Temperature Controlled Logistics [ABC Company] China Strategy - TC Development Plan

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Temperature Controlled LogisticsABC Company
China Strategy - TC Development Plan
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Agenda
Executive Summary
China TC Market Overview Growth Trends
TC Market Breakdown Target Industry Segments
Global Competitors Local Players
TC Market Rationale Proposed Initiatives
Financial Impacts Initiative Requirements
Implementation Plan Risk Assessment
Next Steps Decision Needs
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Executive Summary (1/2)

• Temperature Controlled Logistics, also regarded
  as Cold Chain Logistics or Perishable logistics,
  is an integrated temperature-controlled system in
  which product quality, integrity and safety are
  maintained throughout the process of export,
  packaging, packing, transport, handling, cold
  storage, distribution, delivery and placement at
  point of sale.
• It applies to all temperature sensitive products
  such as frozen, chilled fresh perishable
  foodstuffs, pharmaceutical products, Hi-tech
  electronic equipments, flowers and chemicals.
• As Chinese consumers lifestyle and buying habits
  evolve, more attention has been paid to food
  safety. In most inshore cities, cold chain
  logistics market emerges and begins to boom.
  According to reliable data from officials, TC
  Logistics market in 2005 reached 1.3 trillion CNY
  and will expand to 4.8 trillion CNY by 2010.
• However, with rapid market development, we have
  to overcoming market challenges
• - Backward infrastructure, below-standard
  refrigerator vans, obsolete freezing technology
• - Complicated TC-related industry segments make
  TC logistics a technology and capital intensive
  industry, high return and high risk
• - Intensified competition from both experienced
  global competitors and emerging local players
• - Out-of-date cold chain management mainly due
  to scarcity of skilled and qualified
  professionals
• Notwithstanding, current cold chain logistics
  market is in primary stage, few players and game
  rules, but a more-profit bright future.

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Executive Summary (2/2)

• The effective implementation of TC capability
  development plan will strengthen our existing
  advantage in TC-related FMCG market and make
  emerging TC-related Life Science market our next
  profit source.
• Accordingly ABC Company s total revenue is
  expected to grow from 68mn in 2006 to 184mn
  by 2010, exceeding the forecast of initial
  financial planning.
• TBD
• To achieve these financial targets, investment
  requirements of 7.94mn besides of an increase
  of 7 indirect headcount are identified.
• TBD
• In a word, entry into TC market is aligned with
  ABC Company China Strategy, providing big
  potential to increase companys revenue and
  profit in Chinas intriguing and complex TC
  market.

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Agenda
Executive Summary
China TC Market Overview Growth Trends
TC Market Breakdown Target Industry Segments
Global Competitors Local Players
TC Market Rationale Proposed Initiatives
Financial Impacts Initiative Requirements
Implementation Plan Risk Assessment
Next Steps Decision Needs
6
Current TC Market Size in China
Chinas cold chain market is heating up and open
to any player who has a long-term development
plan.

• The logistics sector in the Peoples Republic of
  China is growing rapidly.
• The total logistics industry in China was worth
  about 48.1 trillion RMB in 2005, of this
  temperature controlled logistics industry
  accounted for about 1.3 trillion RMB, with an
  expected nearly 30 CAGR in next 5 years. 1)

RMB Trillion
Logistics Market in China 2005 - 2010 estimated
1) National Development and Reform
Commission, National Bureau of Statistics of
China and China Logistics and Purchasing
Associationhttp//en.ndrc.gov.cn
http//www.stats.gov.cnhttp//www.chinawuliu.com.
cn
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Facts Figures - Opportunities
Research results show clearly that huge
opportunities remain in Food / Life
Science Industry while road freight business
should be a high potential sector for investment.

