- Nov 2007 -
1
Safe Harbor Statement
Statements in this presentation may be "forward-looking statements" within the meaning of federal securities laws.
You can identify these forward-looking statements by terminology such as “will”, “expects”, “anticipates”, “estimates”,
“plans”, “future”, “intends”, “believes” and similar statements. The matters discussed herein that are forward-looking
statements are based on current management expectations that involve risks and uncertainties that may result in such
expectations not being realized. Forward-looking statements involve risks and uncertainties that may cause actual
results, performance or financial condition to be materially different from the expectations of future results,
performance or financial condition expressed or implied in any forward-looking statements. Such factors include, but
are not limited to the company's ability to complete product orders, coordinate product design with its customers,
ability to expand and grow its distribution channels, political and economic factors in the People's Republic of China,
the Company's ability to find attractive acquisition candidates, dependence on a limited number of larger customers
and other factors detailed in the Company’s filings with the Securities and Exchange Commission. Actual outcomes
and results may differ materially from what is expressed or forecasted in such forward-looking statements due to
numerous potential risks and uncertainties. Forward-looking statements made during this presentation speak only as
of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement
to reflect events or circumstances after the date of this presentation.
Because forward-looking statements are subject to risks and uncertainties, we caution you not to place undue reliance
on any forward-looking statements. All written or oral forward-looking statements by the Company or persons acting
on its behalf are qualified by these cautionary statements.
We undertake no obligation to publicly update or revise any forward-looking statements or other information or data
contained in this presentation, whether to reflect any change in our expectations with respect to such statements or
any change in events, conditions or circumstances on which any such statements are based or otherwise.
China Water and Drinks, Inc.
China Water and Drinks, Inc. (OTCBB:CWDK) is a rapidly
growing manufacturer of bottled water in the People’s
Republic of China
Major supplier of bottled water to Coca-Cola® in China
2.9% market share (432M small bottles / 6M carboys) at the
end of 2006 (estimate 825M small bottles / 12M carboys for
2007) by volume (1.1% by value)
Strong brand (“Darcunk”) that represents 70.5% of revenue
Certified facilities deliver world class bottled water
Well established distribution channels
Headquartered in Shenzhen City, Guangdong Province
Investment Highlights
Rapid revenue and profitability growth
Strong domestic growth opportunities leveraging OEM relationships
Building leading brands for bottled water in China
Rapidly expanding production capacity to build national company
Advanced automation and standardization of production lines
Fragmented market creates acquisition opportunities
Revenue ($ million)
Net Profit ($ million)
Darcunk sold by more than 3,600 distributors
and retailers in 11 provinces
2007
2005
2003
1997
Applied for listing on AMEX in Oct 2007
Building new production plants in Changchun,
Beijing and Guangzhou
Acquired 100% of Nanning Taoda Drink Co Ltd
Acquired 67% of Shenyang Aixin Company Limited
Acquired 48% of Hutton Holdings Corporation
Darcunk sold in more than 6 provinces
4th plant in Changchun city began production
2nd plant in Feixian city, Shandong began production
3rd plant in Guangzhou city began production
Launched own brand “Darcunk”
1st plant commenced production in Zhanjiang city
Started producing bottled water for Coca-Cola
2006
1996
Key Corporate Milestones
Equity Snapshot
Listed on the OTCB CWDK
Price on 11/26/07 $6.74
Revenue (full year of 2006) $35.7 M
Net Income (full year of 2006) $8.8 M
Revenue (nine months of 2007) $37.2 M
Net Income (nine months of 2007) $11.4 M
Gross Profit Margin (nine months of 2007) 34.5%
Net Profit Margin (nine months of 2007) 30.7%
Shares Outstanding (as of 09/30/07) 1 98.3 M
1 Assumes issuance of all shares for the acquisition of Nanning
Poor Quality Drinking Water
Poor water quality is driving strong
demand for clean drinking water
More than 300 million rural residents lack
access to clean drinking water1
Tap water quality is generally unsuitable
Tap water in half of China’s major cities is polluted with industrial
chemicals and fertilizers2
Industrial wastewater treatment has not been completely established
Bottled water has overtaken carbonated sweet drinks and is
growing faster3
1 Government report themed "China's Environment in 2006: Changes and Struggles."
2 Report issued on July 17, 2007 by China’s State Environmental Protection Administration.
3 Euromonitor International, "Bottled Water in China", July 2007
Increasing Domestic Demand
Production for bottled water expected to
grow to $5.2 billion by 2011 compared to
$3.4 billion in 2006 for a 9% CAGR.
