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ROTH Fall Conference Presentation Transcript

  • 1. Fushi Copperweld, Inc.
    ROTH Fall Conference
    September 2010
  • 2. Forward Looking Statements
    SAFE HARBOR LANGUAGE
    This presentation may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, which can be identified by the use of words such as “believes,” “expects,” “may,” “will,” “intends,” “plans,” “estimates” or “anticipates,” or other comparable terminology as well as future or conditional verbs such as “will,” “should,” “would,” or “could” or by discussions of strategy, plans or intentions. These statements are based on management’s current expectations and assumptions about the industries in which the Company operates. Forward-looking statements are not guarantees of future performance and are subject to significant risks and uncertainties that may cause actual results or achievements to be materially different from the future results or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, those risks and uncertainties described in the Company’s most recent Annual Report on Form 10-K, including under “Forward Looking Statements and Associated Risk” and “Risk Factors”, and Fushi Copperweld’s quarterly reports on Form 10-Q. These reports can be accessed through the “Investor Relations” section of Fushi Copperweld’s website at www.fushicopperweld.com. Fushi Copperweld disclaims any intent or obligation to update or revise any forward-looking statements in response to new information, unforeseen events, changed circumstances or any other occurrence. All forward-looking statements are qualified in their entirety by this cautionary statement.
    USE OF NON-U.S. GAAP FINANCIAL INFORMATION AND RECONCILIATION TO COMPARABLE GAAP NUMBER
    For the purpose of this presentation, the company has used certain other financial measures such as EBITDA (defined as net income before interest expense, interest income, income taxes, depreciation and amortization), Adjusted EBITDA (net income before interest expense, interest income, income taxes, depreciation and amortization as adjusted to remove charges related to changes in the fair value of derivative liabilities), and Adjusted EPS (defined as earnings per share as adjusted to exclude unusual gains and charges) that are not determined in accordance with generally accepted accounting principles in the United States (GAAP). The company believes that these non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission are useful to investors because they facilitate period-to-period comparisons of Fushi’s Copperweld performance and enable investors to assess the company’s performance in the way that management does. EBITDA, Adjusted EBITDA and Adjusted EPS may not be comparable to similarly title measures reported by other companies, and should be considered in addition to, and not as substitutes for, or superior to operating income, cash flows, revenues or other measures of financial performance prepared in accordance with U.S. GAAP. Such measures are not a completely representative measure of either the historical performance or the future potential of Fushi. Reconciliations of these measures to GAAP measures are included in the appendix.
    2
  • 3. Who We Are
    A leading global manufacturer of bimetallic wire – fast growing substitute for solid copper wire
    Infrastructure applications: utility, telecom and transportation
    Customized, engineered conductors – not commodity products
    Proprietary technology and high-quality products
    Multinational company with facilities in China, U.S. and UK
    3
  • 4. Investment Highlights
    Global leadership: products, technology, scale, brand
    Rapidly growing Chinese and global infrastructure markets
    Proprietary technology – high barriers to entry
    Strong growth profile with minimal capex requirements thanks to lean manufacturing techniques
    Financial strength and flexibility
    Experienced management team with significant insider ownership
    4
  • 5. Creating the Global Bimetallics Leader
    5
    Fushi International begins operations in response to huge need for wire in China
    Fushi International lists on Nasdaq
    Well-positioned for strong growth globally
    Fushi acquires Copperweld, forming the world's largest bimetallic wire producer
    Fushi International goes public
    ~
    2001
    2005
    2007
    2010
    ~
    ~
    ~
    ~
    1915
    1999
    2000
    2001
    1975
    2005
    2006
    CopperweldBimetallics engineers create a metallurgical bond between copper and steel
    CopperweldBimetallics spun off
    Copperweld Inc. acquired by LTV, a large steel producer
    LTV files for Chapter 11 protection as a result of the steel cycle
    Copperweld Inc. sold to Atlas Tube (Dofasco)
    Established copper cladding capacity at greenfieldfacility in Tennessee
    Combined the market access of Fushi with the brand and technology of Copperweld into a global leader
  • 6. 6
    Our products are engineered conductors, NOT commodity products
    Superior Product Offering
  • 7. Proprietary Technology
    • Process has direct impact on product quality
    • 8. Cladding (vs. plating) technology is significant barrier to entry
    • 9. High variance among competitors in manufacturing, technology and quality
    Fushi CCS Manufacturing Process
    High-Quality Products
    Fushi’sCopper Clad Steel:
    Bonding Mill
    Copper Strips
    Steel Core
    Cleaning
    Heating
    Finishing
    Steel Rod
    Cooling
    Copper
    vs. Competitors’ Copper Plated Steel
    7
    Steel Core
    Copper Clad Steel
    Copper
    Proprietary technology creates significant barriers to entry
  • 10. Optimized Manufacturing Footprint
    Tennessee Facility
    Dalian Facility
    8
    • 40,000 MT of CCA
    • 11. 8,200 MT of CCS
    • 12. Low-cost facility
    • 13. Underutilized lines moved to Dalian from TN
    • 14. 12,400 MT of CCA
    • 15. 16,300 MT of CCS
    • 16. High-tech and high-quality
    • 17. Added downstream processing capabilities
    Telford Facility
    • Processing facility provides access to Europe
    Capacity well-positioned geographically to meet global demand
  • 18. Competition Pales in Comparison
    9
    CommScope
    Dalian TongfaNew Materials
    • 5x capacity of next closest competitor
    • 19. Unmatched in breadth of product offering and product quality
    • 20. Global coverage through strategically located facilities
    • 21. Well-recognized, highly respected brand worldwide
    • 22. Appointed to Chinese National Standards Committee
    Bimetallic Capacity (MT)
    77,000
    15,000
    4,800
    Market Share
    Brand Recognition
    Breadth of Product Offering
    Cost-Efficiency
    Product Quality
    Global MarketKnowledge
    Customer Base
    R&D / Technology
    We are the only company with scale, global footprint, superior technology, and low-cost manufacturing in the bimetallic industry — the true worldwide leader.
