Shengkai Innovations Inc · OTC:VALV
Shengkai Innovations — Investor Presentation (September 2010)
25 slides from Shengkai Innovations's investor presentation, Sep 15, 2010
Slide 1: World's Leader and Trailblazer in Industrial Ceramic Valves
World's Leader and Trailblazer in Industrial Ceramic Valves SHENGKAI INNOVATIONS, INC. (NASDAQ GM: VALV) Corporate Presentation September 2010
Slide 2: Forward-looking statements
This. presentation contains forward-looking statements, including financial projections. in some cases, you can iden forward looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “pelieves,” “estimates, “projects,” “predicts,” “potential,”
Slide 3: Corporate Overview
Corporate History High Tech and New Materials Strong Product Portfolio Broad Customer Base Headquartered - Tianjin, P.R.C.; Established in 1994; went public in June 2008; Listed at NYSE Amex in Dec. 2009 & to be listed at NASDAQ GM on May 25, 2010 with symbol “VALV” Market Leader in ceramic High Tec
Slide 4: Large and Growing Market for Industrial Ceramic Valves
Large and Growing Market for Industrial Growth Driven by MOS Industry and Geographic Expansion Proven Track Record of Solid Superior Growth and High Technology & Profitability Product Portfolio : . | Ceramic Valves Increasing _, Poised to Capture Capacity to Meet Market Share from Growing Metal Valv
Slide 5: Management Team
Mr. Chen Wang, CEO & CTO — mr. Wang, the founder of Shengkai, has been serving as. Chief Executive Officer and Chief Technology Officer since the Company's inception. Prior to founding Shengkai, he worked at Tianjin Dagang Power Plant (September 1987 — July 1992). Mr. Wang earned an MBA degree from
Slide 6: Valve
Valve = Definition: a device that controls the movement of liquid, gas, or loose material in bulk = Can control flow, rate, volume, pressure or direction of liquids, gases, slurries or dry materials through a pipeline, chute or similar passageway « Indispensable to virtually all manufacturing proces
Slide 7: Valve Materials: Metal vs. Ceramic
Valve Materials: Metal vs. Ceramic Superior Characteristics of Ceramic Resistant to Abrasion Resistant to Corrosion Resistance to High Temperature Longer Working Life — at least 10x that of metal valves
Slide 8: Valve Materials: Metal vs. Ceramic
Valve Materials: Metal vs. Ceramic Metal ball after Standard metal seat ring Stainless steel wedge gate one month after two months disc after one week r Ceramic SK ceramic ball after SK ceramic seat ring SK wear-resistant ceramic two years after five years wedge gate disc after five years 8
Slide 9: Social & Economic Benefits of Ceramic Valve
-" Social & Economic bg Benefits of Ceramic Valve — 24,000 x 0.6 x 10 = 144,000 tons steel 1.3 x 144,000 = 187,200 tons coal Assumptions: + 0.6 ton steel/unit * 10 times longer life * Capacity: 24k Units/Yr icien mental Improve- si ment : at Fi 37.200 tons coal 82,368 tons CO, 3,744 tons SO, Y Reduc
Slide 10: Social and Economic Benefits of Ceramic Valve
; Social and Economic q *g, Benefits of Ceramic Valve ~ * Ceramic valve is a major scientific and technologic innovation in the field of new material application “» The Chinese government is actively promoting the scientific outlook on development as the national development strategy ** Shengkai’s c
Slide 11: Demand for industrial valves ($ Billion)
Demand for industrial valves ($ Billion) Nes 75 a Sources. + PRC. General Machinery s 123 Industry Association, Valve Sector a —— (Sales in the PRC, includes imports) PRC 2009 Global 2011 + Freedonia Magazine 3 Our Goal in 3 Years 3% => ° 80% > 100,000 units Production Capacity Hazardous Environment
Slide 12: Ceramic Valve Application
Ceramic Valve Application Historically Limited by Size = Ceramic valves currently have less than 1% of the overall valve market in China Why? = Valve users not familiar with ceramic technology = Industrial application have been limited as most ceramic valve manufacturers. (excluding SK) can only pro
Slide 13: Shengkai is a Trailblazer in the Ceramic Valve Industry
Shengkai is a Trailblazer in hes . ‘do the Ceramic Valve Industry ieee * Has sustainable competitive advantage in Technology technology, able to manufacture ceramic n valves with calibers in excess of 150mm, up Ie Market Leading to 1,000mm - SEIS « fters tailor-made solutions to customers’ Services
