Longwei
Petroleum Investment Holding Limited
February
23, 2010
Confidential
1
Forward
Looking Statements
Statements
contained in this presentation may be considered “forward-looking
statements”
within the meaning of U.S. federal securities laws. The matters discussed herein are based
on current management expectations that involve risks and uncertainties that may result in
such expectations not being realized. Actual outcomes and results may differ materially from
what is expressed or forecasted in such forward-looking statements due to numerous
potential risks and uncertainties including such risks and factors described in presentation
prepared by Longwei Petroleum Investment Holding Ltd. (“Longwei” or the “Company”)
management. Such forward-looking statements speak only as of the date on which they are
made and Longwei does not undertake any obligation to update any forward-looking
statements to reflect events or circumstances after the date of the presentation.
within the meaning of U.S. federal securities laws. The matters discussed herein are based
on current management expectations that involve risks and uncertainties that may result in
such expectations not being realized. Actual outcomes and results may differ materially from
what is expressed or forecasted in such forward-looking statements due to numerous
potential risks and uncertainties including such risks and factors described in presentation
prepared by Longwei Petroleum Investment Holding Ltd. (“Longwei” or the “Company”)
management. Such forward-looking statements speak only as of the date on which they are
made and Longwei does not undertake any obligation to update any forward-looking
statements to reflect events or circumstances after the date of the presentation.
2
3
Executive
Summary
§ Longwei Petroleum
Investment Holding Limited, a Colorado
corporation, is one of the leading distributors/wholesalers of
diesel, gasoline, kerosene and fuel oils in Taiyuan City and
Gujiao City in Shanxi Province, Peoples Republic of China
(PRC).
corporation, is one of the leading distributors/wholesalers of
diesel, gasoline, kerosene and fuel oils in Taiyuan City and
Gujiao City in Shanxi Province, Peoples Republic of China
(PRC).
§ The Company’s
operating subsidiary, Taiyuan Longwei
(“Longwei”), was founded in the PRC in 1995 and is fully
licensed to operate as a finish oil wholesaler in the PRC.
(“Longwei”), was founded in the PRC in 1995 and is fully
licensed to operate as a finish oil wholesaler in the PRC.
§ Longwei purchases
diesel, gasoline, fuel oils and kerosene from oil refineries and other
Chinese suppliers with whom the Company has had long lasting business relations.
Chinese suppliers with whom the Company has had long lasting business relations.
§ The Company’s
customer list includes a diversified grouping of primary fuel
users.
Shanxi
Province
|
Diesel,
Gasoline, Kerosene and Fuel Oils Customers
|
Approx.
Percent of
FY 2009 Revenues |
|
1. Coal
plants and other power supply customers
2. Large-scale gas stations located in Taiyuan City, Shanxi Province 3. Small, independent gas stations located in Taiyuan City, Shanxi Province |
45%
45%
5%
|
4
Executive
Summary (cont.)
§ Since 1995, Longwei
has owned and operated an ISO9000 certified fuel storage facility
with 14 storage tanks with a total capacity of 50,000 metric tons (mt) at Taiyuan City. In
addition, the Company owns a second fuel storage facility that has a total of 8 storage
tanks with a total capacity of 70,000 mt in Gujiao City. The Gujiao facility began
operations in October 2009 and was fully operational on January 1, 2010.
with 14 storage tanks with a total capacity of 50,000 metric tons (mt) at Taiyuan City. In
addition, the Company owns a second fuel storage facility that has a total of 8 storage
tanks with a total capacity of 70,000 mt in Gujiao City. The Gujiao facility began
operations in October 2009 and was fully operational on January 1, 2010.
§ Longwei Petroleum
Investment Holding Limited was incorporated under the laws of the
State of Colorado in 2000 and conducted no business operations until October 16,
2007, when it acquired the business of Longwei in a “reverse merger” transaction.
State of Colorado in 2000 and conducted no business operations until October 16,
2007, when it acquired the business of Longwei in a “reverse merger” transaction.