Demand driven by
Growing need for “safe”
drinking water
Increase in living standards
Middle class expected to be
greater than 300 million by
20111
Uneven distribution of water
resources
Rapid Growth of Total Production of Bottled
Water in China
($ millions)
Source: Euromonitor International, "Bottled Water in China", July 2007
1 The McKinsey Quarterly, The value of China’s
emerging middle class, 2006
Underdeveloped Market
Source: Beverage Marketing Corporation
Even with recent strong growth rates, bottled water
consumption in China has significant room to grow.
Bottled Water Consumption - Liters Per Capita in Leading Countries
(2005)
191.2
146.5
98.8
61.6
25.4
9.5
33.0
179.0
Italy
Mexico
Spain
United
States
Brazil
Global
Average
Global
Average
(2008 E)
China
Our Products
Two main product lines:
Bottled Water (200ml – 1500ml)
Carboy Size Bottled Water (18.9 Liters / 5 Gallons)
2006 Sales Breakdowns
Automating the Production Process
Injection
Molding
PET Raw
Material
Hot-filling
Preform
Automatic
Blowing Machine
PET
Bottles
Branded
Bottles
Municipal
Water
Purified
Water
Clean
Bottles
Label Stamping
& Shrinking
Clarification
Pre-filtration
Final-filtration
UV radiation
Sterilization
Special Treatment
Per Client’s Request
Add Oxygen
Water Softening
Add Mineral
Filling
Quality Test
Sterilization
World Standard Bottled Water
World class 5-stage filtration and
purification process
Plants are independently audited for
Quality control
Compliance in procedures
Standards
Hygiene
Meets government hygiene standards
Meets Coca-Cola’s high standards
Strong OEM Relationships
Produce bottled water for other beverage companies (OEM)
Major supplier to Coca-Cola in China
Uni-President® (Taiwan)
JianLiBao® (China)
Produce bottled water for corporations (private label)
Provide total solution, including bottle design, production, packaging
and delivery
Sands, Macau Casino
Established Branded Products
Produce bottled water under own brand name of “Darcunk”
Branded product represents 70.5% of revenue
Expanding opportunities include:
Super oxygenated water
Vitamin-enriched water
2006 Revenue Breakdown
70.5%
27.5%
2.0%
Darcunk
OEM
Private label
Marketing & Distribution Strategy
OEM & Private Label Strategy
Growing with Coca-Cola
Major supplier of bottled water to Coca-Cola
Coca-Cola is a 2008 Olympic sponsor
Quickly expanding penetration before Olympics
Marketing of Own Brand Products – Darcunk
Excellent quality and design
Leverage relationship with Coca-Cola as producer of high quality water
Reasonable price
Currently over 3,600 distributors and retailers in 11 provinces
Exclusive supplier to the 5th China Changchun International Automobile
Exposition and other public events
Future marketing campaigns planned with capacity expansion
Rapidly Expanding Capacity
Acquired two bottled water companies (Nanning and Shenyang) to
expand capacity and footprint
Acquired 48% of Hutton, a leading supplier of PET injection molding
machinery and PET bottle blowing equipment in the PRC, to secure
access to advanced bottling equipment
For existing plants –
Automating all production lines to further increase efficiency
Adding additional production lines to increase capacity
Aggressive acquisition plan of additional bottled water companies
Over 250 bottled water producers in China
Current Processing Plants
Shenyang
Changchun
Nanning
Zhanjiang
Feixian
Guangzhou
Qingyuan - Guozhu
Current Capacity
Location
Annual Capacity –
Small Bottles
Annual Capacity –
Carboy Bottles
Guangzhou
178.5 million
3.4 million
Feixian
178.5 million
2.7 million
Changchun
178.5 million
4.1 million
Zhanjiang
178.5 million
3.4 million
Nanning
(Acquired)
178.5 million
3.4 million
Shenyang
(Acquired)
80.0 million
1.5 million
Total
972.5 million bottles
534.9 million liters
18.5 million bottles
349.7 million liters
Acquisition of Bottled Water Plants
Nanning Taoda Drink Co., Ltd
Closed on June 15th, 2007
Purchase price was approximately
$10.67 mm for 100% of company
Purchase price based on 4x 2006 net profit
Cash - $5.33 mm
Common stock - 1,523,578 shares
Estimated 2007 net profit of $3.5 mm
Added 181.9 mm bottles of capacity
Shenyang Aixin Company Ltd
Closed on August 24, 2007
Purchase price was approximately
$2.12 mm for 67% of company
Purchase price based on 6x 2006 net profit
Estimated 2007 net profit of $0.6
Added 81.5 mm bottles of capacity
Hutton Acquisition
Closed on August 31, 2007
Purchase price was approximately $18 mm for approximately 48%
of outstanding equity
Cash - $9 mm
Common stock – 2,133,333 shares
Secured access to leading bottling equipment and bottle designing
