2009 Interim Report€¦ · Compound Fertilizer-25% Nitrogen-35%. Business Scale (continued) Turnover (RMB 1,000) 22,315,966 12,505,419 14,023,890 Impact of decrease in price/sales

2009 Interim Report

Nurturing China’s Agricultural Sector

August 18, 2009 August 18, 2009

This presentation and the presentation materials distributed herewith include

forward-looking statements. All statements, other than statements of historical

facts, that address activities, events or developments that Sinofert Holdings

(“Sinofert”) expects or anticipates will or may occur in the future (including but

not limited to projections, targets, estimates and business plans) are forward-

looking statements. Sinofert’s actual results or developments may differ

materially from those indicated by these forward-looking statements as a result

Disclaimer

2

materially from those indicated by these forward-looking statements as a result

of various factors and uncertainties, including but not limited to price

fluctuations, actual demand, exchange rate fluctuations, exploration and

development outcomes, estimates of reserves, market shares, competition,

environmental risks, changes in legal, financial and regulatory frameworks,

international economic and financial market conditions, political risks, project

delay, project approval, cost estimates and other risks and factors beyond our

control. In addition, Sinofert makes the forward-looking statements referred to

herein as of today and undertakes no obligation to update these statements.

Contents

�Financial Performance

�Review on Business Operations

�Outlook

3

Sales Volume (‘000 tons)

Turnover

Gross Profit

(RMB million) 1H 2009 1H 2008

22,316

2,100

12,505

679

6,349 9,722

Interim Results for 1H09

Change YoY

-35%

-44%

-68%

4

�Note 1: The company drew RMB 1,292,924,000 of inventory provision as at 30 June 2009,

decreasing RMB 969,693,000 of net profit excluding the impact of deferred income tax.

�Note 2: The changes in fair value of derivative component of convertible bonds led to an

increase of RMB 24,098,000 of net profit for 1H09.

�Note 3: The weighted average number of shares for 1H09 was 7,011,655,000.

Net Profit

EPS (RMB 0.01)

118

1,213

17

Net Profit

-168%

-91%(excluding the impact of inventory

provision)(excluding the impact of changes in

faire value of convertible bonds)

Note 1

Note 2

Note 3

-828

1,261

-12 -168%

1,8771,679

726 713

1,225

1H 2005 1H 2006 1H 2007 1H 2008 1H 2009

Business ScaleBusiness Scale

2,093

597

2,847

2,187

2,911

1H 2005 1H 2006 1H 2007 1H 2008 1H 2009Potash

-71%

Sales Volume (1,000 tons)

6,349

9,722

7,857

6,1465,585

-35%

Phosphate

-11%

5

1,346

1,006

719

1,020 1,029

1H 2005 1H 2006 1H 2007 1H 2008 1H 20094,061

2,632

907

1,809

2,3371H 2005 1H 2006 1H 2007 1H 2008 1H 2009�Sales volume decreased by 35% YoY.

�Potash sales volume decreased by 71% YoY, which was the largest decline in all products.

1H 2005 1H 2006 1H 2007 1H 2008 1H 2009

6,3496,1465,585

钾肥45%

Compound Fertilizer

-25%

Nitrogen

-35%

Business Scale (continued)Business Scale (continued)

Turnover (RMB 1,000)

22,315,966

12,505,41914,023,890

Impact of decrease in price/sales volume on turnover decline (%)

Average selling price of RMB 1,970 decreased by 14% from RMB2,295 for 1H08

-44%

Falling

prices

6

1H 2005 1H 2006 1H 2007 1H 2008 1H 2009

12,505,419

10,659,19310,126,723

�Turnover decreased by 44% YoY.

