Longchen Paper & Packaging Co., Ltd. — Annual Report 2016

Jul 12, 2016

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Environmentally friendly technology for a better future
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~~免責聲明~~

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• The contents in this presentation and relevant messages issued at the same time were obtained from the company’s internal and external information such as operation results, financial status, business development, etc.

 The company does not release any financial forecast. However, the description involving the company’s opinions on its future operation and industrial development in respect of the company’s finance, business and Q&A made in this presentation could be different from the future actual results. The reasons for such differences may include changes in market demand, price fluctuations, competition behavior, international economic situation, exchange rate fluctuations, upstream and downstream supply chain, and other risk factors which are out of the company’s control.

 The future outlook in this presentation reflects the company’s views on the future to this day. The company will not be responsible to send reminders or make updates for any future change or adjustment in those views.

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The price of civilization we pursue…

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榮成環科 帶來解決方案

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Environmentally friendly technology for a better future
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~~Vision~~

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LCPC applies highly efficient resource utilization as a waste solution

•  Highly efficient resource utilization for low carbon paper making and Eco packaging

1kg cartons made of recycled paper produce only 0.8kg CO2 emission.

Low Carbon Papermaking

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Traditional Papermaking

Burning the 1kg cartons made of trees, it produces about 6.1kg CO2 emission.

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When pursuing a more modern and enjoyable life, we make every effort to leave our next generation with more resources and a greener living environment.

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~~Business Model~~

LCPC manufactures environmentally friendly daily paper products based on a resource recycling model

• Using recycled paper raw material, we exercise an integrated service-based manufacturing approach for low carbon paper making and Eco packaging.

• We can provide enterprise customers with customized, high added value for an all-round product packaging solutions.

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Collection Center Recycled paper Pulping Paper machine Waste water
storage treatment
High quality Corrugated Box Corrugated Container board Air pollution and waste
packaging Board Products materials treatment
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LCPC recycles approximate 4.50 million tons of waste paper, which is equivalent to save 64 million trees and reduce 22 million carbon emission for Mother Earth in 2020.

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(1)

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LCPC’s Five Core State-of-the-Art Technology

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•  Utilization of recycled fiber

1 ton of waste paper can provide 0.87 ton of recycled fiber.

Recycling 1 kg of waste paper to made of recycled carton, we can reduce 5.3 kg carbon dioxide emissions for the Earth.

1 ton of paper production use 1.2-1.5 ton of steam.

• Energy-saving manufacturing

1 ton of paper production use 380-430 Kilowatt electricity.

Our selected equipment is advancing with the times and implanted with advanced technology.

• Water-saving manufacturing

A drop of water is reused 13 times in the plant, 1 ton of paper use merely 6 tons water.

We continue to develop source management, water reuse and rainwater collection reuse technology.

Our green production focuses on each of the manufacturing process from raw materials to finished products and ensuring environmental protection, quality and efficiency at the same time.

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(2)

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LCPC’s Five Core State-of-the-Art Technology

 Air & water pollution and waste control

Continuous improvement of air pollution control technology to achieve 80% lower SOx emission and 20% lower NOx emission compared to regulatory standards.

Applying state-of-the-art, environmentally-friendly technology that reduces sewage COD to 15% lower than regulatory standards, facilitates waste recycling and sludge reduction. This realizes zero discharge of biological sludge.

Space utilization

We continue to reduce non-value-added space in our plant, and conduct the process leveling to reduce space requirements. We process 3.8 tons capacity per square meter every year in our plant.

Our green production focuses on each of the manufacturing process from raw materials to finished products and ensuring environmental protection, quality and efficiency at the same time.

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~~LCPC~~ History and Strategy

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1. Company History

2. Paper Collection Centers

3. Low Carbon Paper Mill

4. Eco Packaging Plants

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~~Company History~~

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1961 1978 The first industrial paper product LCPC was founded was produced

2003 The first year of LCPC focused on industrial paper product

2020

Achieve five-year plan of carbon emission reduction

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工業用紙 ： 瓦楞紙板 瓦楞紙箱
紙
裱面紙、芯紙
Corrugated Corrugated
張 Container Container
工業用紙及包裝紙 Containerboard ：
board boxes
及 Linerboard,
Containerboard & Medium
紙 Packaging paper
牛皮紙/白紙板 加工廠 紙袋
板 灰紙板 Converters 紙盒
其他
Packaging paper
Bags
& Paperboard Cartons
Others
新聞紙 報社加工印刷
News print News printing
Since 2002,
文化用紙 商用/印刷
加工廠 LCPC has been focusing on
Writing & Converters Commercial industrial paper product
Printing paper & Printing
家庭(生活)用紙 加工廠 面紙/衛生紙 In 1999,
Converters Tissue & LCPC sold household
Household Tissue Others paper business to P&G
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~~Paper Collection Centers~~

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 17 waste paper collection centers covering the YRD Region, 8 centers are in preparation.

