CSC — Annual Report 2018

Mar 6, 2018

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China Steel Corporation

March 8, 2018

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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 4 • Financial Review 8 • EPS & Dividends (common stock) 9 • Sales 10 • 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, 2017
Steel Sales revenue
 Leading manufacturer of flat steel products breakdown by products Domestic/Export by revenue
(2017) (2017)
in Taiwan
 Billet/Slab, 9%
Continuously upgrading towards higher Hot Rolled, Export 30%
Major value-added products Bar, 8% 24%
business
 Dominant position in the domestic market Plate, 9%
 Continue to capture rapid growth
in South East Asia and China markets
Wire Rod,
15% Cold Rolled,
Domestic 70%
35%
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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

Engineering Businesses Trading and Logistics 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

• China Steel Precision Metals Kunshan Co., Ltd.

• Info-Champ Systems Corporation

Industrial Materials Businesses Service and Investments Businesses

• Gains Investment Corporation

• C. S. Aluminum Corporation

• China Steel Security Corporation

• China Steel Chemical Corporation

• China Prosperity Development Corporation

• CHC Resources Corporation

• China Steel Management Consulting Corporation

• Himag Magnetic Corporation

• CSC Solar Corporation

• China Steel Precision Materials

• China Steel Resources Corporation

Capacity & market share

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CSC Group domestic market share (2017)
87%
69%
22%
16%
33%
84%
69%
57% 59% 53%
27% 32%
Hot- Bar/Rod Electro- Plate Cold-rolled Hot-rolled Electrical
Galvanized Galvanized Steel
Steel
CSC Dragon Steel Chung Hung
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 Our group crude steel capacity reached 16 mmt in 2017(combining China Steel Corporation and Dragon Steel’s EAF and No.1&2 blast furnace).

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Performance- Consolidated operating results
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Amount: NT$ million

Item	*2017	*2018.1
Consolidated Operating Revenue	347,012	32,820
Consolidated Operating Income	24,922	2,480
Consolidated Income Before Income Tax	23,403	2,325

*preliminary result

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Performance-Sales Revenue Breakdown
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Item 2017* 2018.1 1 Steel products 287,137,194 27,330,428 2 Non-steel industry materials 32,256,205 3,108,023 3 Construction 17,496,736 1,379,307 4 Transportation and service 6,935,731 604,385 5 Others 3,186,136 397,769 LessSales returns and allowances 0 0 Total 347,012,002 32,819,912 Unit：NTD Thousands*	Item 2017* 2018.1 1 Steel products 287,137,194 27,330,428 2 Non-steel industry materials 32,256,205 3,108,023 3 Construction 17,496,736 1,379,307 4 Transportation and service 6,935,731 604,385 5 Others 3,186,136 397,769 LessSales returns and allowances 0 0 Total 347,012,002 32,819,912 Unit：NTD Thousands*	Item 2017* 2018.1 1 Steel products 287,137,194 27,330,428 2 Non-steel industry materials 32,256,205 3,108,023 3 Construction 17,496,736 1,379,307 4 Transportation and service 6,935,731 604,385 5 Others 3,186,136 397,769 LessSales returns and allowances 0 0 Total 347,012,002 32,819,912 Unit：NTD Thousands*	Item 2017* 2018.1 1 Steel products 287,137,194 27,330,428 2 Non-steel industry materials 32,256,205 3,108,023 3 Construction 17,496,736 1,379,307 4 Transportation and service 6,935,731 604,385 5 Others 3,186,136 397,769 LessSales returns and allowances 0 0 Total 347,012,002 32,819,912 Unit：NTD Thousands*
	Item	*2017	*2018.1
1	Steel products	287,137,194	27,330,428
2	Non-steel industry materials	32,256,205	3,108,023
3	Construction	17,496,736	1,379,307
4	Transportation and service	6,935,731	604,385
5	Others	3,186,136	397,769
Less	Sales returns and allowances	0	0
	Total	347,012,002	32,819,912

*preliminary result

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

2017. 1~3Q	Steel	Others	Adjustment & Elimination	Total
Revenues from external customers	$ 207,844,578	$ 48,922,186	$ -	$ 256,766,764
Inter-segment revenues	60,863,488	35,375,728	(96,239,216)	-
Segment revenues	$ 268,708,066	$ 84,297,914	($ 96,239,216)	$ 256,766,764
Segmentprofit	$ 11,242,718	$ 5,511,312	($ 275,612)	$ 16,478,418
Interest income	127,664	133,781	( 55,607)	205,838
Financial costs	(2,369,580)	(468,752)	34,280	(2,804,052)
Share of the profit of associates	4,895,694	1,150,136	( 6,322,653)	( 276,823)
Other non-operating income and expenses	1,469,119	324,700	(551,259)	1,242,560
Profit before income tax	15,365,615	6,651,177	( 7,170,851)	14,845,941
Income tax	1,212,009	694,008	5,255	1,911,272
Net profit for the period	$ 14,153,606	$ 5,957,169	($ 7,176,106)	$ 12,934,669

