CSC — Annual Report 2017

Mar 13, 2017

==> picture [54 x 56] intentionally omitted <==

China Steel Corporation

March 23, 2017

==> picture [43 x 42] intentionally omitted <==

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

0

==> picture [54 x 56] intentionally omitted <==

==> picture [501 x 41] intentionally omitted <==

----- Start of picture text -----

Table of Contents
----- End of picture text -----

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

1

==> picture [54 x 56] intentionally omitted <==

==> picture [618 x 56] intentionally omitted <==

----- Start of picture text -----

Company overview:
Business snapshot (CSC standalone)
----- End of picture text -----

Overview

Major business

• Leading Taiwanese steel manufacturer with integrated production capabilities

• 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 (2016) (2016)

• in Taiwan

==> picture [534 x 112] intentionally omitted <==

----- Start of picture text -----

Billet/Slab,

Continuously upgrading towards higher 12%
value-added products Hot Rolled, Export 31%
Bar, 7% 21%
 Dominant position in the domestic market
Plate, 10%
 Continue to capture rapid growth
in South East Asia and China markets
Wire Rod, Cold
15% Rolled,
35% Domestic 69%
----- End of picture text -----

2

==> picture [597 x 57] intentionally omitted <==

----- Start of picture text -----

Company overview:
Business snapshot (CSC Group)
----- End of picture text -----

==> picture [54 x 56] intentionally omitted <==

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

==> picture [527 x 149] intentionally omitted <==

----- Start of picture text -----

CSC Group domestic market share (2016)
 Our group crude steel 84%
75%
capacity reached 16.1 mmt 23%
20%
in 2017(combining China
36% 87%
Steel Corporation and 72%
57% 54% 55%
Dragon Steel’s EAF and
24% 25%
No.1&2 blast furnace).
Hot- Bar/Rod Electro- Plate Cold-rolled Hot-rolled Electrical
Galvanized Galvanized Steel
Steel
CSC Dragon Steel Chung Hung
----- End of picture text -----

3

==> picture [638 x 35] intentionally omitted <==

----- Start of picture text -----

Company overview: Group capacity & Production lines
----- End of picture text -----

==> picture [54 x 56] intentionally omitted <==

Group capacity

Commencement of new capacity/production lines: CSC group

==> picture [652 x 348] intentionally omitted <==

----- Start of picture text -----

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 ～
----- End of picture text -----

4

==> picture [54 x 56] intentionally omitted <==

==> picture [605 x 38] intentionally omitted <==

----- Start of picture text -----

Performance- Consolidated operating results
----- End of picture text -----

Item 2016 February 2017 Accumulated* of 2017 Consolidated Operating Revenue 293,043 25,869 51,027 Consolidated Operating Income 25,432 2,149 4,268 Consolidated Income Before Income Tax 21,899 1,706 3,341 Amount: NT$ million**	Item 2016 February 2017 Accumulated* of 2017 Consolidated Operating Revenue 293,043 25,869 51,027 Consolidated Operating Income 25,432 2,149 4,268 Consolidated Income Before Income Tax 21,899 1,706 3,341 Amount: NT$ million**	Item 2016 February 2017 Accumulated* of 2017 Consolidated Operating Revenue 293,043 25,869 51,027 Consolidated Operating Income 25,432 2,149 4,268 Consolidated Income Before Income Tax 21,899 1,706 3,341 Amount: NT$ million**	Item 2016 February 2017 Accumulated* of 2017 Consolidated Operating Revenue 293,043 25,869 51,027 Consolidated Operating Income 25,432 2,149 4,268 Consolidated Income Before Income Tax 21,899 1,706 3,341 Amount: NT$ million**
Item	*2016	*February 2017	Accumulated* of 2017**
Consolidated Operating Revenue	293,043	25,869	51,027
Consolidated Operating Income	25,432	2,149	4,268
Consolidated Income Before Income Tax	21,899	1,706	3,341

*preliminary result

5

==> picture [607 x 37] intentionally omitted <==

----- Start of picture text -----

Performance-Sales Revenue Breakdown
----- End of picture text -----

==> picture [54 x 56] intentionally omitted <==

Unit ： NTD Thousands

	Item	*2016	February* 2017**	Accumulated* of 2017**
1	Steel products	234,611,501	21,494,489	41,758,007
2	Non-steel industry materials	28,975,673	2,292,587	4,855,676
3	Construction	19,760,229	1,353,387	2,973,846
4	Transportation and service	7,253,209	503,817	1,014,943
5	Others	2,442,348	224,578	424,029
Less	Sales returns and allowances	0	0	0
	Total	293,042,960	25,868,858	51,026,501

*preliminary result

6

==> picture [621 x 66] intentionally omitted <==

----- Start of picture text -----

Performance-CSC group
Segment revenues and operating results
----- End of picture text -----

==> picture [54 x 56] intentionally omitted <==

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

7

==> picture [605 x 32] intentionally omitted <==

----- Start of picture text -----

Performance- consolidated basis
----- End of picture text -----

==> picture [54 x 56] intentionally omitted <==

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
Earnings Per Share(NTD)		$ 0.05		$ 0.43		$ 0.59		$ 0.80

