Baoshan Iron & Steel Co., Ltd. August 2010 1
Disclaimer: The following presentation distributed herewith includes forwardlooking statements. All statements, other than statements of historical facts, that address activities, events or developments that Baoshan Iron & Steel Co., Ltd. (Baosteel) expects or anticipates will or may occur in the future are forward-looking statements. Baosteel's actual results or developments may differ materially from those indicated by these forward-looking statements as a result of various factors and uncertainties, including but not limited to price fluctuations, actual demand, exchange rate fluctuations, competition and other risks and factors beyond our control. 2
I. 1H2010 Results II. III. Industry Dynamics Outlook 3
Production and Shipment In million tons 1H09 2H09 1H10 YoY HoH Crude steel output 10.72 13.14 13.12 22.4% -0.1% Sales of finished product 10.12 12.30 12.48 23.2% 1.4% Incl: Domestic 9.45 11.27 11.50 21.8% 2.1% Exports 0.68 1.04 0.97 43.9% -6.1% 4
Financial Highlights Unit 1H09 2H09 1H10 YoY HoH EPS Yuan 0.04 0.29 0.46 1103.4% 56.4% BVPS Yuan 5.12 5.43 5.68 10.9% 4.6% Net CFO per share Yuan 1.13 0.24 0.57-49.5% 135.9% Gross margin % 4.94 13.04 14.79 9.9 ppts 1.8 ppts ROE (Weighted) % 0.73-8.17 7.4 ppts - 5
1H2010 Sales Volume Breakdown Specialty ; 0.48 ; 4% Stainless ; 0.68 ; 5% Carbon; 11.29 ; 91% Plate; 1.07 ; 10% CRC; 5.42 ; 47% HRC; 3.04 ; 27% Tube; 0.86 ; 8% Billet; 0.38 ; 3% Wire & bar; 0.53 ; 5% Note: BNA included. Volumes are in million tons. 6
P&L Summary In billion Yuan 1H09 2H09 1H10 YoY HoH Revenue 65.5 83.0 97.9 49.6% 17.9% Cost 65.3 76.8 87.7 34.3% 14.1% Gross profit 3.2 10.8 14.5 347.3% 33.7% Gross margin% 4.94 13.04 14.79 9.8 ppts 1.7 ppts Operating profit 0.8 6.5 10.7 1310.9% 64.7% Operating margin% 1.16 7.82 10.93 9.8 ppts 3.1 ppts Net income 0.7 5.1 8.1 1103.4% 56.4% Net profit margin% 1.02 6.20 8.22 7.2 ppts 2 ppts 7
P&L Summary In billion Yuan 3Q2009 4Q2009 1Q2010 2Q2010 Revenue 41.0 42.0 44.3 53.6 Cost 37.0 39.9 39.5 48.2 Gross profit 6.3 4.5 6.7 7.8 Gross margin% 15.3 10.8 15.2 14.5 Operating profit 4.2 2.3 5.1 5.6 Operating margin% 10.2 5.5 11.6 10.4 Net income 3.0 2.1 3.9 4.1 Net profit margin% 7.4 5.0 8.9 7.7 8
Solvency and Liquidity Unit 2010-6-30 2009-6-30 Chg% Total assets/total debts % 49.94 49.68 0.26 ppts Current ratio 0.88 0.74 17.86 Quick ratio 0.42 0.33 28.01 Unit 1H2010 1H2009 Chg% Days of receivables day 4.2 3.8 11.4 Days of inventories day 72.0 89.1-19.1 Cash conversion cycle day 37.5 35.1 7.1 9
1H2010 Gross Margin In million tons billion Yuan 1H2010 Shipments Revenue YoY Cost YoY Gross margin CRC 4.51 28.80 97.77% 20.69 52.43% 28.18% 21.37 ppts HRC 3.97 17.31 44.04% 13.56 20.06% 21.67% 15.64 ppts Heavy plate 1.07 4.71-3.45% 4.89-5.18% -3.72% 1.89 ppts Tube 0.86 4.81-15.17% 4.60-2.99% 4.40% 12.01 ppts Stainless 0.68 8.79 42.58% 8.74 46.28% 0.57% 2.51 ppts Specialty 0.48 4.63 85.41% 4.98 77.14% -7.69% 5.03 ppts Others 0.91 3.81 71.63% 3.69 59.18% 3.14% 7.57 ppts Total 12.48 72.85 51.75% 61.14 33.31% 16.08% 11.61 ppts YoY 10
Accomplishments in 1H2010 Sales and marketing Only One & Number One products sales: 5.9 million tons, up 46% yoy; Cold-rolled auto sheet sales: 2.35 million tons, up 71% yoy; Meisteel sold 0.44 million tons CRC in 1H and its new cold-rolling line started to make profit in 2Q. All-round cost control Further process optimization helped cut process cost by 3.78% yoy; Energy cost: down 4.2% yoy. Management reform Heavy Plate Branch was integrated into main operations to create synergy. 11
I. 1H2010 Results II. Industry Dynamics III. Outlook 12
Macro Economic Trends 120% 80% 40% 0% -40% GDP Contribution Cosumption Investment Net export 6.0 24.1 19.3 19.7 9.2 55.3 45.1 37.7 42.0 39.7 92.3 38.7 38.2 38.7 40.6 45.7 52.5-44.8 2004 2005 2006 2007 2008 2009 Source:NBS FAI growth is slowing down but is expected to be above 20% in 2010; Consumption is on track to steady expansion while exports are set to recover; 2H GDP growth is expected to be 8.5%-9%. 13
