In 2020, despite the global economy hit hard by the COVID-19 pandemic, through the effective pandemic prevention and control measures and structural reform, China’s national economy has recovered steadily, showing strong resilience. Although the sports industry was under pressure for a short period due to the pandemic, driven by the resumption of work and production, consumption market has been recovering at an increasingly faster pace. The increasing health awareness of residents has also boosted the continuously growth in sports consumption scale. In addition, as the national policies facilitate quality development in the sports industry in a proactive manner, the development potential of sports consumption market is still immense. During the year, the Group enhanced and optimized LI-NING’s experience value comprehensively by continuing to focus its efforts on products, channels and retail capability, and supply chain optimization and upgrade, and steadily promote the core strategy of “Single Brand, Multi-categories, Diversified Channels”, so as to further strengthen both our brand and product competitiveness.
According to the statistics of the National Bureau of Statistics, China’s GDP in 2020 registered a year-on-year growth of 2.3% and the effective growth rate of residents’ per capita disposable income in China reached 2.1%, basically in line with the economic growth. Driven by the continuously improving household living standard, further optimization of consumption structure as well as significant increase in consumers’ health awareness attributable to the pandemic, the sports industry has been developing robustly. Under the normalized pandemic prevention and control, the State Council encourages fitness at home and popularizes “Internet + fitness” model, diversifying mass online and offline sports activities, as well as supporting the development of online sports platforms, thereby boosting the sportswear consumption related to fitness at home and online events. The national policies are actively supporting quality development of sports industry, it was proposed in the 14th five-year plan that as sporting goods industry is at the window of the policy, we should accelerate the promotion of building a strong sports nation and constantly innovate the supply mechanism of sports products based on the diversified sports needs of citizens so as to improve the quality of sports product supply and guide the new demand for sports consumption. According to the estimation from the Administration of Sport of China, it is expected that by 2035, the sports industry in China as a whole will account for approximately 4% of the GDP and will become an anchor industry for the development of the national economy.
During the year under review, despite the impact of the COVID-19 pandemic, revenue of the Group still grew steadily with our profitability continuously improving. The profit attributable to equity holders increased from RMB1,266 million in 2019 (excluding one-off profit and loss not related to operation of RMB234 million) to RMB1,698 million. During the year, the Group put great emphasis on enhancing LI-NING’s experience value by striving to meet the personalized needs of consumers through precise marketing strategies and continuously increase the satisfaction of consumer experience through comprehensive services and innovative ways of interaction. Our innate sports DNA has impelled us to enhance the professional and functional features of our products and continuously upgrade our product performance by making greater research and development efforts, in addition, through in-depth analysis of fashion culture, we constantly shaped our sports products with new styles and new appearances with a view to strengthening brand influence.
CONTINUE TO OPTIMIZE AND UPGRADE BUSINESS MODEL LEADING TO STEADY IMPROVEMENT IN PROFITABILITY
In 2020, revenue of the Group grew by 4.2%, the net profit margin rose from 9.1% (after excluding one-off profit and loss not related to operation) of last year to 11.7%. Due to the impact of the COVID-19 pandemic, cash flow from operating activities decreased by 21.1% to RMB2,763 million. However, working capital still improved continuously with the Cash Conversion Cycle (CCC) shortened from 26 days in 2019 to 20 days in 2020.
With consumers’ increasingly more diversified and quality sport consumption demand, we enhanced and strengthened LI-NING’s experience value comprehensively by continuing to focus our efforts on products, channels and retail capability, as well as supply chain optimization and upgrade, and practically implement the core strategy of “Single Brand, Multi-categories, Diversified Channels”. We further enhanced the product’s professional and functional features by scaling up the efforts on research and development so as to continuously upgrade product functions; meanwhile, we injected elements of popular culture into our professional sports products in a perfect manner to persuade consumers out of having a dull impression on our sports products; we continued to optimize our channel structure and accelerate the reform of retail operation models; we deployed the omni-channel strategy by actively exploring new retail for further unleashing channel efficiency; we strengthened supply chain management centering on business needs and enhanced the responsiveness and elasticity of the supply chain.
