INVESTOR PRESENTATION December 2011 Virtual Road Show Presentation Building a Green Future with...
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- Slide 1
- INVESTOR PRESENTATION December 2011 Virtual Road Show
Presentation Building a Green Future with Power Saving
Transformers
- Slide 2
- Safe Harbor Statement Certain statements in this document are
forward-looking or predictive statements. Such statements involve
known and unknown risks, uncertainties, and other factors that may
cause actual results, performance, or achievements to be materially
different from any future results, performance, or achievements
expressed or implied. Such factors include but are not limited to
market and customer acceptance and demand for our products; our
ability to market our products; the impact of competitive products
and pricing; the ability to develop and launch new products on a
timely basis; the regulatory environment, including government
regulation in the PRC; our ability to obtain the requisite
regulatory approvals to commercialize our products; fluctuations in
operating results, including spending for research and development
and sales and marketing activities; and other risks as detailed in
our filings with the Securities and Exchange Commission. The words
identifying forward-looking or predictive statements can include
believe, expect, anticipate, intend, and plan and similar words.
These statements are subject to risks and uncertainties that cannot
be known or quantified and, consequently, actual results may differ
materially from those expressed or implied by such predictive
statements. Readers are cautioned not to place undue reliance on
these forward-looking or predictive statements, which speak only as
of the date they are made. Safe Harbor Statement
- Slide 3
- Transformers are used to convert, or step down high voltage
electricity supplied by power stations via electrical wires into
lower 220 and 380 volts for safe residential and commercial usage
Where You Find Our Products Step Down Transformers for the Last
Mile Amorphous Transformers A GENERATION TRANSMISSION B
DISTRIBUTION C D COMMERCIAL & INDUSTRIAL BUSINESS CONSUMERS E
RESIDENTIAL CONSUMERS
- Slide 4
- What We Manufacture Our Products & Applications Energy
Efficient Amorphous Alloy Transformer Cores A transformer core is
where the transformer windings that carry the electricity are
coiled 34 types of cores based on capacity Number of cores used
depends on the voltage of the transformer Below and Pole Amorphous
Alloy Transformers Transparent view of cores inside the transformer
Opened in Q3 2011, our dedicated manufacturing facility has 5,000
units of capacity in 4 series. Urban and rural residential areas
Industrial applications Alternative energy 4
- Slide 5
- China Leads the World in Smart Grid Expansion A Government
Supported Program 5 China Top Ten Smart Grid Federal Stimulus
Investments by Country, 2010 In U.S. Millions Source: Data obtained
from respective region (country) federal agencies
- Slide 6
- Amorphous Cores Address Market Demand Government Support and
Incentives Technology principle for rural power grid renovation
upgrade Jan. 1, 2011 Sep. 14, 2010 Jun. 21, 2011 Cash incentive
guidelines for energy saving projects Incentive program provided by
both central and local Ministry of Finance 12 th five-year plan
Smart strong electricity grid Rural electricity grid to lift living
standards Guidance for Demand Side Management Further accelerates
the adoption of new technologies to improve energy efficiency Type
S11 or amorphous alloy transformers are the first choices for both
new installation and replacement 6 2011~2015
- Slide 7
- Energy saved by using amorphous alloy transformers (one unit)
Capacity (kva) Product No-load loss (watts) Load loss (watts)
Annual energy savings at no load (kwh) Annual Cost Savings (RMB)
500 Amorphous alloy transformer 2405,150+ 6,307+4,415 Traditional
steel transformer 9605,150 Most energy-efficient distribution
transformers Direct annual savings of RMB 4,415 (approximately
$692) Government incentives provided to customers using
energy-saving products No-Load efficiency is perfectly suited for
the fast expanding rural grid Pollution reduction benefits
Advantage of Amorphous vs. Steel Cores Energy Efficient, Green and
Cost Saving 7
- Slide 8
- China Power Equipments Amorphous Cores Production Line and
Patents Amorphous alloy pioneer Extensive expertise & knowledge
Expanded core production from 1,500 tons to 6,500 tons in 2010 Six
patents Three-stage continuous annealing furnace 3-phase
oil-immersed amorphous alloy transformer Dry type transformer
Vacuum oiling device for amorphous alloy transformers A new type of
amorphous alloy transformer Configuration of three-phase
three-column transformer cores Applied new patent in May 2011
High-voltage coiling of 35KV amorphous oil-immersed transformers
8
- Slide 9
- Largest amorphous alloy transformer production line in
Northwestern China; located in Xian. Cutting-edge technology and
production process Experienced technicians and workers New
Transformer Production Line 5,000 Unit Facility Opened in Q3 2011
9
- Slide 10
- Northwestern China should experience the highest growth of any
regional transformer market for a sustained period. Government
mandated grid upgrades and new grid build out in this region should
result in high demand for amorphous alloy transformers. No
significant competitor in Northwestern China. Competitors from
other regions face high transportation costs to sell into our
region. Product & process technology- 6 patents granted.
