Posco Holdings Inc (PKX) 2003 Q4 法說會逐字稿

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All participants will be able to listen only until the question-and-answer session of the conference. This call is being recorded. If you have any objections you may disconnect at this time.

If you need assistance during the call, press star 0 and I will assist you. Mr. Rhee, you may begin.

Good afternoon everybody. Welcome to the POSCO 2003 earnings conference call. I am Sam Rhee, the agency name is Morgan Stanley.

We have with us today from POSCO Mr. Tae Hyun Hwang, the Chief Financial Officer and Executive Vice President, we have Mr. Yong Ho Sohn, the head of the Finance department, and Mr. Jae Ku Cho, head of the IR department. We'll kick off the session with a brief presentation by Mr. Cho, followed by questions and answer from the team.

Mr. Cho.

Thank you, Sam.

Good afternoon, ladies and gentlemen. I am Cho, head of IR of POSCO. (INAUDIBLE) to work on the -- after the presentation.

Yesterday we released the 2003 preliminary result in the conference hopefully by the CEO of POSCO.

Year 2003 has been a turbulent year marked by uncertainty and difficulty. The war in Iraq and the North Korean nuclear issue raised uncertainty in our global environment, and the weak global economy coupled with economy recession in Korea, and household credit problems made the domestic market very weak. Under these circumstances, POSCO made relatively good performance based on the strong recovery of the price present by the huge growth of demand from China.

Let me summarize the performance of the year of 2003 first. The production of the crude steel was 28.9 billion tons, and first ( INAUDIBLE) was 28.2 million tons, marginally increased from those over the last year, and exports was around the 24% of the total sales. Due to the recovery of the steel price and the mix improvement, the sales revenue recorded 14.33 (INAUDIBLE) wons, up by 22.4% from the previous year. And operating profits improved sharply by around 67% to record 3.6 trillion won and the bottom line improved as well by around 79% to 1.98 trillion won. It's a historical one.

Based on the strong production (INAUDIBLE), all the financial ratio has improved sharply. The operating margin improved to 21.3% from 15% in the year 2002, and EBITDA recorded 4.5 trillion won and EBITDA margin improved as well, to a record 31.5% from 27% in 2002. ROE improved as well to 16.2%, and the coverage ratio in terms of the EBITDA to net interest expense improved to 39 times from 15 times in the previous year.

During the year 2003 the management improved the (INAUDIBLE) of orders as well. After two times of cancellation in the previous years, the management reports that 2% of the total outstanding in the market and the (INAUDIBLE) in the middle of the year and the pay 20% -- 20% on (INAUDIBLE) as the interest dividend, and management has a plan to propose 100% dividend rate on a par value for coming the shareholders meeting scheduled in mid-March. So the total cash dividend will be 120% on par value. It's around 25% in terms of the payout ratio.

And the company issued exchange bond based on the 2% of SK Telecom shares, the terms and conditions for the bond was excellent, for example the YTN was -0.1%. Based on this kind of effort to improve the value of shareholders, the share price performed -- outperformed the market to a record 38.1% high while the (INAUDIBLE) went up around 27% during the year.

Let me summarize some major issues in the global steel industry at the moment followed by the (INAUDIBLE) of the company. First of all, I can say the global steel industry attempt to be globalized and consolidated, the initiative by the European consolidation, for example, the (INAUDIBLE), which was born in 2002, and we had notice the consolidation in the name of JFE in Japan, and we have a consolidated name in North America in the name of International Steel Pool.

We can say the top three major steel producers in each region expanded the market share in each area. At the same time, there has been a rush across the border. For example, there has been rush to the eastern Europe for the acquisition by the -- from the America, and there has been the strong -- the investment into China from outside the POSCO; and there has been several cases of the investment in the area, especially in the South America, which is rich with natural resources; and finally, there has been the steel companies emerged, such as (INAUDIBLE) the capacity already exceeds 40 million tons, and we expect that there would be (INAUDIBLE) with the over -- with the capacity over 50 million tons in the near future.

