The Opinion of The Independent Financial Advisor Regarding Connected Transaction

Transcription

1 Enclosure 5 (Translation) The Opinion of The Independent Financial Advisor Regarding Connected Transaction POSCO-Thainox Public Company Limited Prepared By Capital Link Advisory Limited 29 March 2016

2 Content Page Executive Summary 4 1. Type and Details of the Connected Transaction 1.1 Type and size of the transaction Characteristics of business, position, risks and ability to repay the debt of the parties Value of consideration Details of connected person and person related to such connected person Summary of the draft agreement which will occur Information of the Company 2.1 History and major development Business overview Capital structure The Board of Directors The management Financial position and operating results Reasonableness of the transaction 3.1 Objective and necessity for the transaction Advantage and disadvantage of entering and not entering into the transaction Advantage and disadvantage between entering into the transaction with 63 connected parties and the transaction with third parties 3.4 The need for entering into the transaction with connected parties and the 69 reasons the Company do not enter into the transaction with third parties 4. Fairness of price and condition of the transaction Summary of opinions of the Independent Financial Advisors 74

3 (Translation) This English translation has been prepared solely for the convenience of the foreign shareholders of POSCO-Thainox Public Company Limited and should not be relied upon as the definitive and official opinion of Independent Financial Advisor on Connected Transaction. The Thai language version of the opinion of Independent Financial Advisor on Connected Transaction is the definitive and official document of the Advisor and shall prevail in all respects in the event of any inconsistency with this English translation. Ref: Kor.Aor. 017/ March 2016 Subject The Opinion of The Independent Financial Advisor Regarding Connected Transaction of POSCO-Thainox Public Company Limited To Shareholders POSCO-Thainox Public Company Limited As the meeting of Board of Directors of POSCO-Thainox Public Company Limited ( the Company or INOX ) No. 1/2016 held on 24 February 2016, resolved to propose the meeting of shareholders to approve the Company to deposit with Bank of America Merrill Lynch ( BAML ) and use the amount as loan facilities for companies in POSCO Group, and also to take on loans from BAML by having deposits of companies in POSCO Group as a guarantee. The transaction will be processed through liquidity management, also called Cash Pooling Management conducted through BAML system, together with companies in POSCO Group by having the outstanding deposit balance in Thai Baht not over Baht 1,000 million and in U.S. dollars not over Baht 100 million, and the outstanding loan balance not over Baht 1,000 million both in Thai Baht and U.S. dollars altogether. Such transaction is the transaction among the companies under POSCO Group, and POSCO is a major shareholder of the Company; therefore, the transaction is considered as the connected transaction as to assist or receive financial assistance according to Notification of the Capital Market Supervisory Board No. Tor.Jor.21/2008 Re: Rules on Connected Transactions and Notification of the Board of Governors of The Stock Exchange of Thailand ( SET ) Re: Disclosure of Information of Listed Company concerning the connected 1

4 transactions B.E The consolidated financial statements as 31 December 2015, which was audited by the Company s auditors, results in a transaction size of 11.73% of the value of net tangible assets; therefore, the Company is duty-bond to prepare a disclosure of the transaction to SET and to seek approval of the transaction from the Board of Directors and the Shareholders Meeting of the Company. The Company is required to send a meeting invitation to shareholders, together with the Independent Financial Advisor s opinion report for a period not less than 14 days before the Annual General Meeting of Shareholders. The Company has scheduled the 2016 Annual General Meeting of Shareholders for the transaction approval on 21 April In this regard, the Board of Directors of the Company has appointed Capital Link Advisory Limited as the Independent Financial Advisor in preparation of the opinion of such connected transaction. The Independent Financial Advisor has prepared this opinion report by studying the information from the following sources: 1. Information and documents received from the Company including the interview with management and employees of the Company 2. Information and the auditor s report of the company 3. Information and documents disclosed to public such as information from The Stock Exchange of Thailand, the Securities and Exchange Commission, news from newspaper, economic condition and relevant industrial information, etc. 4. Agreements related to such transaction The Independent Financial Advisor uses the aforementioned information as a base for considering and preparing the opinion of the Independent Financial Advisor by assuming that all the aforementioned information is completed and correct in relation to the truth and has no event that will significantly affect the business operation of the Company. In addition, the Independent Financial Advisor cannot certify or guarantee either directly or indirectly or be responsible for the correctness of the information and any certifications of the Company. In giving the opinion to the shareholders at this time, the Independent Financial Advisor has considered the rationale of the transaction and the benefits that the shareholders of the Company will receive, along with the relevant factors so that the shareholders could decide to approve or disapprove on such transaction, which can be summarized as follows: 2

5 Definitions The Company or INOX Independent Financial Advisor or IFA BAML POSCO-TH POSCO S.A. POSCO-TCS POSCO Asia BIBOR (Bangkok Interbank Offer Rate) LIBOR (London Interbank Offer Rate) FED Fund Rate Target Parent Account Child Account Legal Advisor POSCO-Thainox Public Company Limited Capital Link Advisory Limited Bank of America Merrill Lynch POSCO (Thailand) Company Limited POSCO-SOUTH ASIA Company Limited POSCO Coated Steel (Thailand) Company Limited POSCO Asia Company Limited The short-term reference rate that commercial banks announce to charge each other for loans in the Bangkok interbank market The short-term reference rate that commercial banks announce to charge each other for loans in the London interbank market The target of the policy rate of The Federal Reserve of The United States of America The outstanding net balance of all participating companies account The outstanding balance of each company participating in the project Chindej and Associates Company Limited 3

6 Executive Summary As the meeting of the Board of Directors of POSCO-Thainox Public Company Limited No. 1/2016, held on 24 February 2016, resolved to propose the meeting of shareholders to approve the Company to deposit with Bank of America Merrill Lynch ( BAML ) and use the amount as loan facilities for companies in POSCO Group, and also to take on loans from BAML with deposits of companies in POSCO Group as a guarantee. The transaction will be processed through liquidity management, also called Cash Pooling Management conducted through BAML, together with companies in POSCO Group. Such transaction is considered as the connected transaction according to notification of The Capital Market Supervisory Board and The Board of Governors of The Stock Exchange of Thailand, since the transaction size is excess the limit given in the related notification; therefore, the Company is duty-bound to disclose the transaction to SET, to seek approval from the Board of Directors and hold a meeting of shareholders to approve the transaction. The Company must appoint the Independent Financial Advisor to provide opinion on the transaction to the shareholders of the Company. As the Independent Financial Advisor of the shareholders, Capital Link Advisory Limited, who has been appointed by the Board of Directors, has considered the information and documents related to the Company including interviews with the management regarding the interest rate that the Company would receive and pay to the companies in POSCO Group and terms of the transaction. The Independent financial advisor has concluded that the connected transaction is reasonable, because it would give more option of short-term financial management, both in terms of deposits and loans. The interest rates are at the fair rate, the deposit rate is higher than the market rate and the Company s interest income, and the loan rate is lower than the Company s current loan rate; therefore, the Independent Financial Advisor has an opinion that the shareholders should approve such connected transaction. In addition, the Independent Financial Advisor recommends that the shareholders consider other issues that may affect the decision, such as conditions, pros and cons of the transaction including risks of the transaction. In considering on approval or disapproval on such transaction at this time, the shareholders could also consider the rationale and the opinions, of which the Independent Financial Advisor has proposed in this report. Nevertheless, the shareholders could decide to approve or disapprove on such transaction, mainly depending on the judgment of the shareholders. 4

