CSC — Annual Report 2013

Mar 17, 2014

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China Steel Corporation

March 18, 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 (2013) (2013)
 Continuously upgrading towards higher Billet/Slab, 2%
Bar, 8% Hot Rolled,
Major value-added products 23% Export 34%
Plate, 10%
business  Dominant market position domestically
 Continue to capture rapid growth
in South East Asia and China markets
Wire Rod, 16%
Domestic 66%
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 (2013)

Capacity & market share

 Our group crude steel capacity reached 16.1 mmt in 2014(combining China Steel Corporation and Dragon Steel’s EAF and No.1&2 blast furnace).

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83%
81%
12%
23%
34% 83%
71%
56% 55% 59%
37%
24%
Hot- Bar/Rod Electro- Plate Cold-rolled Hot-rolled Electrical
Galvanized Galvanized Steel
Steel
CSC Dragon Steel Chung Hung
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Company Overview: Awards and Honors
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1

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

• 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)
Q2 2014
CSCI
Project
(0.15 mmt)
MAY 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* February 2014 Accumulated of 2014 Consolidated Operating Revenue 347,829 28,559 60,872 Consolidated Operating Income 24,553 1,264 2,943 Consolidated Income Before Income Tax 23,207 1,510 3,009 Amount: NT$ million	Item 2013* February 2014 Accumulated of 2014 Consolidated Operating Revenue 347,829 28,559 60,872 Consolidated Operating Income 24,553 1,264 2,943 Consolidated Income Before Income Tax 23,207 1,510 3,009 Amount: NT$ million	Item 2013* February 2014 Accumulated of 2014 Consolidated Operating Revenue 347,829 28,559 60,872 Consolidated Operating Income 24,553 1,264 2,943 Consolidated Income Before Income Tax 23,207 1,510 3,009 Amount: NT$ million	Item 2013* February 2014 Accumulated of 2014 Consolidated Operating Revenue 347,829 28,559 60,872 Consolidated Operating Income 24,553 1,264 2,943 Consolidated Income Before Income Tax 23,207 1,510 3,009 Amount: NT$ million
Item	*2013	February* 2014**	Accumulated* of 2014**
Consolidated Operating Revenue	347,829	28,559	60,872
Consolidated Operating Income	24,553	1,264	2,943
Consolidated Income Before Income Tax	23,207	1,510	3,009

*preliminary result

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Performance-Sales Revenue Breakdown
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Unit ： NTD Thousands

	Item	2013	February, 2014	Accumulated of 2014
1	Steel products	287,827,717	23,727,131	50,439,754
2	Non-steel industry materials	34,435,437	2,732,950	5,773,396
3	Construction	16,219,774	1,432,845	3,078,759
4	Transportation and service	5,042,379	500,244	1,086,978
5	Others	4,301,744	166,093	493,571
Less	Sales returns and allowances	0	0	0
	Total	347,827,051	28,559,263	60,872,458

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Performance-CSC group
Segment revenues and operating results
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										Unit：NTD Thousands	Unit：NTD Thousands	Unit：NTD Thousands
2013/1~3Q	Steel			Ocean Freight Forwarding	CSCC		Others			Adjustment and Elimination		Total
Revenues from external customers	$ 212,184,125			$ 1,372,340	$ 6,673,123		$ 40,186,254			$ -		$ 260,415,842
Inter-segment revenues		36,832,139		11,133,826		71,592		24,478,006			-72,515,563	-
Segment revenues		$ 249,016,264		$ 12,506,166	$ 6,744,715			$ 64,664,260		$-72,515,563		$ 260,415,842
Segment profit		$ 11,770,229		$ 2,343,892	$ 1,856,306			$ 3,535,631		$ - 954,190		$ 18,551,868
Interest income		193,698		6,452		8,837		131,854			- 7,743	333,098
Interest expense		- 1,956,594		- 16,219		- 1,636		- 131,325			5,386	- 2,100,388
Share of the profit (loss) of associates and joint ventures		6,476,066		1,373,938		96,614		1,324,612			- 9,006,750	264,480
Other non-operating income and expenses		925,664		261,614		45,491		362,090			-605,288	989,571
Profit before income tax		17,409,063		3,969,677		2,005,612		5,222,862			- 10,568,585	18,038,629
Income tax expense (benefit)		2,475,595		270,399		288,079		628,798			-143,756	3,519,115
Net profit for the period	$ 14,933,468			$ 3,699,278	$ 1,717,533			$ 4,594,064		$-10,424,829		$ 14,519,514