• Chinas current TC market breakdown show
  TC-related Food Industry play a dominant role
  while TC-related Life Science Industry keeps
  strong growth.
• Railway transport still remain a large portion of
  domestic TC-related transport market while road
  freight business should be a key growing element.
  (21 in China and about 80 in western countries
  2)
• Cold storage capacity per capita for China is
  only 12 of that of the U.S.A.
• Millions of money Lost in cold chain
• Problems such as backward infrastructure,
  below-standard refrigerator vans, obsolete
  freezing technology and out-of-date cold chain
  management result in great wastage in transit and
  fail to keep and protect perishable goods in an
  ideal condition. This has led to such a big loss
  in transport links that the cold logistics fee
  accounts for 70 percent of all costs. 1)

1) Shanghai Daily 12Jul Cold Chain Logistics 2)
China Communication and Transportation
Association China Refer Group
http//www.cctanet.org.cn/ http//www.crgps.com/
Data is collected by China Logistics Council
in 2004, also published in Chinas TC Logistics
Market Research Report
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Facts Figures - Challenges
Current market condition and regulatory landscape
show us challenges in all sectors to overcome in
coming years.
Infrastructure

• Railway
• Rail routes are lacking in certain regions, e.g.
  between Guangdong and Fujian
• Limited TC-related train, almost 8,000,
  accounting for 2, with outmoded fresh-keeping
  carriage 1)
• Road
• Lack of a less-than-truck-load (LTL) system with
  broad reach
• 40,000 backward refrigerator vans in 2000,
  accounting for 0.3 of its total freight cars 2)

Facilities

• Warehouse
• Most of the refrigerated warehouses date from the
  1950s and 1960s
• Old-fashioned and full of difficulty providing
  different storage temperatures
• Fragmented located with obsolete equipment and
  technology
• Logistics center
• Mono-functional playing role mainly as
  warehousing or cross docking
• Inadequate management information system

Regulation

• Large gaps between central government policy and
  local practices
• Food safety standards and regulations in cold
  chain logistics are still empty
• Local protectionism and complicated licensing

Technology

• Some improvements in recent years but lag large
  behind western countries
• Packing technology and standards in cold chain
  have not well developed

Operation Management

• Out-of-date cold chain management and lack of
  TC-related training in relation to Ops
• By 2010, China will need 400,000 supply chain and
  logistics professionals of junior college level
  or above 3)

1) Online Article from http//www.crgps.com 2)
Shanghai Daily 12Jul, Logistics road remains
bumpy for domestic refrigerated deliveries 3)
Standard Chartered - The Guide to Supply Chain
Manegement and Logistics 2006 / 2007
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Major Growth Trends - General Overview
Increasing demands and higher requirements in TC
market will make this undeveloped market alluring
for all pioneers.

• Rapid economic growth
• The Chinese economy has grown by over 9 annually
  in recent years. And growth rate in the logistics
  sector were even higher while the infrastructure
  conditions, along with the lack of logistics
  know-how remain the very important challenges
  which China is facing
• Increasing domestic consumption
• The per capita income in China is rapidly
  approaching USD 7500, which is the threshold for
  strong cold-chain demand
• In recent years, with the rapid growth of Chinas
  middle class, estimated to be approaching 150
  million
• Great potential in domestic consumption 1)
• WTO entry and foreign investments
• After the entry of WTO in 2001, more market
  opened and deregulated policies attracted huge
  foreign investments
• More and more MNCs set foot in Chinas market
• At the same time, international standard for cold
  chain is heating up
• Rising expectation of safe and better quality
  products
• According to several recent studies, products
  safety is one of the hottest topic and a public
  concern in Chinas big cities
• Government makes efforts to improve the situation
  and ensure product safety such as food and
  medical partly due to upcoming events of Beijing
  2008 Olympics and Shanghai exhibition in 2010
• Outsourcing service remain strong and
  professional cold chain logistics companies
  emerge
• 60 of manufacturing companies will choose
  outsourcing their logistics activities in China,
  including temp-control services 2)

1) BNP Paribas 2) Research result from Mercer
Consulting and China Logistics Alliance
Network 3) AT Kearney Outsourced Logistics
Market Outlook, 1998-2008
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Major Growth Trends - Details
Substantial government investment in developing
and expanding all modes of the transportation
infrastructure would benefit those who enter into
this market first.
Infrastructure

• Road infrastructure will be expanded to over
  75,000 miles of expressway by 2008 1)
• Domestic airfreight market will have an
  additional 100 airports by year 2015
• By 2010, USD 30 billion will have been invested
  in sea port expansion
• An additional 25,000 kilometers of new lines in
  the railway network during the next 15 years

Facilities

• Warehouse
• More and more modern warehouses have been
  constructed catering to the demand of increasing
  strict logistic requirements
• Newly-established ones are changing their roles
  in line with increasing demand from mono-function
  to providing various logistics service such as
  repacking and labeling
• Logistics / Distribution Center
• Many local governments are developing local
  logistics centers to build scale, e.g. Huatai
  Cold Chain Logistics zone in Hefei, Bohai Cold
  Chain Logistics Center in Tianjin 2)