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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
	2016.3Q		2017.3Q		2016.1~3Q		2017.1~3Q
Revenues	73,593		88,917		210,884		256,767
Gross profit	12,846		8,405		28,731		27,137
Gross margins	17.46%		9.45%		13.62%		10.57%
Profit before tax		8,825		5,032		16,674		14,846
Net profit		7,630		4,249		14,711		12,935
Attributable to
Owners of the corporation		6,676		3,564		12,438		10,651
Non-controlling interests		954		685		2,273		2,284
Earnings Per Share(NTD)		$0.43		$0.23		$0.80		$0.69

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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※	9/30/2017※
Debt	312,393	362,630	348,049	357,414	346,542	345,919
Debt/Equity	102.26%	113.55%	103.99%	111.44%	105.15%	105.75%
Asset	617,892	681,999	682,737	678,139	676,122	673,016
Debt/Asset	50.56%	53.17%	50.98%	52.71%	51.25%	51.40%
Net Debt＊	229,740	271,576	256,051	275,033	261,334	260,012
Net Debt/Asset	37.18%	43.59%	37.50%	40.56%	38.65%	38.63%

Since 2009, CSC group have issued corporate bonds and signed syndicated bank loans for DSC’s expansion project and overseas investments.

• ＊ Net debt = Interest Bearing 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)

※ 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 CSC sales volume totaled 10.85 million metric tons

Domestic/Export sales volume breakdown of 2017

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Hot-Rolled,
26.9% Cold-Rolled,
16.0%
Vehicles Export 30.57%
Billet/Slab, 12.6% Coated (3.32 million China Japan 18.1%
Products, metric tons)
15.3% 22.4%
Bar/Rod, 20.3%
Plate, 8.9% Coil center
Others 25.3%
Piping
Re-rolling
S.E. Asia 34.2%
Wire-rope 0.6% Bolts-nuts Domestic 69.43%
Ship-building 0.9% (7.53 million metric tons)
Hand tools 1.0% Ship-building
Vehicles 3.9%
Trader 4.3%
Steel structure 4.8%
Piping 5.4%
Re-rolling 12.4%
Bolts-nuts 14.1%
Coil center 14.6%
Others 18.1%
Direct users 19.9%
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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 sales volume (CSC & BF products
of DSC) totaled 14.66 million metric Domestic/Export sales volume breakdown of 2017
tons
Hot-Rolled,
41.5%
Billet/Slab,
13.8% Cold- Vehicles
Rolled,
11.8% China Japan 18.8%
Export 33.63%
Bar/Rod, (4.93million 17.2%
15.0% Coated Coil center
metric tons)
Products,
Plate, 6.6% Piping
11.3%
Others 20.5%
Re-rolling
Domestic 66.37%
Wire-rope 0.5% Bolts-nuts S.E. Asia 43.5%
(9.73million
Ship-building 0.7%
metric tons)
Hand tools 0.8%
Ship-building
Vehicles 3.0%
Trader 3.4%
Steel structure 4.0%
Piping 7.1%
Bolts-nuts 10.9%
Coil center 12.2%
Direct users 15.6%
Others 20.3%
Re-rolling 21.5%
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0% 5% 10% 15% 20% 25% 30%
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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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East Asia United Corp.
Acquired 22.5%
(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$76.19mm)
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$16.44mm)
Acquired 0.41% of CSN
Acquired 2.5% of Roy Hill iron ore
Mineracao S.A. (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, Canada, 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 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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Key Strategies
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• 1 Solidify domestic market, expand export sales channels, and develop new market with customers

2 Integrate group resources and develop green energy businesses

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

4 Elaborate on energy saving and reduce cost continuously

5 Value Corporate Social Responsibility and achieve sustainable operation

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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 Steel Precision Metals Kunshan China China Co., Ltd. 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 CSC Steel Sdn. Bhd. Vietnam CSC holds 46% of CSHB Hanoi Steel Center Co., Ltd. Capacity: CR 0.48 mmt (CRC 0.24 mmt including PO, GI 0.17 mmt, PPGI 0.07 mmt)

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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

2017

3.96 billion NTD

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

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

• 0.61 bn: Reduction of energy consumption and optimization of production scheduling

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

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

• 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

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Value Corporate Social Responsibility and achieve
sustainable operation
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Awards and Honours

1

• 2018.02 CSC was ranked as RobecoSAM Gold Class Sustainability leaders 2018 in the steel industry.

• －

• • 2017.12 CSC was the winner of best IR in materials sector of IR Magazine Awards Greater China

• 2 2017.

3

• 2017.12 CSC was one of the winner of 2017 Outstanding Energy Saving Performance Award.

• 2017.11 CSC has won The Most Prestigious Sustainability Awards-Top Ten Domestic Corporate of

• 4 Taiwan Corporate Sustainability Awards (TCSA).

5

• 2017.11 CSC achieved "Leadership A-" CDP score in the fields of Climate Change and Water.

• 2017.09 CSC was included in the Dow Jones Sustainability Index (DJSI) for the 6th consecutive year,

• 6 and named as Industry leader in the steel sector for the 2nd time.

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• 2017.06 CSC has become a constituent of the FTSE4Good Index Series.

Links

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

• ～

• Report Download （ 2005 2016 ）： http://www.csc.com.tw/csc/hr/csr/wb/dow.htm

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Sustainability,

our STEEL commitment.

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