CSC — Annual Report 2017

Jun 14, 2017

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China Steel Corporation

June 23, 2017

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Sustainability, our STEEL commitment. http://www.csc.com.tw/csc/hr/csr/index.htm

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Table of Contents
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•Company Overview	2
•Performance	5
•Financial Review	9
•EPS & Dividends (common stock)	10
•Sales	11
•Key Strategies	13

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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, 2016
Steel Sales revenue
 Leading manufacturer of flat steel products breakdown by products Domestic/Export by revenue
(2017.1Q) (2017.1Q)
in Taiwan
 Continuously upgrading towards higher Billet/Slab, 10% Hot Rolled, Export 32%
Major value-added products Bar, 8% 23%
business
 Dominant position in the domestic market Plate, 8%
 Continue to capture rapid growth
in South East Asia and China markets
Wire Rod, 15%
Cold Rolled,
36% Domestic 68%
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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

• CHC Resources Corporation

• China Steel Security 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 (2017.1Q)
86%
 Our group crude steel
70%
22%
capacity reached 16.1 mmt
18%
in 2017(combining China
38%
78%
Steel Corporation and 68%
51% 57% 52%
Dragon Steel’s EAF and 24% 26%
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: 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
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 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
#3 CR Mill / #3 CGL
FEB 2010
#1 BF
2010 2011 2012 2013 ～
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Performance- Consolidated operating results
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Item	2016	2017.1Q	*2017.1~5
Consolidated Operating Revenue	293,056	82,984	141,036
Consolidated Operating Income	25,432	6,434	10,186
Consolidated Income Before Income Tax	21,899	5,390	8,541

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Performance-Sales Revenue Breakdown
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Unit ： NTD Thousands

	Item	2016	*2017.1Q	*2017.1~5
1	Steel products	234,621,561	68,210,958	116,219,637
2	Non-steel industry materials	28,975,673	7,892,734	13,262,249
3	Construction	19,760,229	4,692,135	7,842,623
4	Transportation and service	7,254,353	1,524,371	2,625,395
5	Others	2,443,988	664,151	1,086,540
Less	Sales returns and allowances	0	0	0
	Total	293,055,804	82,984,349	141,036,444

*preliminary result

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

2017. Q1	Steel	Ocean Freight Forwarding	Others	Adjustment & Elimination	Total
Revenues from external customers	$ 66,558,164	$ 101,845	$ 16,324,340	$ -	$ 82,984,349
Inter-segment revenues	19,837,419	3,626,404	7,170,702	( 30,634,525)	-
Segment revenues	$86,395,583	$3,728,249	$23,495,042	($30,634,525)	$82,984,349
Segment profit	$ 4,330,601	$ 480,212	$ 1,422,124	$ 200,767	$ 6,433,704
Interest income	26,111	2,378	45,502	( 19,205)	54,786
Financial costs	( 799,786)	( 50,613)	( 99,634)	11,856	( 938,177)
Share of the profit of associates	1,636,058	( 7,685)	70,489	( 2,024,551)	( 325,689)
Other non-operating income and expenses	501,660	26,274	(203,860)	(158,978)	165,096
Profit before income tax	5,694,644	450,566	1,234,621	( 1,990,111)	5,389,720
Income tax	(494,889)	(5,945)	(186,241)	(21,846)	(708,921)
Net profit for the period	$ 5,199,755	$ 444,621	$ 1,048,380	($ 2,011,957)	7 $ 4,680,799

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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
	2016		2016.1Q		2017.1Q
Revenues	293,056		64,959		82,984
Gross profit	39,723		4,171		9,952
Gross margins	13.55%		6.42%		11.99%
Profit before tax		21,899		831		5,390
Net profit		19,187		730		4,681
Attributable to
Owners of the corporation		16,038		482		3,705
Non-controlling interests		3,149		248		976
Earnings Per Share(NTD)		$1.04	$	0.03		$0.24

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

	12/31/2012	12/31/2013※	12/31/2014※	12/31/2015※	12/31/2016※	3/31/2017※
Debt	312,393	362,630	348,049	357,414	346,542	344,110
Debt/Equity	102.26%	113.55%	103.99%	111.44%	105.15%	103.71%
Asset	617,892	681,999	682,737	678,139	676,122	675,904
Debt/Asset	50.56%	53.17%	50.98%	52.71%	51.25%	50.91%
Net Debt＊	283,402	338,593	322,284	329,674	324,942	320,973
Net Debt/Asset	45.87%	49.65%	47.20%	48.61%	48.06%	47.49%

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(%)

84 85 87 85 85 87 88 85 132 86 70 102 82

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74 78 78 78 64 66 70 74 105 67 70 102 82
6.00
5.00
4.00
3.00
2.00
1.00
-
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Cash Dividend Stock Dividend EPS
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 0.20 -
1.30 -
5.26 4.83 3.56 4.49 2.03 1.54 1.01 2.83 1.36 1.01 0.38 0.10 1.05 0.70 1.43 1.00 0.49 0.5 1.04 0.85
0.40
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Cash Dividend payout(%)

