CSC — Annual Report 2016

Dec 12, 2016

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China Steel Corporation

December 15, 2016

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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, 2015
Steel Sales revenue
breakdown by products Domestic/Export by revenue
 Leading manufacturer of flat steel products (2016.1~3Q) (2016.1~3Q)
 Continuously upgrading towards higher Billet/Slab, Hot
value-added products 12% Rolled, Export 31%
Major
business  Dominant position in the domestic market Bar, 8% 20%
 Continue to capture rapid growth Plate, 10%
in South East Asia and China markets
Cold
Wire Rod, Rolled, Domestic 69%
14% 36%
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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

• CSC Solar 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

• CSC Bio-coal Corporation

• White Bio-tech Corporation

Capacity & market share

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CSC Group domestic market share (2016.1~3Q)
74% 83%
 Our group crude steel
22%
capacity reached 16.1 mmt 20%
in 2015(combining China 37% 87%
Steel Corporation and 56% 51% 71% 54%
Dragon Steel’s EAF and 23% 24%
No.1&2 blast furnace).
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 Honours
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• 2016.12 CSC received “Ten Most Prestigious Sustainability Award”, ”Taiwan Top 50 Corporate Sustainability Report Award”, ”Growth through Innovation Award”, ”Transparency and Integrity Award”, “Climate Leadership Award”, ”Supply Chain Leadership Award”, ”Talent Development Award”, and ”Sustainable Water Management Award” by TAISE.

2

• 2016.11 Sustainable Group Award, British Standards Institution.

3

• 2016.01 CSC was ranked as RobecoSAM 2016 Steel Industry Silver Class Sustainability leaders.

4

• 2015.12 Green Enterprise Award, British Standards Institution.

• 2015.11 CSC received “Ten Most Sustainable Company Award”, ”Taiwan Top 50 Corporate Sustainability Report Award”, ”Growth through Innovation Award”, “Climate Leadership Award”,

• 5 and ”Sustainable Water Management Award” by TAISE.

• 2015.11 CSC was included in CDP ‘s 2015 Climate Disclosure Leadership Index for Hong Kong and

• 6 South East Asia region and received the highest disclosure score among all Taiwanese companies.

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• 2015.08 CSC was ranked 10th among large enterprises in the ”Excellence in Corporate Social Responsibility Award” by Common Wealth magazine.

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Company overview: Group capacity & Production lines
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Group capacity

Commencement of new capacity/production lines: CSC group

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Crude steel capacity (mmt)
Dragon Blast Furnace Dragon Electric Arc Furnace China Steel
(0.2 mmt)
MAY 2015
CSCI
Project
(0.15 mmt)
APR 2014
5.0 5.0 5.0
NGO Line MAR 2013 Q1 2013
2.5 2.5
2.0 HSM
(1.2 mmt) #2 BF
Expansion
1.0 1.0 1.0 1.2 1.2 1.2 OCT 2013
(2.5 mmt) (3 mmt → 4 mmt)
CSVC Project (3 mmt)
JUL 2010
(1.5 mmt)
HSM
MAY 2011
(2.5 mmt)
9.9 9.9 9.9 9.9 9.9 9.9
#3 CR Mill / #3 CGL
FEB 2010
#1 BF
2010 2011 2012 2013 2014 2015
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Performance- Consolidated operating results
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Amount: NT$ million

Item	*2016.1~3Q	*2016.1~10
Consolidated Operating Revenue	210,884	236,916
Consolidated Operating Income	18,422	21,424
Consolidated Income Before Income Tax	16,674	19,063

*preliminary result

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Performance-Sales Revenue Breakdown
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Item 2016.1~3Q 2016.1~10 1 Steel products 167,701,254 189,312,974 2 Non-steel industry materials 21,404,390 23,738,006 3 Construction 14,671,603 16,011,482 4 Transportation and service 5,491,148 6,018,826 5 Others 1,616,086 1,834,920 LessSales returns and allowances 0 0 Total 210,884,481 236,916,208 Unit：NTD Thousands	Item 2016.1~3Q 2016.1~10 1 Steel products 167,701,254 189,312,974 2 Non-steel industry materials 21,404,390 23,738,006 3 Construction 14,671,603 16,011,482 4 Transportation and service 5,491,148 6,018,826 5 Others 1,616,086 1,834,920 LessSales returns and allowances 0 0 Total 210,884,481 236,916,208 Unit：NTD Thousands	Item 2016.1~3Q 2016.1~10 1 Steel products 167,701,254 189,312,974 2 Non-steel industry materials 21,404,390 23,738,006 3 Construction 14,671,603 16,011,482 4 Transportation and service 5,491,148 6,018,826 5 Others 1,616,086 1,834,920 LessSales returns and allowances 0 0 Total 210,884,481 236,916,208 Unit：NTD Thousands	Item 2016.1~3Q 2016.1~10 1 Steel products 167,701,254 189,312,974 2 Non-steel industry materials 21,404,390 23,738,006 3 Construction 14,671,603 16,011,482 4 Transportation and service 5,491,148 6,018,826 5 Others 1,616,086 1,834,920 LessSales returns and allowances 0 0 Total 210,884,481 236,916,208 Unit：NTD Thousands
	Item	2016.1~3Q	2016.1~10
1	Steel products	167,701,254	189,312,974
2	Non-steel industry materials	21,404,390	23,738,006
3	Construction	14,671,603	16,011,482
4	Transportation and service	5,491,148	6,018,826
5	Others	1,616,086	1,834,920
Less	Sales returns and allowances	0	0
	Total	210,884,481	236,916,208

