Earnings Call: H2 2019

Mar 27, 2020

Good morning. Welcome to Li Ning Company Limited's 2019 annual results announcement. Now I will pass the meeting to our speakers. Good morning. Welcome to Li Ning Company Limited's 2019 annual results announcement. Today's meeting will be conducted on the phone and also via webcast. You may be able to view the presentation on the webcast and download the materials. This afternoon, the materials will be uploaded to our IR section of the website. This meeting will be conducted in Mandarin and through the Chinese conference call and also webcast, you may be able to listen to the presentation. Let me introduce the company representatives: Mr. Li Ning, Executive Chairman and Interim CEO. Mr. Kosaka Takeshi, Joint CEO. Mr. Tsang Terence, CFO. Mr. Zeng, CFO, will go through financial performance. Mr. Li Ning will go through a business review. After that, Mr. Takeshi is going to go through the group's strategic plan. After that, a Q&A session. Now may I pass the floor to Mr. Zeng? Thank you. Welcome, everyone. As said in our interim release back in August, during first half of 2019, we have a one-off non-operating income in the amount of CNY 234 million, mainly attributable to our share of gain on real estate sale from our associate, Double Happiness, partially offset by provision of goodwill impairment. All discussions in this presentation exclude the net effect on the above. Financially, we start to capitalize on the improvement we made to our brand, product, and channel. We successfully achieved substantial financial improvement as we saw a 32% revenue growth with net profit margin increased by 230 basis points to 9.1%. Such improvement was mainly driven by one percentage point expansion in gross margin rate and almost three point in expense ratio reduction. We were able to continue our improvement in operating cash flow, which increased by 110% to reach CNY 3.5 billion. In addition, we continue to accomplish significant improvement in our working capital. Our gross average working capital was down 16%, while revenues went up by 32%. Our cash conversion cycle further improved by 14 days to 26 days. Operationally, we achieved high 20s growth for total platform retail sales, including both online and offline channel for the Li Ning core brand. Our channel inventory turnover continued to improve, marking the fifth year in a row. Overall, same-store sales growth accelerated to high teens for the full year. Our new product performance continued to improve in 2019, of which sell-through increased by low 20s, driven by a high single-digit increase in average selling price. New product gross margin at retail level increased by over one percentage point, while six-month sell-out rate improved by over four points as compared to the same period of 2018 on a weighted average basis. Clearly, you can see our continued improvement in retail capability. Now, let's take a look at the revenues. During 2019, our revenues climbed 32%, driven by 34% growth in apparel and 32% growth in footwear, reflecting that our balanced product initiatives continue showing results. Our balanced channel strategy continue working well. For Li Ning core brand, as well as for all these three channels, achieved double-digit growth. Electronic commerce channel continue its growing trend over the past few years with sales revenue rose 40%. Contribution from the e-commerce channel rose to 24% of the previous 22%. The direct retail grew 15%, driven by low teen same sales growth and improvement in new store productivity. Our wholesales rose 39%. As is mentioned in our interim release in last August, we have executed our channel realignment. We believe through moving certain fragmented markets from our direct retail to distributor will allow us to further develop those markets more efficiently and effectively. Hence, the revenue mix contributed from wholesale has increased from 47% to 49%. The key here is the DTC, which is the direct-to-consumer segment, accounted for over 50% of the Li Ning core brand revenues, giving us a balanced penetration between wholesale and DTC channel. On the right-hand side of the slide, you can see that our sales from new products category aged six months or less declined by 2 points. However, the discount improved on both new and old products, leading to 70 basis points improvement in overall discounts. Both new and old products saw double-digit growth with high increase from old products, as we have taken precautionary measures in Q4 of last year to accelerate our inventory clearance rhythm, which in hindsight of the current coronavirus situation, has proved to be a prudent move. Coming to the same-store sales performance. Our overall same-store sales growth increased to high teens during the year. Our offline SSSG stood at low teens, driven by low teens growth in both retail and direct retail. Meanwhile, our online SSSG accelerated to low 40s for the year, from mid-30s in the first half, due to a successful Double 11 sales performance. As far as our channel strategy is concerned, the number of stores for total platform increased by 413 as compared to end of 2018, of which 105 new stores were for Li-Ning core brand. Li-Ning Young store