Liuyang Fireworks


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Liuyang Fireworks (TSX-Venture: FWK) investor presentation for November 2009

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Liuyang Fireworks

  1. 1. Liuyang Fireworks Investor Presentation Liuyang Fireworks
  2. 2. Cautionary Note on Forward-Looking Information In addition to historical information, the statements set forth throughout this presentation include forward- looking statements that may involve risk and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. This forward-looking information includes, among other things, information with respect to expected growth in the domestic Chinese market, the recovery of the Chinese economy, the shift to more profitable products, decreased selling expenses related to transportation costs, as well as information with respect to the Company’s beliefs, plans expectations, anticipations, estimates and intentions. The words, “may”, “could”, “should”, “would”, “suspect”, “outlook”, “believe”, “anticipate”, “estimate”, “expect”, “intend”, “continue”, “plan”, “predict”, “probable”, “potential”, “target” and similar words and expressions are used to identify forward-looking information. Risks and uncertainties affecting forward-looking information include, but are not limited to, fluctuations and seasonality in demand for fireworks, fluctuations in the costs of production and transportation, fluctuation and uncertainty in foreign currency exchange rates, fluctuation in costs of materials, changes in the laws of the PRC that affect the Company’s operations, regulatory approval, competition, product spoilage and liability, and the risk that revenues do not grow as expected. These and other such factors are discussed in greater detail in the Company’s Filing Statement dated may 27, 2009 and in its other public filings available on SEDAR at Potential investors and other readers are urged to consider these factors carefully in evaluating these forward-looking statements and information and are cautioned not to place undue reliance on them. The forward-looking information contained in this presentation reflects the expectations of the Company as of the date of this presentation and, accordingly, is subject to change after such date. While the Company may elect to, the Company does not undertake to update this information at any particular time excepts as required in accordance with applicable securities legislation. Liuyang Fireworks 2
  3. 3. fireworks more than just the Fourth of July... Liuyang Fireworks 3
  4. 4. Victoria Day Sporting Events Display Events fireworks in Concerts North Canada Day New Year July 4 America Canada Day Theme Parks City Events Liuyang Fireworks 4
  5. 5. of the global fireworks supply is consumed in China Liuyang Fireworks 5
  6. 6. Sporting Lantern Weddings New Year’s Graduations Events Festival Day Grand Theme Birthdays Concerts Birthdays Openings Parks fireworks in China Summer Grand Moon Graduation Festivals Holidays Openings Festival Qingming Dragon Sporting Spring Festival Boat Events Festival Festival Store Chinese Births Concerts New Homes Valentine’s Openings Day Summer Funerals City Events Anniversaries Festivals City Events Holidays Liuyang Fireworks
  7. 7. International China $2.7B $6.3B Market Size1 4-Year CAGR2 5.8% 27.5% 1 2 Liuyang Fireworks 2007 2004 to 2007
  8. 8. Growth Driver: Disposable income rising in China $2.3 US$ Trillions $2.2 $1.7 $1.3 2005 $1.5 2006 2007 79% 2008 2009 Liuyang Fireworks 8
  9. 9. Growth Driver: Easing of Restrictions in Urban Areas 1993 282 Chinese cities placed restrictions on the use of fireworks in urban areas Liuyang Fireworks 9
  10. 10. Growth Driver: Easing of Restrictions in Urban Areas 2005 2006 2007 2009 106 54 40 79 cities cities cities cities ease restrictions ease restrictions ease restrictions ease restrictions Liuyang Fireworks 10
  11. 11. Liuyang Fireworks Leading manufacturer of premium fireworks Among the top 5 manufacturers in China 16 years in operation Extensive product portfolio in all categories Focused on consumer products Track record of innovation Strategically located in China’s Liuyang region Liuyang Fireworks 11
  12. 12. Liuyang Region The “Silicon Valley of Fireworks” Substantial tax incentives 90% 60% Large pool of skilled workers Reputation for quality 90% of global fireworks Of that 90%, supply is produced 60% is produced in in China. the Liuyang region. Liuyang Fireworks 12
  13. 13. Leading Products Palm Tree Dragon Egg Coconuts Liuyang Fireworks 13
