CSC — Annual Report 2015

Jun 12, 2015

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China Steel Corporation

June 22, 2015

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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, 2014
Steel Sales revenue
breakdown by products Domestic/Export by revenue
 Leading manufacturer of flat steel products (2015.1Q) (2015.1Q)
 Continuously upgrading towards higher Bar, 9% Billet/Slab, Export 34%
Major value-added products 2% Hot Rolled,
22%
business  Dominant position in the domestic market Plate, 10%
 Continue to capture rapid growth
in South East Asia and China markets
Wire Rod,
17% Domestic 66%
Cold Rolled,
40%
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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 Corporation India Pvt. Ltd (CSCI)

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 Steel Precision Metals Qingdao Co., Ltd.

• China Ecotek Corporation

• United Steel Engineering and Construction Co., Ltd (Kunshan coil center)

• Info-Champ Systems Corporation

Industrial Materials Businesses Service and Investments Businesses

• C. S. Aluminum Corporation

• Gains Investment Corporation

• China Steel Chemical Corporation

• China Steel Security Corporation

• CHC Resources Corporation

• China Prosperity Development Corporation

• Himag Magnetic Corporation

• China Steel Management Consulting Corporation

• China Steel Precision Materials

• China Steel Resources Corporation

• CSC Precision Metal Industrial Corporation

Capacity & market share

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CSC Group domestic market share (2015.1Q)
84%
74%
 Our group crude steel 12%
11%
capacity reached 16.1 mmt
in 2015(combining China 46% 83%
Steel Corporation and 63% 61% 64% 63%
Dragon Steel’s EAF and 23% 26%
No.1&2 blast furnace). Hot- Bar/Rod Electro- Plate Cold-rolled Hot-rolled Electrical
Galvanized Galvanized Steel
Steel
CSC Dragon Steel
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Company Overview: Awards and Honours
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• 2015.05 CSC was ranked as RobecoSAM 2015 Steel Industry Bronze Class Sustainability leaders.

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• 2014.12 Sustainable Governance Award, British Standards Institution.

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• 2014.11 CSC received “Ten Most Sustainable Company Award”, ”Growth through Innovation Award”, “Climate Leadership Award”, and ”Taiwan Top 50 Corporate Sustainability Report Award-Best Report

• 3 of the Year in Manufacturing Sector” by TAISE.

• 2014.10 CSC received ”Excellence in Corporate Social Responsibility Award” and awarded “Taiwan 4 Most Admired Company - Steel Industry” by Common Wealth magazine.

• 2014.10 CSC was included in CDP ‘s (Carbon Disclosure Project) 2014 Climate Disclosure 5 Leadership Index for Asia ex-Japan. • 2014.09 CSC was elected for inclusion in the DJSI-World and DJSI-Emerging Markets. 6

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• 2014.01 CSC was awarded RobecoSAM 2014 Steel Industry Leader and ranked as Gold Class Sustainability leaders.

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Company overview: Group capacity & Production lines
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Group capacity

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Crude steel capacity (mmt)
Dragon Blast Furnace Dragon Electric Arc Furnace China Steel
5.0 5.0
2.5 2.5
1.0 1.0 1.0 1.2 1.2
9.9 9.9 9.9 9.9 9.9
2010 2011 2012 2013 2014
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Commencement of new capacity/production lines: CSC group

