AIDC — Investor Presentation 2017

Apr 24, 2017

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Investor Conference

‧ ‧ ‧ Accountability Innovation Dedication Customer Orientation Aerospace Industrial Development Corporation April 13, 2017

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Contents

I. Opportunity of Global Aerospace Industry

II. Global Challenges III. Business Status IV. Financial Review V. Achievements & Prospects

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I. Opportunity of Global Aerospace Industry

Per “2017 Global Aerospace and Defense Sector Outlook” released by Deloitte, the global aerospace and defense (A&D) industry is likely to experience continued growth in 2017, however affected by slow economic recovery the growth rate is estimated at 2%.

Annual revenue growth rate of the global aerospace & defense industry

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Sources: Global aerospace and defense sector outlook (Deloitte; 2016, 2017) ; Global aerospace and defense sector financial performance study (Deloitte; 2015, 2016)

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I. Opportunity of Global Aerospace Industry (cont’d)

1. Defense Industry

Defense industry benefits from increase of military budget due to regional tensions. As one of five Taiwan’s innovative industries defense industry is expected to bring investment momentum to related industries while upgrading defense industry development.

Top 25 military spenders in 2015

(US$ billion) Top 23 Source: 2017 Global aerospace and defense sector outlook (Deloitte) 3

I. Opportunity of Global Aerospace Industry (cont’d)

2. Commercial Aviation Industry

Commercial AircraftCommercial Aircraft

Business AviationBusiness Aviation

New aircraft in continuous demand, production is expected to grow steadily.

Forecast for the next 10 years (2016-2025):

HelicopterHelicopter

Commercial EnginesCommercial Engines

Forecast for the next 5 years (2016-2020) ： Due to plunge of oil price, less 450 units than 2015 forecast.

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Forecast for the next 10 years
(2017-2026)
•
Deliveries: 112 thousand units
•
Market value: 1200010000 10130 10768 11447 11699 10671 U 10425UnitsValue S$746 billion 11184 11747 12059 12272 10000080000
8000 60000
6000
40000
4000
20000
2000
0 0
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Unit Production (Units)
Value Statistics ($US M)
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II. Global Challenges

1. Challenges from Advanced Countries

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America First Policy
Intelligentize
Brexit Automated
Industry 4.0
Trade Protectionism
Intelligent Machinery
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II. Global Challenges (cont’d)

2. Competition from Emerging Countries

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Low Cost
Government
Aerospace
Incentive
Clusters
Source: ICF International
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II. Global Challenges (cont’d)

3. Cost Improvement Pressure

Major international companies demand for cost reduction, e.g. Boeing’s Partnering for Success strategy calls for innovation of suppliers to reduce production cost.

Boeing 2017 Supplier Summit

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II. Global Challenges (cont’d)

In addition to cost, quality and delivery, to be dynamic, resilient and competitive are the strategic principles of Boeing supply chain.

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Source: Boeing 2017 Supplier Summit

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III. Business Status

1. Defense Business Updates (on major projects)

、 � IDF F-16A/B Upgrade

IDF Upgrade F-16A/B Upgrade

� Military Aircraft MRO

UH-1H Helicopter 2nd AFLC GOCO

Air Force Academy A/C Maintenance GOCO

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III. Business Status (cont’d)

1. Defense Business Updates (on major projects)

－ � Advanced Jet Trainer In Pursuit

• To replace the aging F-5 and AT-3, a budget plan of NT$68.64 billion has been drawn up in 2017 and shall be executed between 2017-2028.

• On Feb. 7th, 2017, Taiwan president Tsai Ing-wen witnessed MND and NCSIST to sign the AJT manufacturing agreement while NCSIST and AIDC signed cooperation MOU.

• Military Engines

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TFE-1042
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Applied on the IDF
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F124 Applied on M346 Advanced Trainer by Leonardo-Finmeccanica (Italy)

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III. Business Status
(cont’d)
2. Commercial Aviation Programs (on major projects)
� Popular A/C & Engines GE Aviation
Top 2 Supplier in Asia
Sikorsky S-92 Cockpit
Airbus Single-Aisle A320 CFM56 GE90
Aft Belly Fairing Composite Panels
Rolls-Royce
Boeing Single-Aisle B737
MLG Door/Pressurized Door Long-Term Supply
Chain Partner
Airbus Giant A380
HTP Tip Boeing Dreamliner B787
HT Leading Edge TRENT 800 V2500
� NextGen A/C & Engines
CFM LEAP-X
C-Series
A320neo B737MAX
MRJ Trent XWB GEnx
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III. Business Status (cont’d)

• The oil price plunged since 2014 impacted AIDC helicopter programs the most, followed by business aircraft programs.

