AIDC — Interim / Quarterly Report 2016

Apr 22, 2016

2016 Q1 Investor Conference

‧ ‧ ‧ Accountability Innovation Dedication Customer Orientation Aerospace Industrial Development Corporation April 22, 2016

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Contents

I. Markets Status II. Financial Review III. Summary and Outlook IV. Q & A

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I. Markets – Defense Segment

1. Defense Business

(1)ROC Air Force is AIDC’s major customer. Its requirements depend on the scope of defense budget and its plan of budget allocation. (2)The defense budget was approx. 2% of GDP in the last 5 years. Possible future growth toward 3% of GDP was stated by the Democratic Progressive Party in its Defense Policy Blue Paper #7.

NT$100M

Defense Budget

% of GDP

2 Source: Directorate General of Budget, Accounting and Statistics, Executive Yuan, R.O.C.

I. Markets – Defense Segment

1. Defense Business (cont.)

Current requirements ：

NextGen Military Aircraft

� Advanced Trainer:

• MND plans to spend 69 billion NT dollars between 2017 and 2022 to procure 66 advanced trainers.

• The President-elect Tsai, Ing-wen stated her expectations to the indigenously-built advanced trainer program on March 28, 2016:

• 1)Fulfill ROCAF’s requirements; increase the A/C’s made-in-Taiwan ratio.

• 2)Hand down experiences and expertise through the development of the advance trainer program and lay down the foundation for the Next Gen Fighter.

• 3)Accomplish the prototype ASAP.

• Next Generation Fighter: Opportunities for R&D, international cooperation, production, and logistic support.

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I. Markets – Defense Segment

1. Defense Business (cont.)

Current requirements ：

Military Aircraft Upgrade

Upgrade on aging A/C becomes a favorable option in consideration of budgetary constraints.

Military Aircraft MRO

As MND continues its lean military approach, release of fleet management and logistic businesses are anticipated.

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I. Markets – Defense Segment (cont.)

2. Business Updates (on major projects)

－ � New Advanced Trainer In pursuit

Committed to giving full support to ROCAF’s acquisition of indigenously-built trainers, which is expected to greatly favor Taiwan in terms of enhancing overall industrial capabilities and sustaining pool of human resources.

－ � Military Engine In Progress

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TFE-1042 F124
Applied on IDF Applied on M346 Advanced Trainer
by Alenia Aermacchi (Italy)
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I. Markets – Defense Segment (cont.)

2. Business Updates (on major projects)

－ � IDF and F-16A/B Upgrade In Progress

IDF Upgrade F-16A/B Upgrade

－ � Military Aircraft MRO In Progress

UH-1H Helicopter 2nd AFLC GOCO

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Air Force Academy A/C Maintenance GOCO

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I. Markets – Commercial Aviation

1. Commercial Aviation Industry

(1)Continued growth in global air transportation: Airbus and Boeing predict average growth of Revenue Passenger Kilometer to be 4.6~4.9% annually in the next 20 years with market value of 4.9~5.6 trillion US dollars for 32,000~38,000 new aircraft.

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I. Markets – Commercial Aviation

1. Commercial Aviation Industry (cont.)

(2)Huge amount of backlog:

Currently Airbus and Boeing have unfilled orders of 5000~6000+ jets, which may take at least 7~8 years to digest. Both companies have planed to boost their productions on their popular jets, A320neo and B737MAX, which will challenge suppliers’ ability to cope with the plans.

Through Feb. 2016

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Source: Airbus & Boeing Websites; Compiled by AIDC

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I. Markets – Commercial Aviation

1. Commercial Aviation Industry (cont.) (3)Engine demand grows with new jet requirements: According to Teal Group, engine delivery in the next 10 years is 120 thousand shipset in 480 billion US dollars. Green engine is mainstream.

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Compiled by AIDC
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I. Markets – Commercial Aviation

1. Commercial Aviation Industry (cont.) (4)Uncertainties arise as oil price plummets

• Demands on commercial jet blurred

• Advantage: Cheaper airfare stimulates air travel.

• Disadvantage: Falling oil price prolongs fleet renewal.

• Demands on commercial helicopter drop Downscale of offshore oil drilling cuts demand for helicopter.

