2018 Annual Report

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 2331) Li Ning Company Limited www.lining.com Annual Report 2018 t or ep l R ua Ann 2018 About Li Ning Group Li Ning Company Limited is one of the leading sports brand companies in China, mainly providing sporting goods including footwear, apparel, equipment and accessories for professional and leisure purposes primarily 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 supply chain management system and a retail distribution network in China. In addition to its core LI-NING brand, the Group also manufactures, develops, markets, distributes and/or 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 16 Management Discussion and Analysis 36 Corporate Governance Report 52 Environmental, Social and Governance Report 67 Investor Relations Report 68 Directors and Senior Management 76 Report of the Directors 93 Independent Auditor’s Report 99 Consolidated Balance Sheet 101 Consolidated Income Statement 102 Consolidated Statement of Comprehensive Income 103 Consolidated Statement of Changes in Equity 105 Consolidated Statement of Cash Flows 106 Notes to the Consolidated Financial Statements 184 Glossary 2 Corporate Information 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 Interim Chief Executive Officer) Mr. LI Qilin AUTHORISED REPRESENTATIVES Independent non-executive Directors Mr. LI Ning Ms. WANG Ya Fei Mr. KOO Fook Sun, Louis Ms. WANG Ya Fei Dr. CHAN Chung Bun, Bunny, GBS, JP COMPANY SECRETARY Mr. SU Jing Shyh, Samuel Ms. TAI Kar Lei AUDIT COMMITTEE REGISTERED OFFICE Mr. KOO Fook Sun, Louis (Committee Chairman) Cricket Square Ms. WANG Ya Fei Hutchins Drive Dr. CHAN Chung Bun, Bunny, GBS, JP P.O. Box 2681 Grand Cayman KY1-1111 REMUNERATION COMMITTEE Cayman Islands Ms. WANG Ya Fei (Committee Chairperson) Mr. LI Qilin PRINCIPAL PLACE OF BUSINESS IN Dr. CHAN Chung Bun, Bunny, GBS, JP HONG KONG Suites 1, 7-15, L45 Office Tower, Langham Place 8 Argyle Street Mongkok, Kowloon Hong Kong Telephone: +852 3541 6000 Fax: +852 3102 0927 Li Ning Company Limited • Annual Report 2018 Corporate Information 3 OPERATIONAL HEADQUARTERS AUDITOR No. 8 Xing Guang 5th Street PricewaterhouseCoopers Opto-Mechatronics Industrial Park Certified Public Accountants Zhongguancun Science & Technology Area Tongzhou District LEGAL ADVISORS Beijing, PRC Postal Code: 101111 Hong Kong law Telephone: +8610 8080 0808 LC Lawyers LLP Fax: +8610 8080 0000 PRC law TAHOTA Law Firm PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE PRINCIPAL BANKERS SMP Partners (Cayman) Limited Royal Bank House – Hong Kong 3rd Floor, 24 Shedden Road Hang Seng Bank Limited P.O. Box 1586 China MinSheng Banking Corporation Limited Grand Cayman KY1-1110 The Hongkong and Shanghai Banking Corporation Limited 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 Wanchai Hong Kong Li Ning Company Limited • Annual Report 2018 4 Five-Year Financial Highlights Five-Year Financial Highlights Unit: RMB’000 2018 2017 2016 2015 2014 Operating results: Turnover 10,510,898 8,873,912 8,015,293 7,089,495 6,047,195 Operating profit/(loss) 777,177 445,678 385,805 157,069 (643,062) Profit/(Loss) before taxation 850,321 537,524 287,946 30,814 (777,888) Profit/(Loss) attributable to equity holders 715,263 515,155 643,254 14,309 (781,481) Earnings before interest, tax, depreciation and 1,252,222 889,271 713,147 393,953 (456,221) amortisation (EBITDA) Assets and liabilities: Total non-current assets 2,341,051 2,210,967 2,130,054 1,413,942 2,077,087 Total current assets 6,386,254 5,110,382 4,650,440 5,483,516 3,962,719 Total current liabilities 2,777,471 2,127,810 2,673,915 2,471,786 2,679,141 Net current assets 3,608,783 2,982,572 1,976,525 3,011,730 1,283,578 Total assets 8,727,305 7,321,349 6,780,494 6,897,458 6,039,806 Total assets less current liabilities 5,949,834 5,193,539 4,106,579 4,425,672 3,360,665 Capital and reserves attributable to equity holders 5,817,040 5,071,047 3,994,599 3,179,903 1,951,858 Key financial indicators: Gross profit margin 48.1% 47.1% 46.2% 45.0% 44.9% Margin of profit/(loss) attributable to equity holders 6.8% 5.8% 8.0% 0.2% -12.9% EBITDA ratio 11.9% 10.0% 8.9% 5.6% -7.5% Earnings/(losses) per share – basic (RMB cents) 29.63 21.47 29.03 0.66 (49.97) – diluted (RMB cents) 29.19 20.87 28.95 0.66 (49.97) Dividend per share (RMB cents) 8.78 – – – – Return on equity attributable to equity holders 13.1% 11.4% 17.9% 0.6% -33.7% Net tangible assets per share (RMB cents) 254.87 219.21 182.47 162.59 94.24 Debt-to-Equity ratio 50.0% 44.3% 69.7% 