Posco Holdings Inc (PKX) 2004 Q3 法說會逐字稿

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Good morning and good afternoon, and welcome to the POSCO conference call, hosted by Merrill Lynch. For the duration of the presentation, all lines will be on a listen-only mode. A question-and-answer session will follow the main presentation. (OPERATOR INSTRUCTIONS). I would also like to inform all parties that today's call is being recorded.

Merrill Lynch does or seeks to do investment banking and non-investment banking with business with POSCO. Merrill Lynch and/or its affiliates own 1 percent or more of the common stock of POSCO.

The coverage analysts receive compensation based upon, among other factors, the overall profitability of Merrill Lynch, including profits derived from investment banking revenues.

I would now like to turn the call over to your first speaker for today, Mr. Mark Yoon. Thank you, sir. You may begin, and I will be standing by (technical difficulty) session.

Thank you very much, Sue. Welcome, everybody, and thank you very much for participating in this conference call. This is Mark Yoon, the Korea (ph) steel sector analyst for Merrill Lynch based in Seoul, who will act as the moderator.

Yesterday after the markets closed, POSCO has released its preliminary 3Q results. As has been a consistent practice, POSCO has offered a separate earnings conference call with overseas investors as the main audience.

We will start the call with Mr. Kwang-Woong Choi, the Head Of Finance at POSCO, providing the rundown of the 3Q results as well as the recent developments. We will then follow with a Q&A session, during which POSCO will field any questions that the callers might have.

Let me now turn over the mike to Mr. Choi.

Thank you, Mark. Good afternoon. This is Choi, the general manager of the finance department of POSCO. And I am, together with the investor relations team led by Dr. Lee, the team manager, to solve your questions. And I would like to thank all of you for joining this conference call today.

As some of you may already be aware from lower third-quarter earnings release, due to the third-quarter results, this year's cumulative numbers look outstanding. The third-quarter saw revenue rise by (technical difficulty) 30 (ph) percent to 14.2 trillion won. And operating profit rose by 51 percent to more than 3.4 trillion Korean won, while net profit surged by 74 percent to 2.6 trillion won compared to the same period of last year.

The third quarter's revenue growth (ph) was largely attributable to the continued strength in steel prices and the marginal increase in the sales volume. As a result, our operating profit margin and EBITDA margin recorded (ph) trending 4.2 percent and 34.6 percent respectively.

During the third quarter, POSCO set up the construction of the number 1 FINEX plant with 1.5 million annual capacity (ph). And that contributes to enhancing our competitiveness in terms of the profitability and the productivity.

On the cost side, despite the raw material shortages faced by the steel producers around the world, we have been successful in securing an adequate amount of iron ore and coating (ph) core through expanding long-term contracts with suppliers. And we keep expanding the direct investment in overseas mines and maintaining the lifetime contract for the dedicated (indiscernible) proportionate 74 percent of raw material transportation.

Also, we are searching for the proper overseas site to build upstream (ph) plans to enhance our engine for growth. Countries such as India and Brazil emerged as one of the targets for the feasibility study. And we will release further information about such plants as time progresses.

As you may know, POSCO has made some strategy moves to boost our business in high-billeted (ph) products, such as the 8 strategic products to secure the competitiveness and the profitability of cost.

Next, we will continue to focus on enhancing shareholders' value and improving corporate governance. Just to mention a few initiatives, we have decided to conduct a stock cancellation for 2 percent of outstanding shares in July. As you may know, POSCO has conducted a stock cancellation every year for the last 4 years.

In terms of the dividends, the interim dividend rate was unprecedented (ph) -- either (ph) 30 percent on nominal value. And the dividend rate has grown since 1997. We will maintain a payment -- payout ratio of around 25 percent in 2004.

Now, if may shift to the topic of the steel business environment, I would like to emphasize that the global steel industry is in the midst of this shortage. The strong demanded growth from China and the rebounding (ph) demand for steel in developing (ph) countries, coupled with the supply discipline, have maintained and will support steel prices at the higher levels for the time being. In this regard, we have officially raised domestic steel prices 3 times by approximately 31 percent across the board since February this year.

