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1
COFCO International Limited(0506.HK)
2006 Results Announcement
19 April 2007
2
DisclaimerThe slides herein are prepared by COFCO International Limited (the "Company") solely to be used as a support for oral discussions of its annual results for the year 2006. They may not be distributed, reproduced or re-distributed or passed on, directly or indirectly, to any person, in whole or in part, for any purpose. By participating in this presentation, you agree to be bound by the forgoing restrictions. Any failure to comply with these restrictions may constitute a violation of applicable laws and regulations.
The information contained in this presentation does not constitute or form part of any offer for sale or subscription of or solicitation or invitation of any offer to buy or subscribe for any securities nor shall it or any part of it form the basis for or be relied on in connection with any contract or commitment whatsoever.
This presentation may contain forward-looking statements. Prospective investors are cautioned that actual results may differ materially from those set forth in any forward-looking statements herein.
The information contained in these slides herein has not been independently verified. No representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of any information or opinion contained herein. The information contained in these slides should be considered in the context of the circumstances prevailing at the time and has not been, and will not be, updated to reflect material developments which may occur after the date of the presentation. None of the Company, or any of their respective directors, officers, employees, agents or advisers shall be in any way responsible for the contents hereof, or shall be liable for any loss arising from use of the information contained in these slides herein or otherwise arising in connection therewith."
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Contents
1. The Reorganization
2. 2006 Pro Forma Financial Performance
3. 2006 Business Review
4. Outlook and Prospects
4
COFCO Int’l (0506.HK)
1. The Reorganization
5
Objectives of the Reorganization
To create two key flagships, namely branded food business and agri-industrial business within COFCO Group
To develop a more focused business strategy executed by a professional team to enhance the shareholders’ value
To establish the company as the market leader in China branded food & beverage industry
6
Restructuring Steps
Step 1: Acquisition & Disposal of Step 1: Acquisition & Disposal of Assets Assets
Step 2: Spin-off of China Agri HoldingStep 2: Spin-off of China Agri Holdingss
Form wholly-owned subsidiary China Agri Holdings to hold the Agri-Industrial Businesses
Acquisition of Food & Beverage Businesses and Agri-Industrial Businesses from COFCO (HK)
Transfer of Non-core Business back to COFCO(HK)
Accomplished on December 31, 2006
Spin-off of China Agri Holdings by way of special dividend, and listing of China Agri Holdings by way of introduction
China Agri Holdings offers new shares through a Global Offering and was listed on HKSE on 21st, March
7
COFCO Group
COFCO (HK) and Its Affiliates*
100%
74.25%
COFCO International Limited(0506.HK)
ConfectionaryWines
COFCO Le Conte Food(Shenzhen)
Shenzhen Le Conte Marketing Services
100%
90%
COFCO Foods Sales and Distribution
COFCO Huaxia Greatwall Wine
100%
100%
80%
100%
55 %
Organization Structure post Spin-off
100 %
100%China Great Wall
Wines
100%
100%
COFCO ShaoxingWinery
COFCO Greatwall Wine(Yantai)
COFCO Wines andSpirits
COFCO Huaxiahong Wines and Spirits (Shenzhen)
COFCO NavavallyJundung Vineyard
Qighuangdao Huaxia Greatwall Wines & Spirits
100%
100%Yantai Greatwall Wines
and Spirits100%
BeveragesCOFCO Coca-Cola
Beverages Ltd
65%
Hunan COFCO Coca-Cola
Tianjin COFCO Coca-Cola Beverages
Jilin COFCO Coca-Cola Beverages
Zhanjiang COFCO
Coca-Cola Beverages
Hainan COFCO Coca-cola Company
80%
Gansu COFCO Coca-Cola
Xinjiang COFCO
Coca-Cola
Other associated companies
50%
100%
100%
100%
100%
Consumer-pack
Edible Oil
8
Core Management Team post Spin-off
Mr. Qu, Zhe, 43
Executive Director
Managing Director
Extensive experience in food & beverage products
Mr. Ma, Jianping, 42
Executive Director
Deputy General Manager
Extensive experience in strategy management
Mr. Mak, Chi Wing, William, 45
Executive Director
Deputy General Manager
Extensive experience in corporate governance
Ms. Luan, Xiuju, 41
Executive Director
Head of Beverage Division
Extensive of experience in beverage production, trade and management
Mr. Zhang, Zhentao, 43
Executive Director
Head of Consumer-pack Edible Oil Division
Extensive experience in oil trade and management
Mr. Cao, Zhaoliang, 40
Head of Confectionery division
Extensive experience in confectionery business
Mr. Man, Jacky, 31
Financial Controller
Extensive financial industry & corporate finance
Mr. Wufei, 36
Head of Wine division
Extensive experience in
wine business
9
COFCO Int’l (0506.HK)
2. 2006 Pro Forma Financial Performance
10
Turnover HK$6,509mm HK$5,749 mm
Operating Profit HK$538 mm HK$420 mm
EBITDA HK$663mm HK$583 mm
HK$342mm HK$257 mm
Earnings per share HK12.9cents HK9.8 cents
ROE 11.5 % 11.6%
ROA 8.2% 7.9%
31 December 2006 31 December 2005