 3 waste paper collection centers in Taiwan.

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~~Low Carbon Paper Mill~~

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 3 Low Carbon Paper Mills in China

• 1 Low Carbon Paper Mill in Taiwan

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~~Eco Packaging Plants~~

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 7 Eco Packaging Plants in China, 3 plants are in preparation.

• 5 Eco Packaging Plants in Taiwan.

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~~LCPC~~ Finance and Industry

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1. Company Structure

2. Financial Information

1. Industry Overview

2. Guardian Environment

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1. Company Structure

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LCPC（1909.TW）
98.24.% comprehensive holdings
L&C（BVI）
80% 100% 95.43% 100%
LONGCHEN Long Chen SU ZHOU
Dalton
Long Chen Paper (China) MANGO
Paper Trading Packaging
100% 100% 80%
LONG CHEN PAO LONG
TRADING TRADING Loong Far
100% 100% 50%
JIANGSU LONGCHEN Kunshan
SENBO
GREENTECH CO., LTD Long Chen
(Becomes a subsidiary of
100%
LONGCHEN GREENTEC H Sunyoung
in 2016 ) (Suzhou)
100% 100% 90% 100% 25% 73.18% 98.84% 34%
66.56
33%
Hong Kong XIASHA MINHANG SUZHOU PINGHU WUXI HUBEI % Rongyang
Long Chen LONGCHEN LONGCHEN LONGCHEN LONGCHEN LONGCHEN LONGCHEN (Shanghai)
10% 1.82% 33% 33% 75% Sunyoung 25%
(Chongqing)
52.5% 100% 100% 81.97% 100% 50%
Long Chen Zhejiang Pinghu City Wuxi Gaohao
Metis
Paper Japan Long Chen Dushan Port Long Chen Chongqing
Waste Water Low carbon Eco
Recycled Paper 15
Treatment papermaking packaging
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2.Financial Information – Income Statement

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Unit : NT$ Million

	2014	2015	YOY	2015Q1	2016Q1	YOY
Revenues	27,488	26,827	(2.4)%	6,627	7,296	10.1%
Cost of good Sold	22,200	21,847	(1.6)%	5,505	5,916	7.5%
Gross Profit	5,288	4,980	(5.8)%	1,122	1,380	23.0%
Operating Expenses	3,255	2,904	(10.8)%	684	834	21.9%
Operating Income	2,033	2,076	2.1%	437	546	24.9%
Non-Operating Income / Expenses	(838)(註)	(826)(註)	(1.4)%	(180)	(187)	4.5%
Profit before Tax	1,195	1,250	4.6%	258	358	38.8%
Income Tax Expenses	319	301	(5.6)%	77	97	26.0%
Profit Attributable
To Owners of the	874	935	7.0%	177	253	42.9%
Parent
EPS	1.09	1.12	2.8%	0.21	0.30	42.9%
(NT$)

Note ： The foreign exchange losses of NT$ 286,679 thousand and NT$ 506,845 thousand occurred in 2014 and 2015 respectively due to the depreciation of RMB exchange rate against USD.

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2. Financial information: Inventory turnover in days and product mix ratio

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Inventory turnover in Days over the Last 3 Years

Improved production efficiency realizes optimization of product mix

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Unit : Day Unit ：%
Raw Work in Finished 芯紙銷量 Medium 面紙銷量 Linerboard
Material Process Goods sales volume sales volume
100%
41
39 35
37
45.0%
75% 50.6% 51.8%
5.9 55.6%
50%
55.0%
25% 49.4% 48.2%
44.4%
0%
2016H1 2013 2014 2015 2016Q1
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2.Financial Information-Dividend Policy

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• Accumulated cash dividend accounted for 79% of accumulated profit attributable to owners from 2012 to 2015.

• Cash dividend payout ratio reached around 89% in 2015.

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Unit : NT$
EPS 現金股利Cash Dividend
1.40
1.2
1.20 1.12
1.09
1
1.00 0.9 0.9
0.86
0.8
0.80 0.7
0.68
0.60
0.4
0.40
0.20
0
0.00
2010 2011 2012 2013 2014 2015
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3.Industry Overview-Taiwan Market

• In Taiwan, the annual consumption of paper and paper boards (including industrial paper, writing & printing paper & household tissue) is 4.27 million tons, slightly reduced by 2.53%.

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• In Taiwan, the consumption of industrial paper is approximately 1.77 million tons, an increase of 0.98%. The consumption of cartons is 2.13 billion square meters, a 1.3% reduction. Longchen is one of the top three industrial paper providers in Taiwan.