Finally, we have revised our annual business plan in September, as we have always done every quarter. The new business plan incorporates all new economic factors, as well as changes in the steel cycle. Our newly revised production and sales volume estimated for this year are 13 million tons and 29.1 billion tons, respectively. We have also revised upward our revenue and operating income to 19.5 trillion won and 4.8 trillion Korean won, respectively.

In conclusion, on the back of our solid third-quarter results and the continued strength in the steel cycle, we are quite confident that we will achieve stronger earnings for 2004. We believe that the strategic initiates mentioned above will put us on a solid footing for the future. Once again, thank you for taking time to join us on this call. And now, I will open the floor for your questions. Thank you.

(OPERATOR INSTRUCTIONS) Marty Pollack (ph).

NWQ Investment Management. I am just wondering whether we have seen the full financials. I did not to the cash flow statement. By any chance is that to be published later on?

Well, it is customary in Korea to make the -- to report the -- make the cash flow statement semi-annually. So for the third quarter, we don't make the cash flow statement.

Can I at least ask just some questions regarding what you might be thinking about as far as budgeting for capital expenditures for the rest of the year? And if you could, just indicate what would be the -- let's say your targeted forecast for CapEx next year, as well? Any guidance on that?

Well, CapEx planned for this year is 2.8 trillion won. But as of the end of third quarter, we estimate the CapEx stands around 1.5 trillion won, far behind the target. But we should spend more for the construction of FINEX and the rationalization project for the major facilities before the end of this year. But the final number probably will be far less than the target won.

But for next year, we are making the budget for the year of 2005 at the moment. So I cannot give you the exact number. But I can (ph) assume the CapEx for next year will be above 3 trillion won. According to the medium-term business for coming 5 years time, the Company has the plan to spend around 14 trillion won for the CapEx. As you well know, the 8 percent of the medium-term CapEx budget is for the domestic steel business and maintenance of the facilities. And the 15 percent is targeted for the overseas investment.

But at any rate, we are sure we can cover the planned CapEx with the internal cash flow without any outside financing.

But Let me ask you -- with regard to the share repurchase, which you identified in your slide number 14, the numbers to seem to be fairly high as 1 quarter goes -- almost 2 percent of your -- I believe, your shares outstanding. I don't know how many of these would be canceled. Can you -- I mean, essentially they are bought back -- but are you actually going to cancel them, as well? And frankly, maybe you could just explain what the difference would be as you are approaching the idea of buybacks versus what is historically your cancellation strategy on that? And clearly, should we expect that you might still continue to buy stock for the rest of the year at the current rate?

(technical difficulty) According to the (technical difficulty) regulation, we have to buy the targeted shares in 3 months' time after the resolution by the Board. Now, the targeted shares to buy into (indiscernible) is 1.77 million shares. And we have bought already 1.68 million shares. Probably in one or two days, we will complete the buyback. And on the completion of the buyback, we will cancel it immediately.

But as you know, the liquidity (ph) in the market is less and less, with the long-term holding (indiscernible) business (ph). So it may take time to buy back 2 percent in the market.

Let me understand, though -- once you have completed this, you have fulfilled your obligation. But should then -- are you effectively not changing the strategy of, let's say, buying 1 or 2 percent of your outstanding shares or retiring 1 or 2 percent of your outstanding shares? Or is there a shift in strategy that we can discern from this, that you will be more aggressive and you will step up your share buying? So, I don't know if that's -- if you could suggest whether there will be another authorization right behind this?

As I have mentioned, we have conducted the stock translation over the last four years -- 2 to 3 percent of the outstanding each year. Well, we don't have any definite plan or target for the cancellation program for coming years. As you well know, the Company is too much -- I mean, the leverage is too low (multiple speakers) and they have too much on its --the AK (ph) capital. So we know -- we already well know that the capital structure is far behind the so-called optimal level. And the management have been already deeply committed to improve and enhance the value for shareholders. So we will.

I'm sure that the management will make another program for the coming years, whether it's the upflow (ph) of the cash. But I cannot give you the definite answer to -- (multiple speakers) .

Well, you know, I can only tell you that we would certainly endorse a stepping up of that. There are not many companies that have the valuation metrics that you have. And every share bought back beyond your normal amount can only enhance the shareholder value for those stockholders like ourselves who continue to own the stock. So it is a no-brainer from that perspective.

