0 Woongjin Coway IR Presentation Materials March 2007 WOONGJIN COWAY CO., LTD. (021240)
1 Disclaimer This presentation contains historical information of the Company which should not be regarded as an indication of future performance or results. This presentation also contains forwardlooking statements that are, by their nature, subject to significant risks and uncertainties. These forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance or results. Actual results may differ materially from information contained in the forward-looking statements as a result of a number of factors beyond our control.
2 Index Investment Highlights Company Overview Business Overview Financial Reports
3 Investment Highlights Company Overview Business Overview Financial Reports
Key investment highlights 4 Robust demand for well-being living products Strong brand power with dominant position Ongoing revenue and profit increasing based on broad and solid customer base Strong cash flow generation from rental business Solid sales and maintenance CODY network Management policy in in enhancing shareholders value
5 Investment Highlights Company Overview Business Overview Financial Reports
Our history 6 First air cleaner production and sales Listed on KRX Merged with Woongjin Coway Development 2005 2004 2000 2001 1990 1994 1998 1989 Started bidet rental service Launched system kitchen brand Establishment Entered water purifier business Launched water purifier rental service Started air cleaner rental service Started food waste processor rental service Woongjin Coway is an integrated product and rental service provider focusing on high-end health and environmental products
Current ownership structure and subsidiaries 7 Current ownership Major shareholders Shareholders Seok Keum Yoon [As of March. 2, 2007] Stake % 27.2% Seok Keum Yoon 27.2% Woongjin ThinkBig Direct family members 5.2% 2.6% Others 32.8% Foreign investors 28.6% * No. of outstanding shares: 74,375,593 Other related parties 3.6% Woongjin ThinkBig 5.2% Direct family members 2.6% Other related parties Foreign investors Subsidiaries Company Name Woongjin Coway (Thailand)Co.,Ltd Woongjin Japan Woongjin Ho-wi Home appliance Co., Ltd. Woongjin Coway (M)SDN.,BHD. Woongjin Energy Co.,Ltd Stake % 99.9% 50.0% 91.9% 70.0% 80.1% 3.6% 28.6% [As of Dec. 31, 2006] Description Thailand sales Japanese sales Chinese sales Malaysian sales Solar energy business
8 Investment Highlights Company Overview Business Overview Financial Reports
Demand of well-being living products is robust with significant room for growth 9 Woongjin Coway s products Product Market Share Korean Penetration Saturation Rate(E) Market Competition Water purifier 52.6% 25% 55%~60% Coway : 52.6% Company C: 8.3% Company A:6.2% Bidet Japan 44.1% 10% 50%~60% Coway : 44.1% Company N: 11.7% Company D: 9.2% Air purifier 36.0% 9.5% 45%~50% Coway : 36.0% Company C: 12.4% Company S:9.6% * Source: National Statistics Office, Korean Water Purifier Producers Commission, Japanese industry press and Gallup research(1h 06)
Woongjin Coway enjoys a dominant market position due to unparalleled brand recognition 10 No.1 brand recognition in Korea Product Top of mind brand Mar. 2006 Mar. 2006 Award: Award: 1 st st prize, Korea Brand prize, Korea Brand Power Index by KMAC Power Index by KMAC 1 st prize Korea Service st prize Korea Service Management by Korea Management by Korea Service Management Service Management Promotion Agency Promotion Agency Apr. 2006 Apr. 2006 Award: Award: 1 st prize, Sustainability st prize, Sustainability of Management by Seoul of Management by Seoul School of Integrated School of Integrated Science & Technologies Science Technologies Global Brand Global Brand Competency Index by Competency Index by Japanese Management Japanese Management Association Consulting Association Consulting May 2006 May 2006 Award: Award: 1 st prize, 2006 Korea st prize, 2006 Korea Trust Company Awards Trust Company Awards by Korean Customers by Korean Customers Forum Forum Water purifier Air purifier Bidet 94.3% 62.7% 90.5% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Top position as a health and environment company 42.4% June 2006 June 2006 Award: Award: Korea Marketing Award by Korea Korea Marketing Award by Korea Management Association Consulting Management Association Consulting Korea Best Brand Award