CSC — Annual Report 2014

Jun 24, 2014

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China Steel Corporation

June 26, 2014

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Table of Contents
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•Company Overview	2
•Performance	6
•Financial Review	10
•EPS & Dividends (common stock)	11
•Sales	12
•Strategy	14

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Company overview:
Business snapshot (CSC standalone)
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 Leading Taiwanese steel manufacturer with integrated production capabilities
Overview  Headquartered in Kaohsiung with major production sites located in Kaohsiung
 Annual capacity of 9.9 mmt as of Dec 31, 2013
Steel Sales revenue
breakdown by products Domestic/Export by revenue
 Leading manufacturer of flat steel products (2014.1Q) (2014.1Q)
 Continuously upgrading towards higher Billet/Slab, 2% Hot Rolled,
Major value-added products Bar, 8% 24% Export 35%
business  Dominant market position domestically Plate, 11%
 Continue to capture rapid growth
in South East Asia and China markets Wire Rod,
14%
Domestic 65%
Cold Rolled,
41%
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Company overview:
Business snapshot (CSC Group)
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Major business

Steel Core Businesses

• China Steel Corporation

• Chung Hung Steel Corporation

• Dragon Steel Corporation

• CSC Steel Sdn. Bhd.

• China Steel Sumikin Vietnam (CSVC )

• China Steel Precision Materials

Other Group Businesses

Logistic Businesses

Engineering Businesses

• China Steel Express Corporation

• China Steel Machinery Corporation

• China Steel Global Trading Corporation

• China Steel Structure Co., Ltd.

• China Ecotek Corporation

Industrial Materials Businesses Service and Investments Businesses

• Gains Investment Corporation

• C. S. Aluminum Corporation

• China Steel Security Corporation

• China Steel Chemical Corporation

• Info-Champ Systems Corporation

• CHC Resources Corporation

  • China Prosperity Development Corporation

• Himag Magnetic Corporation

• China Steel Corporation India Pvt. Ltd (CSCI)

CSC Group domestic market share (2014.1Q)

Capacity & market share

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84%
73%
 Our group crude steel 21%
11%
capacity reached 16.1
mmt in 2014(combining 39% 86%
57% 63% 60% 62%
China Steel Corporation
23% 24%
and Dragon Steel’s EAF
and No.1&2 blast furnace). Galvanized Hot- Bar/Rod Galvanized Electro- Plate Cold-rolled Hot-rolled Electrical Steel
Steel
CSC Dragon Steel Chung Hung
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Company Overview: Awards and Honours
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1

• 2013.11 The ROC Enterprise Environmental Protection Award, EPA, Executive Yuan. Only 19 enterprises received the Award.

2

• 2013.11 CSC’s 2012 CSR report receives the “Best Report Award of the Manufacturing Industry” by TAISE. Also CSC’s sustainable development performance is recognized in fields including “Climate Leadership”, “Sustainable Innovation” ,“Transparency and Integrity”, and “Creativity in Communication”.

• 2013.09 CSC was elected for inclusion in the DJSI-World and DJSI-Emerging Markets. In 2013, with only three steel making corporations being included in the Dow Jones Sustainability Indexes, CSC was selected as the Industry Leader in sustainable development.

• 2013.08 CSR Green Growth Award, British Standards Institution.

• 2013.04 CSC is an accredited member of the 2012-2013 Climate Action Program by worldsteel. CSC’s efforts for fulfilling its commitment to take part in the worldsteel CO2 data collection program are highly recognized.

• 2013.03 China Steel Building is the winner of Architizer A+ Award, U.S.A.

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Company overview: Group capacity & Production lines
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Group capacity

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Crude steel capacity (mmt)
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Commencement of new capacity/production lines: CSC group