And I certainly would encourage that you pursue that path, as you are obviously saying you are looking at shareholder value as an important priority. So certainly, it makes a lot of sense. And we would endorse that. And hopefully, we will see that type of thinking. I guess, in a sense then, you are saying a current buyback is only fulfilling the obligation that is required.

At any rate, thank you for your comments.

Well, thank you for your comments as well. I sure do appreciate it so much.

Daniel Altman.

Bear Stearns. Mr. Choi, nice to hear you again. A couple of questions. The CapEx number -- I know it is just a preliminary number that you gave for 2005. But I wonder if you have kind of a breakout between how much of that would be maintenance versus expansion? And just of the big-ticket items on the expansion, if you have kind of round dollar figures -- we know that the FINEX is about $1.5 billion. But I just wonder if there are some other big-ticket items that you can list in terms of your near-term CapEx?

The second question I have is regarding your balance sheet -- I was kind of -- follows up on the previous question, which is that you are probably -- I haven't seen the third-quarter balance sheet, but you must be pretty close to net cash. And I am just wondering if -- how you think management would view that, and whether that could imply maybe looking at investments outside of steel to keep the balance sheet busy?

This is Yong Lee (ph) speaking. Hi, Daniel. To your first question, regarding the CapEx -- as you see in our five-year medium-term business plan, we will have spent about 13.5 trillion Korean won for the next 5 years. So that means in every year, roughly 2.8 or 2.7 trillion Korean won for CapEx.

On the CapEx, about 1 Korean won -- 1 or 1.2 trillion Korean won is for the maintenance (technical difficulty) CapEx, which is -- even this trend for the next 5 years. Another 1.5 or 1.3 trillion Korean won is for the -- financing our competitiveness and expanding our capacities for the upstream and the (inaudible) lines.

So major items for CapEx probably for the next 3 years is -- actually the first important one is the FINEX plant -- 1.5 million (inaudible) which we will complete by the end of year 2006. And as you see, we listen to the (technical difficulty) number six continuous galvanized lines and (indiscernible), which cost about (technical difficulty) 200 billion Korean won. And the next year or so, we are expecting some lining of number (inaudible) cost of another 200 billion -- just major items for CapEx for the next year.

And to your second question regarding the balance sheet, by the end of first quarter, we are now in net cash position. As of last September, our borrowing was about 2.56 million Korean won, and our cash and equivalents, cash reserves about 2.67 trillion Korean won.

(technical difficulty) Yesterday, we had the investors' forum to release the earnings for the last quarter in Seoul, followed by the conference call for the Asian and the European investors. One of the main questions (ph) biding (ph) business are the CapEx plan (ph), CapEx balance and the CapEx plan for next year. I wonder why this is one of the main concerns by the investors. But I can't imagine the investors are concerned with any impact on the capital structure on the Company with a huge CapEx plan.

But for this year, for example, the extra -- the cash flow in terms of the EBITDA investment into the 6.2 trillion won. And the CapEx is planned to be 2.8 trillion won. And probably, the next year, the CapEx will be above 3 trillion won. But as you see, with a strong cash flow, we are sure to cover the annual (ph) amount for the CapEx for coming years -- can be covered with internal cash flow with any without any financing from outside.

Okay. I am just trying to do a quick back of the envelope. If you save 3 trillion in CapEx next year, minus the 1.2 trillion that you mentioned in maintenance -- so but roughly 1.8 trillion in expansion, and you mentioned the FINEX over 2 years -- so I'm assuming about 750 per year -- 750 billion won. The galvanized line I'm splitting into is about 100 per year, and then the re-lining (ph) is about 200. I am not sure that that is all 2005, but if we add up those three projects, we still have about 7 to 800 billion won of CapEx in 2005 that -- I am not sure where to allocate that to. Is there anything else that I am missing?

There is also number 5, continuous galvanized line -- already start the construction from the last February, which will complete October next year, which will cost 270 billion Korean won. And that there are -- another, you know, major projects which will cost more than 100 billion Korean won.

Benjamin Moyer.

Merrill Lynch Investment Managers. I just had a couple of questions. The first one was -- in this last quarter, you had some expense related to the provision of shares in your Company to your employees. And I think that was 165 billion won, kind of like a one-off expense. I think you had the same thing last year. Could you tell me what that number was for last year? That is the first question.