• Urgent information development and process
  standardization
• Domestics players with governments support begin
  RFID technology operation, such as Bailian Group

1) The Way Forward The Future of the China
Logistics Industry by Mark Millar, China Supply
Chain Council
2) http//www.99sj.com
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Agenda
Executive Summary
China TC Market Overview Growth Trends
TC Market Breakdown Target Industry Segments
Global Competitors Local Players
TC Market Rationale Proposed Initiatives
Financial Impacts Initiative Requirements
Implementation Plan Risk Assessment
Next Steps Decision Needs
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TC Market Breakdown
A detailed market breakdown and ABC Company s
potential TC customers indicate that chilled
products logistics market should be right place
for strategic thrusts.
Current Focus
Future Focus
Most of existing TC customers can be satisfied by
providing air-conditioned logistics service
currently, however profit can only be enhanced by
widening current market focus
Source The temperature ranges are based on the
internal research conducted by Envirotainer and
on the predefined requirements by the
authorities, Packaging Logistics- Business
briefing by Martin Peter
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Target Industry Sub Segments - Food
Candy Chocolate with 12 CAGR and Quick-frozen
Product segments show good reason for ABC
Company to invest heavily.
Source National Bureau of Statistics of China
others refer to Appendix
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Target Industry Sub Segments - Food
Rising concern of product quality safety and
strong growth of temp-controlled food consumption
make Chinas Food Industry first target for TC
development plan.
Key Findings
Key Trends

• In China, 90 meat product, 80 aquatic product
  and most milk, bean product are transported and
  sold without temperature control. However, in
  west countries, only 20 without temp control.
• Due to lack of chill value-added service, the
  export price is only 60 of import price for
  apple and orange, and only 1/3 for grape.
• China accounts 13 of global fruit production
  40 of vegetable output.
• Vegetables and fruit spoilage in transport 75
  billion RMB every year because of primitive
  distribution and transportation system.
• 12 million tons of fruit and 130 million tons of
  vegetables damaged on annual basis. 1)
• Food Safety Regulation Law is expected to be
  established before year-end 2006.

• Fresh, prepared, ready to eat foods will become a
  key growth driver in Chinas food retailing
  industry.
• For instance, frozen meat has accounted for 10 to
  15 percent of per capita yearly meat consumption.
  2)
• The consumption of temp-controlled products is
  keeping an annual increase of 8 over the past 5
  years. Temp-controlled products account for 20
  sales in retailer outlets.
• Consumers are influencing the growth of
  temperature controlled food products in China.
  Based on recent survey, consumers pay more and
  more attention to food safety.
• Such segment as Dairy Industry show lowest
  interest on outsourcing of logistics.

1) Cold Chain China Summit 12Jul 2006 - Alfred
Cheungs Presentation 2) Challenges and
Opportunities Cold Chain Logistics in China by
Bill Tang China Summit Cold Chain
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Target Industry Sub Segments - Life Science
Pharmaceuticals and medical equipments segment
remain the key growing market in Chinas
TC-related landscape.
Source Datamonitor Industry Report GCS
Industry Strategy
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Target Industry Sub Segments - Life Science
Chinas Life Science industry is regarded as High
Risk and High Rewards. Heavy investment in
fundamental phase would deliver highest profit in
coming years.
Key Findings
Key Trends

• At less than USD 15, Chinas annual per-capita
  expenditure is one of the lowest in the world.
• An estimated 97 of the drugs (excluding TCMs)
  produced by local companies are generics or
  counterfeit.
• Sate Food and Drug Administration of China (SFDA)
  was set up in 2003 to streamline the process of
  drug approvals and registrations.
• Implementation of a Good Manufacturing Practice
  (GMP) policy in July 2004 immediately forced more
  than 1,300 non-compliant companies to stop
  selling their products.
• Since the 1980s, hundreds of foreign pharma
  companies have entered Chinas highly fragmented
  market, where the top ten players control just
  15 of total industry sales.
• Today, multinationals have over 600 active joint
  ventures in China and most global industry giants
  have a China presence Johnson Johnson, Roche,
  Novartis, GlaxoSmithKline.
• Chinas 9,000 domestic producers of medical
  equipment occupy the low end of the market and
  present little competitive threat to MNCs.

