CREATING ANOTHER SUCCESS STORY OPPORTUNITY DAY PRESENTATION - - PowerPoint PPT Presentation

CREATING ANOTHER SUCCESS STORY

TICKER: INOX

OPPORTUNITY DAY PRESENTATION POSCO-Thainox PCL.

NOV2017

2

INOX: Businesses

Through an acquisition, POSCO-Thainox PCL. (SET:INOX) have formed and strengthened by POSCO in international network, became one of leaders in Stainless Steel Manufacturer in Asia. INOX is the only company in Thailand who possesses Quality-grades Cold-Rolled manufacturing technology producing Austenitic and Ferritic Stainless Steel.

Background Brief Profiles POSCO Group

1. Investment : $485 M (Capital $237 M) 2. Share : POSCO 85%, Minority Shareholders 15% 3. Location : BBK(HQ), RY(Plant), Chonburi(Coil Center) 4. Capacity : 240,000 ton/year 5. Employee : 570 persons

‘1991 ESTABLISHMENT ’1993 PHASE1 COMPLETED (60KTON) ‘1999 PHASE2 COMPLETED (150KTON) ‘2007 POSCO INVESTED THAINOX (15%) ’2011 POSCO ACQUIRED THAINOX (85%) ’2013 POS-TSPC ESTABLISHMENT

BANGKOK CHONBURI RAYONG

• Marketing

Sales Technical Service

• Production
• Management Support

HISTORY

POSCO is a multinational steel-making company with headquarter in Korea. It is

• ne of the largest producer of Hot-rolled, Cold-rolled and stainless steel in the

world. As a group,it realigned subsidiaries under 4 domains

Steel 52% Trading 32% E&C 9% Energy 2% Chem/Mat'l/ Others 4%

Group Revenue by Segment, as of 2016 including inter-company transactions

26% 13% 12% 11% 8% 7% 6% 3% 16%

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3,005 3,897 3,510 3,877 3,657 3,904 10,171 11,678 2016 2017

49,675 58,390 57,513 54,335 54,082 54,709 58,184 13,276 15,702 18,857 16,034 20,673 17,424 18,692 60,483 60,113 63,579 65,113 72,054 70,874 67,090 Q12016 Q22016 Q32016 Q42016 Q12017 Q22017 Q32017 Sales (Tons) Premium sale (Tons) Average Sale Price per Ton (THB)

INOX: Financial Performance

Quarterly Sales Sales (Tons) & Average Sale Price (THB)

(THB Million)

The average sale price showing decreasing trends which decreased 1.64% in 2nd quart er and 5.34% in 3rd quarter of 2017. Howev er, the sales volume is increasing by 6.35% in the 3rd quarter of 2017. Sale revenue increase compare to previous quarters results from higher sales volume as well as sale increased in premium products (WP) sales which has better margin.

9M

9M

+0.67% QoQ +6.75% YoY +14.81% YoY

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159 401 265 184 316 188 741 772 2016 2017 114 365 237 144 311 152 663 661 2016 2017

Increasing sales quantity contribute in high revenue and operating profit in QoQ Basis.

INOX: Financial Performance

EBITDA

(THB Million)

Gross Profit

(THB Million)

+5.83% QoQ

• 51.10% YoY
• 0.28% YoY

9M

9M

+02.20% QoQ

• 40.66% YoY

+4.23% YoY

9M

9M

5

26 228 159 55 215

• 78

401 205 2016 2017

• Net income of Q3 recorded negative THB 78mn due to APA corporate tax adjustment of THB 124mn
• This adjustment would eliminate earning uncertainty in the future (No more additional adjustment)

INOX: Financial Performance

Net Income

(THB Million)

• 241.71% QoQ
• 136.23% YoY
• 48.96% YoY

9M

9M

6

Covered Entities

• Korean Entity : POSCO Co., Ltd.
• Thai Entity: POSCO-Thainox Pcl

Covered Transactions

• Purchase of raw materials from POSCO and POSCO affiliates by INOX
• Other intercompany transactions between POSCO Group and INOX

Covered Term

APA is effective for five (5) fiscal years ending December 31,2013 through December 31,2017.