Experienced management and strong R&D and engineering team.
Expanded capacity - new factory added 5,000 metric tons of annual
capacity for cores with total capacity of 6,500 metric tons; 5,000
units of annual capacity for transformers. Strong financial
position more than $19.4 million in cash on Sept. 30, 2011.
Competitive Advantages 10 WESTEAST
- Slide 11
- Competitor Landscape Information as of 2010 CompetitorLocation
Amorphous Alloy Core Annual Capacity (Ton) Estimated No. of
Amorphous Transformers sold in 2010 (Unit @500KVA) End Markets
Shanghai Zhixin Electric Co., Ltd. Shanghai, Eastern China
20,00025,000* Majority of cores are internally used and remaining
are sold to other transformer makers; Main customers of
transformers are grid companies. Beijing Zhong Ji Lian Gong Co.,
Ltd Beijing, Northern China 6,000N/A All of the cores are sold to
other transformer makers 11 * The number of transformer units is
estimated using the data obtained from Shanghai Zhixin Electric Co.
2010 Annual Report and calculated using the industry average
factor.
- Slide 12
- Industry Trends and Government Support Favor a Product Mix
Shift Towards Transformer Sales 12 Energy-efficient amorphous core
transformers have a higher adoption rate in new installations vs.
replacement of steel core transformers Company estimates strong
growth in its newly built transformer lines and a near 50% split in
revenues between the segments by 2012 China Power transformers
sales prices are approximately 2x-3x greater than its cores =
higher gross profit dollars
- Slide 13
- Growth Strategies Core business segment 1.Capitalize on
increased production levels 2.Research and develop more
energy-efficient applications for different industries 3.Assist
transformer makers with specifications, engineering, design,
prototyping, performance validation, and production processes
4.Expand sales and market share nationwide Transformer business
segment 1.In-house high-performance transformer line commenced
commercial production in Q3 2011 2.Further expand downstream in the
value chain 3.Focus and expand transformer sales in Northwestern
China 13
- Slide 14
- Selected Financial Data SymbolOTCBB: CPQQ Closing Price
December 1, 2011$0.53 Financial year endsDecember 31 Diluted shares
outstanding as of September 30, 201123.6 M Market capitalization on
December 1, 2011$12.5 M Cash as of September 30, 2011$19.4 M 2010
Revenues$29.7 M 2010 Net Income$5.5 M 2010 EPS$0.25 YTD 2011
Revenues$27.7 M YTD 2011 Net Income$4.5 M YTD 2011 EPS$0.19 14
- Slide 15
- Net Revenues by Product Segment Net Revenues (US$ in thousands
) CAGR (2008-2010) = 77.7%9M / 9M = +26.6% 15
- Slide 16
- Capital Allocation Strategy Cash Flows from Operations (US$ in
Millions ) 16 Cash Balance (US$ in Millions ) Strong demand of
amorphous cores from existing transformer manufacturers provide
solid cash flows and low DSOs for core sales 5,000 unit transformer
production line already complete and expensed; cash balances will
be used to bid and win lucrative transformer tenders for grid
companies. Minimal Capex costs (est. $0.3 million) to further
expand core production line to 10,000 tons when needed
- Slide 17
- Strong Financial Metrics
Revenues9,39423,86629,65835,47821,89627,716 Gross
Margin24.9%23.9%26.3%24.1%27.3%24.3%
EBITDA2,1475,2476,9777,4395,9925,596 Operating
Margin16.7%18.9%21.1%18.6%23.2%19.6% Net
Income1,4564,2205,4965,4534,5394,496 Net Profit
Margin15.5%17.7%18.5%15.4%20.7%16.2% 17
- Slide 18
- Financial Snap Shot Income Statement Balance Sheet and Cash
Flow 18 U.S. dollars except percents and ratios Year ended December
31 9 months ended Sep 30 Income statement items 200820092010YTD
2010YTD 2011 Net revenues 9,394,491 23,866,239 29,657,846
21,896,12127,716,131 Net income1,455,793 4,220,0005,496,145
4,539,2494,495,660 Gross profit margin 24.9% 23.9% 24.3% 27.3%24.3%
Operating profit margin16.7%18.9%21.1%23.2%19.6% Net profit margin
15.5% 17.7% 18.5% 20.7%16.2% Balance sheet items Cash 1,071,038
8,883,188 17,932,447 15,582,673 19,447,576 Accounts Receivable, net
2,013,305 1,949,818 1,552,298 2,339,793 2,379,194 Property, plant,
and equipment, net3,116,422 4,593,068 7,110,5495,760,1049,501,038
Inventory, net 461,634 363,312 645,777 297,856609,790 Accounts
payable 710,480 549,065 1,130,368 542,222533,523 Short Term
Loan58,35858,50360,68959,718 62,613 Shareholders' equity 7,935,218
17,141,382 27,865,352 26,569,546 33,230,356 Total liabilities and
equity 9,675,638 18,881,134 30,300,659 28,525,382 35,069,493
Summary cash flow Cash flows from operations 1,135,332 5,380,655
6,719,135 4,416,145 3,369,559 Cash flows from investing
activities88,274 (2,509,214) (2,475,520)(2,329,485) (2,298,688)
Cash flows from financing activities (1,287,089) 4,937,502
4,454,702 4,456,8830 Effect of currency exch rate changes on cash
60,626 3,207 350,942155,942 444,258 Net increase (decrease) in cash
(2,857) 7,812,150 9,049,259 6,699,485 1,515,129 Income & cash
flow statements are for 9months ended September 30. Balance sheets
are as of September 30.