count has reached 1,100 level, adding 308 stores during the last 12 months. From the sell-through standpoint, with our e-commerce expansion strategy driving a high teens growth, the total online and offline sell-through grew by 28%, continuing to break new high. Our offline channel recorded a growth of 26%, driven by low teens increase in average selling price as well as mid-teens growth in unit volume. Wholesale of Li-Ning brand, excluding international and Li-Ning Young, saw a 39% increase with the number of stores up 319 over the same period last year. Our store count went up due to the launching of China Li-Ning stores and over 160 stores transfer from direct retail platform, as discussed earlier. As you can see from the right-hand side of the slide, excluding specialty wholesalers for badminton and soccer, our sell-in was up by mid-30s. Taking into consideration of a low single-digit increase from the net price effect on delivery discount, rebate, and taxes, our sell-in increase will be in line with the low 30s increase in wholesaler retail sell-through. As you can see, we have reversed the first half trend, which show a higher increase in sell-in versus increase in sell-through. Clearly, the expansion in the wholesale platform has generated a strong increase in sell-through productivity. As we have always said, we manage our wholesale business with a sell-through focus, and we will keep striving to maintain the balance between sell-in and sell-through to ensure channel inventory is in a healthy state. We saw most of our wholesale partners continue their improvement nicely with better gross margin. As far as trade fair order concern, orders for the third quarter of 2020, excluding Li-Ning Young and China Li-Ning, reached a mid-teens growth, reflecting the continued improvement in business health and confidence of our distributors. However, this number is being revised downward pending on the coronavirus impact on the channel sell-through and inventory. Moving on to retail channel. The revenues of our directly managed stores went up by 15%, with 214 stores less in ending store count compared with 2018. The sales growth was greatly attributable to the over 450 new stores opened in 2018 and 2019, with a higher store productivity adding CNY 536 million. In addition, low teens growth in SSSG contributed as sales increases of CNY 294 million. However, the sales growth was partially offset by negative sales impact of CNY 260 million from the closure of over 500 stores in the same period. Also, the transfer stores discussed before impacted negatively on the direct retail revenues by CNY 127 million. Due to low teens SSSG and improvement in new stores productivity, four-wall store contribution margin rate improved to high teens compared with low teens in 2019. We are encouraged with the continued improvement in our direct retail operations as a result of all the investment and focus we made over the last few years. Still, we believe that there are room for improvement in store productivity and profitability as we continue to strive for operations improvement at the retail level. Turning to gross margin. Our gross margin improved one percentage point during the period, driven by improvement in wholesale gross margin that was attributable to the improvement in delivery discount for both new and old product sell-in, contributing one percentage point. Improvement in product gross margin in direct retail, due primarily to improvement in discount on both new and old product sell-through, contributing 0.3 percentage point. Improvement in e-commerce gross margin resulted from higher ASP as well as better initial markup on our products, adding 0.6 percentage points. Dilution in channel mix due to higher revenues increase in wholesale, as well as additions of Li Ning Young, deducting 0.7 percentage points. Additions in inventory provision and increased investment in R&D, deducting 0.2 percentage points. Now, let me walk you through the profitability analysis. We could see an improvement in net profit margin driven by 32% top-line growth, coupled with improved gross margin rate, adding CNY 1.75 billion in gross profit. As far as expenses are concerned, we carry out disciplined cost control and variable cost to ensure better leverages. As you can see from the slide, the total sales-related variable costs such as commissions, direct store expenses, logistics, as well as new business build-up expenses, increased a total of CNY 491 million. Representing 14.6% of incremental revenues, which is way lower than the 20.7% for the same period in 2018. This efficiency is contributed by solid increase in our DTC same-store sales growth, as well as the larger increase in wholesale revenues, which carry much lower variable costs than the DTC. We have rationalized our fixed cost structure in order to fund the investment in our retail operations and product organization. The platform expenses increased CNY 568 million, driven by staff costs and advertising and promotional increases. Our advertising and promotional expenses increased CNY 236 million or 22%. From percentage of revenue standpoint, it reduced from 10.4% of revenues in 2018 to 9.6% in 2019. The increase of approximately