Strategy

ZhongDe Group intends to concentrate on the small and mid-sized waste incinerator market and expand its position in the market and technology in this area. ZhongDe Group also intends to operate waste incineration plants for and with municipalities and as by-products to produce and market its own steam, hot water, bricks as well as electricity through the operation of such plants. ZhongDe Group’s overall strategic objective is to maintain the strong and profitable growth path of the business in order to create superior shareholder value through the following strategic steps:

 

 

Strengthen Position in Small and Mid-Sized Municipal Waste Incinerator Market in Small and Mid-Sized Cities.

ZhongDe Group has built a strong market position in the small and mid-sized municipal waste incinerator market in small and mid-sized cities in China. ZhongDe Group intends to expand its focus on small and mid-sized incinerators for municipal waste with a disposal capacity of between 50 and 300 t/day for municipal waste. Target customers are small and mid-sized Chinese cities with a population of 100,000 to 750,000 inhabitants. More than 500 Chinese cities are small or mid-sized and most do not have appropriate waste disposal facilities. ZhongDe Group believes that the lack of an appropriate waste disposal infrastructure for municipal waste in the small and mid-sized Chinese cities, together with the growing urbanization trend and its strong product and technology offering, will present it with increasing business opportunities in the near future.

 

 

Leverage its Leading Position in the Medical Waste Incinerator Business to Further Penetrate the Medical Waste Market.

In the past two years, ZhongDe Group has become one of the leading Chinese companies in the market for medical waste incinerators, with a current estimated market share of 35% as of the end of 2006 based on its internal estimates. ZhongDe Group estimates that by year end 2006 roughly 150 medical disposal centers had been established from the government’s target of 300, creating in combination with expected demand for further disposal centers beyond the government’s target a significant future market potential. ZhongDe Group intends to penetrate this market based on its leading position in the near future by strengthening its sales activities and promoting its technological strengths and the advantages of its products in terms of investment, operation and maintenance costs.

 

 

Extend the Current Business into the Operation of BOT Projects with Recurring Revenues.

ZhongDe Group intends in the future to expand its business into the operation of BOT projects (known as Build, Operate (Own) and Transfer) which would provide ZhongDe Group with recurring revenues from operating fees and the sale of by-products produced during the incineration process. To that end, after detailed feasibility studies with external research institutes, ZhongDe Group has entered into six non-binding letters of intent with Chinese municipalities for these BOT projects to be offered by these municipalities with total financing needs of approximately EUR 41 million. ZhongDe Group believes that it will be able to capture a substantial market share in this new business area and expects that for those 6 projects contracts can be negotiated in due course and implementation of the respective projects can be completed within the next 1 to 3 years. Based on its market position as well as the available technology and its experience gathered from its core business, ZhongDe Group believes it has the ability to construct and profitably operate such mid-sized and larger waste incineration plants. In the future, additional BOT projects might be secured or existing BOT projects might be acquired by ZhongDe Group. In this latter respect ZhongDe Group plans an acquisition of 60% of the shares in the BOT project company Zhuji Fengquan Lipu Municipal Waste Disposal Center from Fujian Fengquan Environmental Protection Group Ltd.

 

 

Develop Innovative Products for New Industries such as Aviation Waste.

ZhongDe Group is continuously exploring the development of new incineration products to meet the changing landscape of the waste disposal industry in China. For example, as international and national commercial air traffic between 1999 and 2005 increased by more than 10% per year, waste left by passengers in aircrafts as well as waste produced from the maintenance and overhauling of aircrafts has increased significantly. By the end of 2005, 142 airports in China had been certified for civil transportation (Source: General Administration of Civil Aviation of China, Report on Development of China’s Air Transport (2005/2006)). Those airports are required to clean up the waste produced from aviation traffic. As a result, ZhongDe Group expects that there will be a growing demand for aviation waste incinerators. To meet that demand, ZhongDe Group will invest approximately EUR 1.5 million in research and development to adapt its pyrolytic incinerators for medical waste to the particular characteristics of aviation waste. In addition, ZhongDe Group is in an early stage of negotiations to construct one aviation waste incinerator for Beijing International Airport with a capacity of 35 t/day and anticipates receiving orders in this sector in the near future. Furthermore, ZhongDe Group plans to improve its technology for certain kinds of hazardous waste and plans to deliver special incinerators designed for hazardous waste from industrial application

 

 

Expand Production Capacity and Establish a Second Production Facility in Northern China.

To increase future capacities, diversify its regional footprint and prepare for further growth potential, ZhongDe Group plans to construct a new production plant in Beijing with planned investments of EUR 13 million. Construction is scheduled to begin in August 2007 with completion scheduled for the end of 2008. ZhongDe Group has already signed a letter of intent for the right to use land on which to build this plant. ZhongDe Group estimates that its total production capacity at both plants will amount in total to approximately 80 incinerators per year.

 

 

Expand Internationally into Other Markets.

As a mid-to long-term strategy, ZhongDe Group plans to explore the possibility of expanding with its existing products into markets in South-East Asia such as Thailand, Indonesia and the Philippines and in a second step into new markets in Africa and Eastern Europe. ZhongDe Group’s incinerators have already been exported by export firms to Taiwan, Singapore and Indonesia and ZhongDe Group had initial discussions with government bodies and municipalities in Thailand and the Philippines. However, as a result of the significant opportunities in the Chinese market, ZhongDe Group has not placed an emphasis on pursuing these international opportunities.

 

 

Focus on Large Scale Incinerators in Partnership with Foreign Firms.

ZhongDe Group is also considering entering the market for large scale incinerators. The construction of large waste incineration plants in China today is almost entirely undertaken by foreign firms who operate internationally. As a Chinese operating company, ZhongDe Group sees the opportunity to enter the large scale segment either based on its own technology or for plants with a capacity beyond 1,000 t/day through a partnership with an international competitor which does not have expertise in the particularities of the Chinese market and thus may have need for operational know-how in the Chinese market.