In 2017, as the national economy continued to grow and the consumption structure of residents improved, particularly the rising demand for sports consumption, the Group further optimized various operational indicators by steady implementation of the development strategies and launch of the related measures, achieving encouraging results.
According to the statistics of the National Bureau of Statistics, China's Gross National Product (GNP) registered a year-on-year increase of 6.9% in 2017, extricating itself from the gradual slowdown trend since 2011. The national disposable income per capita of urban and rural residents recorded a real increase of 7.3%. Engel coefficient, which can reflect the consumption structure and purchasing power, dropped from 30.1% in 2016 to 29.3% in 2017. This marks that Chinese residents have been basically at the entry level of affluence and residents' consumption structure has improved. The improvement of consumption structure further refined consumption demand and thus made it more mature. Specifically regarding sports consumption, tournaments and events stemming from healthcare, entertainment and athletic competition demands are growing daily, which has laid a favorable foundation for the long-term development of the entire sports industry. According to the statistics of Chinese Athletic Association, the number of people regularly participating in physical exercises in the country grew from approximately 380 million in 2010 to approximately 440 million in 2016.
During 2017, revenue of the Group maintained a stable growth and our profitability improved steadily. The profit attributable to equity holders increased from RMB330 million in 2016 to RMB515 million in 2017 (comparative figures excluding net gain on disposal of 10% equity interest in Double Happiness), whereas other key operational indicators saw significant improvement. During the year, creating LI-NING's experience value remained our focus. Our innate sports DNA has impelled us to place more emphasis on sports research and the investment in product research and development (R&D) and design to constantly conduct R&D, design and launch professional products for athletes and sports enthusiasts. Incessant imagination, on the other hand, is guiding LI-NING brand to be more trend-setting by closely integrating fashion, entertainment and leisure elements with professional sports, therefore providing consumers with more precise consumption experience.
OPTIMIZE LI-NING'S BUSINESS MODEL AND ACHIEVE HEALTHY PROFIT GROWTH
In 2017, the Group's various key operational indicators continued to improve. During the year, revenue of the Group grew by 11%, while the net profit margin rose from 4.1% last year to 5.8% this year (comparative figures excluding net gain on disposal of 10% equity interest in Double Happiness). Cash flow from operating activities increased by approximately 40% to RMB1,159 million. Meanwhile, working capital improved significantly, with Cash Conversion Cycle (CCC) shortened from 59 days in 2016 to 49 days in 2017. The distributors have resumed confidence gradually. In terms of tag price, trade fair orders for LI-NING brand products from franchised distributors registered a year-on-year growth for seventeen consecutive quarters.
During the year, we continued to focus on productivity and efficiency in a bid to constantly optimize LI-NING's business model. By establishing the "precise + swift" operation model in line with retail efficiency and effective operation, we sustained healthy business growth and continued to improve the efficiency of our sales channels. The overall retail sell-through of our brand registered a high-single digit growth. The same-store sales for overall platform, including online and offline, recorded a mid-single digit growth, while e-commerce business recorded a low-forties growth on a year-on-year basis.
Based on our more precise trade fair order strategy adopted in 2017, the efficiency of our offline channel gradually rose through fine tuning. For the channel, the amount of inventory further declined, resulting in more reasonable inventory turnover and healthier structure of inventory ageing. Sell-out ratio of new products (including that of distributors) also surged.
Strengthening retail capability remained our core premise for the year. Through continuous establishment and improvement of retail operation-supported platform, we have further enhanced shopping experience of customers. Moreover, we continued to facilitate the transformation of our product operation model, improve in-store order management and enhance order precision, thereby better capturing fashion trends in market. In terms of channels, we have taken continuous initiatives to refine channel structure and raise channel efficiency by implementing various measures including closing down and renovating inefficient and loss-making stores and opening highly efficient and profitable key experience-concept stores.
As at 31 December 2017, excluding LI-NING YOUNG Point-of-Sales (POS), the number of LI-NING POS in China recorded a net decrease of 178 to 6,262 as compared to 31 December 2016. Meanwhile, LI-NING YOUNG business newly opened 173 POS.
Create more professional and more unique products through imagination and innovation
In 2017, in order to further enhance our brand influence, we better combined professional sports with fashion, entertainment and leisure. We have also made innovative designs to enhance productivity based on various sporting products, thereby improving LI-NING's product competitiveness.
On professional product level, we continued to accumulate knowledge of sports during the year and apply such knowledge to our product design. We offered exclusive and highly professional experience to sports players in tandem with the revolution of functional material and scientific technology, thereby enhancing LI-NING brand's competitiveness in mainstream mass sports in China with more involvement, contribution and engagement in these mainstream sports. Way of Wade 6 basketball shoes adopted Drive Foam rebounding technology jointly developed with BASF in Germany for the first time; Eleventh Generation of "YuShuai" basketball shoes was nominated for Compasso d'Oro Award, the most influential design award in the world. On the other hand, we also conducted more communication and interaction with consumers, so as to create LI-NING's product experience and sports experience and thus create brand experience. Taking "Super Light 14th" running shoes as an example, we effectively combined various differentiated advertising techniques and unbounded innovation with promotion on "Moments" through Wechat platform based on different customers by identifying customers precisely through big data. Moreover, we created a craze for super light pop-up stores in prime commercial zones in a number of cities, further closely communicating with end consumers. Meanwhile, with support of the Group's sports resources for athletes, sports teams and tournament marketing, we have enhanced our interactive experience with consumers, thereby producing truly competitive products and enhancing our brand value in the minds of consumers. In 2017, the Company continued to sponsor China Basketball Association (CBA) Professional League, China Junior & high school Basketball League, China University Basketball League (CUBA) and Women's China Basketball Association (WCBA). As a result, LI-NING brand and the underlying products firmly dominated China's professional and collegiate basketball leagues at all levels.
