Posco Holdings Inc (PKX) 2010 Q2 法說會逐字稿

Good morning and good evening. First of all, thank you all for joining this conference call and now we will begin the conference of the fiscal year 2010 second quarter earnings results by POSCO. This conference will start with a presentation followed by a divisional Q&A session. (Operator Instructions). Now we shall commence the presentation on the fiscal year 2010 second quarter earnings results by POSCO.

Good morning, this is Zayong Koo, Head of Research at Daewoo Securities. My colleague, S. H. Jeon, Senior Analyst at Daewoo, and I are very honored to be hosting this global conference call to discuss POSCO's strong second quarter results.

We have here with us from POSCO Mr. Young-Hoon Lee, Senior Vice President in charge of Finance Department and the IR team members. First, Senior Vice President Lee will discuss POSCO's second quarter results and then we will open up to Q&A. Without further ado, please welcome Senior Vice President Lee. Mr. Lee

Good morning and thank you for joining POSCO's second quarter earnings conference call. This is Young-Hoon Lee, Senior Vice President in charge of POSCO's Finance Department. I will outline some of the highlights of our second quarter performance. For details please refer to the full report posted on our website. And if you have any further questions we will take them at the end of the statement.

I am pleased to inform that our second quarter results continued to show strong improvement. Improving upon the first quarter's performance, we produced 8.4m tons of crude steel, an increase of 2%. Sales volume also rose from 7.5m to 7.8m tons as utilizations of steel consuming industries, such as autos, home appliances and pipes, continued to improve. Export ratio remained at 33%.

By product, sales were strong across all product lines except for Plate and Wire Rod, whose shipments dropped slightly due to regularly scheduled maintenances.

Because we were able to promptly raise our sales price in response to sharply rising raw material costs and increased sales volume, our revenues grew to KRW7.9 trillion. We achieved an operating income profit of KRW1.8 trillion with an operating margin of 23%. Since the first quarter of 2009, we maintained consistent operating margins over 20%. Please note that our EBITDA also increased from KRW1.9 trillion to KRW2.4 trillion implying EBITDA per ton at over $250.

Though detailed information regarding the Company's activities is available in the presentation, I would like to highlight a few points. First, in the second half of this year the facility additions and upgrades for capacity expansion will be completed. The new plate mill in Gwangyang Steelworks will begin operations in August and the completion of new steelmaking plants in Pohang Steelworks and the lining of a blast furnace will follow. There will further strengthen our grasp and leadership in the domestic market.

Second, although in excruciating increments, we are making progress in our overseas investment project. In India, we plan to break ground in the second half for our Orissa project and we will conduct a feasibility study jointly with Steel Authority of India, for our joint venture project. In Indonesia, we are finalizing joint venture structure with Krakatau steel and plan to break ground in the third quarter.

Third, we have been selected as the preferred bidder for the acquisition of Daewoo International. We just completed confirmation due diligence and we will close the deal in late September or early October.

Fourth, we continue to invest upstream to raise our raw material self-sufficiency, the latest of which include acquisition of stakes in coal mines in Australia and Mozambique.

Lastly, we introduced a more flexible quarterly pricing policy. This will enable us to minimize the impact of volatile prices in raw materials and stabilize earnings.

Please refer to the Activities and Accomplishments section of the presentation for further details.

I will now briefly mention the steel market outlook. Although global steel prices are going through a correction, steel demand remains strong and production and utilization rates are rising. We expect the global steel demand to grow 12% this year as developing countries continue growth and developed countries continue economic recovery.

In China, despite concerns, we expect the steel consuming industries to enjoy healthy growth. World Steel Association has recently revised its forecast for steel demand growth in China from 7% to 8%.

In the Korean domestic market, major industries such as automobiles, home appliances and shipbuilding are showing faster than expected recovery. We now expect steel demand to increase by 16%.

In raw materials the third quarter contract prices are settled at higher prices than the second quarter. But spot prices have been falling recently and we expect fourth quarter contract prices to come down.

At this point I will present our revised business plan for 2010. Crude steel production of 34.4m tons, sales volume of 32.3m tons, revenue of KRW33.5 trillion, operating income of KRW5.6 trillion and, including KRW4 trillion for domestic M&A and investments for new growth, total investment amount would be KRW10.4 trillion.

This concludes my opening remarks. Thank you for listening.

Thank you. Can we now open up to Q&A please?

(Operator Instructions). Currently there are no participants with questions. (Operator Instructions). The first question will be giving by (inaudible) Management. Please go ahead, sir.

Hi, great quarter, congratulations and I just would like to say what your average cost of iron ore and coal was during the second quarter?

Yes, we have different grades of iron ore and coal. On average I can give you our contract price for the -- average contract price for the second quarter, if that satisfies. For iron ore, second quarter 2010 contract price was about -- blended average about $119 a ton and for coal it was about $183 a ton.

Okay, thank you.

Yes, thanks.

Currently there are no participants with questions. (Operator Instructions). The following question is by [Shu Kim] by (inaudible) Century. Please go ahead, sir.

Hi, congratulations on good results, but I'm looking at your operating profit guidance for the second half and it seems like you guys are actually -- for the second half the implied operating profit would be KRW2.3 trillion and 12.4% operating margin. Please correct me if I'm wrong, but it seems like that's the number that's implied by your guidance. Could you explain your key assumptions, including FX and I guess you guys are expecting either the demand to slow down or is it more that you guys are expecting that you guys are not going to pass on cost increases if there were any? Could you please elaborate on the key assumptions?

Hello. As you know, from the third quarter the increased raw material impact mainly on our third quarter earnings so third quarter is definitely because of raw materials. Our third quarter result will be lower than the second quarter, but we assume that from fourth quarter, it depends on raw material, so as we mentioned already, the second half number is -- very, very conservatively we made it, right? So further --[three months] later we revise our (technical difficulty) again, we will give you the clear number, but at this time because of raw material the number is like that. But other sales and our production is pretty, pretty solid, so everything depends on raw material price.

Okay, thank you.

There are no participants with questions. (Operator Instructions).

Okay, if there are no more further questions we will conclude this conference call. If you have any further questions that you would like to ask please call directly to IR or to Daewoo and we would like to conclude this. Thank you again for calling in, have a good day. Operator?

Okay, when there is no asking questions the operator will inform you that there are no further questions. This is end of conference call. Thanks for your participation and have a good day. Thank you.