And then the second question was just a general question on FINEX. I know that you had a presentation in Korea a few months ago were you discussed FINEX. And POSCO commented that it would expect, I believe, something like a 17 percent savings on the cost of steel produced through FINEX versus the conventional process. And I am wondering if you could just provide a little background there on FINEX, since I wasn't able to go to the meeting -- just fill me in a little bit on finance and whether you think those numbers are correct.

And then the last question was, your investments overseas in India and Brazil -- both those investments have been mentioned, and I think they are in your presentation. I wonder if you could just comment on the scale of these investments in terms of capacity and the cost to POSCO.

The Company expands to 165 billion won this year for the stock -- employee stock ownership program. Each employee is entitled to subscribe to buy their shares from the Company's treasury stock at market price. In that case, the Company is committed to contribute the same number of shares at the price (ph), so that the employee has benefited to buy the shares at half of the market price. In this process, the (indiscernible) amount denoted -- the Company donated and should be expensed for this year, as you mentioned. It was 165.

And it, of course, for the operating margin, below 24 percent. Otherwise, the operating margin for the third quarter should be around 27.4 percent. Last year, it was 74 percent, where (ph) the limit for the subscription for each employee has been improved to 400 -- 4 (ph) million Korean won each. Last year it was 214 million won. I am sorry -- 2.4 million won. This program will last another two years. This year, is the third year for the program.

Your next question is regarding the FINEX --

I'm sorry, Mr. Choi. The expense in the third quarter last year you said was 74 billion won? Is that correct?

That's right, yes. As you know, we have been operating the demo plant, which was 600,000 tons of capacity. And we are starting the construction -- the commercialized sized (ph) -- the plant with the capacity of 1.5 million tons.

With the demo plant, everything is going as scheduled. But because of the -- in terms of the economy of the scales (ph), it is too small to identify any of the benefit so far. But with the experience until now, we are sure to save the cost (indiscernible) depends (ph) probably up to 17 percent with the usage of less of the expensive raw material. So you may expect the benefit of the cost saving with a new technology.

And for the overseas investment, especially in India and Brazil -- first of all, I should say I am sorry not to keep you give you any details at moment, because it is too early for any projects mentioned. We have been negotiating and got the party response (ph) from the provincial government in India. They welcome the presence of POSCO to develop the mining and making the steel business in India. But the final order should be the permission by the central government in India.

But with the experience in India, we are sure to get a positive response from the central government. The time schedule is roughly to get the license from the central government probably mid next year. So this is the rough situation. It is too early to give you the exact time schedule and the details of the extension project.

And it's a deal is similar with the case in Brazil, as well. But we have a rough idea to start the upstream of the processing in India to produce the (inaudible) (Korean language) -- and the initial targeted capacity will be around 3 million tons. But we have a very positive view forward for the chance (ph) in India. And the final capacity will be -- final size will be much more than the initial targets.

What we have brought (ph) you is the similar (indiscernible) at the present.

Okay. I was just wondering how much POSCO would be willing to spend in these plants, given the amount of cash that you are now generating. I mean, you have previously said, I think, you wanted to add 10 million tons to your overseas capacity in the next 10 years. I think that is what you said. (multiple speakers) So I guess -- can we assume that these two investments will eventually add up to 10 million tons, or not necessarily?

Hold on. (Korean language) Okay, the initial project in India, for example, for the 3 million tons of capacity, the estimated amount to spend is around 2 trillion won -- 2 trillion. But it should not be the total amount to be borne by POSCO. I mean, usually, with the total (ph) subscription for the new project was around 30 percent of the total investment. So in this case, the POSCO will pay -- subscribe around 600 billion won. And the balance should be financed from outside.

Would that be by your partner?

No, not by our partner. But I mean -- the equity participation by POSCO, where with the assumption of the 30 percent of the equity, will be around the 600 billion won. And 1.4 trillion won will be financed outside.

Okay. And that 2 trillion, is that your share of the Company only? Or is that -- because it was said that you would be investing in India jointly with a foreign partner.

It is not clear yet. The capital spending is under assumption of the whole participation by POSCO. But as you know, this project is -- started to get with (ph) BHP Billiton. But it is not clear at the moment how much will be borne by POSCO and how much it will be BHP Billiton at the moment.