8

==> picture [596 x 39] intentionally omitted <==

----- Start of picture text -----

Performance: financial review (Consolidated Basis)
----- End of picture text -----

==> picture [54 x 56] intentionally omitted <==

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

9

==> picture [571 x 37] intentionally omitted <==

----- Start of picture text -----

Performance- Historical EPS and dividends paid
----- End of picture text -----

==> picture [54 x 56] intentionally omitted <==

(in NTD per share)

Dividend payout(%) Cash Dividend payout(%)

==> picture [576 x 62] intentionally omitted <==

----- Start of picture text -----

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
----- End of picture text -----

==> picture [612 x 209] intentionally omitted <==

----- Start of picture text -----

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
----- End of picture text -----

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

10

==> picture [622 x 42] intentionally omitted <==

----- Start of picture text -----

Sales (CSC standalone)
----- End of picture text -----

==> picture [54 x 56] intentionally omitted <==

2016 CSC sales volume totaled 11.14 million metric tons

Domestic/Export sales volume breakdown of 2016

==> picture [710 x 402] intentionally omitted <==

----- Start of picture text -----

Hot-Rolled,
24.0% Cold-Rolled,
15.4%
Vehicles Export 30.76%
Billet/Slab ,
(3.43million
18.3% Coated Products, China Japan 16.2%
14.7% metric tons)
22.8%
Plate, 9.2%
Bar/Rod, 18.4%
Coil center
Others 21.7%
Piping
Re-rolling
S.E. Asia 39.3%
Wire-rope 0.7% Bolts-nuts Domestic 69.24%
Hand tools 0.8% (7.71 million metric tons)
Ship-building 1.5% Ship-building
Vehicles 3.4%
Trader 3.5%
Piping 4.1%
Steel structure 5.8%
Re-rolling 8.9%
Coil center 12.8%
Bolts-nuts 13.0%
Direct users 20.0%
Others 25.5%
11
0% 5% 10% 15% 20% 25% 30%
----- End of picture text -----

==> picture [622 x 42] intentionally omitted <==

----- Start of picture text -----

Sales
(CSC & BF products of DSC)
----- End of picture text -----

==> picture [54 x 56] intentionally omitted <==

==> picture [705 x 429] intentionally omitted <==

----- Start of picture text -----

2016 sales volume (CSC & BF products
of DSC) totaled 15.33 million metric Domestic/Export sales volume breakdown of 2016
tons
Hot-Rolled,
39.2%
Billet/Slab, Cold- Vehicles
18.9% Rolled,
11.1% China Japan 16.5%
Export 36.22%
14.1%
(5.55million
Bar/Rod, 13.4% Products, Coated Coil center metric tons)
Plate, 6.7% 10.7% Piping
Others 23.1%
Re-rolling
Domestic 63.78%
Wire-rod 0.6% Bolts-nuts S.E. Asia 46.3%
(9.78million
Hand tools 0.7%
metric tons)
Ship-building 1.1% Ship-building
Vehicles 2.7%
Trader 3.2%
Steel structure 4.8%
Piping 5.8%
Bolts-nuts 10.3%
Coil center 11.1%
Direct users 15.9%
Re-rolling 20.0%
Others 23.8%
----- End of picture text -----

12

0% 5% 10% 15% 20% 25% 30%

==> picture [603 x 42] intentionally omitted <==

----- Start of picture text -----

Key Strategies
----- End of picture text -----

==> picture [54 x 56] intentionally omitted <==

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

==> picture [648 x 121] intentionally omitted <==

----- Start of picture text -----

5
Elaborate on energy saving and reduce cost continuously
6
Value Corporate Social Responsibility and achieve sustainable operation
----- End of picture text -----

13

==> picture [613 x 49] intentionally omitted <==

----- Start of picture text -----

Secure stable sources of raw materials and semi-products
through strategic investments and long term contracts
----- End of picture text -----

==> picture [54 x 56] intentionally omitted <==

Major raw materials Semi-products Ferroalloy

==> picture [312 x 380] intentionally omitted <==

----- Start of picture text -----

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)
----- End of picture text -----

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.

14

==> picture [584 x 45] intentionally omitted <==

----- Start of picture text -----

Solidify domestic market, expand export sales channels, and
develop new market with customers
----- End of picture text -----

New Asia Project

==> picture [54 x 56] intentionally omitted <==

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.

15

Overseas Investments of CSC group

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

==> picture [54 x 57] intentionally omitted <==

==> picture [640 x 49] intentionally omitted <==

----- Start of picture text -----

Research and develop advanced products and applied
technology for increasing chain value of steel industry
----- End of picture text -----

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.

16

==> picture [613 x 54] intentionally omitted <==

----- Start of picture text -----

Elaborate on energy saving and reduce cost
continuously
----- End of picture text -----

==> picture [54 x 56] intentionally omitted <==

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

17

==> picture [609 x 54] intentionally omitted <==

----- Start of picture text -----

Value Corporate Social Responsibility and achieve
sustainable operation
----- End of picture text -----

==> picture [67 x 50] intentionally omitted <==

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

2

• 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

==> picture [68 x 66] intentionally omitted <==

Sustainability,

our STEEL commitment.

18