The Carlyle Group to Invest US$27.5 million in Shanghai Anxin Flooring Co Ltd,
Asia Observatory

26 May 2006

The Carlyle Group to Invest US$27.5 million in Shanghai Anxin Flooring Co Ltd,

Global private equity firm The Carlyle Group announced its US$27.5 million (or Rmb 230 million) investment to acquire new shares in Shanghai Anxin Flooring Co., Ltd. (Anxin), China’s largest manufacturer and distributor of solid wood flooring. Carlyle’s initial investment will be US$20 million and the remainder will be funded in the next two years.
The investment will support Anxin’s launch of a new brand, named “Wei Guang” after its founder. The Wei Guang brand features engineered and solid wood flooring products from Russia, Southeast Asia and Africa and will be marketed in China. The company will implement a two-prong brand strategy, with the existing flagship “Anxin” brand featuring primarily solid wood flooring products and selected engineered wood flooring products made of high-end wood from Brazil. The two brands will have independent distribution networks.
Engineered wood floors, consisting of layers of thin hardwood plies pressed and glued together, are more environmentally friendly than the high-end solid wood floors usually made of rare hardwood from trees of more than 60 years old. The introduction of engineered wood floors represents Anxin’s growth emphasis and reflects its consistent pursuit of environmental protection and harmony to society, the founder’s vision and guiding principles since inception.
“We expect engineered wood flooring to become another key revenue driver in the next few years. Engineered wood flooring is increasingly popular among a broader range of Chinese consumers due to lower material costs,” said Mr. Lu Wei-Guang, Anxin’s Founder and Chief Executive Officer. “Overall demand for wood floors will remain strong, driven by robust real estate developments throughout China and increasing consumer spending.”
“Our earlier investment of more than Rmb 80 million in two world-class production lines with a capacity of two million square meters of engineered wood floors has started to bear fruit. We will add three production lines next year through another commitment of Rmb 200 million. Our cost advantages backed by fully-integrated production plants in China and wood processing facilities in Russia, combined with secured timber supply from our forest in Brazil, make us competitive in the international markets.” Mr Lu continued, “In the long-run, we will seek an overseas listing to tap global capital markets for future funding needs of Anxin’s international expansion.”
Mr. Wayne Tsou, Managing Director and Head of Carlyle Asia Growth Capital Group, said, “Carlyle is proud to support a company with a strong commitment to environmental protection. Anxin is one of the first movers in the fast-growing engineered wood floor market, which is expected to surpass the market size of solid wood floor in China in five years. Anxin, already the leader in solid wood flooring, will further solidify its leadership under the ongoing domestic market consolidation.”
“Anxin is currently the only end-to-end vertical integrator enjoying high margin and strong growth in China despite volatility in raw material supply. Its visionary move into Russia with the addition of solid wood processing facilities in nearby China strengthens its production capabilities while diversifying supply risks stemming from expanding logging restrictions globally,” Mr. Tsou added.
The China wood floor market was about 230 million square meters in volume in 2005, up from 2004’s 130 million square meters with a 21 percent compound annual growth rate over the past five years. Anxin generated sales revenue of Rmb 700 million from solid wood floors in 2005.
In 2004, Anxin acquired a large natural forest in Brazil to secure long-term timber resources amid a global supply shortage, becoming the first Chinese company to own forestry resources abroad. Currently Anxin accounts for more than 50 percent of Brazil’s timber exports to China for use in wood flooring.
Last August, Anxin acquired 40,000 square meters of land on the Sino-Russian border in Heilongjiang Province of northeastern China to build a wood processing plant with an investment of Rmb 100 million. The plant is scheduled to start operation in 2007 and will be able to process 1,000 cubic meters of timber each month. Russia holds 20 percent of the world’s forests and is a key source of timber supply.

About Shanghai Anxin Flooring Co., Ltd.
Anxin aims to become one of the largest, environmentally friendly and responsible manufacturer and distributor of wood flooring products in China and internationally. In March 2005, Anxin obtained a certificate from the Forest Stewardship Council in recognition of its forestry protection efforts for sustainable development. It owns and manages a large natural forest in Brazil. Anxin currently has about 1,000 employees and an annual production capacity of 3.5 million square meters of wood floors. It has more than 400 franchised retail outlets across China. Anxin’s two Brazilian joint ventures have a production capacity of 4,000-cubic meter sawmilling and 2,000-cubic meter kiln-dried timber every month. It also owns timber processing facilities on the Sino-Russia border.