109.7% 198.3% Li Ning Company Limited • Annual Report 2018 Five-Year Financial Highlights 5 Li Ning Company Limited • Annual Report 2018 8 Chairman’s Statement Chairman’s Statement Dear Shareholders, During 2018, revenue of the Group maintained a stable growth with our profitability improving continuously. The profit attributable to equity holders increased from RMB520 million in 2017 to RMB720 million. During the year, we continued In 2018, against the backdrop of various challenges including to optimise the retail business model with the goal of being the slowdown of global economic growth and regional trade “Precise + Swift”. We also adopted a development strategy disputes, the national economy continued to maintain a steady of “Single brand, Multi-categories, Diversified channels” with improving trend with the continuous upgrade of national a view to creating and enhancing LI-NING’s experience value. consumption structure and the increase of domestic macro Our innate sports DNA has impelled us to place more emphasis sports demand, resulting in booming development of the on sports research and the investment in product research and domestic sports market. During the year, the Group gave its best development (R&D) and design to constantly launch professional efforts in creating LI-NING’s experience value to embrace the products for athletes and sports enthusiasts. Creativity and development opportunities in the sports market. By gradually imagination, on the other hand, is guiding LI-NING brand executing its development strategies and implementing the to be more trend-setting by integrating fashion, culture, relevant measures, it has constantly optimized various operational entertainment and leisure elements with professional sports, indicators and enhanced the brand image and brand value with therefore establishing our brand personality and providing satisfactory results. consumers with more precise consumption experience. During the year, the brand also adequately demonstrated its product According to the statistics of the National Bureau of Statistics, competitiveness through the International Fashion Week shows, China’s Gross National Product (GNP) registered a year-on-year thus gaining positive feedbacks and good reputation and further increase of 6.6% in 2018, the national disposable income per consolidating the brand’s influence among consumers as well capita of urban and rural residents recorded a real increase of as the influence of domestic brands on the international stage. 6.5%, while Engel coefficient further decreased, reflecting further improvement of the national consumption structure in China. ENHANCED OPERATIONAL INDICATORS From the perspective of sports consumption, the domestic AND PROFITABILITY DRIVEN BY sports industry continued to grow rapidly with more refined and mature demand in the sports market. In recent years, with OPTIMIZED RETAIL BUSINESS MODEL the growing demand for tournaments and events stemming In 2018, the Group’s various key operational indicators continued from healthcare, entertainment and athletic competition, to improve. During the year, revenue of the Group grew by 18%, sports consumption witnessed a fundamental change from while the net profit margin rose from 5.8% last year to 6.8%. Cash simple consumption for sports competition to consumption for flow from operating activities increased by 44% to RMB1,672 sportsmanship, demonstrating huge potential of China’s sports million. Meanwhile, working capital optimized steadily, with the market in the future. According to the statistics of the General Cash Conversion Cycle (CCC) shortened from 49 days in 2017 Administration of Sport of China, the number of people regularly to 40 days in 2018. With improved confidence of distributors, in participating in physical exercises in the country showed a rising terms of tag price, trade fair orders for LI-NING brand products trend and amounted to 550 million in 2017, up by approximately (excluding LI-NING YOUNG) from franchised distributors, which 25% as compared to 2016. from the latest trade fair held in December 2018 for the third quarter of 2019 registered a low-teens growth on a year-on- year basis. Li Ning Company Limited • Annual Report 2018 Chairman’s Statement 9 Mr. LI Ning Executive Chairman and Interim Chief Executive Officer Li Ning Company Limited • Annual Report 2018 10 Chairman’s Statement Catering to the increasingly mature and refined consumption enhanced efficiency.

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