Communicating Bad News - Shougang Concord International

SHOUGANG CONCORD INTERNATIONAL
ENTERPRISES COMPANY LIMITED
For the year ended 31 December 2013
Annual Results Presentation
Stock : 697
Content
 Company Overview
 Industry Overview
 Financial Highlights
 Operation Review
1
Company overview
 Listed in Hong Kong since 1992 through acquisition of
Tung Wing Steel (Holdings) Ltd.
 Controlling shareholder is Shougang Corporation, which
is under the supervision of the Beijing State-Owned
Assets Supervision and Administration Commission
 Strategic shareholder also includes Cheung Kong
(Holdings) Ltd.
 Specialized on steel manufacturing and production of
heavy plates in PRC
 A vertically integrated operation from raw material base
(iron ore and coking coal) to manufacturing (iron, steel,
slab to plate)
2
Milestones
1992
Oct 1992
A consortium comprising Shougang Corporation, Cheung Kong
(Holdings) Ltd and CEF Holdings Ltd acquired a controlling
stake in Tung Wing Steel Holdings (Tung Wing)
1993
Jul 1993
Tung Wing was renamed as Shougang Concord International
Enterprises Company Limited
1994
Jul 1994
Acquired a 51% interest in Qinhuangdao Shougang Plate Mill
Company Limited (QZP)
2003
Oct 2003
QZP acquired a 24% stake in Qinhuangdao Shouqin Metal
Materials Company Limited (Shouqin)
2004
Aug 2004
Increased equity stake in Shouqin to 51%
Dec 2004
Increased equity stake in QZP to 100%
2005
Nov 2005
Increased equity stake in Shouqin to 96%
3
Milestones
2007
Feb 2007
Transferred a 20% equity interest in Shouqin to Hyundai Heavy
Industries Co. Ltd., reducing the Group's stake to 76%
2008
Nov 2008
Entered into off-take agreements with Mt. Gibson Iron Limited
(Mount Gibson) for iron-ore supply to the Group
2009
Jan 2009
Acquired 14.3% stake in Mount Gibson
Feb 2009
First acquired Shougang Fushan Resources Group Limited
(Shougang Resources) (equivalent to about 12.1% stake)
Sep 2009
Acquired additional ~213.9M shares in Shougang Resources
by disposing 154M shares in Mt. Gibson to Shougang
Resources. Equity stake in Shougang Resources increased
to about 23.3%
2011
Jul 2011
The equity stake in Shougang Resources was further increased to
27.2% after acquisition of additional shares in Shougang
Resources.
4
Operation base
Shanxi, Liulin County
- Hard coking coal
- via Shougang Resources
Hebei,
Qinhuangdao
- Steel plate
Shandong & Zhejiang
- Steel Cord
- via Shougang
Century
Hong Kong
- Trading of iron ore
- Registered Office
5
Corporate structure
Shougang
Corporation
48%
Shougang
International
Market
Marketcap.
cap.HK$4.0B
HK$4.0B
Cheung
Kong
5%
stock
code : 697
STEEL
MANUFACTURING
MINERAL
EXPLORATION
100%
Qinhuangdao
Plate Mill
27.6%
24%
Shouqin*
14%
COMMODITY
TRADING
stock code : 639
Shougang
Resources
stock code : 1104
APAC
52%
26%
*
100%
SCIT Trading/
Services
35.7%
100%
Shougang
Steel
5.7%
stock code : 103
Shougang
Century
listed in Australia
Australasian
Resources
15%
listed in Australia
Mount
Gibson
OTHERS
6
Shouqin is a JV between Shougang Corp. (4%), Shougang Concord Int'l (76%) and Hyundai Heavy Ind. (20%)
6
 Company Overview
 Industry Overview
 Financial Highlights
 Operation Review
7
Global steel production
No. 1
World top 10 producers
2
3
7
6
5
4
8
9
10
Crude steel production (million tonnes)
2013
%
2012
%
China
China
Japan
United States
India
Russia
South Korea
Germany
Turkey
Brazil
Ukraine
Others
779
111
87
81
69
66
43
35
34
33
269
1,607
48.5%
6.9%
5.4%
5.1%
4.3%
4.1%
2.7%
2.2%
2.1%
2.0%
16.7%
100.0%
725
107
89
77
70
69
43
36
35
33
269
1,553
46.7%
6.9%
5.7%
5.0%
Japan
United States
India
4.5%
Russia
4.4%
South Korea
2.7%
Germany
2.3%
Turkey
2.2%
2.1%
17.3%
100.0%
Brazil
Ukraine
Others
The crude steel production of China increased from 129 million tonnes in 2000 to 779 million tonnes in 2013, represented a CAGR of
14.8%. China steel production growth slowed in late 2013 and posted the first yoy monthly decline since August 2012 in January
2014. The average global capacity utilisation in 2013 was 78.1% compared to 76.2% in 2012.
Source : World Steel
8
Association
China steel consumption
1%
9%
2%
2%
3%
32%
Property
Infrastructure
3%
Machinery
Auto
6%
Shipping
Metal Accessories
Home appliances
Energy
Coal
18%
Other
Source : World Steel Association
24%
9
Steel price
Steel price today is just like the price of 7 years ago.
10
Iron ore price
Iron ore is the most important raw material in producing slab, one ton of slab production
requires 1.6 tonnes of iron ore input. Iron ore price dropped from USD135 at the end of 2013
to the latest low USD105 level, down by 22%.
11
Coke price
Coke is the second important element in producing slab. One ton of
slab production requires 0.4 ton of coke input.
Source : Steel home
12
China and world economy
35.0%
30.0%
PRC Crude steel
production
growth Y-O-Y
25.0%
20.0%
15.0%
10.0%
5.0%
GDP growth
0.0%
2005
2006
2007
2008
2009
2010
2011
2012
13
2013
13
Industry outlook
Urbanization
Coke price
decrease
trend
Reduce
production
capacity as
KPI for local
government
Iron ore
decrease
Environmental
Global
price
regulation
economy
Environmental
trend
regulation
recover
Air
Pollution
control
Positive
Negative
Global
economy
recover
Over-capacity
14
 Company Overview
 Industry Overview
 Financial Highlights
 Operation Review
15
Financial highlights
HK$'M
2013
2012
Change
Turnover
15,266
16,216
-6%
Attributable loss to shareholders
(1,396)
(1,947)
-28%
Including loss from principal business :
Steel manufacturing segment
(1,502)
(1,648)
-9%
Basic Loss per share (HK cents)
(15.58)
(21.75)
-28%
0.76
0.90