CNY 260 million in platform staff cost was mainly resulted from increase in bonus due to over-target performance, as well as increased headcount in sales, product, and supply chain organization. As a result, our operating margin improved from 7.4% in 2018 to 11.4% in 2019, after adjusted for the one-off non-operating goodwill provision. The negative impact on this accounting change has added CNY 45.4 million in the interest expenses, causing our net interest a negative CNY 30 million. Just want to point out that on this slide, this CNY 45.4 million is included in the sales-related variable cost as part of the store expenses for analytical purposes. Our effective tax rate increased from 15.9% in 2018 to 22% in 2019. Still slightly below the normalized level due to utilization of deferred tax credits. Consequently, our net margin improved by 2.3 percentage points to 9.1% from 6.8% in 2018. Moving on to channel inventory. Our channel inventory increased high single digit to support high 20s increase in retail sell-through. Our inventory turnover cycle exhibited continuous improvement and further shortened to 4.2 months, compared with 4.9 months in 2018. Counting on pure store inventory only, the inventory turnover months improved to 3.4 months. This result validated the positive impact of the improved inventory management and sales execution. The proportion of inventory aged over six months improved to 24% from 29%. At the company level, our gross inventory rose 13%, which is much lower than the 32% revenue growth. The proportion of inventory aged over six months improved four percentage points to 29% from 33%. With that, we digested majority of the negative impact due to low sell-out rates of product in the first half of 2018, validating the improved effectiveness of our inventory control. The over 12 months mix increased two points, mainly a result of our strategy of having our direct retail handling most of our inventory clearance of all goods through our own outlet and factory discount stores. This is why you see a healthy mix under this category in the channel inventory slide before. We maintained a good balance between current inventory level and aging structure in supporting a healthy business growth. Having said that, we believe there is room for improvement in our retail merchandising flow to further improve our inventory structure. As far as trade receivables are concerned, our gross trade receivables dropped by 22% on the back of the 32% increase in revenues. Leading a continuous significant improvement in day sales outstanding. The mix from the over 180 days category increased to 23%, but the dollar amount actually declined slightly. Our current mix stabilized at 73%, and we are very pleased with our receivables management. With continuous improvement in sell-through with better discount, we believe that our channel is very healthy and the majority of distributors are profitable during 2019. As far as working capital efficiency is concerned, our working capital has further improved to a very healthy level. Gross average working capital was down 16% to support 32% growth in revenues. The working capital as a percentage of our revenue declined by 6 points to 9%, giving us plenty of room to further support our business expansion. We substantially improved our balance sheet and cash flow. Our operating cash flow increased 110% to CNY 3.5 billion. Even excluding these accounting change impact, it was still up 90% at CNY 3.2 billion. Consequently, our net cash improved by CNY 2.29 billion to CNY 5.96 billion. This has given us a strong buffer in facing the current coronavirus situation, which clearly will impact the cash flow from operations in the short run. Because of this healthy cash balance, the board of directors has recommended a dividend of CNY 380 million, or CNY 0.1547 per share upon shareholders' approval. This represents 30% payout ratio on the net income, excluding the one-off non-operating income mentioned above. While we are making prudent decisions to minimize the negative impact on cash flow from the coronavirus, this cash balance allow us to better prepare to capture the business rebound once the virus situation is over. We will continue to invest our business expansion with channels and categories as well as Li Ning Young. In addition, we make further appropriate investment in our brand elevation and operations to support a consistent, healthy business growth. Looking back in 2019, we are pleased with our solid performance. As seen in this closed loop slide, majority of our important KPIs has improved nicely, but certain areas still have lots of room for improvement. Overall, we deliver a very healthy top-line growth, driven by solid same-store sales growth and healthy retail sell-through increase in all channels. We achieved our operations expectation with improved gross margin and disciplined cost control, even with significant investment in expanding our product and sales merchandising organization as planned. Throughout the period, we grew the Li Ning Young business as planned financially, and built the foundation for sustainable revenues and profit growth. Also, we greatly improve our working capital and cash flow for a healthy