Funtalk China Holdings Limited (NASDAQ: FTLK)

Transcription

1 Funtalk China Holdings Limited (NASDAQ: FTLK) China s Leading Mobile Phone Retailer and Distributor 1 Company Presentation May 2010

2 Disclaimer The information contained herein has been prepared by Funtalk China Holdings Limited (the Company ) solely for use in this presentation. The information contained in this presentation has not been independently verified. The information and opinions contained in this presentation are provided as of the date of this presentation, are subject to change without notice and will not be updated or otherwise revised to reflect any developments. No representation, warranty or undertaking, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information or the opinions contained herein. None of the Company or any of its affiliates, advisors or representatives will be liable (in negligence or otherwise) for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection with the presentation. This presentation does not constitute an offer to sell or issue or the solicitation of an offer to buy or acquire securities of the Company in any jurisdiction or an inducement to enter into investment activity, nor may it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever. This presentation contains forward- looking statements within the meaning of the U.S Securities Act of 1933, as mended. Actual results could differ materially from such statements expressed or implied herein as a result of a variety of factors, including, but not limited to, the Company s business outlook, strategy and market opportunity. All forward-looking statements are expressly qualified in their entirety by this disclaimer and the risks and other factors detailed in the Company's reports filed with the Securities and Exchange Commission (the "SEC"). As a result, this presentation should be read in conjunction with the Company's periodic filings with the SEC. The forward looking statements contained herein are made only as of the date of this presentation, and the Company undertakes no duty to update those forward-looking statements. 2

3 3 Company and Business Overview

4 Company Snapshot A Leading Retailer and Distributor of Wireless Communications Products in China Founded in 2003 with headquarters in Beijing Three business segments Retailing of wireless communications products for a variety brands Largest mobile phone retail network, covering 16 provinces with a total of 542 retail stores in approximately 80 cities Distribution of Mobile Phones Distribution network covers over 350 cities across 30 provinces, consisting of approximately 9,500 retail outlets Online retail website Strategy Channel Partner of the 3 Chinese Mobile Carriers Key Financials ( FYE3/31) ($ millions) Net Revenues Net Income Attributable to the Company 9M FY2010 Sales Breakdown FY2007-FY2010E CAGR 37.6% FY2007- FY2010E CAGR 18.4% % 54% FY2007 FY2008 FY2009 FY2010E FY2007 FY2008 FY2009 FY2010E Retail Distribution 4 Note: 2010 estimated financials are based on the lowest range of Q4 revenue and earning guidance Source: Company filings and earning releases

5 Management Team Mr. Kuo Zhang Chairman Co-founder & Chairman of Funtalk, responsible for Funtalk s strategic planning Bachelor s in engineering from Hunan University and MBA from Tsinghua University Mr. Dongping Fei CEO Mr. Jackie Leong CFO Mr. Clement Kwong Senior VP Mr. Francis Wan Senior VP Co-founder & CEO of Funtalk Responsible for establishing strategic partnership with Samsung Bachelor s in civil engineering from Hunan University and MBA from Guanghua Management School, Beijing University Joined Funtalk as CFO in 2008 Fifteen years international experience in finance and accounting, specializing in IPO s, financial and cost accounting Graduated from Tunku Abdul Rahman College in Malaysia Member of the Association of Chartered Certified Accountants (ACCA) Senior VP, Corporate Strategy Co-founder and previously Managing Director of ARC Capital Partners Director of Long March Capital Limited Co-founder and Partner of 3PM Capital Partners MBA from the University of British Columbia and an Associate of the Institute of Bankers in Canadian Co-founder & Senior VP of Funtalk Experienced marketing specialist, maintains relationships with international digital electronics producers 5

6 Key Milestones In the 7 years since its establishment, Funtalk has passed strategic milestones to evolve from a mobile phone importer into a nationwide retailer dominant in every region in which it operates, while retaining one of the largest distribution businesses in the sector. Importation and distribution of first Samsung phones in China Establishment Strategic partnership with and key distributor for Samsung, building a network to deliver products nationwide Rapid Growth Network Expansion New funds and bank guarantees fund distribution expansion Investment Partner Golden Meditech Strategic investment by ARC funds retail expansion Private Equity Partner ARC Capital Acquires control of 6 leading mobile retailers Retail Business Expansion Listed on NASDAQ China s No. 1 mobile phone retailer after acquisition of Xieheng Public Listing Sustain the stable growth of distribution network Further expand retail network to enhance the market leadership position Our Future >> 6