7 1. Type and Details of the Connected Transaction 1.1 Type and size of the transaction General characteristic of Cash Pooling Cash Pooling is the liquidity management of two or more companies; each company agrees to make a deposit or loan transaction among the parties (whether through a bank or an intermediary or not). The parties will determine the deposit and loan rates and the allocation of benefits received from the transaction. Cash Pooling procedures (1) Companies that agree to participate in the Cash Pooling will make the agreement of deposit or loan from the net balance of all companies ( Pool ), which is similar to common funds of companies. The Pool will be managed and responsible by a company assigned by the Pool s members. (2) Initially, when any company makes a deposit, such company will receive interest income. On the other hand, when one company takes on loan, it is obliged to pay interest to the Pool. Both cases apply deposit rates or loan rates at the Child Account Rate. (3) After the deposit or loan transaction, if the Pool has a net amount, whether positive or negative, the procedure will be as follows: (3.1) If the net amount is positive, the Pool will deposit the remaining amount with the bank. The bank will pay interest on deposit at the Parent Account Rate. (3.2) If the net amount is negative, the Pool will take on loan from the bank and bring to companies that demands for loan. The bank will set the interest at the Parent Account Rate. (4) If the Pool benefits from the deposit or loan, whether from Child Account or Parent Account, the Pool will allocate the benefits ( Pool Benefit ) to the companies participating in the Cash Pooling project. In summary, participating companies will be entitled to receive benefits from deposits equal to the interest rate of Child Account combining with Pool Benefit (calculated in proportion to the deposit). The Effective Rate may be higher than the deposit rate of financial institutions or investment in capital market or money market. 5

8 In the case of loan, even loan companies are obliged to pay interest on loans at Child Account rate, but the companies shall be entitled to Pool Benefit, which is allocated for the participants of the Cash Pooling project. The Effective Rate may be lower than loan rates from financial institutions or other sources of fund. The Cash Pooling Procedure of the Company The Company will enter into the Cash Pooling Management with companies within POSCO Group and other companies within POSCO Group, which will participate in the future and process through Bank of America Merrill Lynch (BAML) by (1) Deposit its funds with BAML to be a loan limit for companies within the POSCO Group so that they can borrow from BAML. The deposit in Thai Baht is not over Baht 1,000 million and the deposit in U.S. dollars is not over Baht 100 million. (2) Loan from BAML at the amount of not exceeding Baht 1,000 million. The transaction will be processed through Liquidity Management System Cash Pooling, which conducted by BAML, in cooperation with established networks for both currencies, Thai Baht and U.S. dollar. Details are as follows: Deposit funds with BAML The Company may deposit its funds with BAML as the loan limit to the Pool for the companies within POSCO Group at the amount of not exceeding Baht 1,000 million for Thai Baht currency and not exceeding Baht 100 million for U.S. dollars currency through Cash Pooling system, which conducted by BAML. The deposit interest will be calculated at the end of each day and pay to participating companies every month. The Company will be entitled to receive interest from such deposit at higher return rate than normal deposit rate from commercial banks. The deposit rates are calculated depending on the deposit amount, plus the allocated benefits of the Company from an additional 70% of the total benefits from participating in Cash Pooling project (Pool Benefit). Details of deposit rates are as follows: INOX Deposit as a guarantee BAML Short-term lending Companies in POSCO Group 6 6

9 Interest rates on deposits in Thai Baht Outstanding net balance of all participating companies account (Parent Account) Deposit Amount Interest Rate Below Baht 100 million 0.10% Above Baht 100 million 0.50% Outstanding balance of each company participating in the project (Child Account) Deposit Amount Interest Rate No limit 1.00% Interest rates on deposits in U.S. dollars Outstanding net balance of all participating companies account (Parent Account) Deposit Amount Interest Rate No limit 1M LIBOR 0.15% = 0.28% Outstanding balance of each company participating in the project (Child Account) Deposit Amount Interest Rate No limit 1M LIBOR % = 0.68% Loans from BAML The Company may make borrowing from BAML at the amount of not exceeding Baht 1,000 million through the Cash Pooling system conducted by BAML. Such loan from the Pool is similar to an overdraft loan from a bank, and the Company shall be obliged to pay interest on the loan to BAML minus the allocated portion the Company received from 30% of the benefits from participating in the Cash Pooling (Pool Benefit). Companies in POSCO Group Deposit as a guarantee BAML Short-term lending INOX 7

10 Details of loan rates are as follows: Interest rates on loans in Thai Baht Outstanding net balance of all participating companies account (Parent Account) Loan Amount Interest Rate No limit O/N BIBOR % = 2.70% Outstanding balance of each company participating in the project (Child Account) Loan Amount Interest Rate No limit O/N BIBOR % = 2.25% Interest rates on loans in U.S. dollars Outstanding net balance of all participating companies account (Parent Account) Loan Amount Interest Rate No limit 1M LIBOR % = 0.68% Outstanding balance of each company participating in the project (Child Account) Loan Amount Interest Rate No limit 1M LIBOR % + alpha* Remark: (1) Alpha refers to the additional interest rate applied to the case of the negative outstanding balance, which is calculated from the weighted average between the additional loan rate of Child Account (0.25%) weighted by the total deposit amount from Child Account, and the O/D loan rate that BAML currently charges (0.60%) weighted by the total loan amount from Parent Account. The alpha value will vary depending on the outstanding balance in Parent Account. (2) Currency rate for Thai Baht is 1-day (overnight) BIBOR. The interest rate on the day the Board of Director has approved the transaction (on 24 February 2016) was at 1.50%. (3) Currency rate for U.S. dollars is 1-month LIBOR, average since the beginning of the month until the present day; for example, the interest rate on the 14th will be calculated from the average rate of the date 1st-14th. The interest rate on the day the Board of Director has approved the transaction (24 February 2016) was at approximately 0.43%. As the report issue date, the interest rates have changed very little. (4) Parent Account Rate is the rate set by the bank to calculate interest paid to the companies participating in Cash Pooling project. The rate is considered from the net outstanding of deposits 8

11 and loans of every company combined together in the Pool as if it is a single company. The rate will vary according to the market rate and risks of the companies group. (5) Child Account Rate is the rate set by companies participating in Cash Pooling project in order to allocate the benefit received from the project (Pool Benefit) among the companies that participated in the project. The bank will allow the companies to determine the rate independently. To participate in the liquidity management by executing Cash Pooling is the Customer Liquidity Agreement between the Company and BAML (not the agreement among the companies in the Pool themselves). There is no ending period in the agreement until there is a cancellation of the Customer Liquidity Agreement by BAML, or the Company sends a cancellation letter to inform the bank in advance for a minimum of 30 days (in case that the Company considers there is no further benefit of joining the project). Deposit or loan via Cash Pooling system is an option for managing the liquidity of the Company. After the Shareholders Meeting of the Company approves the transaction, the Company will consider transactions from time to time by comparing with other available alternatives. However, the Company has the right whether or not to deposit or loan under this program. The main project is divided into 2 projects (1) Thai Baht Cash Pooling, (2) U.S. dollars Cash Pooling. Each project has an unrelated separate agreement and has different participating companies. The interest rate listed above is not the effective interest rate the Company would receive or pay, since it requires the calculation of benefits from participating in the project (Pool Benefit) to be added together. The Pool Benefit will cause the effective interest rates higher or lower than interest rates in the table above. The IFA will show how to calculate described in Section The total value of consideration. However, in the case that the amounts of deposit and loan in the same currency are not different significantly (normal case), the effective interest rate on deposits will be higher than the interest rate shown in the table, and the loans rate will be lower than the interest rate shown in the table due to the benefits from participating in the project (Pool Benefit). The criteria for determining the deposits or loan (1) Considering on liquidity of the Company at that period of time and do not make a deposit or loan through Cash Pooling system be a burden or affect the liquidity of the Company for both Thai Baht and U.S. dollars 9