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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	Units: NT$ millions	Units: NT$ millions
	2013.Q3		2012.Q3		2013.1~3Q		2012.1~3Q
Revenues	87,260		83,812		260,416		274,421
Gross profit	8,931		4,273		27,948		13,920
Gross margins	10.23%		5.10%		10.73%		5.07%
Profit before tax		5,828		1,647		18,039		4,914
Net profit		4,284		1,234		14,519		3,980
Attributable to
Owners of the corporation		3,779		1,875		12,457		3,835
Non-controlling interests		505		-641		2,062		145

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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 09/30/2013※ Debt 206,337 255,206 299,578 312,393 360,788 Debt/Equity 78.22% 88.43% 95.99% 102.26% 115.81% Asset 470,126 543,808 611,686 617,892 672,309 Debt / Asset 43.89% 46.93% 48.98% 50.56% 53.66% Net Debt＊ 167,867 227,035 273,421 283,402 335,455 Net Debt /Asset 35.71% 41.75% 44.70% 45.87% 49.90%	Units: NT$ millions 12/31/2009 12/31/2010 12/31/2011 12/31/2012 09/30/2013※ Debt 206,337 255,206 299,578 312,393 360,788 Debt/Equity 78.22% 88.43% 95.99% 102.26% 115.81% Asset 470,126 543,808 611,686 617,892 672,309 Debt / Asset 43.89% 46.93% 48.98% 50.56% 53.66% Net Debt＊ 167,867 227,035 273,421 283,402 335,455 Net Debt /Asset 35.71% 41.75% 44.70% 45.87% 49.90%	Units: NT$ millions 12/31/2009 12/31/2010 12/31/2011 12/31/2012 09/30/2013※ Debt 206,337 255,206 299,578 312,393 360,788 Debt/Equity 78.22% 88.43% 95.99% 102.26% 115.81% Asset 470,126 543,808 611,686 617,892 672,309 Debt / Asset 43.89% 46.93% 48.98% 50.56% 53.66% Net Debt＊ 167,867 227,035 273,421 283,402 335,455 Net Debt /Asset 35.71% 41.75% 44.70% 45.87% 49.90%	Units: NT$ millions 12/31/2009 12/31/2010 12/31/2011 12/31/2012 09/30/2013※ Debt 206,337 255,206 299,578 312,393 360,788 Debt/Equity 78.22% 88.43% 95.99% 102.26% 115.81% Asset 470,126 543,808 611,686 617,892 672,309 Debt / Asset 43.89% 46.93% 48.98% 50.56% 53.66% Net Debt＊ 167,867 227,035 273,421 283,402 335,455 Net Debt /Asset 35.71% 41.75% 44.70% 45.87% 49.90%	Units: NT$ millions 12/31/2009 12/31/2010 12/31/2011 12/31/2012 09/30/2013※ Debt 206,337 255,206 299,578 312,393 360,788 Debt/Equity 78.22% 88.43% 95.99% 102.26% 115.81% Asset 470,126 543,808 611,686 617,892 672,309 Debt / Asset 43.89% 46.93% 48.98% 50.56% 53.66% Net Debt＊ 167,867 227,035 273,421 283,402 335,455 Net Debt /Asset 35.71% 41.75% 44.70% 45.87% 49.90%	Units: NT$ millions 12/31/2009 12/31/2010 12/31/2011 12/31/2012 09/30/2013※ Debt 206,337 255,206 299,578 312,393 360,788 Debt/Equity 78.22% 88.43% 95.99% 102.26% 115.81% Asset 470,126 543,808 611,686 617,892 672,309 Debt / Asset 43.89% 46.93% 48.98% 50.56% 53.66% Net Debt＊ 167,867 227,035 273,421 283,402 335,455 Net Debt /Asset 35.71% 41.75% 44.70% 45.87% 49.90%
	12/31/2009	12/31/2010	12/31/2011	12/31/2012	09/30/2013※
Debt	206,337	255,206	299,578	312,393	360,788
Debt/Equity	78.22%	88.43%	95.99%	102.26%	115.81%
Asset	470,126	543,808	611,686	617,892	672,309
Debt / Asset	43.89%	46.93%	48.98%	50.56%	53.66%
Net Debt＊	167,867	227,035	273,421	283,402	335,455
Net Debt /Asset	35.71%	41.75%	44.70%	45.87%	49.90%