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Sales (CSC standalone)
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2017.1Q CSC sales volume totaled 2.70 million metric tons

Domestic/Export sales volume breakdown of 2017.1Q

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Hot-Rolled,
25.8%
Billet/Slab, Cold-Rolled, 16.3% Vehicles Export 33.47%
13.3% (0.9 million China Japan 16.2%
metric tons)
Coated Products,
22.3%
16.1%
Bar/Rod, 19.8% Plate, 8.7% Coil center
Others 25.9%
Piping
Re-rolling
S.E. Asia 35.6%
Wire-rod 0.7% Bolts-nuts Domestic 66.53%
Hand tools 1.0% (1.8 million metric tons)
Ship-building 1.2% Ship-building
Trader 3.6%
Vehicles 3.8%
Steel structure 5.3%
Piping 5.6%
Re-rolling 9.1%
Coil center 14.6%
Bolts-nuts 14.8%
Others 20.0%
Direct users 20.3%
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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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2017.1Q sales volume (CSC & BF
products of DSC) totaled 3.70 million Domestic/Export sales volume breakdown of 2017.1Q
metric tons
Hot-Rolled,
40.3%
Billet/Slab,
Cold-
15.2% Vehicles
Rolled,
11.9% China Japan 18.0%
Export 34.87%
Bar/Rod, (1.29million 15.7%
14.4% Coated Coil center
metric tons)
Products,
Plate, 6.4% 11.8% Piping
Others 23.8%
Re-rolling
Domestic 65.13%
Wire-rod 0.5% Bolts-nuts S.E. Asia 42.5%
(2.41million
Hand tools 0.8%
metric tons)
Ship-building 0.9%
Ship-building
Trader 2.8%
Vehicles 2.8%
Steel structure 4.3%
Piping 6.7%
Bolts-nuts 11.0%
Coil center 11.9%
Direct users 15.3%
Re-rolling 21.4%
Others 21.6%
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0% 5% 10% 15% 20% 25% 30%
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Key Strategies
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1 Secure stable sources of raw materials and semi-products through strategic investments and long term contracts

• 2 Solidify domestic market, expand export sales channels, and develop new market with customers

• 3 Integrate group resources and develop green energy businesses

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

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Elaborate on energy saving and reduce cost continuously
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Value Corporate Social Responsibility and achieve sustainable operation
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Secure stable sources of raw materials and semi-products
through strategic investments and long term contracts
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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 Ha-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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Solidify domestic market, expand export sales channels, and
develop new market with customers
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New Asia Project

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China

China

China United Steel Engineering and Construction 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)

CSGT Metals Vietnam Joint Stock Company Indonesia PT MICS Steel Indonesia Vietnam 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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Research and develop advanced products and applied
technology for increasing chain value of steel industry
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CSC has established 8 ERCs. Engineering For example:  Advanced Specially Alloy ERC, cooperating Research Center with National Tsing Hua University  Forging Roll Forming ERC, cooperating (ERC) with National Kaohsiung University Of Applied Sciences

Co-Development with Academic Partners

Differentiated Technical Services to Customers

Joint Research Laboratory

(JRL)

CSC has established 5 JRLs. Through JRLs, CSC provide customized products and services to customers, and further increase business opportunities. For example:  The Auto Steel JRL, cooperating with Changchun Engley and Honley Auto Parts, focus on develop hot-stamping auto and motorcycle parts.

International Marketing through E-Commerce Platform

Alliance for Steel Industries

CSC has formed 1 Alliance for Steel Industries.  Through the e-commerce platform of Ta Chen International, Taiwan Elite Handtool Organization was formed to improve the international marketing and service capabilities of Taiwanese handtool producers.

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Elaborate on energy saving and reduce cost
continuously
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Cost Reduction Performance

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

2016

4.05

billion

NTD

• 1.03 bn: Improvement of manufacturing process and promoting effectiveness and efficiency

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

• 0.62 bn: Reduction of raw material procurement cost through negotiation

• 0.43 bn: Use of low cost raw material and reduction of utility use

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

2015

4.84

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

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Value Corporate Social Responsibility and achieve
sustainable operation
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Awards and Honours

1

• 2017.01 CSC was ranked as RobecoSAM Silver Class Sustainability leaders 2017 in the steel industry.

• 2016.12 CSC received “Ten Most Prestigious Sustainability Award”, ”Taiwan Top 50 Corporate Sustainability Report Award”, ”Growth through Innovation

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• Award”, ”Transparency and Integrity Award”, “Climate Leadership Award”, ”Supply Chain Leadership Award”, ”Talent Development Award”, and ”Sustainable Water Management Award” by TAISE.

CSR Key Tasks

Elaborate on energy saving / Committed to foster social harmony / Popularize environmental education / Develop green energy

Links

• CSC Corporate Social Responsibility Page ： http://www.csc.com.tw/csc/hr/csr/index.htm

• ～

• Report Download （ 2005 2015 ）： http://www.csc.com.tw/csc/hr/csr/wb/dow.htm

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Sustainability,

our STEEL commitment.

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