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1 2014 Investor Presentation May 2014
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2014 Investor Presentation
May 2014
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Safe Harbor Statement
• This presentation contains "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. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, including, without limitation, those with respect to the objectives, plans and strategies of the Company set forth herein and those preceded by or that include the words "believe," "expect," "anticipate," "future," "will," "intend," "plan," "estimate" or similar expressions, are "forward-looking statements". Forward-looking statements in this release include, without limitation, the effectiveness of the Company's multiple-brand, multiple channel strategy and the transitioning of its product development and sales focus and to a "light-asset" model, Although the Company's management believes that such forward-looking statements are reasonable, it cannot guarantee that such expectations are, or will be, correct. These forward-looking statements involve a number of risks and uncertainties, which could cause the Company's future results to differ materially from those anticipated. These forward-looking statements can change as a result of many possible events or factors not all of which are known to the Company, which may include, without limitation, requirements or changes adversely affecting the LCD and LED market in China; fluctuations in customer demand for LCD and LED products generally; our success in promoting our brand of LCD and LED products in China and elsewhere; our ability to have effective internal control over financial reporting; our success in designing and distributing products under brands licensed from others; management of sales trend and client mix; possibility of securing loans and other financing without efficient fixed assets as collaterals; changes in government policy in China; the fluctuations and competition in sales and sale prices of LCD and LED products in China; China's overall economic conditions and local market economic conditions; our ability to expand through strategic acquisitions and establishment of new locations; compliance with government regulations; legislation or regulatory environments; geopolitical events, and other events and/or risks outlined in SGOCO's filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F and other filings. All information provided in this press release and in the attachments is as of the date of the issuance, and SGOCO does not undertake any obligation to update any forward-looking statement, except as required under applicable law.
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Agenda
Company Overview Competitive Advantages Industrial Overview & Emerging Growth Opportunities Evolving Business Model & Growth Strategies Financial Snapshots Management Team Appendix
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Company OverviewCompetitive AdvantagesIndustrial Overview & Growth OpportunitiesEvolving Business Model & Growth StrategiesFinancial SnapshotsManagement TeamAppendix
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Sgoco At a Glance
As of May 31, 2014
Stock Ticker: SGOC
Stock Price: $2.17
Market cap: $37.8 M
Share outstanding: 17.4M
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A Company in Transformation ….
Capturing enormous opportunities from China’s urbanization
• Wide range from Smart displays and PCs, AIO and PIO computers, ASPs to LCD/LED monitors
• Develop and distribute products co-branded with top-tier brands • Own in-house product development capabilities
• A multi-brand strategy supported by wide distribution network • Target at China’s fast-growing Tier 3 and 4 cities
• Business model transformation in November 2011• Sold manufacturing facilities and shifted focus to branding and distribution
• Listed in NASDAQ with an offering of 1.3M ordinary shares at $5.00 per share.
• Founded in China as a leading display products supplier and a OEM partner of choice.2005
2010
2011
2012
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Company OverviewCompetitive AdvantagesIndustrial Overview & Growth OpportunitiesEvolving Business Model & Growth StrategiesFinancial SnapshotsManagement TeamAppendix
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An Integrated “Channel” Solution Model
ConsumersTRADITIONALLCD/ Monitor
RetailerDistributionOEM• Co-brand product
design• Procurement
Consumers
BRAND SOLUTION or
RetailerDistribution
DISPLAY SOLUTION
OEM
• Product design• Co-brand partnership• Procurement• R&D
• Find target corporate customers
Consumers
Corporate customers
RetailerDistributionOEM• Product design• Procurement• R&D
or
OEM
• Design solution based services and products
• Co-brand partnership• Procurement
• Find target industry verticals
Industry Verticals
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A Multiple Brand Strategy
The company's flagship brand
A leading brand in Tier 3 and Tier 4 markets