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US$/barrel
Crude Price
WTI Dubai Crude Brent Crude
Source: Bureau of Energy, MOEA
Average Brent Crude price in 2015 was US$54/barrel and 2016
could be US$56/barrel with minor increase.
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I. Markets – Commercial Aviation

1. Commercial Aviation Industry (cont.)

(5)Emerging countries take up market shares with support of governmental resources.

Global Aviation Industry Communities

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Source: ICF International
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I. Markets – Commercial Aviation

1. Commercial Aviation Industry (cont.) (6)Major A/C makers press harder on price cutting. Suppliers are challenged by risk of losing orders.

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Compiled by AIDC

AIDC implements LEAN production to trim off cost, and practices digital manufacturing, assists supply chain upgrade in positive response to the challenge from industrial environment change.

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I. Markets – Commercial Aviation
2. Programs (on major projects)
� Popular A/C & Engines GE Aviation
Top 2 Supplier in Asia
Sikorsky S-92 Helicopter
Airbus Single-Aisle A/C A320 CFM56 GE90
Rolls-Royce
Boeing Single-Aisle A/C 737
Long-Term Supply
Chain Partner
Airbus Giant A/C A380
Boeing Dreamliner 787
TRENT 800 V2500
� NextGen A/C & Engines
CFM LEAP-X
C-Series
A320neo B737MAX
MRJ Trent XWB GEnx
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II. Financial Review

1. Income Statement

Unit: NT$ in Millions

	ITEM	Y2015	Y2015	Y2014	Y2014
		Amount	%	Amount	%
	Revenue	26,878	100	24,924	100
	Cost of Goods Sold	23,626	88	22,159	89
	Gross Profit	3,252	12	2,765	11
	Operating Expenses	1,098	4	1,310	5
	Operating Income	2,154	8	1,455	6
	Non-operating Income	328	1	384	2
	Pre-tax Income	2,482	9	1,839	8
	Income Tax Expenses	453	1	(33)	0
	Net Income	2,029	8	1,872	8
	EPS(NT$）	2.23		2.06
	＊Cash dividend/share	1.36		0.92

＊ Earning distribution of 2015 to be adopted by Annual Shareholders' Meeting.

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II. Financial Review

2. Revenues

With military and commercial businesses developing in tandem, it may compensate possible risks in either sector and help to secure steady growth.

Unit: NT$100M

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Year 2011 2012 2013 2014 2015 2016 Q1
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II. Financial Review

3. Net Income & EPS

Net Income in NT$100M

EPS in NT$/share

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30 3.0
Net Income EPS
25 2.23 2.5
2.06
20 2.0
1.37 1.42
15 1.24 1.5
10 20.29 1.0
18.72
12.48 12.89
11.26
5 0.5
0 0.0
2011 2012 2013 2014 2015
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Note ： 2011-2012 ROC GAAP were observed; the IFRS was adopted since 2013.

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III. Summary and Outlook

1. Operation Performance in 2015

Revenues Net Income EPS 26.9 2.02 2.23 NT$ Billion NT$ Billion NT$/share 7.84% 8.39% 8.25% 3 Major Construction Projects Productivity � Engine Case Manufacturing Center ： 4.21 Inauguration on April 14, 2016 � TACC-19 Composite Plant ： NT$ Million/Employee Commissioning in Q2 2016 5.25% � F-16A/B Maintenance Hangar ： (Average revenue Completion in Q1 2017 per employee )

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III. Summary and Outlook

2. Current Operation and Perspectives

(1)Revenues through March 2016 is 6.3 Billion NT dollars. Although it meets the expectation, risks remain as the emerging countries offer low labor cost; and the developed countries take automation measures to reduce their cost. Taiwan is caught between these situations.

• (2)AIDC has embarked on a campaign to integrate the industry in terms of businesses, supply chain, and human resources, in a combined effort to bring related industries up to a new level with the strengths Taiwan has to offer to the world.

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Business � Information sharing;
participation;
international interaction
Industry
� Defense: Indigenously built
military A/C
� Commercial: International
cooperation for
aerostructure and engine
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HR
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- Cross industry Integration

  - **Material, Machinery Equipment, Production, Transportation**

• Enlarge pool of HR with colleges.

• Commercial: International cooperation for aerostructure and engine system

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Q & A

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