EFTA02395490.pdf

CREDIT SUISSE China Super Power Saving Holdings Limited Information Memorandum Confidential wietamma ..... Date: May 2010 These materials may not be used or relied upon for any purpose other than as specifically contemplated by a written agreement with Credit Suisse AG or its Affiliates (hereafter 'Credit Suisse'). EFTA_R1_01426745 EFTA02395490  Ian Chang CREDIT SUISSE Memorandum ref: 1 Important notice Memorandum ref. 1 This preliminary information has been prepared from data supplied by China Super Power Saving Holdings Limited ("CSPS" or the "Company") and Lemonte Investments Limited (the "Seller") solely for information purposes to assist the recipient in deciding whether to proceed with further analysis of the transaction contemplated herein. Credit Suisse AG ('CS") has not independently verified any of the information set forth herein, including any statements with respect to projections or prospects of the Company or the assumptions on which such statements are based. Neither the Seller, the Company nor CS makes any representation or warranty, express or implied, as to the accuracy or completeness of this document or the information contained herein and none of such parties shall have any liability for the information contained in, or any omissions from, this document. CS, the Seller and the Company reserve the right to amend or replace the information at any time, and undertake no obligation to update or correct the information set forth herein or to provide the recipient with access to any additional information. This information may not be redistributed or reproduced. The information contained herein is preliminary and does not purport to contain all the information that such interested parties may desire. In all cases, each interested party should conduct its own investigation and analysis of the Company, its business, prospects, results of operations and financial condition, and should consult their own professional advisors. Neither the receipt of this information by any person, nor any information contained herein constitutes, or shall be relied upon as constituting, the giving of investment or tax advice by CS to any such person. This document may contain certain statements, estimates and projections as well as forward•looking statements, e.g., statements including terms like 'believe', 'assume', 'expect' or similar expressions, provided by the Company and the Seller with respect to the Company's anticipated future performance. Such statements were prepared based upon certain assumptions and Management's analysis of information available at the time this document was prepared, and may or may not prove to be correct. No representation, warranty or assurance of any kind, express or implied, is made regarding future performance or results. This document does not constitute an invitation or offer to sell, or a solicitation of an offer to subscribe for or purchase, any of the securities or assets, business, products or services mentioned herein. It does not constitute a prospectus within the meaning of Article 652a or Article 1156, respectively, of the Swiss Code of Obligations. This document is not being issued in the United States of America and must not be distributed in the United States or to U.S. persons or publications with a general circulation in the United States. This document does not constitute or form part of an offer or invitation to purchase any securities in the United States. The securities of the Company have not been registered under the United States securities laws and may not be offered, sold or delivered within the United States or to U.S. persons absent from registration under or an applicable exemption from the registration requirements of the United States securities laws. By accepting this document, the recipient acknowledges and agrees that (i) all of the information contained herein is subject to the Confidentiality Undertaking; (ii) the recipient will not distribute or reproduce the document in whole or in part and will use this document solely for the purpose of evaluating the recipient's interest in the Company; (iii) in the event that the recipient has no further interest in submitting a proposal to acquire the Company or if at any time CS or the Seller so requests, this document, together with all other material relating to the Company which the recipient may have received from CS, the Seller or the Company, will be returned to CS at the earliest opportunity; (iv) the recipient will not disclose to any third party that this document