• A fast-growing middle-class consumer segment in
  size and spending power and concerns over drug
  safety and counterfeits will drive sales of
  imported pharmaceuticals.
• Imported medical equipments account for
  significant market share and will remain key
  dominator for quite a long time.
• More and more focus on operational quality and
  industry knowledge required - service failure can
  result in death
• Global players will remain dominators in high end
  market while MA will continue to play a key role
  in competition.
• More opportunities for 3PL
• -demands increase for greater transparency in
  the system and validated, temp-controlled
  logistics
• -mergers and acquisitions result in
  unnecessary, expensive duplicate warehouses
• -pharma company core competencies are in
  research, development and sales not supply chain

Source Datamonitor others refer to Appendix
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Target Industry Sub Segments - Chemicals
Most of chemicals products require long term
storage and special handing procedure such as DG
handing, which keep this industry still a high
entry level.
Key Findings
Key Trends

• Chemicals
• In the first 5 months of 2006 the turnover of
  Chinas petroleum and chemical industry stood at
  RMB 1.57 trillion, up 31 percent from the same
  period in 2005. Profits rose 27 percent to RMB
  178 billion. 1)
• China, currently as the 4th largest chemical
  producer is forecasted to become the 3rd largest
  chemical producing country by year-end 2006.
• China is also the largest importer of chemicals
  globally.
• The production of staple petrochemical products
  will remain either off-limits to foreign
  companies or subject to ownership restrictions.
  However, in areas where Chinese businesses lack
  technology or expertise, foreign capital can play
  a vital role.
• Personal care
• Market value 109.4 billion RMB in 2004
• Cosmetic products play a primary role, 58 billion
  RMB in 2004.

• Chemicals
• A spectacular growth rate for the next 5 to 10
  years, driven by intense demand from the domestic
  manufacturing sector. Total value is forecast to
  climb to US162.4 by 2008. 2)
• Import dependence remains a concern and will
  shape government policy towards the sector.
• Chinese companies are also looking for outward
  investments and more potential for innovative
  forms of cooperation both inside and outside.
• As for logistics and transportation operations,
  dangerous goods handling are strictly required as
  well as time and temperature sensitive products
  handing.
• Personal care
• Limited profit (compared with petrochemicals and
  plastic chemicals, etc) and more intensified
  competition
• As large amount of personal care products belong
  to FMCG industry, KPI and delivery time
  requirements remain the key issue for 3PL to
  overcome.

1) These figures only include the 22,985
state-owned and other enterprises with annual
sales of over RMB 5 million. Source Xinhuas
China Economic Information Service, Petroleum
and chemical industry maintains leader of Chinas
industrial sector, 7 July 2006 2) Datamonitor
Chemicals in China 2004 (base, consumer,
pharmaceutical and speciality chemicals)
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Target Industry Sub Segments - Flower
Still no qualified local players in this emerging
market in addition to limited JVs, mainly from
investment of Singapore-based firms.
Key Findings
Key Trends

• China, as the largest flowers producer in the
  world, enjoyed a USD 0.13bn export value and RMB
  4.3bn domestic sales value in 2004.
• Yunnan, Shanghai and Guangzhou play major roles
  in both domestic and export market.
• Government Preference Policy
• -reducing or rebating export administration
  fees for some specific species
• -opening up a flower and plant export green
  passage in border ports
• -setting up special flower and plant research
  and development funds
• Temperature control requirements for cut flowers
  and potted plants became key challenge in
  transportation, especially in export business.

• Overall market including domestic and export biz
  is expected to reach RMB 70bn by 2010.
• With encouragement and support from government,
  huge potential for 3PL to enter this market.
• Pre-cooling services and transportation
  monitoring services are treated as first priority
  from shippers view.
• With increasing domestic demands for cut flower
  over next 10 years, temp-controlled
  transportation opportunities will be caught by
  those 3PLs who have a long time view.

