Investor and Analyst Day 2014

2014-05-20

Welcome speech by Chairman

2014-05-20

Introduction by CEO

2014-05-20

Li Ning Powerful in Mid, Solid in Low, Gaining Ground in Top

4

Gain Market Share Through Value Proposition Enhancement & Extension

5

Brand and Product Extension Working Basketball Shoes Example

6

Function Head Initiatives

Supply Chain Mr. Billy Den

Chief Supply Chain Officer

• Goal and composition of RBM • Enhance Supply Flexibility • Establish Retail Logistics System • Develop E2E Retail Management Platform

Marketing Ms Catherine Teng

Chief Marketing Officer

• Brand Mission • Brand Vision • Brand POD • Value Shares • Consumer's Awareness • Brand Preferences • Brand Images in Consumer's Minds • Estimated Sports Market Size • Marketing and Branding • Key Brand Building Strategies

Sales Operation

Ms Jenny Gu

Chief Sales Officer

• Innovation of Business Model Keep Consistent with Key Values • Under Current business model framework, achieve targets from multi angles • Retail Operations • Innovative products supply model- Drive sales performance • Integration of products operations • Retail Management Platform • Retail Operation Platform • Channels management and establishment • Promotion Plan for stores in different Categories

Products and Merchandising

Mr. Edwin Alexander Jonkers

Chief Product and Merchandising Officer

• 2013 + 14Q1 Product highlights • Efficiency • USP • Transformation– QS • Retail – HERO product expansion

Major Functions and Current Initiatives

7

Supply Chain

2014-05-20

Enhance Supply Chain Flexibility 1. Control over optimized supply base

2. Quick response to demand changes

3. Introducing leading technologies

1

Establish Fast Retail Logistics Network 1. Improved inventory efficiency

through VMI and batch delivery

2. FAST delivery to POS through

the well planned DC network 2

Develop E2E Retail Business Platform

1. Business Process/Structure Optimization 2. Retail IT Systems

3

Supply Chain – Enabling the Li-Ning Retail Business Model

9

Supply Base Optimization

• Invest in key Suppliers to have control

• Go West to relief labor shortages

• Buying from SE Asia to get cost savings

and additional capacity during CNY

Introducing Leading Technology

• Co-operation with Poh Chen for high-end basketball shoes

• Co-operation with Kolon for APP fabrics

Quick Response To Real Demand

• One Common Planning Tool for LN and 1st/2nd layer suppliers to ensure quick response to demand changes

• Lean line implementation to cater for retail needs of small order/high frequency/short cycle time

• Raw Material Risk Buy Process

• Green Lane for Quickstrike/Quick replenishment orders

Li-Ning Supply Chain Footprint

FTW

APP

New Suppliers

Vietnam

Cambodia

Hubei

1

Korea

GuangDong

FuJian

ShangHai

Enhance Supply Chain Flexibility

10

Li-Ning Logistics Network Inventory Optimization VMI (Vendor Mgmt Inventory) Warehouse Setup VMI Warehouse LN Regional DC Batch Delivery Reduced Inventory Risks Significantly LN Regional DC LN Owned Stores Auto replenishment Improves Inventory Efficiencies

FAST Retail Logistics Network - RDC is located closely to POS to ensure fast replenishment - Inventory pushed ahead to RDC as per actual sales trend - Track & Trace IT system - Direct coverage to Sub-Ds

4

Warehouse (5)

Regional DC(21)

2 Establish Fast Retail Logistics Network

1

2

3

1 2

3

4 11

2014-05-20

Brand & Category Overview

Mission

Through sports,

we inspire people the desire and power to

make breakthrough

Vision

Be a world’s leading brand

in the sports goods industry via world class brand and

retail management

Brand Mission & Vision

13

First mention Total mentions（Unaided）

Nike 18 70

Adidas 20 71

Li Ning 18 68

An Ta 12 44

361 12 53

X-Step 4 25

Peak 1 9

On Par

Data quoted：2013 UBA data from MB BrandZ database- Sports category

Brand indicators – Leading awareness

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Value share

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

Q1 Q2 Q3 Q4

Li-Ning Brand A

Brand B Brand C

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

Q1 Q2 Q3 Q4

Li-Ning Brand A

Brand B Brand C

FTW TOTAL

Data source: China Sports Market U&A Study from MillwardBrown, 2013

Brand indicators – Stable value share in negative macro environment

15

13

-2

2

-8

-4

16

-4

-1

-10

-5

-3

3

-7

2

-4

Value for Money

Transcending yourselves

Inspiring

Championship

Spirit of challenging

Li-Ning Anta 361° Peak

Chinese Pride 88 30 27 22

Note: All of above data is come out based on the brand user’s evaluation of brand image.

