Nurturing China’s Agriculture Sector businesses – fertilizers, oil, chemicals and financial...

2005 Annual ResultsApril 10, 2006

Nurturing China’s Agriculture Sector

1 1

Disclaimer

This presentation and the presentation materials distributed herewith include forward-looking statements. All statements, other than statements of historical facts, that address activities, events or developments that Sinochem Hong Kong Holdings (“Sinochem HK”) expects or anticipates will or may occur in the future (including but not limited to projections, targets, estimates and business plans) are forward-looking statements. Sinochem HK’s actual results or developments may differ materially from those indicated by these forward-looking statements as a result of various factors and uncertainties, including but not limited to price fluctuations, actual demand, exchange rate fluctuations, exploration and development outcomes, estimates of reserves, market shares, competition, environmental risks, changes in legal, financial and regulatory frameworks, international economic and financial market conditions, political risks, project delay, project approval, cost estimates and other risks and factors beyond our control. In addition, Sinochem HK makes the forward-looking statements referred to herein as of today and undertakes no obligation to update these statements.

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Mission Statement

“ We aiming to become a world-class corporation providing fertilizer and other diversified agricultural products and services to the Chinese farming industry, thus promoting the sustainable healthy development of agriculture in China ”

3 3

2005 financial highlights

(HK$ ’000) 2004 2005 Change

Sales volume (Kt) 8,355 11,170 +34%

Turnover 11,837,185 19,248,665 +63%

Gross profit 1,025,072 1,542,793 +51%

Profit before tax 668,065 929,957 +39%

Net profit 510,824 779,421 +53%

EPS (HK cents) 10.12 14.49 +43%

Dividend per share (HK cents) 0 2.01

ROE 27% 29%(1)

Debt-to-equity ratio 86% 34%

Note: (1) Excluding the effect of increase in share equity as a result of share listing

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Table of contents

Company overview

Investment highlights

Financial summary

Growth strategies

5 5

Leading fertilizer enterprise in China

Largest fertilizer enterprise in China

– Sales revenue of HK$19.2 billion in 2005

– Commanding 12% of China’s market share

China’s largest fertilizer distributor– 1,063 sales outlets by 2005

– Building agriculture distribution “Super Highway”

China’s largest supplier of imported fertilizers– Total international procurement of 5.92 million tons in 2005

– Representing 45% of China’s total fertilizer imports

6 6

Well positioned to capture value in the whole product chain

Largest phosphate and compound fertilizer producer in China

Production capacity of 2.73 million tons as of 2005

Wholesale and retail customersProduction Distribution

1,063 sales outlets

Covering 20 major agricultural provinces

Serving 71% of total farmland area in China

Providing value added service

Achieving high brand awareness and recognition

Procurement

Potash, phosphate, nitrogen, and compound fertilizers

Diversified and unparalleled procurement sources

Exclusive contract with 9 major global suppliers

7 7

Strong and well known shareholders

Listed on the Hong Kong Stock Exchange via reverse takeover in July 2005

Sinochem Corporation

Sinochem HK (0297)

PotashCorp Public

53.53% 20.00% 26.47%

Established in 1950, a leading SOE under the SASAC

A Fortune Global 500 company with sales of US$20.4 billion in 2004

Total assets of US$6.2 billion

Core businesses – fertilizers, oil, chemicals and financial services

Sinochem Corporation

Listed on the Toronto and New York Stock Exchanges

Total production in 2005 over 13 million tons

Largest potash producer with 22% of global potash production capacity

Potash Corporation of Saskatchewan(“PotashCorp”)

* Note: as of Feb 2006

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Table of contents

Company overview


Financial summary

Growth strategies

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Favorable macro

environment

Supportive shareholders

Strong market

leadership

Well experienced leadership

team

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World population and food requirement

19502 billion people



1960One hectare to feed 2 people



Favorable macro environment

11 11

Nurturing the most populous nation

0

50

100

150

200

250

95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06E

(Mill

ion

tons

)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Stocks Stocks-to-use rate

Decreasing grain stocks

China’s farmland only represents 7% of the world, but needs to feed 22% of the world’s population

Grain storage in China has been decreasing for 7 consecutive years since 1999


Source: USDA

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CAGR = 3.4%

China28%

U.S.14%

India11%

RoW39%

France3%

Brazil5%

China – the largest market with steady growth

China’s fertilizer consumptionFertilizer consumption by country (2003)

China is the largest fertilizer consumption country in the world

China enjoyed a CAGR of 3.4% in fertilizer consumption from 1996-2004, above the global average of around 2%

Source: FAOSTAT, IFA, China Statistics Yearbook

Total: 144 million tons


38.3 39.8 40.8 41.2 41.5 42.5 43.4 44.1 46.4

0

10

20

30

40

50

60

1996 1997 1998 1999 2000 2001 2002 2003 2004

(Mill

ion

tons

)