Another remarkable trend in the steel industry since strong growth of demand and the production by China; demand growth, demand of steel, growth over the demand of steel by China has been explosive over the last few years, and we expect the demand for growth will be sustained and the growth consistently, at least until 2010, and at the same time Chinese steel companies have ambitions plans to expand the capacity to meet the growth of demand.

There has been the -- concern of the over capacity in China, but we have a relatively positive view of the consistent over demand, especially in the area of the quality of steel for the time being. But who knows what happened tomorrow, so we can say China offers the good opportunity for the industry, and at the same time, it could be a challenge and a threat in the case, in the future.

Due to the strong growth of the production of steel by Chinese companies, raw material has been very tight, and if price is set to be very strong in the negotiation. We heard the Japanese finalized the negotiation for the core. The price went up by around 25% from previous year and finalized in negotiation for the core, I mean, the iron ore, the price is set to go up by around 18 to 19%.

POSCO steel on the table for the negotiation, but in general we expect that the price will be very high and the supplies very tight as well. So we have a security the volume already.

The nickel price went up sharply as well, and the ocean freight went up double already. POSCO had very good (INAUDIBLE) the ocean freight, the lifetime(INAUDIBLE) -- let me explain in detail later. We have a revised medium business trend recently, the main purpose is to security, growth opportunity and to improve the competitiveness further and the will continue the management innovation.

To secure the growth, the opportunity, we have ambitious target to extend the domestic capacity which is around the 28 billion tons at the present. 32 million tons until 2008, and at the same time we will look for the chance to security the production base in overseas markets by ten million tons of capacity within ten years. Probably it should be in China, and at the same time we are looking for the chance in India and the neighboring countries as well.

And we will be -- change the product mix to maximize the profitability, focusing on the production of the four major stretches of items such as the automotive sheet, high quality api, 400, et cetera. As for the automotive sheet, we produced around 2.5 million tons of sheet last year, and we have a target to increase the production to 4.5 trillion, 4.5 billion tons of steel til 2007.

In the case POSCO market share, global market share for this product will improve to 9% from the present 4%. And we will expand the capacity for the senate as well. (INAUDIBLE) expand capacity to 2.8 million tons, including the overseas capacity until 2008.

In the case POSCO will be the top three (INAUDIBLE) producers in the world. We are developing the very advanced technology to melting the iron with (INAUDIBLE) you probably have a rough idea, we have the rough schedule to start commercialization probably before the end of this year.

And another advance the technology (INAUDIBLE) the time and schedule to complete commercialization before the end of 2007. To achieve these three big items in the (INAUDIBLE) we will expand the investment as well. The previous target, previous plans, have around the ten trillion won of investment for five years' time, but revised won has the total investment targeted to be 13 points to five trillion one for coming five years, roughly 2.7 trillion won each year.

This year we will -- we have the Cap Ex plan to 2.8 trillion won, mainly for the domestic investments. To improve this transparency we will improve the corporate governance as well. We will expand the presence of the outside presence in the Board of Directors. At present outside directors, eight person (INAUDIBLE) inside director is seven people, but we will change the confidence with nine outside directors to get aweigh six --.

For the coming shareholders meeting we will propose to revise the corporation to (INAUDIBLE) for the (INAUDIBLE) stocks. And we will introduce the accumulative voting system during this shareholders meeting. And we will continue the campaign, which is called the six sigma campaign. We are already enter the fourth stage. Everything is going well as is scheduled.

Summary for the business plan for the year of 2004, we will increase the production of the crude steel by 1.4% from that of 2003 to 29.3 million tons for this year, as accordingly the sales volume will improve as well to be 28.5%. We expect the strong trend of the steel price will be sustained during the year, and sales already is targeted to be 16.7 trillion won, up by 17.5% from last year. And operating margin is targeted to be 3.17 trillion won, up by 3.9% from last year.

