To Shareholders

A. Introduction

The year 2002 has been full of trials and tribulation. Beyond our borders, we have seen change and uncertainty in the international political landscape and the global economy resulted from the event of “ 911 Attacks, 2001” and the proclamation of U.S.-led war against Iraq. In retrospect of year 2002, however, the uncertain factors such as “Enron Accounting Scandal”, “Port Blockage on the West Coast”, “Terrorist Attacks” in the United States and debt crisis in the developing countries like Brazil and Turkey as well as the profitability didn’t meet the enterprise’s expectation that have severely hampered the “Consumer Confidence and Consumption” and the global investors in the stock market. Fortunately, the military strikes on Afghanistan had ended swiftly and the international community has effectively condemned and affected the military strikes on Iraq. Notwithstanding the volatile economic situation, we can expect the global economy would boom marginally for recovery. Overall, the trend towards global economy is boosting positively.

In virtue of the joining WTO and the expanding domestic market, which has enlarged the international trade network and favored export sales in concurrence with the recovering world economy. In the mean time, the “ Promotion Regulations for Upgrading by Industry”, and the” Amendment of Duty- Free Importation of Raw Materials” have been formally implemented, which is considered to strengthen incentives to domestic investment. In addition, the “Provisional Bill for Expansion of Public Service Employment” has been approved along with NT＄20 billion budget by Legislative Yuan, which is expected to create 70,000 to 80,000 vacancies for unemployed people and cushion slightly by such impact. As the projects of the “High Speed Railway” and the “Kaohsiung Mass Rapid Transit” have been put into construction, which provided Taiwan’s economic development with advantageous opportunities for 2002 instead of the gloomy situation as of 2001. The economy in Taiwan grew stably and its annual rate of economic growth of 2002 was 3.54 percent, which is higher than that in Japan, Singapore and Hong Kong.

Cement demand sustained a further decline in year 2002 compared to previous years. According to statistics compiled by the Taiwan Cement Manufacturers Association, domestic makers posted aggregate cement and clinker sales of 19.47 million metric tons (MT) in year 2002, increased by 9.44 percent from the previous year. Domestic sales amounted to 15.53 million MT, increased 8.15 percent in comparison with Year 2001. In contrast, export sales rose by a significant 14.87 percent to 3.94 million MT. In year 2002, Taiwan's cement consumption amounted to 17.59 million MT, averaging out to a per capita volume of around 780 kg.

Various disadvantages at home and abroad combined to result in further reductions in Taiwan's cement output and sales last year. Still, unanimous efforts of ACC employees enabled the company to chalk up output and sales figures superior to those of its competitors for year 2002. Sales topped NT$11,125,879,000 marking an increase of 11.72 percent compared to year 2001. Operating profit rose by 377.96 percent to NT$717,249,000. Furthermore, non-operating income calculated by ACC under the equity method amounted to NT$894,044,000.  ACC posted 2001 pretax profit of NT$1,322,126,000 which translated into pretax profit margin at 11.88 percent. The board of directors of the ACC has resolved that the company would distribute a NT$0.5 cash dividend per share for 2002.

  II . Operating Performance

a) Output of Cement & Clinker:  

1) Aggregate cement output in year 2002 amounted to 5,794,829 MT, an increase of 347,124 MT, or 6.37 percent compared to the previous year. (The Hsinchu Plant contributed 1,562,462 MT to the total, while the Hualien plant chalked up 4,232,367 MT )  

2) The turnover of clinker hit 6,122,798 MT, a year-on-year increased by 7.93 percent, or 449,842 MT. (The Hsinchu and Hualien plants contributed 1,756,087 MT and 4,366,711 MT respectively.)

b) Sales of Cement & Clinker:

1) Domestic sales of cement reached 4,695,603 MT, an increase of 395,154 MT or 9.19 percent over year 2000. Clinker sales amounted to 216,170 MT, an increase of 74,697 MT or 52.80 percent over the previous year.

2) Outbound cement shipments decreased 4.67 percent, or 55,800 MT, year-on-year to 1,139,430 MT. Clinker exports expanded 17.61 percent, or 46,560 MT, to 310,890 MT.  

Combined sales of cement in year 2002, both at home and abroad, reached 5,835,033 MT, an increase of 6.17 percent or 527,060 MT from year 2001. Domestic and overseas clinker sales amounted to 527,060 MT, standing for an increase of 121,257 MT or 29.88 percent. Aggregate sales of cement and clinker reached NT$9,017,557,000 up 15.71 percent or NT$1,224,554,000 year-on-year.

c) Sales of Gravel:

Sales of gravel in year 2002 topped 2,696,177 cubic meters, down 417,578 cubic meters or 13.41 percent from a year earlier. In value terms, the total fell 10.19 percent or NT$ 173,645,000 to NT$1,530,699,000.

d) Sales of Granulated Blast-Furnace Slag:

Sales of granulated blast-furnace slag in year 2002 amounted to 585,596 MT, up 88,710 MT or 17.85 percent from a year earlier. In value terms, the total rose NT$106,565,000, an 27.02 percent increase to NT$501,023,000.

e) Sales of Granulated Blast-Furnace and Fly Ash:

Sales of granulated blast-furnace and fly ash in year 2002 attained 91,992 MT, up 810 MT or 0.89percent from a year earlier. The total rose 6.91 percent or NT$4,445,000 in value terms to NT$68,748,000.  

