China Steel Corporation (TW: 2002)
China Steel Corporation (TW: 2002)
Management Presentation
Disclaimer
This presentation has been prepared by China Steel Corporation (“CSC” or the “Company”) and has not been
independently verified. No representations, warranties or undertakings, express or implied, are made and no reliance should be placed on the accuracy, fairness or completeness of the information presented or contained in these
materials. The information contained in this document should be considered in the context of the circumstances
prevailing at the time and has not been, and will not be, updated to reflect material developments which may occur after the date of the presentation. Neither the Company nor any of its affiliates, advisers or representatives accept any
responsibility whatsoever for any loss howsoever arising from any information presented or contained in this
presentation. The information presented or contained in this presentation is provided as at the date of this presentation and is subject to change without notice and its accuracy is not guaranteed. Past performance is not indicative of future results.
This presentation contains statements that constitute forward-looking statements. All statements other than statements of historical facts, that address activities, events or developments that the company expects or anticipates will or may occur in the future are forward-looking statements.
These statements include descriptions regarding the intent, belief or current expectations of the Company or its officers
1
These statements include descriptions regarding the intent, belief or current expectations of the Company or its officers with respect to the consolidated results of operations and financial condition of the Company. These statements can be recognized by the use of words such as “expects,” “plans,” “will,” “estimates,” “projects,” “intends,” or words of similar meaning.
Such forward-looking statements are not guarantees of future performance and are based on a number of assumptions about the Company’s operations and factors beyond the Company’s control, and accordingly, actual results may differ materially from these forward-looking statements. The Company has no obligation and do not undertake to revise forward looking statements to reflect future events or circumstances.
China Steel Corporation presentation team
J. C. Tsou Chairman K. H. Chang Chief Financial Officer K. T. Lee 2 J. Y. Sung Vice President Production Division K. T. Lee Vice President Corporate Planning Division J. G. Liu Vice President Commercial Division35.0 38.0
350 400
(USD in millions except per share data)
Share price 29 Apr 11 (NTD) 35.40
Shares outstanding (million) 13,566
Market capitalisation 16,778
China Steel Corporation market snapshot
Price (in New Taiwan dollars per share) Volume (in millions)
Capitalisation Share price performance since 2009
20.0 23.0 26.0 29.0 32.0 – 50 100 150 200 250 300 Market capitalisation 16,778
Short-term bank loan 1,748
Short-term bills and notes payable 1,079 Current portion of long-term debt (1) 531
Long-term bonds payable 1,032
Long-term bank loan 2,658
Long-term debt 374
Total debt 7,422
Cash and cash equivalents 586
Net debt 6,835 Minority interest 839 3 20.0 1-Jan-2009 16-Apr-2009 30-Jul-2009 12-Nov-2009 25-Feb-2010 10-Jun-2010 23-Sep-2010 6-Jan-2011 21-Apr-2011 –
Volume China Steel
Minority interest 839
Enterprise value 24,452
China Steel Corporation is one of the largest listed corporations in Taiwan by market
capitalisation
Source: 1Q 2011 consolidated financials; 1USD = 28.62NTD, as of 29 April 2011. Note (1): Including bonds payable due in 1 year and
long-term bank loan due in 1 year.
Source: Bloomberg as of 29 April 2011.
29-Apr-2011
Agenda
1
Company overview
2
3
Investment highlights & future strategies
Energy and environment
4
COMPANY OVERVIEW
5
Company overview:
Business snapshot (China Steel Corporation only)
Overview
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, 2010 Current market cap is US$16.8bn (as of Apr. 29, 2011)Major business
Leading manufacturer of flat steel products Continuously upgrading towards highervalue-adding products
Dominant market position domestically Continue to capture rapid growthin South East Asia and China markets
Hot-rolled 33% Cold-rolled Wire rod 14% Plate 11% Bar 7% Sales breakdown by products (FY2010) Sales breakdown by products (FY2010) Others 2% Domestic/Export (FY2010) Domestic/Export (FY2010) Domestic 73% Export 27% 6 Key financials (standalone) rolled 32% 256 165 239 53 57 2008 2009 2010 1Q 2010 1Q 2011
Sales & ROE1(NT$bn)
Sales & ROE1(NT$bn)
24 20 38 11 7
2008 2009 2010 1Q 2010 1Q 2011
Net profits & profit margin2(NT$bn)
Net profits & profit margin2(NT$bn)
9.4% 11.9% 15.7% 20.8%
10.4% 8.1% 14.8% 17.8%
Domestic 73%
1 Based on average total shareholders’ equities (parent company, not including minority interests) and annualized for Q1 data 2 Net profits attributable to parent company
Company overview:
Business snapshot (CSC Group)
Steel Core Businesses
China Steel Corporation
Chung Hung Steel Corporation
Dragon Steel Corporation
CSC Steel Sdn. Bhd.