Transfer Pricing Methodologies

• Tested Party: INOX
• TPM: Transactional Net Margin Method (TNMM)
• Profit Level Indicator: Operating Margin (OM)

Total APA adjustment

• 1. Primary Adjustment

36,405,278.00

• 2. Secondary Adjustment

87,672,654.21 Total Payment 124,077,932.18

INOX: Bilateral Advance Pricing Agreement (APA)

• INOX’s tax adjustment for year 2013-2017 were paid at once in year 2017.

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3,897 3,877 3,904 3,800 15,800 Q1 Q2 Q3 Q4-F 2017-F

Revenue (THB mn.)

INOX: Future Outlook

54,082 54,709 58,184 59,000 225,000 Q1 Q2 Q3 Q4-F 2017-F

Sales (Tons)

FORECAST Q1 Q2 Q3 Q4-F 2017-F Sales (Tons) 54,082 54,709 58,184 59,000 225,000 Revenue (THB mn.) 3,897 3,877 3,904 3,500- 3,800 15,500 Operating Income (THB mn.) 274 50 57 90 456

274 50 57 90 456 Q1 Q2 Q3 Q4-F 2017-F

Operating Income

(THB Million) (THB Million)

3,500 -

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POSCO-Thainox improve sale with the growth rate of 6.78% YoY resulted in THB 3,904mn driven by sale volume increased as well as premium product sale increased. With strong maarket strategies and POSCO support, annual revenue growth is expected 20% for next 3 years.

Highlights

3m 9m Sales Increase Net Income

14.81% 6.75% THB 3,904mn THB 11,678mn

Plan 3m

(136.28%) THB (78mn)

Due to the APA contracts, the tax-related expense was adjusted resulted in additional cost booking approximately THB 124mn. Bringing 3- months net income down to THB (78mn).

9m

(48.92%) THB 202mn

Thailand’s only cold-rolled stainless steel producer

• After 3 years from acquisition, INOX’s earnings have turned positive with stable

business and strong potential growth factors.

• As the only domestic cold-rolled manufacturer, the company has advantage over the

foreign competitors in terms of delivery, less risk and punctuality.

• Currently, the company gain market shares average approximately 51% in 2017.
• POSCO networks also support the company as the main supplier and sale channels.

POSCO-Thainox

Company s Summary

Sales and Marketing

• Continue develop premium products entering new customer base and gain more

market share while offer more customized products to expand order quantity from existing customers. Production

• Continue expand annual production to 300,000 ton and continuing cost saving

activities by finding alternative production material.

• 47
• 316

220 120 589 2012 2013 2014 2015 2016

Earning

365 144 152 169 830

Q1 Q2 Q3 Q4-F 2017-F

EBITDA

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THANK YOU! Q&A

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Appendix

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Appendix1: Businesses

Domestic & International Sales

Domestic Sales INOX has locational advantage as the only cold-rolled manufacturer in Thailand to achieve 51% of stainless cold-rolled domestic market share. International Sales INOX has strong sale channels as the leader of cold-rolled Stainless market in Asia adding with POSCO network.

5-year

Average Sales

70.65% 29.35% Revenue (THB mn.) 2011 2012 2013 2014 2015 2016 Domestic 6,997.02 9,019.20 7,462.54 9,636.80 8,185.34 10,021.20 International 4,038.00 3,931.28 3,200.54 4,010.58 3,520.06 3,688.67 Total Revenue 11,035.02 12,950.48 10,663.08 13,647.38 11,705.39 13,709.87 Sale (Tons) 2011 2012 2013 2014 2015 2016 Domestic 76,469 112,781 104,430 125,938 115,274 155,927 International 51,078 55,652 50,010 59,448 54,235 63,986 Total Tons Sales 127,548 168,433 154,440 185,386 169,509 219,913 Revenue Records

Revenue is based on the geographical location of the customer,

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Appendix2: Products

Stainless Steel is the rusted-resistance steel. By the definition of stainless, It must consists of Chromium more than 10.5% since Chromium acts as eroded-protective film on steel surface by being the steel’s coat that extracts

• xygen reaction from the steel which is the cause of eroded or oxidation.