In addition to developing professional products, we also reflected and proactively sought ways to enable our professional products more closely connected with cultural life. During the year, we cooperated with certain sports stars such as Dwyane Wade, a renowned NBA star. By delivering and integrating elements of his personality and lifestyle into the designs of our products, we developed a number of commemorative products, which were widely popular. We also have reached in-depth cooperation with fashion media and realized product placement during media shooting of artists. Moreover, we interacted with the media to reach the circles of media fans and artist fans. Meanwhile, we cooperated with GAI, the winner of The Rap of China, to launch co-branded shoes "GAI shi wu shuang". By integrating fashion elements into our products, we have created fashion sports experience for our customers.
Our innate sports DNA has impelled the Group to continuously open up space for imagination as well as create more professional and stylish products and sports experience for sports enthusiasts and life enjoyers in 2017.
IMPLEMENT PRECISE PRODUCT PLANNING, OPTIMIZE EFFICIENCY OF SALES CHANNELS AND ENHANCE RETAIL CAPABILITY
In 2017, we focused on enhancing our retail capability in some aspects, namely product planning, product design, integration of supply chains and channels, and improvement in the efficiency of retail operations. Altogether, this would also be an overriding challenge in the future.
As for the transformation of product operation model, we are dedicated to enhancing the precision of our product planning, which includes building a portfolio of products with both long and short life-cycles. Further, we established a design team of the Southern region to conduct precise management relating to product design, assortment and discount based on the diverging market sentiments and preferences between Southern and Northern Chinese markets. One of our key efforts during the year was to promote precise single store order. By performing research and study on the close ties between store assortment and consumer demands, we have gradually developed a more efficient assortment model, consolidated our product offerings and precisely aligning them with consumer demands. Meanwhile, we continued to optimize the supply model and increase the efficiency in product delivery, striving to satisfy end-user demands in a "swift + precise" way.
Concerning channel and operating efficiency, we persisted in establishing and improving a retail operation-supported platform and adopted the shopping experience-oriented approach to enhance and re-shape retail experience at stores constantly. During the year, the Group continued to consolidate the commercial zone market analysis on the business structure at all market levels. Coupling this with the development of consumer group structure, we have optimized the overall matrix of our store images and categories. Meanwhile, catering to different sports product categories and city tiers, we also made a differentiated market layout for product coverage and continued to refine the operating standards and detailed rules for all store categories. We also set up an online training system to enhance staff's professional knowledge on products and customer service standards. Taking advantages of the existing sponsorship resources and activities, we added value to customers' in-store experience in our retail outlet stores with the product competitiveness and brand strengths in a flexible and diversified manner.
As China's society, cities and towns will continue to undergo rapid developments and with the constant increase of disposable income per capita of urban residents in the future, unprecedentedly favorable opportunities for business development will be brought by the promotion of nationwide fitness. From the competition, training, entertainment and health perspectives, the public's consumption of sports products and sports culture-related items will provide industry players with more opportunities. Moreover, the Group will offer more professionalized products and services in the future, thereby achieving real sports value. In 2018, the Group will further strengthen and improve the following business focuses:
Adhering to the principle of "everything is business-oriented", aiming to enhance our expertise and operation efficiency and focusing on continuous efficiency improvement, we will steadily improve our profitability and further expand our business scale;
Continuing to improve our products and retail operation efficiency, we will upgrade the business model of LI-NING, establish and optimize the "precise + swift" operation model in line with retail efficiency and effective operation, in order to stimulate the vitality of the Company through business model;
Conducting tests and researches for LI NING's products, we will establish and improve the combination of professional sports, fashion, entertainment and leisure demand. Innovative designs will be made to enhance productivity based on various sports features; meanwhile, by constantly accumulating our knowledge to sports and exercise as well as making use of sports resources, we will improve our interactive experience with consumers, so as to enhance our brand value;
Exercising reasonable and prudent use of resources invested in the sports category market with business opportunities, including Danskin brand, LI-NING YOUNG and "" label, we will foster new opportunities for the Company's long-term growth.
As we enter the modern era driven by knowledge, innovation and technology, the Group will devote its major resources into sports knowledge learning, technological research and development and application as well as LI-NING brand experience development. As the founder and operator of the Company, I always highly regard the interests of investors, and cherish their care of LI-NING brand and unremitting supports to the Company. The management and I will spare no efforts to steer the Company forward towards further development in the future, forging a LI-NING brand full of vivacity and creativity in a new era. "Anything is Possible"!
Executive Chairman and Interim Chief Executive Officer
Hong Kong, 21 March 2018