DEAR SHAREHOLDERS,

In 2019, the national economy of the PRC remained stable with steadily improving quality of development despite the uncertainties in the external environment. With the increasingly promising domestic consumption outlook, national consumption is undergoing quality upgrade and consumption has become the key driver for economic growth. To keep pace with the increase in macro demand and the progressive implementation of national policies, the sports market in the PRC is constantly in the process of evolution and innovation, steering development and leading continuous industrial upgrade based on sports consumption. During the year, the Group continued to focus on the strategy of "Single Brand, Multi-categories, Diversified Channels" to strengthen and optimize LI-NING's experience value, which has further enhanced its product and brand competitiveness.

According to the statistics of the National Bureau of Statistics of the PRC, China's Gross National Product (GNP) registered a year-on-year increase of 6.1% in 2019, the national disposable income per capita recorded a real increase of 7.8%, while Engel coefficient decreased by 0.2 percentage point, reflecting continuous improvement of the consumption structure. In respect of sports, given the increasing public awareness of healthy lifestyle, sports consumption is now a major and emerging consumption pattern, promoting the rapid development of the sports industry towards a more professional, standardized and industrialized direction. According to the plan of the General Administration of Sport of China, it is expected that the number of people regularly participating in physical exercises in the country will exceed 630 million by 2035, boosting the value of the sports industry to RMB11.3 trillion. The sports industry will grow in terms of strengths, vitality and quality, thereby becoming a pillar of the national economy.

During the year under review, revenue of the Group continued to grow with our profitability improving steadily. The profit attributable to equity holders increased from RMB715 million in 2018 to RMB1,266 million (excluding one-off profit and loss not related to operation of RMB234 million). During the year, the Group devoted great efforts in enhancing LI-NING's experience value with the implementation of the development strategy of "Single Brand, Multi-categories, Diversified Channels". Our innate sports DNA has impelled us to make continuous investment in research and development of sports science, with a view to optimizing and enhancing the professional and functional features of our products. We offered professional products with vitality and creativity by analyzing the cultural and popular trend, which help attracted more young consumer groups and consolidated our brand influence. During the year, the Group continued to demonstrate its creative brand image during the international fashion weeks, thus building sound reputation while enhancing product competitiveness.

CONTINUE TO ENHANCE PROFITABILITY AND FACILITATE STEADY IMPROVEMENT OF OPERATIONAL INDICATORS

In 2019, the Group's various key operational indicators further improved. Revenue of the Group grew by 32%, after excluding the one-off profit and loss not related to operation, the net profit margin rose from 6.8% last year to 9.1%. Cash flow from operating activities increased by 110% to RMB3,503 million. Meanwhile, working capital optimized more steadily, with the Cash Conversion Cycle (CCC) shortened from 40 days in 2018 to 26 days in 2019. In terms of tag price, trade fair orders for LI-NING brand products (excluding China LI-NING and LI-NING YOUNG) from franchised distributors, which from the latest trade fair held in December 2019 for the third quarter of 2020 registered a mid-teens growth on a year-on-year basis (this number is being adjusted downward depending on the financial impact on these distributors due to the coronavirus).

As the consumer market becomes increasingly mature, consumers have growing demand for quality products. During the year, we continued to focus on the optimization of products, channels and retail capability as well as supply chain management, at the same time establishing and strengthening the retail-oriented business model with vitality and efficiency, thereby optimizing LI-NING's experience value in full swing. We have scaled up the efforts in product research and development to enhance the professional and functional features of products, and actively explored new channel types and continued to refine the structure of channels with an aim to unleash channel efficiency. To align with the trend of digitalization, we leveraged the synergy from our resources strength both online and offline to improve the overall operational efficiency. Furthermore, we enhanced our retail operation capability to drive robust growth of our results, at the same time consolidating and enhancing the "Demand-driven" (因需而動) supply chain management system to boost business efficiency. During the year, the retail sell-through for the overall platform (including online and offline) increased by high-twenties, while the same-store-sales registered a high-teens growth on a year-on-year basis.