*preliminary result

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

2016. 1~3Q	Steel	Others	Adjustment & Elimination	Total
Revenues from external customers	$ 164,885,474	$ 45,999,007	$ -	$ 210,884,481
Inter-segment revenues	42,187,124	29,207,916	(71,395,040)	-
Segment revenues	$ 207,072,598	$ 75,206,923	($ 71,395,040)	$ 210,884,481
Segmentprofit	$ 12,713,452	$ 5,703,009	$ 5,732	$ 18,422,193
Interest income	152,242	125,392	( 47,117)	230,517
Financial costs	(2,544,035)	(359,716)	27,505	(2,876,246)
Share of the profit of associates	5,217,248	826,529	( 6,254,978)	( 211,201)
Other non-operating income and expenses	1,353,600	265,502	(510,498)	1,108,604
Profit before income tax	16,892,507	6,560,716	( 6,779,356)	16,673,867
Income tax	1,214,998	736,709	11,293	1,963,000
Net profit for the period	$ 15,677,509	$ 5,824,007	($ 6,790,649)	$ 14,710,867

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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	Units: NT$ millions	Units: NT$ millions
	2015.3Q		2016.3Q		2015.1~3Q		2016.1~3Q
Revenues	67,694		73,593		222,060		210,884
Gross profit	4205		12,846		21,327		28,731
Gross margins	6.21%		17.46%		9.60%		13.62%
Profit before tax		1,295		8,825	11,902			16,674
Net profit		1,141		7,630		9,252		14,711
Attributable to
Owners of the corporation		744		6,676		9,120		12,438
Non-controlling interests		397		954		132		2,273

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

	12/31/2011	12/31/2012	12/31/2013※	12/31/2014※	12/31/2015※	9/30/2016※
Debt	299,578	312,393	362,630	348,049	357,414	345,495
Debt/Equity	95.99%	102.26%	113.55%	103.99%	111.44%	106.33%
Asset	611,686	617,892	681,999	682,737	678,139	670,413
Debt / Asset	48.98%	50.56%	53.17%	50.98%	52.71%	51.53%
Net Debt＊	273,421	283,402	338,593	322,284	329,674	324,511
Net Debt /Asset	44.70%	45.87%	49.65%	47.20%	48.61%	48.40%

Since 2009, CSC group have issued corporate bonds and signed syndicated bank loans for DSC’s expansion project and overseas 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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(in NTD per share)

Dividend payout(%) Cash Dividend payout(%)

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85 84 85 87 85 85 87 88 85 132 86 70 102
76 74 78 78 78 64 66 70 74 105 67 70 102
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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
3.00 2.78 0.43 -
0.33 1.99 0.15 0.20
-
1.30
3.94 5.26 4.83 3.56 4.49 2.03 1.54 1.01 2.83 1.36 1.01 0.38 0.10 0.40 1.05 0.70 1.43 1.00 0.49 0.5
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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

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Sales (CSC standalone)
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2016.1~3Q CSC sales volume totaled 8.17 million metric tons