  14. 14. 1,000+ products 34 wholesale customers 15 + countries Liuyang Fireworks
  15. 15. Historical Financial Results Positioning the Company for Future Growth Revenue EBITDA Net Income $M CDN $M CDN $M CDN 16 14.9 3.0 3.0 2.6 14 2.5 2.5 2.4 12 2.0 2.0 10 8.8 1.7 1.8 1.7 1.6 8.4 8.7 8 1.5 1.5 1.3 1.0 6 1.0 1.0 4 0.5 0.5 2 0.0 0.0 0 2006 2007 2008 YTD 2006 2007 2008 YTD 2006 2007 2008 YTD Strategic decision to focus on high margin products 2007 to position company for new growth opportunities Liuyang Fireworks
  16. 16. Growth Strategy International sales Domestic sales 5% Liuyang Fireworks 95% Current Liuyang Fireworks Target 50% 50% Liuyang Fireworks
  17. 17. Domestic Opportunity Fragmented Uniquely industry positioned Liuyang Fireworks 17
  18. 18. Industry Structure Chinese fireworks industry supply chain manufacturer wholesaler retailer 15% net margin 30% net margin 50% net margin consumer Liuyang Fireworks today Liuyang Fireworks 18
  19. 19. Fragmented Wholesaler Market Municipal license required to wholesale fireworks Limit of 2-3 licenses per municipality > 3,000 municipalities Liuyang Fireworks 19
  20. 20. Vertical Integration manufacturer wholesaler retailer 15% net margin 30% net margin 50% net margin consumer Access higher margins in wholesale segment Leverage successful export distribution model Liuyang Fireworks 20
  21. 21. Consolidate Wholesale Segment Strategically target key regions with highest growth opportunities Acquire controlling position of dominant wholesaler Northeast Each acquisition Region should generate $1M to $10M in incremental sales Shanghai Region Guangdong Region Liuyang Fireworks 21
  22. 22. Proposed Acquisition Timeline Sept. Sept. Sept. Sept. 2009 2010 2011 2012 3 wholesalers 7 wholesalers TBD (targets already identified) Liuyang Fireworks 22
  23. 23. Uniquely Positioned Only Chinese fireworks company publicly-listed in North America—provides access to capital Ability to expand capacity with minimal capital expenditure Critical mass and size to execute consolidation strategy Extensive experience as a distributor through historical export business Liuyang Fireworks 23
  24. 24. Additional Opportunities in China Acquire fireworks display company • Integral to marketing and promotion in domestic market Short term Open retail product showcase store(s) • Showcase products to end user • Generate higher margins Acquire fireworks distribution logistics Long term company • Reduce costs • Ensure capacity Liuyang Fireworks 24
  25. 25. International Growth Strategy Growth of sales in existing country markets • Expand breadth of product offering • Focus on specific customer needs • Capture larger share of our customers’ purchases US: Establish relationship with hybrid wholesaler/retailer • Build Liuyang Fireworks brand • Leverage strong reputation Liuyang Fireworks 25
  26. 26. Opportunity in the fragmented Chinese fireworks industry Proven Uniquely Strategy experience positioned in fireworks of integration and with access to capital industry consolidation markets Capture a larger part of a growing market Liuyang Fireworks 26
  27. 27. Liuyang Fireworks Investor presentation Liuyang Fireworks
  28. 28. Market Facts Symbol (TSX-V): FWK Recent Share Price: $0.63 Common Shares Outstanding: ~43.20 million Market Capitalization: $27.2 million 52-Week Price Range: $0.40 - $1.56 Fiscal Year-End: December 31, 2009 Liuyang Fireworks 28
  29. 29. Contact For more information, please contact: Jacky Long Chief Financial Officer Liuyang Fireworks Limited Tel : 416-613-0208 ext 206 Liuyang Fireworks 29
  30. 30. Capital Structure Number of shares outstanding Amount Balance, December 31, 2008 50,000 $ 50,760 Shares redeemed at RTO (50,000) - Consolidation of New Legend shares at 12:1 735,000 - Issuance of shares at a price of $0.60 per share for debt 122,500 - Issuance of shares at a price of $0.60 per share for debt 64,535 - Shares issued to Strive Best’s original 50,000 shares 37,097,518 50,760 Shares issued on private placement at $0.60 per share 4,754,089 2,852,453 Shares issued on private placement at $0.60 per share 424,275 254,565 Share issuance costs paid at completion of RTO - (638,760) Share issuance costs paid by Far Ocean Group prior to RTO - (449,961) Balance, June 30, 2009 43,197,917 $ 2,069,057 In 2008, Strive Best issued 50,000 common shares at $1.0152 per share for gross proceeds of $50,760. On June 24, 2009, such 50,000 common shares were redeemed on the reverse takeover. Liuyang Fireworks 30
  31. 31. Liuyang Fireworks Investor presentation Liuyang Fireworks