has been provided or that the Seller are considering a Transaction and (v) any proposed actions by the recipient which are not consistent in any manner with the foregoing agreement will require the prior written consent of the Seller, the Company or CS. The Seller, the Company and CS reserve the right to negotiate with one or more parties at any time and enter into a definitive Purchase Agreement without prior notice to you or any other recipients of this document. The Confidential Page 2 of 76 EFTA_R1_01426746 EFTA02395491  Ian Chang CREDIT SUISSE Memorandum ref: I Seller and CS also reserve the right (i) to terminate, at any time, all further participation by any party in the investigation of the Company and all participation in the proposed Transaction described herein, and (ii) to modify the rules and procedures set forth herein or any other procedures relating to the sale of the Company without prior notice to you or any other recipient of this document. In no instance will the Seller, the Company or CS be required to assign any reason for such termination or alteration of the process. The Seller, the Company intend to operate the Company in the ordinary course during the evaluation and offer period. However, the Seller, the Company and CS reserve the right to take any action, whether in or out of the ordinary course of business, which in their sole discretion is deemed reasonably necessary or prudent in the conduct of the Company or in the process contemplated by this document. CS contact person Alex von Werra Angela Krebs Raed EI-Dana Director Vice President Analyst Confidential Page 3 of 76 EFTA_R1_01426747 EFTA02395492  Ian Cheng CREDIT SUISSE Memorandum ref: 1 Table of Contents 1. Executive summary 6 1.1. Background 6 1.2. Market overview 6 1.3. Business model 7 1.4. Products and services 9 1.5. Summary of key financials 10 2. Investment highlights 12 3. Transaction overview 13 3.1. Legal structure 13 3.2. Ownership structure 13 3.3. Listing 14 3.4. Transaction structure 15 4. Market overview 16 4.1. Industry overview 16 4.2. Competitive landscape 25 5. Company overview 27 5.1. History 27 5.2. Vision and strategy 27 5.3. Legal structure 28 5.4. Location and premises 30 6. Business model 33 6.1. Overview 33 6.2. Research and development 33 6.3. Manufacturing and assembly 38 6.4. Marketing, distribution and sales 39 6.5. Installation and after•sales services 43 7. Products and services 44 7.1. Products and services description 44 8. Management, directors and employees 48 8.1. Organisational structure 48 8.2. Management and board biographies 49 8.3. Employees 51 9. Selected case studies 63 9.1. Carrefour China 53 9.2. Qingdao street lighting 54 10. Financials 55 10.1. Administration and finance 55 10.2. Historical financials and analysis 56 10.3. Business plan 58 Confidential Page 4 of 76 EFTA_R1_01426748 EFTA02395493  fan Cheng CREDIT SUISSE Memorandum ref: 1 Appendix 63 1. Key products 64 1.1. Lighting 64 1.2. Energy saving devices for motors 66 1.3. New energy saving sets 76 Confidential Page 5 of 76 EFTA_R1_01426749 EFTA02395494  Ian Cheng CREDIT SUISSE Memomnduntnet1 1. Executive summary 1.1. Background Credit Suisse AG ("CS') has been retained by Lemonte Investments Limited as its exclusive financial advisor in connection with the potential disposal of all or part of its holding in China Super Power Saving Holdings Ltd. (herein referred to as "CSPS", the 'Company"). CSPS is active in the fast growing market of energy efficiency solutions and has established a strong foothold in its home market, China. The Company is listed at the Marche Libre in France, an unregulated trading facility operated by Euronext Paris SA. With a shareholding of approximately 65% owned by the Company's founder Ian Cheng Yi Feng (#1-4) (the "Founder", "Ian Cheng") through his investment vehicle, Lemonte Investments Limited, the Company ultimately remains under his control. The Founder has developed the Company to become a respected provider of energy saving solutions in China and is now looking for a strong buyer, who can foster the Company's further growth by adding an international network and knowhow. This Investment Memorandum is being furnished to selected parties who have shown an interest in the Company and have signed the relevant Confidentiality Agreement. If after reviewing this Investment Memorandum, the potential buyer wishes to further analyse the Company, such interest should be communicated to Credit Suisse AG in a formal process as outlined in the accompanying Procedure Letter. 