Source Ministry of Agriculture of PRC,
http//www.agri.gov.cn/ others refer to Appendix
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Agenda
Executive Summary
China TC Market Overview Growth Trends
TC Market Breakdown Target Industry Segments
Global Competitors Local Players
TC Market Rationale Proposed Initiatives
Financial Impacts Initiative Requirements
Implementation Plan Risk Assessment
Next Steps Decision Needs
20
Competitor Movements - Global Players

• According to our limited available data source,
  TNT Logistics and Kerry Logistics Network (KLN)
  outperform other global competitors in China TC
  Market nowadays.
• TNTs newly-established national life science
  distribution centre in SHA has turned itself into
  a key market player, especially in life science
  cold chain logistics industry.
• Growing from a humble local warehouse operator in
  Hong Kong since 2000, KLN has grown to now a
  global logistics player with coverage of more
  than 150 cities in 16 countries and regions.
  Totally more than 54,000 sq m warehouse
  facilities for cold storage have helped KLN to
  widen its network even faster.
• Besides, we also found some Japan-based logistics
  companies performed well, although their target
  customers limit to Japanese-related ones.
• In a word, the giant players are still relatively
  weak in Chinas local TC market with no major
  player staking a claim to market leadership yet.
  Therefore, the market is open to anyone that can
  develop TC capabilities despite that this takes
  time.

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Selected Global Competitors TC-related Action in
China Market
Despite of reaching agreement to sell its
logistics division to Apollo Management, L.P,
TNT still remains the primary competitor in CL
market as well as in Chinas TC market.
Source company website limited online news
release
22
Aggressive Action - Local Players

• The total number of officially registered
  logistics service providers in China is said to
  be 800,000. No reliable figures for the number of
  unregistered carriers.
• But mainly due to high-level cost and risk into
  cold chain logistics, there are few competitors
  with remarkable operation volume. Reliable data
  from relevant association shows that there are
  almost 20 local players whose cold chain storage
  capability is above 20,000 tons and most of the
  providers only possess less than 10,000 tons
  capabilities with old-fashioned warehouse and
  vans. 1)
• Major Advantages of local players consist of low
  cost, high flexibility and adaptive to local
  practice.
• However below-standard cold chain facilities and
  lack of enough talents, few domestic players have
  strong predominance except some state-invested
  cold chain logistics providers, mainly
  centralized in coastal cities such as SHA, BJS
  and CAN.
• Among them, Sino-trans Yuhe Cold Chain Logistics
  exceeds due to its strong financial background
  and fast-developing players include Shanghai
  Xintiantian Cold Logistics Co Ltd, Shenzhen
  ST-Anda Logistics and Eternal Asia Supply Chain
  Management Co., LTD.
• Some company-owned cold chain logistics companies
  perform even better in TC market, such as
  Speed-fresh logistics under Bright Diary
  company and Shuanghui logistics under Shuanghui
  Group.

1) China Froze Food Network, http//www.freezefood
.cn Shanghai Association of Refrigerated
Warehouse, http//www.csarw.com
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Selected Local Players TC-related Action in
China Market
Large SOEs such as Sino-trans determined to
become the leading logistics provider despite of
intrinsic SOE mindset and inadequate management
skills.
Note Local Players List includes Large SOEs,
local and JV players Source company website
limited online news release
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Special Case - Nontraditional Players
Health and Life Science
Food Beverage
Zuellig Pharma China http//www.zuelligpharma.com.
cn Founded in 1939 with the name F.E. Zuellig,
the Company was engaged in general trading
activities for many years. In 1992, a separate
pharmaceutical business was incorporated to focus
on the development of a modern pharmaceutical and
healthcare product distribution company. Then
ZPC was established in 1993 with the vision to
enter China early. With rapid growth, despite WTO
timeline, in May, 2003 Zuellig Pharma was granted
the first foreign-invested pharmaceutical
distribution license by the Ministry of Commerce
and State Food and Drug Administration, and
became the first foreign investor in China to
legally distribute pharmaceuticals. Nowadays,
ZPC has become a leading provider of cutting-edge
logistics services covering inventory management,
warehousing, distribution and customer order
management despite of higher quotation Source 
company website personal network
HAVI FOOD SERVICES GROUP http//www.hfssea.com/
http//www.havigroup.com/ Founded in 1974 in
USA, HAVI FOOD SERVICES GROUP has been reputable
exclusive logistics provider of McDonalds with
successful cold chain management. Kang Xin
Logistics http//www.kxlogistics.com/
http//www.rich.com/ Invested by worlds premier
family-owned food companies - Rich Products
Corporation, KXL has become the leader in
domestic TC-related Food FMCG industry. Since
Rich is known around the world as the founder of
the non-dairy segment of the frozen food industry
and a leading supplier and solutions provider to
the food service, in-store bakery and retail
marketplaces, Tianjin-based KXL owns nearly
10,000 sqm cold storage capabilities and 50
refrigerator vans (estimated). Its WMS also
remain the most advanced among the
industry. Source  company website online
article
25
Special Case - Nontraditional Players
Some pioneers in TC-related Food Healthcare
below - all of these players are adept at their
focused TC-related industry and no evidence
indicates that they want to make decentralization.
Source company website, online news and personal
network
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Agenda
Executive Summary
China TC Market Overview Growth Trends
TC Market Breakdown Target Industry Segments
Global Competitors Local Players
TC Market Rationale Proposed Initiatives
Financial Impacts Initiative Requirements
Implementation Plan Risk Assessment
Next Steps Decision Needs
27
ABC Company Current TC Capabilities Overview -
Facilities
Operating total TC WHS area of 99,800m2, ABC
Company has stable foundation for
further investment despite of limitation caused
by road transportation vendor management.
NOT EXHAUSTIVE
Current Focus
Shanghai
Air-conditioned, multi-user Air-conditioned,
multi-user Air-conditioned freezer
(Kodak) Air-conditioned freezer
(JJ) Air-conditioned, dedicated (LV)
1 x 6,900m2 1 x 8,420m2 1 x 520m2 1 x 760m2 1
x 50m2