The operating margin last year was above 21%, but according to the preliminary business plan for the year of 2004 the operating margin will be to 18.8%. This concludes the presentation and we will welcome your -- any questions you may have.

Thank you.

Can we open up for questions. Operator, we would like to open up for questions.

At this time if you would like to ask a question please press star 1. You will be announced prior to asking your question. Once again, press star 1 to ask a question.

Daniel Altman, you may ask your question.

Hi, it's Daniel Altman at Bear Stearns. How are you?

I am waiting for you.

Okay. Yeah, I have a few questions.

First of all, in terms of information regarding volumes, per product, I wonder if you have that anywhere that we can reference to? For the fourth quarter.

Fourth quarter sales volume, you mean?

Yeah, I was -- we don't have to do this over the call. I was just wondering if you had a breakdown of volumes by product for the fourth quarter.

Breakdown.

I am checking the data at the moment, and may I have your second question?

Sure, of course.

Referring to China, there's been comments by the Chinese Iron and Steel Association talking about new production of 100 million tons between now and the end of 2005. I just wonder if that's the same number that the POSCO research institute is coming up with in terms of future expansion.

Yes, I read the article by the Chinese Iron Association probably two months ago with regard to the capacity expansion in China. But it seemed to be too much.

For example, as far as I can remember, the total capacity is set to expand -- I mean, to be double until 2010 from the present one. I guess the data released by the -- by them seemed to be based on the -- each -- the extension plan by each major steel company where the -- anybody in China could have the plan to extend the capacity. Of course, they can notice huge growth of demand. But being expressed the concern as well with the extension plan by the Chinese steel producers, especially the (INAUDIBLE) concerned with the shortage of raw material, and the shortage of water supply as well, and the core infrastructure for the delivery of steel.

I think they are absolutely right. Already the raw material is in very tight, and lots of small size steel companies in China, who had relied on the major producers for the supply of the raw material is in great problem for the supply. Of course, some of the major -- the producers already declare that they could not supply the raw material for the local producers already. So it would constrain any -- the material growth of the production in the future. And, you know, the steel supply is very important. Water supply is very important for steel making, and any major -- the producers, steel producers, have the good supply with the river beside it.

But as far as I know, the China, especially in the northern part, and in the central part, the water supply is not good.

The last one, the social income for the delivery is still poor, and it would take time to improve for the time being. So we have a relatively -- (INAUDIBLE) the yield supply will increase, but within the growth of demand, resulting in steel, the shortage of supply for time being. With you there could be repeat growth of the volume in the commodity rate of steel, but without it they could catch up with the growth of demand for the quality steel because of the shortage of the capacity and technology for the time being.

Okay. And just one other question for now.

Looking at your guidance for 2004, you provided both revenue and shipments, so when I divide the two, I come up with average revenue per ton of near $500 per ton. I just wonder if you can break out the difference between your expectation for domestic price per ton and export price per ton.

In theory, there should be no pricing gap. (INAUDIBLE) by POSCO who lead the domestic price to keep the domestic price in line with the international price. But we could not catch up every moment of the international price, so there used to be lagging behind for the price adjustment.

So roughly speaking, the domestic price used to be lower than the international price in the rising trend. Only vice versa in the other -- in the weaker trend, domestic price used to be higher. But definitely we could not dismiss the chance to catch up the hike of the international price, so in theory there should be no gap at all.

Okay. Thanks very much.

All right.

And for your first question, the volume of the sales in the fourth quarter was 7.14 billion -- I mean, sorry, 7.34 million tons from 7 million tons in the third quarter, but I don't have the breakdown for the sales production at the present time. I will provide it later.

Okay. Thank you.

Thank you.

Kevin Eng, you may ask your question.

I'm sorry. Hi, I missed part of the call. Can you just address your dividend policy and how you determine how much to pay out?

The management approved the dividend -- -- after the (INAUDIBLE) in 2003. It was around 10% in terms of the payout ratio, but already it jump up to be around 25%, and it would be case for the 2003 as well. At the present, -- the payout ratio in 2002 was the 25%, around 25% as well, but with the sharp improvement of the bottom line, the total cash dividend jumped up significantly in the year of 2003.