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(0.2 mmt)
Q1 2015
CSCI
Project
(0.15 mmt)
APR 2014
NGO Line MAR 2013 Q1 2013
HSM
(1.2 mmt) #2 BF
Expansion
OCT 2013
(2.5 mmt) (3 mmt → 4 mmt)
CSVC Project (3 mmt)
JUL 2010
(1.5 mmt)
HSM
MAY 2011
(2.5 mmt)
#3 CR Mill / #3 CGL
FEB 2010
#1 BF
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Performance- Consolidated operating results
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Item 2014 2015.1Q 2015.1~4* Consolidated Operating Revenue 366,511 80,804 106,156 Consolidated Operating Income 29,792 6,412 7,398 Consolidated Income Before Income Tax 28,576 6,039 7,814 Amount: NT$ million**	Item 2014 2015.1Q 2015.1~4* Consolidated Operating Revenue 366,511 80,804 106,156 Consolidated Operating Income 29,792 6,412 7,398 Consolidated Income Before Income Tax 28,576 6,039 7,814 Amount: NT$ million**	Item 2014 2015.1Q 2015.1~4* Consolidated Operating Revenue 366,511 80,804 106,156 Consolidated Operating Income 29,792 6,412 7,398 Consolidated Income Before Income Tax 28,576 6,039 7,814 Amount: NT$ million**	Item 2014 2015.1Q 2015.1~4* Consolidated Operating Revenue 366,511 80,804 106,156 Consolidated Operating Income 29,792 6,412 7,398 Consolidated Income Before Income Tax 28,576 6,039 7,814 Amount: NT$ million**
Item	2014	2015.1Q	*2015.1~4
Consolidated Operating Revenue	366,511	80,804	106,156
Consolidated Operating Income	29,792	6,412	7,398
Consolidated Income Before Income Tax	28,576	6,039	7,814

*preliminary result

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Performance-Sales Revenue Breakdown
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Unit ： NTD Thousands

	Item	2014	2015.1Q	2015.1~4
1	Steel products	299,972,630	65,291,756	85,664,447
2	Non-steel industry materials	36,525,002	8,121,375	10,858,880
3	Construction	19,659,886	4,987,868	6,309,498
4	Transportation and service	6,779,874	1,489,419	2,062,069
5	Others	3,587,075	913,284	1,261,441
Less	Sales returns and allowances	0	0	0
	Total	366,524,467	80,803,702	106,156,335

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

2015. Q1	Steel		Ocean Freight Forwarding		Others	Others	Adjustment & Elimination		Total
Revenues from external customers	$ 64,274,984		$ 227,346		$ 16,301,372		$ -		$ 80,803,702
Inter-segment revenues	13,734,426		3,442,078			6,784,583	( 23,961,087)		-
Segment revenues	$ 78,009,410		$ 3,669,424		$ 23,085,955		($ 23,961,087)		$ 80,803,702
Segment profit	$ 5,009,845		$ 500,236		$1,458,695		($ 556,997)		$ 6,411,779
Interest income	70,255		1,250		65,670		( 18,071)		119,104
Financial costs	(834,503)		(21,036)		(63,134)		10,216		(908,457)
Share of the profit of associates	1,647,736		( 14,322)			502,750	( 1,959,147)		177,017
Other non-operating income and expenses	319,476		5,693			86,561	( 171,854)		239,876
Profit before income tax	6,212,809		471,821			2,050,542	( 2,695,853)		6,039,319
Income tax	1,124,192		4,436			224,049	( 107,987)		1,244,690
Net profit for the period	$5,088,617		$467,385		$1,826,493		($2,587,866)	$4,794,629

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Performance- consolidated basis
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Consolidated Income Statement

IFRSs	Units: NT$ millions	Units: NT$ millions	Units: NT$ millions	Units: NT$ millions	Units: NT$ millions	Units: NT$ millions
	2014		2014.1Q		2015.1Q
Revenues	366,511		92,416		80,804
Gross profit	43,888		8,110		9,865
Gross margins	11.97%		8.78%		12.21%
Profit before tax		28,576		5,065		6,039
Net profit		24,197		4,271		4,795
Attributable to
Owners of the corporation		22,160		3,621		5,526
Non-controlling interests		2,037		650		-731

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Performance: financial review (Consolidated Basis)
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Units: NT$ millions

	12/31/2010	12/31/2011	12/31/2012	12/31/2013※	12/31/2014※	3/31/2015※
Debt	255,206	299,578	312,393	362,630	348,049	343,879
Debt/Equity	88.43%	95.99%	102.26%	113.55%	103.99%	101.56%
Asset	543,808	611,686	617,892	681,999	682,737	682,475
Debt / Asset	46.93%	48.98%	50.56%	53.17%	50.98%	50.39%
Net Debt＊	227,035	273,421	283,402	338,593	322,284	316,620
Net Debt /Asset	41.75%	44.70%	45.87%	49.65%	47.20%	46.39%