7 Key Investment Highlights 1. Favorable Industry Dynamics Support High Growth High growth economy in China Low mobile phone penetration and high fragmentation market Favorable and substantial growth opportunities supported by the government s policies on 3G 2. Largest Pure Play Retailer of Wireless Communications Products in China Retail network covering 80 cities with 542 stores and still growing Regional dominance in each province Pursuing the acquisition strategy to enhance the market leadership position Operation efficiency and financial performance will be further improved through post-acquisition integration 6. Strong Financial Performance FY2007-FY2009 Sales CAGR 39.3% FY2007- FY2009 Net Income CAGR 23.1% Expected strong growth going forward Strategic Channel Partner of Mobile Carriers 3. Early Mover Advantages in Mobile Handset Distribution Distribution network covering 350+ cities with 9,500+ outlets First national distributor of Samsung s mobile phones in China Strong partnerships with carriers allowing Funtalk to leverage carriers resources Strong relations with mobile retailers which Funtalk can leverage toward M&A growth strategy 5. Experienced Management Team with Proven Track Record Track record of growth & profitability Solid industry experience Management team comprised of local expertise and international expertise 4. Efficient Supply Chain Management Leads to Operational Excellence Advanced logistics system leading to cost and time savings Sophisticated IT system effectively integrates all operations 7

8 Supply Chain and Cooperate Opportunity Mobile phone Manufacturers Retail Business 542 Stores cover over 65% population in China. Cooperation Agreement With China Unicom & China Telecom as Strategic Retail Partner. Distributors Retailers Mobile phone Consumers Distribution Business Nation wide coverage. Sophisticated & integrated sales & marketing services. TD-SCDMA 3G handset distribution cooperation with China Mobile (model exclusive distributor). First national distributor of Samsung s mobile with long term contract. Funtalk bridges the Mobile phone product and service providers with consumers throughout China. 8

9 9 Co Brand Stores with Mobile Carriers

10 10 Funtalk Operated Carrier s Brand Shops

11 11 Funtalk Sales Team in Carrier s Service Outlets

12 Strong China Macroeconomic China Economy Rapid Economic Growth GDP projected CAGR 16%; 2010 estimated 10% growth Government commitment to continued economic growth - favorable policies GDP In RMB CAGR: 16.0% RMB 4 trillion fiscal stimulus and huge public investments Source: National Bureau of Statistics of China, Euromonitor China Consumer Source: National Bureau of Statistics of China Increasing Purchasing Power Large population with consumer expenditure growing at a 16.5% CAGR Rapid urbanization resulting in faster growth in consumer spending Consumer Expenditure per Capita (USD) CAGR: 16.5% Domestic consumer has offset the reduction in exports Source: National Bureau of Statistics of China, Euromonitor Source: Euromonitor 12

13 China s Huge Wireless Communication Products Opportunities Low Penetration and High Adoption lead to Rapid Growth Handset sales volume in China grew at a 24.7% CAGR from , far exceeding North America (7.9%) and Western Europe (4.2%) The potential market for mobile phones resulting from the relatively low penetration rate in China compared to other countries. In 2009, the penetration rate in China increased by 10.4% to 56.3% from 2008, still much lower than the average of penetration rate of the 9 countries The Adoption of the 3G standard and the government licensing program will lead to substantial opportunities for distributor and retailers to partner with carriers to further increase demand for 3G mobile phones and accessories in China % 160.0% 140.0% 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% 162.3% Mobile Phones Penetration Rate 131.0% Average penetration rate 111.0% 110.0% Hong Kong Singapore Australia Taiwan Malaysia South Korea Sales Potential is 1,500 million units of mobile phones, equivalent value of US$200 billion 100.0% 94.0% 88.6% 87.0% Source: Business Monitor International, as of December 31, 2008 United States Japan 45.9% China Increasing Demand for Mobile Phones In mm units Sale of Mobile Phones in China CAGR: 24.7% Source: SINO Marketing Research Ltd.

14 Potential Market Integration Opportunities Highly Fragmented Retail Market Local branded mobile phone retail chains remain dispersed throughout the country The aggregate sales volume of the top 6 TCS (Telecommunication Specialist Stores) in China in 2008 accounted for 10.66% market share Chinese Mobile Phone Channels in GSM Market in 2009 General Electrical Stores, 9.79% Bundle, 18.71% Other, 0.32% Independent Retailers, 35.27% The TCS and independent retailer accounted for more than 1/3 GSM (Global System Mobile for Communications) market in China, respectively. Telecommunication Specialist Stores (TCS) 35.91% Source: GFK Marketing Consulting (China) Co., Ltd The highly fragmented retail market provides an opportunity for consolidation over the next several years Fragmented Retail Market in 2008 Top 6 TCS in China in 2008 Funtalk D-Phone Zhougyu Dadi Huaji World 0.97% 0.82% 2.14% 3.03% 2.94% 10.66% 14 Xunjie 0.76% Source: SINO Marketing Research Ltd.