At the present, we -- the final -- the dividend should be discussed and fixed by the Board of Directors depending on the circumstance. But at the moment we expect the payout will stay around 25% for time being, and we are sure to have the good bottom line to maintain the good cash payment to the shareholders.

So what will your -- what will your dividend be per share, then? How much won per share?

Okay. Including the dividend, total cash was 6,000 per share.

6,000 per share? And how do you, given the free cash the company throws off, how do you determine what the dividend should be, and why shouldn't it be higher than that?

The free cash used to be (INAUDIBLE) for any of the -- for the investment for the gross of the company, and it has been used for the redemption of the debt, especially after the financial crisis in korea, and it has been used to buy wack the shares in the process of the privatization of the company.

As we indicated, the management tried to improve the dividend after the privatization. The company has been privatized in three years time at the moment, and the present dividend is not enough for you, especially compared -- comparing with that of the Chinese -- China from Taiwan who pays more than 70%. But the management of POSCO have been trying to improve consistently so far.

It depends on the management policy in the future, whether to use it to return to the shareholders or to use it for the further investment for the growth, but we are sure to maintain the relatively -- relatively good return to the shareholders.

At the same time, we have been (INAUDIBLE) consistently, 3% two times in 2001 and '02, and 2% last year. We think it should be another way to return to the shareholders as well.

Okay.

Can I get an understanding for what your policy will be going forward in terms of share buy-backs?

Yes. We will continue to buy back the shares and (INAUDIBLE) the treasury stock to get the cash dividend -- cash dividend. The size or the amount should be discussed in the Board of Directors.

Can you discuss the current pricing for the local market and the foreign market and where you see pricing going forward? In the local market and the foreign market.

As you well know, the market and the investors have a great concern on the strong -- the hike of the raw material price in the second half of last year, and worried about if it could cut or squeeze the margin of the steel producers. But now, I think it has been discounted already.

It sounds -- the irony, I mean, the -- the tight balance of the raw material and the hike of the price could squeeze the growth of supply. Essentially from China. We'll make the balance very tight, balance and -- very tight. And these steel prices already went up very strong. With effort-- together with effort by the steel producers to keep the margin.

What was the average price of hot rolled that you realized domestically and foreign in the fourth quarter and the same for cold rolled?

Okay, the steel prices in a very strong price at the moment. The (INAUDIBLE) in the fourth quarter around 360 --.

Is this your total export, your average export price or your average export price to China?

Oh, no, to China.

I'd like to understand what your ton price is for hot rolled and would your export price is not just specifically to China, but your total export price.

Roughly the domestic price for the hot rolled around $300 per ton.

Is this metric tons?

Huh?

Metric ton?

Yes, metric ton basis.

Okay. 300, you said?

Yes.

And what is it on an export basis?

The average export price was 310.

310 for hot rolled.

Yes.

And what is it for cold rolled?

On F.O.B. Basis.

F.O.B.?

Yes.

And what is it for cold rolled? That seems very low for hot rolled, by the way. What is it for cold rolled?

Cold rolled domestic price is around 400 in the fourth quarter, and the export was 420.

420. Okay.

Yes.

And where do you see the prices -- what do you see average hot rolled and cold rolled price domestically and foreign over 2004, on average?

We'd like to be cautious to indicate the target for the domestic price because it's very sensitive in the local market for the price by POSCO. We're just following the trend of the international price. So I cannot (INAUDIBLE) the target for domestic price at the present, but the average export price for hot rolled -- (INAUDIBLE) the price will stay around the 330 to 340 during the year.

Is it 330 to 340 for 2004 average price export hot rolled?

Yes. F.O.B..

Your prices seem very low compared to what we're seeing from other people in the marketplace. 310 for hot rolled is even on the export side --.