-16%
45.4%
45.9%
-0.5%
Net asset per share (HK$)
Net debt to total capital
16
Turnover
Steel Manufacturing
Mineral exploration
Commodity Trading
Others
Turnover
HK$' M
2013
Steel Manufacturing
Mineral exploration
Commodity Trading
Others
10,614
222
4,427
3
15,266
17
2012
70%
1%
29%
0%
100%
11,245
625
4,337
9
16,216
Change
69%
4%
27%
0%
100%
-6%
-64%
2%
-67%
-6%
Core operating loss
HK$' M
Loss before share of results
in associates
Share of results in associates
Non-recurring items/Impairment provision
Minority interests of recurring items
Group core operating loss attributable to shareholders
Non-recurring items/Impairment provision
Minority interests of non-recurring items/impairment provision
Loss attributable to shareholders
2013
2012
Change
(2,227)
282
(1,945)
293
(1,652)
507
(1,145)
(293)
42
(1,396)
(2,916)
370
(2,546)
432
(2,114)
522
(1,592)
(432)
77
(1,947)
2013
2012
(1,502)
13
326
(160)
(73)
(1,396)
(1,648)
174
(41)
(60)
(146)
(197)
(1,918)
9%
-93%
N/M
-167%
N/M
63%
27%
(1,396)
(29)
(1,947)
N/M
28%
24%
-24%
32%
3%
28%
32%
45%
28%
By Business:
Steel Manufacturing
Mineral exploration
Commodity Trading
Fair value change on Mt. Gibson Offtake contract
Goodwill impairment
Others
Discontinued operation Shipping
Change
18
Profit/(loss) by region
2013
HK$'M
2013
HK$'M
Qinghuangdao area
Non-Qinghuangdao area
Fair value changes of offtake
contract with Mt. Gibson
2012
HK$'M
(1,772)
536
(2,105)
218
(160)
(1,396)
(60)
(1,947)
19
Shouqin &
Processing Centre
Shouqin Longhui
Qinghuadao Plate Mill
Impairment on goodwill
Commodity trading
Share of profit/(loss) from:
Shougang Resources
Shougang Century
Others
(1,367)
(270)
(135)
(1,772)
2013
HK$'M
326
283
(6)
(67)
536
2012
HK$'M
(1,489)
(312)
(158)
(146)
(2,105)
2012
HK$'M
(41)
486
(107)
(120)
218
Statement of financial position
HK$'M
31 Dec
2013
31 Dec
2012
Change
NON-CURRENT ASSETS
Including: Associates
Including: Fixed assets, net
20,404
7,777
11,440
20,716
7,585
11,651
-2%
3%
-2%
8,165
2,527
8,670
2,342
-6%
8%
LIABILITIES
Including: Bank borrowings
21,950
9,596
20,923
10,743
5%
-11%
SHAREHOLDERS' EQUITY
6,802
8,093
-16%
CURRENT ASSETS
Including : Bank balances and cash
Non-controlling interest
(183)
370
20
N/M
Cash flow profile
HK$’M
2,500
2,000
1,500
1,000
500
2013
0
Cashflow from
operation
Div rec'd
Net borrowings*
Interests paid
PP&E
Others
2012
(500)
(1,000)
(1,500)
(2,000)
21
Net debt and leverage profile
31-Dec-13
31-Dec-12
9,550
893
10,443
10,490
869
11,359
Cash and bank balance
2,612
2,435
Net debt
7,831
8,924
45%
27%
46%
30%
HK$'M
Debt from banks*
Debt from parent co.
Total
Net debt to total capital
Net debt to total assets
* Excluding financing from discounted bills
22
 Company Overview
 Industry Overview
 Financial Highlights
 Operation Review
23
Steel manufacturing
Iron/
Steel
Slab
Plate
Shouqin首秦
Vertically integrated steel mill; Capacity:
3.6mtpa in slabs and 1.8mtpa in plates
(4.3m width max.)
QZP秦板
Re-roller
0.8mtpa in plates
(3m width max.)
24
Sales and production data
Slabs
For the year ended 31 December
2013
2012
Heavy Plates
2013
2012
2,367
2,473
1,663
1,623
-
-
620
585
2,367
2,473
2,283
2,208
(i) Production (in '000 mt.)
Shouqin
Qinhuangdao Plate Mill
Total
-4%
Change
+3%
(ii) Sales (in '000 mt.)
Shouqin#
Qinhuangdao Plate Mill
Total
575
701
1,663
1,619
-
-
614
547
575
701
2,277
2,166
-18%
Change
+5%
(iii) Average ASP per ton (RMB)
Shouqin
Qinhuangdao Plate Mill
Overall
Change
2,755
2,985
3,572
4,078
-
-
3,227
3,575
2,755
2,985
3,479
3,951
-8%
-12%
#Difference between production and sales of slabs is mainly represented by those consumed by Shouqin internally to produce
heavy plates; slabs sales mainly made towards Qinhuangdao Plate Mill and are eliminated on consolidation
25
Steel plate selling price
by month
RMB/tonne
4,400
4,200
4,000
3,800
3,600
3,400
3,200
3,000
Source: Shouqin & QHD
26
Cost structure
2013 Cost
Structure
Rolling cost & others
Overall steel manufacturing cost will change as a result of
Coke
increase/(decrease) in iron ore and coke price
Iron Ore
44%
15%
41%
Coke
-40%
-30%
-20%
-10%
0%
+10%
+20%
+30%
+40%
-50%
-27%
-25%
-24%
-22%
-21%
-19%
-18%
-16%
-15%
-40%
-22%
-21%
-19%
-18%
-16%
-15%
-13%
-12%
-10%
-30%
-18%
-17%
-15%
-14%
-12%
-11%
-9%
-8%
-6%
-20%
-14%
-13%
-11%
-10%
-8%
-7%
-5%
-4%
-2%
27
-10%
-10%
-9%
-7%
-6%
-4%
-3%
-1%
0%
2%
Iron Ore
0%
-6%
-5%
-3%
-2%
0%
2%
3%
5%
6%
+10%
-2%
0%
1%
3%
4%
6%
7%
9%
10%
+20%
2%
4%
5%
7%
8%
10%
11%
13%
14%
+30%
6%
8%
9%
11%
12%
14%
15%
17%
18%
+40%
10%
12%
13%
15%
16%
18%
19%
21%
22%
Steel manufacturing
- segment results
Shouqin & Processing Centre
HK$'M
2013
2012
Turnover (Note)
Gross loss
GP%
Net loss*
Attributable to the Group
10,890
(1,003)
-9.2%
(1,961)
(1,490)
Depreciation & Amortization
Finance cost
9,766
(916)
-9.4%
(1,799)
(1,367)
Change
-10%
9%
8%
8%
825
591
734
579
12%
2%
2,911
44
1.5%
(135)
(135)
2,898
7
0.2%
(158)
(158)
0%
529%
QZP
HK$'M
Turnover
Gross profit
GP%
Net loss
Attributable to the Group
Depreciation & Amortization
Financial cost
Total attributable loss Shouqin + QZP
32
43
33
55
15%
15%
-3%
-22%
28
(1,502)
(1,648)
9%
Note : All figures are shown before elimination
of intercompany, except *attributable loss which
is shown after elimination
Heavy plate output
Shipbuilding
Petrochemical
Industrial
machinery/
Infrastructure
Others (Buildings
and capital
goods)
Industry Breakdown on Our Heavy Plate Output
2013
16%
9%
67%
8%
2012
25%
15%
50%
10%
29
Customers portfolio
30
Mineral exploration:
Shougang Resources
27.6% equity stake
HK:639
SHOUGANG FUSHAN RESOURCES GROUP LTD.