Post Spin-off Pro Forma Results Highlights
Profits after Tax & MI
11
Total Assets HK$6,837mm HK$5,291 mm
Total Liabilities HK$2,231mm HK$1,907 mm
Minority interests HK$730mm HK$793mm
Net Assets HK$3,876mm HK$2,591 mm
Cash on book HK$1,308mm HK$516 mm
Total Liabilities/Total Assets 32.63% 36.04%
Interest Bearing Debt/Net Assets 15.4% 23.2%
Pro Forma No. of Shares Issued 2,791 mm shares 2,638 mm shares
31 December 2006 31 December 2005
Pro Forma Assets, Liabilities and Equities
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Wines 1,803 1,552 16.2%
Beverages 2,431 1,917 26.8%
1,854 1,899 -2.4%
Confectionary 421 381 10.4%
Total 6,509 5,749 13.2%
(HK$mm) 2006 2005 +/-%
Pro Forma Turnover Breakdown
Consumer-pack Edible Oil
13
Wine 221.2 184.6 19.8%
Beverage 114.8 85.7 33.9%
25 0.2 11781%
Confectionary -15.1 19.7 —
Consumer-pack Edible Oil
Consumer-pack
Edible Oil
Wine 321.5 298.5 7.7%
Beverage 159.9 115.8 38.1%
63.2 12.7 397.6%
Confectionary -8 25.1 —
(HK$mm) 2006 2005 +/-%
Operating Profit
(HK$mm)
Net Profit
Pro Forma Operating Profit and Net Profit
2006 2005 +/-%
14
Pro Forma Net Profit and EPS Growth
0
90
180
270
360 12.9
0605Profit Attributable to
Shareholders
342.1
05 06
+33% +32%
Earnings per share
2
4
6
8
10
12
14
(HK$mm)(HK$ cents/share)
257.4 9.8
15
Pro Forma Total Assets and Net Assets by Business
Total Assets Net Assets
Confectionary
8.9%
Beverage
35.9%
Consumer-
pack
Edible
Oil
6.8%
Others
10.9%Wine
37.5%Confectionary
8.1%
Beverage
31%
Consumer-pack
Edible Oil
1.6%
Others
18.1% Wine
41.2%
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COFCO Int’l (0506.HK)
3. 2006 Business Review
17
Consumer-pack Edible Oil 12.5% 2
Coca-Cola Beverages* 53% 1
Le Conte Chocolate 14.5% 2
Greatwall Wines 17.5% 1
Products & Brands2006
Market Share2006
Ranking
*Note: market share and ranking of Coca-Cola Beverages refers to that of sparkling drinks in the sales regions under franchise
Still the Market Leaders
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Mission and Vision
Mission: To maximize value for customers, shareholders and employees by providing nutritious and healthy food
Vision: To become the leading food and beverage company with the most valuable brands in China
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Channels——A professional sales & marketing team and an extensive sales network throughout China
Brands—— A portfolio of well-known consumer brands
Innovation——In-house R&D capabilities and product innovation capabilities
Management——Professional management team
Our Competitive Edges
20
Turnover of Wine Business in 2006 reached HK$1,803 mm, 16.3% increase from 2005, higher than the industry revenue growth of the year
We sold 86,100 tonnes of wine in 2006, an increase by 11% from 77,700 tonnes in 2005.
ROE in 2006 was 16.6%
Wine BusinessPerformance in 2006
21
Expansion of production capacity—— Production capacity in 2006 reached 110,000 tonnes per annum. It is expected that production capabilities in 2007 will increase by 6,000 tonnes; Navavally Jundung Vineyard was established with an investment of RMB 260 million in Yantai, positioned to produce high end Chateau wines and is expected to commence operation in mid-2007
Product Positioning——Product streamline and integration of the current three wineries were completed. Three principal product series, namely Huaxia Cru Vineyard Series, Star-rating series and Coast series will be launched, to better define and enrich our product portfolio Enhancement of Brands Images——Further enhance the brand image of Greatwall through the exclusive wine supplier position to Beijing 2008 Olympics; devote more sources into brand image building Integration of Channels——Further distribution channel integration of the three wineries. Initiating pilot schemes in northern China and southern China to explore new sales and distribution model
External Expansion——To seek mergers and acquisition opportunities in and outside the PRC
Wine BusinessFuture Development Initiatives
22
One of the three Coca-Cola Beverages bottler groups in the PRC, through a 65% owned JV with the Coca-cola Company. Currently this business owns six operating plants in Tianjin, Hunan, Hainan, Jilin, Gansu and Zhanjiang. This business also has minority interests in 14 other bottling plants in cities like Nanjing, Hangzhou and Guangzhou
Our franchise sales regions include: Tianjin, Hebei, Inner Mongolia, Jilin, Hunan, jiangxi, Guizhou, Gansu, Ningxia, Qinghai, Xizang, Xinjiang, Hainan and Zhanjiang
The population in the sales regions under franchise accounts for 28% of the PRC population, GDP accounts for 21% of total GDP
Annual Coca-Cola consumption per capita in our regions is 11.5 8oz-cup, whilst the annual consumption per capita in the country is 20.3 8oz-cup
Thank for the growth in both sales volumes and prices, the Beverage Business recorded a turnover of HK$2,431 million in 2006, an increased by 26.8% from 2005. Sparkling drinks accounted for 86% and still drinks accounted for 14%. Such growth rate exceeded that of the industry, and ranked top among the bottlers of Coca-Cola in China
Beverage BusinessPerformance in 2006
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Capacity Expansion——We plan to build new plants and add new product lines.
