Qkl Stores Inc · OTC:QKLS
Qkl Stores — Investor Presentation (October 2008)
31 slides from Qkl Stores's investor presentation, Oct 24, 2008
Slide 1: QKL Stores Inc: A Leading Regional Supermarket Chain in Northeast China
QKL Stores Inc A Leading Regional Superm * ) Chain Northeast China October 2008
Slide 2: Safe Harbor Statement
Safe Harbor Statement This presentation contains “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Such unknown risks, uncertainties and oth actual results of the company to di statements involve known and er fact
Slide 3: Chain in Northeast China
Chain in Northeast China * 20 supermarkets, 1 department store, and 1 convenience store (as of 8/30/2008) * QKL Stores sells a broad selection of merchandise, including fresh food, grocery, and non-food items * Only member of Independent Grocers Association (IGA) in Northern China * Founded in 1998,
Slide 4: Stock price and market capitalization
Price (9/30/2008): 52 Week High / Low: Shares Outstanding (Treasury) 32 million Market Capitalization: $143 million Last Twelve Month EPS (Treasury):
Slide 5: Market Opportunity in China retail
= Retailing is one of the fastest expanding non-industrial sectors in China = Rapidly growing yet highly fragmented market offers significant growth opportunity fo = Uneven geographic development of modern retail, Northern China attractive market Market Opportunity China’s urbanization process and r
Slide 6: QKL positioned to benefit from modernization in Northeast China
QKL is positioned take advantage of the modernization process in Northeast China and become a dominant regional player
Slide 7: Investment Highlight
| i = Investment Highlight Fast growing and highly profitable Niche-market positioning, track record of success Highly experienced management team Consumer stables less susceptible to economic turbulence N
Slide 8: Our Supermarkets (I)
Our Supermarkets (I) * 20 supermarkets known for delicious and high quality fresh foods at every day low price * Strong brand and image. “To Be Your Neighbor and To Serve the Community” provides communities with funds and services. * Average size: 26,042 square feet * Average sales per square foot:
Slide 9: Our Supermarkets (II)
Slide 10: Margins versus domestic and foreign retailers
Merchandise EBIT Net Domestic Retailers Margin Margin Margin Wuhan Zhongbai 14.25% 2.76% 1.88% Beijing Hualian 11.31% 4.31% 3.05% Lianhua 12.99% 1.40% 1.48% QKL (2007) 20.29% 9.69% 6.26% QKL (1H08) | 22.93% 10.23% 742% Foreign Retailers Walmart 24.24% 6.00% 3.49% Carrefour 22.75% 4.18% 2.23% Metro 2
Slide 11: Supermarket Categories as a % of Total Sales
Supermarket Categories as a % of Total Sales Grocery 27% Fresh 57% Food Non- 16% Food 34% 52% 14% 31% 51% 18%
Slide 12: Grocery category revenue and margins
Prepared or packaged foods Cigarettes Bulk grains Local Specified Food » Bottled beverages » Leisure Food pve fiaos [2a Revenue (US$M) $24.8 $10.9 $7.6 Gross Profit (US$M) $3.6 $2.0 $1.3 Gross Margin 14.5% 18.7% 17.3%
Slide 13: Fresh food category revenue and margins
Fresh and cooked meat Bakery Fresh noodles and pastas Revenue (US$M) $51.3 Gross Profit (US$M) $8.9 Gross Margin 174% Dairy Produce Packaged dumplings $16.8 $12.4 $3.0 $2.2 18.1% 17.8%
Slide 14: Non-Food Items
-~ Non-Fooditems — | Clothing and shoes Small electronics Books and stationery Cleaning Products Home furnishings Cosmetics Revenue (US$M) $14.3 $4.6 $4.5 Gross Profit (US$M) $2.6 $1.0 $1.0 Gross Margin 17.9% 21.3% 20.2%
Slide 15: Operating Philosophy
Operating Philosophy Emphasis on fresh produce and self-prepared food which has higher profit margins - Self prepared food includes breads, buns, dumplings, and cooked meats such as fried chicken and roast chicken Increase offerings and sales of private label items - Higher profit margins Aggressive
Slide 16: Private-label products and higher-margin segments
= Currently 75 products, primarily cleaning and paper goods = Operating margins from private- label products are typically 20-30%, compared to 12-13% for other grocery items = Our goal is to bring our direct- from-manufacturer, self-prepared, private-label and IGA-related business segments - all of