C. Business Goals & Outlook

ACC has set the following goals for year 2003: the Hsinchu Plant expects to produce 1,747,000 MT of cement and 1,900,000 MT of clinker; the Hualien Plant, 4,063,000 MT of cement and 4,300,000 MT of clinker. Namely, ACC expects to produce 5,810,000 MT of cement and 6,200,000 MT of clinker. ACC has committed itself to optimizing efficiency in having its output consumed by the market.

The direction of the world economy is moving towards recovery in the aftermath of a prompt termination of war in Iraq. The Government is expected to concentrate on   constructively augmenting domestic demand and exports as well as attracting foreign investment and creating employment opportunities. In the meantime, the outbreak of SARS (severe acute respiratory syndrome) epidemic has hit Asian countries severely in a short time in mainland China, Hong Kong, Singapore and Taiwan. The disease keeps on spreading and the affected industry sectors such as tourism, travel, airline and restaurant industry are facing their toughest crisis in business performance. Foreseeably, the rate of economic growth is considered to readjust downward. With the complementary relationship with civil economy, the cement industry is also inevitably affected by the SARS crisis. Regardless of such impact, ACC would continue to carry out its aim for optimizing efficiency in having its output consumed by the market.

D. The State of Major Investment Projects

1) Subsidiary Ya Tung Ready-Mixed Concrete Co., Ltd., in addition to entering into strategic alliances and to having 24 dealers throughout Taiwan, has won contract bids to supply ready-mixed concrete for the high-speed rail’s C250, C260, C280, C291 and S250 projects as well as the Kaohsiung Mass Rapid Transit. Sales are expected to rise in year 2002 to NT$6,367,782,000 with the volume of 4,408,038cubic meters, in the meantime, the volume of sales in 2003 are expected to reach 3,736,353 cubic meters.

2) Subsidiary Jiangxi Yadong Cement Co. has completed construction of a cement factory in Ruichang of Jiangxi Province. With an annual capacity of 1.5 million MT of clinker, the factory was put into production on September 2, 2000. The production process has gone smoothly and quality is outstanding. Factory output is sold in the mid-and down stream Yangtze River and the coastal region. The factory’s products have won awards from the Chinese authorities and the factory has also gained ISO9001 certification. Prominent recognition has caused demand to outstrip supply. As a result, expansion of the second production line of clinker with annual capacity of 1.5 million MT is set to operate in September, 2003 after being granted of permit from the Chinese authorities. Once in operation, costs will be reduced, boosting profits. Jiangxi Yadong subsidiary Wuhan Yadong has completed a grinding plant, which began operation in June 2001. This plant mainly produces cement as well as its product quality has been lauded.

3) ACC previously invested in Chiahui Power Corp., and construction of a plant began in 2000. With the successful raising of capital via a syndicated loan, construction of the plant is moving full steam ahead. The plant is expected to run at the beginning of year 2004, and the power produced will be sold to Taiwan Power Co. according to a 25-year contract. This will provide another stable inflow of revenue to the company. Since the progress of the plant construction is running smoothly and timely, the company has incorporated the Electric Power Development Company (EPDC), Japan as a major shareholder.

4) In order to broaden the cement sales in the area of Wuhan City of China, the subsidiary Hubei Yadong Cement Co. has been established in formation of joint venture via a third-party company and being constructed upon approval from the State Economic and Trade Commission of China. Judged from the transportation advantages, the company located adjacent to power and steel plants, which ideally enable it to enjoy significant and long-term benefits from a sufficient supply of electricity, coal ashes, and slag in local market. Accordingly, we firmly believe that such investment will allow us to further expand our market share of cement in China, and achieve sustainable profitability for the company.

5) In an effort to achieve diversified operations, ACC has invested in the Kaohsiung mass rapid transit project. Presently, the Far Eastern Group holds a 10% stake in the project, ACC has a 4% share, amounting to NT$400 million. Construction began October 30, 2001 and the entire line is expected to be operational in December 2006. The Red Line R8 station will be at the entrance to the Group’s Asia Plaza, which is expected to further boost revenues. Cement usage for the mass rapid transit project is expected to reach 1.5 million MT, and this is likely to be a boon for ACC and subsidiary Ya Tung Ready-Mixed Concrete Co.  

E. Conclusion