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(0.2 mmt)
Q3 2014
CSCI
Project
(0.15 mmt)
APRIL 2014
NGO Line
(1.2 mmt)
OCT 2013
March 2013 Q1 2013
CSVC Project HSM
#2 BF
Expansion
(1.5 mmt) (2.5 mmt) (3 mmt → 4 mmt)
MAY 2011
(3 mmt)
#3 CR Mill / #3 CGL
JUL 2010
HSM
(2.5 mmt)
FEB 2010
#1 BF
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Performance- Consolidated operating results
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Item 2013 2014.1Q 2014.1~5* Consolidated Operating Revenue 347,829 92,416 154,191 Consolidated Operating Income 24,553 4,726 9,300 Consolidated Income Before Income Tax 23,207 5,073 9,362 Amount: NT$ million**	Item 2013 2014.1Q 2014.1~5* Consolidated Operating Revenue 347,829 92,416 154,191 Consolidated Operating Income 24,553 4,726 9,300 Consolidated Income Before Income Tax 23,207 5,073 9,362 Amount: NT$ million**	Item 2013 2014.1Q 2014.1~5* Consolidated Operating Revenue 347,829 92,416 154,191 Consolidated Operating Income 24,553 4,726 9,300 Consolidated Income Before Income Tax 23,207 5,073 9,362 Amount: NT$ million**	Item 2013 2014.1Q 2014.1~5* Consolidated Operating Revenue 347,829 92,416 154,191 Consolidated Operating Income 24,553 4,726 9,300 Consolidated Income Before Income Tax 23,207 5,073 9,362 Amount: NT$ million**
Item	2013	2014.1Q	*2014.1~5
Consolidated Operating Revenue	347,829	92,416	154,191
Consolidated Operating Income	24,553	4,726	9,300
Consolidated Income Before Income Tax	23,207	5,073	9,362

*preliminary result

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Performance-Sales Revenue Breakdown
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Unit ： NTD Thousands

	Item	2013	2014.1Q	2014.1~5
1	Steel products	287,827,717	76,290,064	126,925,505
2	Non-steel industry materials	34,435,437	8,899,661	14,864,816
3	Construction	16,219,774	4,400,755	7,784,674
4	Transportation and service	5,042,379	1,784,167	2,967,809
5	Others	4,301,744	1,041,118	1,647,707
Less	Sales returns and allowances	0	0	0
	Total	347,827,051	92,415,765	154,190,511

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Performance-CSC group
Segment revenues and operating results
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Unit ： NTD Thousands

2014.1Q	Steel	Ocean Freight Forwarding	Others	Adjustment and Elimination	Total
Revenues from external customers	$ 75,285,794	$ 327,921	16,801,815	$ -	$ 92,415,530
Inter-segment revenues	15,583,602	4,212,252	6,906,872	( 26,702,726)	-
Segment revenues	$ 90,869,396	$ 4,540,173	23,708,687	($ 26,702,726)	$ 92,415,530
Segment profit	$ 2,166,636	$ 767,343	1,802,525	($ 10,872)	$ 4,725,632
Interest income	72,894	1,073	57,181	( 12,832)	118,316
Interest expense	(854,667)	(17,136)	(54,711)	7,953	(918,561)
Share of the profit (loss) of associates and joint ventures	2,701,851	726,555	434,909	( 3,607,313)	256,002
Other non-operating income and expenses	406,976	358,158	192,474	( 65,905)	891,703
Profit before income tax	4,493,690	1,835,993	2,432,378	( 3,688,969)	5,073,092
Income tax expense (benefit)	349,091	129,974	311,005	5,628	795,698
Net profit for the year	$ 4,144,599	$ 1,706,019	$ 2,121,373	($ 3,694,597)	$ 4,277,394

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Performance- consolidated basis
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Consolidated Income Statement

IFRS	Units: NT$ millions	Units: NT$ millions	Units: NT$ millions	Units: NT$ millions	Units: NT$ millions	Units: NT$ millions
	2013		2013.1Q		2014.1Q
Revenues	347,829		88,461		92,416
Gross profit	37,280		9,087		8,109
Gross margins	10.72%		10.27%		8.77%
Profit before tax		23,209		5,679		5,073
Net profit		18,354		4,878		4,277
Attributable to
Owners of the corporation		15,981		3,793		3,628
Non-controlling interests		2,373		1,085		649

