Li Ning reported profits on an adjusted basis grew in the first half while revenues only showed a slight decline despite the impact of COVID-19.

On a comparative basis (excluding the one-off profit and loss not related to operation for the corresponding period last year), the net profit attributable to equity holders increased by approximately 22 percent to ¥683 million, and the net profit margin raised from 9.0 percent to 11.1 percent. Including the one-off profit and loss not related to operation for the corresponding period last year, reported a net profit attributable to equity holders decreased by approximately 14 percent and the net profit margin dropped from 12.7 percent to 11.1 percent.

Notwithstanding the impact of COVID-19 leading to a challenging retail environment during most time of the period:

  • Revenue decreased slightly by approximately 1 percent to ¥6,181 million
  • Gross profit margin decreased by 0.2 percent
  • The operating leverage has been enhanced continuously, while the operating profit margin has been driven to 14.5 percent and increased by over 300 basis points
  • Achieved positive operating cash flow of ¥479 million
  • Gross average working capital improved (reduced) by 7 percent while revenue decreased by approximately 1 percent
  • Cash conversion cycle further improved (shortened) by 2 days (2019: 32 days/2020: 30 days)

Operational Highlights

  • Operation performance was negatively affected due to COVID-19
  • The retail sell-through for the overall platform recorded a low-teens decrease, including online and offline channels.
  • Channel inventory recorded a low-teens increase.
  • Offline channel new product sell-through recorded mid-teens decrease due to the decline in the sales volume:
  • Average selling price (ASP) registered a low-single-digit increase notwithstanding a very promotional retail environment.
  • Sell-out rate: 6-month decline over 6 percent, 3-month decline approximately 5 percent.

Financial Results
In the first half of 2020, the company actively implemented effective internal and external control and endeavored to alleviate the pressure from COVID-19. During the period, the Group’s revenue amounted to ¥6,181 million, representing a slight decrease of 1.2 percent compared to the same period of 2019. Gross profit decreased 1.6 percent to ¥ 3,057 million, against ¥ 3,108 million in 2019. The Group’s overall gross profit margin was 49.5 percent (1H2019: 49.7 percent).

Despite the decrease in both sales revenue and gross profit margin as affected by COVID-19 during the period, after excluding the one-off profit and loss not related to operation for the corresponding period last year, the overall profitability indicators of the Group for the six months ended 30 June 2020 have still improved through its control over the expense ratio. During the period, the Group’s profit attributable to equity holders amounted to ¥683 million (1H2019: ¥795 million; and ¥561 million after excluding the one-off profit and loss not related to operation), representing a year-on-year decrease of 14.1 percent (a year-on-year increase of 21.7 percent after excluding the one-off profit and loss not related to operation). The margin of profit attributable to equity holders was 11.1 percent (1H2019: 12.7 percent; and 9.0 percent after excluding the one-off profit and loss not related to operation). Return on equity attributable to equity holders was 9.3 percent (1H2019: 13.0 percent; and 9.3 percent after excluding the one-off profit and loss not related to operation).

Basic earnings per share were ¥27.98 cents (1H 2019: ¥32.88 cents). The Board resolved not to distribute any interim dividend for the six months ended 30 June 2020 (1H2019: nil).

In terms of cash flow management, the Group’s net cash generated from operating activities for the period amounted to ¥479 million (1H2019: ¥1,366 million), which decreased 64.9 percent year-on-year. As at 30 June 2020, cash and cash equivalents amounted to ¥5,561 million, adding back fixed-term deposits which were recorded in financial assets at fair value through other comprehensive income, cash balance amounted to ¥5,761 million. During the period, due to the impact of COVID-19, the operation of certain offline stores was suspended in the first quarter of 2020, which has resulted in stagnant retail sell-through, hence, the Group’s cash flow from operating activities decreased significantly year-on-year. The Group will pay close attention to the security of capital and make reasonable capital utilization plans in order to effectively respond to the negative impact brought by COVID-19.

Li Ning, founder and executive chairman of the Group, said, “In the first half of 2020, the outbreak of COVID-19 brought certain pressure to the market. The innate sports DNA of Li-Ning has empowered us with the faith to conquer challenges and the determination to achieve breakthroughs, the Group adjusted its strategy in a timely manner and proactively responded, and its brand resilience continued to increase. The Group is fully confident in the long-term prospect of the sports industry. We will always adhere to the principle of focusing on products with an emphasis on the professional attributes and keep abreast of the fashion trend to continuously improve product performance and brand image, and hence enhance Li-Ning’s experience value.

“Looking forward, we will continue to achieve steady growth of our results by enhancing our business capability. We will also devote main resources into gaining sports knowledge, placing emphasis on technological research and development as well as pop culture analysis with a view to bringing our business to another new height.”

Photo courtesy Li-Ning