2010 Interim Results Release
31 August 2010
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Some of the information is still in draft form and will only be finalized at the time of publication of the Companys prospectus and international offering circular relating to the offering. This presentation also contains information and statistics relating to the waste paper management, paper manufacturing and related industries. The Company has derived such information and data from unofficial sources, without independent verification. The Company cannot ensure that these sources have compiled such data and information on the same basis or with the same degree of accuracy or completeness as are found in other industries. You should not place undue reliance on statements in this presentation regarding the waste paper management, paper manufacturing and related industries. The information contained in this presentation does not constitute a due diligence review and should not be construed as such. The information contained in these materials has not been independently verified. 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Financial Highlights
Robust growth of revenue and profit
Revenue / Sales volume
(RMB m) CAGR = 42.6% CAGR = 78.8% CAGR = 48.8% Sales volume (000 tons)
Gross profit
(RMB m)
566
CAGR = 75.5%
1,213
335 256 200
351
CAGR = 90.9%
504 333
Growth rate = 143.6%
882
362
2007
2008
2009
1H 2009
1H 2010
2007
2008
2009
1H 2009
1H 2010
EBITDA
(RMB m)
Net profit
882 684
(RMB m)
644
CAGR = 129.6%
272 167
Growth rate = 166.1%
CAGR = 181.3%
Growth rate = 189.2%
483
257 136 82
167
2007
2008
2009
1H 2009
1H 2010
2007
2008
2009
1H 2009
1H 2010
EBITA = Profit before tax - financial expense + depreciation in fixed assets + amortization of goodwill and other intangible assets
Sustainable increase in profitability
Gross margin Operating margin1
19.0% 15.7% 19.5% 12.0% 12.7% 13.9% 6.5% 4.7%
26.5% 22.8%
2007
2008
2009
1H 2009
1H 2010
2007
2008
2009
1H 2009
1H 2010
EBITDA margin
20.6% 16.6% 13.8%
Net profit margin
14.5% 12.1% 9.0% 7.5% 3.1% 3.8%
6.4%
2007
2008
2009
1H 2009
1H 2010
2007
2008
2009
1H 2009
1H 2010
Operating profit = Profit before tax - financial expense
Gross profit margin improvement on main products
Gross profit PVC products Gross profit Non-PVC products
31.2%
728 23.9% 21.3% 18.8% 526
21.0% 23.0% 336 467 25.1%
12.5%
16.9%
9.0%
304 217
153
192 140
169
2007
2008
2009
1H 2009
1H 2010
2007
2008
2009
1H 2009
1H 2010
Gross profit (RMB m)
Gross profit margin
Gross profit (RMB m)
Gross profit margin
Analysis on sales distribution by segment
Revenue distribution by geographical segment
2.0% 1.1% 1.1% 3.4% 6.0% 6.2% 7.7% 2.2% 1.2% 0.6% 3.7%
Southern China Southwestern China Central China Northern China Northwestern China Eastern China Northeastern China Outside China
10.6%
1H 2009
11.2%
9.9%
1H 2010
64.6%
68.5%
Revenue distribution by product segment
3.8% 1.7% 40.6% 18.7% 18.2% 3.5% 1.2% 39.3%
Water supply Drainage Power and telecoms
1H 2009
1H 2010
Gas supply Others
35.2%
37.8%
Fruitful investment returns
Return on equity1 Return on assets2 Return on invested capital3
61.8% 18.4% 17.2%
33.5%
28.5% 24.2%
32.7% 32.0% 28.9%
25.2%
6.4%
4.0%
2007
2008
2009
1H 2010
2007
2008
2009
1H 2010
2007
2008
2009
1H 2010
Annualized net profit divided by total equity at the end of the year/period Annualized net profit divided by total asset at the end of the period Annualized net profit divided by (total long term interest bearing loans at the end of the year/period +total equity at the end of the year/period)
Maintained well-established operating efficiency and financial policies
Account receivable days1 Account payable days1
28 22
28 22 23
29 14 12
2007
2008
2009
1H 2010
2007
2008
2009
1H 2010
Inventory turnover days1
63 61 59 58
Liability ratio2
70.6% 52.5% 55.7%
28.1%
2007
2008
2009
1H 2010
2007
2008
2009
1H 2010
Turnover days calculations are based on average of opening and closing balance of trade receivables, trade payables and inventory Liability ratio = total liabilities for the year/the end of period / (total liabilities for the year/the end of period + equity for the year/ the end of period)
Future Strategies
Growth momentum and trend in plastic pipes industry
1
Rapid urbanization in China has led to rapid improvements in urban infrastructure. Rising household disposable income, rising living standards and favourable pricing trends will also result in the next growth phase in the China plastic pipes industry
Plastic pipes are associated with more favorable characteristics compared to pipes made with traditional materials such as concrete and metals, fully supported by improving technique in plastic pipe industry and government policies The Ministry of Construction has issued the Notice of Construction Industry 11.5 - Encouraged and Prohibited Technique (the 1st Batch) recommending the use of plastic pipes. The Chinese government has also issued the Several Suggestions on Strengthening Technical Innovation and Advancing Chemical Building Material Industrialization and Summary for the 15 Years Plan for Nations Chemical Construction Materials Industry and 2015 Development Plan, which will provide further support for the plastic pipes industry Consolidation in the plastic pipes manufacturing industry will continue to step-up. The stronger ones will become stronger , while the weaker ones will be eliminated. China Liansu will continue to increase its market shares.