• The total temp-controlled warehouse space
  consists of
• 98,520m2 air-conditioned space for more than 10
  TC customers, 83 space is centralized in SHA,
  BJS CAN
• more than 1,280m2 freezer room space
• Current solutions for temp-controlled road
  transportation are
• highly reliant on external transportation
  providers / subcontractors

Beijing
46,000m2
Air-conditioned, multi-user Air-conditioned,
multi-user
1 x 14,000m2 1 x 32,000m2
Guangzhou
19,000m2
Air-conditioned, multi-user Air-conditioned,
multi-user
1 x 10,000m2 1 x 9,000m2
6,000m2
Air-conditioned, multi-user
1 x 6,000m2
Shenyang
Chengdu
4,500m2
Air-conditioned, multi-user
1 x 4,500m2
Wuhan
4,000m2
Air-conditioned, multi-user
1 x 4,000m2
Tianjin
3,000m2
Air-conditioned, multi-user
1 x 3,000m2
Kunming
350m2
Air-conditioned, dedicated (Mars)
1 x 350m2
Fuzhou
300m2
Air-conditioned, dedicated (Mars)
1 x 300m2
Road Transport
Key Facts
Pan-China
- 6 x 24 mt A/C trailers owned, used for long
haul transportation between BJS, SHA CAN,
i.e. 5-6 dept per week SHA/BJS - Above TC 100
Trucks leased to cover 25 cities in mainland
China - The complex subcontractor structure
hampers effective quality and performance
management
Source ABC Company China Presentation
Interviews with Site Managers
28
Existing Major TC Customers Breakdown
ABC Company s TC capabilities today are
regarded as mission impossible to meet customers
fast-growing requirements for TC-related services
in coming 5 years.
ABC Company TC Customers Revenue 2005 - 2010
estimate in CNY mn
5.5 13.6 14 14 14 12 12 7 12
300.1

• As complete acquisition of EAC (Mars logistics)
  in 1994, Mars remains the largest TC customer of
  ABC Company in China until now
• Customers in Life Science Industry, i.e. JJ,
  Novatis indicate high potential to invest heavily
• By 2010, the total revenue is forecasted to double

268.6
239.9
214.3
191.5
144.4
CAGR
2005 act. 2006 est.

2010 est.

• Current key customers are Mars, Cadbury, Ferrero
  Rocher, Starbucks, Kraft, Xian-Janssen, BM
  Squibb, Novatis, JJ Medical and Kodak. Total
  revenue reached 144 million CNY in 2005 and is
  expected to exceed 300 million CNY by 2010.
• 85 - 90 of total TC-related revenue generated
  by WHS operation and road transportation in
  relation to customers mentioned above.

