GENERAL STEEL HOLDINGS INC: 8-K, Sub-Doc 2
Back Print This Page Close Window
General Steel Holdings, Inc.
GSHO
Company Profile – Pioneers in SOE Privatization
Roth Capital Partners Orange County Conference
February 19 - 22, 2007
Safe Harbor Statement
Under the Private Securities Litigation Reform Act of 1995, this presentation contains certain
forward-looking statements, which include statements concerning plans, objectives, goals,
strategies, future events or performance, and underlying assumptions and other statements that
are other than statements of historical facts. These statements are subject to uncertainties and
risks including, but not limited to, product and service demand and acceptance, changes in
technology, economic conditions, the impact of competition and pricing, government regulations,
unforeseeable uncertainties and risks, and other risks defined in this document and in statements
filed from time to time with the Securities and Exchange Commission. Some projections and other
financial information are based on the information provided by our partners and acquisition targets
that have not been audited and may be subject to changes. Projections on DQ Metal are based on
currently available information and data and are subject to changes and uncertainties. Final results
may deviate significantly from these projections. The consummation of the contemplated
acquisitions depends on the Company’s successfully negotiating the acquisition terms with the
acquisition targets. There cannot be any assurance that these acquisition negotiations will be
successful or whether these acquisition terms are favorable to the Company. Projections on the
major SOE are largely based on negotiations with the government which may vary greatly in
duration. The actual duration and completion of negotiations may be significantly longer than these
projections. All forward-looking statements, whether written or oral, and whether made by or on
behalf of the Company, are expressly qualified by the cautionary statements and any other
cautionary statements which may accompany the the forward-looking statements. In addition, the
Company disclaims any obligation to update any forward-looking statements to reflect events or
circumstances after the date hereof.
Our Vision
By 2010, we target to be the largest non-government owned steel product producer in
China
We intend to achieve sales in excess of $6 billion and EPS in excess of $3.50 per share
We target to consolidate operations in Northwest China and establish key subsidiaries in
select markets throughout China
We target to grow our production from 400,000 tons to 16.5 million tons annually and
revenues from $140 million to $6 billion
We intend to grow through aggressive mergers and acquisitions targeting State Owned
Enterprise (SOE) steel companies and selected entities with outstanding potential
For the past ten years we have laid the foundation to execute this strategy and have now
identified 4 key candidates
Who We are Now…
Company Snapshot
First non-government owned steel company in China – Founded 1989
First Chinese steel company to list in the USA – OTCBB 2004
Primary subsidiary: Tianjin Daqiuzhuang Metal Sheet Co., Ltd. (“DQ Metal”)
Niche: Market leader in agricultural vehicle metal – 50% market share
Profitable: Twenty years profitable track record
Financials: Mkt Cap: $70 million
Sales 2006E: $143 million
Sales 2007E: $180 million
Sales after 2007 should grow 5-10% annually.
CEO will merge his minority interest into stock of the parent company
DQ Profile
3
Transportation vehicles (10 - 15
tons)
24
Overhead cranes
2
Straightening machine
2
Flattening machine
6
Air compressor
9
Gas producer
2
Roller grinder
2
Annealing furnace
6
2,200 m3 gas producer
10
6mm x 2,500mm cut to size
shearer
5
16mm thick cut to size shearer
6
Gas-fired reheat furnace
10
1,200mm Rolling Machine
Quantity
Equipment
Located in Hebei province, Jinghai
county, 20 miles SW of Tianjin
320,390 square feet of building space
on 17.8 acres of land
All property owned and paid in full by
the Company
DQ Profile
Largest PRC producer of hot-rolled steel sheets for the domestic agricultural
vehicle market
10 production lines, production capacity 400,000 tons
Products used primarily by domestic agricultural vehicle market: small, motorized,
3-wheels, payload from 1,650 lbs - 4,400 lbs, retailing US$1,200 -$1,800
Modernized facility, technology and equipment - $12m upgrade in 2005
34% estimated production increase 2005-2006
57.2% estimated YOY revenue growth for FYE 2005-2006
Established nationwide distribution channels – 23 distributors, 3 regional sales
offices, 9 provinces
DQ Financial Projections
Daqiuzhuang Metal
Projected Consolidated Income Statements (in US$ ,000)
For the Years ending December 31, 2006, 2007, 2008, 2009, 2010
Year to Dec.31
2006E
2007E
2008E
2009E
2010E
TOTAL REVENUE
142,253
180,090
202,590
225,090
258,854
Total Cost of Revenue
-135,761
-165,683
-186,383
-204,832
-233,508
Gross Operating Profit
6,492
14,407
16,207
20,258
23,297
Selling, General & Admin. Expenses
-2,152
-2,410
-2,699
-3,023
-3,386
Net Operating Profit
4,340
11,997
13,508
17,235
19,911
Other income (expense)
160
-
-
-
0
EBIT
4,500
11,997
13,508
17,235
19,911
Interest Expense