§ The Company has 65
employees, including three management personnel.
Longwei
Front Gate
Storage
Units
5
Investment Highlights
§ Longwei
is well positioned to benefit from strong projected growth in demand
for
refined petroleum products in the PRC
refined petroleum products in the PRC
Per
capita consumption of diesel, gasoline and other refined petroleum products
is
expected to continue to grow strongly throughout the PRC, including Taiyuan City,
Shanxi Province, due to a number of factors, including increased demand for power
supply and significant projected increases in per capital motor vehicle ownership and
continued strong economic growth.
expected to continue to grow strongly throughout the PRC, including Taiyuan City,
Shanxi Province, due to a number of factors, including increased demand for power
supply and significant projected increases in per capital motor vehicle ownership and
continued strong economic growth.
Growth
in the auto industry in China is fairly
well know at this point but the growth has
been stronger than expected in the past
year and in recent months.
well know at this point but the growth has
been stronger than expected in the past
year and in recent months.
According to the
Associated Press, in 2009
China overtook the United States of America
as the largest automobile market in the
world. Total vehicle sales in 2009 were 13.6
million. John Bonnell, a J.D. Power analyst
stated “Its very, very strong growth, far
beyond expectations we had in the early
part of 2009.”
China overtook the United States of America
as the largest automobile market in the
world. Total vehicle sales in 2009 were 13.6
million. John Bonnell, a J.D. Power analyst
stated “Its very, very strong growth, far
beyond expectations we had in the early
part of 2009.”
6
§ Longwei
has a strong competitive position in Shanxi Province
In
1995, Longwei was granted a Finish Oil Wholesale license by the PRC which allows
the
Company to purchase refined petroleum products directly from refineries in China. In
addition, Longwei has a license for Dangerous Chemical Products Business which allows
the Company to transport gasoline and diesel oil products. The Company believes that
such licenses are difficult to obtain and limit new entrants into its business.
Company to purchase refined petroleum products directly from refineries in China. In
addition, Longwei has a license for Dangerous Chemical Products Business which allows
the Company to transport gasoline and diesel oil products. The Company believes that
such licenses are difficult to obtain and limit new entrants into its business.
Due to many factors, including rough terrain, there are no oil pipelines in Shanxi. Yet
Shanxi is providing energy to much of Northern China every day and is a critical player in
the economic growth China has generated in recent years and will continue to be a critical
player in years to come. The lack of a pipeline creates an extreme competitive advantage
whereby storage capacity and solid supply chains win customers more so than price per
unit of product. Longwei has the largest storage capacity of any non-government operated
fuel wholesaler in Shanxi Province.
Longwei
has two significant competitors in Taiyuan (there are only two other
non-
government operated fuel wholesalers).Longwei has no significant competitiors in Gujiao.
government operated fuel wholesalers).Longwei has no significant competitiors in Gujiao.
Investment Highlights
7
§ Strong
historical revenue growth
Sales
growth attributed to:
- strong economic growth in Shanxi Province
- increased demand for diesel and gasoline
- increased prices for diesel, gasoline, fuel oils and kerosene
- strong economic growth in Shanxi Province
- increased demand for diesel and gasoline
- increased prices for diesel, gasoline, fuel oils and kerosene
Investment Highlights
|
Compounded
Annual Growth
|
Fiscal
Year
‘05-’09
|
Fiscal
Year
‘08-’09 |
|
|
|
|
|
Petroleum
Product Sales Volume
|
43.7%
|
33.4%
|
|
Petroleum
Products Revenue
|
46.4%
|
39.5%
|
|
Total
Revenues
|
48.1%
|
36.9%
|
8
Investment Highlights
(a) Any references to
"NONGAAP" refer to the exclusion of the
expense associated with the change in the fair market value of
Longwei's outstanding stock warrants, except in the case of
"NONGAAP EPS" which refers to the exclusion of the expense
associated with the change in the fair market value of Longwei's
outstanding stock warrants, as well as the exclusion of the impact
of the one time deemed dividend associated with the October 2009
Financing.
expense associated with the change in the fair market value of
Longwei's outstanding stock warrants, except in the case of
"NONGAAP EPS" which refers to the exclusion of the expense
associated with the change in the fair market value of Longwei's
outstanding stock warrants, as well as the exclusion of the impact
of the one time deemed dividend associated with the October 2009
Financing.
