CSC — Interim / Quarterly Report 2018

Jun 26, 2018

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China Steel Corporation

June 28, 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
(2018.1Q) (2018.1Q)
in Taiwan
 Billet/Slab, 8%
Continuously upgrading towards higher Hot Rolled,
Export 29%
Major value-added products Bar, 10% 23%
business
 Dominant position in the domestic market
Plate, 9%
 Continue to capture rapid growth
in South East Asia and China markets
Wire Rod,
Cold Rolled,
17% Domestic 71%
33%
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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

• Sing Da Marine Structure Corporation

Industrial Materials Businesses Service and Investments Businesses

• Gains Investment Corporation

• C. S. Aluminum Corporation

• China Steel Security Corporation

• China Steel Chemical Corporation

• CHC Resources Corporation  Himag Magnetic Corporation

• China Prosperity Development Corporation

• China Steel Management Consulting Corporation

• CSC Solar Corporation

• China Steel Precision Materials

• China Steel Resources Corporation

CSC Group domestic market share (2018.1Q)

Capacity & market share

 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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92%
75% 21%
21%
35%
79% 82%
58% 58% 54%
40% 36%
Hot- Bar/Rod Electro- Plate Cold-rolled Hot-rolled Electrical
Galvanized Galvanized Steel
Steel
CSC Dragon Steel Chung Hung
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Performance- Consolidated operating results
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Amount: NT$ million

Item	2018.1Q	*2018.5	*2018.1~5
Consolidated Operating Revenue	93,390	35,004	160,328
Consolidated Operating Income	6,041	2,822	11,298
Consolidated Income Before Income Tax	5,735	2,696	10,680

*preliminary result

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Performance-Sales Revenue Breakdown
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Unit ： NTD Thousands

	Item	2018.1Q	*2018.5	*2018.1~5
1	Steel products	77,908,515	28,432,946	132,821,710
2	Non-steel industry materials	8,915,040	3,365,402	15,373,557
3	Construction	4,067,249	2,427,635	8,085,113
4	Transportation and service	1,772,296	517,333	2,850,957
5	Others	726,562	260,507	1,197,132
Less	Sales returns and allowances	0	0	0
	Total	93,389,662	35,003,823	160,328,469

*preliminary result

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

2018.1Q	Steel	Others	Adjustment & Elimination	Total
Revenues from external customers	$ 75,351,150	$ 18,038,512	$ -	$ 93,389,662
Inter-segment revenues	23,229,876	13,016,111	(36,245,987)	-
Segment revenues	$ 98,581,026	$ 31,054,623	($ 36,245,987)	$ 93,389,662
Segmentprofit	$ 4,172,138	$ 1,718,391	$ 150,514	$ 6,041,043
Interest income	33,456	39,552	( 16,972)	56,036
Financial costs	(735,398)	(145,659)	11,493	(869,564)
Share of the profit of associates	2,510,825	373,799	( 2,660,821)	223,803
Other non-operating income and expenses	417,692	22,587	(156,505)	283,774
Profit before income tax	6,398,713	2,008,670	( 2,672,291)	5,735,092
Income tax	23,627	282,913	16,457	275,743
Net profit for the period	$ 6,422,340	$ 1,725,757	($ 2,688,748)	$ 5,459,349

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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
	2017		2017.1Q		2018.1Q
Revenues	347,012		82,984		93,390
Gross profit	39,339		9,952		9,610
Gross margins	11.34%		11.99%		10.29%
Profit before tax		23,403		5,390		5,735
Net profit		20,431		4,681		5,439
Attributable to
Owners of the corporation		16,905		3,705		4,609
Non-controlling interests		3,526		976		851
Earnings Per Share(NTD)		$1.09		$0.24		$0.30

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

	12/31/2013	12/31/2014	12/31/2015	12/31/2016	12/31/2017	3/31/2018
Debt	362,630	348,049	357,414	346,542	335,764	328,888
Debt/Equity	113.55%	103.99%	111.44%	105.15%	101.15%	97.79%
Asset	681,999	682,737	678,139	676,122	667,716	665,221
Debt/Asset	53.17%	50.98%	52.71%	51.25%	50.29%	49.44%
Net Debt＊	264,285	250,540	269,034	254,390	238,426	232,555
Net Debt/Asset	49.51%	46.88%	39.67%	37.62%	35.71%	34.96%