A leading brand in Tier 3 and Tier 4 markets
Zhejiang
Guangdong
Hunan
Henan
Shandong
ShaanxiJiangsu
Fujian | Product center
Chongqing
Liaoning
Jiangxi
Beijing | Sales Office
Shenzhen | Operating office
An Extensive Channel Network in Tier 3 & 4 Markets
Self-managed province-level distributors covering 16 provinces in China
Hong Kong | Headquarter
Hubei
Guizhou
Shanghai
TRADITIONAL BUSINESS:LCD/LED Monitors, LCD/LED TVs
LED/LCD TVLED Monitor Touch-screen Monitor
LCD Monitor 3D TV
A Market Driven Product & Solution Offerings
ADDITIONAL GROWTH BUSINESS:Smart Display Products
Tablet PC Part-in-ones (PIO)All-in-ones (AIO)
CCTV MonitorAdvertising LCD Touch ScreenE-board
FUTURE GROWTH FOCUS:Application: Specific products and services
target at industry verticals
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A Distinctive SGOCO Competencies
Low Credit Risk Business Model
4-Pronged Sales Strategy
Rural Market Knowledge
Highly Integrated Channel
Low AP risk : Direct control and billing to few distributors First-hand market information : Localized sales and CRM
teams in key sales points
Top tier licensing brands focus Continue to expand distribution networks High growth industries focus Continue to expand product and solution offerings
Strong presence in rural display market Product development team owns market-know-how Cross-connected sales and product development team
sharing market knowledge
Successful early development in high margin products Big opportunities ahead in commercial International expansion through distribution Optimize Cross-channel synergies
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Company OverviewCompetitive AdvantagesIndustrial Overview & Growth OpportunitiesEvolving Business Model & Growth StrategiesFinancial SnapshotsManagement TeamAppendix
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Expanding Addressable Display Market in China – Industry Verticals
Fast-growing demand for domestic travel.
Intensive infrastructure investments in China, encouraged domestic travel and the growth of budget hotels.
By the end of 2013, 37% of classrooms in China will have an interactive display. Source: Futuresource.
• Travel & Leisure• Transportation & Infrastructure • Education
RMB
Source: China National Tourism Administration
Domestic Tourism Expenditure per Capita Growth in China
National Enrolment Breakdown 2012Approx. 509.6 million students
Source: Ministry of Education of China
Emergence of Solutions Driven Demand from Retail and Commercial
Interactive panel displays are gaining popularity:
For 2013, sales of interactive whiteboards & interactive flat panel displays in the education and corporate reached 1.3 million units Source: Futuresource
Asia still dominates the market with 2013 sales and is forecast to remain the largest region for the next five years, with China being the driving force with sales of 700,000.
• Household ASP• Commercial ASP• Younger generation’s need on sophisticated electronic devices
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Source: KDB Daewoo Securities Research
Touchscreen Penetration in Desktop PCs
The “Screenager” Era: Touch panels are in increasingly widespread use in a variety of applications, including
mobile phones, tablets, notebook PCs, and in-car technology... (Nomura)
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Exponential Growth in Lower Tier Cities
In China:
PC shipment to have double-digit growth until 2016. Lower tier cities are growth drivers. (1)
Disposable income per capita of urban households up 9.6% to nearly RMB 25K. (2)
Urbanization rate at 53.7% in 2013 (3). 390 million people will move to urban areas by 2030.
Internet population to reach ≈ 800 mil by 2015. Mobile internet users up 19% yoy to 500 mil in 2013. (4)
270 mil fixed-line broadband subscribers by 2015 end, 400 mil by 2020 end
(1) IDC, June 2012(2) National Bureau of Statistics of China(3) National Bureau of Statistics of China
• TV• PC• Mobile/ Handheld
4. China Internet Network Information Center 5. China’s Sate Council – 2013-2020 Broadband Development Plans
15.8 17.2 19.1 21.8 24.627.0
8.4% 9.8% 7.8% 8.4% 9.6% 7.0%
(5)
5
15
25
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2008 2009 2010 2011 2012 2013Annual Disposable Income Per Capita Annual Growth
Disposable Income of Urban Households 2008 ~ 2013 (2)
By end of 2015 By end of 2020
Urban areas 65%Rural areas 30%Overall 50% 70%
32.5% 85%
China Target Broadband Internet-accessPenetration Rates
Network type
Fixed-linenetworks
3G and LTESource: China State Council, compiled by Digitimes, August 2013
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Company OverviewCompetitive AdvantagesIndustrial Overview & Growth OpportunitiesEvolving Business Model & Growth StrategiesFinancial SnapshotsManagement TeamAppendix
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Transformative Business Model Moves Up the Value Stack
Channel Play = Combining products and display solution
V A L U E C H A I N
P R
O D
U C
T S
Multi-brands:- Sgoco- Povizon- No. 10
Channels SGOCO Brand
Channels
e-commerce
Sector Driven : Education??