Stainless Surface Types No.1 Stainless matte surface 2D Stainless bright surface 2B Stainless shiny surface BA Stainless mirror surface

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Appendix2: Products(2)

• 1. Austenitic Stainless Steel

As the most commonly used, Austenitic stainless steel is non-magnetic; and contains both chromium and nickel, which increases corrosion resistance and ease of fabrication. Grades Characteristics Product Application

301 High strength Seat belt, spring 304 Good corrosion resistance and formability, high weldability, excellent cleanable Home appliance, food tank, building and transportation industries 304L Good corrosion and sensitization resistance, high weldability Tube, hollowware, home appliance 316 Excellent corrosion and pitting resistance, high strength at high temperature by adding molybdenum Food processing industry, boiler, heat exchanger 316L Excellent intergranular corrosion resistance, compared to Grade 316, with low carbon content Chemical industry, truck tanks, hot water tank 321 Increase intergranular corrosion resistance by adding titanium Heat exchanger 304J1 Excellent formability by adding copper Suitable for deep drawing applications

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Appendix2: Products(3)

2.Ferritic Stainless Steel

This is a magnetic type of stainless steel, having low carbon content and containing chromium as a main element. With a slightly higher yield strength than Austenitic grades, Ferritic stainless steel finds greater use where there is a risk of stress-corrosion cracking. Further more, some ferritic grade content of Titanium

• r Niobium are call "stabilize grade" with improve weldability and corrosion resistance.

Grades Characteristics Application

409L Good weldability and formability, high-temperature oxidation resistance Exhaust pipe 410L Good formability, bendability and high-temperature oxidation resistance Automotive industry, boiler, industry machine components 430 Moderate formability, high corrosion resistance Home appliance, washing machine 439 High corrosion resistance and high-temperature oxidation resistance Exhaust pipe, hot water tank 441 Good deep draw ability, better resistance against roping, high thermal conductivity, low thermal expansion coefficiency Washing machine, sink, kitchenware, decorative panel 444 Great intergranular corrosion resistance and SCC resistance Heat exchanger, Auto exhaust manifold POSRE 1 Good corrosion resistance, draw ability, and weldability; high-temperature oxidation resistance Home appliance, kitchenware

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Appendix2: Products(4)

2.Ferritic Stainless Steel

This is a magnetic type of stainless steel, having low carbon content and containing chromium as a main element. With a slightly higher yield strength than Austenitic grades, Ferritic stainless steel finds greater use where there is a risk of stress-corrosion cracking. Further more, some ferritic grade content of Titanium

• r Niobium are call "stabilize grade" with improve weldability and corrosion resistance.

Grades Characteristics Application

POS430M2 Good formability, corrosion resistance, and weldability with low carbon and nitrogen content Home appliance, hard disk drive POS430RE Good formability and ridging resistance Washing machine, sink, kitchenware POS445NF High corrosion resistance and good weldability Kitchenware, elevator 436L Excellent corrosion resistance by adding Molybdenum, good weldability Exhaust pipe, hot water system 436J1L Excellent corrosion resistance and weldability; cost savings with lower molybdenum content, compared to Grade 436L Automotive industry 430J1L Good corrosion resistance and formability; high-temperature oxidation resistance, compared to Grade 430, by adding copper and niobium Exhaust pipe, home appliance POS430M2 Good formability, corrosion resistance, and weldability with low carbon and nitrogen content Home appliance, hard disk drive

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Appendix3: Production Process

POSCO Korea 430 Except 430 B/C W/C H-APL ZRM BAL (BA) APF (2D,2B) SPM SHL(#1) BAF Only in Thainox STL(#1,#2)

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Appendix4: Industry Outlooks

• Historically stainless steel in long-term growth has the highest rate among

equal to 5.40% while the average metal usage growth rate equal to 2.40% as compounded average per year since 1980-2016.