�Sales volume decrease and price decrease accounted for 79% and 21% in turnover

decline, respectively.

prices

21%

Fall in sales volume

79%

ProfitabilityProfitability

�Gross profit decreased by 68% YoY

mainly due to significant decline in potash

gross profit

Gross Profit (RMB 1,000)

70% 63%

54%

41%

6%

811,664811,664811,664811,664

867,628867,628867,628867,628

1,273,1851,273,1851,273,1851,273,185

2,099,7452,099,7452,099,7452,099,745

678,669678,669678,669678,669

-68%

7

1H 2005 1H 2006 1H 2007 1H 2008 1H 2009

Gross Margin (%)

9.1%9.1%9.1%9.1%

9.4%9.4%9.4%9.4%

5.4%5.4%5.4%5.4%

8.0%8.0%8.0%8.0%8.1%8.1%8.1%8.1%

15.6%

1.9%

11.9%13.2%

10.7%1H 2005 1H 2006 1H 2007 1H 2008 1H 2009Nitrogen

4.3%

6.9%

4.1%

6.0%

4.2%1H 2005 1H 2006 1H 2007 1H 2008 1H 2009

Potash Phosphate

Compound fertilizer

6.8%

3.9%

8.1%

4.9%

6.0%1H 2005 1H 2006 1H 2007 1H 2008 1H 200912.2%

7.0%

9.4%

4.8%

7.2%1H 2005 1H 2006 1H 2007 1H 2008 1H 2009

1H 2005 1H 2006 1H 2007 1H 2008 1H 2009Others Potash

Profitability (continued)Profitability (continued)

Net Profit (RMB 1,000)

525,955525,955525,955525,955

1,212,7131,212,7131,212,7131,212,713

481,278481,278481,278481,278

410,054410,054410,054410,054 117,664 117,664 117,664 117,664 117,664 117,664 117,664 117,664 100,063

8

-900000

-400000

100000

Distribution

net profit

Production

net profit

Subtotal Inventory

Provision

CB Net profit1H 2005 1H 2006 1H 2007 1H 2008 1H 2009

Inventory provision decreased

RMB 969,693,000 of net profit

�Net profit was RMB117,664,000, excluding the impacts of inventory provision and

fair value change in derivative component of convertible bonds.

----827,931827,931827,931827,931 Change in fair value

of CB increased

RMB24,098,000 of

net profit

-827,931

117,664 117,664 117,664 117,664 117,664 117,664 117,664 117,664 17,601

100,063

Inventory Provision

Inventory and Inventory Provision

Inventory Structure (RMB 1,000)

Others

Phosphate

Compound fertilizer

Nitrogen

11,375,438 11,375,438 11,375,438 11,375,438

11,569,643 11,569,643 11,569,643 11,569,643

8%

9%

11%

6%

6%

11%7%3%

9

December 31, 2008 June 30, 2009

Potash

�According to prudence principle, the

Company drew adequate inventory

provision for potash due to falling potash

selling prices in domestic market.

73%66%

Potash

93%

Others

7%

�Inventory scale remained roughly stable

with that as at December 31, 2008. Potash

inventory cost accounted for 73% of total

inventory

Assets Scale

Total Assets (RMB 1,000) Proportion of Long-term Assets

48%52%

30,125,080 28,908,265

10

December 31, 2008 June 30, 2009

�Assets scale decreased by 4% from that as at December 31, 2008, with the ratio of long-term assets increasing to 52%.

December 31, 2008 June 30, 2009

Account Receivables Turnover Days

Operating Efficiency

Inventory Turnover Days

175

78 10

15

11

2008 1H 2009 2008 1H 2009

Asset-to-liability Ratio

Solvency

Debt-to-equity Ratio

58%

70%52% 54%

12

December 31, 2008 June 30, 2009 December 31, 2008 June 30, 2009

Note: Debt-to-equity ratio = total interest-bearing liabilities / total equity

Contents



�Outlook

13

International Market

1,200

370270

650

285 230

1,000 1,000

750

Market Environment: Fertilizer Market Oversupplied, Prices Fallings in 1H2009

Price Trend (USD)

14

Chinese Market

Peak in 08 Early 09 Late June 09

DAP Urea Potash

2,000

2,500

3,000

3,500

4,000

4,500

1,000

1,500

2,000

2,500

3,000Potash

Urea

DAP

Jan Mar JunFeb Apr May

2,4

30

5,8

90

10,4

30

17,0

00

2006 2007 2008 2009E

Production Utilization Excess

Price Trend (RMB) Fertilizer Production and Demand in China(1,000 tons, in nutrient)