business growth, particularly in our inventory month to sales ratio and receivable sales outstanding. In addition to a solid cash position, allowing us to invest in brand and business expansion. Having said that, there are areas certainly have room for improvement. While we saw net profit margin improving during the past few years, it is still below par, which means that our operating efficiency needs to improve further. Looking ahead in 2020, our original target before the coronavirus impact is a mid to high teens top-line growth and a 10%-10.5% net profit margin. With the coronavirus impact, we do not have the crystal ball in what is the impact to top lines for the full year, as no one knows when and how deep the business rebound is, if it happens. It would be meaningless to give a top-line guidance. We are making all the prudent decisions on what we can control, specifically on discretionary spending and controllable expenses. Our co-CEO, Mr. Chen, will discuss further later. Our overall goal is to maintain the original target net profit margin rate for the year, unless the coronavirus negative impact continued into second half of the year. Now, chairman, we walk you through the details of our business and plans. Thank you. Thank you, Terence. Good morning. Now I am going to take you through our business review. In 2019, the state continued to promote the sportswear industry. This is a favorable policy, and it is also promoting the industry as a pillar industry. Chinese consumption structure is being upgraded, and this expedited the diversified developments of various channels. The China sportswear market continues to be very vibrant and market potential is being released. Within the year, given this macro background and the development trend in the industry, we kept on identifying opportunities and face up to the challenge. We continued to deepen the leading style experience value. In 2019, we implemented our strategy of single brand, multiple categories, and multi-channels. Li Ning brand is still the core of our focus. Through the inborn sports DNA of the brand, and also our understanding of market needs, we strive to build Li Ning brand into a brand comprising both professional sports and also fashion elements. We want to enrich the brand spirit or the brand essence, by means of diversification. Based on the brand positioning, we are having a layout with basketball, running, cross-training, badminton, and also leisure sports. These are five core elements. We are focused on the products and technology. At the same time, we keep on enriching our brand image. We have combined fashion trends into our brand so that more young consumers are having better awareness of our brand. For different categories, given the special characteristics of different categories and diversified consumption pattern, we have started very diversified channel building. We are digging deeper into the e-commerce platform and strengthen our offline efficiency. With a synergy of multi-categories and multi-channels, our brand is being upgraded for sustainable development. Within the year, we focused on the differentiated characteristics of various categories, and we have dug deeper into the core competitiveness of our products. Overall speaking, the five core categories, the all-channel sell-through had reached a 28% growth. Basketball and fashion sports categories continue to show a very strong growth trend. Let us review the five main categories performance in the year. First of all, basketball. The main emphasis has been on professional and functional products development and planning, leveraging on CBA events and also basketball stars resources. The performance for professional basketball had been going well. At the end of the year, we launched Yushuai 8 basketball shoes, and it had caused a stir and discussion within the market, received very well. It has strengthened our recognition for professional basketball products. For products performance, our two main star series, that is Sonic 7 and All City. For the 6 months, the SO rate had been 80%. For apparel, Wade and BadFive, the two series, had also performed well. For the entire year, for basketball functionality products, the growth had been 65% in terms of sell-through, and it has brought on very successful overall sector for the basketballs. As for running, we have put in professional technology and also research. Through these, we have been able to build up our recommendation and also word of mouth. We have been able to have breakthroughs in a number of products in the running sector. At the same time, we have deepened our mass market as well as our star series products. At the same time, we were able to extend on our existing business while consolidating our mass market share. In terms of professional categories, we have been able to deepen and also further diversify our products. Through this matrix, we were able to satisfy our consumers in a number of product needs, and we have been able to cover different price ranges. Our team for our product development has been successful in working through 14 marathons and 62 top-level sportsmen. Through this kind of testing, we were able to finalize our product through 13 versions. In