In million tons In million tons Steel Supply Analysis 900 800 700 600 500 400 300 200 100 0 Crude steel capacity Capacity Incremental 740 783 677 89 63 43 2009E 2010E 2011E Progress of obsolete capacity elimination 2006-2010 target Completion by 2009 Planned in 2010 120 100 100 81.7 80 60 60 50 40 30 20 8.25 0 Iron making Steel making Source: CISA On August 8, MIIT published a list of enterprises and urged those on the list to close obsolete capacity by September 2010. 14
5S 6S 7S 8S 9S 10S 11S 12S 1S 2S 3S 4S 5S 6S 7S 8S In 100 million tons Steel Supply Analysis Annualized crude steel production 6.8 6.71 6.6 6.4 6.18 6.18 6.2 6.19 6.0 5.8 5.68 5.6 5.4 5.2 Source: CISA 6.27 6.24 5.99 Late-July production was down 10.4% from the peak in late April; Large and small mills cut production by 10% and 16.2% respectively in late July; Production picked up in early August to 627 million tons on annualized basis; 2010 crude steel production is expected to reach 625-640 million tons. 15
In million tons Import and Export Analysis 8 6 4 2 0 4.5 4.2 2.9 2.8 3.5 2.0 7.3 6.4 5.9 3.8 Crude steel net export 2.1 2.3 1.0-0.6-0.50.20.31.01.4 1.9 1.61.4 1.7 0.2 0.0-0.9-1.0 3.8 4.4 3.3 2.9-2 2008-01 2008-06 2008-11 2009-04 2009-09 2010-02 2010-07 Source: Wind Net export has been rising in 1H but declined in July due to tax rebate cut; Expected net export in 2010: 26 million tons. 16
In billion Yuan Demand Analysis-FAI FAI growth 3500 Monthly FAI YTD Chg. YoY 40 3000 2500 30 2000 1500 8 20 1000 500 10 0 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 0 Source: NBS Long-lead construction projects will continuously drive steel demand; Jan-Jul FAI increased by 24.9% yoy; FAI is expected to grow by at least 20% in 2H2010. 17
In million square meters Demand Analysis-Real Estate Floor space newly started 200 180 160 140 120 100 80 60 40 20 0 Monthly newly started YTD Chg. YoY 80 70 60 50 40 30 20 10 0 (10) (20) (30) Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Source: Wind Government is increasing affordable housing supply by 5.8 million suites in 2010; Assuming 60 m2 per suite, this is equivalent to 30% of construction starts in 2009. 18
Demand Analysis-Auto Monthly auto sales(in million units) Auto inventory(days) 2006 2007 2008 2009 2010 60 1.8 1.6 1.4 1.2 1.66 1.21 1.74 1.56 1.44 1.41 1.24 55 50 45 1.0 0.8 0.6 0.4 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 40 35 30 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Source: CAAM, China Automotive Technology Research Center Jan-Jul auto sales reached 10.26 million, an increase of 43% yoy; Sales declined since April due to de-stocking, seasonality and macro concerns; Sales is expected to pick up in September and full year sales is expected to reach 17.5 million units, growing by 27%. 19
Demand Analysis-Home Appliance Home appliance production YoY change 60.0% Jul-10 YTD 2010 40.0% 20.0% 11.1% 45.6% 38.4% 26.8% 20.0% 45.3% 36.9% 30.7% 23.7% 0.0% -20.0% -11.8% Color TV Air conditioner Refrigerator Washing machine Freezer Source: NBS Home appliance posted strong growth in 1H thanks to government incentives and overseas demand recovery; Export may weaken but overall outlook for 2H remains positive. 20
Demand Analysis-Machinery Machinery production growth YTD 120% 1Q2009 2Q2009 3Q2009 4Q2009 1Q2010 Jan-Jul2010 80% 61.4% 83.6% 69.7% 47.8% 40% 28.4% 14.0% 8.9% 19.7% 0% -40% Cutting machine tools Source: Wind CNC machine tools Bearing Excavator Concrete machinery Machinery production is gaining momentum in 1H ; Locomotives Smelting equipment Mining equipment Growth may moderate due to property curtailment and tightened control over local financing vehicles; However, we expected more infrastructure-related demand from western China in 4Q due to government s strengthened effort in bolstering regional economic growth. 21
