Dear Shareholders of Largo Vista Group, Ltd.:
With this letter, we are updating our shareholders and those interested in Largo Vista on new business strategies being developed by the management of your Company, the activities we have recently been involved in, and the opportunities your Company is pursuing in the Pacific Rim, why we continue to be excited about these situations, and why, sometimes, there are frustrations and difficulties in moving the Company forward. We are confident that the foundation we have established is solid and that the opportunities in existence in this developing part of the world are enormous. But we are dealing with countries and situations that we can’t always control. As with any Company involved in new ventures, we are sometimes still on a learning curve and we have to be closely attuned to changes and opportunities.
Our Concept
We believe we have the ability to market petroleum and other energy products through our contacts, relationships and experiences in both China and Vietnam. We have been proven to be trustworthy businessmen who do what is promised and indeed exceed others’ expectations. We know the pros and cons in the international business, the situations in different countries, and the way to make the deal happen. We have focused our efforts on three areas: LPG trading in China, the potential international merger between Largo and Petral of Indonesia, and international companies involved in rebuilding in Vietnam. We have been careful not to disclose information during the sensitive development of business transactions but we now feel the time is appropriate to update our shareholders.
Petral
During the past year, Largo Vista Group honored its agreement with Petral (the trading arm of its parent company, Pertamina) to diligently open the Chinese market to supply buyers of liquid petroleum gas (LPG). Petral needed to move product to cover expenses of the LPG depot it had taken over from a Japanese company. China logistically is the most favorable country for this depot to supply. Petral’s former president, Mr. Soekono Wahjoe, had made it clear to us many times that Petral wanted and was dedicated to open the Chinese market. It assigned Largo Vista as an exclusive agent in China and renewed this arrangement for another year before expiration. All of this made us believe it was worth pursuing this business transaction with Petral. Based on that, we spent many months and enormous effort arranging a consortium of buyers; we knew that no one in Petral really knew LPG international trading and Largo had to cover every detail of the trading so as to make the deal happen earlier; and thus we have done everything in our capabilities including:
1. Prepared several options for Petral to define the relations between Petral and Largo, such as client/agent, Petral/China office, Partner/Partner, Seller/buyer;
2. Contacted international shipping brokers for a quote of an LPG vessel of 20,000 MT on long term basis and spot basis for Petral’s consideration;
3. Visited, more than once, dozens of companies including seven large ones all of whom have the capacity to receive a vessel of more than 20,000 MT respectively for the purpose of introducing Largo, Petral and other background as a strategic and ideal supplier of LPG;
4. Worked out a standard Sales and Purchase Contract for Petral in both Chinese and English versions;
5. Hosted an LPG Supply Conference by inviting our potential customers and their customers;
6. Attended all LPG seminars and made as many business contacts as possible during the meetings;
7. Maintained good relationships with regional LPG or Petroleum Associations and organizations;
8. Developed an acceptable banking structure to satisfy both customers’ and Petral’s needs;
9. Submitted a policy proposed to Petral that Largo won’t charge it anything until it makes money and Largo will go through all the preparation until Petral sends its people to sign the final contracts.
Beside LPG trading, Largo also made another business proposal for Petral’s consideration: That Petral and Largo merge so that Largo will benefit from Petral’s business strengths and profitability while Petral will benefit from the US stock market and huge market in both China and Vietnam through Largo. For this purpose, Largo sent its delegation to Singapore three times: first, to introduce the proposal, the second time, to answer questions and explain details of the plan and the last time, to sign a Memorandum of Understanding and to make video presentation before going to their headquarters. In an enormous misfortune to this opportunity, President Megawati replaced the president of Pertamina and the new president of Pertamina replaced the president of Petral. Politics, something we can’t control, postponed this irresistible proposal from happening as scheduled.
Furthermore, Largo established a relation with a private (VS Sinopec and CNPC, the dominant Chinese State-owned companies) but publicly traded petroleum company, Tianfa Petroleum Corporation www.tianfapetro.com and proposed to both Petral and Tianfa a master plan with a swap of shares so that Petral can now enter into China market as a pioneer now in petroleum business, a position lots of petroleum companies want to have, while satisfying the requirement of Indonesia government to privatize and diversity the ownership of Petral. Though the Chinese partner had a positive response, Petral’s management then was not ready to receive this proposal and didn’t respond to the proposal we made in November 2003.