Product Mix Adjustment——We will gradually increase the percentage of still drinks. It is expected that in the coming three years, the sales volume of sparkling drinks will decrease from the current 86 % to 77 % and that of still drinks will increase from the current 14 % to 23 %
Optimization of Geographic Lay-out ——We will seek to optimize the geographic locations of our sales channels
Beverage BusinessFuture Development Initiatives
Sparking drinks
Fruit juice Tea Water
Market share in 2006
53% 5.3% 1.9% 7%
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Growth in consumer-pack edible oil market in the PRC remains strong. According to the data provided by AC Nielsen, it is expected that the industry as a whole will maintain average growth of around 8 % in the future
In the Reorganization, we separated the consumer-pack edible oil business from the oilseed processing business, to establish a sales company operated by a professional team to focus on brand management and sales and marketing capability
The Fortune related brands wholly-owned by our parent is licensed to us exclusively
Have a comprehensive product portfolio, including blended cooking oil, peanut oil, corn oil, sunflower seed oil, vitamin A enriched oil, sesame oil, olive oil and soybean oil
Excluding the sales of Northsea, an associated company, the Turnover of consumer-pack edible oil was HK$1,854 mm, which were decreased by 2.4% from 2005, mainly due to the decrease in the sales of edible oil with low gross profit margin
Consumer-pack Edible Oil BusinessPerformance in 2006
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Adjust product portfolio and increase the weighting of products with higher gross profit margins to enhance overall profitability
New “Fortune” brand logo will be launched in mid-2007 to enhance the brand image
To further develop distribution channels and manage distributors, to increase the sales coverage at retail level
Consumer-pack Edible Oil BusinessFuture Development Initiatives
26
The Confectionery Business achieved a turnover of HK$421 million in 2006, an increase of 10.4% from 2005
Due to a surge in raw material prices, including sugar, gross profit margin decreased slightly to 44.3%
Due to the increase in marketing investment, this business recorded loss for the year.
Confectionery BusinessPerformance in 2006
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Plan to rebuild the “Le Conte” brand to satisfy the upgrading of consumer taste
To expand mass channels in major and middle cities and channels in second to third tier cities so as to enhance product penetration rate
To develop differentiated products with good growth prospects, and invest reasonably on marketing and promotion so as to secure long term growth
To strive for improvement in operation from 2006 and achieve turnaround in 2007
Confectionery BusinessFuture Development Initiatives
28
COFCO Int’l (0506.HK)
4. Outlook and Prospects
29
Outlook and Prospects
Brands consolidation, promotion and extension
Sales channels and network integration and sharing
New product development and new business expansion
Explore synergies in procurement, production, and logistics
Centralize financial management, client bases and form a unified corporate culture
As a company dedicated to branded food business, COFCO Int’l will leverage on the three engines of brands, channels and R&D to maximize the synergies among its business units and drive
the company’s transformation and development
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Outlook and Prospects
Consolidate corporate resources, including brands, channels, R&D, production, logistics and corporate structure
Achieve organic growth from existing businesses: e.g. energising marketing efforts for branded consumer-pack edible oils; studying the possibility of extending the “Fortune” brand product range; extending and expanding the range of wine brands; tapping into the high-end confectionery product category
New business development: identify and nurture new growth businesses, external M&As
Major Future Growth Drivers
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Outlook and Prospects
Formulate and constantly review the long-term strategic development plan of the company
Improve corporate governance and corporate control, strengthen team-building, establish an effective incentive mechanism to achieve better organisational integration
Enhance corporate transparency and improve investor communication
With the ultimate goal of maximising shareholder value, strive to enhance the company’s overall profitability and build COFCO International into the leading player in the branded food industry in China
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Thank youThank you !!