Slide 14: Shengkai's Proprietary Technologies of Structural Ceramics
‘) Shengkai’s Proprietary 4 = Technologies of Structural i Ceramics » Added zirconia to alumina ceramics to enhance toughness and resistance to corrosion >» Successfully used martensite transformation toughening technology to enhance toughness and to improve deformability > Applied nano-technology t
Slide 15: Sales by Industry FY2008 vs FY2009
FY 2008 FY 2009 12.4% 7.3% 47% 80.3% 75.2% MiPetrochemical | Power Generation Aluminum / Steel / Metallurgy and Other = Proven track record of penetrating Power * Focus on Petrochemical industry in FY 2009 Generation industry - Segment sales accounting for 20.1% of = Successfully expanded into other
Slide 16: Nationwide Distribution Network and Customer Base
Nationwide Distribution Network 11 Regional Sales Centers 30 Sales Agent Offices Gearing Up for Exports Export expected to account for approx. 10% of total sales for CY 2010 Approved exporter to Europe, North America, Russia, UAE, Turkey, Pakistan and the Asia- Pacific Region; 5 offices to be set up
Slide 17: Selected Case Studies
anf Selected Case Studies Case 1: HUNTLEY Power Plant, Town of Tonawanda, USA Case 2: China National Offshore Oil Corporation Challenge: = At Huntley Power Plant, fly ash conveying system previously used metal valves = Metal valves had to be replaced every 3 months, some within 2 weeks Solution: = H
Slide 18: Current Production and Capacity Expansion
Current Production and Capacity Expansion Current Facility = Output approx. 14,000 units of valves for FY 2010, exceeding annual production capacity of 7,500 units New Facility = Triple annual capacity to reach 24,000 units of valves based on one-shift operation = Total investment of approx. $55 MM
Slide 19: Two Excellent R&D Teams
Two Excellent R&D Teams: «Ceramic Material Team = Significantly improve ceramic valves’ performance = Widen the application of ceramic materials «Valve Team = Research and develop new structures and new types of valves = Continue to offer customized solutions to new customers’ problems Our CEO & CTO
Slide 20: Growth Strategy
® 2 5) < Expand Manufacturing Capacity Reinforce Competitive- ness against Metal Valves Focus on Petrochemical Industry (to reach 30% of total sales) Extend Geographic Coverage Internationally Construct new manufacturing plant & add additional equipment Enhance product quality and production efficie
Slide 21: Rapid Growth and High Profitability
Rapid Growth and High 4 Profitability Revenue ($ MM) mn ee ($ MM) Gross Profit ($ MM) “Se 8% CAGR=31.4% Sr 19.1 Bo : Fy2007 FY2008 FYZ009 Q3 a3 Bay 2007/2008 Ev 200s GS ce Fy2009 FY2010 FY2009 FY2010 Net Income ($ MM) Net Income Margin CAGR=43.6% 13.6 57.8% 346% 35.3% 31.2% ry 0 i ae i il il i Fy200
Slide 22: Summary Income Statement
= -Y Summary Income “= Statement (USS Millions) FYE 6/30 Total Net Sales Revenue Growth Gross Profit 8.6 62 24.0 Gross Margin 59.3% 62.4% 61.1% Income from Operations 63 45 179 143 Operating Margin 43.2% 45.3% 45.5% ALAY Income Tax 4.0) 4.4 4.5) Effective Tax Rate 1% 29.1% Net Income ‘Net Margin EBI
Slide 23: Three and Nine Months Ended March 31 Reconciliation
Three Months Ended Nine Months Ended 31-Mar 34-Mar 2010 2009 2010 2009 Income From Operations 4,118,803 4,519,153 14,655,966 11,988,885 Add back (Deduct): Non-Cash Share-based Compensation Expenses 2,159,429 = 2,159,429 = Adjusted Income from Operations 6,278,232 4,519,153 16,815,395 11,988,885} Net
Slide 24: Balance Sheet and Operating Efficiency Ratios
Mar. 31,2010 June 30, 2009 Cash and Cash Equivalents 229 39.0 Trade Receivables 64 44 Inventories 18 0.9 Advances to suppliers 12.7 03 Other Current Assets 3.4 1.4 Total Current Assets 46.9 457 Property, Plant and Equipment, Net m ‘ 5 2 Intangible Assets, Net Total Assets 7 Q ri - Short-term Liabili
Slide 25: Large and Growing Market for Industrial Ceramic Valves
Large and Growing Market for Industrial Growth Driven by MOS Industry and Geographic Expansion Proven Track Record of Solid Superior Growth and High Technology & Profitability Product Portfolio : . | Ceramic Valves Increasing _, Poised to Capture Capacity to Meet Market Share from Growing Metal Valv
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