(b) Six Months YTD data
and percentages are compared to the prior
YTD figures reported by Longwei for the period from July 1, 2008
through December 31, 2008 and generally reflect one half of a full
year of operations. NONGAAP EPS is defined above but it is also
important to recognize that EPS for the six months ended
December 31, 2009 was $0.21 as compared to EPS for all of fiscal
2009 of $0.28.
YTD figures reported by Longwei for the period from July 1, 2008
through December 31, 2008 and generally reflect one half of a full
year of operations. NONGAAP EPS is defined above but it is also
important to recognize that EPS for the six months ended
December 31, 2009 was $0.21 as compared to EPS for all of fiscal
2009 of $0.28.
Investment Highlights
9
Artistic drawing
of
proposed new plant
and storage tank
facility in Gujiao
City, Shanxi
Province
proposed new plant
and storage tank
facility in Gujiao
City, Shanxi
Province
10
Investment Highlights
§ Longwei is in the
process of revising its financial forecasts to reflect the impact of
the
various accounting issues associated with the October 2009 Financing and the
earlier than expected initial sales at Gujiao. However, Longwei is also intent on
providing its shareholders and potential shareholders with other valuable data, which
we generally refer to as NONGAAP information. Current expectations with regard to
revenue and NONGAAP net income growth are provided below. Additional
forecasting has yet to be completed but the results will be provided once they are
available.
various accounting issues associated with the October 2009 Financing and the
earlier than expected initial sales at Gujiao. However, Longwei is also intent on
providing its shareholders and potential shareholders with other valuable data, which
we generally refer to as NONGAAP information. Current expectations with regard to
revenue and NONGAAP net income growth are provided below. Additional
forecasting has yet to be completed but the results will be provided once they are
available.
11
Investment Highlights
12
§ Strong
Balance Sheet
Investment Highlights
13
§ Business
Strategy
§ Key components of
the Company’s business strategy include:
§ Pursue internal
growth by attracting new customers through competitive
pricing, timely delivery, and the highest quality products, and
pricing, timely delivery, and the highest quality products, and
§ Pursue internal
growth by expanding the Company’s product storage
capacity, and
capacity, and
§ Expand
geographically.
Investment Highlights
14
§ Geographic
Expansion
§ Longwei expanded its
finish oil distribution / wholesale
business into the nearby city of Gujiao City, which is
located in Shanxi Province approximately 50 km from
Taiyuan City and is considered to be a key industrial
center in China for energy production.
business into the nearby city of Gujiao City, which is
located in Shanxi Province approximately 50 km from
Taiyuan City and is considered to be a key industrial
center in China for energy production.
§ Longwei has already
established a solid customer base in
Gujiao and generated a total of $8.5 million in revenues at
Gujiao from October 1, 2009 through December 31, 2009.
The revenues generated during this period were not
included in Longwei’s most recent financial projections.
Gujiao is expected to generate at least $40 million in
revenues during the fiscal year ending June 30, 2010.
Gujiao and generated a total of $8.5 million in revenues at
Gujiao from October 1, 2009 through December 31, 2009.
The revenues generated during this period were not
included in Longwei’s most recent financial projections.
Gujiao is expected to generate at least $40 million in
revenues during the fiscal year ending June 30, 2010.
Longwei’s
Current
Storage
Storage
New
Gujiao
Storage
Storage
Investment Highlights
15
Corporate
Structure
§ July 1995 - Taiyuan
Longwei founded July 1995.