• In year ended 2016, world stainless steel production were record at 45.8

million tons which increase around 10.2% from the earlier year. The highest production growth rate in regional of 2016, China 15.66% America 6.70% Asia without China 5.24% EU-Africa 2.49% Cenral-Eastern Europe (4.63%)

33.62 35.92 38.51 41.69 41.55 45.78 8.13% 6.83% 7.21% 8.26% 10.18% 10 20 30 40 50 2011 2012 2013 2014 2015 2016

World Stainless Steel Production (mn tons)

• 0.33%

2.00% 2.25% 2.31% 2.73% 3.80% 5.40% Lead Zinc Carbon Steel Copper Aluminium Stainless Steel

Average compounded annual growth rate of major metals : 1980 – 2016 (% per year)

Source: International Stainless Steel Forum (ISSF)

Stainless steel : the highest potential growth among the metal type.

Rest of World 3% China 13% Other Asia (excluding China) 39% America 11% EU 34%

2005

Rest of World 1% China 54% Other Asia (excluding China) 22% America 6% EU 16%

2016

Regional share of stainless steel production

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Stainless steel melt shop steel production [000 metric tons]

Appendix4: Industry Outlooks(2)

2016 2017 Q1 Q2 Half Q1 Q2 Half Europe 1,866.00 1,927.00 3,793.00 1,980.00 1,902.00 3,882.00 USA 530.00 613.00 1,143.00 721.00 699.00 1,420.00 China 5,214.00 6,551.00 11,765.00 6,209.00 6,047.00 12,256.00 Asia w/o China and South Korea 1,871.00 1,882.00 3,753.00 1,992.00 1,958.00 3,950.00 Others 794.00 853.00 1,647.00 845.00 857.00 1,702.00 Total 10,275.00 11,826.00 22,101.00 11,747.00 11,463.00 23,210.00 Others: Brazil, Russia, S.Africa, S.Korea Source: International Stainless Steel Forum (ISSF)

Nickel Price ($ per metric ton) Opportunity

• Positive Thailand GDP growth indicates end-user demand which in turn

boots up investment in raw material for the producers.

• Higher profit can be expected from uptrend in Nickel price as there are

approximately 3 months gap between purchase raw material to selling product.

Source: Infomine.com

Threats

• Flow of Imported products
• Steel price dumping from China’s high level of production

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 180 160 140 120 100 80 60 5500 4500 3500 2000 1500 1000 500

ASIA CHINA Stainless steel demand versus stainless steel consumption

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105.24 385.89

• 17.40
• 318.40

219.62 119.87 588.97

• 400.00
• 300.00
• 200.00
• 100.00

• 400
• 200

200 400 600 800 2012 2013 2014 2015 2016 Millions Baht Dividend (million baht) Net Profit (million baht)

Historical Record

Dividend Payment & Net Income Dividend Ratio

Dividend Policy Statement Dividend Return

1.09% 4.80% 0.00% 2.00% 4.00% 6.00% 2015 2016

Dividend Return Year Dividend Per Share Average INOX's Price 2015 0.0135 1.24 2016 0.0495 1.03

Board of Directors may decided dividend payment upon company’s profit following the approval on shareholder meeting. Also, the board may decide to make unscheduled additional dividend payment base on suitable level of company’s retained earning. However, the company is required to spare at least 5% of net profit as legal reserve until this reserve reach 10% of Authorized Capital and other condition agreed within board and shareholder. The company intend to made the dividend payment not less than 50% of company’s net profit after taxes, legal reserve and any other condition. However, the dividend payment policy may change subject to investment plan, working capital management and other factors effect the company’s operation.

65.52%

2016

Net Profit Dividend

Appendix5: Dividend

87.80%

2015

Net Profit Dividend

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Disclaimers

This presentation materials contain statements and financial results that are expected future events and forward-looking which are subject to risks and uncertainties. The statements are based on our management’s assumptions and beliefs from the currently available information which may materially different from actual future results. These statements can be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “anticipate”, “intend”, “estimate”, “continue” “plan” or

• ther similar words. Please note that the company and executives/staff

do not control and cannot guarantee the relevance, timeliness, or accuracy of these statements.