We are still excited about our situation because even though we didn’t succeed in pursuing the cooperation with Petral for political or other reasons, our efforts, our strong points, the achievements and foundations the efforts have established are still there. We will propose to the new management of Petral or to Pertamina directly our cooperation and we never close the door to other potential partners.
Vietnam
Similarly to our efforts to provide LPG into China, Petral, our main channel of supply, failed to provide competitively priced gas oil into Vietnam. Our strategy there is to provide more services than energy trading itself at this time. When the time comes, or we find a new qualified supplier of petroleum products, we can restart our gas oil trading again. We will never stop seeking other opportunities in petroleum industry where Largo still has connections. Meanwhile, our strategy is to provide alternative services to the energy trading in Vietnam.
Vietnam is now moving forward with billions of dollars of infrastructure improvements and projects including pipelines and processing plants. As we announced in several news releases, we will serve as agents for some major businesses that are bidding for these construction projects. Largo Vista is currently involved in six projects in the country’s major effort to rebuild its infrastructure and we estimate that service fees could exceed a half million dollars.
We may also act as sellers/buyers of the products for these projects. We are confident that our knowledge of Vietnam and our contacts in the business will allow us to play an important role in these major construction efforts.
China
Our strategy with our operations in Zunyi is to stay in the LPG business and pursue the significant opportunities. We are becoming an expert in the development of retail business while keeping in touch with as many secondary wholesalers as possible, who are the customers of our future customers, the offshore storage depot owners. The idea is that our module developed here on how to run a retail business can be repeatedly applied to all the LPG retail business in China. The main goals for our Zunyi operation are to lower our overhead expenses, develop more end users, build more pipeline networks and generate income. We are also continuing our efforts to be an LPG supplier to offshore depots, as we know the LPG international and domestic business better than others, have more connections, and can present more proposals that make sense and that can attract more international petroleum companies.
Following such a strategy, we have done the following:
1. Maintained a very good relationship with Zunyi city government officials, who expressed their appreciation to us for our operations and the understanding shown in the cooperation and completion of the first pipeline project. We have completed the supply station of the second pipeline project and are trying to obtain Projects 3 & 4, which are located next door to Project No. 2, allowing us to use the same Supply Station. This strategy greatly lowers the construction costs and increases our profitability. Largo remains the only company that has installed an LPG pipeline project in Zunyi.
2. Recently, prior to the Chinese New Year, 2004, we collected what the city government owed to us, the amount that offsets all the costs of the first pipeline project. For the second pipeline project, we established a policy that without receiving the funds payable, we didn’t move forward. With the completion of these two projects, Largo Vista can enjoy 40 years of exclusive rights to retail LPG through our pipeline networks.
3. We changed our management team in Zunyi, having elected personnel who are more aggressive, responsible, communicative and devoted to our success. We expect more impressive operational results from the new management. They are computerizing our operations and signing up households for LPG service with excellent results.
4. We are now working to further reduce our operational expenses and
turning our bottle exchange shops from loss to profit. Anything that can’t save a penny or influence our profitability will be cut and greater efforts will be made to develop more households and commercial users.
5. We were supported by both local government and a local partner and we will strengthen our relations with them in the future.
Compensation & Contribution
In 2003, a compensation program for all staff members was put in place, a combination of cash, stock and options. The salary level for all employees was significantly lowered.
Mr. Shan Deng, Interim CEO, didn’t get paid for the year 2003. Per the October 17, 2002 press release, the officers have nearly completed the promised ten percent contribution to the Company.
Profitability
As noted in our news release of March 2, 2004, detailing the completion of significant portions of the second pipeline project in Zunyi, China, we said that the only thing separating us from our projection of profitability was that the occupancy rate has reached only 40 percent in the condominiums we serve. As the news release explained, we are continuing the expansion of our pipeline projects in China for the long term. Interestingly, oil companies have invested billions of dollars on natural gas pipelines in China and someday, we believe, the pipelines that we have under our control can be converted to natural gas at an excellent profit for Largo Vista and its shareholders.
Other Projects
The management of the company has started to investigate and survey of some projects in China that might be excellent acquisition candidates. From the past experience, we conclude that we should focus on something that we can control taking advantage of our strengths. We remain positive and confident in the pursuit of a successful future for Largo Vista. We thank all you shareholders who have been so patient and supportive.
SINCERELY,
Deng Shan, Chairman