Market Driven : Media Display
Display Solution
Others ….
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Strengthen brand & product portfolio
Expand distribution channel
Focus on high-growth industries
Develop solution based services
Transformation in 4-Pronged Strategies
Leverage on strong distribution network to sign up top tier brands
Increase overall brand awareness for SGOCO and clients to capture additional market share
Continue to expand in the traditional distribution network
Look into emerging channels such as e-commerce to capture the shift of consumer behaviors in the market
Identified high growth industries, such as budget hotel chains - provide them with tailored display products for their boutique size
Self-develop and partner with brand clients to develop niche products
o All-in-one PCso Parts-in-one PCs
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Product Driven Short-Term Growth Catalysts
All-in-One / Part-in-One PCs
Features: Touch-screen, Built-in to a flat screen monitor, Multi-functional, Slim design. PIO also provides flexibility for users to configure and build their own PC system
Target markets: Retail and Commercial use e.g. Budget hotels
Design and Price is King!
Worldwide All-in-one Desktop PC Forecast
CAGR: 13%
DisplaySearch
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Solution & Channel Driven Mid to Long-Term Growth Catalysts
Target markets: High growth industries in China
Infrastructure Travel and Leisure
Flexibility and Diversification is King!
DisplaySolution
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Company OverviewCompetitive AdvantagesIndustrial Overview & Growth OpportunitiesEvolving Business Model & Growth StrategiesFinancial SnapshotsManagement TeamAppendix
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34.542.7
26.0
63.454.5 59.2
43.0 44.2
-60.3% -50.1%-63.6%
-8.1%
58.0%38.7%
65.0%
-30.3%
1Q 2Q 3Q* 4Q2012
1Q 2Q 3Q2013
4Q2013
Total Revenue Annual Growth Rates
US$ Millions
Revenue Growth Traction Returned
4Q12 4Q13SGOCO Brand andLicensed Brands 64.7% 85.1%
Key Accountssales 35.3% 14.9%
64.7%85.1%
Breakdown : % of Total Revenues
3Q 2012:• SGOCO was experiencing the transition to a “light-asset” business model. Therefore, the revenues were negatively
impacted.
Total Revenue
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1.7 2.1
(0.8)
3.5
2.7
4.1
2.4 1.9
4.8% 4.8%
-2.9%
5.6% 4.9%6.8%
5.7% 4.3%
1Q 2Q 3Q 4Q2012
1Q 2Q 3Q 4Q2013
Income from Operations Operating Margin
Profitability Focused
Income from Operations & Operating Margin
US$ Millions
0.05 0.07
(0.06)
0.19
0.10
0.20
0.12
0.07
1Q 2Q 3Q 4Q2012
1Q 2Q 3Q 4Q2013
US$ Millions
Earnings per share
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Stabilized Cash Position to Fuel Growth
6.8
1.0
7.0
11.5
5.7
14.2 13.7 13.5
1Q 6M 9M FY2012
1Q 6M 9M FY2013
US$ Millions
Cash and Cash Equivalents
4.4 1.7
6.7 5.7
12.3
16.4
25.7
7.0
1Q 6M 9M FY2012
1Q 6M 9M FY2013
Inventories
US$ Millions
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74.8 76.0 74.9 78.1 79.9 83.6 85.7 87.6
6.84 6.12 6.97
3.86 3.01 2.56 3.49
6.18
1Q 6M 9M FY2012
1Q 6M 9M FY2013
Working Capital Current Ratio
US$ Millions
Working Capital & Current Ratio
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Shareholders’ Return Focused
Return on Invested Capital Return on Equity
1.22% 1.61%
-1.45%
4.03%
2.15%
4.05%
2.51%
1.34%
1Q 2Q 3Q 4Q2012
1Q 2Q 3Q 4Q2013
Per Quarter
1.22%1.61%
-1.45%
3.73%
1.87%
3.74%
2.21%1.24%
1Q 2Q 3Q 4Q2012
1Q 2Q 3Q 4Q2013
Per Quarter
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Company OverviewCompetitive AdvantagesIndustrial Overview & Growth OpportunitiesEvolving Business Model & Growth StrategiesFinancial SnapshotsManagement TeamAppendix
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A Dynamic Management Team
Mr. Tin Man Or
