PDF, 1656.20K - China XLX Fertiliser Ltd

Agenda• Financial Performance– 1H2013 Financial Highlight– 1H2013 Financial Results– Revenue Breakdown by Product– Sales Volume Breakdown by Product– ASP Breakdown by Product– Gross Profit Margins by Product– Financial Position• Business Review• Key Events in 1H2013• Industry and Company Outlook• Updates of Undergoing Projects• Growth Strategies and Prospects• Investment Highlight• Executive Summary3

1H2013 Financial Results(RMB million)1H20121H2013ChangeYoY (%)2Q20122Q2013ChangeYoY (%)Revenue 2,031 1,965 3 1,037 959 8Cost of sales (1,657) (1,560) 6 (804) (785) 2Gross profit 374 405 8 233 174 25PBT 212 226 7 145 92 36Tax (37) (37) 1 (22) (15) 35PAT 175 190 8 122 78 37• PBT and PAT of 1H2013 improved slightly by 7% and 8% mainly due to loweraverage cost of sales of urea and methanol. The decrease in 2Q2013 wasmainly due to substantial declined urea ASP in 2Q2013.• The urea output in 2Q2013 was approximately 20,000 tons less than normallevel due to maintenance of Plant 1 and 3.5

Revenue Breakdown by Product(RMB million) 1H2012 1H20130.3%ChangeYoY (%)Urea 1,266 1,240 2Methanol 252 231 9Compound Fertiliser 506 490 3Other 6.5 4.1 3724.9%12.4%62.3%1H20121H2013Urea Compound Fertiliser MethanolOthers6

Sales Volume Breakdown by Product(000 ‘Tons) 1H2012 1H2013ChangeYoY (%)Urea 569 606 6Methanol 113 115 1Compound Fertiliser 201 212 5‘000 tons7

ASP Breakdown by Product2,800(RMB/tons) 1H2012 1H2013ChangeYoY (%)Urea 2,226 2,046 8Methanol 2,234 2,014 10Compound Fertiliser 2,516 2,314 8RMB/ton2,6002,4002,2002,0001,8001,6002,3432,3802,2572,1561,9882,0371,9381,4001,2001,4791Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13Urea Compound Fertiliser Methanol8

Gross Profit Margins by Product%1H20121H2013ChangeYoY(bps)2Q20122Q2013ChangeYoY(bps)Urea 23.5 25.8 2.3 28.8 22.6 6.2Methanol (2.1) 6.2 8.3 1.5 7.0 5.5CompoundFertiliser16.1 14.5 1.6 18.9 12.8 6.1Overall 18.4 20.6 2.2 22.5 18.1 4.39

Financial Position(RMB Million)As at31 December2012As at30 June2013ChangeFixed Asset 3,977 4,848 871Current Asset 1,140 1,059 81Current Liability 1,035 984 51Non-currentLiability1,754 2,464 710Equity 2,328 2,458 13010

Business Review - UreaProduction Volume 1,2 Utilization Rate (%) 3(‘000 Tons)1101081071061061041021001H20121H2013Note:1. Production volume: including the actual urea products and liquid urea for compound fertiliser use.2. Maintenance Period: Plant 1 and 3 experienced maintenance in 2Q2013. No maintenance in 2H2013.3. Designed annual capacity is measured as daily production capacity multiplied by 340 days per year.11

Business Review - UreaUrea pricedeclinedin 2Q2013Coal priceremainedweakNatural gaspriceincreasedUrea exportpolicyloosenedLowerthanexpectedintl’ ureaprice• Urea ASP declined by 8.1% YoY and 17.4% QoQ in 2Q2013 mainly due todeclined coal prices as well as weak international price.• Coal price has declined by approximately 37% since 4Q2010. No signal ofstrong recovery of coal rice in the short-to-medium term.• NDRC increased the natural gas price for urea manufacturers by RMB25cents per cubic meter, which push up the production cost of natural gasbasedurea producers by approximately RMB150-200 per ton.• MOF announced in Dec 2012 to increase urea’s base price fromRMB2,100/ton to RMB2,260/ton and cut urea’s off-season tariff from 7%to 2%, high-season tariff from 110% to 77% effective from 1 Jan 2013,which will help ease the oversupply situation of urea market.• Indian urea tender offer price was CFR (Cost+Freight) USD330 (approx.RMB1,750/ton) in early June 2013 and CFR USD300 (approx.RMB1,650/ton) at the end of June 2013, which hurt the exporters anddistributors’ confidence, negative to the urea ASP.12

