Investor Presentation November 2008 China Water & Drinks, Inc. |
1 Safe Harbor This is a presentation of Heckmann Corporation (“Heckmann”) on November 21, 2008 about Heckmann’s combination with China Water and Drinks, Inc. (“China Water”). Heckmann may hold presentations for certain conference attendees, stockholders, as well as other persons who might be interested in purchasing Heckmann’s securities. This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements related to the benefits of the transaction, the future financial performance of the surviving entity, the growth of the market for bottled water in China, expansion plans and opportunities, plans to increase production capacity, pending and future acquisitions by the surviving entity, and consolidation of the market for bottled water in China generally. These forward-looking statements are based on information available to Heckmann and China Water as of the date of this filing and current expectations, forecasts and assumptions and involve a number of risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing Heckmann’s or China Water’s views as of any subsequent date and neither undertakes any obligation to update forward-looking statements to reflect events or circumstances after the date they were made. Risks that could cause actual results to differ materially from those anticipated by the forward-looking statements contained herein include difficulties encountered in integrating the merged businesses and management teams, difficulty in completing targeted acquisitions or integrating them effectively, identifying and completing additional acquisitions needed to achieve growth targets, the adverse impact of competitive product announcements, revenues and operating performance, changes in overall economic conditions, competitors’ actions, pricing and gross margin pressures, loss of key customers, order cancellations or reduced bookings, control of costs and expenses, significant litigation, risks associated with international operations, the threat or occurrence of international armed conflict and terrorist activities both in the United States and internationally, risks and costs associated with increased regulation of corporate governance and disclosure standards (including pursuant to Section 404 of the Sarbanes-Oxley Act of 2002), and risks involving environmental or other governmental regulation. Information concerning risks, uncertainties, and additional factors that could cause results to differ materially from those projected in the forward-looking statements is contained in Heckmann’s Form 424B Registration Statement and Proxy Statement filed with the Securities and Exchange Commission, Heckmann’s Annual Report on Form 10-K for the period ended December 31, 2007, as well as Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other of Heckmann’s SEC filings, and China Water’s Annual Report on Form 10-K for the period ended December 31, 2007, as well as Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other of China Water’s SEC filings. This communication is being made in respect of the transaction involving Heckmann and China Water. Stockholders of Heckmann and other interested persons are advised to read Heckmann’s definitive Proxy Statement, Heckmann’s Annual Report and China Water’s Annual Report, and subsequent or amended filings with the SEC, for a description of the security holdings of officers and directors of Heckmann Corporation and China Water, and their respective interests in the business combination. Stockholders may obtain a copy of the definitive Proxy Statement, without charge, by directing a request to: Heckmann Corporation, 75080 Frank Sinatra Drive, Palm Desert, California 92211. The documents can also be obtained, without charge, at the Securities and Exchange Commission's internet site (http://www.sec.gov). |
2 China Water & Drinks Industry Overview |
3 Attractive Industry Dynamics China represents a compelling growth opportunity for a well-capitalized and experienced operator. Significant need for “safe” drinking water – A recent survey of 11 provinces found that over half of all water samples contained unacceptably high levels of bacteria (1) Significant opportunity for consolidation – Highly-fragmented market with over 250 producers The need for a clean and reliable source of drinking water in China is a significant issue, and bottled water has been increasingly relied upon for basic necessities. Tap water quality is generally unsuitable – Tap water in half of China’s major cities is polluted with industrial chemicals and fertilizers (2) – Industrial wastewater treatment has not been completely established 700 million people drink contaminated water every day and 300 million of those people drink water that is unsafe (3) 190 million Chinese suffer from water related illnesses each year (4) Bottled water has overtaken carbonated sweet drinks and is growing faster (5) (1) UNICEF. (2) Report issued on July 17, 2007 by China’s State Environmental Protection Administration. (3) Government report themed "China's Environment in 2006: Changes and Struggles.“ (4) Guardian News & Media. (5) Euromonitor International, "Bottled Water in China", July 2007. |