Chairman• Over 35 years of experience in the investment and marketing of the display and trading industries • Previously worked in various private companies incorporated in Hong Kong that were engaged in
investments and general trading business• Served as a director of the Board since April 1, 2010
Chief Financial Officer • CPA in Hong Kong and Australia• Started with Deloitte in Hong Kong and Beijing from 1997, Mr. Lau has over 17 years of experience in the accounting
profession• Previous worked in various public companies in the US and England as Director of Finance and CFO for nine years• Bachelor degree in commerce from Monash University, Australia
Mr. David Xu
Director, President and CEO• Nearly 20 years of finance and accounting experience in both Asia and North America• Previous employers include General Electric and Yum! Brands• MBA from the University of Illinois at Chicago, and a BA in English and American Literature from Beijing Normal
University
Mr. Johnson Lau
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Mr. Shi-bin Xie
Mr. Jin-feng Li
Vice President of Sales• More than 15 years of experience in sales and marketing, specializing in Chinese display products• Served as Vice President of Sales in Shenzhen Dongqiao Huahan Technology Co., Ltd from 2010 to 2012• Bachelor of Science in Engineering from the East China Institute of Technology
Vice President of Product Development• Over 15 years' experience in the design and engineering of electronic products• Served several engineer and product development manager roles in various companies in China• Diploma in Applied Electronics Technology from Central South University
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Company OverviewCompetitive AdvantagesIndustrial Overview & Growth OpportunitiesEvolving Business Model & Growth StrategiesFinancial SnapshotsManagement TeamAppendix
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$ in thousands except shares and per share data
Years Ended December 31,2013
Years EndedDecember 31, 2012
2013 2012Revenues 200,974 166,701
Cost of Goods Sold 185,045 154,221
Gross Profit 15,929 12,480
Selling expenses 1,073 670
General and administrative expenses 3,802 5,322
Total operating expenses 4,875 5,992
Income from Operations 11,054 6,488
Income before Provision for Income Taxes 10,995 6,380
Provision for Income Taxes 2,551 2,167
Net income 8,444 4,213
Comprehensive Income 9,249 4,154
Earnings per Share – basic & diluted 0.49 0.25
Weighted Average Number of Common Shares – basic & diluted 17,193,189 17,059,575
P&L – Selected Items
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$ in thousands except shares and per share data
As of December 31, 2013
As ofDecember 31, 2012
Cash 13,497 11,548
Accounts receivable 48,063 59,355
Inventories 7,017 5,725
Advances to suppliers 33,824 28,511
Total Current Assets 104,512 105,386
Total Assets 104,735 105,647
Short-term loan 6,734 6,230
Accounts payable 2,052 12,038
Customer deposits 999 1,155
Taxes payable 6,126 7,147
Total Current Liabilities 16,925 27,314
Total Liabilities 16,946 27,332
Retained earnings 61,080 53,044
Total Shareholders’ Equity 87,789 78,315
Total Liabilities and Shareholders’ Equity 104,735 105,647
Balance Sheet – Selected Items
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$ in thousands of U.S. dollars Years EndedDecember 31, 2013
Years EndedDecember 31, 2012
Net cash provided by (used in) operating activities 1,384 (13,887)
Net cash (used in) provided by investing activities (32) 18,628
Net cash provided by (used in) financing activities 229 6,230
Increase in cash 1,949 11,013
CASH, beginning of period 11,548 535
CASH, end of period 13,497 11,548
Cash Flow Statements – Selected Items
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Investor Relations Contact
Kathy KoSGOCO Group, Ltd.Direct Line: +852 2501 0128Email: [email protected]