§ March 2000 - Longwei
Petroleum Investment
Holding Limited (“Longwei Petroleum”) incorporated
in Colorado under the name Tabatha II, Inc.
Holding Limited (“Longwei Petroleum”) incorporated
in Colorado under the name Tabatha II, Inc.
§ April 2006 - Longwei
Petroleum Investment Holding
Limited (“Longwei Petroleum BVI”) incorporated in
the British Virgin Islands and acquires 100% of
Taiyuan Yahuan Energy Conversion Co., Ltd. and
its subsidiary.
Limited (“Longwei Petroleum BVI”) incorporated in
the British Virgin Islands and acquires 100% of
Taiyuan Yahuan Energy Conversion Co., Ltd. and
its subsidiary.
§ October 2007 -
Longwei Petroleum, a Colorado
corporation (formerly known as Tabatha II, Inc.)
acquires 100% of Longwei Petroleum BVI in a
“reverse merger” transaction. The shareholders of
Longwei Petroleum BVI received 69 million shares
of common stock in Longwei Petroleum, a Colorado
corporation, representing 92% of the Company’s
outstanding share capitalization.
corporation (formerly known as Tabatha II, Inc.)
acquires 100% of Longwei Petroleum BVI in a
“reverse merger” transaction. The shareholders of
Longwei Petroleum BVI received 69 million shares
of common stock in Longwei Petroleum, a Colorado
corporation, representing 92% of the Company’s
outstanding share capitalization.
16
Facilities
§ Longwei currently
owns an ISO9001: 2000
certified fuel & petroleum product storage
facilities with 22 storage tanks with a total
capacity of 120,000 mt.
certified fuel & petroleum product storage
facilities with 22 storage tanks with a total
capacity of 120,000 mt.
§ Longwei has
specially designated railroads at
both of its facilities, stacking bays for its supply
and sale transportations and also 4 large tar
tanks at the Gujiao facility which could
eventually be converted to store oil or
gasonline, thereby expanding our storage
capacity to 140,000 mt. No timetable for
converting the tar tanks to oil or gasoline tanks
has been decided upon.
both of its facilities, stacking bays for its supply
and sale transportations and also 4 large tar
tanks at the Gujiao facility which could
eventually be converted to store oil or
gasonline, thereby expanding our storage
capacity to 140,000 mt. No timetable for
converting the tar tanks to oil or gasoline tanks
has been decided upon.
Stacking
Bays
Storage
Units
17
Product
Lines
§ Longwei distributes
petroleum products to
wholesalers as well as to retail and commercial
customers in Shanxi Province. Sales by
product line in fiscal 2009 are summarized
below:
wholesalers as well as to retail and commercial
customers in Shanxi Province. Sales by
product line in fiscal 2009 are summarized
below:
§ Agency fees are
earned for purchasing
petroleum products from refineries on behalf of
wholesalers who lack the necessary licenses to
make such purchases directly themselves.
petroleum products from refineries on behalf of
wholesalers who lack the necessary licenses to
make such purchases directly themselves.
Railroad
Station
Longwei
Gasoline Station
18
Longwei
Suppliers
§ Longwei purchases
diesel, gasoline, fuel oil and kerosene directly from oil
refiners and other suppliers with whom the Company believes it has excellent
relations.
refiners and other suppliers with whom the Company believes it has excellent
relations.
§ Since inception,
Longwei has not experienced any difficulty in obtaining finished
goods or raw materials essential to its business.
goods or raw materials essential to its business.
19
Sales
and Marketing
Direct
Marketing : Longwei employs its
own sales
and marketing staff to directly establish the distribution
and sales networks with its customers. Its sales
representatives regularly visit gas stations and fuel oil
consumption intensive enterprises within its
distribution footprint.
and marketing staff to directly establish the distribution
and sales networks with its customers. Its sales
representatives regularly visit gas stations and fuel oil
consumption intensive enterprises within its
distribution footprint.
