Lee & Man Paper Strategy Analysis

transcript

Going BananasGoing Bananas

Matt AhearnChelsea Campbell

Philip ChongAndrew Koo

Erica Swallow

Agenda• Industry and Company

Overview

• Core Problems

• Solution: BTT

• Benefits of BTT

• Implementation

• Going Forward

Paper & Pulping Industry

• China: 11.8% growth (2000-2005)

• Capital intensive• Scarce raw materials• High pollution

– Water– Air– Solid Waste

⁂ High treating/disposal costs

http://www.frost.com/prod/servlet/market-insight-print.pag?docid=83462501

- http://www.cintrafor.org/CONFERENCE_TAB/China%20Conf%202006/Flynn%202006.pdf

Lee & Man Paper(理文造紙有限公司 )

• Founded 1994

• Mission: “To be the leading paper company in China”

• 2003: Listed on HKSE Main Board (2314)

• Public CFB: Lee family (73.4%)

• Market Cap: US $2.2B

• Annual Containerboard Production Capacity: 4.25M tons

• Containerboard Sales (FY07): 1.672M tons

• Pulp Sales (FY07): 102M tons

• 57% Sales = Chinese domestic market- Deutshe Bank “Lee & Man” Target Price Revision

- http://www.leemanpaper.com/template/leeman/pdf/brochure.pdf

Threat of Entry (Low)

● High government regulations

● Low access to distribution

● High capital requirements for purchase of factories

Industry Competitiveness(High)● Strong local competitor: Nine Dragons

● High growth in Asia

● Low product differentiation

● Low informational complexity

● High switching costs and exit barriers

Supplier Power (High)

● 60% of OCC from North America

● Quality Differentiation: North America has highest quality fiber

● Scarce OCC materials with growing demand

● OCC is a large component of product price

● High power in pricing

Buyer Power (Low)

● Low substitutes

● Low power in pricing

● High concentration

● Brand identity low

● Consolidation of paper producers due to government regulation

Threat of Substitutes (Low)

● Cardboard boxes are the industry standard

Core Problems

Raw Material Prices

Industry Competitiveness

Environmental Policies

Skyrocketing Raw Material Prices

• Lee & Man’s containerboard product contains 85-90% OCC

• Increased demand for OCC has driven prices up

• 60% OCC from North America (quality)

Historical OCC PricesYearYear 20062006 20072007 20082008 CurrentCurrent

Price($/MT)Price($/MT) $149$149 $150$150 $200$200 $270$270

Strict Environmental Policies

• Paper production is one of the most polluting industries

• China is the 2nd largest polluter in the world

• Chinese government is shutting down small inefficient plants

• Two Main Chinese Competitors– Lee & Man– Nine Dragons

• Low Product Differentiation– Nine Dragons has entered into high-tech

containerboard market– How will Lee & Man position themselves?

Papyrus & BTT Technology• Papyrus Australia Limited

– Founded in 1994

– Sole purpose to develop a new technology to address the growing environmental and regulatory concerns of the paper manufacturing industry

– The Papyrus Technology was patented in 2007 both Australia and in 160 other countries

• Papyrus Technology

– Basic overview

- http://www.papyrusaustralia.com.au/aspx/company_history.aspx- http://velocity.ansto.gov.au/velocity/ans0016/article4_print.html

Papyrus AustraliaPapyrus AustraliaCorporate VideoCorporate Video

- http://www.papyrusaustralia.com.au/aspx/why_banana_overview.aspx

Benefits of BTT

Stable Supply

Environmentally Friendly

Product Differentiation

Cost Efficient

Location!Location!

United States Department of Agriculture

2000 2001 2002 2003 2004 2005 2006

1. India 14140000 14210000 16820000 11954300 11388000 11710300 11710300

2. Brazil 5663360 6176960 6422860 6800981 6583564 6703400 7088021

3. China 5142990 5479074 5786295 6128817 6248636 6669679 7053000

4. Philippines 4929570 5060782 5274826 5368977 5631250 6298225 6794564

5. Ecuador 6477039 6077040 5528100 6453806 6132276 6118425 6118425

6. Indonesia 3746962 4300422 4384384 4177155 4874439 5177608 5177608

7. Costa Rica 2250000 2130000 2050000 2028000 2249209 2352618 2352618

8. Mexico 1863252 2027997 1885803 2026613 2361144 2250041 2196891

9. Thailand 1750000 1750000 1800000 1900000 1859442 1864850 1864850

10. Colombia 1613000 1469642 1560953 1536266 1577397 1764501 1764501

11. Burundi 1513997 1548897 1602979 1600000 1556857 1538679 1538679

* Vietnam 1124800 1125500 1097000 1281800 1329400 1344200 1344200

FAOSTAT | © FAO Statistics Division 2008 | 18 April 2008

Banana Production Quantity Per Country (tonnes)