Production: Premium HCC >6mmt. p.a. in Shanxi
Financially hedged to our coal needs
Committed to distribute >=40%
of earnings as dividends
31
Coking coal mines operated
by Shougang Resources
65%
95%
87.75%
Annual production of around 2.1 million tonnes for each mine
32
Key data of
Shougang Resources
2013
HK$'M
Turnover
Raw Coking Coal (tonnes)
Price RMB/t
Clean Coking Coal (tonnes)
2013
HK$'M
2012
HK$'M
4,268
5,651
-24.5%
1,959,000
2,328,000
-15.9%
540
716
-24.6%
2,534,000
2,407,000
5.3%
920
1,216
-24.3%
GP %
50.9%
63.5%
-12.6%
Net Profit
1,115
1,800
-38.1%
10.5
2.7
7.8
15.0
5.0
10.0
-30.0%
-46.0%
-22.0%
Price RMB/t
Dividend per share (HK cents)
Interim
Final
33
Cash & Bank balance
2012
HK$'M
5,793
4,846
19.5%
Loan balance
580
1,075
-46.0%
Gross Assets
26,871
26,821
0.2%
Net assets
19,927
19,224
3.7%
2.7%
5.2%
Gearing*
* Gearing ratio is defined as total borrowings divided by total equity.
Major shareholders of
Shougang Resources
Shougang Concord International Enterprises Co. Ltd
Other Shougang companies
Shougang Holding (Hong Kong) Limited
Sino Life Insurance Co.,Ltd.
Xing Libin
Other Shareholders
As at
31 Dec 2013
As at
31 Dec 2012
27.61%
2.24%
29.85%
25.04%
4.95%
40.16%
100.00%
27.61%
2.24%
29.85%
5.19%
11.19%
53.77%
100.00%
Changes
19.85%
-6.24%
-13.61%
Sino Life Insurance acquired additional 19.85% interests in Shougang Resources during the year and became
the 2nd largest shareholder. The previous 2nd largest shareholder , Xing Libin disposed 6.24% interests in
2013 and now is the 3rd largest shareholder in Shougang Resources.
34
Coking coal price
Coking coal prices in Shanxi’s Liulin region
35
Mineral exploration
- segment results
HK$'M
Turnover
SQLH (Note)
Represented by:
Sales vol. ('000t)
ASP (HK$)
Attributable (loss)/profit
to group
SQLH
Share of Fushan results
Deemed gain on share of
add'l Fushan's net assets
as a result of shares
repurchases by Fushan
2013
2012
Change
642
1,543
-58%
432
1,286
1,100
1,325
-61%
-3%
(270)
283
(312)
469
13%
-40%
13
17
174
N/M
-93%
36
Note: All figures are shown before elimination
of intercompany
Commodity trading:
Mt Gibson Iron ore
Lifelong Offtake at below
Platts price
MOUNT GIBSON IRON LIMITED (MGX.AU)