the second half of 2019, we have also launched our new product, which is a professional running shoes and also the Wind Chaser and Pegasus Sports shoes have also been doing very well. We are in the forefront of professional runners sports shoes. In the mass market, we have also been able to come up with very fashionable jogging shoes, including the Super Light 16 series, and the sales have been 700,000 pairs for the year. In the year, we have also come up with superstar running products such as Lan. In the 6 months, the SO rate had been 75%, and this will probably become an evergreen product for us. As for training products, we have been driving the innovation of the products through technology and through innovative designs and also in functionality. We have a very good market share, and in particular for women's fitness and training, we have also made exploration so as to meet the needs of the female sportsmen and also trainers and their needs. In this area, in the market, we have been able to raise our brand recognition further. As for marketing for training products, we are very happy to be able to build on the basis of the 70th anniversary of the nation. Through this, we have been able to organize a number of events, and we have been able to extend our cross-sector challenges, activities through various competitions and also in events and activities. Through interactive offline experience and strengthening of our training products, we have been able to increase and enhance our influence. For the apparel side, we have also been doing well. It has been stable and advancing. In terms of sales, the top 20% of product sales, the sale had been 14 million pieces. In the 6 months, the SO rate had been 79%. For sports fashion, we have been doing well, and the trend is growing. For fashion products, it is a fast-changing sector, but at the same time, fashion itself is forever. By being able to connect with the younger consumers, by being able to continue with our brand name development in the sports fashion sector, we are able to very focusedly read the market trends and also pinpoint the hot points and raise the image of our brand name and also connect with the mainstream consumers. Within the year, for this sector, our total sales have been over 12 million pieces. Also for shoes, Pangu and JiGuang FengQing, these two brands for shoes, had been selling very well to the tune of over 400,000 pairs. At the same time, in channels, with regards to channels, with the consumer data becoming a very important element in this area, we have been able to use big data as the core to deepen our development and design of our market and channels so that we are able to provide a diversified and rich experience for our consumers online. In 2019, on the basis of the Double Eleven, our sales on the Tmall platform had been front-running. We have been able to, in the 3-day sale period, exceed CNY 50 million in terms of sales, which is a breakthrough. Also on e-commerce, we have been able to build a very good series, which is unique. Together with the Fashion Week, we have been able to develop new products, and we have been able to, in a focused manner, market and sell on the e-commerce sector. The market response had been good. Within the year, offline, we have been proactive in providing a number of diversified channels, and we have been able to meet the needs of different levels and sectors of the market, providing a multi-channel approach and also extricating the force of different channels, increasing the efficiency of all. For our all categories flagship stores in the shopping malls, we have been able to provide rich in-store experience for our consumers. In particular, for high-end markets, our touchpoints have been large, and we have been able to reach a wider array of consumers. For our China Li-Ning channel, as a high-end product range, it is already building that image. In particular, in the major first-tier and big cities, we have a very clear image, and we have been continually attracting young consumers. Also through our network of outlets and also other channels, we have been able to safeguard and also develop a very healthy and stable channel network. Next, I would like to share with you some of the channel-building results that we have achieved in the year. Now, for those of you who have the PPT on hand, you can look at the images there. So whether it is the all category model stores or our flagship stores, you are able to see that our image had been enhanced. As well, our operation data had been ideal and performing well. We are able to, on the one hand, extend on our shops and enhance our brand image, as well as increase the recommendation or the word of mouth. We have been able to achieve success in these two levels. In a year for our channels, it had been a year of growth, and we have received very good results in terms of our channel efficiency. We in Guangzhou, Macau, Chongqing, we have opened our first batch of fashion flagship stores, further enhancing the image of our shops in terms of their trendiness and also their high-end feel, making them a lot more attractive to our consumers. It is a very unique consuming experience in these stores. As of the