4 Underdeveloped Market Even with recent strong growth rates, bottled water consumption in China has significant room to grow. Source: Beverage Marketing Corporation and CIA World Factbook. Note: GDP per capita defined as GDP at purchasing power parity divided by population. Bottled Water Consumption – Liters Per Capita (2007) 259.7 204.8 201.8 149.5 135.5 126.1 110.9 107.9 28.8 33.0 13.7 120.0 United Arab Emirates Mexico Italy Belgium France Germany Spain United States Hungary Global Average Global Average (2008 E) China 2007E GDP per Capita (USD) $55,200 $12,500 $31,000 $36,500 $33,800 $34,400 $33,700 $46,000 $19,500 $5,300 |
5 Significant Market Potential 3,981 Miles = Distance from Anchorage, AK to Miami, FL 2 336,815,000 = Population between these two points 3,757 Miles = Distance from Hong Kong, China to Dubai, UAE 2 3,099,224,560 = Population between these two points The country and surrounding region represent a substantial opportunity for growth. UNITED STATES CHINA POPULATION 303,598,000 1,321,851,888 BOTTLED WATER SALES (2008E) 37,000 (liters in millions) 15,000 (liters in millions) BOTTLED WATER SALES (2008E) ~US$16 billion ~US$4.6 billion Source: Beverage Marketing Corporation and Euromonitor. |
6 Demand driven by Growing need for “safe” drinking water Improving living standards Middle class expected to be greater than 350 million by 2011 (1) Uneven distribution of water resources Increasing Domestic Demand 2,138 4,788 0 1,000 2,000 3,000 4,000 5,000 6,000 2002E 2007E Rapid Growth of Consumption of Bottled Water in China (in millions of gallons) Source: Beverage Marketing Corporation. (1) The McKinsey Quarterly, The value of China’s emerging middle class, 2006. Historical & Projected Growth of Chinese Middle Class 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1985 1995 2005 2015 2025 Poor (< 25,000 RMB) Lower Middle Class (25,001 - 40,000 RMB) Upper Middle Class (40,001 - 100,000 RMB) Mass Affluent (100,001 - 200,000 RMB) Global Affluent (>200,000 RMB) Source: National Bureau of Statistics in China; McKinsey Global Institute analysis. |
7 China Water & Drinks Business Overview |
8 Products & Customers Two main production lines – Bottle water (350 mL – 1,500 mL) – Carboy size water (18.9L) Expansion opportunities include: – Super oxygenated water – Vitamin-enriched water – Mineral water 64% 34% 2% Own Brands OEM Private label 2007 Revenue by brand Branded Product – Primary “Darcunk” (Absolutely Pure) bottled water – Continue to expand geographic reach of branded product via acquisition OEM – Coca-Cola ® in China (2008 Olympics Supplier) – Uni-President ® (Taiwan) – JianLiBao ® (China) – Great Nature (China) Private Label – Provide total solution, including bottle design, production, packaging and delivery – Supply to Sands Macau Casino 79% 21% Bottled Water Carboy Size 2007 Revenue by product line |
9 Production Facilities First-rate 5-stage filtration and purification process Plants are independently audited for – Quality control – Compliance in procedures – Standards – Hygiene Shenyang Changchun Nanning Zhanjiang Feixian Guangzhou JV (China Bottles) Fully integrated and automated production process All facilities meet government hygiene standards Meets Coca-Cola’s high standards Facilities highlights Annual Capacity - Annual Capacity - Location Small Bottles Carboy Bottles Guangzhou 178.5 million 3.4 million Feixian 260.1 million 6.8 million Changchun 178.5 million 3.4 million Zhanjiang 178.5 million 3.4 million Nanning 192.2 million 2.1 million Shenyang 151.0 million 2.1 million Total - Current 1,138.8 million 21.2 million Beijing (1) 247.1 million 8.2 million Changsha, Hunan 178.5 million – Harbin, Heilongjiang 329.5 million 3.4 million New Capacity in 2008 755.1 million 11.6 million Total - Pro Forma 1,893.9 million 32.8 million Note: New facilities denoted in yellow on the map to the left. (1) Acquisition of a plant under construction. Beijing Changsha Harbin Existing facilities Acquisitions expected to be completed by end of 2008 |