Still the ONLY brand that could represent China

Data source: China Sports Market U&A Study from MillwardBrown, 2013

Better connected with consumers than other Chinese brands

2

0

9

3

-1

Brand indicators – Strong and Unique Brand Image

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Brand indicators – Strong and Unique Brand Image

Only apparel brand on the list Data source: WPP Nov 2013 Survey 17

5 main sports categories

63%

Size

(Million) Share

Sports Life 2,757 5.8%

Running 1,449 6.8%

Training 1,601 11.0%

Basketball 997 9.0%

Badminton 327 9.0%

154,910(Million)

Data source: China Sports Market Audit from MillwardBrown, 2013 China Sports Market U&A Study from MillwardBrown, 2013 & Desk research

Sports Life

Running

Training

Basketball

Badminton

Our 5 priority categories represents 63% of overall markets

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Categories

Target Consumers Category Drivers and Go To Market Approach Growth Initiatives

Bas

ketb

all • Professional Players endorsement on product/ brand

• Sports tournament (CBA/ CUBA etc) • WoM among sneakers and fans • Grass-root street basketball events • Targeted digital contact

• Wade signature • CBA fan pack • Campus collection • Mid-low price tier on court product • Established BB digital platforms

Ru

nn

ing

• Product delivers the performance • Mass media awareness • Running events, grass-root activities (10K, I-Run & highland marathon, cross-field run etc) • Targeted digital forums and KOLs endorsement

• Strengthen Hero technology platform (light, arc, etc) • Lower price tier collection • Professional line • Female

Trai

nin

g

• Professional endorsement i.e. Training coaches, top professional sports players • Celerity and upscale trend setters • Location seeding (gym, sports park etc.)

• Innovative material technology (Power shell) • Female indoor exercise collection • Value sportswear sets • China relevant training (i.e. group dance, modern martial art etc.)

Spo

rts

Life

• Asian fashion trend (ie. Korea, Japan style) • POP stars, youth idols, entertainment PR • Celebrity, fashion brands partnership/ Crossover • Youth events (i.e. music, movies, entertainment shows)

• Li Ning premium Studio Series • Crossovers • Youth Sports Apparel • Heritage collection

Bad

min

ton

• National team endorsement & sports events exposure • On-court media and coaches endorsement • Professional channel recommendation

• Best in class rackets/equipment technology • High performance shoes • Mid-priced apparel/ racket opportunity to expand trials

Cool, energetic campus youth

Committed, confident

white collar sports lovers

Disciplined, purpose oriented

sports practitioners

Trendy, stylish,

youthful sports

inspirers

Committed, amateur

sports enthusiasts

Differentiated Marketing approach by each category

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50多万高活跃度分析

150多万高活跃度分析

李宁官方微博 李宁跑步官方微博

Leading in digital marketing – Leveraging social media platforms

20

Leading in digital marketing – Innovative ideas and events

21

鞋柜上贴供扫描购买。 产品相应二维码

Leading in digital marketing – Creates direct impact to business

通过微博和微信等引流线下店铺和官方商城

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• Connect with the youth

• Authentic brand and product experience

• Go digital

• Enhance MKT ROI

Key Brand Building Strategies

23

Sales Operation

2014-05-20

From “push” to “pull”

Transformation theme Key elements in the value chain

Design

Production

Product architecture

Order

From national level sales management to differentiated sales

and retail management – by region, by

seasonality and by store segmentation

Sell-out management

Inter-store re-allocation (consolidate and replenish based on product depth)

In-Store management

Timing management (promotion, clearance)

Retail assortment

From fully authorized to end-to-end management

Store format

Network

Store ownership

From a wholesale organization to building

retail capabilities

Hardware (organization structure design)

Software (personnel, capabilities and company culture)

“How do we deliver right products to our consumer competitive?”

