Reuters: Private Equity: UPDATE 1-China's Li Ning sees cost cuts lifting faltering margins

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UPDATE 1-China's Li Ning sees cost cuts lifting faltering margins Mar 30th 2012, 09:31 Fri Mar 30, 2012 5:31am EDT By Twinnie Siu and Rachel Lee HONG KONG, March 30 (Reuters) - Private equity-backed Chinese sportswear brand Li Ning Co Ltd, which a day before reported a two-thirds drop in 2011 net profit due to intense competition, expects savings in staff and operating costs to help boost gross profit margins this year, company executives said. China's domestic retail brands such as Li Ning and ANTA Sports Products Ltd, face rising margin pressure from foreign brands such as Nike and Adidas entering the highly competitive domestic market. Li Ning, backed by TPG Capital and Singapore sovereign wealth fund GIC, reported a 65 percent fall in 2011 net profit to 385.8 million yuan ($61 million), which lagged analysts' forecasts of 421.1 million yuan. "We expect gross profit margin to improve by 0.5-1.0 percentage point this year on cost savings and enhanced procurement management," Chief Financial Officer Chong Yik Kay told a media briefing. The company also expected a low single-digit increase in same store sales in 2012, Chong said. The capital expenditure for the current fiscal year will be about 330-350 million yuan compared with 390 million yuan a year earlier, he added. Its margin of profit was at 4.3 percent in 2011, down from 11.7 percent from 2010, the company said in the annual results statement. "The group believes that competition within China's sporting goods industry will remain intense, and the pressure of cost escalation will persist in the industry value chain," it said. It plans to open 195 new stores, lower than the net increase of 340 stores in 2011, taking the total number of Li Ning brand retail stores to 8,450 by the end of this year, the company said. In January, U.S. private equity fund TPG Capital and Singapore sovereign fund GIC agreed to invest around $115 million in Li Ning through a convertible bond, giving much needed capital to the company. "We have had very close business discussions with them so far," Chief Executive Officer Zhang Zhi Yong said at the briefing, referring to the company's financial backers. "They are in the process of understanding the matter. We expect to have a meeting with them on April 20, to have the last confirmation of our concrete strategies for this year and few major directions of future development." Shares of Li Ning fell 4.4 percent on Friday, compared with the main Hang Seng Index's 0.3 percent decline. Link this Share this Digg this Email Reprints

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