-2,089
-2,156
-2,156
-2,156
-2,156
Profit Before Taxation & Minority Interest
2,411
9,841
11,352
15,079
17,755
Taxation
-
-1,279
-1,476
-3,619
-4,261
Net Profit Before Minority Interest
2,411
8,562
9,876
11,460
13,493
Minority Interest
-769
-2,568
-2,963
-3,438
-2,699
Net Profit
1,642
5,993
6,913
8,022
10,795
No. of O/S Shares
31,250
31,250
31,250
31,250
31,250
EPS
$0.05
$0.19
$0.22
$0.26
$0.35
Global Industry Snapshot
Fragmented industry
Global supply & demand
China as a world player
Raw materials
Domestic Industry Snapshot
Fragmented with 1100 players
Market segments SOEs vs. Private
Government consolidation plan
Restricted from foreign controlling
interest
Industry Snapshots
Target SOEs and select entities that are market leaders in their niches,
no smaller than 250,000 tons production and offer a PE of 2
Improve their profitability's by introducing western management practices,
introducing improved production processes, introducing western
capital channels for modernization
-------------------------
We have identified targets and designed a 4-Phase Growth Plan:
Phase I: Baotou-GSHO Joint Venture – announced 2006
Phase II: Central China Steel Company
Phase III: Coastal Region Steel Company
Phase IV: Major SOE
Our Strategy
Our Unique M&A Advantages
Provincial Rivalry – In cross-province SOE to SOE mergers, local government
may not endorse commercially viable deals: we are partner
Management conflict of interest – In SOE to SOE mergers, “loosing”
management teams may not endorse the deal
Trust – Management does not see us as a threat because of our long-term
relationships and their inclusion in post-merger operations
Incentive and Reward – Management is made to clearly see the incentives and
rewards for cooperation and inclusion in post-merger operations
Access to foreign capital – No other private steel company has this ability to
access capital markets to consummate mergers: domestic companies must rely
on operating capital; SOEs must rely on equipment contribution and policy loans
Perceived as both foreign and domestic – Our perception as foreign player
makes us welcomed by provincial governments looking to bring foreign
investment to their region: our perception as a domestic company allows for
controlling interest opportunities.
Four Major Growth Opportunities Identified
Our Growth Strategy - 4 Phases
Phase I: Baotou Joint Venture – 51% owned JV announced in 2006.
Phase II: Central China Acquisition – adding capacity 3 million
tons. Expected to be announced in early 2007.
Phase III: Coastal Region Acquisition – adding capacity 2 million
tons. Expected to be finalized by late 2007.
Phase IV: Major SOE Merger – preliminary negotiations
underway. Expected to be finalized by late 2008.
Phase I of Growth Plan
Baotou Steel-General Steel Special Steel
Joint Venture Co. Ltd (SSJV)
3 Stages of Operations
First stage: Announce early 2007 - will add 100,000 tons of capacity and
$45 million of revenues
Second stage: Implement 2008 - will add 300,000 tons of capacity and $135
million in revenues
Third stage: est. Implement 2009 - will add 200,000 tons of capacity and
approximately $90 million in revenues
Phase I of Growth Plan
Baotou Steel-General Steel Special Steel
Joint Venture Co. Ltd (SSJV)
Profile
Joint Venture - 51% JV signed with Baotou Steel – “Top 10” in nation,
3 stages of implementation
Total registered capital of JV: $24MM
Baotou contributes $12MM in land, equipment, and materials
GSHO and DQ Metal contribute $12.5MM in 3 stages
Location – Northeast China, Kundulun, Inner Mongolia
Products – Converter processed alloy steel billets, 60%-70% for oil, natural gas
and boiler use
Production Capacity – 600,000 tons
Customer Base – 10 key customers pre-identified
Phase I of Growth Plan
Baotou Steel-General Steel Special Steel
Joint Venture Co. Ltd (SSJV)
Key Advantages
Upgrade – $6 million physical plant upgrade completed in 2004
Partner – Baotou is top 10 largest steel producers in China
Raw Materials – Baotou owns a large mine 150km to supply raw materials
Transportation – Baotou owns a private railroad to transport raw materials
Product Demand – Pipes used in energy sectors of oil, natural gas and hydro
(boilers) forecast strong and sustained demand
Production Technology – Only producer in top 5 competitors using non-
ectrosmelting; allows for lower production costs
Strong Management Relationship – Key advisory role in prior Baotou subsidiary
turn-around
Future JVs – Strategic entry to future partnerships with Baotou
Tax – Sino-foreign Joint Venture tax holiday for first 2 years
Location – Only large production facility serving Northwest China
Phase I of Growth Plan
Baotou Steel-General Steel Special Steel
Joint Venture Co. Ltd (SSJV)
Baotou-General Steel Special Steel Joint Venture
Projected Consolidated Income Statements (in US$ ,000)
For the Years ending December 31 2007, 2008, 2009, 2010
Year to Dec.31
2007E
2008E
2009E
2010E
TOTAL REVENUE
26,080
44,960
54,400
63,648
Total Cost of Revenue
-24,754
-42,690
-51,658
-59,924
Gross Operating Profit
1,326
2,270
2,742
3,724
other operating profit
SG&A
-652
-1,124
-1,360
-1,537
Net Operating Profit
674
1,146
1,382
2,187
Other income (expense)
-
-
-
EBIT
674
1,146
1,382
2,187
Interest Expense
-
-
-
EBT & Minority Int.