Paper and Paperboard Market in Taiwan

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Unit : 10kt
生產量Production 消費量Consumption
600
476 468
500
441 437 442 441 433 438 427
389
400
300
200
100
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600
500
400
300
200
100
0
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台灣地區工紙廠市佔率 2015 Industrial Paper Market Share in Taiwan

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8.9%
22.2% 44.0%
24.9%
2015 Carton Box
Market Share in Taiwan
正隆
29.0% 永豐餘
38.1%
榮成
18.1%
14.8%
其他
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資料來源:台灣造紙公會 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

3.Industry Overview-China Market (1)

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• 2015 China cardboard and corrugated paper consumption was about 45.25 million tons in 2015, YoY+3.03%.

• Nine Dragons and Lee & Man paper were in lead of the market share in China. LCPC's market share reached around 3.6% in 2015, which was one of the top three in eastern China. The trend is clear that big ones get bigger.

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Industrial paper consumption in China 2014年及2015年中國地區工紙廠市佔率 2014 & 2015
Industrial Paper Market Share in China
Unit : 10kt
6,000
CAGR 7.3%
5,000
26.7%
2014
4,000
26.6%
3,000
58.5%
58.1% 11.1%
2,000 3.7% 11.6%
1,000 3.6%
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
(F)
Source : Annual Report of China's Paper Industry ; RISI 20
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3.Industry Overview-China Market (2)

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Paper package is leading the global packaging Chinese population has great potential in industry average paper consumption

Unit : kg

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300
紙包裝 Paper and
7.0% [4.1% ] board
246
250
224
軟性包裝 Soft 215
packaging
31.8%
13.9% Rigid 200 187
硬塑膠包裝
plastics
金屬包裝 Beverage 150
cans
21.4%
玻璃包裝 Glass
100
76
21.8%
56.8
其他 Others
50
0
美國USA Japan 日本 Germany 德國 台灣Taiwan China 中國 全球Global
Source: Smithers Pira data, 2015 data Source: Taiwan Paper Industry Association; 2014 data
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3.Industry Overview-China Market (3)

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China's urbanization rate will boost consumer demand

of consumer goods

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Unit : % Unit : Trillion RMB$
China's Urbanization Rate 中國人口城鎮化比率
2013 2014 2015
75% 35
CAGR 12.7%
70% 30
70%
25
65%
20
60%
15
60%
CAGR 11.6%
56.1%
10
CAGR 11.3%
55%
5
50%
0
2013 2014 2015 …… 2020(F) …… 2030(F)
China 全國 YRD Region 長三角 Hubei 湖北
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Source: National Bureau of Statistics of China; Annual Report On Urban Development of China No.8

Source: National Bureau of Statistics of China

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3.Industry Overview-China Market (4)

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China's Fast-Growing Logistics Service

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Unit : 100
單位: 億件
million Pcs 2013 2014 2015
250
206.7
CAGR 52.0%
200
150
CAGR 52.9%
91.9
100
78.3
CAGR 50.0%
50 33.5
5.1
2.2
0
China 全國 YRD Region 長三角合計 Hubei 湖北
資料來源:中國國家郵政局 Source : China State Post Bureau
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2014-2018 Transaction Amount in China’s Online Shopping Market Unit : Trillion RMB$

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9
CAGR 28.0%
8 7.5
7
6.2
6
5.0
5
3.8
4
2.8
3
2
1
0
2014 2015 2016(F) 2017(F) 2018(F)
資料來源:艾瑞諮詢，2016年 Source : iresearch, 2016
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三、 Guardian Environment - Longchen Greentech and PRC’s 13th 5-year plan

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• In PRC’s 13th 5-year plan, innovation and new ventures have become the virtue of the new economic structure, which the beautiful and healthy China is expected to realize via the internet and by the 2025 “made-inChina”initiative.

• Longchen Greentech respects PRC’s 13[th] 5-year plan and takes the initiative in creating a model of low carbon paper making and Eco packaging based on the following six elements:

• Forest conservation: Recycling a ton of waste paper provides 0.87 tons of reusable fiber; this saves 16 trees

• Carbon reduction: Manufacture of 1kg carton with recycled waste paper reduces carbon dioxide emission by 5.3kg

• Water conservation: Water consumption for typical paper making from recycled paper is 1/4 of traditional prime pulp approach (TPPA), and Longchen Greentech requires only 1/6 water consumption of TPPA

• Energy conservation: Water consumption for typical paper making from recycled paper is 4/10 of TPPA, Longchen Greentech requires only 3/10 energy consumption of TPPA

• Sludge reduction: Zero discharge of organic sludge

• Eco packaging: Diversified carton package design not only precludes the need for adhesive tape and polystyrene, but provides cartons with better strength to resist pressure and shock and reduced volume for space saving.

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4. Guardian Environment - Lcpc’s 5-year carbon reduction plan

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LCPC will recycle approximate 4.50 million tons of waste paper in 2020, it means that we can reduce 22 million carbon emission and save 64 million trees for Mother Earth per year.

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Carbon (emission) reduction: 10kt Tree chopdown reduction: 10k
Carbon (emission) Tree chopdown
reduction reduction
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Environmentally friendly technology for a better future
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