TICKER: INOX CREATING ANOTHER SUCCESS STORY OPPORTUNITY DAY PRESENTATION POSCO-Thainox PCL. NOV2017
INOX: Businesses Background POSCO Group Through an acquisition, POSCO-Thainox PCL. (SET:INOX) have formed POSCO is a multinational steel-making company with headquarter in Korea. It is and strengthened by POSCO in international network, became one of leaders one of the largest producer of Hot-rolled, Cold-rolled and stainless steel in the in Stainless Steel Manufacturer in Asia. INOX is the only company in Thailand world. who possesses Quality-grades Cold-Rolled manufacturing technology producing Austenitic and Ferritic Stainless Steel. Brief Profiles 1. Investment : $485 M (Capital $237 M) 2. Share : POSCO 85%, Minority Shareholders 15% Sales Volume by industry Auto 3. Location : BBK(HQ), RY(Plant), Chonburi(Coil Center) Re-rolling 16% 26% Distribution 3% BANGKOK CHONBURI RAYONG Pipe 6% 7% Ship-building 13% Marketing Production High-Carbon • 8% • Sales Management Support 11% 12% Home applicance • Technical Service Construction Others 4. Capacity : 240,000 ton/year As a group,it realigned subsidiaries under 4 domains 5. Employee : 570 persons Chem/Mat'l/ HISTORY Energy Others 2% E&C 4% ‘1991 ESTABLISHMENT 9% ’1993 PHASE1 COMPLETED (60KTON) Steel Trading 52% ‘1999 PHASE2 COMPLETED (150KTON) 32% ‘2007 POSCO INVESTED THAINOX (15%) ’2011 POSCO ACQUIRED THAINOX (85%) ’2013 POS-TSPC ESTABLISHMENT Group Revenue by Segment, as of 2016 including inter-company transactions 2
INOX: Financial Performance Quarterly Sales Sales (Tons) & Average Sale Price (THB) (THB Million) 72,054 70,874 67,090 65,113 63,579 +14.81% YoY 60,483 60,113 11,678 58,390 58,184 10,171 57,513 54,709 54,335 54,082 49,675 +0.67% QoQ +6.75% YoY 3,897 3,904 3,877 3,657 3,510 3,005 20,673 18,857 18,692 17,424 16,034 15,702 13,276 Q 1 Q 2 Q 3 9 M Q 1 Q 2 Q 3 9 M 2016 2017 Q12016 Q22016 Q32016 Q42016 Q12017 Q22017 Q32017 Sales (Tons) Premium sale (Tons) Average Sale Price per Ton (THB) The average sale price showing decreasing trends which decreased 1.64% in 2 nd quart Sale revenue increase compare to previous quarters results from er and 5.34% in 3 rd quarter of 2017. Howev higher sales volume as well as sale increased in premium products er, the sales volume is increasing by 6.35% (WP) sales which has better margin. in the 3 rd quarter of 2017. 3
INOX: Financial Performance Gross Profit EBITDA (THB Million) (THB Million) -0.28% YoY +4.23% YoY 663 661 772 741 365 401 311 +5.83% QoQ +02.20% QoQ 316 237 265 -51.10% YoY -40.66% YoY 188 152 184 144 159 114 Q 1 Q 2 Q 3 9 M Q 1 Q 2 Q 3 9 M Q 1 Q 2 Q 3 9 M Q 1 Q 2 Q 3 9 M 2016 2017 2016 2017 Increasing sales quantity contribute in high revenue and operating profit in QoQ Basis. 4
INOX: Financial Performance Net Income (THB Million) 401 -48.96% YoY 228 215 205 159 -241.71% QoQ 55 -136.23% YoY 26 Q 1 Q 2 Q 3 9 M Q 1 Q 2 Q 3 9 M 2016 2017 -78 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) 5
INOX: Bilateral Advance Pricing Agreement (APA) 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’s tax adjustment for year 2013-2017 were paid at once in year 2017. • 6
INOX: Future Outlook (THB Million) Revenue (THB mn.) Sales (Tons) 225,000 15,800 3,500 - 58,184 59,000 3,897 3,877 3,904 54,709 3,800 54,082 Q1 Q2 Q3 Q4-F 2017-F Q1 Q2 Q3 Q4-F 2017-F (THB Million) Operating Income FORECAST Q1 Q2 Q3 Q4-F 2017-F Sales (Tons) 54,082 54,709 58,184 59,000 225,000 456 3,500- Revenue (THB mn.) 3,897 3,877 3,904 15,500 3,800 Operating Income (THB mn.) 274 50 57 90 456 274 90 57 50 Q1 Q2 Q3 Q4-F 2017-F 7
Highlights Summary Sales Increase Net Income Due to the APA contracts, the POSCO-Thainox improve sale with the 3m THB 3,904mn tax-related expense was THB 11,678mn growth rate of 6.78% YoY resulted in THB adjusted resulted in additional 3,904mn driven by sale volume increased as (136.28%) well as premium product sale increased. cost booking approximately THB (78mn) 9m THB 124mn. Bringing 3- With strong maarket strategies and POSCO months net income down to 6.75% 14.81% support, annual revenue growth is expected (48.92%) 3m 9m THB (78mn). 20% for next 3 years. THB 202mn Thailand’s only cold-rolled stainless steel producer POSCO-Thainox After 3 years from acquisition, INOX’s earnings have turned positive with stable � Earning 589 business and strong potential growth factors. As the only domestic cold-rolled manufacturer, the company has advantage over the 220 � 120 foreign competitors in terms of delivery, less risk and punctuality. Company s Currently, the company gain market shares average approximately 51% in 2017. 2012 2013 2014 2015 2016 � -47 POSCO networks also support the company as the main supplier and sale channels. -316 � Sales and Marketing Plan Continue develop premium products entering new customer base and gain more � EBITDA market share while offer more customized products to expand order quantity from 830 existing customers. 365 Production 169 152 144 Continue expand annual production to 300,000 ton and continuing cost saving � activities by finding alternative production material. Q1 Q2 Q3 Q4-F 2017-F 8
THANK YOU! Q&A 9
Appendix 10
Appendix1: Businesses Revenue Records Revenue is based on the geographical location of the customer, 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 (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 Domestic & International Sales 70.65% Domestic Sales INOX has locational advantage as the only cold-rolled manufacturer in Thailand to achieve 51% of stainless cold-rolled domestic market share. 5-year Average Sales 29.35% International Sales INOX has strong sale channels as the leader of cold-rolled Stainless market in Asia adding with POSCO network. 11
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 oxygen reaction from the steel which is the cause of eroded or oxidation. Stainless Surface Types No.1 Stainless 2D Stainless 2B Stainless BA Stainless matte surface bright surface shiny surface mirror surface 12
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 Home appliance, food tank, 304 Good corrosion resistance and formability, high weldability, excellent cleanable building and transportation industries 304L Good corrosion and sensitization resistance, high weldability Tube, hollowware, home appliance Excellent corrosion and pitting resistance, high strength at high temperature by Food processing industry, boiler, 316 adding molybdenum heat exchanger Excellent intergranular corrosion resistance, compared to Grade 316, with low Chemical industry, truck tanks, 316L carbon content hot water tank 321 Increase intergranular corrosion resistance by adding titanium Heat exchanger 304J1 Excellent formability by adding copper Suitable for deep drawing applications 13
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