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 payout(%)

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6.00
5.00
4.00
3.00
2.00
1.00
-
cash dividend stock dividend EPS
0.50
0.35
0.30
0.35
0.30
0.50
3.90 3.75
3.50
0.15 3.00 2.78 0.43
0.33 0.15
0.20 1.99 0.10
1.40 1.30
0.82 1.86 3.94 5.26 4.83 3.56 4.49 2.03 1.54 1.01 2.83 1.36 0.38
0.80 1.01
0.40
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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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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2013 CSC sales volume totaled 9.48 million metric tons

Domestic/Export sales volume breakdown of 2013

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Hot-
Rolled,
Cold-
Semi 25.8%
Rolled,
Product, 20.8% Vehicles Export 34.97%
3.2% (3.32million
China Japan20.6%
metric tons)
25.0%
Bar/Rod, Coated
21.4% Plate, Products, Coil center Others 20.2%
17.8%
11.0%
Piping
Wire-rope 1.0%
Hand tools 1.4% Re-rolling
S.E. Asia 34.2%
Ship-building 2.7% Bolts-nuts
Domestic 65.03%
Trader 3.4%
(6.16 million metric tons)
Vehicles 4.8% Ship-building
Others 4.9%
Piping 5.3%
Steel structure 6.5%
Re-rolling 9.7%
Bolts-nuts 16.6%
Coil center 20.2%
Direct users 23.6%
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0% 5% 10% 15% 20% 25%
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Sales (CSC +DSC:HRC)
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2013 sales volume (CSC & HRC of DSC) totaled 12.36 million metric tons

Domestic/Export sales volume breakdown of 2013

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Hot-
Semi
Rolled,
Product,
43.1%
2.5%
Vehicles
China
Cold- Export 36.33% Japan19.7%
Bar/Rod, Rolled, 21.8%
(4.49million
16.4% 15.9%
Plate, metric tons)
Coated
8.5% Products, Coil center Others 21.9%
13.6%
Piping
Wire-rod 0.8%
Hand tools 1.2% Re-rolling
Domestic 63.67% S.E. Asia 36.6%
Ship-building 2.1% Bolts-nuts
(7.87 million
Trader 2.8%
metric tons)
Vehicles 3.7% Ship-building
Others 5.3%
Steel structure 5.3%
Piping 8.3%
Bolts-nuts 13.0%
Coil center 17.1%
Direct users 18.7%
Re-rolling 21.6%
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0% 5% 10% 15% 20% 25%
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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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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
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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 Xiamen Chunyuan Precision Mechatronic Co., Ltd Thailand Thai Sumilox China India Company Limited Guangzhou Mayer Corp., Ltd China Steel Corporation India Pvt. Ltd. (CSCI) Thailand Capacity: ES 0.2 mmt SB Coil Center Vietnam CSC holds 51% of CSVC (Thailand) Ltd. Capacity: 1.2 mmt (CR 0.5 mmt, GA/GI 0.3 mmt, ES 0.2 mmt, PO 0.2 mmt) Malaysia Tatt Giap Steel Centre Sdn. Vietnam Bhd. CSGT Metals Vietnam Joint Stock Malaysia Company CSC Steel Holdings Berhad Vietnam Capacity: CR 0.60 mmt (CRC 0.36 mmt Hanoi Steel Center including PO, GI 0.12 mmt, PPGI 0.12 mmt) Co., Ltd.

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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