Referrals:
Referrals from
existing customers continue
to be a strong source of new customers.
to be a strong source of new customers.
Major
New Customers: In
November 2009, Longwei
entered into contracts with 6 new significant customers
who Longwei will service through the Gujiao facility.
Longwei has identified an additional 7 significant
customers that Longwei will aggressively seek
business with and is hopeful to sign these customers
to contracts for the 2010 calendar year. One of these 7
additional customers has verbally committed to
ordering products through Longwei.
entered into contracts with 6 new significant customers
who Longwei will service through the Gujiao facility.
Longwei has identified an additional 7 significant
customers that Longwei will aggressively seek
business with and is hopeful to sign these customers
to contracts for the 2010 calendar year. One of these 7
additional customers has verbally committed to
ordering products through Longwei.
Distribution
Footprint Covered by
Longwei’s
Storage Locations
20
Management
Cai
Yongjun - Chairman and Chief Executive Officer
§ CEO of Taiyuan
Longwei since its founding in 1995
§ Has over 12 years
experience in the trading, storage and handling of petroleum
products
§ Attended Shanxi
University where he majored in business administration
Xue
Yongping - Secretary and Treasurer
§ Secretary and
Treasurer of Taiyuan Longwei since November 1998
§ Previously served as
Deputy General Manager of Taiyuan Hua Xin Trading Company, a fuel oil
distributor/wholesaler
distributor/wholesaler
§ Received law degree
from Shanxi Law School
James
Crane - Chief Financial Officer
§ Named Chief
Financial Officer on June 30, 2009
§ Certified Public
Accountant
§ Trained at a Big
Four accounting firm in the US
§ Has served as Chief
Financial Officer of a variety of publicly-traded companies, including
companies operating exclusively in the People’s Republic of China
companies operating exclusively in the People’s Republic of China
21
Capital
Structure
This
financial information is qualified in its
entirety by the financial information contained in
the Company’s public filings with the SEC.
entirety by the financial information contained in
the Company’s public filings with the SEC.
22
Summary
§ A
leading wholesaler / distributor of diesel, gasoline, fuel oil and kerosene in
Taiyuan
City, and Gujiao City, inShanxi Province, PRC.
§ Business
founded 1995. Has a
very strong competitive position in a challenging
geographic marketplace in Shanxi Province with 120,000 metric tons (mt) of storage tank
capacity.
geographic marketplace in Shanxi Province with 120,000 metric tons (mt) of storage tank
capacity.
§ Revenues
have increased at a 48+% CAGR% between 2005 and 2009 due to strong
increases in demand for diesel and gasoline in Shanxi Province.
increases in demand for diesel and gasoline in Shanxi Province.
§ Highly
profitable with audited FY 2009 Revenues, Operating Profit and Net Income
of
$196.8 MM, $39.5 MM and $21.8 MM, respectively.
$196.8 MM, $39.5 MM and $21.8 MM, respectively.
§ Operating
Profit is projected to increase to $46.0 MM in FY 2010 (as the new storage
tanks are expected to be placed into service during the second half of this
fiscal year).
§ Strong
balance sheet with Stockholders’ Equity of $128.2 MM and no long-term debt
or
other long-term liabilities as of December 31, 2009.
other long-term liabilities as of December 31, 2009.
§ Management
currently owns 49.4% of the shares outstanding (42.1 MM shares) and has
pledged a total of 13,499,274 shares of common stock (not included in totals above) they
already owned in order to close the October 2009 Financing. Management will receive
pledged a total of 13,499,274 shares of common stock (not included in totals above) they
already owned in order to close the October 2009 Financing. Management will receive
the shares back if without further liability or potential loss of the shares, if
Longwei
generates net income of $23.9 million for the year ending June 30,
2010.
§ Longwei
has announced its
intention to uplist to the NYSE Amex stock exchange
§ Price
to earnings ratio based on trailing twelve months NONGAAP net income is 3.35,
well below industry comparables.