12 (2) Study and compare the benefits between deposit or loan through Cash Pooling system and deposit or loan with financial institutions or other funding sources, and consider alternative options that are useful for the Company the most (3) Monitoring business and financial status of companies participating in the Cash Pooling closely (4) To reduce the risk to the Company, the Company will deposit in Thai Baht for the amount of not exceeding Baht 1,000 million, and in U.S. dollars, the Company will deposit for the amount of not exceeding Baht 100 million. (5) POSCO Asia will provide a guarantee letter to guarantee any loss occurred to the Company at the full amount for the case that the Company has damage from participating in Cash Pooling project both in Thai Baht and U.S. dollars. (6) Every month, the companies in the Pool will have to send a financial plan for deposit and loan in advance to a representative in each Pool so that the representative is able to financially manage as appropriate. However, the companies in the Pool, who are depositors, can withdraw cash from BAML at all times, and it can make the deposit balance differ from the financial plan sent earlier. The key summary of the draft contract BAML has darfted the Customer Liquidity Agreement having the Company and other companies from POSCO Group, who are participating in Cash Pooling project, sign the agreement with BAML. The Agreement specifies that POSCO-SOUTH ASIA Company Limited is a representative of all companies for Thai Baht account, and POSCO Asia Co., Ltd. is a representative of all companies for U.S. dollars account. The two representatives will have authority only for managing and monitoring deposit and loan rates, providing summary report and planning on withdrawal or borrowing from the participating companies from the Pool. The Company will reserve to authorize a representative to act for the Company in deciding to enter into the transaction, change or resign from participating in Cash Pooling project, because the Company may ask for approval from the Board of Directors and/or the Shareholders Meeting as the case may be, and also disclose information to the public. 10

13 Morever, in case one company from the Pool defaults on its debt payment to the bank, the bank has the right to take money only from the account of the default company to repay the debt (Set-off). BAML has no right to immediately take money from the Company s account to repay debt for a default company. Nevertheless, the Company is still jointly responsible for a default company participating in the project to BAML. Although POSCO Asia agrees to guarantee any loss occured to the Company from participating in the Cash Pooling project at the full amount both in Thai Baht and U.S. dollars, the Company may be affected indirectly from a burden of higher loan rate, or the gain of lower deposit rate due to the fact that the companies participating in the project default on the debt payment to the bank and Pool Benefit reduces. Authority to decide to commit the transaction To enter into the transaction of deposit or loan in Cash Pooling project will be the same as general liquidity management, which the Director of Finance is authorized to make decision to deposit without limited amount, and the loans from Cash Pooling, the Director of Finance will be able to take on loans not exceeding the amount the Board of Directors has approved for the criteria. However, for Cash Pooling project, the Board of Directors has approved the criteria for Thai Baht deposit with the limited amount of Baht 1,000 million and for U.S. dollars deposit with the limited amount of Baht 100 million. And for loan, the total limited amount for Thai Baht and U.S. dollars is Baht 1,000 million. The transaction is considered as the connected transaction as a type of grant or receipt of financial assistance. The transaction value can be calculated as follows: Deposit of funds Transaction size = (deposit amount + (maximum 1-year interest rate)) / net tangible assets The transaction size compared to net tangible assets of the Company based on the financial statements of the Company as of 31 December 2015 Transaction size = (1,000,000,000 + (1,000,000,000 x 1.88%)) / 8,687,633,841 = 11.73% of the Company s net tangible assets Loan from BAML Transaction size = (maximum 1-year interest) / net tangible assets 11

14 The transaction size compared to net tangible assets of the Company based on the financial statements of the Company as of 31 December 2015 Transaction size = (1,000,000,000 x 2.70%) / 8,687,633,841 = 0.31% of the Company s net tangible assets Remark: More details in Section Value of consideration 1.2 Characteristics of business, position, risks and ability to repay the debt of the parties Characteristics of business and financial position of the parties POSCO was established by the Republic of Korea on 1 April 1968, the main business was the production and distribution of steel products for both in Korea and overseas. POSCO was listed in The Korea Stock Exchange in POSCO is the largest integrated steel producer in South Korea and one of the largest steel producers in the world in term of production capacity. Most of POSCO production comes from Pohang Works and Gwangyang Works. POSCO manufactures products including hot-rolled steel sheet, cold rolled steel sheet, silicon steel sheet, wire rods and stainless steel products. These products are used for general construction, vessels structure, cars structure, engine structure and household appliances. POSCO also has other business to promote the business of manufacturing steel, including the opportunity to invest in other businesses both vertical and horizontal integration to create variety and diversify risks of business. Currently, POSCO has 39 subsidiaries in South Korea and 172 subsidiaries worldwide. Board of Directors 1. Shin Jae-Cheol 2. Lee Young-Hoon 3. Kim Il-Sup 4. Kim Jin-Il 5. Kwon Oh-Joon 6. Lee Myung-Woo 7. Yoon Dong-Jun 12

15 8. Oh In-Hwan 9. Sun Woo-Young 10. Ahn Dong-Hyun 11. Park Byung-Won 12. Kim Ju-Hyun Board of Directors Major Shareholders Shares Stake 1. National Pension Service 7,885, % 2. Nippon Steel & Sumitomo Metal Corporation 4,394, % 3. Pohang University of Science and Technology 1,905, % 4. Government of Singapore Investment Corporation Pte Ltd. 1,862, % 5. KB Financial Group Inc. and subsidiaries 1,828, % Others 69,311, % Total 87,186, % Information as of 31 December 2015 Statement of financial position (Consolidated) Assets Current Assets Unit: Million Won Unit: Million Baht 31 Dec Dec Dec Dec 2015 Cash and cash equivalents 3,811,202 4,870, , ,748 Net accounts and notes receivable 11,786,055 9,595, , ,323 Other receivables 1,956,216 1,679,879 56,535 48,549 Short-term investments 1,462,920 3,910,387 42, ,010 Net inventories 10,471,330 8,225, , ,708 Corporate tax assets 36,147 33,765 1, Available for sale assets 2,127,087 57,281 61,473 1,655 Other current assets 976, ,252 28,219 23,358 Total Current Assets 32,627,382 29,180, , ,328 Non-Current Assets Net long-term trade receivables and other receivables 79, ,338 2,293 3,478 Other receivables - net 1,144, ,258 33,066 24,948 Other long-term financial assets 2,455,900 2,341,460 70,976 67,668 Investment in associated companies and joint ventures 4,060,507 3,945, , ,020 13