“How do we provide excellent retail experience or product and service?”

“Which channels can bring the best customers, highest orders and profit?”

How to create the largest value

“How to organize resources and capabilities to support business transformation?”

Retail operation

Product

Sales channel

Organization structure

Business model innovation and KPI need to be fully aligned

Retail operation

Product

Sales channel

Organization structure

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Overall consumer experience • Price • Design • Value proposition • Brand • Product functionality • Retail experience • After-sales experience

Time • Weekly performance

tracking • In-season management

(particularly for the beginning and end of season)

• Product lifecycle management

• Annual product planning

Place • In-store visual merchandising • Assortment by store types (e.g. A,B,O) • Commercial Zone Management within a city • Network coverage by city tier • Product management by region (4 major climate zone)

Multiple dimensions need to be considered under the new business model framework

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Product Design

Product

Product architecture

Order

Channel Store format

Network

Store ownership

Retail Operation

Sell-out management

Inter-store adjustment

In-Store management

Timing management

Retail allocation

Initiative Objective

▪ Opera A+ tracking report, good and bad ▪ current product SKU

R4

▪ Inside / outside system clearance R6

▪ Resource management platform P2

▪ New Product Seasonal Management (“NPSM”) P1

▪ Phased manufacturing and dispatch of product P3

▪ “NPSM” pilot R1

▪ Distributor project R2

▪ RBM project R3

▪ QSQR committee review R5

▪ Network strategy development C1

▪ Hypermarket/department store management C4

▪ Store format strategy development C3

▪ Channel type management C5

▪ Store management model project C6

▪ New store opening project C2

▪ Sub-distributor revival project C7

▪ Strategic tool to manage SO rate, differentiate by SKU performance and store types

• Systematic categorization of SKUs based on the performance and vintage

• Product differentiation by region / store, guarantee freshness

• Clear, executable guidelines with right level of specificity and discretion

• Holistic picture that covers categories beyond SKUs, and inventories (current and old)

• Individual stores provide feedback and receive replenishment at the fast speed

Retail Operation

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• Optimize inline product line architecture, increase SKU efficiency

• Launch product by month - NPSM • Organize assortment by city commercial zone and

store segment • Pre-season hero SKU forecast, test through pilot

launch • In-season weekly A+/QS/QR tracking,

replenishment, re-ordering and price management

• In-season hero/flat/slow-moving SKU price and promotion management

• Increase new product proportion in regular stores • Increase new product sell-out rate and achieve

better margin, reduce inventory risk • Sales contribution of A+/Quick

Replenishment/Quick Strike continue to increase • Sales of A+/Quick Replenishment/Quick Strike

continue to lead by 5-10%

Innovative Merchandising and Go-To-Market Model Driving Sales Performance

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Product order and action

Product management (Store level SKU management)

• Product launch • SKU width • SKU depth • Price management • Lifecycle management

• Pilot launch • New product launch • VM Display • QR re-order • Hero product push for maximization • Promotion and mark down • Transfer to clearance stores • Return to warehouse

Product Fresh Fast

Product launch

• Pilot launch • New product launch

Retail Management Platform

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Product Design

Product

Product architecture

Order processing

channel Store format

Network

Store ownership

Retail operation

Sell-out management

Inter-store adjustment

In-Store management

Timing management

Retail allocation

Initiative FROM TO

▪ Opera A+ tracking report, good and bad current product SKU R4

▪ Inside / outside system clearance R6

▪ Resources management platform P2

▪ New Product Seasonal Management (“NPSM”) P1

▪ Phased manufacturing and dispatch of product P3

▪ “NPSM” pilot R1

▪ Distributor project R2

▪ RBM project R3

▪ QSQR committee reviewt R5

▪ Network strategy development C1

▪ Hypermarket/Shopping Mall management C4

▪ Store format strategy development C3

▪ Channel type management C5

▪ Store management model project C6

▪ Store opening project C2

▪ Sub-distributor rescueproject C7

非详尽 Channel management and development

• Not effectively attracting customers and is shrinking

• Optimize network to have stores at strategic purposes with healthy growth in numbers