Blowing Mold Series
Automatic Blowing Machine
Injection Mold Series
Planned Capacity Expansion
Location1
Comes
Online
Annual
Capacity –
Small Bottles
Annual
Capacity –
Carboy
Bottles
Cap Ex
Changchun
Q2 2008
178.5 million
3.4 million
$6 million
Guangzhou
Q1 2008
178.5 million
3.4 million
$6 million
Beijing
Q1 2008
178.5 million
3.4 million
$6 million
Total Added
535.4 million
10.3 million
$18 million
50% increase to current capacity
1 New Plants Under Construction
Competition
1 Assumes the same percentage of off-trade value in 2007 as in 2006 based on Euromonitor International, "Bottled Water in China",
July 2007 and year-end exchange rate of 7.65
2 China Water and Drinks based on estimated 2007 revenue
2007E
Company
Revenue (USD $M)
1
Hangzhou Wahaha Group
$1,062
Guangdong Robust Corp
$400
Nongfu Spring Co
$357
Coca-Cola China Ltd
$240
Shenzhen C'est Bon Food
$131
Shenzhen Danone Health Beverage
$69
China Water and Drinks
2
$58
Nestle China
$47
Ting Hsin International Group
$29
Zhejiang Qiandaohu
$7
Zguangzhou Watson's Food
$7
Shanghai Jinjiang Kirin
$4
Others
$1,227
$3,638
Experienced Management Team
Mr. Chen Xing Hua (CEO and Director)
Over 20 years of experience in manufacturing and factory operation
management
Most recently a director of China Security & Surveillance Technology
Graduated from Jiangxi Technical Institute with a major in Industry
and Civil Building Industry
Mr. Hongbin Xu (Founder, President and Director)
Key member in establishing the original four plants
More than 10 years of experience in the bottled water industry
Graduated from the Water Resource Institute of QingHai Province
Mr. Wending Hu (Interim Chief Financial Officer)
Served as Financial Director of four of China Water & Drinks
subsidiary companies since June 2005
Over 28 years of experience in financial management and accounting
Bachelor’s degree in business administration
Financial Highlights
Income Statement Highlights
For the Year Ended December 31
9 Months Ended
September 30, 2007
(Unaudited)
2005
2006
($ thousands)
$27,680
$35,700
$37,235
Gross Margin
Total Operating Expenses
Operating Margin
Net Profit Margin
$6,969
$8,815
$11,421
29.0%
3.8%
25.2%
25.2%
32.6%
8.9%
23.9%
24.7%
34.5%
4.3%
30.2%
30.7%
Revenue
Net income
Rapid Revenue Growth
$ millions
Estimated figures are based on management’s projections. 2008E and 2009E do not include any
potential acquisitions.
$ millions
1 Based on diluted 98.3 million shares outstanding as of 9/30/07
Estimated figures are based on management’s projections. 2008E and 2009E do not include any
potential acquisitions.
$.191
$.31
EPS
Improving Profitability
Balance Sheet Highlights
Sept 30
2007
(Unaudited)
For the Year Ended December 31
2005
2006
($ in thousands)
Cash
$1,371
$1,836
$27,803
Current Assets
12,876
18,386
57,006
Total Assets
17,126
26,062
96,381
Current Liabilities
6,797
16,791
25,402
Total Liabilities
6,989
16,954
25,542
Total Stockholder's Equity
10,138
9,108
70,301
Total Debt
219
191
217
Strategy
Acquire additional bottled water production plants
Fragmented market with over 250 bottled water producers in
China
Identified initial potential targets have a combined 2006 net
profit of $26.6M1 and estimated 2008 net profit of $34.8M2
Significant opportunity to consolidate additional plants
Build new plants and expand production lines at existing plants
Automate and standardize production lines for all new and
acquired plants
Implement robust ERP system for all plants
Expand product line (e.g. vitamin water)
1 Represents 66 2/3% of net profits, since China Water anticipates purchasing a 66 2/3% stake in each company. Aggregate net profit figure
is based on each company’s unaudited numbers.
2 Based on management’s projections, please refer to Safe Harbor Statement.
Investment Summary
Our experience, technology, and strong customer relationships position
us to capitalize on the rapidly growing and fragmented bottled water
industry in China.
Only US-listed pure play in China’s bottled water industry
Attractive industry dynamics support aggressive growth opportunities
Well defined strategy for growth
Industry leading financial performance
Experienced management team with vision and knowledge to execute
CCG Elite Investor Relations
Crocker Coulson, President
1325 Avenue of the Americas,
Suite 2800
New York, NY 10019
Tel: 1 (212) 245-1010
Crocker.Coulson@ccgir.com
Contact
China Water and Drinks, Inc.
Hongbin Xu, Founder & President
18th Floor, Development Centre Building,
South Renmin Road,
Shenzhen City, 518001 PRC
Tel: (86) 755- 8228-7772
xuhongbin@cwnd.net