16 Statement of financial position Unit: Million Won Unit: Million Baht (Consolidated) 31 Dec Dec Dec Dec 2015 Investment properties - net 1,055,592 1,084,292 30,507 31,336 Net property, plant and equipment 35,241,195 34,522,855 1,018, ,711 Intangible assets - net 6,884,989 6,405, , ,126 Deferred tax assets 1,195,563 1,315,580 34,552 38,020 Other non-current assets 507, ,000 14,668 18,178 Total non-current assets 52,624,791 51,227,870 1,520,856 1,480,485 Total assets 85,252,173 80,408,759 2,463,788 2,323,813 Liabilities and Stockholders Equity Liabilities Current Liabilities Accounts payable 3,950,786 3,125, ,178 90,323 Short-term loans and current portion of longterm loans due within 1 year 12,195,484 12,371, , ,523 Other payables 2,194,713 2,129,093 63,427 61,531 Other short-term financial liabilities 111, ,117 3,226 5,841 Short-term income tax liabilities 453, ,962 13,109 10,923 Liabilities from assets held for sale 590,982 34,202 17, Provisions for liabilities 150, ,320 4,336 2,957 Other Current Liabilities 2,229,764 1,788,852 64,440 51,698 Total Current Liabilities 21,877,009 20,130, , ,784 Non-current Liabilities Long-term accounts payable 88, , Long-term loans excluding current portion due within 1 year 15,232,773 12,849, , ,342 Other liabilities 169, ,470 4,913 3,886 Other long-term financial liabilities 91,095 54,696 2,633 1,581 Provisions for employee benefits 290, ,025 8,390 5,261 Deferred tax liabilities 1,832,260 1,676,658 52,952 48,455 Provisions for non-current liabilities 223, ,692 6,452 6,407 Other non-current liabilities 155,653 77,773 4,498 2,248 Total Non-Current Liabilities 18,083,800 15,207, , ,500 Total Liabilities 39,960,809 35,338,537 1,154,867 1,021,284 Shareholders Equity Paid-up capital 482, ,403 13,941 13,941 Share premium 1,083,718 1,383,623 31,319 39,987 Hybrid bonds 996, ,919 28,811 28,811 Reserve funds (408,773) (594,756) (11,814) (17,188) Repurchased shares (1,534,457) (1,533,898) (44,346) (44,330) 14

17 Statement of financial position Unit: Million Won Unit: Million Baht (Consolidated) 31 Dec Dec Dec Dec 2015 Retained earnings 40,967,558 40,501,059 1,183,962 1,170,481 Shareholders Equity 41,587,368 41,235,350 1,201,875 1,191,702 Non-controlling interest (NCI) 3,703,996 3,834, , ,828 Total Shareholders Equity 45,291,364 45,070,222 1,308,920 1,302,529 Total Liabilities and Stockholders equity 85,252,173 80,408,759 2,463,788 2,323,813 Income Statement Unit: Million Won Unit: Million Baht (Consolidated) Sales revenue 65,098,445 58,192,345 1,881,345 1,681,759 Cost of goods sold (57,815,041) (51,658,098) (1,670,855) (1,492,919) Gross profit 7,283,404 6,534, , ,840 Administrative expenses (2,309,756) (2,395,248) (66,752) (69,223) Selling expenses (1,760,118) (1,728,956) (50,867) (49,967) Operating Profit 3,213,530 2,410,043 92,871 69,650 Net share of loss from investments accounted by equity method (299,893) (506,054) (8,667) (14,625) Interest incomes 2,396,762 2,557,073 69,266 73,899 Interest expenses (3,221,987) (3,387,054) (93,115) (97,886) Other revenues 269, ,048 7,786 15,867 Other expenses (979,674) (1,442,298) (28,313) (41,682) Earnings before income tax (EBT) 1,378, ,758 39,828 5,224 Income tax (821,485) (276,939) (23,741) (8,004) Net Profit 556,659 (96,181) 16,087 (2,780) Other comprehensive income (loss) (455,582) (162,129) (13,166) (4,686) Total profit (loss) for the period 101,077 (258,310) 2,921 (7,465) Profit (loss) of the Company 626, ,647 18,094 5,221 Profit (loss) of non-controlling shareholders (69,440) (276,828) (2,007) (8,000) Net Profit 556,659 (96,181) 16,087 (2,780) Total profit (loss) of the Company. 174,918 33,017 5, Total profit (loss) of non-controlling shareholders (73,841) (291,327) (2,134) (8,419) Profit (loss) for the period 101,077 (258,310) 2,921 (7,465) Earnings per share 7,432 1, Remark: Adjust the financial statement to Thai Baht at the exchange rate on 1 March 2016 (Baht 1 = Won 34.60) 15

18 Companies participating in the Cash Pooling Baht currency (1) POSCO (Thailand) Co., Ltd. The company registered in Thailand, and it manufactures, processes, and cuts steel for the automotive industry, electronic appliances, electronic equipment, and others. 1. Mr. Hae Kun Kwon Board of Directors 2. Mr. Seung Hyun Park 3. Mr. Sung Min Woo 4. Mr. Sang Kyoon Lee 5. Mr. Bark Hee Sook 6. Mr. Chun Se Yong Shareholders Stake 1. POSCO 85.62% 2. POSCO Processing and Services Co., Ltd % Financial position and operating results Unit: Million Baht Statement of financial position 31 Dec Dec Dec 14 Assets Current Assets Cash and cash equivalents Net trade and other receivables 1, , , Net inventories 1, , , Value added tax Other current assets Total Current Assets 3, , , Non-current Assets Deposits with financial institutions with obligations Net property, plant and equipment

19 Statement of financial position Unit: Million Baht 31 Dec Dec Dec 14 Net intangible assets Prepaid withholding tax Refundable deposits Total non-current assets Total Assets 4, , , Liabilities Current Liabilities Liabilities and Stockholders Equity Trade and other payables 2, , , Short-term loans from financial institutions Other current liabilities Total current liabilities 3, , , Non-current Liabilities Employee Benefits Total Non-current Liabilities Total Liabilities 3, , , Shareholders Equity Registered capital 14,857,921 ordinary shares at par value of Baht 100 per share Paid-up capital 14,857,921 ordinary shares at par value of Baht 100 per share 1, , , , , , Share premium Retained Earning (238.57) (193.31) (204.29) Shareholders Equity 1, , , Total Liabilities and Stockholders equity 4, , ,

20 Income Statement Unit: Million Baht Sales revenue 6, , , Cost of goods sold (6,770.54) (5,915.60) (5,075.57) Gross Profit Other income Profit Before Expenses Selling expenses (49.27) (57.23) (46.77) Administrative expenses (123.79) (119.63) (110.07) Other expenses - (14.24) (2.65) Earning Before Tax and Interest Expenses Finance costs - interest expenses (35.99) (34.63) (25.20) Profit Before Income Tax (10.98) Income Tax (43.76) (18.94) - Net Profit (10.98) 2012 and 2014 Financial Statements were audited by PricewaterhouseCoopers ABAS Company Limited (2) POSCO-SOUTH ASIA Co., Ltd. The company registered in Thailand, and it engages in dealer business, technical services, and information services for companies in the group. Board of Directors 1. Mr. Jong Hwan Lee 2. Mr. Won Hwee Lee 3. Mr. Jae Yoon Jong 4. Mr. Seung Kyu Lim 5. Mr. Sung Shik Yang. Shareholders Stake POSCO % 18

21 Financial position and operating results Current Assets Assets Statement of financial position Unit: Million Baht 31 Dec Dec Dec 14 Cash and cash equivalents Trade receivable - related parties Other current assets Total Current Assets Non-current Assets Long-term investments Leasehold improvements and equipment - net Intangible assets - net Other non-current assets Total Non-current Assets Total Assets Liabilities Current Liabilities Liabilities and Stockholders Equity Other payables Other current liabilities Total Liabilities Shareholders Equity Registered capital 3,500,000 ordinary shares at par value of Baht 100 per share Paid-up capital 3,500,000 ordinary shares at par value of Baht 100 per share Share premium Retained earning

22 Statement of financial position Unit: Million Baht 31 Dec Dec Dec 14 Other component of equity (0.88) (2.32) (2.64) Shareholders Equity Liabilities and Stockholders Equity Unit: Million Baht Income Statement Revenues Services revenue Other revenue Gain on exchange rate Total revenue Expenses Cost of service Administrative expenses Loss on exchange rate Total Expenses Profit Before Income Tax Income Tax Net Profit (0.84) and 2014 Financial Statements were audited by KPMG Phoomchai Audit Ltd. (3) POSCO Coated Steel (Thailand) Co., Ltd. ( POSCO-TCS ) The company registered in Thailand, and it manufactures, processes, and cuts steel for the automotive industry, electronic appliances, electronic equipment, and others. Board of Directors 1. Mr. Jean Sue Lee 2. Mr. Jee Hwa Jong 20