• � AIDC was awarded contracts for supplying parts for Boeing 737MAX elevator composite parts; and Airbus A320 family aft belly fairing composite parts which TACC-19 is dedicated to produce.

• The above single aisle jets shall yield profit after passing process certification and FAI.

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Backlog to end of 2016 (s/s)
5,645 4,452
Single aisle (A320 family) Single aisle (737 family)
1,229 1,263
Twin aisle Total Total Twin aisle
(A330 & A350 & A380) 6,874 5,715 (767 & 787 & 777 & 747-8)
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IV. Financial Review

1. 2016 Income

Revenue, pre-tax income, net income, and EPS all hit record high.

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NT$ Revenue
100M Net Income in NT$ 100M EPS in NT$/share
280
25 2.50
2.29
270 273.3 Net Income EPS 2.23
260 268.8 2.06
20 2.00
250
240
230 15 1.37 1.42 1.50
2015 2016
Pre-tax Income 10 18.72 20.29 20.83 1.00
NT$
100M 12.48 12.89
26 5 0.50
25.9
24 24.8
0 0.00
22
2012 2013 2014 2015 2016
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2015 2016 Note ： 2012 ROC GAAP were observed; the IFRS was adopted since 2013.
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IV. Financial Review (cont’d)

2. 2016 Dividend

After considering cash demand for operation, except setting 10% of Retained Earnings for Legal Reserve and 30% for Special Reserve, to distribute NT$1/share for cash dividend and NT$0.37/share for share dividend is proposed. Pending resolution of the Shareholders’ Meeting.

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2014 2015 2016
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IV. Financial Review (cont’d)

3. Revenue Composition of Recent Years

AIDC maintains military and commercial businesses in parallel development. Focus of commercial business in recent years was on supplying composite parts and components for Boeing and Airbus passenger airplanes.

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Unit: NT$ 100M
Year 2012 2013 2014 2015 2016
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IV. Financial Review (cont’d)

4. Revenue for 1Q17 & 1Q16

Revenue for 1Q17 is lower than 1Q16. The main reason is that helicopters and business jets are affected by the markets, and CFM56 engine is being replaced by LEAP engine, therefore it will cause CFM56’s deliveries to decrease. Further revenue from new LEAP engines will increase after certifications of LEAP’s products and new processes.

Q1 Revenue

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NT$ 100M
58 63 59
60
40
20
0
2015 2016 2017
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V. Achievements & Prospects

1. Opening of 3 Major Facilities

(1) ECMC: inaugurated on April 14, 2016

• (2) TACC-19 Composite Plant ： inaugurated on July 1, 2016

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(3) F-16A/B Upgrade & Maintenance Building: inaugurated on Feb. 21, 2017

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V. Achievements & Prospects (cont’d)

2. Intelligent Manufacturing of Aerospace Industry

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V. Achievements & Prospects (cont’d)

3. Cooperation with Academia and Research Institutes

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V. Achievements & Prospects (cont’d)

4. A-Team Efficiency

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LEAN
Eliminate
Waste
Reduce Mat’l
Procurement
Domestic Cost Promote
Aerospace
Industry 4.0
Supply Chain
Improve
Work Division/
Efficiency
Alliance b’twn Taiwan &
Sectors
Aerospace Productivity
A-TEAM 4.0
Efficiency
Qualified
Local
Domestic
Intelligent
Raw Mat’l
Machinery -
Source -
Intelligent/
Reduce Cost
Automatic
& Inventory
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AIDC has signed MOA for "Aerospace Intelligent Machinery / Intelligent Manufacturing" with NARLabs and Siemens Co., Ltd.

AIDC has signed MOU with 6 raw material suppliers, among which, supplier CSC , CSAC, and Ye Fong Aluminum have been qualified in the initial trial production of AJT raw material.

AIDC has signed MOU with 14 machinery companies for R&D on 3 categories of aerospace machinery and equipment.

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V. Achievements & Prospects (cont’d)

5. Prospects

• As of the end of March 2017, AIDC’s accumulated revenue was NT$5.9 billion. It is expected the A-Team 4.0 Alliance to benefit Taiwan’s aerospace industry in terms of enhancing overall industrial capabilities and the ability of acquiring international orders, sustaining human resource cultivation.

• For 2017 business prospects, besides AJT program, in the wake of the opening of 3 facilities, the composite parts on commercial business, Leap engine business and F-16A/B upgrade business are expected to grow.

• AIDC will keep promoting Taiwan aerospace industry to upgrade and boosting national security.

－ － Thank You

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