by Korea Best Brand Award by Hankyung Economic Daily Hankyung Economic Daily Sept. 2006 Sept. 2006 Award: Award: 1 st prize at Water purifier, Bidet and st prize at Water purifier, Bidet and Air purifier industry category in Korea Air purifier industry category in Korea Well-being Customer Index by KSAC Well-being Customer Index by KSAC prize at Water purifier and Air purifier prize at Water purifier and Air purifier industry category in Korea Customer industry category in Korea Customer Satisfaction Index by KMAC Satisfaction Index by KMAC 36.2% 29.9% 19.2% 13.7% WJ Coway Company P Company S Company L Company C *Source: Gallup research as of Dec. 2005
Strong revenue stream with the solid income structure 11 1. Revenue components 1 Rental program : Product + maintenance service(5years) 2 Outright sale : Product+ Product 1 year sale maintenance only 3 Membership program : Maintenance service only : either from 1 or 2 2. Revenue portion 1 Rental program 82.4% 83.7% 2 Outright sale with lump sum payment 4.5% 4.4% 3 Membership program 7.2% 7.6% 05 06 Monthly rental fee : Approx. W23,018 05 06 ASP : Approx. W886,459 05 06 Monthly membership fee : Approx. W13,794 *Note 1 : 5.8% of 2005 and 3.7% of 06 revenues derived from other sources, including system kitchen, and overseas sales without related rental revenues *Note 2: Membership program is not valid for new subscribers signed up after Aug. 2006. *Note 3: Rental and membership fees are quoted from Dec. 2006
Illustrative cash flow structure of rental business 12 Hypothetical cash flow structure of rental business (standard water purifier model : CP-01C) 1,200,000 Cash flow 1. At Sale : About W200K Loss 1,000,000 800,000 600,000 Cash inflow Registration fee (W90,909) Cash outflow: COGS (W192,110) Sales Commission (W80,000) Installation (W17,386) 400,000 2. At the end of 1st year : About W70K Gain 200,000 0 at sale yr1 yr2 yr3 yr4 yr5 Cash inflow Rental fee¹ (W409,091) Cash outflow: Sales Commission (W72,000) Visit Commission (W36,300) Filter, A/S, etc. (W25,476) -200,000 Meet Break Even Point within 1 st year ** Penalty on the contract cancelled before year 1 Subscribers: must pay the 50% of residual payment for one year Sales agents: no commission is given after cancellation *Note 1. VAT excluded rental fee 2. Cash outflow includes only direct expenses in sales 3. Consult with Appendix for detail information
Expectation on new increased rental/membership fee scheme 13 1 Re-rental ratio increasing due to Abolishing ownership transfer Membership fee increasing Profit Innovation 2 Stable cash flow due to Abolishment of KRW 0/50,000 registration fee Minimum registration fee of KRW 100,000 3 Operation profit increasing due to Rental fee increasing (5%)effect KRW 165bn gain in 5 years Membership fee increasing(23%) effect KRW 210bn gain in 5 years *Note 1. Rental fee increasing / registration fee change are applied to new customers (Aug. 2006) 2. Membership fee increasing is applied to new and incumbent subscribers (Nov. 2006)
Rental and Membership subscribers and cancellation trend 14 Subscribers (Rental + Membership) Rental cancellation trend (monthly base) [All products] Rental Membership Subscriber CAGR: 16.3% ( 03 06) 3,775 3,246 550 2,644 380 305 (unit: 000) 4,157 658 1.09% 1.04% 1.02% 2004 2005 2006 [Water purifier] 2,361 2,867 3,225 3,499 0.63% 0.55% 0.59% 2003 2004 2005 2006 2004 2005 2006 Continuous growth and stable cash flow generation occurring from broad customer base
Outstanding distribution channel supported by an extended sales network 15 Sales Organization Number of Cody agents Sales Headquarter 7,745 8,561 9,434 (Unit : person) 10,751 Sales Only Sales & Maintenance 3,085 4,828 CH* 4,339 CODY s 10,751 1,487 '00 '01 '02 '03 '04 '05 '06 *Note : CH - the team managing rental and outright sales (including Rental House) as of Dec. 2006 Sales and maintenance service : Coway s unique rental sales strategy Expand cross-sell opportunities(e.g. Bidet) Leverage allowing the company penetrating into new businesses Woongjin Coway s unique CODY agent system enables the company to expand marketability and cross selling opportunities that eventually increase customers base