674
1,146
1,382
2,187
Taxation
-
-
-228
-372
Net Profit before Minority interest
674
1,146
1,154
1,816
Minority interest
-135
-229
-231
-363
Net Profit
539
916
923
1,452
Profile
(Negotiations in final stages – estimated to be announced early 2007)
Located along a major waterway and railroad artery serving both Northwestern
and Eastern seaboard regions
Fully-integrated production capabilities: mining, coking, sintering, iron making,
steel-rolling, steel making
Main products include steel bars, strip steel, tubes, billets, pig iron, and coke
Capacity to produce approximatly 3 million tons of finished product annually
Equipment includes 6 sintering machines, 8 blast furnaces, 4 converters, 3
tandem mills, and 2 oxygenerators
Company has about 659 acres of land and 6500 employees
Annual Revenues expected to be in excess of $1 billion
Earnings impact: roughly 8x increase
Phase II of Growth Plan
Central China Steel Company
Phase II of Growth Plan
Central China Steel Company
Subsidiaries
Iron mine with current reserves of approximately 300 million tons
76% of a rolling mill that produces ribbon steel
39% of a iron and steel company that produces 300,000 tons of billets
90% of a steel company that produces 100,000 tons of rebar
Leased railway lines in the Northwest region’s largest steel trading center
51% of an import-export company
100% of an integrated transportation company - 23 loaders, 13 cranes, 1 excavator, and
160 vehicles
75% of a machinery maintenance company
75% of a company that makes products from steel making waste products
100% of a company producing refractory materials
four other subsidiaries
Phase II of Growth Plan
Central China Steel Company
Key Advantages
Secure resource bases of iron ore, coke, water, electricity, limestone
Iron mine with 300,000 ton reserves
Largest coal deposits in province
Transportation access to major highways, and a special railroad connecting
mine directly to the production site
Located at the Bridgehead to the Western region
Western region targeted by Central government for strong infrastructure
and economic development
Large transportation cost advantage for rebar (main product) - not suited
to long haul transportation
Nearest competitor is 500 km. away
Eligible for Western Region Development reduced tax
Phase II of Growth Plan
Central China Steel Company
Phase III of Growth Plan
Coastal Region Steel Company
Profile
(Negotiations well underway – estimated to be announced later 2007)
Location is in a prime domestic and international transportation hub
Main products include rebar and wire
Capacity to produce 2 million tons annually
Equipment is less than 3 years old and state-of-the art
Hot rollers designed by the top institutes in China
Processing equipment imported from Europe and the U.S.
