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Annual Report Li Ning Company Limited (Incorporated in the Cayman Islands with limited liability) (Stock Code: 2331) ANNUAL REPORT www.lining.com Annual Report 2020 LI NING GROUP 30TH ANNIVERSARY Values “Living for Dream” “Consumer Oriented” “WE Culture” “Breakthrough” Vision To be the renowned fashionable world-leading professional sports brand originated from China Mission Let Sports Light Your Passion ABOUT LI NING GROUP Li Ning Company Limited is one of the leading sports brand companies in China, mainly operating professional and leisure footwear, apparel, equipment and accessories under the LI-NING brand. Headquartered in Beijing, the Group has brand marketing, research and development, design, manufacturing, distribution and retail capabilities. It has established an extensive retail distribution network and supply chain management system in China. We are committed to becoming a world-class fashionable international professional sports brand enterprise originated from China and be recognized worldwide. In addition to its core LI-NING brand, the Group also manufactures, develops, markets, distributes, sells various sports products which are self-owned by or licensed to the Group, including Double Happiness (table tennis), AIGLE (outdoor sports), Danskin (fashionable fitness products for dance and yoga) and Kason (badminton), which are operated through joint venture/associate with third parties of the Group. CONTENTS 2 Corporate Information 4 Five-Year Financial Highlights 8 Chairman’s Statement 14 Management Discussion and Analysis 35 Corporate Governance Report 53 Environmental, Social and Governance Report 88 Investor Relations Report 91 Directors and Senior Management 98 Report of the Directors 117 Independent Auditor’s Report 123 Consolidated Balance Sheet 125 Consolidated Income Statement 126 Consolidated Statement of Comprehensive Income 127 Consolidated Statement of Changes in Equity 129 Consolidated Statement of Cash Flows 130 Notes to the Consolidated Financial Statements 204 Glossary CORPORATE INFORMATION BOARD OF DIRECTORS NOMINATION COMMITTEE Executive Directors Mr. SU Jing Shyh, Samuel (Committee Chairman) Mr. LI Ning Mr. LI Ning (Executive Chairman and Dr. CHAN Chung Bun, Bunny, GBS, JP Joint Chief Executive Officer) Mr. KOSAKA Takeshi (Joint Chief Executive Officer) AUTHORISED REPRESENTATIVES Mr. LI Qilin Mr. LI Ning Ms. WANG Ya Fei Independent non-executive Directors COMPANY SECRETARY Mr. KOO Fook Sun, Louis Ms. TAI Kar Lei Ms. WANG Ya Fei Dr. CHAN Chung Bun, Bunny, GBS, JP REGISTERED OFFICE Mr. SU Jing Shyh, Samuel Cricket Square AUDIT COMMITTEE Hutchins Drive P.O. Box 2681 Mr. KOO Fook Sun, Louis (Committee Chairman) Grand Cayman KY1-1111 Ms. WANG Ya Fei Cayman Islands Dr. CHAN Chung Bun, Bunny, GBS, JP REMUNERATION COMMITTEE PRINCIPAL PLACE OF BUSINESS IN HONG KONG Ms. WANG Ya Fei (Committee Chairperson) Unit 3301, 33/F., BEA Tower Mr. LI Qilin Millennium City 5, 418 Kwun Tong Road Dr. CHAN Chung Bun, Bunny, GBS, JP Kowloon, Hong Kong Telephone: +852 3541 6000 Fax: +852 3102 0927 2 Li Ning Company Limited | Annual Report 2020 OPERATIONAL HEADQUARTERS AUDITOR No. 8 Xing Guang 5th Street PricewaterhouseCoopers Opto-Mechatronics Industrial Park Certified Public Accountants and Registered PIE Auditor Zhongguancun Science & Technology Area Tongzhou District LEGAL ADVISORS Beijing, PRC Hong Kong law Postal Code: 101111 LC Lawyers LLP Telephone: +8610 8080 0808 Fax: +8610 8080 0000 PRC law TAHOTA Law Firm PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE PRINCIPAL BANKERS Suntera (Cayman) Limited Hong Kong Suite 3204, Unit 2A, Block 3 Hang Seng Bank Limited Building D, P.O. Box 1586 China MinSheng Banking Corporation Limited Gardenia Court, Camana Bay The Hongkong and Shanghai Banking Corporation Limited Grand Cayman, KY1-1100 Cayman Islands PRC Industrial & Commercial Bank of China HONG KONG BRANCH SHARE REGISTRAR China Construction Bank AND TRANSFER OFFICE Bank of China Computershare Hong Kong Investor Services Limited China Merchants Bank Shops 1712-1716, 17th Floor, Hopewell Centre China MinSheng Banking Corporation Limited 183 Queen’s Road East Ping An Bank Co., Ltd. Wanchai, Hong Kong Li Ning Company Limited | Annual Report 2020 3 FIVE-YEAR FINANCIAL HIGHLIGHTS 2020 2019 2018 2017 2016 Operating results: Turnover 14,456,971 13,869,630 10,510,898 8,873,912 8,015,293 Operating profit 2,195,969 1,543,209 777,177 445,678 385,805 Profit before taxation 2,247,865 1,856,546 850,321 537,524 287,946 Profit attributable to equity holders 1,698,484 1,499,139 715,263 515,155 643,254 Earnings before interest, tax, depreciation and 3,292,272 2,707,649 1,252,222 889,271 713,147 amortisation (EBITDA) Assets and liabilities: Total non-current assets 4,817,309 4,008,158 2,341,051 2,210,967 2,130,054 Total current assets 9,776,556 8,539,316 6,386,254 5,110,382 4,650,440 Total current liabilities 5,015,057 4,716,620 2,777,471 2,127,810 2,673,915 Net current assets 4,761,499 3,822,696 3,608,783 2,982,572 1,976,525 Total assets 14,593,865 12,547,474 8,727,305 7,321,349 6,780,494 Total assets less current liabilities 9,578,808 7,830,854 5,949,834 5,193,539 4,106,579 Capital and reserves attributable to equity holders 8,686,863 7,121,639 5,817,040 5,071,047 3,994,599 Key financial indicators: Gross profit margin 49.1% 49.1% 48.1% 47.1% 46.2% Margin of profit attributable to equity holders 11.7% 10.8% 6.8% 5.8% 8.0% EBITDA ratio 22.8% 19.5% 11.9% 10.0% 8.9% Earnings per share – basic (RMB cents) 69.21 61.94 29.63 21.47 29.03 – diluted (RMB cents) 67.62 60.13 29.19 20.87 28.95 Dividend per share (RMB cents) 20.46 15.47 8.78 – – Return on equity attributable to equity holders 21.5% 23.2% 13.1% 11.4% 17.9% Net tangible assets per share (RMB cents) 336.80 299.55 254.87 219.21 182.47 Debt-to-Equity ratio 68.0% 76.2% 50.0% 44.3% 69.7% 4 Li Ning Company Limited | Annual Report 2020 Li Ning Company Limited | Annual Report 2020 5 STANDING OUT CHAIRMAN’S STATEMENT Dear Shareholders, 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%.
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