Nitrogen Fertilizer Phosphate FertilizerPotash Fertilizer Compound Fertilizer

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Agriculture: China’s No. 1 development priority

Agriculture considered a strategic sector of national importance

– Fertilizer plays an important role in feeding a nation of 1.3 billion people

The current rural policies designed most aggressively in decades to enrich farmers

– Elimination of agriculture taxes

– Fiscal support for “industrialization” of farming and agriculture technology

Fertilizer producers and distributors benefit from farmer’s increased disposable income

– Every US$1 spent on fertilizer returns estimated $3 in crop yield

Sinochem HK will be a key beneficiary of the new agricultural policies


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Favorable macro

environment


Strong market

leadership


team

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Strong market leadership

安徽

The largest agriculture distribution network1,063 sales outletsCovering 20 major agriculture provinces, representing 71% oftotal farmland area in China

Shanxi

Tianjin

Fujian

TaiwanGuangdongGuangxiYunnan

Guizhou

Hunan Jiangxi

Zhejiang

Jiangsu

Anhui

HubeiSichuan

Henan

Shandong

Gansu

Ningxia

Inner Mongolia

Liaoning

Jilin

Heilongjiang

Qinghai

Xinjiang

TibetShaanxi

Hainan

Chongqing

Shanghai

Beijing

Developing nationwide distribution network

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2,000

404552

1,063

590

500

1,000

1,500

2,000

2,500

2002 2003 2004 2005 2008E

Building China’s agriculture distribution “Super Highway”

Enjoys direct access to end customers/farmers

Able to obtain valuable first-hand market information and customer feedback

Ideal platform to distribute other agriculture products

Double the number of outlets by 2008

Number of sales outlets


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Successful global sourcing strategy


5.92 million tons of fertilizers imported in 2005, accounting for 45% of total imports, being the largest in ChinaOver 50% market share of imported potash fertilizers and compound fertilizersExclusive supply contracts with 9 major fertilizer suppliers

Nitrex-Complex

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Advantageous production facilities

Largest phosphate and compound fertilizer producer in China

Production capacity of 2.73 million tons, 17% higher than 2004

Increasing production capacity

Access to resources/markets

Phosphate and potash fertilizer production bases close to resources

Compound fertilizer production bases close to customers


Compound Phosphate

Nitrogen

Potash

Yunnan and Guizhou account for around 70% of China’s total phosphate-rich ores

Qinghai, accounts for 97% of China’s potash chloride reserves

Shanxi is a major coal-based nitrogen production area

Comprehensive product offerings

The only domestic producer/provider of full-line product offerings

19 19

No.1 brand in the sector


Nationwide toll free hotline(800 810 9991)

Nationwide public campaign targeting farmers

Joint promotional programs with research institutions and

universitiesTop 20 globalized Chinese brand (2006 China Radio International survey)

80% brand awareness in local fertilizer agents /distributors (2005 Company survey)

20 20


Favorable macro

environment


Strong market

leadership


team

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Full support from Sinochem Corp

Share parent company’s premier status and resources

Non-competition undertaking from Sinochem Corp in fertilizer business

Free usage of Sinochem Corp’s logo and brand

Free option to purchase Sinochem Corp’s remaining fertilizer assets

Salt Lake Potash (20%)Production capacity: − 1.5 million tons of

chloride potassiumLargest potash fertilizer producer in ChinaListed on Shenzhen Stock Exchange

Tianji Sinochem Gaoping Chemical Engineering (40%)Production capacity:− 0.6 million tons of

nitrogen fertilizersProduction commence in 2006

Sinochem Shandong (60%)Production capacity: − 0.6 million tons of

nitrogen fertilizersProduction commenced


22 22

Strong confidence from PotashCorp


PotashCorp’s interest in Sinochem HK

Strong confidence from PotashCorp

PotashCorp exercised its call option on the earlier practicable date in Feb 2006

It demonstrated the strategic investor's – Strong confidence in China’s

fertilizer industry– Strong confidence in

Sinochem HK’s market leadership

20.00%

9.99%

0%

5%

10%

15%

20%

25%

30%

Jul-05 Feb-06

+Call option

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Favorable macro

environment


Strong market

leadership


team

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With an average of over 14 years’ experience with Sinochem Corporation, the management team

has accumulated a strong knowledge and

experiences in the sector

Well experienced leadership team

Mr. LIU Deshu, ChairmanJoined Sinochem Corporation in 199820 years of corporate managementNo.1 in the list of “Ten Most Valuable Managers” in 2004 in ChinaEMBA, China Europe International Business School

Mr. DU Keping, CEO Joined Sinochem Corporation in 1989Former official at Department of CommercePrevious experience with KPMGMBA, Univ. of Int’l Business & Economics

Mr. ZHANG Baohong, CFOJoined Sinochem Corporation in 1988Former CFO at Sinochem Japan Co., LtdEMBA, Guanghua School of Management, Peking University