Production site is 1.4 square kilometers with additional 2.5 square kilometers available
Strong existing distribution base
Current run rate $923 million
Expected purchase price 1.6x earnings
Phase III of Growth Plan
Coastal Region Steel Company
Key Advantages
Owned by a company that is a major customer for steel construction products
Company has not been well managed because its managers have
little steel industry experience
GSHO believes it can show dramatic improvement in performance by
installing its trained and expert management team
Company is a dominant supplier to the construction industry in one of the fastest
growing regions of China. It also has a good export business to South East
Asian countries including Vietnam, Thailand, and Malaysia
Management is willing to sell at a very low price in order to ensure a continuous
source of supply for it’s projects
Additional 2.5 square kilometers are available for developing a steel slab facility
in Phase 2 of this project. Construction is planned for 2010-11. The land is very
close to a large seaport
Phase III of Growth Plan
Coastal Region Steel Company
Coastal Region Steel Company
Projected Consolidated Income Statement (in US$ ,000)
For the Years Ended December 31, 2008, 2009, 2010
Year to Dec.31
2008E
2009E
2010E
TOTAL REVENUE
923,077
1,015,385
1,167,693
Total Cost of Revenue
-824,414
-906,855
-1,042,883
Gross Operating Profit
98,663
108,530
124,810
Selling, General & Admin. Expenses
-15,385
-17,693
-19,816
Net Operating Profit
83,278
90,837
104,993
Other income (expense)
-
-
EBIT
83,278
90,837
104,993
Interest Expense
Profit Before Tax & Minority Interest
83,278
90,837
104,993
Taxation
Net Profit Before Minority Interest
83,278
90,837
104,993
Minority Interest
-16,656
-18,167
-20,999
Net Profit
66,622
72,670
83,995
Phase IV of Growth Plan
Major SOE Steel Company
General Profile
Production Volume: One of China’s leading SOEs
Capable to produce 63 varieties of steel and nearly 2000 specifications of steel
products
Market dominance in key transportation infrastructure product
Nearly 30,000 employees
Over 20 subsidiaries, numerous Joint Ventures and partnerships
Nation-wide distribution and sales network, international sales offices
Phase IV of Growth Plan
Major SOE Steel Company
Major SOE Steel Company
Projected Income Statement (in US$ ,000)
For the Years ending December 31, 2009, 2010
Year to Dec.31
2009E
2010E
TOTAL REVENUE
3,825,000
4,398,750
Total Cost of Revenue
-3,366,000
-3,803,580
Gross Operating Profit
459,000
595,170
Selling, General & Admin. Expenses
-76,500
-84,915
Net Operating Profit
382,500
510,255
Other income (expense)
-
EBIT
382,500
510,255
Interest Expense
-104,000
-106,080
EBT Before Minority Interest
278,500
404,175
Taxation
Net Profit Before Minority Interest
278,500
404,175
Minority Interest
-136,465
-194,004
Net Profit
142,035
210,171
Consolidated Growth Forecast
Consolidated Income Statement (in US$ ,000)
For the Years ending December 31 2006, 2007, 2008, 2009, 2010
Year to Dec.31
2006E
2007E
2008E
2009E
2010E
TOTAL REVENUE
142,253
755,882
2,615,226
6,829,795
7,855,352
Total Cost of Revenue
-135,761
-695,271
-2,376,294
-6,019,856
-6,839,078
Gross Operating Profit
6,492
60,611
238,932
809,939
1,016,275
Selling, General & Admin. Expenses
-2,152
-21,064
-63,772
-150,666
-167,994
Net Operating Profit
4,340
39,547
175,159
659,273
848,281
Other income (expense)
160
-
-
-
EBIT
4,500
39,547
175,159
659,273
848,281
Interest Expense
-2,089
-8,916
-16,929
-123,556
-123,480
EBT bef. Minority Int.
2,411
30,631
158,230
535,717
724,801
Taxation
-
-2,762
-10,422
-27,367
-37,186
Net Profit Before Minority Interest
2,411
27,870
147,808
508,350
687,615
Minority Interest
-769
-11,834
-46,066
-220,237
-295,942
Net Profit
1,642
16,036
101,741
288,113
391,673
No. of O/S Shares
31,250
46,250
56,250
116,250
120,000
EPS
0.05
0.35
1.81
2.48
3.26
Our People
Management Team
Henry Yu: Founder and Chairman of the Board. First private steel enterprise owner in
China (1989), Former CEO of DQ Metal and Sheet; MBA, BA Business Management,
BS in Engineering; China national representative to Asia Pacific Economic
Cooperation (APEC) Development Council
John Chen: Chief Financial Officer. California CPA license; 7 years public and
private practice with US and Chinese companies; BS degree from Cal Poly Pomona.
Bi-lingual English & Chinese
Ross Warner: Director. 17 years management experience with companies working in
Asia; 8 years in China; MBA from Thunderbird; Bi-lingual English & Chinese
Guodong Wang: Director, Chief Technical Officer. Engineer at Anshen Iron and Steel
Company (2nd largest Steel Producer in China), Master’s Degree in Engineering from
Beijing Iron and Steel Research Institute, Professor at Northeastern University,
Shenyang
Our Vision
By 2010, we target to be the largest non-government owned steel product producer in
China
We intend to achieve sales in excess of $6 billion and EPS in excess of $3.50 per share
We target to consolidate operations in Northwest China and establish key subsidiaries in
select markets throughout China
We target to grow our production from 400,000 tons to 16.5 million tons annually and
revenues from $140 million to $6 billion
We intend to grow through aggressive mergers and acquisitions targeting State Owned
Enterprise (SOE) steel companies and selected entities with outstanding potential
For the past ten years we have laid the foundation to execute this strategy and have now
identified 4 key candidates
Copyright © 2007 QuoteMedia. All rights reserved. Terms of Use.
Market Data powered by QuoteMedia, www.quotemedia.com, SEC filings by 10kWizard.
News 
Market Data 
Discover 