The average price, as I said, the average price in fourth quarter, average export price for fourth quarter was 310, but the export to China by POSCO was 360 for total hot rolled cores. So my indication it - average is not weighted average, the price.

And what was your average price for the full year for hot rolled, cold rolled, domestic, and export?

Average price for the export was around 300.

For the whole year.

Yes.

And what was it domestic?

295.

295. And what about cold rolled? Just 100 more?

Domestic 400, exported -- domestic average price for the cold roll was 390. The export price was 405, the average price.

405 for the export of cold rolled, and 395 for domestic?

Yes.

And just to go back to the fourth quarter numbers, so you said your average price to China was how much?

365 for (INAUDIBLE)--.

During the fourth quarter so. China, hot rolled, was 360? So that implies you were selling a lot of your steel -- you were exporting a lot of your steel to other countries than China for significantly less than 300.

My question is, it's not clear to me the market was ever that low during the fourth quarter. What countries were you selling into that was less than $300 for hot rolled steel in Asia?

Actually, the export price to Japan, for example, is very poor.

What is that price?

Around 300 or sometimes below 300. Yes, you are right.

Let's move on and give opportunity for other questions and then come back if there are no other questions.

Sure. The Japanese market is much higher than 300, so it just doesn't make sense to me.

Well now, yes, the price recovered sharply even in Japan, with the end of the year and early this year, but in average in the year of 2003 the price --.

We're talking about the fourth quarter.

It's not clear to me that it was ever below $300 a ton in Japan or anywhere in Asia; but I'll let you go on to the next question.

Michael Lucas, your line is open.

Yes, how are you doing? I guess to ask the question in kind of a different way, just kind of trying to get a feel for prices, where they are in the first quarter.

Is it the same that prices in the first quarter are near the 400 range and you guys are saying the average for the year that you think over the year will be 330 to 340 for hot rolled? And why do you think prices are going to come down so significant from where they are? Just looking at the domestic market in the U.S. we're looking at delivered prices for the first quarter of 410 to 420 for hot rolled by several of the large producers.

Okay. The domestic price denominated in Korean won has been stable during the year, but there has been (INAUDIBLE) in U.S. Dollar terms depending on the exchange rate, such as -- and the exchange rate, for the Korean won has been weaker near to the end of the year, resulting in the weaker domestic price (INAUDIBLE).

The export price, I mean the regional, the international price in Asia, dipped down in the second quarter but recovered sharply in the third quarter, and it has been a strong trend toward the end of the year. Whereas you said the steel price in the states is very strong and it could be the case for the other areas as well, and as I've said, the export price by POSCO to China is very strong to be around the 360 -- I'm showing you the general trend of the --.

You know what, not to focus on that, then, where do you -- when your pricing is, are you guys going to put through price increases in the first quarter, and how much contracted do you have, and how much spot?

Well, the line is very bad. I'm sorry, I cannot catch your --.

Do you guys anticipate raising prices in the first quarter domestically and on exports, and how much do you contract, and how much do you sell spot?

Most all the sales on a contract basis.

Do they have escalators in them?

I'm sorry?

Do they have escalators in them, tied into the spot market?

Not exactly, but, yes, we are following the trend of the pricing in the spot market, but for the most major steel producers and major industry to excuse me the steel used to make the contract on the monthly or the quarterly basis, and usually the small size, or the quality of the product tends to be trading in the spot market. So there should be some -- the (INAUDIBLE) -- the movement in the spot market cannot (INAUDIBLE) price for the contract.

It has been a good case in the second quarter of last year when in China when the spot price dipped down significantly from 340 for total hot rolled to 250 in two weeks time, while the contract price has been sustained at around the 315.

But clearly as your profits have changed and your bottom line has changed as prices have increased. So there is somewhere, where you're benefiting from the higher prices. How do we quantify this in a model?

As you well know, the model for the valuation -- I mean, the profit model for PASCO is very simple. The cost of (INAUDIBLE) used to be very favored during the year after the finalization of the price for the raw material. So bottom line should, that depends on the price movement definitely. Any fluctuation of the price can give direct -- directly the reflected in the bottom line.