Well experienced leadership team

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Table of contents

Company overview


Financial summary

Growth strategies

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11,170

8,3557,602

2003 2004 2005

Rapidly increased sales

Turnover (HK$ ’000)

CAGR 41％CAGR 21％

9,750,37311,837,185

19,248,665

2003 2004 2005

Volume (’000 tons)

27 27

8.17%8.66%

8.02%

2003 2004 2005

Steady profit margin

Gross margin Net margin

4.01%4.32%

4.05%

2003 2004 2005

28 28

Strong profit growth

Net Profit (HK$ ‘000)

CAGR 41％

390,943

510,824

2003 2004 2005

779,421

Note: * Guaranteed 2005 net profit in Company circular

Guaranteed profit *

23%

633,000

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Sales and gross profit breakdown

Potash55%

Compound fertilizer

14%

Phosphate14%

Nitrogen17%

2005 sales breakdown 2005 gross profit breakdown

Compound fertilizer

13%

Phosphate10%

Nitrogen8%

Potash69%

30 30

87,987

106,931

11.6%10.8%

2004 2005

Working capital / sales

Cash flow and capital expenditure

Cash flow before financing activities (HK$’000) Capital expenditure* (HK$’000)

189,147

270,890

2004 2005

Note: *Cash expenditure on fixed assets and project investment，excluding goodwill

31 31

1413

2004 2005

116

90

2004 2005

Working capital management

Inventory days Accounts receivable days

32 32

Strengthening balance sheet

1.27

1.41

1.20

1.25

1.30

1.35

1.40

1.45

2004 2005

Current ratio Debt to equity ratio

86.06%

34.40%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2004 2005

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Global fertilizer majors comparison

Revenue growth (03–05 CAGR)

2.0%

14.8%

17.2%

19.8%

40.5%

14.7%

9.7%

KemiraGrowHow

Yara

IsrealChemicals

Agrium

PotashCorp

Terra

Average = 17.0%

Sinochem HK

ROE* (2005)

4.5%

24.1%

25.5%

27.7%

28.8%

24.0%

9.3%

Terra

KemiraGrowHow

Agrium

Yara

PotashCorp

IsrealChemicals

Sinochem HK

Average = 20.5%

Note: *Excluding the effect of increase in share equity as a result of share listing

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Table of contents

Company overview


Financial summary

Growth strategies

35 35

Continuing to integrate production, procurement and distribution and focus on distribution

Achieve at least one distribution center for each of the major 1,800 agricultural counties

Acquire major ports facilities and build up regional warehouse centers

Brand building and technical service

Increase to7-8 million tons in three years

Build up production facilities in proximity to resources

Potential asset injections: – Salt Lake Potash– Tianji Sinochem– Sinochem Shandong

Continue to strengthen international strategic alliance

Long-term supply agreement with domestic large producers

Over 50% of domestic procurement

Expand the reach of China’s agriculture “Super Highway”

Further increase production capacity Grow domestic procurement

Excellent platform to achieve significant growth

36 36

Nurturing China’s Agriculture Sector

Pesticide

Seeds

Other

agricultural

products

Fertilizers

38 38

Glossary

Fertilizer Organic or inorganic material containing one or more of the nutrients—mainly nitrogen, phosphorus, and potassium, and other essential elements required for plant growth. Added to the soil or other medium, fertilizers provide plant nutrients that are naturally lacking or that have been removed by harvesting or grazing, or by physical processes such as leaching or erosion

Potash fertilizerPotash fertilizer is the commonly used term for the soil fertilizer forms of potassium (element K). Potash fertilizers should generally be applied at sowing time. The K+ ions are adsorbed in the soil and thus remain available, yet largely protected against leaching. Potash fertilizer involves in production, transportation and accumulation of sugar in plants. It maintains electrical balance in plant cell and assists hardiness of plants and their resistance to water stress, pests and diseases

Phosphate fertilizerPhosphate fertilizer is the commonly used term for the soil fertilizer forms of Phosphate (element P). Phosphate fertilizer encourages rooting, blooming and fruit production

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Glossary (continued)

Nitrogen fertilizerNitrogen fertilizer is the commonly used term for the soil fertilizer forms of nitrogen (element N). It is an important component of proteins and chlorophyll and is most responsible for yield increase

Compound fertilizerCompound fertilizer provides a mix of nutrients that can be tailored to a specific plant’s nutritional needs, taking into account soil and climatic conditions. Compound fertilizers contain at least two of the three main plant nutrients: nitrogen (N), phosphate (P) and potassium (K), which together is often referred to as NPK fertilizer

Mt nutrientMillion tonnes of nutrient, quantity of consumption and production of fertilizers are expressed in weight containing 100% effective nutrient

Nurturing China’s Agriculture Sector businesses – fertilizers, oil, chemicals and financial...

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