Source ABC Company China Presentation and
attachable financial data from ops supervisors
29
Space Planning - SHA
Mars, taking more than 60 of total stock volume,
will continue to play a leading role in coming
years while our capacity is expected to meet
shortage by 2007 Q3.
Capacity Re-develop during Jul-Aug06
Underlying Stock Volume Growth vs TC Capacity
Supply pallets
Stock Volume 2006 act.

• Without any planned TC capacity development
  initiatives, ABC Company experienced risk of
  performance failure due to unexpected stock
  volume boom during Jul to Aug 2006
• Despite of enhanced capacity 18,500 plts
  equipped, ABC Company is still facing capacity
  shortage from 2007 Q3, mainly due to strong
  growth of FMCG customers, i.e. Mars, Cadbury
  Kraft
• We are also expecting 5 additional biz gain per
  year from potential TC customers from both FMCG
  Life Science Industry

18,500
Without TC Initiatives
11,000
Starbucks
Janssen
BMS
Heideberg
Agfa
Kraft
Cadbury
Mars
11,287
9,223
7,275
10,870
15,387
13,374
Estimated
Stock Volume 2007 est.
Without TC Initiatives
CAGR 16
5 add. bizper year
18,500
ABC Company Capacity On-Hand1)
14,068
12,499
10,139
14,612
20,687
18,157
Kodak and JJ Medical Stock Volume dont
include due to limited size
Source On-Site Data collected from Mars Ops,
Team Analysis
1) Huting 11,000 YinXi 7,500 18,500
30
Space Planning - SHA
How to fill up the stock gap between peak season
and low season should be major task while a
long-term TC capacity development plan can help.
ABC Company Capacity Proposed
ABC Company Capacity On-Hand1)
CAGR Avg.
Underlying Stock Volume Growth vs TC Capacity
Supply pallets
Stock Volume 2008 est.
Stock Volume 2009 est.

• Beijing Olympic Games 2008 and Shanghai Expo 2010
  will definitely boost up the CAGR relatively
• By 2010, existing TC customers stock volume is
  forecasted to reach 29,000 plts while with 5
  add. biz gain per year, ABC Company will meet
  totally more than 33,000 plts TC-related stock
• Therefore a proposed TC capacity enhancement to
  30,000 plts is of great importance to both meet
  customers increasing requirements and win the
  potential contracts

CAGR 14.5
CAGR 11
18,500
Stock Volume 2010 est.
30,000(Phase2)
CAGR 14.8
TC Initiatives Executed
5 add. bizper year
25,000(Phase1)
Starbucks
Janssen
18,500
BMS
Heideberg
Agfa
Kraft
Cadbury
Mars
22,949
20,342
16,472
23,808
33,829
29,677
Kodak and JJ Medical Stock Volume dont
include due to limited size
Source On-Site Data collected from Mars Ops,
Team Analysis
1) Huting 11,000 YinXi 7,500 18,500
31
TC Market Rationale - by Market
Investment just for what is suitable, not for
what is advanced Invest in people, not only
equipment.
FOR DISCUSSION
32
TC Market Rationale - by Industry
Focus on Life Science and keep primary advantage
in TC-related Food Industry Develop chemicals
sub segment strategy and domestic cut flower
logistics market.
FOR DISCUSSION
33
Proposed Initiatives - BTS temp-controlled
facility (1/2)
Source Proposals Summary for TC Facility by Jack
Yang
34
Proposed Initiatives - BTS temp-controlled
facility (2/2)
Source Proposals Summary for TC Facility by Jack
Yang
35
Agenda
Executive Summary
China TC Market Overview Growth Trends
TC Market Breakdown Target Industry Segments
Global Competitors Local Players
TC Market Rationale Proposed Initiatives
Financial Impacts Initiative Requirements
Implementation Plan Risk Assessment
Next Steps Decision Needs
36
Financial Impacts - Total Revenue
ABC Company revenue is expected to grow by
26 year-to-year while implementation of an
aggressive TC initiatives can make our growth
rate reach 27.4 annually.
FOR DISCUSSION
CAGR '06 to '10
Underlying Business Growth and Initiatives
Impactsin mn
174
Revenues Estimate 2006 - 2010
CAGR 26
Revenue from business as usual