No, no, of course.

That's what -- that's what myself and the prior caller are trying to quantify. How much, going forward in the first quarter, do you anticipate prices rising, and can we apply that against all of your 29 million of -- (INAUDIBLE)

First quarter for this year, you mean?

Yes, sir, for '04.

As I've said, toward the end of the year, the regional price tends to be a very strong trend, and the -- as you know, the -- Korea is in a shortage of quality of hot rolled cores, so we are importing the hot rolled cores from China, so they in negotiation for the price for the first quarter. We are waiting for the completion of the finalization of the price negotiation before adjusting the domestic price by POSCO.

Okay.

But is it fair to say that it would be a $50 per ton higher than realized on an average price for '03? If your average price of '03, correct me if I'm wrong, your export price was 300, domestic was 295, is it fair to say that we'll be realizing 350 for export and domestic 295, given that the Koreans bought more (INAUDIBLE)?

Yes, we have (INAUDIBLE) the target for the price increase in the first quarter, but I cannot indicate our target at the present. Probably it's above $20 at least.

$20?

At least.

I just want further clarification, if you wouldn't mind. I'm confused as to why the domestic market isn't higher.

I understand the won and the currency movements, but what I don't understand is, if you're short hot rolled, the higher end hot rolled in Korea and you're importing from China, and China is a net importer from everywhere else in the world, i.e. Europe and North America, why are prices so light?

I'm sorry, the Korea importing the hot roll coils from Japan, not from China.

Okay. But even having said that, if Korea is a net importer and you guys have that specific hot rolled that you're selling, the higher end, how come did you not demand the higher price?

Than 300? We are waiting to -- for the chance to hike the domestic price -- when we finalize the import price.

Okay.

Is there some competition bureau controls that you guys have to apprise for some sort of petition to get higher prices?

No, no, not at all.

There's not. So you can just put through the higher prices on your own?

Yes, that's right. That's right. And, you know, the pricing by the POSCO is very -- the import -- important for the downstream industry, as you know, and we -- we would like to be prudent for the price change.

With the medium or the long-term deal or the pricing trend, pricing trend together with the currency movement, so it usually takes time. It does not mean any -- the intention to (INAUDIBLE) at all.

If I can just verify, POSCO is traditionally a price taker in the domestic market, and the domestic market price movement traditionally lags any changes in international export market. So on the way up and also on the way down.

I'm sorry, why are they a price taker in a market that's short that specific steel?

They choose to be.

They choose -- I'm just trying to understand how that creates value to shareholders if you're choosing to be a price taker in a price-setting market.

As I said, it works on the way up and it works on the way down as well. Traditionally when internationally prices collapse, domestic prices hold up much better, but it's the system within Korea where pricing mechanism is not as immediate as international market.

Yeah, that's right. So -- so at the time, the first half of the 2001, when the international price is coming down consistently, the domestic price in U.S. dollar terms has been the higher than the international price with the -- the price change.

I understand that, but right now, the U.S. price is 37% higher, from what you're tell me, or 40%, we'll use. I'm just trying to quantify where you guys possibly could be and from what -- it sounds like, what you tell me, you just don't feel like raising prices.

No, I think you differentiate between U.S. Prices and Asian prices.

Why is that?

Higher than Asian prices. U.S. Prices are at 380 average. China is at 360.

No, no, that's not true. China is not at 315.

F.O.B. Basis, roughly.

No, not roughly. China is at --.

The point is that the management had made it clear that they will raise prices most likely during the first quarter, and they just can't disclose the exact amount because they're in negotiation right now.

I understand, but as I'm sure you understand, $100 a ton on 29 million tons is significant to the bottom line.

Precisely.

I think the management is -- actually, one thing during the forum yesterday was that they are willing to increase prices whenever costs rise, to pass on all the price increases to the consumer.

Okay. I'm going to let you guys go. I just want to say this.