23 3. Mr. Keun Soo Kim Board of Directors 4. Mr. Chang Hwan Son Shareholders Stake 1. POSCO % Financial position and operating results Unit: Million Baht Statement of financial position 31 Dec Dec 14 Assets Current Assets Cash and cash equivalents Short-term investments Other receivables Land deposit Advance payment for construction - 1, Other current assets Total Current Assets , Non-current Assets Pledged deposits at financial institutions Equipment - net Intangible assets - net Other non-current assets Total Non-current Assets Total Assets , Liabilities and Stockholders Equity Liabilities Current Liabilities Other payables Total Liabilities Shareholders Equity 21

24 Registered capital Unit: Million Baht Statement of financial position 31 Dec Dec 14 36,000,000 ordinary shares at par value of Baht 100 per share Paid-up capital 36,000,000 ordinary shares at par value of Baht 100 per share 3, , , , Share subscription receivable (3,417.25) (818.58) Retained earning (0.82) (76.57) Shareholders Equity , Liabilities and Stockholders Equity , Unit: Million Baht Income Statement Revenues Other revenue Gain on exchange rate Total revenue Expenses Administrative expenses (0.84) (86.66) Finance costs 0 0 Total Expenses (0.84) (86.66) Profit Before Income Tax (0.82) (75.75) Income Tax - - Net Profit (0.82) (75.75) 2013 and 2014 Financial Statements were audited by RSM Audit Services (Thailand) Co., Ltd. 22

25 Total balance of Thai Baht Cash Pooling during the month of January to December 2015 Month Average deposits Average (loans) Unit: Baht Net average deposits (Loans) January 91,022,191 (255,259,923) (164,237,732) February 91,238,501 (264,808,626) (173,570,125) March 91,898,008 (235,716,863) (143,818,854) April 91,585,894 (145,072,764) (53,486,870) May 91,757,133 (222,101,800) (130,344,667) June 118,249,366 (256,525,148) (138,275,782) July 122,017,366 (286,643,936) (164,626,570) August 266,686,109 (301,487,701) (34,801,592) September 353,990,867 (313,403,706) 40,587,161 October 475,568,488 (329,701,859) 145,866,628 November 553,595,492 (446,925,460) 106,670,032 December 548,979,487 (412,605,018) 136,374,469 Source: BAML From the data in 2015 Thai Baht currency, the average deposit is greater than the average loan by 1.5 times at the maximum, and the average loan is greater than the average deposit by 2.9 times at the maximum. List of companies that have joined the U.S. dollar Cash Pooling Company Name Country of Registration Year of Establishment Shareholder s Equity 31 Dec 2015 (Million Baht) 1. POSCO (Thailand) Co., Ltd. Thailand , POSCO-South Asia Co., Ltd. Thailand POSCO Asia Co., Ltd. Hong Kong , POSCO Australia PTY LTD. Australia , POS-GC PTY LTD. Australia 2005 (44) 6. POS-CD PTY LTD. Australia

26 Company Name Country of Registration Year of Establishment Shareholder s Equity 31 Dec 2015 (Million Baht) 7. POS-NP PTY LTD. Australia POSCO Canada Limited Canada , MOTTA Resources Indonesia, PT Indonesia 2008 (525) 10. POSCO Philippine Manila Processing Center 11. Daewoo International Singapore PTE LTD. Philippines Singapore POSCO America Corporation United States , POSCO America Alabama Processing Center Co., Ltd. United States POSCO MAPC Co., Ltd. Mexico POSCO MPPC Co., Ltd. Mexico , POSCO MVWPC Co., Ltd. Mexico Established on September 2001 by the central administration in Hong Kong. Total balance of U.S. dollar Cash Pooling during the month of January to December 2015 Unit: USD Month Average deposits Average (loans) Net average deposits (Loans) January 69,430,744 (141,372,995) (71,942,251) February 87,200,379 (169,835,081) (82,634,702) March 75,232,987 (221,229,445) (145,996,458) April 80,949,613 (153,330,592) (72,380,979) May 93,644,858 (228,520,844) (134,875,986) June 87,144,119 (185,586,938) (98,442,819) July 69,362,020 (320,279,216) (250,917,196) August 74,220,076 (215,378,834) (141,158,758) September 160,398,274 (100,732,932) 59,665,342 24

27 Month Average deposits Average (loans) Unit: USD Net average deposits (Loans) October 86,005,203 (206,831,020) (120,825,818) November 91,834,764 (233,767,467) (141,932,704) December 130,924,908 (102,539,918) 28,384,990 Source: BAML From the data in 2015 U.S. dollars currency, the average deposit is greater than the average loan by 1.6 times at the maximum, and the average loan is greater than the average deposit by 4.6 times at the maximum. Risks and ability to pay the debts of the parties For the Thai Baht Cash Pooling, initially there would be 4 companies participating, which are INOX, POSCO-TH, POSCO S.A. and POSCO-TCS. From the current status and the Company s management plan, INOX and POSCO S.A. will be depositors, since they have a lot of liquidity for many years. POSCO-TH and POSCO-TCS will be borrowers. Currently, there is an overdraft account of Pool in Thai Baht that can be borrowed in Parent Account for the amount of U.S. dollars 10 million. The Company imports all of raw materials from abroad, but mostly it has sales contract in Thai Baht. And the products sold are distributed 70% domestic and 30% overseas. Although the Company has trade credit in U.S. dollars with many commercial banks to pay for raw materials, at present the Company does not usually use such credit because it already has a lot of liquidity in U.S dollars. Therefore the Company will participate in the U.S. dollars Cash Pooling as a depositor. However, most of the participating companies are from overseas, there would incur the risk of monitoring the participants business performance and their debt payment ability. For such reason, the Company will deposit in U.S. dollars currency not more than Baht 100 million in order to minimize the risk. When the Company participates by depositing money with BAML to guarantee for companies in POSCO Group, in case one company from the Pool defaults on its debt payment, BAML has the right to take money only from the account of the default company to repay the debt (Set-off). BAML has no right to immediately take money from the Company s account to 25

28 repay debt for a default company. Nevertheless, the Company is still jointly responsible for a default company participating in the project to BAML. However, POSCO Asia will guarantee any loss occurred to the Company at the full amount for the case that the Company has damage from participating in Cash Pooling project both in Thai Baht and U.S. dollars. Moreover, before companies can take on loans from the Pool, they are required to open overdraft line of credit with BAML. BAML will consider the request as a normal loan, which will have to verify the need, ability to repay and other elements that meet the requirement or not. Moreover, BAML will constantly monitor and audit the companies participating in the Pool, because BAML has the risks in lending as same as the risks from normal financing loans, and the companies in the Pool, which are depositors, can withdraw money from BAML at any time. If other companies in the Pool that have loans with BAML have the status of a normal debtor, the IFA has a comment that the risk of INOX of not receiving the repayment is relatively low. Summary of risk U.S. dollars Thai Baht Deposit Low risk Low risk Borrow No risk No risk POSCO Asia Co., Ltd POSCO Asia Co., Ltd. will be a guarantor of the Company in the Pool both in Thai Baht and U.S. dollars. POSCO Asia registered in Hong Kong, and engages in selling iron, steel, and coals in Asia. Board of Directors 1. Kwon Suk Chul 2. Kim Woo Poong 3. Choi Eun Ju 4. Kim Won Hee 26