end of 2019, the shops for China Li-Ning is 120 in total, and this is in line with our year's target. For 2020, it would be 170-200. That is our target. Of course, we will have to look at the market situation, including the coronavirus epidemic situation. We will refine that target as we go along. Our target is to extend our shops for this channel. In terms of brand marketing, what is most important for our company would be professional resources and also our allocation and investment. In particular, for our core product range, we will emphasize the following areas, and that is basketball, badminton, as well as running. Through CBA and also through national badminton team and major marathon events, we will continue to enhance our brand name and also deepen our brand name's image and also concepts, and also the utilization of technology, and build this image in the hearts of the consumers. Further, we would want that we will be able to enhance our brand name among the consumers to build on our brand equity and also to have marketing crossover in a number of areas, including environmental protection. In China, there is already the segregation of waste and also other environmental protection initiatives. We are working with various entities, including the Giant Panda International Image Uphold, which is an environmental protection themed joint effort in terms of crossover brand marketing. Also, we are working with the Forbidden City for exploring the Chinese charm and also connecting history and the future. In particular, we are utilizing the brand name of the Baoyun Building. This together with Li-Ning, we want to be able to connect up through this manner and to reach more active young consumers with affordability. In 2020, it is the 30th anniversary of our own brand name, and also for the Chinese saying, 30 years is a year that is very important in a man's life. In this year, we have participated in the International Fashion Week, as we have done before, in the Pompidou Center of Paris. We have been able to show off our 2020 autumn and fall new series. To be 30 years old is an important point in one's life. So it is for our brand name. Through years of trials and attempts, we have had various breakthroughs, and we have reached what we have today. The brand name of Li-Ning had been born because of sports. Whatever the external environment, we will always have the sportsmanship of never say lose. We will continue to go with confidence and core strength further and longer. Next, I would like to introduce to you our Joint CEO, Mr. Qian Wei. In the areas of retail operation, product, and also supply chain, Mr. Qian Wei is very experienced. I would like to invite Mr. Qian Wei now to speak with you. Thank you. Hello, I am Qian Wei. Greetings, everybody. It is regrettable that because of the epidemic, we are not able to meet face-to-face. I am sure you are all very cognizant of the epidemic developments. Therefore, before I talk about our strategic planning, I would like to talk about the epidemic, its impact on us, and what we are doing in face of that. The epidemic of coronavirus had started its outbreak in January of 2020, and it had brought on impact to all industries. We, our company, had, of course, been not different. We have had our fair share of pressure and tests. At present, we are not able to see how this epidemic will be able to develop and when we will be able to fully recover from the epidemic situation. As the external environment is not clear and unpredictable, our company will focus on what we can control so as to offset the impact of the epidemic and to build for the future when the epidemic is over. We have two major measures, and that is to expand on our revenue sources and to control our costs, as well as to control our inventory. For opening up resources and also our revenues, we rapidly strengthen our online channel. Through platforms such as social media platforms, we mobilize our salespeople and also our own staff through their personal social media friend groups. We grasp every potential business opportunity. At the same time, we are very cognizant and clear about the changes of our offline sales. For each of the areas of offline sales, if there are any changes at all, we will come up with the relevant response soonest. At the same time, in terms of cost control, we readjust our expenses and budgets in every part of our company so that we are able to fully prepare for the market when it resumes after the epidemic. For inventory, we will not be doing any fire sale or doing any cookie-cutter arrangements or disposal of our inventory. No. Rather we will focus on the different styles, the categories, and also the timing of the market so that we are able to fully and correctly adjust our inventory to digest and sell down in an orderly manner, so that in 2020, our inventory level will be at a controllable level. Through these measures for 2020, we would want to be able to achieve 10% to 10.5% in terms of our profit margin. Next, I would like to talk about our future development in terms of our strategy for the long term. Through this epidemic experience, we want to speed up with our development, including in the areas of crisis management and