ADHERE TO THE STRATEGY OF "SINGLE BRAND, MULTI-CATEGORIES, DIVERSIFIED CHANNELS" AND FOCUS ON PROFESSIONAL RESEARCH AND DEVELOPMENT TO EXPLORE CORE COMPETITIVENESS OF PRODUCTS

During the year, we mainly focused on the strategy of "Single brand, Multi-categories, Diversified channels" and further developed both our product and brand competitiveness with products as the core aspect. Given the sports DNA of our brand, we consistently highlighted the professional sports attributes of our products and optimized the product experience and enhanced the core competitiveness of products through intensified efforts in the research and development of sports science. Meanwhile, we kept abreast of time and gained insight of the fashion trend to increase the trendy and cultural elements of our products, with a view to expanding our presence among different consumer groups and enhancing our brand influence.

Empowering professional sports with technology, we worked aggressively on research and development and accumulated experience, and launched the racing shoes specially made for marathon, namely, "LI-NING 䨻" (李寧䨻). The running shoes adopted "LI-NING 䨻" (李寧䨻) technology with lightweight and high resilience features. Combined with an embedded full palm heterogeneous carbon plate, the shoes serve as an excellent booster for athletes with the linked power feedback mechanism. Using 1.5mm ultra-thin sole technology, the resistance of the running shoes is 5 times higher than that of the traditional rubber, and the skid resistance on wet surface is approximately 50% higher than that of the traditional rubber, while also enjoying excellent durability and crack resistance. After two years of research, development and adjustment, practical tests in 14 marathon events by 62 top athletes, as well as the upgrade and adjustment through 13 versions, "LI-NING 䨻" (李寧䨻) only made its debut until each and every function was polished to perfection, which further optimized our product portfolio of professional running shoes.

We have been devoting consistent efforts in sports casual. In the second half of the year, under the theme of "Shows in Paris" (行至巴黎), we blended eye-catching colors with bold designs to create new products with our unique brand personality, which was not only a confident demonstration of Chinese culture to the world, but also a tribute to the upcoming 32nd Summer Olympic Games. In addition, we successively participated in the world-class "Atmos Con" sportswear show and "Complex Con" fashion gala, during which we displayed our featured items such as "ACE LUX" (烈駿ACE LUX), "Titan" (盤古) and "Journey" (遠行), attracting more young consumers with our unique design and precise interpretation of the fashion culture.

In the meantime, echoing with various hot topics, including 70th National Day, the Military World Games and Hangzhou Marathon (杭州馬拉松), we launched a series of diverse marketing campaigns, thereby ensuring quality exposure in the market. Simultaneously, we have organized exclusive sales events and professional promotions, which has helped establish a sound reputation and boost sales volume, hence further increase our brand influence. Furthermore, facilitated by cross-over marketing campaigns, the reputation of our product soared to a new height. We collaborated with the first international panda character "A Pu" (阿璞) in China to express the attitude of "we can be fashionable while saving the environment" (要潮也要環保). The cross-over product launched with People's Daily also demonstrated the spirit of "Made in China, Right on Trend" (中國造,正當潮). These innovative cross-over products not only catered to the characters and mindsets of youngsters, but also conveyed the value and promoted the influence of LI-NING brand.

ENHANCE RETAIL OPERATION CAPABILITY AND STRENGTHEN SUPPLY CHAIN MANAGEMENT TO FURTHER UNLEASH CHANNEL EFFICIENCY

We continue to optimize our retail operation supporting platform and enhance the interactive experience with consumers to strengthen our brand recognition and loyalty. We persisted on utilizing big data to gain insights into consumers' diversified consumption habits so as to set precise positioning for consumers.

Meanwhile, we actively planned different marketing campaigns to create hot topics and established smooth communication channels with consumers to draw different consumer groups closer to our brand by consolidating the synergy of our online and offline channels. In respect of store experience, we focused on enhancing the shopping experience of consumers and improving the product coverage to cater to the differentiated demand of products. We also unified the store management standards to upgrade our store image, at the same time strengthening our team building and talent training, thereby comprehensively enhancing our retail operation capability.