29 Shareholders Stake POSCO % Financial position and operating results Statement of financial position Unit: Thousand U.S. dollars Unit: Million Baht 31 Dec Dec Dec Dec 2015 Assets Current Assets Cash and cash equivalents 2,597 64, ,309 Net accounts and notes receivable 956, ,576 34,221 25,004 Other current assets - 2, Total Current Assets 958, ,571 34,314 27,402 Non-Current Assets Assets available for sale 3,000 3, Investments in associates and joint ventures 5,537 5, Other financial assets Net investment properties Net property, plant and equipment Net intangible assets Total non-current assets 10,137 10, Total assets 968, ,576 34,677 27,760 Liabilities and Stockholders Equity Liabilities Current Liabilities Accounts payable and notes payable 228, ,333 8,188 11,358 Short-term loans from financial institutions 697, ,124 24,969 14,608 Short-term income tax liabilities Other Current Liabilities - 6, Total Current Liabilities 926, ,880 33,157 26,196 Non-current Liabilities Estimated non-current liabilities Total Non-Current Liabilities Total Liabilities 926, ,943 33,157 26,198 Shareholders Equity Paid-up capital 1,264 1, Retained earnings 41,189 42,368 1,474 1,516 Total Shareholders Equity 42,453 43,633 1,520 1,562 Total Liabilities and Stockholders equity 968, ,576 34,677 27,760 27

30 Income Statement Unit: Thousand U.S. dollars Unit: Million Baht Sales revenue 3,383,454 2,778, ,103 99,437 Cost of goods sold (3,344,138) (2,745,484) (119,696) (98,268) Gross profit 39,316 32,664 1,407 1,169 Selling Expenses (1,151) (830) (41) (30) Administrative expenses (27,207) (27,093) (974) (970) Other expenses (26) (166) (1) (6) Other incomes Operating Profit 11,118 4, Interest expenses (5,886) (3,662) (211) (131) Earnings before income tax (EBT) 5,231 1, Income tax Net Profit 5,291 1, Remark: Adjust the financial statement to Thai Baht at the exchange rate on 1 March 2016 (Baht 1 = U.S. dollars ) 1.3 Value of consideration Deposit of funds The normal state of maximum interest rate is approximately 1.88% per year, the total highest amount of deposits is Baht 1,000 million and the value of consideration is at Baht million per year. Loan from BAML The normal state of maximum interest rate is approximately 2.70% per year, the total highest amount of loans is Baht 1,000 million and the value of consideration is at Baht million per year. Calculation of the effective interest rate of Cash Pooling project Table shows Interest rates set by BAML together with POSCO. BAML sets Parent Account Rate, and POSCO sets Child Account Rate. Thai Baht Interest Rate Amount Parent Account Child Account Amount below Baht 100 mill. 0.10% Deposit 1.00% No limit above Baht 100 mill. 0.50% Loan No limit BIBOR % = 2.70% BIBOR % = 2.25% No limit 28

31 As of the date the Board of Directors approved the project, BIBOR rate was at 1.50%. U.S. dollars Interest Rate Amount Parent Account Child Account Amount Deposit No limit LIBOR 0.15% = 0.28% LIBOR % = 0.68% No limit Loan No limit LIBOR % = 0.68% LIBOR % + alpha No limit As of the date the Board of Directors approved the project, LIBOR rate was at 0.43%, and the rate, as of the day the report was issued, has varied insignificantly. The principles of calculation Main process of making Cash Pooling is the spread between deposit and loan rate that bank receives will be refunded to companies in the group, since the bank has no risk in lending. 70% of the spread will be allocated to depositors and 30% back to borrowers. If there are many companies listed as a depositor or a borrower, the allocation will be divided according to the proportion of deposits or loans at the end of the day. Loan rate Example Deposit of calculation rate Bank s profit Allocate 30% refunded to borrowers Allocate 70% refunded to depositors Transaction 1 Total deposits (loans) of all companies (Calculated from the total deposits in Section 3) 2 Total interest bank paid (received) to all companies (Calculated from interests rate in table above, the Parent Account by considering on the amount) INOX Unit: Million Baht POSCO POSCO-TH POSCO-TCS S.A Total deposits (loans) of each company 1, (300.00) (100.00) 4 Interest income (expense) of each company (Calculated from interests rate in table above, the Child Account by considering on the (6.75) (2.25)

32 Transaction amount) 5 Total interest of all companies (Calculated from the interest in section 4 every company combined) 6 Benefits from participating (Number in section 2 minus section 5) 7 70 % of benefits allocated to depositor (70% of section 6) 8 30 % of benefits allocated to borrower (30% of section 6) 9 Result of the allocation of benefits from participating (Number in section 7 is allocated in proportion of deposits in section 3 to INOX and POSCO S.A., which are depositors and Number in section 8 is allocated to POSCO-TH and POS- TCS, which are borrowers) 10 Effective interest income (expense) (Section 4 plus section 9) 11 Effective interest rate (Section 10 divided by section 3) INOX POSCO S.A POSCO-TH Unit: Million Baht POSCO-TCS (6.41) (2.14) 1.10% 1.10% 2.14% 2.14% Summary on effective interest rate calculation Thai Baht Maximum Minimum Deposit 1.88% 0.10% Loan 2.70% 1.88% U.S. dollars Maximum Minimum Deposit 0.68% 0.28% Loan 0.68% 0.68% 1.4 Details of connected person and person related to such connected person POSCO is the major shareholder in INOX with the share amount of 6,620,532,219 shares, representing 84.93%. POSCO is the major shareholder in the companies above that will 30

33 participate in the Cash Pooling, and POSCO have sent 4 representatives as the Board of Directors from a total of 9 members. Company Name Share Holding of POSCO Direct Indirect Total POSCO Thainox Public Company Limited 84.93% % List of companies participating in Cash Pooling, U.S. dollars (2-17) and Thai Baht (1-3) 1. POSCO Coated Steel (Thailand) Co., Ltd % % 2. POSCO (Thailand) Co., Ltd % 14.38% % 3. POSCO-South Asia Co., Ltd % % 4. POSCO Asia Co., Ltd % % 5. POSCO Australia PTY LTD % % 6. POS-GC PTY LTD % % 7. POS-CD PTY LTD % % 8. POS-NP PTY LTD % % 9. POSCO Canada Limited % % 10. MOTTA Resources Indonesia, PT 65.00% % 11. POSCO Philippine Manila Processing Center % % 12. Daewoo International Singapore PTE LTD % % 13. POSCO America Corporation 99.45% 0.55% % 14. POSCO America Alabama Processing Center Co., Ltd % % 15. POSCO MAPC Co., Ltd % 20.00% % 16. POSCO MPPC Co., Ltd % 95.00% 17. POSCO MVWPC Co., Ltd % 10.00% 66.75% 1.5 Summary of the draft agreement which will occur BAML has prepared a draft agreement, Customer Liquidity Agreement, that the Company and other companies in POSCO Group, which will participate in Cash Pooling, signed together with BAML. The contract specifies that POSCO S.A. represents all companies in Thai Baht Pool 31