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

＊ 2013~2017 ：

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)

＊ 2018~ ：

Net debt = Interest Bearing Debt – cash & cash equivalents – ( financial assets at fair value through profit

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Performance- Historical EPS and dividends paid
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(in NTD per share)

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85 87 85 85 87 88 85 132 86 70 102 82 81
78 78 78 64 66 70 74 105 67 70 102 82 81
6.00
5.00
4.00
3.00
2.00
1.00
-
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Cash Dividend Stock Dividend EPS
0.35
0.30
0.30
0.50
3.75
3.50
0.43
2.78
0.33
0.15
1.99
0.20
1.30
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 1.09 0.88
0.40
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Dividend payout(%)

Cash Dividend payout(%)

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Sales (CSC standalone)
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2018.1Q CSC sales volume totaled 2.70 million metric tons

Domestic/Export sales volume breakdown of 2018.1Q

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Hot-Rolled,
27.6%
Cold-Rolled,
14.1%
Vehicles Export 29.88%
Billet/Slab, Coated (0.81 million
12.5% China Japan 16.5%
Products, metric tons)
15.6% 25.0%
Bar/Rod, 20.8%
Plate, 9.4% Coil center
Others 24.9%
Piping
Re-rolling
S.E. Asia 33.6%
Wire-rope 0.7% Bolts-nuts Domestic 70.12%
Hand tools 0.9% (1.89 million metric tons)
Ship-building 1.3% Ship-building
Vehicles 3.8%
Piping 4.7%
Trader 4.8%
Steel structure 4.9%
Coil center 13.7%
Bolts-nuts 14.0%
Re-rolling 14.3%
Others 17.8%
Direct users 19.1%
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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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2018.1Q sales volume (CSC & BF
products of DSC) totaled 3.67 million Domestic/Export sales volume breakdown of 2018.1Q
metric tons
Hot-Rolled,
Billet/Slab, 43.3%
12.6% Cold- Vehicles
Rolled,
10.4% China Japan 17.4%
Export 32.91%
Bar/Rod, 19.9%
(1.21million
15.3% Coil center
Coated metric tons)
Products,
Plate, 6.9% Piping
11.5%
Others 20.5%
Re-rolling
Domestic 67.09%
Wire-rope 0.6% Bolts-nuts S.E. Asia 42.2%
(2.46million
Hand tools 0.8%
metric tons)
Ship-building 1.0%
Ship-building
Vehicles 2.9%
Trader 3.7%
Steel structure 4.1%
Piping 7.2%
Bolts-nuts 10.7%
Coil center 11.3%
Direct users 14.8%
Others 18.8%
Re-rolling 24.1%
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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 20.45%
(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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Integrate group resources and develop green energy businesses
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Sing Da Marine Structure Corporation

• Capacity: 50 jacket substructures/year.

• Schedule: to finish the construction at the end of 2019 and start production in 2020.

• Capital: NTD$6.842 billion with D/E ratio 50%, CSC holds 100% of shares.

#29 Offshore Wind Farm

• Developers: China Steel Corporation, CIP and DGA.

• Plan: Got distribution of 300MW grid capacity for installation in 2024.

Taiwan International Windpower Training Corporation Ltd.

• JV partners: Taiwan International Ports Corporation, Taiwan Power Company, CWind Taiwan, China Ship Building Corporation and Swancor.

• Business: Provide certified construction, operation and maintenance training for developing offshore wind industry in Taiwan.

• Capital: NTD$100 million, CSC will hold 15% of shares (NTD$15 million).

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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

• 2018.05 CSC was ranked top 5% in TWSE listed companies in the 4[th] (2017) Corporate Governance

• 1 Evaluation.

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• 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 2017.

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• 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 Taiwan Corporate Sustainability Awards (TCSA).

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• 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, 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.

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Sustainability,

our STEEL commitment.

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