Units: NT$ millions

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Performance: financial review (Consolidated Basis)
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Units: NT$ millions 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013※03/31/2014※ Debt 206,337 255,206 299,578 312,393 362,630 365,108 Debt/Equity 78.22% 88.43% 95.99% 102.26% 113.55% 112.51% Asset 470,126 543,808 611,686 617,892 681,999 689,614 Debt / Asset 43.89% 46.93% 48.98% 50.56% 53.17% 52.94% Net Debt＊ 167,867 227,035 273,421 283,402 338,593 335,789 Net Debt /Asset 35.71% 41.75% 44.70% 45.87% 49.65% 48.69%	Units: NT$ millions 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013※03/31/2014※ Debt 206,337 255,206 299,578 312,393 362,630 365,108 Debt/Equity 78.22% 88.43% 95.99% 102.26% 113.55% 112.51% Asset 470,126 543,808 611,686 617,892 681,999 689,614 Debt / Asset 43.89% 46.93% 48.98% 50.56% 53.17% 52.94% Net Debt＊ 167,867 227,035 273,421 283,402 338,593 335,789 Net Debt /Asset 35.71% 41.75% 44.70% 45.87% 49.65% 48.69%	Units: NT$ millions 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013※03/31/2014※ Debt 206,337 255,206 299,578 312,393 362,630 365,108 Debt/Equity 78.22% 88.43% 95.99% 102.26% 113.55% 112.51% Asset 470,126 543,808 611,686 617,892 681,999 689,614 Debt / Asset 43.89% 46.93% 48.98% 50.56% 53.17% 52.94% Net Debt＊ 167,867 227,035 273,421 283,402 338,593 335,789 Net Debt /Asset 35.71% 41.75% 44.70% 45.87% 49.65% 48.69%	Units: NT$ millions 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013※03/31/2014※ Debt 206,337 255,206 299,578 312,393 362,630 365,108 Debt/Equity 78.22% 88.43% 95.99% 102.26% 113.55% 112.51% Asset 470,126 543,808 611,686 617,892 681,999 689,614 Debt / Asset 43.89% 46.93% 48.98% 50.56% 53.17% 52.94% Net Debt＊ 167,867 227,035 273,421 283,402 338,593 335,789 Net Debt /Asset 35.71% 41.75% 44.70% 45.87% 49.65% 48.69%	Units: NT$ millions 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013※03/31/2014※ Debt 206,337 255,206 299,578 312,393 362,630 365,108 Debt/Equity 78.22% 88.43% 95.99% 102.26% 113.55% 112.51% Asset 470,126 543,808 611,686 617,892 681,999 689,614 Debt / Asset 43.89% 46.93% 48.98% 50.56% 53.17% 52.94% Net Debt＊ 167,867 227,035 273,421 283,402 338,593 335,789 Net Debt /Asset 35.71% 41.75% 44.70% 45.87% 49.65% 48.69%	Units: NT$ millions 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013※03/31/2014※ Debt 206,337 255,206 299,578 312,393 362,630 365,108 Debt/Equity 78.22% 88.43% 95.99% 102.26% 113.55% 112.51% Asset 470,126 543,808 611,686 617,892 681,999 689,614 Debt / Asset 43.89% 46.93% 48.98% 50.56% 53.17% 52.94% Net Debt＊ 167,867 227,035 273,421 283,402 338,593 335,789 Net Debt /Asset 35.71% 41.75% 44.70% 45.87% 49.65% 48.69%	Units: NT$ millions 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013※03/31/2014※ Debt 206,337 255,206 299,578 312,393 362,630 365,108 Debt/Equity 78.22% 88.43% 95.99% 102.26% 113.55% 112.51% Asset 470,126 543,808 611,686 617,892 681,999 689,614 Debt / Asset 43.89% 46.93% 48.98% 50.56% 53.17% 52.94% Net Debt＊ 167,867 227,035 273,421 283,402 338,593 335,789 Net Debt /Asset 35.71% 41.75% 44.70% 45.87% 49.65% 48.69%
	12/31/2009	12/31/2010	12/31/2011	12/31/2012	12/31/2013※	03/31/2014※
Debt	206,337	255,206	299,578	312,393	362,630	365,108
Debt/Equity	78.22%	88.43%	95.99%	102.26%	113.55%	112.51%
Asset	470,126	543,808	611,686	617,892	681,999	689,614
Debt / Asset	43.89%	46.93%	48.98%	50.56%	53.17%	52.94%
Net Debt＊	167,867	227,035	273,421	283,402	338,593	335,789
Net Debt /Asset	35.71%	41.75%	44.70%	45.87%	49.65%	48.69%

Since 2009, CSC group have issued corporate bonds and signed syndicated loans for DSC’s expansion project and overseas raw material investments.