Slide 17: Existing Stores and Growth Strategy
* Existing Stores: - 20 supermarkets, 1 department store, and 1 convenience store (~667,000 square feet) ott - Stores currently concentrated around Dagqing (population 2.6 million), the “oil capital” of China - Entered 6 additional markets in Heilongjiang Province (population 38 million) * Growth St
Slide 18: Store Growth
© Store Growth Number of Stores rvs [vos [vor | va0s | 200s sa0se | ae | Esimecreos sal alal a) | fopened/Accured 2) 7 | ot) 1 | 4) 8 | a fensorroied [ws | | aw la fa aH Pichango | a [sem | | on fom om | ee 18
Slide 19: New store example: Suihua
cation: Suihua km from Hat Average Size: 20,261 square feet Average Sales Per Square Foot: (first month): $31.67 Average Sales Per Store (first month): $641,749 Annual sales expected: $6 Million Store costs (first month): Merchandise: $521,742, Lease: $10,100, other: $49,694 Based on our recent expe
Slide 20: Same Store Sales Performance
Same Store Sales Performance Same Store Sales For Stores That Have Been Open For At Least 12 Months 16.20 18) 41.98 10 4 8.74 7.72 =. iia i 0 ~~ | 107 3Q07. 4007 2007 1208 2008 20
Slide 21: Department store
Size: 95,826 square feet Average annual sales 1.5% of total revenue Sales FY07:$1.4M Net Profit FY07:$668K Sales 1H08:$810K Net Profit 1H08:$427K Business Model - One-stop shopping center (clothing, accessories, cosmetics, small electronics, jewelry, books, home furnishings; also includes a movie th
Slide 22: Supply Chain Management
* QKL uses preferred supplier systems to control quality and price « Distribution Supply Chain Management 800 suppliers 12,000 to 15,000 SKU’s Top 10 suppliers represent 8% of overall products (8% of total revenues) Typically have 2+ suppliers for each product, including special brands and internati
Slide 23: Distribution and purchasing network
PEE cin DaQing Regional purchasing sx Distribution JiLin Regional ie, Centers purchasing Regional purchasing Local purchasing by store Grocery-Fresh-Nonfood 23
Slide 24: Competitive Advantage
Versus Domestic Competitors Versus International Competitors Competitive Advantage High quality products at lower cost, the breadth of products we carry, and deep knowledge of our customers Strong relationships with our suppliers, especially meat and other fresh food items Effective marketing and ad
Slide 25: Experienced Management
Mr. Mr. . Rhett Xudong Wang (CFO) Experienced Management Zhuangyi Wang (Chairman & CEO) Founder and Chairman, CEO since inception in 1998 Received his bachelors degree from Heilongjiang Radio & TV University Alan D. Stewart (COO) Appointed COO in August 2008 37 years of retail experience in the U.S.
Slide 26: Summary income statement
($MM) 2005 2006 2007 1HO7 Revenue 5. 74.9 93.1 4 60.5 Net Income 3.4 5.0 3.2 Revenue Growth 17.8% 39.4% 24.3% 30.4% 34.1% Gross Margin 18.5% 19.0% 20.1% 22.3% 21.0% 6.3% 6.7% 6.2% 7.0% 7.3% 26
Slide 27: Gross, operating and net margins
2004 2005 2006 2007 1HO7 1HO8 i Gross Margin i Operating Margin i Net Margin 27
Slide 28: Summary balance sheet
($MM) 2005 2006 2007 HOB Cash & Equivalents 3.6 41 10.7 29.9 Total Current Assets 12.1 14.2 24.1 44.7 Total Assets 16.2 24.2 34.6 55.7 Total Current Liabilities Shareholder Equity 7.0 11.0 17.8 37.0 Cash from Operating Activities 28 7.4 5.4 8.4 28
Slide 29: Revenue and market value of peers
1™ Revenue Company Name Smm) Chinese Companies Wuhan Zhongbai Group Co., Ltd 1.144 Beijing Hualian Hypermarket Co., Ltd 4,179 Beijing Jingkelong Co. Ltd 939 Wumart Stores Inc. 4,154 Lianhua Supermarket Holdings Co.Ltd. 2,901 Times Ltd 556 U.S. and European Companies ‘Arden Group Inc. 481 Carrefour S
Slide 30: Peer margin comparison
EME ei Operating Margin’ EBITDA Margin’ Net Margin’ 200720082009 200720082009 —« 2007 _—«2008_—~2009 ‘Company Name a) Ce) (=) _(%) __(%) __(%) __(%) _(%) _() Chinese Companies Wuhan Zhongbai Group Co. Lid 23% «27% «= «3.0% 4.6% «= 4.0% =A «=H 2.3% 2.6% Beijing Hualian Hypermarket Co.,Ltd 43% 4.4% =
Slide 31: Investment Highlight
| i = Investment Highlight Fast growing and highly profitable Niche-market positioning, track record of success Highly experienced management team Consumer stables less susceptible to economic turbulence