongoing improvement. The cash conversion cycle, while longer than that of 2009, was still shorter than that of 2008.

The above estimated results of the Group for the year ended 31 December 2010 are based on management’s preliminary assessments of the Group’s unaudited consolidated management accounts for the period. Such financial information is yet to be reviewed and confirmed by the auditors and the audit committee of the Company.

The annual results of the Group for the year ended 31 December 2010, containing the detailed financial information, are expected to be announced in mid March 2011.

Prospects and Strategies
Our strategy for the long term remains intact, while implementation details are subject to fine-tuning to accommodate changes in the market environment

As one of the leading players in the sporting goods industry in China, the Group has been adhering to its core strategy and mission – Focusing on branding and product innovation and competing on differentiation. Through our focus on the essence of sports, we inspire people’s desire and power to make breakthroughs. This positioning has been underpinning the rapid growth of the LI-NING brand in the past decade. We will keep it this way.

In response to changes in the market environment, we have conducted a detailed analysis of the trends leading to changes in consumers’ needs and developments in the industry value chain. While the trends for some of the external factors were in line with the Group’s preliminary assessments, the speed at which these trends were developing was beyond the Group’s expectation.

We proactively initiated adjustments of a forward-looking nature in our strategy implementation. During the adjustment and reform process, we will stay firm on our strategic positioning as a sports brand and go the extra mile in improving our brand, products, distribution channels and supply chain to accommodate the trends in the sporting goods industry in China.

Target at the mainstream market
The Group believes that while the sporting goods industry in China will maintain a low double digit growth in the coming years, some changes on the industry’s development trends are brewing.

First of all, sports goods share some of the basic attributes of casual clothing and footwear products, such as convenience, comfort and good visual appeal, etc. These attributes have been the major growth drivers of the sporting goods industry in China in the past. If the industry were to continue to rely on these drivers, sports brands will experience difficulties in competing with leisure and casual wear brands on differentiation, making the broader competitive environment more complicated. The Group believes that the core competence of sporting goods rests in their branding and sports attributes.

This competence capitalizes on improvements of some of the fundamentals for the development of sports including growth in the sporting population, increase in the number of sports events, the increasing popularity of sports culture and the building of more venues for sports. While these fundamentals are not improving as fast as they should be, we believe this phenomenon is just temporary.

As the environment in cities in China continues to improve, coupled with the continued increase in number of sports venues as well as the development of community or youth-based sports events, the sporting population is expected to increase, which will lead to a better prospect of the sporting goods industry.