1.2. Market overview An important driver of energy efficiency products and services is economic growth. China is expected to continue its strong growth path with 9.3% and 8.3% growth in 2010 and 2011 respectively. China - Real GDP growth 40,000 13.0% 36,400 15.0% 33,837 31,273 30,000 20,770 28,903 22,504 24,597 26,639 10.0% 19,055 20,0O0 5.0% 10,000 2007 2008 2009E 2010E 2011E 2012E 2013E 2014E 2015E IM Real GDP (bn CNY) % Growth Source: Do Confidential Page 6 of 76 EFTA_R1_01426750 EFTA02395495  Ian Chang CREDIT SUISSE Memorandum ref: I Key drivers for energy efficiency in China include: ■ Strong economic growth ■ Increasing environmental concerns ■ Energy efficiency policies being implemented in China, supported by government stimulus measures ■ Steadily rising urbanisation ■ Continuous growth in energy consumption and rising electricity prices ■ Lower cost of ownership of new technologies Steadily rising urbanization ratio in China 80% 60% 40% 20% 0% 1980 1985 1990 1995 2000 2005 2010E 2015E 2020E 2025E 2030E ■ Urban population (as % of total population) Source: Cnxii &SO. Limed Naeon. A further key driver is the power shortages China faces, combined with an increasing environmental awareness. Although new regulations are supporting the use of renewable energy, over 90% of new power generation in China still comes from thermal coal plants. In addition, an estimated 80% of energy is being lost before reaching the end user, through generation, transportation etc. The government has taken note of the multiplying effect of energy savings at the end consumer and supports energy saving products and services through various regulations and subsidies. 1.3. Business model CSPS is looking to strengthen its position as one of the leading energy saving solution providers in China and introduce its services elsewhere in Asia and abroad. The Company has developed a unique business model, offering its clients a complete range of energy saving solutions and services. As such it focuses its resources on i) R&D, ii) solution based offering, and iii) a strong distribution network. The Company is offering a one-stop shop service for companies looking for energy savings. It offers its customers with a complete service including i) analysis of the current situation and energy saving potential, ii) engineering of the most suitable energy saving solution iii) assembly of the energy saving products, iv) installation of the equipment at the client's facilities, as well as v) after-sales services. While offering a complete service package to its customers, CSPS runs an asset light business model, allowing it to adapt to changing business needs of its customers. Confidential Page 7 of 76 EFTA_R1_01426751 EFTA02395496  Ian Chang CREDIT SUISSE Memorandum ref: 1 Marketing & After .sales Production Assembly Installation sale service CSPS has an internal Producton is almost CSPS assembles the CSPS mainly seises CSPS installs the CSPS offers alter. R&D department entirely outsourced to products in as two products and services products at the Asenis sales SOIVICOS, focused on product third parties in order assemby facilities through agents. well including changing of innovation and to preserve the asset a sniveler porton of CSPS offers a verge° lamps etc. to its development light business model sales being direct profit sharing scheme customers sates by the Company to its clients Basic research is CSPS only Such services may be mainly pederreed by manufactures its key Efforts are led by oilseed within a external parties chip compenent in its CSPS's infernal warranty or ate oven production line marketing team chargeable CSPS acquires the additionab patents for the CSPS offers as relevant technologies clients a ful service from the developer incluckng: onreito mice the product can energy audit. be commorciatzed consultation and playact management Ouisout ced Partly performed by third parties Performed by CSPS The Company is incorporated in Hong Kong and its operations are based in Mainland China with its office located in Shenzhen. The Company outsources the production of most product components to third parties, and assembles them in its own assembly facilities in Shenzhen and Wujiang. It employs approx. 