    Note: Based on management’s estimates.
    Advantages over Western Competitors
    Advantages over Chinese Competitors
    • Breadth and quality of products
    • 23. Proprietary manufacturing process
    • 24. Engineering innovation
    • 25. Access to global growth markets
    • 26. Cost-efficiency
    • 27. Breadth of products
    • 28. Scale
    • 29. Access to global growth markets
  • Well-Diversified Business Mix
    Product Mix
    End Markets
    Transportation1%
    Geography
    Customer Concentration
    10
    Note: All data refers to six month period ended June 30, 2010.
  • 30. Large, Addressable Wire / Cable Market
    11
    Broad End-Markets and Applications for Copper Wire & Cable
    Global Wire & Cable Market
    by Region
    China
    U.S.
    $46 billion (1)
    $21 billion (2)
    $140 billion (1)
    Electronic Equipment
    (36%)
    Electronic Equipment(32%)
    Electric Utilities(22%)
    Building Construction
    (29%)
    Electrical Equipment(13%)
    Electrical Equipment(23%)
    Industrial Machinery & Equipment
    (13%)
    Industrial Machinery & Equipment (6%)
    Motor Vehicles(7%)
    Building Construction
    (12%)
    Transportation(3%)
    Other (3%)
    Other(1%)
    Source: “Insulated Wire & Cable in China to 2011”, The Fredonia Group, May 2008.
    Source: “Insulated Wire & Cable: US Industry Study with Forecasts to 2015”, The Freedonia Group, Spetember 2006.
  • 31. China isa Rapidly Growing Market
    12
    Telecommunications
    Electric Utility
    Transportation
    • Mobile and broadband penetration in Asia are at 51% and 11% and growing
    • 32. Compared to 88% and 66% in North America
    • 33. Mobile penetration expected to be 73% by 2013
    • 34. Planned 3G capex of $18 billion in 2010 by 3 Chinese telecom providers
    • 35. Approximately 8 million kilometers of CATV drop cable produced in 2009 – equivalent of approximately 52,000 MT of CCS center conductor
    • 36. Undeveloped relative to other global markets
    • 37. Planned capex of $33 billion by largest power grid operator in 2010
    • 38. Response to widespread power outages in mid-2000’s and increased energy demands
    • 39. Over $100 billion planned investment in railway infrastructure in 2010
    • 40. Planned capex spending railway infrastructure of over $700 billion over next decade
    • 41. China railway network expected to be over 120,000 KM by 2020
    Sources: “Forecast Mobile Services, Worldwide, 2004-2013”, Gartner Dataquest Market Statistics. “Forecast Mobile Services, Asia/Pacific 2004-2013”, Gartner Dataquest Market Statistics, and Wall Street Research, Electrics Components Industry Association Branch of Optical Cable of China, Ministry of Industry and Information Technology, Ministry of Railways,
  • 42. Making Inroads into New Geographical Markets Poised for Growth in the Long-Term
    13
    India
    Brazil
    Middle East
    • Ambitious 20-year plan to raise country’s standard of living has created opportunities in utility, CATV and public transportation.
    • 43. The world’s second-largest population with a booming service sector economy means enormous opportunity in telecom.
    • 44. As host country for 2014 FIFA World Cup and 2016 Olympics, Brazil is making massive infrastructure investments in utility, telecom and railway.
    • 45. Copperweld® CCS brand is already very well-known and the product has been widely used in much of the country.