10 Experienced Management Team Mr. Richard Heckmann (Chairman & CEO: Heckmann Corp) Former Chairman & CEO of US Filter Former Chairman & CEO of K2 Inc. Co-owner of the Phoenix Suns Mr. Hongbin Xu (Founder & CEO: China Water & Drinks) Former government official managing water resources More than 10 years of experience in the bottled water industry Graduated from the Water Resource Institute of QingHai Province Mr. Jack Guo (CFO: China Water & Drinks) More than 7 years of Wall Street investment banking experience Dedicated the last three and a half years working with clients in the industrial sector Extensive knowledge of corporate finance Fluent in both Chinese and English Mr. Brian Anderson (CFO: Heckmann Corp) Former Director of Business Development and Director of Financial Accounting at K2 Inc. Former Corporate Controller at US Filter Former Corporate Controller for Wheelabrator Engineered Systems division of Waste Management which was acquired by US Filter |
11 China Water & Drinks Financial Summary |
12 Recent Financial Results The six months ended June 30, 2008 resulted in a period of significant growth for CWDK. Revenues increased $29.2 million, or 156%, to $47.9 million, from $18.7 million for the same period in 2007 CWDK produced approximately 460 million liters of bottled water, compared to approximately 205 million liters in the first half of 2007, a 124% increase Introduction of a new product, “high oxygen water,” contributed over 5% of second quarter 2008 revenue Organic growth of bottled water products benefited from the automation of CWDK’s production lines in the 2H 2007 Other 3% Carboy-sized bottled water 16% Bottle-sized water 81% Other 3% OEM 18% Own-brand / private labels 79% Revenue by Product Category Revenue by Source Category Source: Company filings. Note: Results reflect 6 months ended 6/30/08 period. “Other” category consists of sales of excess pre-forms and PET raw materials. |
13 2008 1st Half Growth Accelerating $18.7 $47.9 $5.6 $14.6 $34.7 $59.3 $7.5 $23.5 2007 2008 2007 2008 2007 2008E 2007 2008E ($ in millions) Actual (Unaudited) ($ in millions) Pro Forma with Acquisitions Revenue Net Income Revenue Net Income (1) (1) (1) Adds back one-time transaction, legal and financing expenses and other charges. (1) |
14 2009 Implied Earnings 2009E Adjusted Net Income for Contingent Payments – $90 million Source: Company filings as of November 4, 2008. Note: Fully diluted shares outstanding is calculated using the treasury stock method. (1) Includes 127.7m basic shares outstanding, public warrants exercisable for 54.1m shares of common stock at an exercise price of $6.00 per share, sponsor warrants exercisable for 7.0m shares of common stock at an exercise price of $6.00 per share, founders’ warrants exercisable for 13.5m shares of common stock at an exercise price of $6.00 per share, and warrants issued in connection with the merger exercisable for 2.7m shares of common stock at a weighted-average exercise price of $1.75 per share. HEK share price $6.00 $7.00 $8.00 $9.00 $10.00 $11.00 $11.50 FD Shares Outstanding (MM) 129.6 140.4 148.5 154.7 159.8 163.9 165.7 Implied 2009E EPS $0.69 $0.64 $0.61 $0.58 $0.56 $0.55 $0.54 Implied 2009E P/E 8.6x 10.9x 13.2x 15.5x 17.8x 20.0x 21.2x |
15 Balance Sheet Highlights Strong balance sheet to fund expansion. Source: Company filings and management estimates. Note: Pro forma for recent CWDK acquisitions. Current 2006 2007 Pro Forma Cash $1,836,000 $10,868,000 $330,516,525 Current Assets 18,386,000 53,418,000 442,913,000 Total Assets 26,062,000 106,150,000 958,954,525 Current Liabilities 19,343,000 15,727,000 11,955,000 Total Liabilities 19,506,000 15,994,000 32,674,000 Total Debt 192,000 380,000 146,000 Total Stockholders' Equity 6,556,000 89,639,000 923,067,525 Year Ended December 31, |
16 A Unique and Compelling Opportunity You know: – The largest automobile company in the world – The largest steel company in the world – The largest toy company in the world Who is the largest water company in the world? No argument about demand No argument about need –You need 14,381 bottles of water to make 8 ounces of beef (1) –You need 1,821 bottles of water to make an 8 ounce serving of rice (1) Arguably the largest and most important industry in the world - - - and it is almost impossible to invest in. (1) From Summit Global “Introduction to Water Investing”. You can live without all of these things... …5 days without water and you are a DEAD DUCK |