• With TC Initiatives equipped, ABC Company s
  revenue growth is forecasted to reach CARG of
  27.4
• The total revenue is forecasted to increase at
  least 10 mn compared to former financial
  planning without TC Initiatives
• Effective implementation of TC initiatives will
  enhance ABC Company s capabilities to meet
  forecasted demands from existing and potential TC
  clients

Without TC Initiatives
Revenue from other initiatives
68
Other Initiatives1)
Underlying Business
54
2010
2006
184
Revenues Estimate 2006 - 2010
Additional revenue from TC Initiatives
CAGR 27.4
TC Initiatives Executed
68
TC Initiatives
Other Initiatives1)
Underlying Business
35
2010
2006
1) Other Initiatives Healthcare, SPL, I2M
initiativesmentioned in ABC Company Logistics
China Strategy 2010
Source ABC Company China Strategy, Team
Analysis, Interviews
37
Initiatives Requirements - Proposed TC Strategy
People Investment and Capability Enhancement
should remain primary focus in coming years to
meet TC initiatives targets
FOR DISCUSSION
Requirement Details
Incremental cost/Investment Need
People Organizational

• Set up long-term people development plan in
  relation to cold chain management (Learning
  Development Center)
• 1 Ops Manager for SHA Facility in 20073 Ops
  Manager in BJS CAN from 2008
• Build up an Temp-controlled Logistics Promotion
  Team focusing on global and local business
  development support - 3 Executives required in
  SHA, BJS CAN

0.1 mn1) 0.06 mn
0.44 mn
Incremental indirect staff cost '07
'08 '09 '10 mn 0.02 0.08 0.08
0.10
Infrastructural Capacity Growth

• Implementation of proposal BTS facility set up in
  SHA to consolidate all services for existing TC
  customers, expanding TC capability to 20,000sqm
  by 2007
• Invest in BJS facility to expand TC capability to
  50,000sqm by 2008
• Invest in CAN facility to expand TC capability to
  25,000sqm by mid 2009

2.0mn (SHA BTS) 3.2mn (BJS) 2.3mn (CAN)
Technology

• Development or implement TC-related IT system,
  i.e. RFID to enhance operational performance

TBD
Operational Assets

• TBD

TBD
1) Additional cost besides of 0.6 mn budgeted
for LDC
Source Team Analysis
38
Agenda
Executive Summary
China TC Market Overview Growth Trends
TC Market Breakdown Target Industry Segments
Global Competitors Local Players
TC Market Rationale Proposed Initiatives
Financial Impacts Initiative Requirements
Implementation Plan Risk Assessment
Next Steps Decision Needs
39
Implementation Plan Potential Risks - TC
Initiatives
Launching of multi-user TC Facilities and
recruitment of local talents who are experienced
in TC market are our upcoming main focus.
2006
2007
2008
2009
2010
Responsible
Action
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4

• Roll-out TC facility - SHA
• Roll-out TC facility - BJS
• Roll-out TC facility - CAN

DG1)/WW1) DG/WW DG/WW
Go-Live
Implementation
Planning
Multi-user TC Facilities
Approval
Go-Live
ID
Implementation
Planning
Approval
Go-Live
Implementation
ID
Planning
Approval
TBD TBD TBD

• Develop detailed learning development plan
• Build up Temp-controlled Logistics Promotion Team

WORK IN PROGRESS
Planning
Roll-out Cold Chain Management Knowledge Champion
ID
People Organization
Team Development, Knowledge Improvement
Recruitment Training
ID

• TBD

TBD

• Risk
• Slowdown in business outsourcing and/or loss of
  minor accounts
• Delay in construction of multi-user TC Facility
• Operational problems due to lack of qualified ops
  managers and knowledge in relation to cold chain
  management
• High operating cost due to regulatory alteration,
  especially in FMCG industry

Source Team Analysis
1) DG Desmond Gay, WW Windy Wu
40
Agenda
Executive Summary
China TC Market Overview Growth Trends
TC Market Breakdown Target Industry Segments
Global Competitors Local Players
TC Market Rationale Proposed Initiatives
Financial Impacts Initiative Requirements
Implementation Plan Risk Assessment
Next Steps Decision Needs
41
Decision Needs Next Steps
Decisions
I

• Confirm China TC Development Plan
• Sign-off of investment needs
• Approval of headcount increase

Next Steps
II

• Action Plan Responsibility Due date
• Develop implementation organisation TBD TBD
• Develop detailed implementation plan TBD TBD