Okay. and I wonder if you could provide me any information similar to this for Brazil, or is Brazil further out in the future as far as details?

Well, Brazil is much, much early stage (indiscernible) project at the moment there. I don't have any idea how should be the future, how much would be the size for the project there at the moment. But definitely, we have attraction for the resources we have that's (ph) still (inaudible).

Daniel Altman.

Hi, just a couple of more questions. The FINEX demo plant -- I am wondering if you are able to continue using that after the new FINEX plant is built. Are you able to build -- if you build over the FINEX demo plant, are you -- or is it a separate facility?

My second question is, looking at the slides and following up with the previous question on India and Brazil, is the intention here to sell in those domestic markets? I see an arrow from San Luis (ph) in northern Brazil to Rio de Janeiro, and I see in both cases, you talk about GDP growth in each country. So is the intention to be a player in those domestic markets? Or is the intention to be a player in exports? Or is the intention to supply slabs to Korea? Or you can pick a combination of those three.

(Korean language) We will keep the operation of the demo plant together with the new commercialized -- the capacity by the 1.5 million tons. The initial capacity for the demo plant is designed to be 600,000 tons. But our target for the next year by this plant is 1 billion tons. We are sure to improve the picture (ph) of production well above the designed capacity. It can give some -- the economic benefit.

The initial intention for each project in Brazil and India, who is rich for the resources, is to supply the slabs and the raw material into Korea and toward the Asian market first. But as you know, India, especially, has a great potential for the growth and consumption of steel in the future. So we have a remote idea to develop this business in India to supply the product into the local market as well.

Okay, just to follow-up on those two, so that you will have -- by the end of 2006, you will have the 1.5 million ton FINEX plant that you are building today, plus 1 million from the demo plant. So you would have 2.5 million tons of FINEX production by the end of 2006?

That's correct.

Okay. And how should we view that -- the viability of that? Is it -- are you able to say with -- because it is a new technology, are you able to say with full confidence that the technology works?

Of course! Yes, we have good confidence. Before going further, yes, the capacity will increase by 2.5 billion tons. But we should refurbish the -- one of the existing plants' furnace, which has been the first built in Pohang -- the site (ph) is just 1 million tons. One million tons of capacity for the traditional blaster furnace cannot have the economies of scale, as well. So we are considering to demolish this one instead of the refurbishment. But it is not fixed yet. But it is just a rough idea to balance the up and the downstream projects (ph) in the future.

As mentioned, the demo plant for the FINEX is running exactly as scheduled. And we have the good confidence for the success of this new technology.

Very good. And maybe just one more question. I have noticed Tanares (ph) and Fedor (ph) in Venezuela, have taken over and seemed to be up and running pretty soon on your old DRI (ph) plant. Did you regret having sold that? Is there something that -- they seem to think that it was a great deal for them. What was the thought process behind selling that to Tanares?

I'm sorry, the Pro-Span (ph) project was relative to the operation of number 2 Mini Mill in POSCO's chromium steel works. But now, POSCO's number 2 Mini Mill is -- we have already decided not to operate that number 2 Mini Mill iron steel works. And now we are considering the buyers of number 2 Mini Mill facilities.

So, I'm sorry, we do not have need for HPI (ph) produced (ph), which was supposed to produce by Pro-Span. And there was some technical problems for the production of HPI and Pro-Span. So we do not have any regrets.

Okay, does it say in slide 4 that you are actually opening up Mini mill number 2?

No.

Okay. Maybe I misunderstood that.

Robert Lee.

AIM Investments. You mentioned that during the conference call that you could secure iron ore and coking coal through the long-term contract. So does that mean that your bottom line would not be affected by the increasing iron and coal price? And if you could maybe shed more light on the nature of contract tons, and how long the contract would be, and what is the impact on your bottom line of those increasing raw material going forward?

As far as I know, we have the -- hundred percent of the long-term contracts for the iron ore for coming 10 -- to 10 years. And the 80 to 85 percent for the coal (ph) and the period for the contract is the same. That is the strategy to secure the volume of the iron ore. But some of the other majors, like the Japanese producers, have less long-term contracts that they face. They have faced for the -- securing the volume only this year.