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 losscurrent + available-for-sale financial assets - current +held-to-maturity financial assets-current+ derivative financial assets for hedging-current)

※ IFRSs basis

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Performance- Historical EPS and dividends paid
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Dividend payout(%)

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(in NTD per share)
83 85 84 85 87 85 85 87 88 85 132 86 70
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6.00
5.00
4.00
3.00
2.00
1.00
-
cash dividend stock dividend EPS
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
0.50
0.35
0.30
0.30
0.50
3.90 3.75
3.50
0.43
2.78
0.33 1.99 0.15
1.30
1.86 3.94 5.26 2.03 1.54 1.01 2.83 1.36 1.01 0.38 1.05 1.43
0.35
0.15 3.00
1.40 0.20 -
4.83 3.56 4.49 0.10 0.70 1.00
0.40
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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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2015.1Q CSC sales volume totaled 2.28 million metric tons

Domestic/Export sales volume breakdown of 2015.1Q

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Hot-Rolled,
Cold-Rolled,
24.5%
Billet/Slab , 19.9%
2.4%
Vehicles Export 33.87%
(0.77 million
China Japan 19.6%
metric tons)
Bar/Rod, 23.5% Coated 27.8%
Products,
Plate, 11.7% 18.0%
Coil center Others 18.2%
Piping
Wire-rope 1.0%
Re-rolling
Hand tools 1.4% S.E. Asia 34.4%
Bolts-nuts
Ship-building 2.4% Domestic 66.13%
Others 3.6% (1.51 million metric tons)
Ship-building
Trader 3.9%
Vehicles 4.7%
Piping 5.3%
Steel structure 6.8%
Re-rolling 8.6%
Bolts-nuts 17.2%
Coil center 21.4%
Direct users 23.7%
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0% 5% 10% 15% 20% 25%
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Sales (CSC +DSC:HRC)
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2015.1Q sales volume (CSC & HRC of DSC) totaled 3.15 million metric tons

Domestic/Export sales volume breakdown of 2015.1Q

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Hot-Rolled,
Billet/Slab,
45.3%
1.7%
Vehicles
Cold- China
Bar/Rod, 17.0% Rolled, Export 33.59% 21.6% Japan 21.3%
14.5% (1.06million
Plate, 8.5%
Coated metric tons)
Products,
13.0% Others 19.2%
Coil center
Wire-rod 0.7% Piping
Hand tools 1.1%
Ship-building 1.7% Re-rolling Domestic 66.41% S.E. Asia 37.9%
Trader 3.1% Bolts-nuts (2.09 million
Vehicles 3.4% metric tons)
Ship-building
Steel structure 5.3%
Others 6.8%
Piping 8.4%
Bolts-nuts 12.4%
Coil center 16.5%
Direct users 17.2%
Re-rolling 23.4%
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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 25% (US$1.11
bn) in Formosa Ha Tinh
Steel Corporation
p.s. Approved, with no
payment made so far.
Acquired 39.04% in
Acquired 19% in Sakura Hsin Hsin Cement
Ferroalloys Sdn. for lime stone
Bhd.(US$76.33mm)
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 NSSMC’s Wakayama plant to produce slab

• 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
United Steel Engineering and Construction
China Co., Ltd (Kunshan coil center) Invest US$30.5mm in China Steel Precision
PCMI Metal Products (Chongqing) Co., Ltd Materials to acquire 70% of the equity.
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 Vietnam
Sdn. Bhd.
CSGT Metals Vietnam Joint Stock
Malaysia
Company
CSC Steel Sdn. Bhd.
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

2013

5.52 billion NTD

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

• 1.03 bn: Expense saving from nationalization of equipment and replacement parts

• 0.71 bn: Improvement of manufacturing process, use of low price raw material, and reduction of alloy cost

2014

4.39 billion NTD

• •1.14 bn: Use of low cost raw material and reduction of procurement cost through negotiation

•1.81 bn: Energy saving/ Provide saturated steam and industrial gas to nearby plants

• •0.70 bn: Expense saving from nationalization of equipment, replacement parts and spare parts

• •0.24 bn: Establishment of Facility On-line Monitoring and Diagnosis System and automatic gain control systems.

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