Domestic/Export sales volume breakdown of 2016.1~3Q

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Hot-Rolled, Cold-Rolled,
23.0% 15.2%
Vehicles Export 30.96%
Billet/Slab , (2.53million
19.2% Coated Products,14.9% metric tons) China Japan 16.3%
23.1%
Plate, 9.5%
Bar/Rod, 18.2% Coil center
Others 20.9%
Piping
Re-rolling
Wire-rope 0.7% S.E. Asia 39.7%
Bolts-nuts Domestic 69.04%
Hand tools 0.8%
(5.64 million metric tons)
Ship-building 1.6%
Ship-building
Vehicles 3.4%
Trader 3.5%
Piping 3.9%
Steel structure 6.0%
Re-rolling 8.0%
Coil center 12.8%
Bolts-nuts 12.9%
Direct users 20.2%
Others 26.5%
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0% 5% 10% 15% 20% 25% 30%
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Sales
(CSC & BF products of DSC)
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2016.1~3Q sales volume (CSC & BF
products of DSC) totaled 11.36 million Domestic/Export sales volume breakdown of 2016.1~3Q
metric tons
Hot-Rolled,
38.8% Cold-
Billet/Slab, Rolled,
Vehicles
19.7% 10.9%
China Japan 16.3%
Export 36.60%
14.0%
(4.16million
Bar/Rod, Coated Coil center
13.1% Products, metric tons)
Plate, 6.7% 10.8% Piping
Others 22.5%
Re-rolling
Wire-rope 0.6% Domestic 63.40%
Hand tools 0.7% Bolts-nuts (7.20million S.E. Asia 47.2%
Ship-building 1.2% metric tons)
Vehicles 2.6% Ship-building
Trader 3.2%
Steel structure 4.9%
Piping 5.7%
Bolts-nuts 10.1%
Coil center 11.0%
Direct users 15.8%
Re-rolling 19.9%
Others 24.3%
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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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1 Pass down corporate culture, implement career planning, create LOHAS environment and promote image of CSC Group

• 2 Improve customer lean service, strengthen strategic partnerships, solidify domestic market and expand sales channels of export

• 3 Integrate resources of CSC Group, map out green industries, invest in deepprocessing fields and increase self-sufficiency ratio of raw materials

• 4 Research and develop advanced products, applied technology and green processes for increasing chain value of steel industry

5 Enhance engineering capabilities of CSC Group, develop wind power and rail businesses, and expand engineering business proactively

• 6 Expand supply of products, reduce cost continuously, elaborate on energy saving and environmental protection, and strengthen occupational safety and health.

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Expand sales channels of export ： overseas investment
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New Asia Project

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China

China United Steel Engineering and Construction China Co., Ltd (Kunshan coil center) China Steel Precision Materials Corporation PCMI Metal Products (Chongqing) Co., Ltd CSC holds 80% stake CSC holds 70% of the equity interest Capacity: 8,000 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 Thailand Mechatronic Co., Ltd India Thai Sumilox China Steel Corporation Company Limited Vietnam India Pvt. Ltd. (CSCI) China Steel Sumikin Vietnam Joint CSC holds 100% of CSCI Thailand Stock Co. (CSVC) Capacity: ES 0.2 mmt TSK Steel Co. Ltd. CSC holds 56% of CSVC Capacity: 1.2 mmt (CR 0.5 mmt, GA/GI India Thailand 0.3 mmt, ES 0.2 mmt, PO 0.2 mmt) Mahindra Auto Steel SB Coil Center Private Limited Co., Ltd (Thailand) Ltd. Vietnam CSGT Metals Vietnam Joint Stock Malaysia Company Tatt Giap Steel Centre Sdn. Bhd. Malaysia Indonesia CSC Steel Sdn. Bhd. PT MICS Steel Indonesia CSC holds 46% of CSHB Capacity: CR 0.48 mmt (CRC 0.24 mmt Vietnam including PO, GI 0.17 mmt, PPGI 0.07 mmt) Hanoi Steel Center Co., Ltd.

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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 self-sufficiency ratio of raw materials
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Major raw materials Semi-products Ferroalloy

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Acquired 5% of Dongbu Metal Co
($47.8bn WON, approximately
USD$43.9mm)
East Asia
United Corp.
Acquired 25% (USD$1.11
bn) of Formosa Ha Tinh
Steel Corporation
Acquired 39.04% of
Acquired 19% of Sakura Hsin Hsin Cement
Ferroalloys Sdn. for lime stone
Bhd.(USD$76.33mm)
Acquired 3.68% of 2 subsidiaries
of ArcelorMittal Mines Canada
(investment amount USD$270mm)
Iron
Coal &
Iron ore
Iron Acquired 5% of Sonoma coal
project (investment amount
AUD$16.0mm)
Acquired 0.41% of Congonhas
Acquired 2.5% of Roy Hill iron ore
Minerios company (investment
amount NTD$2.74bn) project (investment amount
AUD$315mm)
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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.

• NSSMC’s Wakayama plant as a reliable supply source for slab

• Formosa Ho-Tinh Steel Corporation

• As a mutual supply of hot-rolled and slab products.

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.