also our overall efficiency enhancement, so that we are able to fully prepare for a longer and even better development in the future. First of all, for our strategies, we will be building a muscle type corporate physique. That is to say, we will follow continued development and sustainable profitability as our operation model and to avoid any blind pursuit of quantity and growth only, and at the same time, forget about profitability. This kind of fat corporation is not what we are after. We will be focusing on the consumers, the markets, the commodities, the products, as well as the channels and the sales. These are our focuses, and I'll talk about the following areas of strategy. First of all, for products, we will increase our operation efficiency in our planning, in our design and our sales planning, our production, and also our sales and channels. We want these all to be fully integrated so that we are able to increase and enhance our operation model. Secondly, for inventory, we want to be able to step up with our supply chain management and our logistics to integrate these with our shops and our sale points so that we are able to see and control our inventory, and also to increase efficiency of our inventory. Third, we will enhance our stores' operation so that we have high profitability for our stores. Fourthly, we will pursue an omni-channel approach, develop e-commerce, and also integrate online and offline, serving each other. Fifthly, we will achieve cost efficiency, low cost, high efficiency operation, and control our costs. And sixthly, in terms of our organization structure, we will have a very elite team, and also we will increase our training for our sales, including our retail sales nurturing. Next, I will talk about the following areas in terms of our products. The product strategy is very important. We will be focusing on two areas. First of all, fashion and also professional brands and products. We will be readjusting our structure in two areas, our products and also our pricing structure. First of all, for product structure. We will be building an integrated and complete product structure. There will be 5 core product types and categories. We will rationalize our product structure so that in the sell points we will be able to very clearly display and prioritize the categories of product so that the structure would be clear for all. Secondly, for pricing structure, we will continue to optimize our pricing strategy. Specifically, we will be prioritizing and making clear our product's pricing. And at the same time, to integrate this with our positioning of brands so that we raise the value for money for all our products. In terms of execution, on the one hand, we want to optimize our product planning structure and also our order planning. We want to increase the focus and the accuracy of that. And at the same time, for our entire chain, including production, the sales terminals, et cetera, we want this to be in a flow. There will be good planning all through the different stages of that flow. And also, we will have the interim and also end-of-year planning for our main product types. And at the same time, we will increase the completion rate for all our major products and also for individual product types and also our categories. For inventory control, we will be looking at the different levels of our company in terms of the market, the commercial circles, the single stores, and we will determine the inventory level for each of them so that we are precise. Also in our SKU allocation and our inventory control, we do not want to be over or under in our approach. Lastly, on the basis of the above strategies, we will have control on our discounts. We will optimize this policy so that for the promotion and sell-down of our inventory, we will have a rational and controlled and planned approach. Next, I would like to talk about our channels, our strategic development of our channels. We want to be able to link up first line or tier 2 and our strengthening of the planning for these different channels. At the same time, we will be progressing with 2 areas of development, and that is in our channels and in our shops. We will be closing non-profitable shops. We will dynamically manage our shops to strengthen the enhancement and the raising of levels of our channels and our shops. We will be following the policy of our high-end shops, including increasing the sell-through profitability and efficiency of our shops, as well as the profitability. As we enhance our shops and stores, we will promote the image as well as the sale of the stores. We want to be able to be clear as to our image and to promote the sale of the stores. For the store development, we will be strengthening our flagship store to define them more clearly, so that they can really represent Li Ning brand in terms of experience, in terms of shopping, and in terms of professional products, so that they become the true fundamental stores for us. Lastly, through opening up continuously the large stores, we will further define the different functionality of our bigger and the smaller stores in terms of what they serve, in terms of their floor area, and their profitability targets, et