Market Environment: Fall in Profitability of Global Fertilizer IndustryMarket Environment: Fall in Profitability of Global Fertilizer Industry

Turnover Growth Rate in 1H09Net Profit Growth Rate in 1H09

16% Agrium

-63%

-24%

Agrium

APC

-24% K+S

15

-61%

-47%

-25%-65%

Mosaic

Potash Corp

Yara

Source：Bloomberg

-83%

-74%

-79%

Mosaic

Potash Corp

Yara

K+S

APC-39%

Under the tough market situation, further leveraging the integrated business model,

the Company adhered to the sales strategy of “prudent operation with risk control and

quick-buy-and-quick-sale”. Meanwhile, the Company implemented low-cost strategy

in production enterprises and strengthened supply system and internal control,

enhancing the Company’s ability to manage risks and for sustainable development.

General

Strategy

Further enhance cooperation with international suppliers, securing

stable supply

Operating Strategy: Taking Prudent Measures to Reduce Risks with Principle of “Quick-Buy-and-Quick-Sale”

16

Supply

System

stable supply

Seize the opportunities to improve domestic fertilizer supply system

Improve the quality of long-term contract and regional suppliers and eliminate weak

suppliers, securing lager proportion of stable supply and lower procurement cost

Innovate procurement model and decrease operating risks

Adopt procurement methods including floating pricing and partial payment for procurement,

decreasing operating risks and achieving win-win results with suppliers

Operating Strategy: Pushing Forward the Low-Cost Strategy among Production Enterprises

Recruit talents to form an export team to improve the management of production enterprises

� Seize the opportunity of relatively low cost of resources to push forward resource acquisition including coal, phosphoric and potash mine globally

� Seize the opportunities arising from the financial crisis to recruit talent to strengthen expert team in fertilizer production enterprises

17

Production Introduce lean management, push forward technology innovation and implement low cost strategy

Introduce Toyota Production System (TPS) to production enterprises , and lower production cost by technological renovations and upgrading.

Maintain relatively high operating rate and improve product competitiveness

Despite low operating rate in industry during 1H09, the Company’s production enterprises maintained relatively high operating rate by relying on the strong distribution capability of the network, thus decreasing production cost and improving market influence

65%75% 78%

Further expand the customer base by reaching out to end-users, improving marketing abilities of the distribution network

Operating Strategy: Reaching out to the End-users to Expand Sales by the Distribution Network

Number of Village and Township Customers/ Total Number of Customers

Sales Volume through Distribution Network (1,000 tons)

9,790

11,334

4,608

Sales volume through distributionSales volume through distribution/Total sales volume

65% 70%

73%

18

2007 2008 1H 2009

Distribution network development model is shifted from scale expansion to quality improvement, enhancing comprehensive competitiveness of the network

Distribution

Network

Further push forward standardized operation management in distribution network, consolidating the company’s competitiveness of brand image and product among end-users

Improve multilayer logistics system, enhancing ability of warehousing and application : Established 12 distribution warehouses in hub cities conveniently located with large market capacity in 1H09, further improve multilayer logistics system

2007 2008 1H 2009

Operating Strategy: Expanding Credit Line and Strengthening Internal Control to Ensure Operation Safety

Expand credit line to secure capital supply

Enhance the overall credit line to about RMB 23.8 billion by adding another RMB6.3 billion in 1H09. Application rate was 50% at the end of June, applying adequate capital supply. 41

107118

109

175

238

2007 2008 June 30,2009■■■■Used credit line ■■■■Credit line

50%

Credit Line (RMB 100 million)

19

Pay close attention customer’s credit standing, promote domestic credit insurance management, preventing risk related to cargo ownership

Implement dynamic customer credit granting management and pay close attention to customer’s credit standing with in-time adjustment, preventing risk related to cargo ownership; meanwhile, fully push forward the implementation of domestic credit insurance, preventing customer payment risk and enhancing operating safety

Stringent control of goods management, ensuring inventory safety

Conduct comprehensive inspection on cargo storage locations such as warehouse, eliminating risks; meanwhile, strengthen regular inventory counting and irregular on-site patrol, ensuring inventory safety

Internal

Control

The financial crisis has significantly struck the entire fertilizer industry. Despite the Company suffered some negative impact, the operation basis remained intact and the Company maintained the leading position in China’s fertilizer market due to long-term implementation of integrated development strategy.