Thanks to Liansus outstanding brand, far-ahead enterprise scale, nationwide capacity and distribution network and outstanding R&D capabilities, we believe Liansu will continue to maintain our exceptional competitive advantage in the market
10
Our strategies and development plans
We look to maintain our leadership position by continuously focusing on the following four areas of development
Continue to maintain our leadership position by increasing our production scale
1 2 Our goal
Further increase our market share and strengthen our leading position in Chinas plastic pipe industry
Continue to develop advanced technology to improve efficiency and product portfolio
Continue to recruit and retain outstanding talent
4 3
Continue to promote Liansu brand to improve customer satisfaction and loyalty
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Continue to maintain our leading position by increasing our production scale
Capacity expansion plan
(unit: tonnes)
2
1,850,700 1,520,700 330,000
1,150,700 905,700 245,000
370,000
Establishing new facilities in Urumqi and Changchun to satisfy strong demand in the Northwestern and Northeastern regions
Increase geographic coverage
1
2009 2010 2011 2012
Upgrade capacity in existing facilities
Planned capex
(RMB m)
Achieve economies of scale
1,500
1,000 586
3
Expand sales network by adding distributors and setting up more sales offices
500
Increase market share
2009
2010
2011
2012
Liansu intends to further expand production capacities and sales network to capture the market growth
12
Continue to develop advanced technology to improve efficiency and product portfolio
Favorable government policies Expand R&D team and improve innovation capability Optimize product functionalities
Standardized industrial criteria
Enhance dialogue with our customers
Improve production efficiency
Customeroriented R&D guideline
Continue to cooperate with research institutes and leading universities
Improve process technology
Liansu is proud to have a strong R&D team in Chinas plastic pipe industry
13
Continue to promote Liansu brand to improve customer satisfaction and loyalty
We have targeted to build a high quality and customer-oriented brand in China since the establishment of our Company
To actively participate in large infrastructure & property development projects and further strengthen our relationship
with government entities, utility companies, reputable companies and plastic pipe industrial associations to improve our Companys image and customer satisfaction in respect of both pre-sale and after-sale services
To conduct marketing campaigns on targeted customers and continue to promote our Liansu brand both
domestically and internationally
Increase marketing budget and further improve our brand image in both domestic and international market through media advertisement and trade fairs
To apply for more intellectual property rights to build our strong brand image
Increase marketing budget and further promote our brand through media advertisement and trade fairs
Participate in large infrastructure and property development projects to improve our companys image
Apply for more intellectual property rights and build a strong brand recognition
Liansu is committed to providing world class products and services
14
New Technology Development
15
New product development
In 2010, we will continue our commitment to R&D, maintain our leading position in the innovation technology area. We will focus on the technological development of products used for water or gas, with high efficiency, energy saving and environmental friendly Metal-plastic composite pipes
Satisfies demand for pipes in applications not suited to pure metal or plastic pipes,
including high-storey water supply, industrial water supply, fire fighting pipes, mining pipes etc
Development of CPVC hot/cold water pipes
Higher yield and tensile strength and thinner pipes can be used in similar applications compared
with common plastic pipes
Advantages include material saving, fire retardant, low heat conductivity and heat loss
HDPE electric-fusion fittings
Using leading Moldflow technology, we plan to produce HDPE electric-fusion fittings with wire
laying first
16
New product development
Same floor drainage systems
The drainage of lavatory sewage directly into the main drainage system through horizontal
installation on the same floor
Advantages include saving the need for vertical ventilation pipes, prevention of cross
contamination in sewage systems, lower noise levels and ease of maintenance and cleaning
Water saving irrigation systems
Serious conflicts of global supply and demand of water resources provided the huge market of
irrigation products with water and energy saving nature, optimizable adjustment and modernmanaged surveillance.
In conformity with Chinas climate, we will develop a series of high quality, low cost water saving
irrigation products for agricultural and horticultural end uses in China, such as dripping pipes, spray nozzles, valves, filters etc
Development of solar heat collection pipes
Focused on the limitations of existing solar water heater systems, the new material is aimed at
replacing existing heat collection and transfer pipes made mostly from metals and glass
Lighter and has lower production cost than existing products Chinese Governments policy of new energy exploration will create huge demand for this product
We believe our leading R&D capability will enable Liansu to enter new markets, energizing the momentum to our strong growth trajectory in the long-term future
17
Q&A
18