100 permanent staff in key functions of the Company and over 200 temporary staff mainly active in its production department. The Company has focused its business on the Chinese market for energy saving solutions. It is seeing strong growth due to fast economic development, strong urbanization and increasing environmental concerns, all of which have led to a strong increase in energy consumption and new regulation relating to environmental pollution and energy usage. a r CSPS provides its solution based service to a broad client base, reaching from corporates from a wide variety of industries, to government related companies, as well as municipalities, all over Mainland China and Hong Kong. It is also exploring the overseas market potential, with first orders expected to come from the Middle East. The Company markets its products almost exclusively through agents. It has one of the largest distribution networks of its kind in this sector in China, with over 140 agents in 28 provinces. Confidential Page 8 of 76 EFTA_R1_01426752 EFTA02395497  Ian Chong CREDIT SUISSE Memorandum ref: 1 Agent network Revenue split by region fraromiana ' Phnnipol* Hobe USOMNI Xi*" Gifau &Win Cavan Mean long" Shanghai Unman Arts Wes Duping 00214 / 4. " Hat Yunnan Fujon GAN'S Guesnaciong Wing K000 SOUAllit Company. Source: Company. 1.4. Products and services The Company has developed a wide range of energy saving products including energy saving devices (used in combination with fluorescent lights, street lights, sewing machines, pumps, fans, etc.) and a low consumption lamps series. The Company analyses the customers current energy saving potential and then engineers an optimal solution, taking into consideration the customer's energy saving potential, current installation, investment budget, as well its quality considerations. CSPS' core offering currently includes solutions around its three product categories, namely: i) new generation lighting products, ii) energy saving devices for motor and lighting systems, and iii) new energy saving sets. The first two categories are currently its key revenue drivers. 2009E revenue split by product group Energy saving devices (other) 11% Energy saving device for lighting systems Energy saving device 40% for motors 21% Lamps 28% Source COmpany. Confidential Page 9 of 76 EFTA_R1_01426753 EFTA02395498  Ian Chang CREDIT SUISSE Memorandum ref: I New generation lighting products with a current focus on electrodeless magnetic discharge light ("EMDL") lamps often used in street lighting projects Lighting products •. h ■ Energy saving devices with a focus on: 9 Q - Energy saving devices for lighting systems, used to regulate electricity usage in large government buildings or production facilities - Energy saving devices for motors such as fans, air compressors, pumps, central air conditioning etc. Energy saving devices • . • € • al . .. 1.5. Summary of key financials The Company experienced significant growth with revenues increasing from 2005 to 2008 by a CAGR of 75%. The management believes that the strong revenue and earnings growth experienced by the Company in recent years is poised to continue over the medium term. The Company is rolling out new energy saving devices and sets into the Chinese market and plans to enter new markets in Europe and the Middle East. Revenues are expected to grow from 2009 to 2012 by a CAGR of 37%. Over the same period EBITDA is expected to grow at a CAGR of 37.5%. Revenue and EBITDA development Revenue (R1€ million) EMMA (RIM million) 2,000 300 250 1.500 1,198.4 200 1.000 782.3 150 515.9 100 500 3535 11 50 48.9 2005 2006 2007 2008 2009E 2010E 2011E 2012E Revenue —EBITDA Source: Conpany. Confidential Page 10 of 76 EFTA_R1_01426754 EFTA02395499  Ian Chang CREDIT SUISSE Memorandum rat 1 The following table presents CSPS' key historical and projected financial information. Consolidated P&L account OMB in reigns/ 2005 2008 2007 2008 2008E 2010E 2011E 2012E Revenue 48.9 110.7 170.8 282.4 353.5 515.9 782.3 1,198.4 % growth 126.5% 54.3% 53.6% 34.7% 45.9% 51.6% 53.2% EBITDA 13.9 33.4 49.4 80.4 130.6 190.2 288.7 441.7 % sales 28.5% 302% 26.9% 30.6% 36.9% 36.9% 36.9% 36.9% Operating profit 13.9 33.4 49.3 88.3 103.0 155.8 284.4 428.7 % safes 294% 30 1% 28.9% 26.0% 29.1% 302% 338% 358% Net Income 12.5 28.5 42.3 53.7 77.9 117.8 200.5 325.4 % sales 25.5% 25.8% 24.8% 20.5% 22.0% 22.8% 25.6% 27.2% Source: Company. Note: MIA 'nommen 2009 due to amortization of new patents over a skinned 3 years period. Confidential Page 11 of 76 EFTA_R1_01426755 EFTA02395500  Ian Cheng CREDITSUISSE Memorandum ref: 1 2. Investment highlights 2.1. Chinese market's continuous growth in energy consumption The Company is well positioned to profit from China's continuous economic growth. China's economy is expected to grow by a CAGR of 8.3% from 2010 to 2015. Along with the country's continuous strong GDP growth, China's energy consumption is increasing at a rate of over 5% annually. A booming real estate market further drives the hunger for energy. CSPS has established a strong footprint in China and is uniquely positioned to benefit from the growth in its energy consumption. 