Supplier for trading business

Production: lifelong offtake contract with us since Jul ’09 for
production in 2 mines namely, Tallering Peak and Koolan Island

After negotiation between Management and Mt. Gibson, from 2013
onwards, the offtake pricing method was changed to base on the
daily average price of the Platts iron ore price index in the month of
sales delivery instead of one month prior to sales delivery

Greatly reducing the impact of bimonthly price fluctuations that may
bring a loss
37
Commodity trading
– segment results
2013
2012
Change
Mainly trades Mt. Gibson iron ore,
coal and steel products

Turnover (HK$M)
Mt. Gibson iron ore
Others
Net profit/(loss) (HK$M)
Mt. Gibson iron ore
Volume ('000)
ASP (US$/t)
profit/(loss) (US$/t)
3,835
592
4,427
3,269
1,068
4,337
17%
-45%
2%
326
(41)
N/M
3,695
133
11.5
3,359
123
(1.4)
10%
8%
N/M
38
Forward looking statements
This presentation contains “Forward-looking statements” that are not historical in nature.
These forward-looking statements, which include, without limitation, statements regarding
Shougang Concord International Enterprises Co., Ltd.’s future results of operations, financial
condition or business prospects, are based on the current beliefs, assumptions, estimates and
projections of the directors and management of the Company about the business, the industry
and the markets in which the Company operates in. These statements are not guarantees of
future performance and are subject to risks, uncertainties and other factors, some of which are
beyond our control and are difficult to predict. Actual results could differ materially from those
expressed, implied or forecasted in these forward-looking statements for a variety of factors.
39
SHOUGANG CONCORD
INTERNATIONAL
ENTERPRISES COMPANY LIMITED
THANK YOU!