• Franchisees posing risk of large number of closures

• Rescue franchisee rescue and migrate part of distributor franchisees to self-owned operation

• Focusing on street stores and not capturing new trend

• Restructure format combination to increase profit and capture growth (e.g., hypermarkets)

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60+

Flagship &

Cat. E. Store

BIG300

Core Regular

Other Regular

Outlets、 Discount

Regular channel

Clearance channel

Basketball Running

Sports life Badminton

&

Training

Catego

ry focu

sed

stores

Sales History

• Refer to sell-out and sales contribution of Basketball/running/sports life in last 4 quarters

Channel information

• Refer to category strategy, sports development in the city, fashion forwardness of a city commercial zone, location proximity to high schools etc.

Frontline feedback

• LN Retail Operations and Product Sales teams to confirm with Distributors

＋ ＋

Category stores development plan

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Products and Merchandising

2014-05-20

CONSUMERS MINDSET Product

Efficiency

USP

Transformation

Retail

SOURCE: CHINA DAILY/ BUSINESS WEEKLY MAY 19. 2014 33

Product

Efficiency

USP

Transformation

Retail

Building the Platform

34

Product

Efficiency

USP

Transformation

Retail 2013 + 14Q1 Product highlights Superlight11

35

Product

Efficiency

USP

Transformation

Retail 2014Q1 SL11

Superlight Generation 11 Light and Cool running shoes

LN COOL SHELL brings cool and comfortable experience for Summer by breathable structure from the shoe tongue to the outsole with ice-yarn cooling material.

Full-length rubber provides better traction, Hollow structure makes the shoes much lighter.

FoamEVAlite, upgraded lightweight outsole formula.

Chinese traditional pane as the design inspiration with Ice-cracked graphic preserves the unique charm of traditional aesthetics, Support function only at necessary zone strengthens a larger area of breathability.

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2014Q1 SL11 COLOR PALETTE Product

Efficiency

USP

Transformation

Retail

37

WOMEN

Style No.:ALKJ005-1

Style No.:ALKJ008-1

Style No.:ALKJ005-2 Style No.:ALKJ005-4

Style No.:ALKJ008-2 Style No.:ALKJ008-3

13Q2 13Q3 13Q4 14Q1

Transformation– QS Product

Efficiency

USP

Transformation

Retail

MEN

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PRODUCT HIGHLIGHTS: APPAREL

Leverage SPORTS ASSETS to capture category specific business opportunities

NO: AYMH267-2 NO: AYMH267-3

NO: AJMH177-1 NO: AJMH177-2

13Q4 WADE: X’MAS PACKAGE

• Well integrate/leverage sports assets, to maximize performance category business opportunity.

• Best seller in 13Q4.

• Decent fashion design with Li-Ning high tech fabrics, bring customers great product experience.

Product

Efficiency

USP

Transformation

Retail

39

13Q4 Training sweat set

Competitive products at core business areas with unique selling points & value propositions

• Competitive products at core business area with unique selling points.

• Unique selling point of functional material/detail + ergonomic cutting ,basic color wary, easy to wear for consumer for both sports and daily use

• High value compare with local competitors

AWDJ099 AKLJ013

PRODUCT HIGHLIGHTS: APPAREL Product

Efficiency

USP

Transformation

Retail

40

Cotton feel polyester (new fabric）

Cotton hand feel

A+

139RMB

159RMB New fit

Running tee: slim fit, cotton hand feel performance material

PRODUCT HIGHLIGHTS: APPAREL Product

Efficiency

USP

Transformation

Retail

41

14Q1 Li-Ning Premium (LNP)

Premium business venture targeting international competitors

• Premium business venture targeting international competitors through design innovation

• Combination of sports performance

and market trend, Strong value proposition against target international competitors