2.2. Favourable industry dynamics The continuously growing energy consumption puts pressure on the country's energy resources, which are still heavily dependent on traditionally polluting thermal power plants. With the government and the public keen to lessen the environmental impact of the country's fast development, energy saving measures are playing an increasingly important role. These developments are leading to a fast growing demand for CSPS' energy saving services. The use of CSPS' products and services further allows companies and local governments to achieve substantial cost savings, by reducing energy usage as well as through government awards and subsidies available. Ongoing urbanization is a further key driver for the Company, especially its lighting business. In addition to these generally strong market fundamentals, the Company benefits from offering a service which is not dependent on any specific industry sector, but can be flexibly applied to the energy needs of any company or municipality, giving CSPS the flexibility to quickly adjust to changing market demand and regulatory frameworks. 2.3. Capital efficient and highly profitable business model CSPS has an impressive record of financial performance, even showing strong growth in an adverse global macroeconomic environment. ■ The Company has shown continued strong sales growth over the last four years, reaching a CAGR of 75% ■ It has set up a lean business model, outsourcing most of the basic product manufacturing to third parties ■ With its production and assembly located in China's manufacturing centres, Pearl and Yangtze river delta, the Company benefits from a low cost environment ■ Profitability has remained high with an EBITDA and net income margins above 30% and 20% respectively 2.4. Large established distribution network CSPS has established a large distribution network, composed of over 140 agents targeting the China market opportunity. This network allows the Company to efficiently distribute products and services. It also offers a potential buyer a unique set-up to enter the Chinese market with their own products and services offering. 2.5. Unique entry point to China's market for energy saving services CSPS is positioned uniquely in its home market, China, to offer its clients a complete range of energy saving services. It has established itself a name for offering more than just the sale of a product. It reaches most of China and a wide variety of industries. CSPS provides a unique opportunity to enter the energy efficiency market in China by acquiring one of the few well established players in this fast growing segment. Confidential Page 12 of 76 EFTA_R1_01426756 EFTA02395501  Ian Cheng CREDITSUISSE Memorandum ref: 1 3. Transaction overview 3.1. Legal structure CSPS was incorporated under the laws of Hong Kong on August 15, 2007. It is registered with the Hong Kong companies registry under the number 1158791, having its registered office at Flat 1702, 17/F, Eastern Commercial Centre, No. 393-399 Hennessy Road, Wanchai, Hong Kong. After the group's legal restructuring in 2007, CSPS became the holding company for its China onshore based operating businesses, namely Hongdegin Energy Saving and Environmental Technology Limited ("Hongdeqin") and Shenzhen Nenghua Energy Saving and Environmental Protection Limited ("Nenghua"). Legal Structure Offshore CSPS holding company Offshore j 100% Onshore Hongdectin Investment and property holding company 100% Operating company Nenghua Swot Company 3.2. Ownership structure CSPS is listed at the Marche Libre in France (0.33% floating), but remains controlled by its founder Ian Cheng. Through his investment holding company, Lemonte Investments Limited, he controls about 65% of the total issued share capital. Other shares are held among a limited number of company directors and private investors. The Company's free float is currently below 1%. Since December 28, 2007, CSPS has an authorized share capital of HKD 10m (divided into 20m shares of HKD 0.5 each). Its issued share capital is HKD 3m (divided into 6m shares of HKD 0.5 each). Confidential Page 13 of 76 EFTA_R1_01426757 EFTA02395502  Ian Chan CREDIT SUISSE Memorandum rot 1 The following table shows the ownership structure as of April 30, 2010. Ownership structure Shareholder Number of shares % of capital Lemonte Investments Limited1 ' 3,896.000 64.94% Finasia Limited 480,000 8.00% Eufinasia Limited 360,000 6.00% Pyrite SA 320,000 5.33% Balboa International Limited 240,000 4.00% Banque Neuflize OBC 198,000 3.30% Global Cap 186,000 3.10% China An Bang Investments Limited 180,000 3.00% China Qiao De Xin Investments Limited 60.000 1.00% Max Move International Limited 60.000 1.00% Floating shares 20.000 0.33% Total 6,000,000 100.00% el/ Larnorda Invealniant is an invert:nom valid* wholly awned by lan Chang. Source' ,nottl:66LEtnat e Company. 