cetera. For our omni-channel development, we will further develop our e-commerce channel and integrate online and offline so that there is synergy and we build an omni-channel in a number of areas, including in products, pricing, marketing, channel, our members, and in service. So offline serves online and vice versa. First of all, in terms of our products, we will be very clear as to some of the products which is shared by on and offline. How much would that be, and what types of products? For these shared products and the unique products, the logic and the consensus will be thought through and reached, and there will be synergistic management of the supply chain so that the quality would be well managed and there will be sharing of inventory. For pricing, we will have very clear pricing strategy. We will come up with very clear guidelines for pricing, and there will be adjustment of pricing mechanism so that the customers will be clear about our pricing points, and at the same time allow the different channels to have their own idiosyncrasies in terms of pricing. For marketing, on the basis of our perspective, we would want to maximize our resources for marketing. We will be consolidating products, marketing, e-commerce, and sales. The resources, we will be utilizing these resources centrally. At the same time, for external events or marketing events, when we come to the market for market launch of products and the selling channels and also media channels, et cetera, all these will be synergistically utilized so that we are able to maximize our sales and marketing resources. For channels, we would want to be integrated in our approach. We will have a matrix model. For members, we would want to prioritize our members. We want to be able to satisfy our customers' needs. This will be our priority. This would include physical stores, e-commerce, online and offline synergy in providing that service. Products, research, will also be integrated so that we are able to monetize on the value of our high-end resource, which is our members. For service, we want to provide the best service for our customers. Online, offline scenarios, and also in different scenarios, we would want to be able to very clearly segregate their roles but at the same time, have them work together in a synergistic and integrated manner to provide the best service possible. In terms of store operation, for store operation, we will have the fundamental approach of the single store operation. This will be our business model. We want to grow our single stores and to provide store operation that is replicable. In this approach, first of all, we will have to standardize our store operation, and that would include our profit and loss, our products, the point of sale, and also our people, our staff organization. We want to increase the efficiency of our sale points. We will strengthen our sales planning, the inventory management, and also our display. To build VMD business, we will build a single store inventory management system. At the same time, we will focus on the store manager. The store manager's responsibilities will be adjusted. The person, the manager, will become a businessman. That will be the transformation. We will be nurturing our team and developing our staff. We will focus on their nurturing and building them into even more forceful sales so that we have a system for our staff and our retail sales personnel. Next, I would like to talk about our supply chain strategy. For our supply chain, we want to realize a proactive production approach, changing from a reactive production approach. That is to say, our target is to ensure that our supply chain's efficiency is at its best. It is really able to meet the operation and the business needs of ours. For our supply, we are able to adjust it in time and also closely monitor the quality and the cost of production so that we are able to maximize on our business and also control the inventory efficiency. There will be efficiency in a number of areas, including the consolidation of our supply chain in shoes, in apparel, so that there will be cross-category and cross-department management as well as integration. With this kind of integration, we will of course have to efficiently use these resources. First of all, we will strengthen our planning and the synergy of our planning. The production and the products and sales will have to be closely linked together. According to the sales situation, we increase or adjust our production capacity, and to make sure that we have the continuous and stable supply for sales. This is important. We will also be strengthening our R&D of products and also increase our efforts in new products, investments, and launch, so that our brand name of Li-Ning will be very clear and deep in the hearts of our consumers in terms of the value and also its professionalism. I hope through the above-mentioned measures, I was able to help the company to build it into a muscle type of company, so that our company, Li-Ning, will be able to grow at a high level on a continuous level. Also to be profitable so that our brand name will be able to utilize the next 30 years for high growth. Thank you very much for listening to my sharing.