Other Group Businesses
Engineering Businesses
China Steel Machinery Corporation
China Steel Structure Co., Ltd.
China Ecotek Corporation
Logistic Businesses
China Steel Express Corporation
China Steel Global Trading Corporation
Service and Investments Businesses
Major business 24.0% 48.0% 57.0% 69.0% 60.0% 46.0% 78.0% 10.6% 15.6% 19.5% Hot-Galvanized Steel Wire/rod Electro-Galvanized
Plate Cold-rolled Hot-rolled Electrical
Steel
CSC Steel Sdn. Bhd.
China Steel Sumikin Vietnam CSVC
China Steel Precision Materials
Industrial Materials Businesses
C. S. Aluminum Corporation
China Steel Chemical Corporation
China Hi-ment Corporation
Himag Magnetic Corporation
Gains Investment Corporation
China Steel Security Corporation
Info-Champ Systems Corporation
China Prosperity Development Corporation
CSC Group domestic market share (2010) CSC Group domestic market share (2010)
Our group crude steel capacityreached 12.9 mmt as of December 31, 2010 (combining China Steel Corporation and Dragon Steel’s EAF and No.1 blast furnace) Capacity & market share business 75.6% 76.1% Steel
CSC Dragon Steel Chung Hung
7 Key financials (consolidated) 385 251 350 79 98 2008 2009 2010 1Q 2010 1Q 2011
Sales & ROE1(NT$bn)
Sales & ROE1(NT$bn) Net profits & profit marginNet profits & profit margin22(NT$bn)(NT$bn)
1 Based on average total shareholders’ equities (parent company, not including minority interests) and annualized for Q1 data 2Net profits attributable to parent company
6.2% 7.8% 10.7% 14.0% 10.4% 8.1% 14.8% 17.8% furnace) 9.9% 24 20 38 11 7 2008 2009 2010 1Q 2010 1Q 2011 6.8%
Continuous growth
Company overview:
A history of growth
Dec. 1971 Company set up
Dec. 1974 Stocks traded on TWSE
Start-up
Dec. 1977 – May 1997 four-phase expansions and Completedreached annual capacity of 8.05 mmt
Dec. 1995 Company is privatized with government holding reduced to 47.8%
Expansion
Feb. 2010 Dragon Steel Phase I expansion completed; first blast furnace started operation with 2.5 mmt
Jun. 2010 Increasing China penetration benefited from zero tariff under ECFA
Current ~
Dragon Steel Phase II
expansion in progress, targeting additional 2.5 mmt
8
1971 - 1977
Dec. 1974 Stocks traded on TWSE
China Steel Corporation continues to grow and enhance its leading position
1977 - 2007
Dec. 2004 Ranked 191 globally
2007 - Current
Government currently holds 21.2% stake after multiple sell-downs2
1In terms of crude steel output according to WSA (world steel association)
2Government ‘s holding in China Steel will maintain at a level of over 20% according to the resolution of Legislative Yuan
Taiwan:
Accounts for 73.1% of sales2;
balance to international customers
China Steel Corporation: geographic snapshot (as of December 31, 2010)
Company overview:
Well-positioned production network
Other major subsidiaries and affiliates
C.S. Express Bulk raw material shipping business
Taichung:
South Korea:
5% interest in Dongbu Metal (FeMn Alloy)
Iron ore, coking coal5 Iron ore5 Japan, 25.0% sales1 China, 27.5% sales1 South East Asia, 30.5% sales1
C.S. Aluminium Aluminium products
C.S. Chemical4 Coal-chemical processor
Chung Hung4 Hot-rolled, cold-rolled and steel tubes
C.S. Global Trading Steel products trading
Kaohsiung: CSC Headquarters 4 Blast Furnaces (9.9 mmt crude steel) Taichung: Dragon Steel 1 Blast Furnace3 (1.9 mmt crude steel) EAF (0.9 mmt crude steel)
Vietnam:
51% interest in China Steel Sumikin Vietnam
CSVC (1.6 mmt)6
Malaysia:
CSC Steel Holdings
Berhad (0.4 mmt)7
Crude steel production
9 Steel processing facilities
Upstream resource investments
Notes: 1. Represents percentage of CSC’s total international sales (26.9% of CSC’s total sales were to international customers in 2010). 2. Based on CSC’s total 2010 sales.