3.3. Listing CSPS has been listed at the Marche Libre on February 25, 2008. The Marche Libre is an unregulated trading facility operated by Euronext Paris SA. The Company had initially sold 20,000 shares through the platform, resulting in its current free float of 0.33%. • Symbol MLCSP • ISIN code: HK0000043510 Share price performance and trading volume 11 7.000 10 6,000 • 9 F .••••• 5.000 8 I 14 4.000 .R4 is 7 .2 co 6 5 h irr—net I 3,000 2,000 1.000 2 LIn 4 11.1 11di . . 1411 10 1-Jul-08 1-Oct-08 -Jan-09 -Apr-09 1-Jul-09 1.Oct 09 1-Jan- 0 1-Apr-10 I Volume — China Super Power Saving Holdng Ltd. Soutar Floret, as of Cet06/10. Confidential Page 14 of 76 EFTA_R1_01426758 EFTA02395503  Ian Chen CREDIT SUISSE Memorandum ref: I Company performance Share price (April 23, 2010): EUR 4.68 Average daily trading volume: 237 shares 52 week high: EUR 9.93 52 week low EUR 4.50 Shares outstanding: 6.0 milion Market cap: EUR 28.08 million Source: Pedant as ol 06105/10. There is no market making and no broker research on the Company. In combination with the very limited float, this leads to the Company's shares being extremely illiquid with an average trading volume of only around 237 shares since its listing. As such, the management believes that the current share price does not property reflect the Company's value. The Marche Libre is an unregulated market, which does not set forth any regulations on minimum disclosure, mandatory takeover rules etc. 3.4. Transaction structure The Seller is considering selling all or part of his holding in CSPS, as a way of strengthening the Company's future growth prospects by bringing in a strong owner with an international network and knowhow. This Information Memorandum has been prepared to provide interested purchasers with a basis on which to submit an indicative proposal for the acquisition of a majority interest in CSPS. CSPS directly and indirectly owns two Chinese legal entities, which directly own the licences and patents as well as its two assembly facilities. The transaction includes all of intellectual property rights and patents linked to current business, the distribution network related to CSPS business and its assembly facilities. Interested parties should review the information provided in this Information Memorandum in conjunction with the accompanying Procedure Letter from Credit Suisse AG, which describes the basis on which any written indicative proposal should be made, the expected process beyond the indicative proposals stage and certain other important matters. Based on these and other relevant concerns, the Seller, with the advice of Credit Suisse, will determine which, if any, of the interested purchasers will be invited to continue their investigation of CSPS. The Seller reserves the right, at its sole discretion, to consider any and all factors in choosing the parties with which to proceed and whether to do so, to reject any or all proposals without giving reasons and at any time and in any respect, without giving notice, to modify or terminate the process or to negotiate with any potential purchaser. Similarly, the Seller may at any time, in its absolute discretion, enter into any special arrangement with any potential purchasers without notifying other potential purchasers. Confidential Page 15 of 76 EFTA_R1_01426759 EFTA02395504  Ian Cheng CRI DI I Stisst Memorandum ref: 1 4. Market overview 4.1. Industry overview Climate change, lack of resources and energy scarcity are leading to an increasing number of regulations and policy changes put in place by governments around the globe. Associated high energy prices, rising environmental awareness and the need for compliance with such stricter regulations and government policies are encouraging energy users to look for more efficient energy usage and saving potentials. With an increasing demand, a fast growing industry segment is developing around providing energy efficient Solutions to clients in public, corporate and retail segments. The growth in