Business Review - MethanolProduction Volume Utilization Rate (%)(‘000 Tons)1201181161141121101081061101131201181161141121101081061101131041041021021001H20121H20131001H20121H2013Note:1. Maintenance Period: Plant 1 and 3 experienced maintenance in 2Q2013. No maintenance in 2H2013.13

Business Review - Methanol• Methanol business still benefited from retreated coal price in1H2013.• Overall, methanol ASP was still volatile because of theovercapacity situation in China.• With increasing penetration of M15 methanol gasoline (withmaximum 15% methanol fuel additive) across China in 2012 andrecovery of property market and auto market, methanol hadgrowing demands from downstream applications.14

Jan-10Feb-10Mar-10Apr-10May-10Jun-10Jul-10Aug-10Sep-10Oct-10Nov-10Dec-10Jan-11Feb-11Mar-11Apr-11May-11Jun-11Jul-11Aug-11Sep-11Oct-11Nov-11Dec-11Jan-12Feb-12Mar-12Apr-12May-12Jun-12Jul-12Aug-12Sep-12Oct-12Nov-12Dec-12Jan-13Feb-13Mar-13Apr-13May-13Jun-13Business Review – Anthracite Coal PriceRMB/ton1,8001,6801,6001,4001,2001,098 1,0931,0741,0981,6121,1851,3861,6091,5651,5311,468 1,466 1,4551,5031,5801,540 1,5721,4961,5411,507 1,4461,4981,3891,3311,2691,208 1,218 1,2121,2151,2571,2201,1881,2131,1711,1371,0001,0621,0541,0611,0971,04497880015

Key Events in 1H2013• In 1H2013, Henan XLX wasnamed China’s MostEnergy Efficient Producer(synthetic ammonia) bythe Ministry of Industryand InformationTechnology and the ChinaPetroleum and ChemicalIndustry Federation forconsecutive 2 years.16

Industry and Company Outlook• For the 10 th consecutiveyears, the CentralGovernment issued No.1Document on the issues ofAgriculture, Farmers andRural Areas, underscoringstronger fiscal support foragriculture• Total fiscal support forAgriculture, Farmers and RuralAreas is expected to be overRMB1,300 billion in FY2013.• Chinese government carriesout 50bn kg grains productioncapacity expansion plan• In 2009-2020, the Chinesegovernment will carry out 50bnkg grains production capacityexpansion plan, which willsignificantly increase thedemand for fertilizers. Henan,being the largest agriculturalprovince in China, will takeup 7.75bn kg accounting for1/7 of the total target.Unit: RMB billionWhite wheat Early season indica rice Non-glutinous riceSource: State Statistics Bureau, NDRC of PRC17

Industry and Company OutlookChina XLX’s Capacity Development(ktpa)ProductionPlant IProductionPlant IIProductionPlant IIIProductionPlant IVXinjiangPlant• Keep improving technique:to use cutting edge technologies available in the market tomaintain the cost leadership• Extend the value chain:to tap into upstream and downstream through M&A and joint venture,etc• Expand the product portfolio:to keep developing new products such like the downstreamapplications of urea and methanol18