3. Dragon Steel, 100% owned by CSC, is currently constructing a second 2.5 mmt blast furnace which is expected to complete in December 2012. 4. Taiwan-listed entities.
5. CSC’s primary source of steel-making raw materials 6. Capacity data
7. Finished products
Through overseas investments, China Steel Corporation has established a well-positioned
production network with access to raw material supplies in the region
Australia:
5% interest in Sonoma Coal mine
Brazil:
1% interest in Namisa iron ore mine (part of CSN Group)
INVESTMENT HIGHLIGHTS &
FUTURE STRATEGIES
10
Uniquely positioned to capture growth in Asian emerging markets
1
Investment highlights
Large asset base with significant expansion underway
2
Competitive cost advantages leveraging operational efficiency and
proximity to end market
4
Better margin product mix and increasing exposure to higher-value
end markets
3
11
Proven financial track record with stable earnings distribution
5
Highly experienced and capable management team
Key strategies to achieve the vision
Aggressive expansion to create foundation for strong growth and profitability
1
2
Secure captive supply of raw material sources
Enhance corporate culture handing-down, reinforce human resources training &
development, and management succession plan
3
4
Strengthen sales channels and increase the value of supply chain of steel
related industries
2
12 12
Enhance client relationship and network through engineering, technical and
information management services
5
With the key strategies implemented, China Steel Corporation aims to become a trustworthy
steel partner pursuing growth, environmental protection, energy saving and value-innovation
ENERGY AND ENVIRONMENT
13 13
Energy and environmental performance
Energy consumption (bn Calories / NT$mm) Wastewater discharge (tonnes / NT$bn)
Energy consumption per revenue Wastewater discharge per revenue
Greenhouse gas (CO2) intensity (tonne CO2/ NT$bn)
94 69 2006 2010 324 227 2006 2010
CO2emissions per revenue
12,754
NOx and SOx emissions (tonnes / year)
SOx NOx Regulatory requirement: < 12,775 tonnes/year Regulatory requirement: < 12,775 tonnes/year 14 126 85 2006 2010 14 11,200 9,906 9,799 10,167 2007 2008 2009 2010 12,754 11,817 10,291 11,720 2007 2008 2009 2010
Energy consumption trend
M-cal / T-CS5,774
5,672
5,440
2009
2010
1Q11
15 15Multi-dimensional efficiency improvement measures
100% continuous casting
Best Available Technology (BAT) for new furnaces
Waste heat recovery for efficient energy use
Contributions to environmental sustainability
Eco process Eco products Eco solution
Zero Waste Disposal Top 3 Water Recirculating Rate (97.85% - 2010) High Strength Steel 10% weight reduction in vehicles save 6% energy District Energy Integration in Linhai Industrial Park CO2 reduction despite production ramp-up Best Material Utilization Scheme (RMTP - 2007) RMTP - Residual Material Treatment Plant 100% Top Pressure Recovery Turbine (TRT) 100% Continuous Casting Electrical Steel 2.89% efficiency increase for 3HP motors 1% motor efficiency increase in Taiwan reduce 630,000 metric tonnes CO2 emissionramp-up
Energy conservation service CSC provided energy saving service to group companies and customers since 2007 (128) (149) (216) (429) (566) 2002 2004 2006 2008 2010 200 40(thousand metric tonnes of CO2)