But anyway, it is fortunate for POSCO to have the bottom line of the (indiscernible) sale. But the price should be negotiated on an annual basis. Usually, they are starting the negotiations near to the end of the year to apply the new price from -- for the shipment from April for the new year. So that's the situation.

Right, and these hundred percent and 80 to 85 percent -- are these based on your long-term forecasts of production?

Sorry?

I am just wondering -- you know, you mentioned 100 percent of the iron ore and 80 to 85 percent of coking coal for the next 10 years, right?

Yes.

So I am wondering whether this is based on your long-term production schedule, and how much of atrophy (ph) you have on those productions for the next 10 years.

We have the long-term target to improve the total production up to 42 to 45 million tons of capacity. The additional 10 million times tons will come from the overseas project, and the local capacity will increase incrementally by 2 to 3 million tons only. And as you know, we have been developing the iron ore and mining in Australia named (indiscernible) from last year. And we have the (multiple speakers) got the stakes for the new project in Australia.

And we are developing. We have some interests in the new project for the mining in several places. So the incremental capacity will be supplied by the new project and the development of the mining gradually.

At this time, there are no further questions. (OPERATOR INSTRUCTIONS). John Green.

LCG. I noticed in your presentation that you talked about strong demand for steel in various other parts of the world. Obviously, there is a fairly large disparity in steel prices in the U.S. versus Korea, for instance. Yet, at the same time, we have noticed that the level of exports that you guys do has pretty much stayed constant. Is there any interest or any goal of increasing the export level? And if not, why not, given this fairly significant disparity and the opportunity to sell steel at $100 to $200 a ton more overseas?

Well, it has been the practice and the tradition by the Company to ship around one quarter of the total production overseas. It is the strategy to have the buffer for the case of the fluctuation of demand from the local market, which is the primary market for POSCO. For example, in early '98, just after the (indiscernible) crisis in Asia, the domestic demand, or the consumption of steel, dropped down by more than 34 percent.

So we could maintain the high operations even at that time, with the constant customer network in the overseas market. Definitely, the local market is the primary market. And the market share for -- in the local market but by POSCO -- is at just less than 60 percent. So I think it is a good strategy to maintain the constant demand from overseas for the case (ph). And we will keep this strategy in the future as well.

I guess I am not 100 percent clear. The strategy is also to make as much money as possible. Are you saying that there is a risk that you would lose customers if you were to shift more volume overseas? Would you lose domestic customers if you did that? Or is there a restriction that you have on your volumes?

No restriction at all. But you may be concerned with the lower domestic prices than the information (ph) on export price.

Extremely concerned, yes.

You don't have to. Well, the steel price -- the trend is running so fast in the overseas market. And we are keeping -- catching up the trend in the local market, as well. But the recovery, or the speed of the price, is too fast to catch up.

But either way, you can be -- trace the pricing strategy by POSCO in the local market over the last 6 years. Definitely it is the policy for the Company to keep its domestic sales price in line with the international price. But we have to have the deal for the medium-term price movement and as well as have the deal for the currency movement as well.

So it has been slow and down (ph) to catch up the international price, which is resulting in the higher local price in the downward trend -- and vice versa in the upward trend. And it is important as well to keep the constant and the long-term transaction (ph) with the major customers. Otherwise, it can be a threat for the long-term survival in this industry.

I see. But you say that you are catching up. Does that mean that you expect to be a quarter behind? Or is there a timeframe for which you think you will be substantially closer to international steel prices?

Well --

Like other finer consumer products such as home appliances, steel product is a rather intermediary product. And it usually takes more than 6 months for the -- supplying new clients. From the perspective of clients, it takes more than 6 months for testing (indiscernible), and even in the same (ph) HRC or CRC product lines, there are so much (sic) differences between the width and thickness, or something like that.

So the export market is very volatile, you know. In the case of integrated entities (ph) such as like POSCO, it is very important for a lot of longer-term supply and customer relationships. And as you see, POSCO operates more than 100 percent of capacity utilization ratio for the last 30 years of operation history.