Note: 1 tonne = 1.10231131 short tons- http://faostat.fao.org/site/567/DesktopDefault.aspx?PageID=567

China’s Average Growth Rate: 5.4% (2000-2006)

China Has an Over-Supply of Bananas

• Since 1997: Nine Agricultural Zones (to attract investment):

• Fujian (2)

• Guangdong

• Hainan

• Heilongjiang

• Jiangsu (2)

• Shanxi

• Shandong

• Shanghai

• Sichuan (2)

http://atimes.com/atimes/china/hj28ad01.html

Current waste

“For every 30 kg of banana sold on the market, there are 250 kg of waste”

-Ramy AzerCreator of BTT technology

• BTT is currently unutilized

•Traditional Paper Making uses 10 tons of water for each ton of paper

• Reduce greenhouse gases and eliminates CO2 emission

• Only by-product is clean water

• Completely Renewable!

• Flame retardant

• Water resistant

• Oil resistant

• 300x Stronger

www.abc.net.au/stateline/sa/content/2003/s930379.htm

Increasing Costs

- http://stocks.us.reuters.com/stocks/balanceSheet.asp

Rising Operating Costs

2003 2004 2005 2006 2007

Cost Efficient

• Cost savings from product features

• Lower insurance costs

• Lower OCC cleaning costs

• Low capital investment

• Lower production costs

• Less energy costs

- http://www.truthforce.info/?q=node/view/1506- http://www.mitra.biz/blog/archives/2006/05/papyrus_wins_12.html

Rain Protection for OCCRain Protection for OCC

Water Treatment TechnologyWater Treatment Technology

Cost Efficient

• Cost savings from product features

• Lower insurance costs

• Lower OCC cleaning costs

• Low capital investment

• Lower production costs

• Less energy costs

- http://www.truthforce.info/?q=node/view/1506- http://www.mitra.biz/blog/archives/2006/05/papyrus_wins_12.html

Implementation Costs

• Implementation Cost Savings = 97%

• Production Cost Savings = 80%

• Transportation Cost Savings

– 60% of OCC supply from US– 100% of banana supply from local areas

-http://www.papyrusaustralia.com.au

Containerboard Production Costs

Maintain Current Truck FleetMaintain Current Truck Fleet

Flatbed = Industry StandardFlatbed = Industry Standard

BTT Integration Plan

3 Months GoalsMay - Aug ‘08

• Secure BTT technology license from Papyrus

• Cultivate sustainable relationships with banana supplier in Guangdong area

May 2008• Initiate banana suppliers negotiations

• Begin Papyrus licensing process

6 Months GoalsAug - Nov ‘08

• Complete technology integration in Guangdong production plant

• Begin BTT production and experimental stage

9 Months GoalsNov ‘08 - Feb ‘09

• Evaluate BTT experimental production

• Select full integration production site. Begin supplier negotiations, if necessary.

August 2008• Construct BTT machinery in Guangdong plant

• Begin production

November 2008• Evaluate BTT technology success

February 2009• Select Full-integration site • Begin negotiations with local suppliers• Begin production

May June July Aug Sept Oct Nov Dec Jan Feb

Year / % BTT Implementation

Implementation Period Net Profit

10% 20% 30% 40% 50%

Moving Forward …

What else can be made from BTT or

banana trees?

Banana Bark Textiles

Banana Leaf & Veneer Furniture

Banana Fiber Handicrafts

Recycled Banana Silk Yarn

Banana Ply Clothing & Specialty Paper

Packaging Materials

Core Problems

Raw Material Prices

Environmental Policies

Benefits of BTT

Stable Supply

Cost Efficient

Any Questions?Any Questions?

Lee & Man Paper Strategy Analysis

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