A transformation plan initiated in 2012, has not helped Li Ning Company Limited wipe out losses from its balance sheet, instead losses multiplied in the results announced for the first six months of 2014.
Loss at Li Ning, one of the leading sports brand companies in China zoomed to RMB 585.8 million between January to June 2014 compared to a RMB 184.2 million loss, from a year earlier.
Lin Ning put forth several reasons for the loss including; net loss excluding bad debt provision impact and other items from upfront investment to implement the transformation plan, provision for doubtful debts and mainly one-time other expenses.
However, revenue rose 8 percent to RMB 3,137 million year-on-year in the first half of this year, which Li Ning said was mainly due to higher retail sales of new products with the Group's expanding self-owned retail network.
Gross profit in the period under review stood at RMB 1,399.6 million, up 10.5 percent from different cost structure of retail operations.
As of 30 June 2014, the Group's net debt was RMB 267 million, after bank borrowing and convertible bonds liabilities.
Li Ning said it will take time for the benefits of the transformation plan to be reflected financially and for the group to ramp up to its full profit potential.
During the first half of 2014, in line with the plan, Li Ning invested in direct-retail network expansion to fill gaps in the channels, unique marketing assets within core sports categories and building a new platform for the Li Ning brand.
Meanwhile, Li Ning said, it also closely monitored sell-in during the channel inventory clearance period with a view to strike a balance between destocking the old inventory and the sell-in of new products.
These key initiatives will allow to gradually release its full earnings potential in the long run, it added.
However, the Group said it faces challenges from concentration of old inventory in 10 percent of the weakest channel partners and healthy business still being inadequate to cover the platform costs as old inventory depletes.
Mr. Li Ning, Founder said, "Even though it takes time for the transformation effort to be reflected in our financial performance, we strongly believe that the vision of building Li-Ning as China's leading sportswear brand with authenticity and unique market assets is the right path for the Group”.
He added, “Under this direction, we will continue to pursue obtaining a dominant position in key assets to realise the full potential of the brand's value, as well as providing consumers the latest innovations in our product offerings, and enhancing the overall retail experience."