This is why this equity is trading at three times, is because nobody understands how come it's trading at one.

Well, the -- in U.S. Local -- the local price in the United States for a ton of hot rolled has already jumped up to near to 400 while the Korean local price is around the 310, much lower, but it -- the different markets, we could not dump all the volume into the United States with the -- the pricing is high, much higher than the local price. We have our own price, and we should compete the import of steel, right?

Okay. I thought you said you were short in the market.

I think, yeah, as you said, we should wrap up, but basically, yeah, they short as a producer within Korea, but they compete against imports, and imports are freely available within Korea. The pricing domestically will always be set

Where are the imports freely available?

I'm sorry?

Where are the imports freely available from? What country?

From Japan for high quality stuff. Low quality stuff mainly from Russia.

Russia where they just put -- China just puts out?

Yeah.

Okay.

Operator, are there any other questions?

Yes. Daniel Altman.

I'm sorry?

The next question comes from Daniel altman.

Hi.

Just a question on the Cap Ex numbers that you've provided.

Obviously a very high number for 2004, and I wonder if you can break that out between how much of that is your regular maintenance spending and how much of that is expansion, and within the expansion component, if you could just break out what are the major items within that category.

The total Cap Ex for 2004 is targeted to 2.7, 2.8 trillion won. For the domestic, the expanded share will be 2.3 trillion in won, and around the 15% is for the (INAUDIBLE) extension. And 30% is for the development and the production of the high valuated products, and the pure maintenance will be around 55%, in terms of the amount, it will be 1.2 trillion won.

Last year we spent 1.3 trillion won for the total Cap Ex, mainly for the maintenance, and the pure maintenance for next year will be 1.2 trillion won again. And we will expand 370 billion won for the overseas investment, and others, all together 2.8 trillion won.

Do you think there's a chance that the number may come in lower than what your guidance is today? That's a rather startling number for Cap Ex.

Probably the final number will be lower. My personal guess. Last year, our target was 1.5 trillion won, but the final one was 1.3. 2.8 trillion is the amount.

Okay.

And the other question is, regarding your Cap Ex budget, you talk about increasing capacity from 29 -- or 28 or 29 million tons to 32 million tons by 2008. So it's about a 3 or 4 million ton increase. Does that seem like a right number for -- proportional to the about $10 billion worth of Cap Ex that you're spending? What am I missing?

Is there -- are you able to quantify the revenue contributions from a stronger product mix that also comes from the $10 billion investment?

Yes, we are relating the details at the moment, but please understand, the revenue is targeted to grow around 5% year on year, with our capacity expansion.

Okay. I'm sorry, one last one. On the mini mill that you sold, or you might have sold to Iran, are you going to show a cash inflow from that?

Yes, of course.

Okay. In 2004?

Yes, probably.

Any more questions?

Okay. Thank you very much.

Thank you. We'll see you in New York.

Kevin Eng, you may ask your question.

Please, the next question.

Yes, hi. Just a follow-up question. It goes to shareholder value.

Your stock trades at 310 cash flow, or 3 times EBITDA, it's one of the cheapest steel companies globally, and I guess the question is, as a management team, what are you guys doing to increase shareholder value? I think one gentlemen asked a question about raising prices. I certainly asked the question about dividends and buy-back.

It just strikes me as somewhat concerning that you have prices that are materially lower than Asian market. I think the numbers you have are not correct. I think the Asian market are much higher than what you say. They're not 315, they're materially higher than that.

I guess what a lot of your shareholders are trying to understand, given that your stock price is trading where it is, can you help us understand what -- or convey a message as to how you plan to manage the company in a fashion that is shareholder friendly or manage the business for the shareholders, and part and parcel is that is an understanding of why your Cap Ex number needs to be so big and how that adds value to shareholders as opposed to increasing the buy-back.