PRODUCT HIGHLIGHTS: APPAREL Product

Efficiency

USP

Transformation

Retail

42

QS Inline

Rev unit: RMB, millions

Training & Sports life from

15Q3

Running from 16Q1

*Dec QS not planned yet

14Q1 14Q2 14Q3 14Q4

Article

TP Rev

USP– KCC Product

Efficiency

USP

Transformation

Retail

43

14Q2 Track Pants

269 RMB

Elasticity Light Fabric

Male Female

3D fitting

Nike 499 RMB

Anta 199 RMB

PRODUCT HIGHLIGHTS: APPAREL Product

Efficiency

USP

Transformation

Retail

44

EFFICIENCY – A+ RANGE

13Q2 13Q3 13Q4 14Q1 14Q2 14Q3 14Q4

A+ Article% A+ Revenue% A+ contribution

Product

Efficiency

USP

Transformation

Retail

45

USP– Value proposition Product

Efficiency

USP

Transformation

Retail

46

KEY TAKE AWAYS

LI NING is the preferred national sports brand with Chinese Consumers

Retail Focus – Right product, at the right time and place

Continue to create inspirational products with industry leading value proposition

Continue to invest into innovation in functional technology and design concepts

Innovate in business with retail focus business model – quick strike and quick replenishment

Continue to increase our efficiency and profitability

Product

Efficiency

USP

Transformation

Retail

47

Progress of Transformation

2014-05-20

Re-cap: Transformation Plan

Management and Execution Capabilities

• Competitive cost structure in product and operations

• Effective marketing and channel spending

• Cash flow management

• Improve store unit economics

• Rationalize network coverage through retail profiling

• Strengthen outlets and direct stores

• Improve capabilities of retail and channel partners

• More retail-oriented and consumer-oriented

• Improve supply chain and ordering model to lower cost and time-to-market

• Increase A+ and quick response products

• Focus on core brand sportswear in China

• Strategic investments in brand (e.g., CBA and Wade)

• Make competitive products with exciting designs and technologies, in shorter development cycles to stay current with market demands

49

2011 2012 2013 2014E

Phase 1 (2011-2012) • Sell in > Sell out •Old inventory build-up •High AR •Negative cash flow

Phase 2 (2013) • Sell out > Sell in •Old inventory depletion •Cash flow recovery •Negative profit

Phase 3 (2014 and beyond) • Sell out recovery led by sell in

rebound • Higher mix of new product sell

out and higher GM% • Profit and positive cash flow

Sell in to Channel Retail Sell Through (Tag Price)

Inventory depletion

Excessive inventory

Transformation Through 3 Phase of Sell-in and Sell-out Adjustment

For illustration only

50

2011 2012 2013 2014E

Old Inventory Turnover Months (Rolling 12 months Turnover Average)

Sell Through Product % mix

Sell in Sell Through

Current, Last and Next Quarter Inventory (RMB) Inventory Before Last Season (RMB)

Successful Execution and On Track for 2014 Recovery

51

After 3 months After 6 months

v Open-to- Buy

Sell out rate

New Product Retail Sales

(YoY)

X

=

2011 2014E 2012 2013

1H 2H

5915 6434 8255 Number of Stores

1H 2H 1H 2H

New Product Recovery From 2H 2013 on Track

5700 - 6200

Recovery Formula

52

Gross Margin (% of Sales)

Regular Store Product Mix

Current, Last and Next Quarter Inventory (RMB) Inventory Before Last Season (RMB)

New Product Sales per Store per Month Productivity Growth (% YoY)

2012 2013 2014E

<50%

>65%

Typical Regular Store Economics (Approximate Average)

Double digits growth YTD

53

Summary

Sell in was reduced initially to de-stock inventory at steep discount, reverse big cash drain, and

rationalize the network, even though doing so meant sell through decline and current period

losses.

New product performance has been improving in terms of pricing, velocity, and sell-through

rates by virtue of various transformation initiatives, leading to robust recovery of sell-through

and sell-in of new product and store profitability from 2H of 2013.

Disciplined cost cutting enabled bold investment in platform building and strategic marketing,

and more cost cutting is expected as low-priority sports marketing assets roll-off over the next

few years.

YoY growth of five strategic categories has been high-double-digit in Q1 2014. As new products

focused on the five categories have continued to build momentum and fill the gap left by

declining clearance revenues, overall business in 2014 and onwards has stabilized and is poised

for growth in the near future.

Negative impact from channel recovery, bad debt, and inventory clearance will still drag down

2014 financial results, but will be largely over by the end of 2014, while profitable new product

business has been building momentum for profit recovery since 2H of 2013.

54