Posco Holdings Inc (PKX) 2008 Q3 法說會逐字稿

Good morning and good evening, ladies and gentlemen. Welcome to the CLSA conference call on third quarter results of POSCO. Our chairperson for today is Mr. Geoff Boyd and we have Mr. Park Ki-Hong and Mr. Yoon Duk-Il as the speaker. Mr. Boyd, please begin your conference and I'll be standing by for the question and answer session. Thank you.

Okay, great. Good morning, everyone in the US. This is Geoff Boyd. I'm the Regional Head of Steel and Auto for CLSA. As the operator is saying, we do have leading the call Mr. Park Ki-Hong, who is the Head of all the Finance Group here at POSCO, a Senior Vice President, and as well Mr. Yoon Duk-Il, who some of you will know from the -- from being the Head of the IR department and, perhaps, you've seen over in the US previously. So, without further ado, I guess we'll just hand it over to Mr. Park. Thanks.

Good morning, ladies and gentlemen. Welcome to POSCO's third quarter earnings release conference call. This is Ki-Hong Park, Senior Vice President in charge of Finance department. I'm sure that, by now, you all would have heard about POSCO's record sales and earnings, and I assume that you have many questions. But before we engage in questions and answers, let me briefly highlight some of our third quarter achievements.

With the completion of recent upgrades on our facilities and ongoing efforts to enhance productivity, our total Crude Steel production grew 2.2% over the last quarter to 8.6m tons. Domestic Steel demand remained strong and our Domestic sales increased by 1.2%. Exports grew 2.1% as well. Sales of our strategic products, I mean high-end products, continued to grow and in the third quarter almost 5m out of 8.1m tons of total sales were made up of these high-end products.

Financially, we had a great quarter. With our most recent price increase, revenue was a record high at KRW8.8 trillion; 18.2% increase over the last quarter. And due to our cost reduction and process improvements, operating income was KRW1.98 trillion; 5.3% increase over the last quarter. On the balance sheet side, total assets grew due to healthy profit and continuous investments, and our debt level grew slightly.

To summarize, I will give some key financial ratios. EBITDA was at a record high of KRW2.5 trillion, and EBITDA margin 27.9%. Return on equity was 19.3% and the total liability to equity ratio 30.7%, but we are still in net cash position.

In consolidated terms, thanks to great results from Steel and Energy business, revenue grew 11% to KRW11.7 trillion. But because of the increase in material costs in our Engineering and Construction business, operating income dropped 0.5% to KRW2.1 trillion. All other businesses, however, had healthy growth. Consolidated operating margin was 18.2%, return on equity 18.7% and the total liability to equity ratio 62%.

Now I will highlight some of our key activities. In India, we made yet another advances. Supreme Court finally approved forest diversion of the construction site and the State government has finished the hearings for prior applicants to the mining rights.

In Vietnam, we have submitted the feasibility study results to the Prime Minister's office. Once approved, we will discuss with the various governmental authorities about the detailed plans, like infrastructure arrangements, and submit the formal application for the investment.

The construction of the Vietnam Cold Rolling mill and the Mexico continuous galvanizing line was ongoing, with 72% and 76% progress respectively. In order to secure a stable source of key raw materials, we have invested in nickel mine and a ferro-nickel factory. The construction is almost done and the core facility, the furnace, is in full operation now. Once the project is completed in November this year, POSCO will become 50% self-sufficient in ferro-nickel requirements.

We also continue facility expansions in order to establish 40m ton Domestic capacity by year 2011. Carrying out the plan, we commenced the construction of new steelmaking plant in Pohang steelwork and a new plate mill in Gwangyang steelwork. And this quarter we will commence an upgrade of our mini-mill facilities and the rationalization of our Gwangyang No. 2 Cold Rolling mill.

POSCO is also committed to improve environment and address climate change. Accordingly, we recently completed construction of a byproduct recycling facility called RHF in Pohang steelwork, and we will soon complete another in Gwangyang. Also, POSCO's recent investment in hydropower generation was registered as a CDM project at United Nations.

We are making leaps in technology development as well. FINEX is running well. In fact, we recently raised our operation targets and are devising engineering plans to scale up the site. On the factory floor, we are making new records in productivities and efficiencies.

We continue to expand our overseas marketing base. Recently, we completed construction of another supply chain management base in Japan, specializing in automotive steel. Currently, POSCO has 31 SCM bases around the world. We plan to add four more by the end of this year.

Now I will talk briefly about current market situation. The Steel market does not seem so strong any longer. As the financial crisis expands globally and as global economies seemingly entering into slowdown, Steel demand is weakening and Steel prices are dropping globally. As a result, major steelmakers are seeking to stabilize the market through possible production cuts.

As for the outlook in the Steel market, we are in a difficult position; too many variables and too many unknowns. We have to see how the world economy develops, but we are quite confident that POSCO will remain the most competitive Steel Company and will continue to generate healthy profit.

At this point, we forecast our -- POSCO's performance outlook for this year as follows; Crude Steel production 33.5m tons, sales volume 31.9m tons, revenue KRW31.9 trillion, with operating income KRW6.6 trillion and total capital expenditures KRW5.1 trillion.

This concludes my opening remarks. Thank you for your attention. Now we are ready to do Q&A session. Thank you.

Thank you. (OPERATOR INSTRUCTIONS).

Operator?

Yes, Mr. Boyd?

Maybe I'll just start the ball rolling and, then, if anybody else wants to jump in they can, in terms of pressing star one.

But one of the things that came up on the earlier call, just for the fourth quarter guidance, what sort of assumptions are you doing in terms of price hikes and in terms of currency forecast? Maybe you could just let everybody know about that.

The assumption for the fourth quarter performance outlook is that we haven't -- for the average product price we didn't include any changes, so we're holding on current price level for the remaining quarter.

Also, for exchange rate, we're assuming KRW1,300 against the dollar for the whole quarter. And that would give you, by simple calculation, revenue of KRW9.6 trillion and operating income of KRW1.4 trillion.

Okay. Do we have any questions now, Operator, or no?

So far, we do not have any questions yet.

Because if we don't have any questions we will wrap up the call and -- because it is 10pm here. So we're happy to wrap it up if we don't have any questions, but we'll wait just maybe 20 more seconds.

Okay, so we'll wrap it up, then. Hello?

Thank you, Mr. Boyd.

Okay, great. Thanks.

Thank you for your participation. This concludes the conference.