Posco Holdings Inc (PKX) 2007 Q1 法說會逐字稿

Welcome. Thank you for standing by. All parties will be on a listen-only mode until the question and answer session of today's conference. I would also like to inform you that the conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to your speaker, Mr. Hocheol Kim. Thank you, sir, you may begin.

Thank you for joining POSCO's first quarter earnings conference call. We will announce first quarter results, present an overview of the business environment and hold a Q&A session.

Here with us there is Yong Kim, Director of IR Group and Duk Il Yoon, Head of IR and entire POSCO's IR team. This is Hocheol Kim from Credit Suisse, the call leader of this conference call.

I will hand it over to Mr. Kim.

Good morning. This is Yong Kim. I'm in charge of Investor Relations Group at POSCO. It's my pleasure to have you all on this conference call. I'll read a brief summary of our first quarter performance and current trends in steel industry. Then I will take questions.

To start, compared with the first -- the last quarter, the first quarter production is slightly down, but this is mainly due to rationalization of a few facilities and the difference in the number of work days.

The sales volume actually increased. This is due to improved market conditions for the demand industries. Sales of strategic products reached 65% of total sales, exceeding our annual target of 63%.

As a result, both revenue and profit increased. Revenue was KRW5.7 trillion, and operating profit KRW1.1 trillion. However, raw material costs such as nickel price went up, and operating margin dropped slightly to 19.5%.

We raised our debt level partly for dividend payment and consistent share buyback program lowered total shareholders' equity. Consequently, the return on equity increased to 18.1%, but so did liability to equity ratio to 24.4%.

Now, some of our key business activities. In India, conditions are turning more favorable than ever. Prime Minister reiterated his support and commitment for POSCO's project more strongly than ever. The State is determined to resolve all issues in the matter of a few months. Together with India -- also India's sincere effort to contribute in local community, we believe we will soon see acceleration on the progress of our project.

We are on track to reach our target of shifting production to premium steel. We added the [sulphurization] converter to number two steel-making plant in Pohang and number three pickling line in Gwangyang. We also completed rationalization of number three hot rolling [mill] in Gwangyang, and number two cold rolling mill in Pohang. These new and upgraded facilities will drastically improve productivity and quality of time, premium products and contribute to our overall [inaudible].

Market side, we are establishing a Joint Venture in California, [steel] to manufacture new API grade pipe. Through this Venture, we secured [marketing] [84] API pipes in North America, the largest market for such pipes.

We also completed construction of automotive steel processing center, POS-MPC Mexico. This is one of a series with process to come globally. By the end of this year, the processing centers will grow to 26 centers in nine countries, from current 14 centers in six.

Internally, maintaining our efforts to cut costs, we reached another KRW157b in cost reduction in the first quarter. And we rise our annual cost reduction target to KRW604b from KRW500b.

Now, onto our steel [market outlook]. The global steel market is expected to grow steadily. Steel demand from six countries will continue to increase, whereas, in other areas demand will [inaudible]. According to IISI's most recent forecast, the world steel [production] will grow about 5.9% a year.

In China, major mills are raising prices in expectation that the market will grow. A tax rebate on export abolished, [and the risk] remaining steep rise in domestic steel price seems less likely.

In Korea, automobile and ship-building industries will continue be strong and nominal steel consumption and export is expected to rise 2.6% and 5.8% respectively.

Reflecting recent changes in the business conditions, we revised our business plan as follows; crude steel production, 30.6m tons, sales volume, 29.2m tons, revenue, KRW22.6 trillion. And capital expenditure slightly increased to KRW6.1 trillion.

That's the conclusion of my remarks, and thank you very much. And now I'll take questions.

[OPERATOR INSTRUCTIONS]. Sir, there are no -- I'm sorry, we do have a question from [Leo Larkin]. Your line is open.

Good afternoon. Good morning. Could you give us any guidance for DD&A for this year?

I'm sorry?

DD&A.

Sorry, SG&A?

DD&A for this year for 2007.

I don't -- we don't understand this.

Right.

Okay.

What does it stand for?

Depreciation.

Okay. Hold on, we are looking into this. 1.7 trillion.

Thank you.

The next question comes from [Andrew West]. Your line is open.

Good morning gentlemen. Could you comment on the -- what you've been seeing on the ground in terms of Chinese exports coming into Korea or, in the other direction, of trends in your product sales going into China?

Yes. Well, because of the tax rebate on export is abolished, we expect the price of Chinese steel is going to rise and, accordingly, we see some slowdown in their exports. And our export to China is -- probably wouldn't change very much because the high-end grade steel products are still in a lacking situation. So they'll probably continue to import Korean products.

So, basically, we expect a little bit of a slowdown in Chinese exports to Korea, and we do not see any changes in Korean export to China. Will that do?

Yes, thanks.

Okay.

[OPERATOR INSTRUCTIONS]. Currently there are no questions. We do have a question from [Jung Hyun Park]. Your line is open.

Hi. Just quickly, can you elaborate a little bit about that -- the [stint] list, the 400 series [stint] list without nickel?

Yes. Because of 300 nickel, the price went up so much, right now we are trying to -- actually I heard this afternoon that we have developed a 400 series that can be substituted as a 300. A new product has been developed by R&D and it is going to go out in the market this month. And I'd like to see what the result, and I can elaborate when that happens and the progress of it.

But, basically, 400s are cheaper than the 300s. And I think it's about KRW330,000 cheaper about. And --

And, in terms of quality, you're pretty confident that it's quite comparable to the 300?

Yes. Yes. I think it's a new product and we have to see what happens. And if it's very [substitutionable], then I'm sure it will be a great hit in the market.

Thank you.

Currently there are no questions. [OPERATOR INSTRUCTIONS]. Sir, there seem to be no further questions.

Okay. Well, if there is no question we will just go home and it's about 10.30 here so we can cut.

Okay. We'd like to thank everyone for participating in this conference call. And thank you very much.

That concludes today's conference. You may disconnect at this time.