16 16 11 23 30 37 0 50 100 150 200 2007 2008 2009 2010 0 10 20 30 40 Cumulative Potential CO2 reduction (thousand metric tonnes) Cumulative no. of serviced customers
Vision for environment protection
Target : Less than 1.97 tCO2e/tCS by 2020
Reduction in carbon footprint through implementation of
energy conservation technologies and energy
optimization
Low carbon
Development and application of bio-energy
Target: zero waste disposal and zero liquid discharge
Reduction of wastewater, noise and air pollution
Increased recycling and proper care of residues from
steel production – internal use of steel-making and
desulfurization slag
Low pollution
17 17
Target: Annual savings of NT$5.0bn through recycling
and energy integration / conservation
FINANCIAL OVERVIEW
18
Operating environment
25,000 30,000
(New Taiwan dollars /metric tonne)
Average selling prices vs. average cost of goods sold (carbon steel)
23,894 5,000 10,000 15,000 20,000 25,000 15,684 9,730 23,894 20,550 19 5,000 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 J a n -0 8 M a r-0 8 M a y -0 8 J u l-0 8 S e p -0 8 N o v -0 8 J a n -0 9 M a r-0 9 M a y -0 9 J u l-0 9 S e p -0 9 N o v -0 9 J a n -1 0 M a r-1 0 M a y -1 0 J u l-1 0 S e p -1 0 N o v -1 0 J a n -1 1 M a r-1 1
Average Selling price Average Cost of Good Sold
China Steel Corporation has demonstrated a consistent ability to pass through costs to
customers and generate a stable margins amidst rising raw material prices
Consolidated financial highlights
EBITDA & EBITDA Margin Gross Profit & Gross Margin
(in billions of New Taiwan dollars) (in billions of New Taiwan dollars)
P&L highlights
Net Income & Net Margin (in billions of New Taiwan dollars)
13.3% 18.1% 14.6% 21.3% 6.2% 10.7% 28 12 51 63 19 2008 2009 2010 1Q 2010 1Q 2011 34 16 56 75 21 2008 2009 2010 1Q 2010 1Q 2011
Note: EBITDA calculated as operating income plus depreciation and amortization. 20 7 24 38 11 2008 2009 2010 1Q 2010 1Q 2011 11.0% 24.2% 13.7% 26.7% 7.8% 14.0%
Note: Gross profit refers to realized gross profit after earned/unearned income from sales to related party.
Balance sheet and Cash flow highlights
Liability & Liability-to-Asset Ratio (in billions of New Taiwan dollars)
46.9%
44.4%
Operating cash flow (in billions of New Taiwan dollars)
Capital expenditure (in billions of New Taiwan dollars)
46.9% 12.6% 16.3% 6.8% 62 71 64 18 14 2008 2009 2010 1Q 2010 1Q 2011 20 207 206 255 221 262 2008 2009 2010 1Q 2010 1Q 2011 44.8% 43.9% 44.4% 21 52 46 23 7 2008 2009 2010 1Q 2010 1Q 2011
Note: Capital expenditure represented by acquisition of property, plant and equipment.
Historical EPS and dividends paid
(in New Taiwan dollars per share)
EPS and dividends
88 122 83 85 84 85 87 85 85 87 881 Dividend Payout (%) 2 .1 2 1 .8 6 3 .9 4 5 .2 6 4 .8 3 3 .5 6 4.4 9 2 .0 3 1 .5 4 2 .8 3 1 .5 0 1 .4 0 3 .0 0 3.9 0 3 .7 5 2 .7 8 3.5 0 1 .3 0 1 .0 1 1 .9 9 0 .3 0 0 .2 0 0 .1 5 0 .3 5 0 .5 0 0 .3 5 0 .3 0 0 .3 0 0 .4 3 0 .3 3 0 .5 0 1.00 2.00 3.00 4.00 5.00 6.00 21 0 .8 2 1 .8 6 1 .5 4 1 .5 0 0 .8 0 1.4 0 1 .3 0 1 .0 1
-EPS Cash dividends Stock dividends
We maintain a high cash dividend policy to our investors and have consistently paid out 80% to
90% over the last ten years
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20101