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Through an innovative approach, ERCs strategically focus R&D effort on the need of industries and implement systemic, profound, and comprehensive long-term academic researches. Electric Motor TechnologyERC Physical Properties & Microstructure of Metals ERC Steel Structure ERC Advanced Steel Microstructure Control ERC High-value Metal IndustryERC Next-Generation Hand Tool ERC Advanced Special AlloyERC ForgingRoll FormingERC To win trust and increase business opportunities, CSC establishes JRLs with customers and strives to enhance the suitability of CSC materials with customers’ manufacturing processes. Compressor and Motor JRL Auto Steel JRL(HAITEC, MIRDC) Motor JRL Auto Application JRL Auto Steel JRL(Engley, Honley) CSC forms alliances with customers to improve international marketing and service capabilities. Taiwan Elite Handtool Organization Increase the supply chain value of steel-related industries by developing advanced products and technology and green manufacturing process Engineering Research Center (ERC) Joint Research Laboratory (JRL) Alliance for Steel Industries 17	Through an innovative approach, ERCs strategically focus R&D effort on the need of industries and implement systemic, profound, and comprehensive long-term academic researches. Electric Motor TechnologyERC Physical Properties & Microstructure of Metals ERC Steel Structure ERC Advanced Steel Microstructure Control ERC High-value Metal IndustryERC Next-Generation Hand Tool ERC Advanced Special AlloyERC ForgingRoll FormingERC To win trust and increase business opportunities, CSC establishes JRLs with customers and strives to enhance the suitability of CSC materials with customers’ manufacturing processes. Compressor and Motor JRL Auto Steel JRL(HAITEC, MIRDC) Motor JRL Auto Application JRL Auto Steel JRL(Engley, Honley) CSC forms alliances with customers to improve international marketing and service capabilities. Taiwan Elite Handtool Organization Increase the supply chain value of steel-related industries by developing advanced products and technology and green manufacturing process Engineering Research Center (ERC) Joint Research Laboratory (JRL) Alliance for Steel Industries 17	Through an innovative approach, ERCs strategically focus R&D effort on the need of industries and implement systemic, profound, and comprehensive long-term academic researches. Electric Motor TechnologyERC Physical Properties & Microstructure of Metals ERC Steel Structure ERC Advanced Steel Microstructure Control ERC High-value Metal IndustryERC Next-Generation Hand Tool ERC Advanced Special AlloyERC ForgingRoll FormingERC To win trust and increase business opportunities, CSC establishes JRLs with customers and strives to enhance the suitability of CSC materials with customers’ manufacturing processes. Compressor and Motor JRL Auto Steel JRL(HAITEC, MIRDC) Motor JRL Auto Application JRL Auto Steel JRL(Engley, Honley) CSC forms alliances with customers to improve international marketing and service capabilities. Taiwan Elite Handtool Organization Increase the supply chain value of steel-related industries by developing advanced products and technology and green manufacturing process Engineering Research Center (ERC) Joint Research Laboratory (JRL) Alliance for Steel Industries 17
Engineering Research Center (ERC) Joint Research Laboratory (JRL) Alliance for Steel Industries	Through an innovative approach, ERCs strategically focus R&D effort on the need of industries and implement systemic, profound, and comprehensive long-term academic researches.	Electric Motor TechnologyERC
		Physical Properties & Microstructure of Metals ERC
		Steel Structure ERC
		Advanced Steel Microstructure Control ERC
		High-value Metal IndustryERC
		Next-Generation Hand Tool ERC
		Advanced Special AlloyERC
		ForgingRoll FormingERC
	To win trust and increase business opportunities, CSC establishes JRLs with customers and strives to enhance the suitability of CSC materials with customers’ manufacturing processes.	Compressor and Motor JRL
		Auto Steel JRL(HAITEC, MIRDC)
		Motor JRL
		Auto Application JRL
		Auto Steel JRL(Engley, Honley)
	CSC forms alliances with customers to improve international marketing and service capabilities.	Taiwan Elite Handtool Organization
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Improve customer lean service, strengthen strategic partnerships
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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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Reduce cost continuously, elaborate on energy saving and
environmental protection, and strengthen occupational safety and
health
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Cost Reduction Performance

• 1.53 bn: Expense saving from nationalization of equipment and spare parts

2015

4.84 billion NTD

2014

4.39 billion NTD

• 0.79 bn: Reduction of raw material procurement cost through negotiation and spot transaction

• 0.78 bn: Provide saturated steam and industrial gas to nearby plants

• 0.84 bn: Use of low cost raw material and reduction of fuel cost for blast furnace

• 0.26 bn: Establishment of On-line Monitoring System and automatic quality inspection system/Improvement of manufacturing process

• 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 control systems

19