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec In million DWT Demand Analysis-Ship building 8 7 6 5 4 3 2 1 0 Ship-building completion 2006 2007 2008 2009 2010 7.38 6.13 5.43 4.21 4.23 4.57 3.69 China leads in ship completions, new orders and existing orders in the world; In 1H2010, 29.6 million DWT has been completed, representing 86.7% growth yoy; 1H new orders quadrupled to 23.8 million DWT over the same period last year; Full year demand for ship building plate is expected to be 15.8 million tons, an increase of 29% yoy. Source: NBS 22
Inventory Analysis Source: Mysteel Social Inventory In million tons 20-Aug Previous week WoW% MoM% YoY% Rebar 5.73 5.77 (0.8) (5.4) 46.0 Wire 1.41 1.46 (3.7) (9.0) 15.1 HRC 4.91 4.90 0.2 3.4 59.1 CRC 1.47 1.46 0.7 0.2 27.4 Plate 1.45 1.44 1.1 1.9 14.1 Total inventory 14.97 15.03 (0.4) (1.8) 40.4 Iron ore inventory 74.30 76.82 (3.3) (2.6) (1.0) Steel social inventory stood at 15 million tons on August 20, down 19.5% from the peak in early March. 23
USD per ton Cost 2000 1500 1000 500 0 Spot domestic iron ore fine price (including VAT) 1088 Dec-06 Jan-08 Feb-09 Mar-10 1800 1600 1400 1200 1000 800 600 400 200 0 Spot imported iron ore fine price 2007-5-22 2008-1-22 2008-9-22 2009-5-22 2010-1-22 1200 2nd grade coke price Freight rates 3500 3000 2500 2000 1800 1500 1000 500 0 2006-12-31 2007-12-31 2008-12-31 2009-12-31 Tubarao-Beilun 100 80 60 40 20 0 2008-7- 30 2009-1- 30 WA-Beilun 2009-7- 30 2010-1- 30 28.8 11.8 2010-7- 30 Source: Mysteel 24
Spot Price 7000 6000 Spot HRC price 7000 6000 Spot CRC price 5000 5000 4000 4000 3000 3000 2000 2009-1-4 2009-6-4 2009-11-4 2010-4-4 2000 2009-1-4 2009-6-4 2009-11-4 2010-4-4 Yuan/ton 25-Aug Compared with End of 2009 Average 2009 Average 2008 Peak 2008 Rebar 4125 8% 12% -13% -27% HRC 4333 11% 16% -14% -27% CRC 5273-7% 10% -13% -27% Plate 4384 12% 21% -20% -33% Source: Mysteel 25
I. 1H2010 Results II. Industry Dynamics III. Outlook 26
2010 Planned sales by product Specialty, Stainless, 4% 5% Other, 6% Tube, 7% CRC, 43% HRC, 24% Plate, 11% In million tons 2009A % 2010E % HRC 6.46 28% 6.01 24% Plate 2.28 10% 2.71 11% CRC 8.84 39% 10.77 43% Tube 1.66 7% 1.71 7% Other 1.43 6% 1.48 6% Stainless 1.26 6% 1.36 5% Specialty 0.76 3% 0.95 4% Total 22.69 100% 24.99 100% Note: BNA included. Product mix will be further optimized with No. 5 cold-rolling mill and Meisteel coldrolling mill put into operation. 27
In billion Yuan CAPEX CAPEX 35.0 30.0 28.7 25.0 20.0 17.8 19.6 15.0 10.0 5.0 0.0 2005 2006 2007 2008 2009 2010E 1H2010 CAPEX: 5.2 billion Yuan. 28
Major expansion projects Projects Stainless cold-rolling mill Products Galvanized sheet, stainless sheet, etc. Designed capacity (in million tons) Investment (in billion Yuan) Completion 2.1 6.0 Aug-10 Special Steel Sheet project High-temperature alloys, etc. 0.1 2.0 Dec-10 Nantong Baosteel project Tube billet 0.6 1.5 Jan-11 Luojing 2nd phase project Continuous-casting billet 1.4 5.7 Mar-11 Lubao Tube project Oriented silicon steel 2nd phase Meisteel product optimization project High-pressure boiler tube, etc. 0.5 4.3 Apr-11 Oriented silicon steel 0.1 1.7 Dec-11 HRC 4 11.5 May-12 29
2010-2015 Strategic Development Plan To become the most competitive steel manufacturer in the world Profitability:270 billion Yuan revenue by 2015 with systematically improved profit margin and ROE; Competitiveness:33 million tons crude steel capacity by 2015 with stronger presence in carbon steel market, greater value addition and higher market share for strategic products; Technology:To become world-class steel maker and leader in key technologies; Our people:to promote a co-development mechanism of employees and the company and to build a first-class high-caliber team; Social responsibility:with environmental management as an integral part of our philosophy, to continuously take the lead in clean operation, environmental protection and in rewarding stakeholders. 30
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