• ＊ Net debt = debt - cash&cash equivalents – ( financial assets at fair value through profit or loss-current + available-for-sale financial assets - current +Held-to-maturity financial assets-current+ Derivative financial assets for hedging-current)

※ IFRS basis

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Performance- Historical EPS and dividends paid
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(in NTD per share) Dividend 122 83 85 84 85 87 85 85 87 88 85 132 86 payout(%)

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6.00
5.00
4.00
3.00
2.00
1.00
-
cash dividend stock dividend EPS
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
0.30
2.78
0.10
3.56 4.49 0.38 1.05
0.40
0.50
0.35
0.30
0.35
0.50
3.90 3.75
3.50
0.15 3.00 0.43
0.33 0.15
0.20 1.99 0.20
1.40 1.30
0.82 0.80 1.86 3.94 5.26 4.83 2.03 1.54 1.01 2.83 1.36 1.01 0.70
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We maintain a high cash dividend policy to our investors and have consistently paid out 80% to 90% over the last ten years

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Sales (CSC standalone)
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2014.1Q CSC sales volume totaled 2.38 million metric tons

Domestic/Export sales volume breakdown of 2014.1Q

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Hot-
Rolled,
Cold-
Semi 26.0%
Rolled,
Product, 20.1% Vehicles Export 35.99%
2.5% (0.86million
China Japan21.5%
metric tons)
26.3%
Bar/Rod,
Coated
21.3%
Products, Others 20.1%
Plate, Coil center
18.3%
11.8%
Piping
Wire-rope 0.9%
Hand tools 1.3% Re-rolling
S.E. Asia 32.1%
Bolts-nuts
Ship-building 3.3%
Domestic 64.01%
Trader 3.3%
(1.52 million metric tons)
Ship-building
Vehicles 3.5%
Others 3.9%
Piping 5.2%
Steel structure 6.8%
Re-rolling 10.7%
Bolts-nuts 16.1%
Coil center 20.7%
Direct users 24.4%
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0% 5% 10% 15% 20% 25% 30%
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Sales (CSC +DSC:HRC)
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2014.1Q sales volume (CSC & HRC of DSC) totaled 3.25 million metric tons

Domestic/Export sales volume breakdown of 2014.1Q

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Semi
Hot-
Product,
Rolled,
1.8%
45.9%
Vehicles
Bar/Rod, Cold- China
15.5% Rolled, Export 38.81% 20.0% Japan20.2%
Plate, 14.7% (1.26million
Coated
8.7% metric tons)
Products,
13.4% Coil center Others 21.9%
Wire-rod 0.7% Piping
Hand tools 1.1%
Re-rolling
Ship-building 2.5% Domestic 61.19% S.E. Asia 37.9%
Bolts-nuts
Trader 2.5% (1.99 million
Vehicles 3.1% metric tons)
Ship-building
Others 3.5%
Steel structure 5.4%
Piping 8.5%
Bolts-nuts 12.3%
Coil center 17.2%
Direct users 18.8%
Re-rolling 24.5%
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0% 5% 10%

15% 20% 25% 30%

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Key strategies to achieve the vision
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Secure self-sufficiency in raw materials through strategic upstream investment

2 Strengthen sales channels through overseas investment

• 3 Increase the supply chain value of steel-related industries by developing advanced products & technology and green manufacturing process

4 Enhance corporate culture handing-down, reinforce human resources training & development, and solidify plans for management succession

5 Enhance client relationships and networks through engineering, technical, and information management services

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6
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Implement cost reduction measures, enhance energy-saving & environmental protection, and strengthen workplace safety

With the key strategies implemented, China Steel Corporation aims to become a trustworthy steel partner pursuing growth, environmental protection, energy saving and value-innovation

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Secure self-sufficiency in raw materials through
strategic upstream investment
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Major raw materials Semi-products Ferroalloy

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Acquired 5% in Dongbu Metal Co
($47.8bn WON, approximately
US$43.9mm)
East Asia
United Corp.
Invested 5% (US$175 mn) in Formosa
Ha Tinh Steel Corporation
Acquired 19% in Sakura Acquired 39.04% in
Ferroalloys Sdn. Hsin Hsin Cement
Bhd.(US$62.46mm) for lime stone
Acquired 3.68% of 2 subsidiaries of
ArcelorMittal Mines Canada
(investment amount USD$270mm)
Iron
Coal &
Iron ore
Iron Acquired 5% stake in Sonoma
coal project (investment amount
AUD$16.0mm)
Holds 1% of NAMISA
Acquired 2.5% stake in Roy Hill
company (investment amount
JPY$8.5bn, approximately iron ore project (investment
amount AUD$315mm)
US$103.1mm)
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Major raw materials

• Iron ore and coking coals are secured by long-term contract (volume)

• Partner with parties in Japan, South Korea, Mainland China, Australia and Brazil

• Secure lime stone - acquired 39.04%(group shareholding) in Hsin Hsin Cement

Semi-products

• Secure supplies from strategic partnerships and JV’s

• East Asia United Steel Corp.