Core Cutting Edge: Business Integration Supporting the Company Maintaining the Leading Position in the Market

Product

Sales

� All products maintained

competitive edges in the

market

20

� Above 2,000 distribution

centers catered for

demand in grass-rooted

level, supporting long-

term and stable growth

in sales volume

� Ten-million-ton

production capacity

and long-term stable

supply system

ensured adequate

supply for network

distribution

Distribution

Network

Production

and Supply

The leading company in

China’s fertilizer industry

The Company is the largest basic fertilizer producer in China with above 10 million tons of

production capacity covering four major basic fertilizers. Production locations were close to

major agriculture production provinces with ability to promote sales in surrounding areas.

Sinochem Changshan

Core Cutting Edge: Ten-million-ton Fertilizer Production Capacity with Rational Layout and Coverage of All Products

� QSLP 2mt

Potash Production Capacity: 2 million tonst

� Tianji Sinochem 0.6mt

� Sinochem Changshan 0.3mt

� Sinochem Pingyuan 1.41mt

Nitrogen Production Capacity: 2.51 million tons

21

� Sinochem Fuling 1mt

� Sinchem Kailin 1.36mt

� Sinochem Jiaji 0.6mt

� Three Circles Sinochem 0.6mt

� Gansu Wengfu 0.42mt

Phosphate Production Capacity: 3.98 million tons

Salt Lake Potash

Gansu Weng Fu

Yantai Sinochem

Shandong Fertilizer

Sinochem Pingyuan

Fujian Zhisheng

Tianji Sinochem

Sinochem OrientSinochem Fuling

Sinochem KailinSinochem Jiaji

Three Circles Sinochem

� Sinochem Fuling 0.2mt

� Shandong Feiye 0.6mt

� Sinochem Fuling 0.3mt

� Sinochem Zhisheng 0.2mt

� Yantai Sinochem 0.1mt

� Sinochem Dongfang 0.07mt

� Sinochem Changshan 0.4mt

Compound Fertilizer Production Capacity 1.67

million tons

Core Cutting Edge: the Largest Distribution Network in China Covering All Major Agricultural Regions

BeijingNorth China: 175

Northeast: 310

Northwest: 125

22

Middle South: 410

South China: 375

East China: 627

Potash Nitrogen PhosphateCompound

Fertilizer

Core Cutting Edge: Maintaining the Largest Market Share in China

23

�Maintained exclusive

agency agreement with

several international

major suppliers and kept

close cooperation with

other international potash

suppliers

�Maintained long-term,

stable cooperation with

QSLP

�Maintained exclusive

agency agreement with

OCP and GCT

�Maintained

competitive edges of

high-concentrated

phosphate, becoming

one of products with

competitiveness of the

Company

�Further improved

nitrogen supply

system with the

focus on share-

controlling supply

base, making

outstanding

integration edges of

production and

distribution

�Maintained

exclusive agreement

with YARA, FERTIVA

and PFI and kept

competitive edges of

high-concentrated

compound fertilizer

in domestic market

Implementing Brand Strategy ManagementLeading Position of Sinochem Brand in

Agricultural Material Industry in China

Core Cutting Edges: Further Improving Brand Image

24

� “Sinochem” brand has extended to the terminal of

agriculture demand in China with coverage of all kinds

of fertilizers

� Based on market segment and customer target, the

Company catered for customer demand by adopting

different brands and products.

� “Sinochem” is “ Chinese famous brand “and the only

famous brand in both product and service in China

agriculture material industry.