- Slide 19
- Investment Highlights Amorphous cores and transformers consume
about 70% less electricity (at no load) which results in more
efficient use of electricity and less demand on resources Market
opportunities Government has encouraged energy-efficient amorphous
alloy cores and transformers New investments on rural electricity
grid and under-developed regions Leader in new generation amorphous
alloy transformer technology 6 patents, including 3 granted in
2010; applied new patent in May 2011 Years of experience in
technology and production Capacity expansion Capacity expansion
increased transformer core production in 2010 by 4 fold In-house,
5,000 unit high-performance transformer production is brought on
line in Q3 2011 Favorable location No significant competitor in
Chinas Northwestern market 19
- Slide 20
- Experienced Management Mr. Yongxing (Henry) Song, Chairman of
the Board, President, and CEO - Chairman and CEO of China Power
since the company began in June 2004. Was also Chairman for Alloy
Science (1999-2004) and is acting CEO and President of Alloy
Science. From 1996 to 1999: Vice general manager at Xi'an Xianglong
Co., Ltd. From 1982 to 1996: Manufacturing planner and manager in
Qing'an Aviation Electronic Equipment Co., Ltd. Masters degree in
International Trade from University of International Business and
Economics in 2003 and a bachelors degree from Shaanxi Aviation
Profession University (mechanical & aeronautical engineering).
Ms. Yarong (Lillian) Feng, Director and Vice General Manager -
Director since November 2007. CFO of China Powers operating
affiliate since June 2007. Trustee for stockholders of China Power
who were former stockholders of Alloy Science. Previously served as
Secretary to Board of Alloy Science. Graduate of Xi'an Institute of
Finance and Economics (finance management). Ms. Elaine Zhao, CFO -
Ms. Zhao has been CFO since June 1, 2008. Founded and is president
of ELZ Accountancy Corp., an accounting and financial advisory firm
in Los Angeles. Clients have included privately owned and publicly
traded companies in various industries. Firm has also worked with
banks in financing small businesses. M.S. in Finance from the
Kelley School of Business at Indiana University. Certified Public
Accountant. Mr. Zewei Xu, Chief Engineer - With the companys
operating affiliate since July 2004. Previously, engineer for
Tianjin Electric Transmission Design Labs. The first person to use
amorphous alloy technology to build high-frequency amplifier
switches. Is also chief, general secretary, or member of several
electric-related academic organizations, including China Power
Supply Society and its transformer and inductor commission. Holds a
degree in machinery production from Harbin Institute of Technology.
Ms. Nicole Chen, VP of Finance Ms. Chen has been VP of Finance
since September 2010. Before that, she was Sr. Associate at
PricewaterhouseCoopers, LLP, providing accounting advisory for some
leading domestic listed companies, and FPIs, such as, AIG Inc., AIG
Capital Corporation, Shanda, Ctrip, HomeInn, Jingao Solar. MBA in
Accounting and Finance from HEC Montreal. Certified Public
Accountant. 20
- Slide 21
- Contact Us Company Contact China Power Equipment, Inc Room 602,
6/F, Block B, Science & Technology Park of Xi Dian University,
No. 168 Kechuang Road, Hi-tech Industrial Development Zone, Xian,
Shaanxi Province, Peoples Republic of China Telephone +86 (29) 626
19758 Email xa-fj@xa-fj.com Ms. Nicole Chen, Vice President of
Finance Telephone +86 186 1633 1170 Email: nicolechen@xa-fj.com
Investor Relations MZ-HCI Scott Powell, Senior Vice President 1001
Avenue of the Americas New York, NY 10018 Phone: +1 212-301-7130
Email: scott.powell@hcinternational.net Auditor appointed January
31, 2011 Mazars CPA Limited 42nd Floor, Central Plaza 18 Harbour
Road Wanchai HK China Telephone +852 2909 5555 Legal Contact Loeb
& Loeb LLP 345 Park Avenue, 18th Floor New York, New York, USA
Telephone +1 212 407 4159 www.chinapower-equipment.com 21