    • 46. Transition to post-petroleum economy has begun with many opportunities in solar, wind and other renewable energy projects.
    • 47. Railway projects, particularly in the UAE and Saudi Arabia, have been announced. Modern cities such as Dubai, Abu Dhabi and Riyadh are requiring more build-out in infrastructure.
    Sources: Brazilian Ministry of Finance — Your Industry News — The Cable Directory — CRU
  • 48. 14
    Growing Global End Markets
    We have access to all of the fastest-growing end-markets globally
    Note: All figures represent Compounded Annual Growth Rates (“CAGRs”).
    Sources: Energy Information Administration “International Energy Outlook”, 2006 , Gartner Dataquest Market Statistics, Jefferies Equity Research estimates, Wall Street Research estimates, World Bank data and Global Wind Energy Council data, and the Association of the European Rail Industry “Worldwide Market for Railway Infrastructure”.
  • 49. Penetrating & Expanding Markets
    Organic Growth Opportunities
    Acquisition Strategy
    • Expansion of existing applications into new, high-growth emerging markets
    • 50. Increase market share within geographical areas currently served
    • 51. Continue developing new products, applications and markets to diversify and enhance profitability
    • 52. Rail, wind, tracer wire
    • 53. Focus on profitability growth through continued margin enhancement
    • 54. Well-positioned to act as the global consolidator within highly-fragmented market
    • 55. Leverage well-recognized brand
    • 56. Integrate into global distribution network
    • 57. Acquisitions will be carefully targeted and synergistic; criteria include:
    • 58. Niche products with higher margin applications
    • 59. Diversify end markets and customer base
    • 60. Highly strategic, well-priced and accretive
    15
    We have significant growth opportunities as well as a well-defined acquisition strategy
  • 61. Recent Steps in Executing on Growth Strategy
    Acquisition of Dalian Jinchuan
    Asset Purchase of Shanghai Hongtai
    • Purchase price: ~$10 million; closed Feb. 5, 2010
    • 62. 2009 revenues: ~$24 million(1)
    • 63. Leading manufacturer of power cables in Northeast China
    • 64. Was a customer of Fushi Copperweld
    • 65. Transaction Highlights:
    • 66. We believe the acquisition will immediately be accretive to earnings
    • 67. Vertical integration – downstream processing
    • 68. Strategic expansion into utility market sub-segment
    • 69. Geographic exposure to Northeastern China
    • 70. Well-respected brand
    • 71. Purchase price: ~$3.9 million; closed Q2 2010
    • 72. Leading manufacturer of CCA and CCA-M in Southeast China
    • 73. Expertise in fine wire and CCA-M drawing
    • 74. Expansion of Southeastern China customer base
    • 75. Relocate assets to new facility Yangtze River Triangle; provides direct access to over 100 telecom and power cable and wire manufacturers
    16
    Reported 2009 revenues as audited under Chinese GAAP of approximately $24 million.
  • 76. Financial Overview
  • 77. First Half Year 2010
    18
    In million $, except per share amount
    (1) Adjusted for non-recurring items. See appendix for reconciliation between reported and adjusted result.
  • 78. Source: Copper and aluminum prices sourced from Platts Metal. Steel prices are listed in American Metal Market and represent an average of the specific types of steel Fushi purchases, including processing costs.
    Substantial Leverage to Copper Prices
    19
    • Price products on a “metals plus” cost basis; contracts with customers work-in metal price adjustments
    • 79. Copper costs directly impact selling prices but $ margin per lb remains stable through the cycle
    • 80. High copper prices favor lower-cost bimetallic products
    Historical Pricing and Margins ($ / lb)
    Constant $ margin per lb despite volatility in raw material prices
  • 81. FushiCopperweld Historical Financial Performance
    20
    In million
    FushiCopperweld
    PRC segment
    US segment
    Quarterly Net Sales
    Quarterly EBIT
  • 82. Strong Balance Sheet
    21
    Financial Leverage
    • $16.6 million total liabilities as at June 30, 2010, compared with $348.1 million total assets, or $73.8 million cash balance;
    • 83. Financial Leverage is 1.07x;
    • 84. Liquidity remains strong while at the same time executing internal growth and acquisition strategies
  • Experienced Management Team
    22
  • 85. Investment Highlights
    Global leadership: products, technology, scale, brand
    Rapidly growing Chinese and global infrastructure markets
    Proprietary technology – high barriers to entry
    Strong growth profile with minimal capex requirements thanks to lean manufacturing techniques
    Low-cost producer; substantial leverage to price
    Experienced management team with significant insider ownership
    23
  • 86. Appendix
  • 87. Appendix – reconciliation for non-recurring items
    25
    In million $