Zhejiang Hailiang Co., Ltd. (hereinafter referred to as “Hailiang Stock” or “the Company”) signed an Equity and Asset Purchase Agreement with KME Germany GmbH & Co. KG (hereinafter referred to as “KME”) on 28th January 2019 to acquire KME’s three copper alloy rod manufacturers in Germany, France and Italy, as well as two copper tubes manufacturers in Germany and Spain.
KME, one of the world's largest manufacturers of copper and copper alloy products, is a global leader in the copper processing industry, enjoying a good reputation in the global copper and copper alloy processing market. The company acquired all its copper alloy rod business and partial copper tube business.
I. Background and Purpose of the Acquisition
(I) Output Hailiang Stock’s management and technology in a better and faster way to bolster its profitability.
Adhering to a sound business philosophy, the Company strengthens comprehensive risk management and control. It leads the world in refinement and cost management capabilities, with outstanding achievements in technological innovation, cost reduction and efficiency enhancement. Showing superiority in key operational and financial indicators than its global counterparts, Hailiang Stock serves as a benchmarking enterprise in the global copper processing industry. From 2013 to 2018, the compound annual growth rate of the Company's sales, sales revenue and net profit attributable to the parent company reached 26.67%, 25.31% and 26.08%, respectively, which is significantly faster than the consumption growth rate of the global copper tube market (according to the data provided by IWCC: the compound annual growth rate of the global copper tube market consumption from 2013 to 2018 increased by 3.09%.
After acquiring JMF, Luvata and Chengdu Bede and other counterparts, Hailiang Stock continuously output refined management and preparation technology to these companies to realize rapid growth in sales volume and profitability. Take the three subsidiary factories of Luvata (Europe) as an example, founder of the global continuous casting and rolling production process. Through management integration and technical upgrading of its production line, the Company found significant improvement in production efficiency and operating efficiency. In 2018, these three factories achieved a sales volume of 78,900 tons, an increase of 62.22% compared with the pre-delivery year; a net profit of 92.0223 million CNY, an increase of 88.83% compared with the pre-delivery year, generating generous returns.
Upon the completion of the acquisition, the Company and the company under Agreement to acquire can share technologies, accelerate the output of the refined management experience, continuously enhance the operational efficiency of the acquired company, and quickly bolster the profitability of the Company.
(II) Fully take advantage of KME’s brand influence to quickly increase the Company’s market share.
Europe is an important and mature manufacturing region and consumer market of copper processing material in the world. Copper processing materials have been widely applied in Europe, especially in high-end equipment, precision instruments and other industries, such as aerospace, automobile, mechanical equipment, electrical and electronic fields. KME Group, a global leader in copper processing industry, is well-known for its production capability, operation ability and profitability. The company under Agreement to acquire covers copper tubes and copper rods factories in Germany, Italy, France, Spain and other countries, with customers mainly coming from Italy, Germany, France and other major European countries. In addition, the acquired company dominates the high-end copper alloy rod market in Europe with a market share of approximately 17%.
The acquisition is expected to deliver high-end copper alloy rod manufacturing technology to Hailiang Stock, and helps the Company to explore the European high-end copper alloy rod market. Furthermore, the brand reputation of KME is favorable for the Company to expand the European high-end market and rapidly increase its market share.
II. Influence of the Acquisition on the Company
(I) Synergistic Effect Rapidly Boost the Company’s profitability.
Although China has become the world's largest producer of copper processing materials, it still needs to import a large number of high-end copper processing materials, especially high-end copper alloy materials including copper alloy rods. The acquisition of the world's leading high-end copper alloy bar manufacturer will allow the Company to further enhance its R&D and manufacturing capability in high-end copper alloy product technology based on its existing technology, filling the vacancy of high-end copper alloy processing materials in domestic market.
The acquisition will enable the Company to comprehensively and effectively integrate its target business. Through the output of the Company's advanced business mode and refined management experience in copper processing, it is predicted to boost operational efficiency of the target business to realize a significant increase in target business performance.
(II) Contributes to a Rapid Increase in the Company’s Production Capacity and Sales
At the moment, the Company obtains several manufacturing bases which are located in Zhejiang, Shanghai, Anhui, Guangdong, Chongqing, Chengdu, Vietnam, Thailand, etc., and prepares to establish a production base in the United States. As a part of the Company's globalization process, there are also sales companies and offices in Southeast Asia, the Middle East and the United States. After the completion of the acquisition, the Company will have manufacturing bases in major markets such as China, Southeast Asia, the United States, and Europe, featuring more reasonable industrial layout and greater production capacity. The Company will further integrate global production resources and sales resources and optimize resource allocation to improve its operational efficiency and accelerate its globalization process.
(III) Contributes to Enriching the Core Competitive Products of the Company
Undoubtedly, KME is a leader in European copper rod manufacturing market, enjoying a copper alloy rod capacity of 280,000 tons. With a comprehensive product portfolio and high brand reputation, it attracts a wide range of customers from aerospace, automobile, mechanical equipment, electricity and electronics, and other fields that demand high-end copper alloy rods.
The acquisition will enable Hailiang Stock to rapidly grow into a leading company in the global copper rod industry, even though it has already ranked among the leading companies in the global copper industry. In the future, the Company, besides leading the global copper tube industry, is determined to vigorously develop and lead the development of the global copper rod industry, providing a broader market space for the Company's future development. Meanwhile, the acquisition with a German copper pipe factory included offers the Company a great opportunity to deepen the European copper tube market, and quickly increase its copper tube market share in Europe.