� At the third session of the “Farmers’ Favorite Brand

Names” selection ceremony, “Sinochem” was selected

for three years in a row.

Contents



�Outlook

25

Coexistence of Challenges and Opportunities in 2H09

�Challenges in 2H09

-Oversupply in domestic market ：：：：pressure

on sales due to excess supply

-Limited benefit from export policy ：：：：limited

stimulus of export tariff policy on fertilizer

export due to little gap between prices in

domestic and international markets

Domestic Demand/supply in 2009 ( 10,000 tons, in nutrient)

1,700

6,400

4,700

Supply Demand Excess

26

�Opportunities in 2H09

-Autumn sales: fertilizer demand for autumn and winter plant in the south and north regions accounts for 20% and 40% of total demand of the year, respectively

-Off-season reserve : the state program for off-season reserve of 16 million tons promotes sales in this winter and next spring

-Potash market: the reduction in global potash output totaled 13.17 million tons since early 2009; the confirmation of India price in July helped to support the domestic price

2009 Autumn Fertilization

Late-autumn rice

fertilization

Winter wheat fertilization in

autumn

Source: China Chemistry Industrial Association

Favorable Mid-to-Long Term Outlook in Chinese Fertilizer Market

--Tight Balance of Grain Supply/Demand in China and the World

�Global tight supply/demand — grain supply

remains tight in global market with great

difficulties to relief grain crisis in short term

�Inadequate global Inventory — global grain

inventory/consumption ratio keeps downward-

trend to a relatively low level, driving up the

pressure on grain inventory

�Grain supply/demand in China is also in

tight balance

Global Grain Inventory/consumption Ratio

10%

14%

18%

22%

26%

30%

05/06 06/07 07/08 08/09

estim.

09/10

forecast

Coarse grain Total Cereal Wheat

Source: Latest statistics and forecasts of FAO

27

11.6

470471.2448.2 437.0431.1436.6

33.040.0

07/08 08/09 09/10

Supply DemandBalance

1,800

1,900

2,000

2,100

2,200

2,300

1999 2001 2003 2005 2007 2009

Production Consumption

tight balance

Global Grain Production and Consumption (1 million tons)

Grain Supply/demand and Balance in China (1 million tons)



Source: China National Grain and Oils Information Center

(based on wheat, corn and rice)

2626 29753517

4318

7161

5955

2004 2005 2006 2007 2008 2009


—Agriculture Is Continuously Supported by the Chinese Government

�Scale development of Agriculture

With Chinese government’s permission of legal

circulation of rural land and scale operation trend in

agriculture, some arable land centralized in market

leading companies and large plant growers, realizing

intensive agriculture production

�Further improve agriculture subsidy policy with wider range and higher level

Gradually establish and improve four subsidy

policies including direct farming subsidy, seed

promotion subsidy, agriculture machinery and tools

purchase subsidy and direct comprehensive

Fiscal support on “Agriculture, Farmers and Rural Area (RMB100 million)

Source: Ministry of Finance, P.R.China

28

purchase subsidy and direct comprehensive

agriculture input subsidy. The coverage and scale of

subsidy expanded year on year

�Chinese government carries out 50bn kg grains production capacity expansion plan

During 2009-2020, Chinese government will carry

out 50bn kg grains production capacity expansion

plan, which in turn will significantly increase the

needs for fertilizers

�Continuous growth in both farmers’ income from grain planting and investment in fertilizers

Continuous growth of farmers’ income from grain

planting enables the farmers to invest more in

fertilizers

Minimum Purchase Prices for Major Grains (RMB/ 50 kg)

7787 90

75 7582

95

7272 70 7077

2006 2007 2008 2009

White wheat Early season indica rice Non-glutinous rice

Source: State Statistics Bureau


—Fertilizer Demand in Domestic Market to Recover in 2010

�Fertilizer demand trend in China

-Fertilizer demand kept growing during

2000-2007, bout 2008-2009 saw

temporarily decrease in demand with

inadequate application of nutrients

-Fertilizer contribution amounted for 40%-

50% of grain production in China and

fertilizer demand kept stable growth in long

term

Fertilizer Demand in China for 2000-2012 (1 million tons, in nutrient)