34 and POSCO Asia represents all companies in U.S. dollars Pool. The agreement has important information as follows: (1) The two representatives will have authority only for managing and monitoring deposit and loan rates, providing summary report and planning on withdrawal or borrowing from the participating companies from the Pool. The Company will reserve to authorize a representative to act for the Company in deciding to enter into the transaction, change or resign from participating in Cash Pooling project, because the Company may ask for approval from the Board of Directors and/or the Shareholders Meeting as the case may be, and also disclose information to the public. Opinion of Independent Financial Advisor The Company should provide notification to the POSCO S.A. and POSCO Asia about what shareholders have approved, and the operation apart from this must be approved by the Board of Directors and/or the Shareholders Meeting depending on the case, and must be disclose to the public. (2) In case one company from the Pool defaults on its debt payment, BAML has the right to take money only from the account of the default company to repay the debt (Set-off). BAML has no right to immediately take money from the Company s account to repay debt for a default company. Nevertheless, the Company is still jointly responsible for a default company participating in the project to BAML. Opinion of Legal Advisor The Legal Advisor suggests to edit from BAML has a right to take deposit money of the Company to repay debts for other companies to BAML has a right to take deposit money of the default company to repay debts for such default company only. Opinion of Independent Financial Advisor Such conditions is a principle of Cash Pooling, which is when the bank does not receive the difference between deposit and loan interest rates, the bank should not be at risk in case the borrower defaults. The Thai Baht and U.S. dollars Cash Pooling agreement are separated. The agreements do not specify that BAML is able to take deposits from a Pool to repay debt of companies in other Pool, unless the deposits are from defaulted companies. 32

35 POSCO Asia sent a Confirmation Letter to the Company on 19 February 2016, to accept that POSCO Asia would guarantee any loss occurred to the deposit of the Company that was a result of the repayment default from doing Cash Pooling Management. Opinion of Legal Advisor The Confirmation letter has a legal consequence and is enforceable under the laws of Thailand. Opinion of Independent Financial Advisor The enforcement of the guarantee with POSCO Asia will follow normal procedures, which are sending an inform letter, checking for damage, and paying damage compensation. In practical, the processing period cannot be specified, the Company might have to compensate in advance for damage, whether or not. POSCO Asia has an O/D loan credit with BAML for U.S. dollars 279 million for the use of Cash Pooling in U.S. dollars currency. In 2015, there was an average loan of U.S. dollars 100 million, and POSCO Asia could take on an additional loan of approximately U.S. dollars 179 million, which was much greater than the guarantee amount with the Company at the maximum by Baht 1,100 million. However, with the historical data of Cash Pooling, there is no event of repayment default occured both in Thai Baht and U.S. dollars. 33

36 2. Information of the Company 2.1 History and major development 1991 Thainox Stainless Plc. (formerly Thainox Steel Co., Ltd.) was founded through a joint venture among (1) Mahagitsiri Group, (2) a group of Japan-based stainless steel producers, (3) Ilwa SPA Group, and (4) Arcelor Group, the world s biggest producer of steel and stainless steel (formerly USINOR and Ugine Group) The Company started the construction of a plant on a land area of 128 rai in Rayong Industrial Park, Map Kha Sub-district, Nikhom Phatthana District, Rayong Province The Phase I Rayong Plant s construction was completed, having a production capacity for stainless steel of 60,000 tons/year, and commercial operation was launched in November The Company began the construction of Phase II Plant, with the capacity to be expanded, step by step, to 160,000 tons/year A second Sendzimir Cold-Rolling Mill (ZRM2) was installed, thereby raising the capacity to 120,000 tons/year A Bright Annealing Line was installed, enabling the Company to produce a more comprehensive range of products The Company could boost its capacity to 160,000 tons/year and was granted the ISO 9002 Certificate, signifying accreditation for a standardized quality management system The Company was awarded the ISO Certificate, a guaranteed environmental management standard The skin pass mill and the tension leveler were run in the annealing and deoxidation line. The Company also launched the Total Productive Management (TPM) project and was granted the Prime Minister s Export Award on the category of Brand Name for The Company launched McKinsey s Total Operative Program (TOP), a manufacturing process ensuring optimized efficiency and cost effectiveness. An inspection and 34

37 analysis of all processes was first conducted in March under the program called TPM Plus. The Company also granted the OHSAS Certificate, certifying its standardized safety management system The Company undertook a financial restructuring by reducing the par value of ordinary shares from Baht 32 to Baht 29 a share in order to cut down the accumulated loss, and then increased the registered capital from Baht 4,321,827,660 to Baht 7,670,411,666 through capital increase by the Arcelor Group, which is the Company s shareholder and creditor. At the same time, the Company was granted a discharge of the accrued interest in an amount of Baht 1,285 million with the principal being partially repaid, leading it to bear total debt and accrued interest as of the year-end of Baht 1,495 million. The Company conducted a process debottlenecking, which helped to increase its capacity to 200,000 tons/year, and was granted the ISO 9001:2000 Certificate, a guarantee for its quality management standard The Company s production of cold-rolled stainless steel reached the 1,000,000 th ton accumulated since its inception, hence a testimony to its leadership for this product line in the ASEAN region. The Company was granted the ISO/IEC 17205:1999 Accreditation, a guarantee for its testing laboratory quality management system. The Company made a shareholder restructuring, with the Arcelor Group selling its entire stake to the Mahagitsiri Group, whose shareholding in the Company thereby increased to 96.1%, broken down into 25.2% held by Mr. Prayudh Mahagitsiri, 3.5% by Lakewood Country Club Co., Ltd., 66.5% by Lakewood Land Co., Ltd., and 0.9% by Thai Film Industries Plc. INOX was transformed to a public company on April 26, 2004, and changed its name to Thainox Stainless Plc. in June, The SET approved a listing and trading of its ordinary shares on December 14, The Company bought back 204,290,900 shares, as of 31 December 2005 The Company has changed the security symbol from TNX to INOX from 27 January 2005 onwards 35

38 The Company has a production capacity of cold-rolled stainless steel of approximately 200,000 tons per year and expected to reach full capacity of 200,000 tons per year within 2007 according to long-term business plan of the Company. The Company production of cold-rolled stainless steel will be inadequate to meet the needs of both domestic and international markets since 2008 onwards, therefore the Company decided to expand its product capacity of cold-rolled stainless steel by 100,000 tons per year (from 200,000 tons per year to 300,000 tons per year), which made the average cost per ton reduced The Company established NS-Thainox Auto Co., Ltd. by partnering with the Japanbased Nippon Steel & Sumikin Stainless Steel Corporation, which is a world-class steel supplier and Siam Lotus Co., Ltd. in a bid to tap the automotive and motorcycle markets in Thailand, ASEAN region and India. The Company was awarded the Hardness and Tensile Testing Laboratory Accreditation or ISO/IEC 17205:1999 and the ISO 14001:2004 Certificate from BVQI for environmental management standard The Company signed the supply and distribution agreement with POSCO of South Korea, in addition to the supply agreement made with the Arcelor Group. It then started negotiating with the Arcelor Group for termination of the sole distributorship agreement for the Company s products outside Thailand and engaged POSCO as its non-exclusive distribution agent to broaden its export arm and relatively boost its export sales. The Company reached the 1,500,000 th ton of production and ordered a third Sendzimir Cold-Rolling Mill in early A new subsidiary, Thai Stainless Components Co., Ltd., was set up with an aim to produce steel products using stainless steel sheets as raw materials and stainless components for export, with a planned investment of Baht 140 million through a 51:49 joint venture between the Company and Intersider Acciai S.P.A. from Italy. The subsidiary registration was completed by Q2/2008. The Company began a test-run of the third Sendzimir Cold-Rolling Mill, which is the first step to expand its cold-rolling capacity to 300,000 tons/year. 36