FOCUS ON THE STRATEGY OF “SINGLE BRAND, MULTI-CATEGORIES, DIVERSIFIED CHANNELS” CONTRIBUTING TO CONTINUOUS ENHANCEMENT OF PRODUCT AND BRAND COMPETITIVENESS
During the year, we focused on the implementation of the strategy of “Single Brand, Multi-Categories, Diversified Channels” and continued to emphasize on the professional and functional features of our products; we continued to scale up the efforts on research and development so as to upgrade product functions. At the same time, we actively explored the ways of combining professional sports and fashion culture to create professional sports products integrating excellent functions and unique styles, and we further strengthened core product and brand competitiveness by expanding consumer groups through diversified marketing.
Our innate sports DNA has impelled us to put more emphasis on sports research and we strived to empower professional products with technology and build professional cutting-edged equipment. Through long-term exploration and practice of ergonomics by our team, we launched “Shadow” (絕影) bullet speed running shoes combining dual technology of “LI-NING 弜” (李寧弜) and “LI-NING 䨻” (李寧䨻), offering faster rebounding and supreme sport protection and bringing continuous momentum and care to runners. Moreover, with in-depth application of “LI-NING 䨻” (李寧䨻) technology, we launched a new generation of racing shoes, namely “Boom 2.0” (飛電2.0) and “Boom Challenger” (飛電Challenger), the boosters of which has increased by 10% as compared with the previous generation of “Boom” (飛電) with significantly upgraded sports performance. In addition, we also expanded the “LI-NING 䨻” (李寧䨻) technology from running category to core categories such as basketball and training, thereby continuing to empower products in the professional field.
We continued to focus on sports casual field and carried out cross-sector collaboration with multiple themes and dimensions. As we marked the 30th anniversary of the establishment of LI-NING brand, we visited the ancient Silk Road with a history dating back to thousands of years ago and held a fashion week themed “Silk Road Exploration” in Dunhuang Yardang Ghost Town. The product designs were inspired by the well-known legendary stories of the Silk Road with a view to widely spreading the Chinese culture and essence beneath the sand, showing the world the re-flourishing of Silk Road traced back to thousands of years ago. Amidst the pandemic, we attended a digitized “Paris Fashion Week” to release China LI-NING 2021 Spring and Summer Series products. We adopted the core design concept of “Arts of Sports” and brought about new sports-based cutting styles and patterns through artistic demonstration and contemplation of human energy, thereby creating a unique style exclusively for China LI-NING.
During the year, we kept abreast of hot social issues and launched story-packs themed with major events such as Chinese New Year and the resumption of work and production, which has continuously attracted consumers’ interests in our brand. Meanwhile, we further built up our fans economy by signing with Hua Chenyu (華晨宇), a high-quality artist, to be the spokesperson for our sports casual category, and commencing in-depth collaboration with various quality young artists, thereby further enhancing our brand influence among young consumers. In addition, we maintained sound cooperation with long-term sports resources such as the CBA League. In the first half of the year, with the suspension of sports events as affected by the pandemic, we actively explored various new marketing approaches. For instance, in respect of our badminton category we gathered a champion team comprising celebrity players and arranged live streaming of the event. Through the flexible use of these cross-sector and digitalized means, we have continuously captured the attention of consumers and increased the exposure of our brand in the professional sports field.
ENHANCE RETAIL OPERATION CAPABILITY AND OPTIMIZE SUPPLY CHAIN SYSTEM TO IMPROVE CHANNEL EFFICIENCY
In 2020, the transformation of product operation model and the improvement of retail operation capability remain as our major tasks in facilitation for further unleashing channel efficiency. We continued to refine the function of LI-NING’s retail operation platform in order to realize a closed-loop tracking of the retail operation and execution of stores, which effectively facilitated the store operation and efficiency enhancement. We have also accelerated the introduction of the strategy of big stores with high efficiency across China, at the same time establishing an assortment and operation management model that embodies the sporty and trendy image of LI-NING brand, as well as refining its talent cultivation system on an ongoing basis. In addition, in response to the strategy of big stores with high efficiency, we continued to upgrade the visual image of stores and optimize consumers’ experience to enhance recognition of and loyalty to our brand.