Growth strategy 16 R&D New item / outsourcing Enhancing R&D and Design feature Oversea business Distribution channel expansion strategic partnership & contract with local sales Full production line up for export localization in product development Cross Selling ratio increasing Bundle Package product categorize products depending on features for repurchase cross-selling ratio : 1.3 unit /customer (as of end of 2006) Market expansion New distribution channel various customer base B2B market e.g.)specialized bidet launching for corporate use
17 Investment Highlights Company Overview Business Overview Financial Reports
Sales & profit trend 18 Sales (unit : KRW bn) EBITDA (unit : KRW bn) 1,008 1,118 1,343 Margin 274 299 362 27.2% 26.7% 26.9% 2005 2006 2007(E) 2005 2006 2007(E) EBIT (unit : KRW bn) EPS (unit : KRW) Margin 97 112 175 951 1,019 1,598 9.6% 10.0% 13.0% 2005 2006 2007(E) 2005 2006 2007(E)
Other financial information 19 Cash and Debt Debt Cash Net debt 69 68 116 97 132 (Unit : KRW billions) *Net Debt ratio: 21.2% 93 39 1 19 2004 2005 2006 CAPEX (Rental asset and other capital expenditure) Rental asset CAPEX (R&D included) (Unit : KRW billions) 176 165 166 24 43 66 2005 2006 2007(E) * Note : Figures in 2004 have been quoted from pre-merger Woongjin Coway Development
Focusing on enhancement of shareholders value 20 Dividend payout ratio Strong cashflow generation Woongjin Coway s DPS 1 (KRW) 400 (40%) 250 (34%) 340 (40%) EBITDA (KRW bn) 274 299 362 2004 2005 2006 Share buyback & cancellation Share buybacks and cancellations 2003: 1 million share buyback 2004: 5 million share buyback 2005: 3 million shares cancelled (purchased in 2004) 2007: 3 million share buyback Focus on enhancing shareholder value 2005 2006 2007(E) Increase company transparency Transparency increasing due to merger Active IR performance Quarter result release presentation periodical oversea NDR * Note : 1. DPS : 2004 figure of pre-merger Figures of Woongjin Coway
21 Appendix Income Statement Balance Sheet Cash Flow Demonstration
Income statement 22 * Note : 1. 2004 figures are for Woongjin Coway Development (Unit : KRW billions) 2004 2005 2006 Sales 827.8 1,008.1 1,117.8 Growth 0.1% 21.8% 10.9% COGS 303.8 363.7 380.4 %of sales 36.7% 36.1% 34.0% Gross profit 523.9 644.4 737.4 Gross profit margin 63.3% 63.9% 66.0% Selling and administrative expenses 412.5 547.5 625.1 Operating income 111.5 96.8 112.3 Operating income margin 13.5% 9.6% 10.0% Non-operating income (expenses) -10.9-10.9-9.9 Ordinary income 100.6 86 102.4 Ordinary income margin 12.2% 8.5% 9.2% Income tax 29.6 25.1 27.5 Net income 71.0 60.9 74.9 Net income margin 8.6% 6.0% 6.7%
Balance sheet 23 (Unit : KRW billions) 2004 2005 2006 Cash 1.0 18.6 34.5 Short-term financial instruments, investment securities 0.0 0.2 4.4 Trade, accounting and other receivables 31.6 63.3 125.1 Inventories 37.8 42.2 80.4 Other current assets 92.5 136.4 161.4 Total current assets 162.9 260.7 405.9 PPE(Property, Plant, and Equipment ),net 337.4 369.8 374.2 Intangibles, net 0.6 23.7 28.2 Other non-current assets 25.8 61.0 76.9 Total assets 526.8 715.2 885.1 Trade payables 76.0 32.6 29.3 ST borrowings 0.0 69.8 101.7 Accounts payable-other 61.5 75.7 73.5 Other current liabilities 112.3 176.1 227.3 Total current liabilities 249.8 353.9 431.8 Debentures 36.0 0.0 0.0 Other non-current liabilities 36.1 19.0 14.6 Total liabilities 321.9 373.2 446.3 Total shareholders' equity 204.9 342.0 438.6 Total liabilities and shareholders' equity 526.8 715.2 885.1 * Note : 2004 figure are for Woongjin Coway Development
Cash flow demonstration (Profit analysis per product unit) 24 Product: CP-01C (Water purifier) (Unit: KRW) Inflow At sale year 1 year 2 year 3 year 4 year 5 registration fee 90,909 Monthly rental 409,091 310,909 310,909 310,909 310,909 Subtotal 90,909 409,091 310,909 310,909 310,909 310,909 Outflow COGS 192,110 0 0 0 0 0 Installation fee(outsourcing) 17,386 0 0 0 0 0 Sales commission 80,000 72,000 0 0 0 0 Maintenance commission 36,300 36,300 36,300 36,300 36,300 Filter 14,400 14,400 14,400 14,400 14,400 A/S 7,080 7,080 7,080 7,080 7,080 Other costs 3,996 3,996 3,996 3,996 3,996 Sub total 289,496 133,776 61,776 61,776 61,776 61,776 0 0 0 0 0 Net cash flow (198,587) 275,315 249,133 249,133 249,133 249,133 Accumulated cash flow (198,587) 76,728 325,861 574,994 824,127 1,073,260 * Note : 1, One unit of water purifier rental contract by Cody excluding VAT 2. Cash outflow includes only direct sales fee *Avg. usage period of Water purifier: 4years