• Utilize Sumitomo’s Wakayama plant to produce slab steel

• A reliable supply source for slab

• Vietnam investment with Formosa Plastics Group

• Access to semi-finished steel with lower transportation costs and market risks

Ferro-alloy

• Long-term contract to reduce market risks

• Purchased 5% stake in Dongbu Metal, Korea’s largest ferroalloys producer

• Purchased 19% stake in Sakura Ferroalloys Sdn. Bhd.

• Ensures a long-term stable supply of ferro-alloy, and lowers the acquisition cost.

To secure 30% of major raw materials through investments in mines and find multiple sources of semi-products

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Strengthen sales channels through overseas investment
New Asia Project
China
China
PCMI Metal Products (Chongqing) Co., Ltd
Invest US$30.5mm in China Steel Precision
Materials to acquire 70% of the Chartered
Capital.
Capacity: 19,000 metric tones
China
Changshu Baoshunchang Steel Processing
Co., Ltd
China
Italy
Qingdao China Steel Precision Metal Co., Ltd
Ardemagni SpA
China
Maruichi Metal Product (Foshan) Co., Ltd
China
Thailand Xiamen Chunyuan Precision
Mechatronic Co., Ltd
Thai Sumilox
India Company Limited
China Steel Corporation China
India Pvt. Ltd. (CSCI) Thailand Guangzhou Mayer Corp., Ltd
Capacity: ES 0.2 mmt TSK Steel Co. Ltd.
Vietnam
Thailand CSC holds 51% of CSVC
SB Coil Center Capacity: 1.2 mmt (CR 0.5 mmt, GA/GI
0.3 mmt, ES 0.2 mmt, PO 0.2 mmt)
(Thailand) Ltd.
Malaysia
Tatt Giap Steel Centre Sdn. Vietnam
Bhd.
CSGT Metals Vietnam Joint Stock
Malaysia
Company
CSC Steel Holdings Berhad
Capacity: CR 0.60 mmt (CRC 0.36 mmt
Vietnam
including PO, GI 0.12 mmt, PPGI 0.12 mmt)
Hanoi Steel Center Co., Ltd.
Indonesia
PT MICS Steel Indonesia
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Overseas Investments of CSC group

Co-invest in coil centers with peers and customers through China Steel Global Trading Co.

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Increase the supply chain value of steel-related industries by developing
advanced products and technology and green manufacturing process
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Co-development for value-added products
R&D alliance
Research
Downstream
Institutes &
Customers
Universities
Design-in & Spec.-in
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• Aim for further growth and success with downstream customers

• Close collaboration with our customers, research institutions, and universities for higher value-added products

• Increase end market’s demand for higher value-added products

R&D alliances

R&D alliances	R&D alliances
Industry	R & D Alliance Total est. expenditure (US$mm)
Fasteners	High value-added fasteners 2.4
Motors	Development of high value- added technologies for the motor industry 6.8
Auto structure parts	R&D alliance for AHSS and forming technology for automobile 2.2
	R&D alliance for tube hydro- forming technology for automobile 4.1
Auto panel and inner parts	R&D alliance for advanced molding technology for automobilepanels 3.2
Wire	CTRA for wafer-cutting electroplated diamond wire saws 3.1
Steel plate Total	Preliminary R&D plan for high precision stamp-formed needle roller bearings made of locally- made low-alloy steel plate 0.1
	21.9

China Steel Corporation has committed significant efforts/developments in downstream higher value-added steel products alongside its customers

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Enhance client relationship and networks through value-
added services
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Engineering and Technical services

• Plant Construction

• Technical Consulting

• Environmental Engineering

Customer services

• Real-time information services of order status

• Applied technology services

• Early vender involvement

Others

• Domestic and oversea consulting services regarding environmental protection and energy saving

• Railway and Rapid Transit System Engineering

• Industrial Air Conditioner

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Implement cost reduction measures, enhance energy-saving &
environmental protection, and strengthen workplace safety
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Cost Reduction Performance

• 2.07 billion: Use of low cost raw material and reduction of procurement cost

2012

• 1.47 billion: Cogeneration/ Provide saturated steam and industrial gas to nearby plants with 6.03 billion heat demands NTD • 0.9 billion : Nationalization of manufacturing system, equipment, replacement parts and spare parts

• 1.45 billion: Provide saturated steam and industrial gas to nearby plants with heat demands

• 2013

• 1.03 billion: Expense saving from nationalization of 5.52 billion equipment and replacement parts • NTD 0.71 billion: Improvement of manufacturing process, use of low price raw material, and reduction of alloy cost

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