I see. So I guess instead -- one other question with regards to the employee stock option program. It seems like you are giving away -- you are selling shares at a substantial discount to the market price. Is there -- do you have any guidance, I guess, as to what the employee stock option program will look like next year, in terms of is there an amount of shares that you would expect to sell to employees next year? It seems like the valuation on the shares is very low, and it wouldn't make sense to use that to compensate employees and give away stock at this price. So I'm curious to understand what that would look like next year.

Well, as mentioned, this program will last 5 years. And this is the third year. So we will go for another 2 years. The limit for the subscription by the employee has been increased to 4 million Korean won from 2.4 billion last year. And I think the limit will be the same for the coming 2 years. So the amount spent by the Company will be similar with the amount for this year, for next year as well.

I see. So is it possible, then, that the amount of shares that are given to employees next year will be -- will offset entirely the amount of shares that are bought back by the Company under the buyback program? It seems that this year the two were -- it was a very similar number, in that you gave out -- I think it was 1.5, 1.6 million shares and bought back about 1.7, 1.8 million shares. Do you expect that similar relationship to hold next year, that you would buy back about the same amount that you give out under the stock program?

Shares to the (Korean language) donated by the Company will be from the current holding treasury shares. We will not buy back the shares for the donation for the ESOP program.

I see. I appreciate it. Thank you very much.

Okay. You know, the Company is buying back the shares of the 2 percent of the outstanding for the cancellation. So the current buyback is definitely for the cancellation on the completion of the buyback. We have bought 1.6 million shares. The final target is 1.77 million shares. The so you can get the official release of the cancellation in several days.

As I have said, the shares donated by the Company will come from the current holding of the shares. So it is a different program.

In the interest of time, we have probably have time for one more question, if we may?

Jeff Boyd.

CLSA. I tried to wait to the very end and let all the U.S. investors get their questions out of the way, so hopefully, that was the end of the U.S. questions.

I have just really two simple questions. Number one, were you providing any guidance on the non-operating side this time? Or did you have any data in terms of the amount for equity gains or for some of the non-operating items? That is question 1.

And question 2 is just on page 19, it talks about the Korea domestic production consumption in 2004 and 2005. Just trying to get my sense about that, because it doesn't really gel -- those numbers don't gel entirely with the Korean Iron and Steel Association. In page 19, it sort of shows that Korea is a large net exporter of steel. But actually, last year Korea was very close to being a net importer of steel. And I'm just wondering about those numbers on page 19. They don't seem to be entirely accurate.

(Korean language) First of all, our equity method. We recorded (technical difficulty) 156 billion won equity investment gain for 9 months this year. That is the biggest one in the non-operating side. (multiple speakers) (Korean language) And translation (ph) gains this year is almost 10 billion won -- 100 billion, sorry; 100 billion won. (Korean language) Transaction (ph) gain -- 65 billion won this year.

Okay, and you have interest expense, or do you --

Well, interest expense is 113 (ph) billion won this year. It is less than last year.

Okay.

And as for the exchange currency impact, generally speaking, the Company -- in shortage of the foreign currency with much payment for the import -- of importing the raw materials and the export revenue, and we have been following the -- some borrowings in foreign currency. So the stronger Korean won is favorable for POSCO. The exchange rate at the beginning of this year was around 1200. Now, it is around 1145. We are in a position to have some benefit with the currency movement. And the currency is moving strong against the U.S. dollar towards the end of the year. So the final result will be much better than this one.

And for the data for the demand and supply -- the steel in Korea is provided by the in-house research institute which is called (indiscernible). Korea is a net exporter of steel, mainly for the export for the long (ph) product (ph) and pipes -- I mean, the second-tier product, mainly. But for the first tier, for the quality hot-rolled coil and some other quality steel, should they be supplied from outside the country (ph), POSCO is the only one to produce and provide this kind of steel which is much in shortage -- I mean, the shortages should be supplied from overseas.

Right. It is no big deal; we can maybe talk about it later in the week. But it is just that the 54.6 million in the 2004 number -- if you look at what the Korea Iron and Steel Association is saying, it was only around 47 million last year. (multiple speakers) Anyway, we can sort it out later.

Okay.

Thank you Mr. Choi and Mr. Lee and the team. And thank you, callers, for dialing in. Congratulations to POSCO for the solid operating performance last quarter. And we appreciate POSCO for offering this call. Thank you very much.

Thank you. That concludes today's conference call. All lines may disconnect.