39 2009 The Company decreased its registered capital from Baht 8,000,000,000 to Baht 7,795,709,100 by canceling the bought-back shares which had not been sold out after a lapse of three years, amounting to 204,290,900 shares with a par value of Baht 1 per share or totaling Baht 204,290,900. The Board of Investment approved the Company s second Bright Annealing Line and other equipment in Q1/2009 (under the third phase of capacity expansion project). The additional equipment would increase its capacity from 200,000 tons per year to 300,000 tons per year for the total investment of Baht 4,260 million. For the additional capacity, the raw materials used for production would be both black and white steel coils. Under the third-phase capacity expansion project, the operation incorporates strict quality control by employing clean production technology, clean fuel, and low-concentrated acid solutions, thus keeping air pollution emission during the production process to the minimum The Phase 3 expansion project for the cold-rolled stainless steel production capacity could be resumed since it has not been classified as a project or activity creating a harmful health impact in accordance with the Constitution. The Stock Exchange of Thailand regrouped the securities and put INOX in the steel industry sector July 2011, POSCO sent letter of intent for securities acquisition by Voluntary Tender Offer to the Company on conditions that the Company must arrange the meeting of the Board of Directors and/or shareholders in order to approve the disposition nonproduction land and assets of the Company. 14 September 2011, the extraordinary general meeting of shareholders No.1/2011 approved the Company to dispose non-production land and assets. Also approved the amendment to the Articles of Association of Article 32 and cut out article 39, therefore the Articles of Association of the Company was reduced from 51 articles to 50 articles POSCO has made a tender offer to purchase the Company s ordinary shares and became a major shareholder. 21 October 2011, the meeting of shareholders passed the following resolution 37

40 Change the Company s name from Thainox Steel Public Company Limited to POSCO- Thainox Public Company Limited 2012 The Company has installed Enterprise Resource Planning system (ERP) which used as standard management guideline to all companies in the group. September 2012, the Company purchased a plant and machinery for stainless slitting from a company in Amata City Industrial Estate, to extend the service to cover the retail customers. The plant was expected to operate in second quarter. December 2012, Mahakitsiri group excised of the share purchase agreement to repurchase of the ordinary shares of the Company back from POSCO amounted to 10 percent of the paid up capital March 2013, meeting of the Board of Directors No.3/2013, resolved to dispose nonproduction land to third parties. Such land was sold at a higher price than the market price. As a result, the Company working capital increased. In May 2013, POSCO Thailand Stainless Steel Processing Center (POS-TSPC), Slitting was established as the service and distribution center at the Amata Nakorn Industrial Estate, Chonburi Province to expand the scope of services to meet the demands and cover retail customers. From the operation since May 2013, the Company can expand both domestic and overseas retail customer bases 2014 The Company provided a major full-service maintenance on the production controlling system in APF section (steam, clean), which was an important section for quality control system and product credibility. 2.2 Business overview INOX is the only producer of cold-rolled stainless steel in Thailand and the market leader of premium-quality cold-rolled stainless steel products in ASEAN. The Company began its operation in INOX produces and sales various grades of cold-rolled stainless steel sheet in roll, sheet and strip form. Products can be divided into two main types according with microstructure of the Company, including (1) Cold Rolled Austenitic Stainless Steel and (2) Cold Rolled Ferritic Stainless Steel. Both types of stainless steel are the most commonly used, 38

41 accounting for about 90% of current stainless steel consumption. The cold-rolled stainless steel of the Company has various thickness depends on the customer requirements. Company s products Stainless Steel is a general term used to refer steel with corrosion resistance, which contain chromium at least 10.5%. Chromium create protection film that acts as a shield against the corrosion, in order to make the steel surface unable to react with oxygen in the air to form an oxide film on the steel surface which caused the steel surface weathering, also known as rust. INOX produces and sales various grades of cold-rolled stainless steel sheet in roll, sheet and strip form. Products can be divided into two main types according with microstructure of the Company, including (1) Cold Rolled Austenitic Stainless Steel and (2) Cold Rolled Ferritic Stainless Steel. Both types of stainless steel are the most commonly used, accounting for about 90% of current stainless steel consumption. Cold-rolled stainless steel of the Company has a thickness ranging from 0.30 mm to 3.00 mm and width ranging from 30 mm to 1,265 mm. (1) Cold-Rolled Austenitic Stainless Steel Cold-Rolled Austenitic Stainless Steel contains 1-14 percent nickel and 18% chromium. This type of stainless steel is used widely around the world, because it is stainless steel with high corrosion resistance, good formability, non-magnetic, easy to clean, hygienic at all stage of use, heat and cold resistance and sudden changes in temperature, therefore it suitable for produce goods that require high formability, such as spoon, fork, kitchenware, cookware, sink, pipes, etc. This type of stainless steel is used in many industries. By more than 70% of stainless steel used in Asia is Austenitic Stainless Steel. 39

42 INOX produces Cold-Rolled Austenitic Stainless Steel grade 304, 304L and 316L, available in 4 types of surface as follows: - Cold-Rolled Austenitic Stainless Steel No.1 (Dull Finished) - Cold-Rolled Austenitic Stainless Steel 2D (Very Dull Finished) - Cold-Rolled Austenitic Stainless Steel 2B (Bright Finished) - Cold-Rolled Austenitic Stainless Steel BA (Bright annealed) The Company can manufacture Cold-Rolled Austenitic Stainless Steel for 109,800 tons, or 62.8% of all cold-rolled stainless steel production in (2) Cold-Rolled Ferritic Stainless Steel Cold-rolled ferritic stainless steel is the type of stainless steel containing no nickel with moderate resistance to corrosion. It also contains low carbon, has 16-18% of chromium, and can be magnetic. INOX produces Cold-rolled ferritic stainless steel grade 409, 430 and 439, available in 4 types of surface as follows: - Cold-rolled ferritic stainless steel No.1 (Dull Finished) - Cold-rolled ferritic stainless steel 2D (Very Dull Finished) - Cold-rolled ferritic stainless steel 2B (Bright Finished) - Cold-rolled ferritic stainless steel BA (Bright Annealed) 40

43 The Company can manufacture Cold-rolled ferritic stainless steel for 64,500 tons, or 36.9% of all cold-rolled stainless steel production in Industry conditions According to International Stainless Steel Forum ( ISSF ) which is a global discussion of stainless steel manufacturers, has estimated the production of crude stainless steel in the first three quarters of 2015 and found that the first 9 months of 2015, the production of all types of stainless steel in the world was at 31.3 million tons, decreased from the same period of last year by 0.5%. The production decreased in many regions, West Europe zone/africa reduced by 229 million tons or 3.8%, Central/East Europe zone decreased by 15 million tons or 7.1%, and No Asia (excluding China) declined by 63 million tons or 0.9%. However, in some part of the continent, it was found that the production of stainless steel increased compared to the previous year, such as America zone that increased from the previous year by 49 million tons or 2.3%, and China has continually been increasing its production every year from the previous year at 16,022 million tons to 16,130 million tons, which is an increase of 108 million tons or 0.7%. If looking for the demand of stainless steel, ISSF expects the demand to decline in the first quarter of 2016, but may rise at the end of the year as shown in the graph below: 41

44 Source: International Stainless Steel Forum (ISSF) If considering by regions, ISSF anticipates that the demand growth of stainless steel in 2016 will be lower in all regions around the world, except Europe zone/africa that might have a higher growth by a little. 2.3 Capital structure The Company has paid-up capital amounted to Baht 7,795,709,100 divided into 7,795,709,100 ordinary shares, at the par value of Baht 1 per share. Top 10 shareholders of the Company as of 11 March 2016 (the latest data), which is the book closing date, consist of No. List Number of % of Shares Shareholding 1. POSCO * 6,620,532, Mr. Chalermchai Mahagitsiri 789,570, Nippon Steel & Sumikin Stainless Steel Corporation 202,127, Mr. Suthee Limatibul 77,570, Mrs. Wansiri Dangprasert 9,030, Mr. Chanchai Numpitalchaikul 9,000,