All right to. Improve the value of shareholders, yes, we can increase the cash return to the shareholders (INAUDIBLE) pre cash, but at the same time, we are looking for the chance to increase the intrinsic value of the company with the growth strategy, right? Not to return value to the shareholders but the management is committed to increase the value of the company with total growth -- total success, total improvement of the profitability in the future.

What return on capital do you expect to get? Because certainly there's an immediate return on capital by continuing to buy and cancel shares.

Right.

In terms of the cost of (INAUDIBLE) or the return on the investment, the cost of capital in terms of the weighted average cost, we estimate would be around 8%, while the total rate for the investment is targeted to be above. Total rate is around 10 to 11%. So we'd like to use the free cash for the further growth -- the -- to cancel the growth with more profitable, but it should exceed the cost of capital, of course. Otherwise we should -- the buy-back in the tenth of the shares. We know very well and we will use the (INAUDIBLE) I mean, the financial process in those ways in the future.

Well, then, I got to tell you that I think what you're trying to do is admirable, but at the same token I think there are immediate things you can do to manage the business for shareholders, and it strikes me as very concerning, as a shareholder, that your strong trades at the low valuation of trades yet you're using the tremendous free cash flow to speculate in markets where, you know, there's a questionable high rate of return.

Your stock offers a very high rate of return, and by buying it and canceling it I think the market would view that positively. Remember your shareholders are the ultimate owners of business. I shouldn't need to remind you of that.

The third thing that seems amazingly frustrating that your realized prices are significantly lower than where international markets are, and to the extent that the Korean market is a net importer of steel, I would like to understand why you're not more aggressive domestically in creating value for shareholders.

Lastly, I would say, you talk a lot about corporate governance, it's on your annual report, yet there's little evidence of it, at least to me that you've done much to improve it. I will say that I think well more than 50% of your stock is owned by international shareholders, shareholders outside Korea, yet your Board is not representative of it. There's not 50% of your Board represented by people outside of Korea.

Okay. First, --.

And if you care about your stock price, you hopefully would try to answer some of these questions.

First, we don't technically subsidize with the low price at all. Please check the price. You are sitting in the in the United States where the local price is --.

It doesn't matter where you sit. You can read the newspaper and see where the international prices are.

Yes, we know, the Korean local price is a little bit low than the reasonable price, but we are competing the importers of steel. The import tariff into Korea is just 1% only. We should (INAUDIBLE) the import of steel, right? And we are catching up the -- every chance to adjust to the domestic price.

The management is definitely committed to maximize the profitability for the company and for the shareholders. Please don't misunderstand the company's subsidizing with lower price with any reason at all. All right?

And the company's governance, the door is open for anybody. We are -- respecting the (INAUDIBLE) exceeding 67% already, tremendous, and we have the foreign outside directors representing the foreign shareholders at the present already. And we are deleting-- the close for the convertible shares something, which have been understood as the protection -- protectionism against any hostile take-over after the privatization, and we are increasing the number of outside directors to be more transparent, and we are introducing the accumulative voting and paper voting.

We are trying to do everything to be advanced and to be the transparent in every way.

How do you -- okay. Can you address the Board, and can you also, you know, help us understand why your stock trades where it trades, then, if you guys think you're doing everything right?

Okay. Thank you very much for your advice and voice. We will deliver to the management at every chance. Thank you very much for your advice.

At this time I'm showing no further questions. If you would like to ask a question, please press star 1.

I think due to time constraints I think we need to wrap up today.

If there are no further questions I'd like to thank everybody for calling in today, for interesting conversations. I'd like to thank Mr. Hwang, Mr. Sohn, and Mr. Cho from PASCO for taking the time out and providing us with insightful comments on the company and the industry. Would you like some closing comments?

Thank you very much. I'd like to have the more talk with some people in this conference today by e-mail. Sam, please (INAUDIBLE) for the participants for this conference for further talks.

Yeah, I'll follow up, and I'll try to arrange an opportunity for participants of the Board to follow up with the management for further discussion of the issues that were thoughtfully resolved during the call. Thank you very much everybody. Have a good evening.