15 Largest Pure Play Retailer of Wireless Communications Products in China Fast growing retail network through 7 acquisitions with local branded retailers Liaoning Gansu Inner Mongolia Beijing Hebei Shanxi Shandong Henan Jiangsu Chongqing Anhui Shanghai Zhejiang Hunan Yunnan Guangdong Retail network areas covering over 849 million population Guoxun Guanzhilin Xinya Broadway Feon Zhongyu Shidai Extensive Retail Network Xieheng a total of 542 retail stores in approximately 80 cities across 16 provinces An aggregate floor space of approximately 160,000 square meters Regional Dominance in Sales Volume and Store Space by Each Province 15

16 Fast Growing Retail Business Services Funtalk serves its customers with a very wide range of brands, products, services and more recently mobile content No. of Retail Stores Strategic Partnership with China Carriers Cooperation Agreement With China Unicom Cooperation Agreement With China Telecom Long history of cooperation relationship with China Mobile Expansion Strategies Continue to pursue acquisitions Next target markets: Northeastern, Central and Western of China ($ millions) FY2009 9M FY2010 Growth Rate: 60% Revenue from Retail Business FY2009 9M FY2010 Market Leader Position will be Strengthened by Potential Acquisition Opportunities 16

17 Funtalk s Distribution Network Creates High Barriers to Entry Strategic Relationship with Samsung First national distributor of Samsung s mobile phones since 2003 Renewed its 5-year ( ) exclusive national distribution contract with Samsung s for certain types of mobile phones Funtalk also supports Samsung s marketing, promotions and distribution plan in China Strong Partnership with Carriers Why Our Suppliers and Customers Prefer to Work with Us? Network Nationwide Mature Strong partnership with carriers allowing Funtalk to leverage carrier s resources Funtalk started the TD-SCDMA handset distribution cooperation with China Mobile (model exclusive distributor) One of the national distributors of China Telecom Marketing Sophisticated Integrated Supply Chain Efficient Low cost Distribution Network Covers 350+ cities with 9,500+ outlets in China 17

18 Efficient Supply Chain Management Leads to Operational Excellence Creating A Strategic Advantage Through Our Unified Logistics Platform Funtalk s supply chain management system efficiently and effectively integrates its suppliers, manufacturers, warehouses, retail stores, and transportation intermediaries into a seamless value chain Opportunity to increase sales and profit by making sure the right inventory is in the right place at the right time Lower inventory from less backup inventory in stock and higher asset (inventory) turnover Highly Advanced ERP System Support Strategic Planning Work with highly experienced partners such as Oracle ERP and IBM Information System Management: Provide management with up-tothe-minute access to information for better decision making and managerial control Sales Management: Manage nationwide sales activities involving credit sales, prices, discounts, and sales promotion to help FTLK manage logistics, capital flow, and information flow effectively during the entire sales process 18 Procurement Management: Manage nationwide activities involving purchase requests, orders, goods receipt, goods return, and payment.

19 Comprehensive E-Commerce Platform Dongdianwang Selection A wide range of handset models and mobile phone accessories Ready to provide more value-added services, including ringtone, picture and game downloads and online recharge Convenience Online store Speedy and nationwide delivery Payment options including COD, credit card, online banking, postage, etc. Good customer service Competitive Pricing Nationwide economies of scale advantages Bulk purchase share the stable cost back end 19 Dongdianwang differentiates itself from other online only retailers by having a strong offline platform, mature nationwide distribution infrastructure, retail store network, and reliable after sales service.

20 Growth Strategy Sustain the Stable Growth of Distribution Network Expand Retail Network to Uncovered Areas in China and Increase the Market Share of Covered Areas Strategic Cooperation with 3G Carriers 20

21 21 Financial Overview

22 Rapid Revenues and Profit Growth FYE 3/31 Net Revenues Gross Profit ($US million) ($US million) CAGR 39.3% % Growth % 16.26% 12.28% 14.45% 14.36% CAGR 22.4 % % Growth M' 09 9M' M' 09 9M' 10 Income from Operations Net Income attributable to the Company ($US million) ($US million) % 9.83% 5.78% 8.02% 7.05% CAGR 29.1% % Growth % 7.98% 3.52% 4.71% 3.20% CAGR 18.3% M' 09 9M' M' 09 9M' 10

23 Strong Balance Sheet and Cash Flow Statement Key Balance Sheet Items (US$ MM) Dec 31, 2009 Mar 31, 2009 Mar 31, 2008 Cash & Equivalents Accounts Receivable Inventories Fixed Assets Intangible Assets Total Assets Accounts Payable Notes Payable Short-term Borrowings Total Current Liabilities Total Shareholders' Equity Total Liabilities and Shareholders' Equity Key Cash Flow Items (US$ MM) Dec 31, 2009 Mar 31, 2009 Mar 31, 2008 Operating Cash Flow 21 (12) Investing Cash Flow (75) (34) Financing Cash Flow

24 Key Investment Highlights 1 Favorable Industry Dynamics Support High Growth 2 Largest Pure Play Retailer of Wireless Communications Products in China 3 Early Mover Advantages in Mobile Handset Distribution 4 Efficient Supply Chain Management Leads to Operational Excellence 5 Experienced Management Team with Proven Track Record 6 Strong Financial Position and Profitability 7 Strategic Channel Partner of Mobile Carriers 24