In respect of supply chain, in order to align with the Company’s development needs under its core strategies, we continued to intensify our efforts in resource consolidation along the footwear and apparel supply chain and further enhanced the flexibility and fast response capability of the supply chain system with a view to facilitating the realization of the “Demand-driven” (因需而動) dynamic business model and establishment of a precise, flexible and efficient supply chain management system. Through consolidation and evaluation of our supply chain resources with an emphasis on customized and differentiated product demands, we have strengthened the synergistic cooperation with our suppliers in a bid to enhance our competitive advantages. Meanwhile, the Company continued to work diligently on the establishment of its own supply chain system and remained committed to gradually instilling the core industrial capabilities into LI-NING’s system over time, which has hence strengthened its own supply chain management and the application of knowledge regarding technological research and development. In respect of cost management, the Company continued to implement stringent cost planning and practiced the concept of cost control and management on all areas ranging from design, development to various production stages with a view to driving optimization and upgrade of cost structure with concerted efforts.
In respect of sales channel, by continuing our focus on multi-channel strategy, we propelled the enhancement of the efficiency of retail channels and improved the quality of market coverage. During the year, we accelerated the promotion of diversified channels development. We stepped up our efforts in layout planning of big stores with high efficiency and adjusting the channel expansion plan on a dynamic basis with a view to ensuring true efficiency and profitability of newly-opened stores. Meanwhile, we continued to actively accelerate the closure of loss-making and low-efficiency stores to optimize structure of channels and improve channel efficiency.
With the economic development and steady improvement of national per capita disposable income, coupled with the increasing health awareness of the general public, the sports population will experience booming growth, which will fully activate the growth drivers for sports consumption. The development of the sports industry has embarked on a fast track. In recent years, the sports market is gradually shifting towards a more diversified, refined and high-quality direction. Innovative technology such as 5G, Internet of Things and artificial intelligence enabled further enhancement of the sports industry. The refinement of big data regarding the sports industry and the accelerated growth of online sports consumption have opened up more new opportunities for the development of the sports industry. Looking forward, the Group will continue to improve the following core business focuses, enhance LI-NING’s experience value and increase the efficiency of retail operation with a view to achieving healthy and sustainable profit growth for the Company in the future, at the same time achieving real sports value:
Strive to maintain sustainable profit growth with a focus on continuous efficiency improvement, so as to enhance product and brand competitiveness, steadily improve profitability and further expand business scale;
Continue to promote the strategy of “Single brand, Multi-categories, Diversified channels” and optimize LI-NING’s experience value in full swing. We will constantly focus on product functions and technological innovation, and continue to enhance our capability of analyzing fashion trends and markets, enhance consumers’ product experience, at the same time continuing to improve our diversified marketing approaches and push forward the development of digitalization strategy in an effort to expand our brand influence;
Continue to focus on the efficiency of our sales channels and strive to increase the efficiency of our product and retail operation. We will continue to expand the big stores with high efficiency and reinforce the online and offline integrated operation model by consolidating layout of sales channels and further enhancing our store operation standards. We will also precisely capture consumer demand and improve online and offline sales efficiency through new retail initiatives and big data analysis, at the same time stepping up our efforts in the establishment of supply chain management system in a bid to continuously enhance the capability in terms of our own supply chain management and the application of knowledge regarding technological research and development;
In respect of new business, enhancing single store profitability will remain as our major development goal. We will make reasonable and prudent use of resources to explore business opportunities and market potential, in order to foster new opportunities for the Company’s continuous profit growth in the long run.
We are committed to establishing LI-NING brand as a world-class international professional sports brand with fashion attributes that is originated from China and recognized worldwide. Looking forward, we will continue to achieve steady growth of our results by enhancing our business capability. We will devote main resources into gaining sports knowledge, placing emphasis on technological research and development as well as pop culture analysis, striving to actively explore and broaden rooms for business development, consolidate our brand influence and enhance LI-NING experience value so as to inject more vitality and creativity to the brand. 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. Meanwhile, I would like to express my sincere gratitude to our dedicated and hardworking staff. The management and I will spare no efforts to steer the Company forward towards further development in the future, forging a LI-NING brand with athletes’ DNA. “Anything is Possible”!
Executive Chairman and Joint Chief Executive Officer
Hong Kong, 18 March 2021