In terms of supply chain, we reinforced cost management and quality supervision centering on business needs, while rationalizing and optimizing the supply chain resources with an aim to establish a flexible, swift and dynamic supply chain platform. Targeting the differentiated demand for products and channels, we optimized the allocation of supplier resources in the industry and continuously improved the layout of supplier resources, which has enhanced the responsiveness and efficiency. Besides, we focused on the development of a free supply chain system and comprehensive integration of upstream resources. The footwear production plant that we leased in Nanning, Guangxi Province has been put into operation successfully during the year, striving to incorporate the core capabilities of the industry into our own supply chain system.

In terms of sales channels, we optimized the strategies for channel development with an emphasis on channel efficiency. We also adjusted the channel structure on a dynamic basis by closing down or reforming inefficient and loss-making stores, thereby further unleashing channel efficiency. Moreover, we continued to actively explore opportunities for channel diversification and established more China LI-NING stores in order to accelerate the development of stores with high efficiency and model stores. During the year, we set up 97 new China LI-NING stores and opened the first batch of flagship casual stores in Guangzhou, Chongqing and Macau.

OUTLOOK

With the rising level of national consumption and continuous upgrade of national consumption structure, the development of the sports industry has embarked on a fast track. The increasing popularity of national fitness has unleashed vast potentials of sports consumption, and technological advancement will promote continuous reform and upgrade of the industry, which will also bring about more opportunities and challenges for the Company. Looking forward, the Group will continue to improve the following core business focuses, further enhance LI-NING's experience value and increase the efficiency of retail operation with a view to achieving healthy and sustainable profit growth for the Company in the future, at the same time achieving real sports value:

Continue to enhance product and brand competitiveness to maintain sustainable profit growth. Focusing on continuous efficiency improvement, we will steadily improve our profitability and further expand our business scale;

Continue to adhere to the strategy of "Single brand, Multi-categories, Diversified channels" and further enhancing LI-NING's experience value. We will focus on the scientific research and development of sports to enhance the professional features of our products. We will also consolidate the influence of LI-NING brand among consumers by staying abreast of the latest fashion and cultural trends and pushing forward the development of digitalization strategy and comprehensive marketing layout on a continuous basis;

Continue to enhance our channel and retail operation capability and implement precise product plans with a view to unleashing channel efficiency consistently. We will push ahead with the development of stores with high efficiency and model stores and increase the use of digitalization for store layout, at the same time capturing diversified consumer demand and improving online and offline sales efficiency through new retail initiatives and big data analysis. We will also step up our efforts in the establishment of supply chain system in a bid to continuously enhance the capability of our own supply chain system;

For our new businesses, with the enhancement of single store profitability remains our focus, we will carve out business opportunities and market potential by utilizing resources in a reasonable and prudent manner, thereby creating new business opportunities for sustainable profit growth of the Company.

In the future, we will insist on devoting major resources into learning sports knowledge, research and development on sports technology and LI-NING brand experience development, striving to explore and broaden room for business development, consolidate our brand influence and enhance LI-NING experience value so as to inject more vitality and creativity to the brand. As the founder and operator of the Company, I always highly regard the interests of investors, and cherish their care of LI-NING brand and unremitting supports to the Company. Meanwhile, I would like to express my sincere gratitude to our dedicated and hardworking staff. Lastly, I would like to officially welcome Mr. Kosaka Takeshi to join the big family of Li Ning. Benefitting from his rich experience in terms of channel and retail operation as well as supply chain, we believe that he will be a great complementary to the existing management team, which will further increase the operation efficiency of the Company and help us to deliver another strong performance. In 2020, which marks the 30th anniversary of establishment of LI-NING brand, we will continue to convey our sports DNA heritage and make true more ground-breaking sports dreams through cutting-edge combination of innovative technology and professional functions. "Anything is Possible" in the future!

Li Ning
Executive Chairman and Joint Chief Executive Officer
Hong Kong, 26 March 2020

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