Updates of Undergoing Projects• Urea Plant IV – Henan– Total CAPEX spent for urea plant 4 as at 30 June 2013 was approximately RMB1.86billion in total, accounting for approximately 72% of total CAPEX RMB2.58 billion– Expected completion: 2H2013• Complex Plant V – Xinjiang– EGM has approved the expansion plan of Complex Plant V in Xinjiang on 26 June 2012– Infrastructure construction started– Part of the production construction completed– 150K-ton water-soluble fertiliser production facilitycommenced operation– Total CAPEX is about RMB2.7 billion,approximately RMB390m been spent as of 30 June 2013– Expected completion: 2H2015 to 201619

Growth Strategies and ProspectsStrengthen the core business,achieve technology upgradeDevelop specialized fertilizerproducts• Expand investment to increase production capacity to 2 million tons of urea, 1 million tons of compoundfertilizer and 0.2 million tons of methanol• Select “low carbon economy” related projects to extend existing products with advanced coal and gaschemical technology• Continue to explore opportunities for cost management, while focusing on maintaining stable cash flow• Collaboration with leading research institutions (e.g., Hunan Anchun and CAS) to apply most advancedtechnology• Develop new coalification products, increase product diversity• Vigorously explore implementation of controlled-release fertilizer and organic and phosphate fertilizersVertical and horizontalintegration of industrial valuechain• Expand upstream and continue to strengthen relationships with suppliers• Continuously seek opportunities for cooperation; strategically cooperation with Sinofert and Huanong toexpand sales network• Increase downstream products, extend the value chain by integration of resourcesLeading MarketPositionBecome the most profitable coal-based urea andcompound fertilizer manufacturer in ChinaLeading in Low CostAdvocate of EfficientFertilizer in ChinaRigorous FinancialDisciplineHighly EfficientProductionAdvantageous Locationin Central ChinaHighly ExperiencedManagement &Committed WorkforceContinuously ImproveCorporate Governanceand Internal ControlStrong Brand and WideDistribution Network20

Growth Strategies and Prospects• Committed to integration of resources, extension of the industrial value chain, organization of the productionline from raw material, production, sales and customer service to achieve leading cost position in fertilizerindustryStableRawMaterialSupplyCoal • Wholly-owned TianliElectricity • Self-owned power plants Potassium, Phosphoruscoal mine in Xinjiangprevents power supply• Purchase from Sinofert• Long-term salesinterruptionsagreement with• Government continues• Long-term stableHenan Jiaozuo Coaloffer electricity subsidy tosupplyGroupfertilizer industryFullyIntegratedFertilizerIndustrialValueChainAdvancedProductionTechnologyandProcessesSalesNetworkPlant I Plant II Plant III Plant IV (Trialoperation soon)• Established joint venture company,Henan Nongxin Fertilizer Co. Ltd.• Largest customer and 4.99% shareholderof XLXPlant V (UnderConstruction)+• XLX one-stop of sowing andfertilizing servicesCustomerServiceAgricultural ServicesTeamSoil Testing Experience Sharing Customer Hot Line21

Investment Highlight7RigorousFinancialDiscipline1Leading marketposition2Cost efficientproduction6ImprovingCorporateGovernanceand InternalControl5Experiencedmanagementteam &committedworkforce4Strong brandanddistributionnetwork3Strategiclocation22

Executive Summary• Strong and healthy cash flow• Steady growth since establishment of China XLX in 2006• Stable and experienced management team and loyal staff as 65%shareholders of the Company• Focused on coal-based urea manufacturing for 40+ years• Cost leadership• Location and logistics advantages to benefit the agricultural reforms in the12th Five Year Plan• Well established agrochemical service team and distribution network• Marketing campaign to promote XLX brand awareness and preference• Clear growth visibility in the next 3-5 years in fertiliser sector with volumegrowth and cost reduction as well as GP margins improvement• Prudent dividend policy23

Q & AChina XLX aims to become the most profitablecoal-based urea producer in the PRCThank YouFor further inquiries, please contact us:stephan.yao@chinaxlx.com.hk, +852 2855 6920 orweiwei.zhu@chinaxlx.com.hk, +86 138 4939 1363 and +65 8646 001024