43 44 46 48 49 51 49 4753 55 56

41 43

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009e 2010e 2011e 2012e

29

�Potash demand to maintain stable

growth in China for the long term

-Weak demand and lower application

volume in 2008 and 2009 resulted in

nutrient deficiency in soil

-After market destocking, the sales channel

resumed the function as pipeline;

compound fertilizer producers need to

rebuild inventory to resume production

-It is estimated potash demand in China

would recover with growing trend since

2010

Potash Consumption in China for 2000-2009 (1 million tons, in nutrient)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009e 2010e 2011e 2012e

4.2 4.44.7 4.9 5.1 5.3

4.1

2.9

3.8 4.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009e

Source: National Bureau of Statistics and China Chemical Information Center

Continue to implement an integrated strategy of “centering on marketing and distribution and expanding into both production and network distribution”, aiming to become China’s largest comprehensive provider of agricultural inputs

Development

Objectives

Further Implementing Integrated Development Strategy and Maintaining the Leading Position in Chinese Fertilizer Industry

Production DistributionSales volume to

30

The largest basic fertilizer producer

in China

Production and investment strategy

depending on resources

Low-cost production strategy

Supply

Continuous improvement of multi-level supply system both at home

and abroad

The largest service provider and distributor of agricultural inputs in

China

Distribution network development model

shifted from scale expansion to quality

improvement

Sales volume to

reaches 21 million tons by 2012

Market share in China reaches

25%

� Seek opportunities to expand production capacity through M&A and self-

construction with the focus on nitrogen share-controlling enterprises

� Implement low-cost strategy and enhance profit contribution of production

enterprises through management improvement and technology upgrading with

talents recruitment

� Focus restructuring of Salt Lake Group and seek opportunity to inject the shares of

Salt Lake Group held by Sinochem Group

� Watch for investment opportunities in natural resources such as potash mine,

Production

Consolidate

Industrial Cutting

Edge and

Enhance Profit

Contribution


31

phosphoric mine and coal

Contribution

� Maintain exclusive agency agreement with major international

fertilizer suppliers and exploring further cooperation forms

� Speed up the construction of share-controlling supply base; expand

the base of suppliers with long-term agreements; cater for demand

of end-users leveraging the geographic edges of regional suppliers

Supply

Strengthen

Multi-level

Supply System

Both at Home

and Abroad

� Further improve distribution network layout and push the distribution

centers reach out to the end-users; optimize customer structure and

consolidate customer base by increasing the base of grass-roots

customers

� Distribution network development model shifted to quality improvement,

implementing standardized operation management, improving

agrichemical services for grass-roots customers, optimizing logistics

system and enhancing the operating capability of individual outlet,

Distribution

Distribution network

reaching out to end-

users with development

model shifted from scale

expansion to quality

improvement


32

speeding “one-stop shopping” service in distribution centers

� Potash: To consolidate the leading position in China’ potash market, further

strengthen supply from international and domestic markets, and promote

confidence and demand recovery in the domestic potash market

� Nitrogen: To continue expansion of market share through active participation in

industrial integration, acquisition of upstream production resources,

consolidated operation of domestic and international trade, aiming to become

China’s strategic consolidator of nitrogen resources and marketing leader

� Phosphate and compound fertilizer: To expand business scale and profitability

by leveraging on the strength of integrated business model

� Pesticides and seeds: To achieve leaping-forward development by consolidation

and M&A

Product

Consolidating

the competitive

Position of all

Products

Sinofert: Growing with modern Chinese

Agriculture in a Sustainable, Healthy and

Rapid Way

33

Q & A

Documents

2009 Interim Report€¦ · Compound Fertilizer-25% Nitrogen-35%. Business Scale (continued) Turnover (RMB 1,000) 22,315,966 12,505,419 14,023,890 Impact of decrease in price/sales